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Ethiopian PM Turns to Privatization to Further Economic Growth

In a move atypical of his political alignment with the Ethiopian People’s Revolutionary Democratic Front (EPRDF), Prime Minister Abiy Ahmed announced in June 2018 that the government will begin procedures to implement privatization in Ethiopia of various state-owned enterprises (SOEs) in telecommunications, energy and transportation.

Already one of the fastest growing economies in the world, Ethiopia hopes to continue this trend by selling shares in some of the country’s most profitable and promising industries. In this announcement, Ahmed proposed that privatization of these booming enterprises will aim to increase foreign direct investment (FDI), lessen the unemployment rate and reduce poverty.

Ethiopia’s Recent Improvements

The second largest country in Africa and home to more than 100 million people, Ethiopia has been experiencing tremendous economic growth in recent years. Unemployment has dropped from more than 26 percent in 1999 to less than 17 percent in 2015. The poverty rate has decreased from nearly 46 percent in 1995 to less than 30 percent in 2010.

While Ahmed has only been in office since April of 2018, his vows to reform Ethiopia economically and socially have surprised many. Since their coming to power in 1991, the EPRDF’s has had a history of complete state-ownership of the majority of the industry. The state, however, will remain in control of the majority of shares in the industries being opened up to foreign investment.

His promises of calming social tension and revamping the economy have been met with some skepticism, but Ahmed fervently retains that his intentions are to restore Ethiopia to a place of social stability, economic prosperity and peace. Ahmed has even gone as far as to reach out to Ethiopia’s long-term enemy, Eritrea, to find common ground.

The Prime Minister’s Plans

Although the government has yet to release detailed plans as to how they intend to implement privatization in Ethiopia, they have been working with consulting agencies abroad such as PwC and McKinsey to determine a practical and sustainable way to carry out an economic overhaul of such magnitude.

Among the SOEs the government plans to privatize, the introduction of Ethiopian Airlines to the private sector, in particular, represents a key component in Ahmed’s economic plan; Ethiopia will experience a shift from an agrarian society to a modern, competitive, industrial society. As the country’s national flag carrier and a symbol of state pride, Ethiopian Airlines has garnered an intake of hard currency (currency unlikely to be affected by inflation) three times that of coffee, a long-standing staple of Ethiopia’s economy.

Increasing Foreign Investment

The privatization of Ethiopian Airlines also indicates Ahmed’s desire to transform Ethiopia into a major air travel hub, similar to Emirates’ position in the United Arab Emirates. This will serve as a way to bring in foreign investors and to present Ethiopia as a modern contender in the world economy. By selling shares of Ethiopian Airlines and other rapidly-growing SOEs such as Ethio Telecom, Ethiopian Electric Power and Railway Corporation, Ahmed hopes to draw foreign investment since Ethiopia has experienced an alarming shortage of foreign exchange in recent years.

While privatization in Ethiopia is sure to be a slow transition, and the government will most likely remain majority shareholders in the enterprises they are selling, the country appears to be heading in a positive direction. Between 2004 and 2014, Ethiopia averaged annual economic growth of 10.9 percent and is projected to grow another 8.7 percent in the next two years.

With a goal of reaching lower-middle income national status by 2025 and a government promising major social and economic reform, Ethiopia has established itself as a nation in the midst of a true revival. Hopefully, Ahmed’s plan of privatization in Ethiopia will prove to be a positive step for the country’s future economic growth.

Rob Lee

Photo: Flickr

The small and ancient nation of Georgia, home to the highest mountain range in Europe called the Caucasus Mountains, borders Russia and Armenia.  It was one of the first countries in the world to officially adopt Christianity, and has a long, rich history intertwined with religion. Poverty in Georgia remains an ongoing concern.

Here are nine facts about poverty in Georgia.

  1. Many more Georgians report being unemployed than the official unemployment rate. The official unemployment rate in Georgia is 12 percent, but a whopping 68 percent of the population consider themselves unemployed.
  2. The separatist conflicts in Abkhazia and South Ossetia are a major cause of poverty in Georgia. Georgia officially recognizes both provinces as its territory, despite the states’ attempts to secede to Russia with the assistance of the Russian military. This follows an earlier armed conflict in these regions in 1992-1993.
  3. One in five Georgians lives below the poverty line. Officially, 20.1 percent of Georgians live below the relative poverty line.
  4. Despite being a largely agricultural nation, much of the produce in Georgia is imported. With the exception of potatoes and onions, many fruits and vegetables sold in Georgia’s markets come from Turkey, Greece or even Iran.
  5. Dependency is common. The dependency ratio in Georgia is 1:1.2, compared to the suggested level of one dependent per three people.
  6. One of the biggest contributors to poverty in Georgia is its failing pension system. Due to the aforementioned underemployment of citizens, many workers don’t pay taxes, leaving few funds for the pension system. To make matters worse, there are tens of thousands of likely nonexistent “ghost recipients” receiving government pensions.
  7. Poverty varies from region to region. Places like the mountainous, isolated Imereti and former Soviet industrial zones have suffered the worst, while more agricultural regions have fared better.
  8. Georgia now associates with the E.U. in various capacities, having signed an association agreement with the European Union that took effect in 2016. The E.U. has also loosened restrictions on the visas of Georgians working within its borders. This will hopefully have  a positive effect on Georgia’s economy and lessen poverty in Georgia.
  9. Georgia has made some important political reforms. In particular, the success of various electoral and local government reforms was made clear in the parliamentary elections of 2012.

