By Eskinder Haile
- The IMF Vs. Ethiopia
- Alternative Methods Of Measuring Economic Growth
” If all economists were laid end to end, they would not reach a conclusion.” -George Bernard Shaw
Ethiopia is clearly booming, not only the Ethiopian government but the IMF and other institutions seem to agree. What they aren’t agreeing on is the math, The Ethiopians claim double digit, while the IMF says growth is in single digits. What surprised us is the fact that both sides agree on inflation numbers, but cant agree on growth numbers. We are certain that both sides use calculators, what seems to confuse us is, how each side is using the calculators.
Governments all over the world never seem to tell the truth, be it economic data or anything else for that matter. Therefore making business decisions based on GDP numbers is a fallacy, even doctors were advertising cigarettes half a century ago.Therefore you have to close the textbooks, and find alternative methods to measure economic growth or at least be able to conclude if an economy is expanding or contracting. Before continuing we find it useful, you the dear reader understand how modern economies are measured.
What Is GDP?
Gross domestic product (GDP) is the market value of all officially recognized final goods and services produced within a country in a given period. In the year 2002, Ethiopia produced goods and services worth about $8 billion, today in 2012 it is estimated that number will reach close to $50 billion. GDP is calculated in the following format.
GDP= Private consumption + Investments+ Government spending+ (exports-imports).
There is a flaw in that calculation already, if you happen to wonder whats wrong with it just give us your undivided attention. In the wake of the financial crisis, The GDP of United States fell dramatically, to counter this decline in private consumption, investments, export, and, import, the share of government spending rose substantially. Soon after the administration of Barack Obama claimed economic growth, but it was a fallacy. The United States government was spending more money in unproductive places like sending unemployment checks, feeding 47 million hungry souls that cant feed themselves, and a trillion dollar or so is allocated for empire building thru the military industrial complex. And also the government was bailing out companies the free market found to be weak and unnecessary. While everything was crumbling in the GDP formula, government spending went up, and according to the government that’s growth. We say its a form of enriching the wealthy,and encouraging reckless behavior at the expense of the poor.
We happen to be suspicious of governments, it doesn’t matter if they are playing with statistics from Washington D.C, Beijing, or Addis Ababa. Politicians sugar coat everything, its just what they do, part of the game to get re-elected or stay in power. If we can’t trust or use GDP to guide us or help us to know economies health, then what can we use to figure out if the economy is in the hospital on life support or dancing at the disco? We are glad you are asking dear reader, we ourselves were convinced by the late prime minister Meles Zenawi’s growth numbers, and even concluded to relocate to Ethiopia. But then we reminded ourselves the numbers were being massaged from Addis Ababa. So, we were forced to use alternative ways, we thought that would be difficult to manipulate by statisticians.
Modern Economies need energy as input for production. If demand for energy is increasing, and more importantly energy consumption is increasing, it won’t be a sin to assume economic activity to be expanding. Take a look at the following charts, it shows Ethiopia’s energy consumption.
Energy consumption decline began at the turn of the century for the United States. We can also say the American empire began its downtrend by welcoming the 21st century. When a recession hit the states after the dot.com bubble in the year 2000, the central bank lowered interest rates. People who lost millions speculating in internet companies, immediately shifted to the real estate sector encouraged by low interest rates, and phony growth took place until the mother of all bubbles busted in 2008. Do we think the American economy will revive, we don’t think so. But does it matter what we think, we don’t think so.
If blood isn’t flowing properly in ones body, we doubt one can live properly or even exist. Same goes for capitalism, If loans aren’t being paid back, its like blood clogging in ones body. In the United states over 500 banks have closed doors since 2008. Don’t believe us just check the list for yourself at the following site. http://www.fdic.gov/bank/individual/failed/banklist.html
On the other hand Ethiopian banks even though smaller in numbers haven’t lost a dime let alone fail. Year after year since the year 1995, banks have reported record profits each year signaling transaction volume increase. We aren’t sure if Ethiopian bankers are smarter than western counterparts, but clearly we can tell the boom cycle to be in favor of Ethiopia and the bust to be for the Anglo-Saxons.
Where is the money? Is it being used to bailout oligarchs? Or feed hungry people? Not that there is anything wrong with that, its just isn’t productive. Or is it being spent on the military for wars? To us that sounds like the U.S, but the Ethiopian government when seen from far it seems like its spending its money from whatever source it gets it from on productive base. We aren’t denying the existence of 5-10 million poor souls in Ethiopia who are dying of hunger. But in economics you always face choices and have to choose the least ugly one. Its impossible to do many things at once because resources are limited. What we assume is the government of Ethiopia chose the following principle, Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.
Therefore its spending money on building roads, dry ports, dams, railroads, industrial zones, and schools. Just as the United States did in the 20th century when it began industrializing. On a positive note around 35% of Ethiopia imports have been capital goods for the past few years. These are tools and machinery that are used to build modern infrastructure to accommodate a modern economy. Thus we clearly see a trend, that the Ethiopian Economy is saying goodbye to agrarian mentality and welcoming industrialists. Give us a break dear reader, nothing happens overnight.
In the developed world investors that don’t trust government data look for market signals. As the world is more interconnected more than before the flow of trade matters. If Chinese import declines, most likely Australians’ export declines. If Chinese export declines, most probably United States is importing less. Thus if you are independent thinker you might want to learn about the Baltic Dry Index.
The index measures the demand for shipping capacity and demand for shipping varies with the amount of cargo that is being traded in various markets. We aren’t trying to scare you but world trade has collapsed, there isn’t much to move across the seas, at least that’s what “Mr. Market” is telling us. Unfortunately there isn’t any index to tell us for cargo traffic in Ethiopia, but we have heard few things lately. First the Ethiopian government is building dry ports inland to ease the congestion in Djibouti, second Ethiopian Airlines is buying cargo Boeing planes, third Ethiopian Shipping lines is expanding its fleet by buying eight vessels from china, and last not but least Ethiopian Airlines is building what it claims to be the worlds largest cargo terminal. Forget about the accuracy of growth numbers, you will never know the exact number. We hope we are saving you a headache dear reader, next time you won’t need to argue if Ethiopia is growing at 7% as IMF calculators say or 11.7% as the regimes calculators suggest. Ethiopia is growing, but we don’t know at what rate, we aren’t as smart as you think. We barely can pass math class, let alone use calculators. Our thinking goes like, if our leaders and masters can’t agree on math, but the world listens to them, then what makes our thoughts and ideas invalid?