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Mamo Esmelealem Mihretu and Commercial Bank Presidents are in DC to Rob the Diaspora

October 19, 2024

Yonas Biru, PhD

Mamo Esmelealem Mihretu and several commercial bank presidents are in DC to encourage the diaspora to invest in Ethiopia. The purpose of this article is to show their trip is designed to hoodwink gullible diaspora souls to invest in Ethiopia, knowing fully well that their investment will not turn positive profit.

The Ethiopian government is desperate for US dollars. There are four primary sources for US dollars. Three of the four, including export, foreign investment, and foreign aid are in decline and are unlikely to reverse their trajectory, given the current political governance. The only other source is milking the diaspora, using deception, facades and outright lies. Hence, Mamo’s and his delegations of commercial bank presidents’ visit to Washington. His unlocking opportunities speech is nothing but crap.

Let us look at each of the foreign exchange sources.

First is export. According to the Ethiopian Investment Commission, the country’s revenue from exports of manufactured goods from industrial parks is in decline. For the 2023/4 fiscal year, export earnings was 54% below the planned target. Gold, one of the nation’s top export products, is undermined by illicit transactions through contrabands. In the fiscal year 2011/12, Ethiopia exported 12 metric tons of gold. In the 2023/24, the figure is 4.2 metric tons.

Second is foreign investment. According to the Financial Times, “Ethiopia’s only foreign-owned finance group withdraws.” The newspaper noted “This is a blow to efforts by Prime Minister Abiy Ahmed to attract investors.” LSE added: “There has been an exodus of foreign firms from Ethiopia’s industrial parks.” The report revealed, “more than 11,000 employees have been laid off.” China Global South Project has a similar story in a report titled “Chinese Factories in Ethiopia Close as Business Environment Worsens.” This is leaving tens of thousands of employees out of job.

Third is foreign aid. When Prime Minister Abiy came to power, the international community was flooding the country with international aid to the tune of tens of billions.  Foreign dignitaries including, French President, Canadian Prime Minister, German President, US Secretary of State, among many others took turns to visit Addis Ababa and pledged to help. The Prime Minister squandered the uniquely opportune time. As foreign leaders turned their face away from Ethiopia, the Prime Minister toured Europe to beg. He returned home with only a paltry pledge of $193 million from Italy. Today, his officials, particularly Mamo Esmelealem Mihretu and Ahmed Shide, are spending an exorbitant amount of their time panhandling for crumbs in foreign capitals without success.

Today, Mamo Esmelealem Mihretu and several presidents of commercial banks are in Washington DC to hoodwink gullible diaspora souls to invest in Ethiopia. Two questions impose themselves on us. First, why should the diaspora invest when foreign investors are leaving Ethiopia? Second, is there merit to the choice of my title about the delegation’s mission to rob the diaspora?

Let us address the first question. It is not unusual for the diaspora community to invest in its country of origin with a less attractive rate of return than the broader market average in his adopted country of residence. For example, I may get a 10% rate of return in the US but may choose to invest in Ethiopia for a rate of return lower than 10%. This is called patriotic investment. It shows I am willing to help the development effort in my country of origin even if it means forgoing some profit.

This concept does not work in the current Ethiopian situation. First, the difference in rate of return in Ethiopia is significantly lower than what I can get in the US. It may even be negative – ኪሳራ. In the worst case, it may be an organized government theft – ዘረፋ. This takes me to the second question.

Let us first take a look at what the rate of return for investment in Ethiopia looks like.  Assume you bought a condominium in Ethiopia in January 2019. Let us say you paid 2 million Birr. At the time, the exchange rate was $1 equal to 28.53 Birr. The black market at the time was 37 Birr. Let us assume you used the black market to buy your condo. That means you had to send $54,054. In today’s market, the condo goes for 6 million Birr.

Let us assume you want to sell your condo and get your money back to the US to pay for your children’s college or for your retirement. First you must pay taxes, including capital gains tax (15%), value added tax (15), stamp duty (2%), and “Ashura” Tax (4).

Assuming the current value is 6,000,000 birrs, the total tax comes to over 1,500,000 birrs. You now have 4,500,000 birrs that you can convert to US dollars. At the current rate of 130 birr per dollar, that comes to $31,077. That is a loss of $22, 977. Your loss would be greater if you used the official exchange rate when you bought your condominium in 2019. You would be in the red even if the current price is 8,000,000 million birrs.