In order to combat the growing effects of poverty in Georgia, it is necessary that the country’s citizens receive help in the form of both domestic and foreign aid. With hope, Georgians can be lifted out of their joblessness and set out on a path to a brighter future.

– Andrew Revord

Photo: Flickr

The Labor Market in Developing Countries – A Case Study
Any poverty reduction strategy must include measures that ensure people are employed. Spending on public goods and focusing on rendering basic life-sustaining services such as healthcare and sufficient nutrition are absolutely essential. Beyond the basics, however, long-term development strategies must target employment to drive economic growth and contribute to a prosperous environment.

South Africa represents an interesting case study of the labor market in the developing world. It has the potential for a large amount of growth, yet is plagued by persistent unemployment. It is neither among the poorest developing nations, nor has it experienced robust growth. Across the spectrum of development, it is somewhere in the middle, and therefore the challenges it faces are broadly representative of much of the developing world’s challenges.

A 2015 World Bank report on the state of the labor market in developing countries provides an enlightening description of South Africa’s predicament. The report describes a “youth bulge,” where a young population saturates the labor market, dampening wage growth. The antidote to this economic affliction is investment in skills development and policy reforms which enhance market entry and private sector expansion.

South Africa, after the end of apartheid in 1994, managed to reduce absolute poverty via a social grant system. However, the grant system simply doesn’t measure up to the average salaries of even low-skill labor. Unemployment and inequality are still quite high in the country, so innovative economic solutions are necessary to create the kind of long-term growth which will help those remaining at the bottom of the economic ladder.

In South Africa, and sub-Saharan Africa in general, as many as 11 million young people will join the labor force every year, and will continue to do so for at least the next decade. With sufficient opportunities, this increase of labor supply could translate to a lot of economic growth. However, unemployment is rampant in South Africa, and long-term strategies for growth and poverty reduction must focus on harnessing the burgeoning young workforce to be effective.

One way of doing so is by investing in worker education and training. Presently, the availability of skilled labor is quite low. Unemployment remains high even among a growing college-educated workforce. A combination of private-sector worker training and public-sector skills development and educational subsidies could drive the expansion of a diverse, skilled workforce. This would encourage multinational firms to hire locally, as well as promote home-grown business growth.

Some private firms already recognize the need for greater investment in a skilled workforce. The Rockefeller Foundation’s Digital Jobs Africa initiative aims to create tech-based employment opportunities for African labor markets. The MasterCard Foundation also has an education and skills training program for disadvantaged African youth.

One South African company that provides a sustainable growth model that suits South Africa’s labor market conditions is Sibanye Gold. Sibanye Gold is a mining company which provides significant worker training and educational resources to its employees. The company also engages in profit sharing. The mining industry is naturally supportive of a localized labor force, for much of their workers come from areas surrounding mines. Unfortunately, socially sustainable companies like Sibanye are hamstrung by a hostile policy environment which does not support them, or worse, buries them in bureaucracy. Sibanye CEO Neal Froneman said, “[Industries such as mining] should be nurtured by the government. But it is not. It is despised.”

Clearly, private interventions alone will never create the kind of opportunities of which a growing, skilled labor force can take advantage. Real change needs to happen at a governmental level, specifically by creating public policies that diversify economic opportunity and create the kind of conditions where companies like Sibanye Gold can thrive. Doing so will harness the economic energies of a massive young workforce, providing a pathway to grow out of poverty.

Derek Marion

Sources: World Bank, Devex, The Conversation, Daily Maverick
Photo: Brookings

Sustained_Economic_Reform
A new potential Anti-Poverty Model has emerged out of sustained economic reform in the Philippines. Over the past two years, local growth has significantly reduced poverty in the country. Looking ahead, continued reform measures could bring the number of poor Filipinos down to just 18-20 percent of the population by 2016.

In recent years, sustained economic growth in the Philippines has brought more jobs and improvements in living conditions for the country’s poor population. Over the course of just one year, more than a million jobs were created. What is more, unemployment is also at the lowest rate that it has been in ten years.

