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The Voodoo Economics of Meles Zenawi

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"There are lies, lies and implausible lies," to quote Meles Zenawi, the dictator-cum-economic spinmeister of Ethiopia. Last week, Zenawi told a snickering Parliament a story that is the equivalent of the proverbial bull that gave birth to a calf (or in Amharic "bere welede"): "We will be seeing an economic growth rate of 10.1 percent this year, while inflation will fall to 3.9 percent. This is the result of sound economic policy." (Sorry, but this is the result of voodoo economics!)

For the past several years, Zenawi has been making hyperbolic claims of economic growth in Ethiopia based on fabricated and massaged GDP (gross domestic product) numbers, implying that the country is in a state of runaway economic development and the people's standard of living is fast outstripping those living in the middle income countries. In March 2009, for instance, Zenawi's bragged that he expected the Ethiopian economy to grow by 12.8 percent. The International Monetary Fund (IMF) disagreed in the same month stating that given the global economic crises Ethiopia could expect only about 6% economic growth. Zenawi dismissively countered those who pointed out the discrepancies: "We have differences with the international financial institutions when we predict our economic growth, but we usually agree on the economic growth statistics at the end of each year." The questions remain: Did the Ethiopian economy grow by 12.8 percent in 2009/10? Could it be expected to grow by 10.1 per cent in 2010/11? Who is keeping track of the economic statistics?

The Central Statistics Agency (CSA) and the "National Accounts Department of the Ministry Finance and Economic Development" are the two institutions in Ethiopia that are responsible for keeping track of the statistical data and providing analysis on economic performance. But neither organization has the institutional capability to collect reliable and accurate economic data, let alone assemble complete and comprehensive data sets which could serve as empirical bases for economic prognostications. This fact was emphatically stated on March 24, 2010 in the official statement of Paul Mathieu, the IMF team leader who, after conducting an evaluation of the current half fiscal year economic performance of Ethiopia, said: "Statistics collection of the country requires transformations, and we advised the government to do that." Translated from "diplomatese" into ordinary language, Mathieu's statement makes it plain that the statistics and data generated and used by the regime to describe Ethiopia's economic performance and make predictions are basically "cooked up." The simple fact of the matter is that the statistics buttressing Zenawi's exaggerated claims and projections of stratospheric economic growth, vanishing inflation and red-hot performance of key economic sectors originate from seriously flawed, massaged and deficient economic data cooked up in the kitchens of the two institutions for whom the IMF recently prescribed "transformations".

Zenawi's stated claims of multi-year runaway GDP growth taken at face value defy not only economic realities but also common sense. On March 4, 2009, the IMF reported that Ethiopia's economic growth could slow to 6 percent in 2009 based on objective factors rooted in the global economic slowdown and specific trends in the critical foreign exchange earning sectors in Ethiopia such as coffee exports (with decreased demand and a 19 per cent decline in price), tourism and transportation, and depreciation of effective foreign exchange rates by 30 percent. The IMF also indicated that Ethiopia has the highest inflation rate (26%) in Africa outside Zimbabwe. In its April 2010 "Background Note: Ethiopia", the U.S. State Department reported an average inflation rate (FY 2008-2009) of 36%. There is no IMF (or any other credible multilateral institution) year-end or any other report which indicates that Ethiopia could expect a 12.8 or 10.1 percent economic growth or a decline in inflation to 3.9 percent in 2009/10 or any other subsequent year. Indeed, IMF's Mathieu stated on March 24, 2010 that "non-food inflation remains close to 20 percent, and has been rising in recent months." The claim that "we usually agree on the economic growth statistics at the end of each year" is simply not true.

However, for a number of years Zenawi's regime has been pulling a public relations sleight-of-hand by using the IMF as a front to channel its own preferred economic statistics to prove its economic prowess and unrivalled success to the world. For instance, IMF Country Report (Ethiopia) No. 08/264 (July 2008) [1], states: "Growth has averaged 11 percent since 2003/04, far exceeding the minimum target of 7 percent in the Program for Accelerated and Sustainable Development (PASDEP), that is estimated to be consistent with keeping the Millennium Development Goals (MDGs) within reach." On pp. 20-24 of this Report, the origin of the data indicating an 11 percent growth is not some independent data collection and analysis source but the very same Central Statistics Office which last month the IMF said needs massive "transformation". The footnotes in the above-referenced pages state: "Sources: Ethiopian authorities; and IMF staff estimates and projections." Similarly, the data source for "Financial Soundness Indicators for Banking" is identified as the "National Bank of Ethiopia; and IMF calculations." In its official reports, the IMF simply accepts and incorporates at face value the data for GDP growth given to it by the Central Statistics Office (with its own staff estimates) and incorporates those figures in its own report without so much as qualifying it for completeness, accuracy or reliability.