Whether the current price is 6,000,000 or 8,000,000 birrs, you are screwed, and this is if you are lucky. There are people who paid in full in 2019 and got robbed by the developer. The developer borrowed money from commercial banks putting the condominiums as collateral and invested the money in other projects. He lost the money and failed to pay the Bank. The Bank claimed the building. This is not an isolated case. It is a common occurrence.

Now let us see what would have happened if you invested your money in US stocks, (say in the S&P 500) at the beginning of 2019 and left the money there without cashing out. Your money would have ballooned to $124,324, a profit of $70,270 before tax. Tax on long term capital gains ranges from 0% to 20%, based on your taxable income. If you are a very high-income earner, your capital gains taxes can be 20%. Even if you paid 20%, your profit on your original $54,054 would be over $56,000.

Now let us go to the second question. In what way are Mamo Esmelealem Mihretu and commercial bank presidents in Washington to rob the diaspora? They know the government is robbing the diaspora through inflation (caused by printing money), currency devaluation (caused by bad economic policy) and exorbitant taxes.

To understand this phenomenon, we need to understand inflation, devaluation and exorbitant taxes as government tools of transferring wealth from the diaspora to the government’s coffer.

Let me explain this. Assume the Ethiopian economy has 500 billion birrs in circulation. Assume the government printed additional 500 billion birrs at the order of the Prime Minister. Overnight, we have one trillion birrs in circulation. Does this mean Ethiopia is richer overnight? No. The economy in terms of products and services is the same as it was the day before new birrs were pumped into the economy. The result is inflation that robs the real values of goods, services and properties such as condominiums and single-family homes.

Inflation is not the only problem. As the value of birr declines because of inflation, its relative value vis-à-vis foreign currencies drops precipitously. This leads to currency depreciation. Diaspora investors who want to cash their investment and bring it to their country of residence are shaved with a triple-edged sword: inflation, depreciation and exorbitant tax. They get screwed three times over.

This is what most people know about. There is a fourth vehicle under Mamo Esmelealem Mihretu’s sleeves. It is called interest rate manipulation. An expert in the field brought to my attention that the government is borrowing from the National Bank of Ethiopia (NBE) at a low interest rate of 7%.

In contrast, the commercial banks in Ethiopia were lending to investors and borrowers at 15% before the government imposed new lending restrictions that will increase the 15% rate. In the meantime, the government is borrowing at 7% to finance the Prime Minister’s Geda and the Corridor projects. The difference between 7% and 15% approximates the wealth transfer mechanism. The wealth transfer is used not for development but to the Prime Minister’s pet projects. to finance the government’s projects.

Added together, inflation, deflation, interest rate differentials, and exorbitant taxes are robbing the diaspora clean like a fool. The diaspora is more than likely to be screwed even more next year and a year after than today.

There is more. The diaspora is not the only victim of the wealth transfer that is used to finance the so-called corridor development. Poor residents of Addis Ababa are the primary victims. Female household heads bear the brunt of the Prime Minister’s savagery. Meet the mother by clicking here: <https://www.facebook.com/reel/909483198051937>. Meet also civilian victims of drones that the Prime Minister purchases from Turkey using money the Diaspora invests.

Mamo Esmelealem Mihretu will tell you tomorrow the economy is doing phenomenal. Hand him an article Professor Abu Girma’s and I wrote under the title “Ethiopia at a Glance: Imminent Threat of Economic Collapse and Genocide in Ethiopia.”

The purpose of the article was three-fold. First, it provided an under-the-hood synopsis of the economy to show headline economic data that the government publishes and the nation’s economic reality on the ground are totally inconsistent. Second, it brought to light that the government willfully misrepresents the nation’s headline economic data to conceal a festering economic crisis. Third, it provided an exposé that International Financial Institutions (IFS) such as the World Bank and IMF are complacent if not culpable in legitimizing the government’s demonstrably false and mathematically untenable data. It contrasted the World Bank’s and IMF’s optimistic economic outlook against the UNDP’s and UNICEF’s pessimistic scenario.

 

 

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