World Bank leading Economist Rogier van den Brink stated, “If growth is sustained at 6 percent per year and the current rate at which growth reduces poverty is maintained, poverty could be eradicated within a single generation”. In order to achieve this goal, however, key structural reforms will need to be sustained and sped up.

The most important structural reforms to focus on will be increasing investments in infrastructure, health and education, enhancing competition, simplifying regulations to promote job creation, and protecting property rights.

Back in January, the World Bank’s Philippine Economic Update was released, with the theme “Making Growth Work for the Poor.” The report lists the aforementioned goals, and recommends rationalizing tax incentives by making them more targeted, transparent, performance-based, and temporary.

The potential success of continued reforms depends hugely on strengthening tax administration and improving the transparency and accountability of government spending. Once the Filipino population can agree with the manner in which their tax dollars are being spent, the new growth cycle can perpetuate itself accordingly.

During a press conference, Mr. Ven den Brink was probed on the Philippine’s lower-than-expected growth in Gross Domestic Product during the first quarter. He responded by explaining that since 2013, it has become much easier to see the way that even slow economic growth can directly reduce poverty.

Ven den Brink explained that regardless of the specific GDP number, what really matters is how that growth affects the poorest people. According to the World Bank economist, household and labor survey data all paint the same poverty-reducing picture.

While it is true that slow-moving government spending has limited the growth of the Philippine economy during the first quarter of the year, significant changes in poverty still pervade. Rates of underemployment and poverty are decreasing, and the lowest real income is growing 20-30 percent faster than the rest of the country.

Van den Brink also noted that the government’s Conditional Cash Transfer program has been a key poverty-reducing tool. The program gives out payments every month to the poorest households, which has successfully helped to lift entire families out of the poverty cycle.

Although some remain skeptical, poverty elimination in the Philippines is starting to seem like more of a feasible reality. This could be a major milestone not only for the Philippines, but for all of those involved in the global fight against poverty. Sustained economic growth could finally level the playing field, once and for all.

– Sarah Bernard

Sources: Business World, InterAksyon, World Bank
Photo: Flickr

Poverty in Laos
As one of the few countries in the world that remains communist, Laos is ranked as one of the poorest countries in east Asia.

With the collapse of the Soviet Union in 1991, Laos found difficulty in altering their “political and economic landscape.” Despite various attempts at reforms, Laos remained dependent on international donations following the 1990s. Majority of these donations spur from Japan, China, and Vietnam.

In spite of their conditions, the country has been able to make impressive gains within the past 20 years. In the 1990s, the proportion of poor individuals was 39 percent. By 2010, this number decreased to 27.6 percent.

Over the years, Laos has experienced various complications in reforming their economic state. The government has gradually enforced economic and business reforms since 2005. In 2011, a stock market was also opened in the hopes of shifting towards capitalism.

Although these measures have been taken, economic growth in Laos has reduced poverty on a minimal scale. In 1997, the Asian currency crisis struck a deafening blow to the country, causing them to lose more than nine-tenths of their national currency’s value against the US dollar.

The landscape of Laos adds to it’s state of disparity. Being a heavily mountainous area, the country is landlocked and widely blanketed by tropical forests. Less than five percent is suitable for any sort of agricultural subsistence, furthermore contributing to the 80 percent rate of unemployment.

Outside of the country’s capital, individuals lack electricity or any access to general facilities. In the mountainous areas where majority of the population lives, the poverty rate is roughly 43 percent. This is a significant difference compared to individuals in the lowlands, where the poverty rate is 28 percent.

Majority of the disadvantaged households are located in regions that are constantly plagued by the threat of natural disasters, lack livestock of any form, have a great number of dependents, and are led by women.

In Laos, women work more than men, taking an average of 70 percent of farming and household tasks on, while also caring for young children. The literacy rate of women is generally 54 percent, while being 77 percent for men.

One-third of those living in Laos lives below the national poverty line, lacking resources necessary to lead healthy lives. According to Health Poverty Action, less than half of all women who go into labor have a doctor, midwife, or nurse to support them.

Around 40 percent of the children in Laos are chronically malnourished and suffer from severely stunted growth. In various ethnic groups, this number increases to a disturbing 60 percent.

There is good news for the country of Laos, however. In 2010, a Nam Theun 2 dam scheme was inaugurated, projected to provide $1.3bn to the country. This will be used in order to generate electricity to allow exports to Thailand. This step forward will not only boost the economy, but help develop infrastructure as well.

In early 2011 the country was also set to have the construction of their first high-speed rail begin between Laos and China. With all of the anticipated infrastructure and improvements to the overall economy, many hope that Laos will experience relief soon.

– Samaria Garrett

Sources: BBC, Rural Poverty Portal, Health Poverty Action