In the above-referenced report, the IMF further presents GDP growth data given to it by Zenawi's regime for 2005/06 at 11.6 percent and 11.4 percent for 2006/07. The IMF uses its own "estimates" (without fully disclosing its methodology given the fact that IMF staffers are allowed considerable latitude in incorporating country-specific circumstances in making estimates) to make additional GDP growth projections for 2007/08 at 8.4 percent, followed by 6.0 percent for 2008/09; 6.5 percent for 2009/10; 7.5 percent for 2010/11; 7.5 percent for 2011/12 and 7.5 for 2012/13. The discrepancy between the IMF's and the regime's estimates appears to reflect the IMF's clear lack of confidence in the regime's economic data and analysis.

The bottom line on the regime's statistical claims of economic growth, financial soundness and the rest of it is that the figures are cooked up in the Central Statistics Office and fed to the IMF, which slavishly (with a wink, nod and a smile) parrots back to the world the same figures with some of its own "staff estimates and projections". This is the extent of the economic statistical game that continues to be played before our eyes.[2]

On the other hand, with respect to inflation, the World Bank (Policy Research Working Paper 4969, June 2009), citing IMF data concluded, "One of the most affected countries is Ethiopia, which, with the exception of Zimbabwe and small island economies, has had the strongest acceleration in food price inflation during recent years. Average food prices rose by more than 34 percent in 2007/08, but annual inflation reached historical record growth of 91.7 percent in July 2008." On March 17, 2010, the regime's Central Statistics Office reported, "Except for cereals, all food components have shown a rise. The prices of fuel, construction materials, clothing and footwear, furniture and personal care (products) are on the rise." What empirical evidence exists in the first half of 2010 to justify a prediction of a steep decline in inflation to 3.9 percent in 2010/11 or beyond?

All of the statistical fairy tales about the economy told in Parliament were a source of puzzlement and amusement for Mr. Bulcha Demekssa, the leader of the Oromo Federalist Democratic Party (OFDM) and former vice-minister of finance and senior official at various international institutions. Mr. Bulcha asked Zenawi in Parliament how such fantastic GDP figures could be achieved: "The prime minister and the government have repeatedly said Ethiopia has grown by 10 and 11 percent. The prime minister and Ethiopian economists know that it is a miracle for Ethiopia to grow by 11 percent. How is it that Ethiopia grew by 11 percent? We know that China, South-Korea are registering such economic growth. But we are confused how Ethiopia 's economic is growing like these countries. Our unemployment and poverty is on the rise." Zenawi's response was characteristically evasive, and he denied any real discrepancies: "We have differences with the international financial institutions when we predict our economic growth, but we usually agree on the economic growth statistics at the end of each year."

The answer to Mr. Bulcha's question, of course, is obvious. Magic! All one needs to achieve an 11 percent growth is to invoke the GDP Spirits and recite to them the right incantations about "sustainable development", "export-led growth" and "improved export revenue sector". Then sprinkle a palmful of that fine IMF gold dust and command: "Shazam! Let there be economic growth of 10.1 percent! (or 12.8, does not matter any number will do). Abracadabra! Inflation, I command you to go down to 3.9 percent (or 1.1)." But the real "miracle" occurs when the magic wand is waived to deliver economic growth to a precise tenth of a percentage point such as 10.1 percent instead of merely 10.

All of the economic swagger and wind-bagging about unrivalled economic boom, prosperity and progress comes from a regime not known for its economic "literacy". In an editorial published in the Economist magazine on November 7, 2006 in the context of the Starbucks coffee row, the magazine was graphic in its description of the regime: "The Ethiopian government, one of the most economically illiterate in the modern world, would do well to take Starbucks's advice."

But there is a more fundamental question to be answered: Could a nation's economic health be reduced to a single statistical summation? Does GDP growth necessarily mean improved in standard of living? Zenawi says GDP is the only measure of economic performance that has universal acceptance, and he will continue to use it until a better measure comes up. As anyone with an elementary understanding of economics knows, GDP has little value in meaningfully understanding a country's economic growth, development and prosperity. Its analytical and descriptive value has been thoroughly critiqued in the economic literature. Suffice it to say that to claim that an economy grew by an 10.1 percent is like saying "activity" on city streets increased by 10.1 per cent. The street "activity" without specificity as to crime, car accidents, pedestrian traffic or other events by itself is meaningless. Yet for the past few years, the regime has been trumpeting GDP numbers as some sort of fetish that definitively explains Ethiopia's economic growth. The GDP numbers, for instance, tell us nothing about the enormous disparity in incomes between the rich and poor in Ethiopia. By overstating economic welfare, GDP calculations do not tell us the magnitude of environmental damage that is taking place. GDP is certainly not a measure of the sustainability of growth, a point repeatedly made in numerous IMF reports on Ethiopia.

Even if actual GDP growth in Ethiopia is 11 percent or more, it is a meaningless statistic when considered in light of the basic needs and well-being of the people. In the vital area of health, for instance, Ethiopia is in a state of absolute wretchedness. According to World Health Organization (WHO) (2006) data[3], to serve a population of 77 million people, there were 1,936 physicians (1doctor for 39,772 persons); 93 dentists (1: 828,000); 15,544 nurses and midwives (1: 4,985), 1,343 pharmacists (1: 57,334) and 18,652 community health workers (1: 4,128). Total expenditure on health as a percentage of gross domestic product was 5.9 per cent. General government expenditure on health as a percentage of total expenditure on health was 58.4 per cent, and private expenditures covered the balance of 41.6 percent. Hospital beds per 10,000 population was less than 25. Per capita expenditure on health was USD$3 at an average exchange rate. WHO's minimum standard is 20 physicians per 100,000 population, and 100 nurses per 100,000 population. Such is the real matrix of Ethiopia's 12.8 or 10.1 or whatever fictional GDP number that is pulled from thin air.

On November 3, 2007, the Economist magazine reported:

The fact is that for all the aid money and Chinese loans coming in, Ethiopia's economy is neither growing fast enough nor producing enough jobs. The number of jobs created by flowers is insignificant beside an increase in population of about 2m a year, one of the fastest rates in Africa.... The government claims that the economy has been growing at an impressive 10% a year since 2003-04, but the real figure is probably more like 5-6%, which is little more than the average for sub-Saharan Africa. And even that modestly improved rate, with a small building boom in Addis Ababa, for instance, has led to the overheating of the economy, with inflation moving up to 19% earlier this year before the government took remedial action. The reasons for this economic crawl are not hard to find. Beyond the government-directed state, funded substantially by foreign aid, there is--almost uniquely in Africa--virtually no private-sector business at all.

The IMF estimates that in 2005-06 the share of private investment in the country was just 11%, nearly unchanged since Mr Zenawi took over in the early 1990s. That is partly a reflection of the fact that, despite some privatisation since the centralised Marxist days of the Derg, large areas of the economy remain government monopolies, closed off to private business. This is where Ethiopia misses out badly. Take telecoms. While the rest of Africa has been virtually transformed in just a few years by a revolution in mobile telephony, Ethiopia stumbles along with its inept and useless government-run services.... There is no official unemployment rate, but youth unemployment, some experts reckon, may be as high as 70%. All those graduates coming out of state-run universities will find it very hard to get jobs. The mood of the young is often restless and despairing; many dream of moving abroad.... Just as the government is slowing the pace of economic expansion for fear that individuals may accumulate wealth and independence, so it is failing to move fast enough from a one-party state to a modern, pluralist democracy. Again, the reason may be that it is afraid to.

The Heritage Foundation, the pre-eminent conservative American think tank echoes the Economist in its 2010 Index of Economic Freedom[4] concluded:

Ethiopia underperforms in many of the 10 economic freedoms. The business and investment regime is burdensome and opaque. The overall quality and efficiency of government services have been poor and are further undermined by weak rule of law and pervasive corruption. Monetary stability is hampered by state distortions in prices and interest rates, and trade freedom is hurt by high tariff and non-tariff barriers.... All imports must be channeled through Ethiopian nationals registered as official import or distribution agents with the Ministry of Trade and Industry. Foreign participation is prohibited in domestic banking, insurance and microcredit services, and several other activities.... Ethiopia ranks 126th out of 179 countries in Transparency International's Corruption Perceptions Index for 2008. Despite legal restrictions, officials have been accused of manipulating the privatization process, and state-owned and party-owned businesses receive preferential access to land leases and credit.

Zenawi is desperate to show economic development of epic proportions in Ethiopia after nearly 2 decades of clinging to power. The fact remains that despite the incredible claims of economic growth, tens of millions of people are starving and go without any health care. Millions of young people remain unemployed and trapped in hopelessness. There is no rule of law and human rights violations are widespread. Whether or not Zenawi's regime has accomplished an economic feat with few rivals in modern history is not a matter of wishful thinking or public relations. It is a matter of evidence: accurate, complete, reliable and comprehensive statistical evidence that is systematically and carefully collected, analyzed and verified. Such evidence can not be invented, fabricated, manufactured, contrived, concocted or cut from whole cloth. Benjamin Disraeli, the 19th Century British prime minister said, "There are three kinds of lies: lies, damned lies, and statistics." In Ethiopia today, we are witnessing all three!

[1] http://www.imf.org/external/pubs/ft/scr/2008/cr08264.pdf
[2] To see a consistent pattern of "economic gamesmanship", see also IMF Country Report (Ethiopia) No. 07/247 (July, 2007); IMF Country Report (Ethiopia) No. 06/159 (May, 2006); IMF Country Report(Ethiopia) No. 05/25 (January, 2005) and other reports prior to these dates.
[3] http://www.afro.who.int/home/countries/fact_sheets/ethiopia.pdf
[4] http://www.heritage.org/Index/Country/ethiopia

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