Yonas Biru, PhD
As someone who has written several articles promoting international sanction against the Abiy government, I feel obliged to clarify misunderstandings and misconceptions that people have about the topic. Let me start with some disclaimers and background information to give readers context.
First, the sanction I am championing does not include humanitarian aid. It is related to IMF and World Bank concessional loans that have very little to no effect on the poor in the short- to medium-term. This is made clear in my earlier 20-page article titled: “Averting Civil War in Ethiopia: An Emergency Manifesto.”
Second, the statement “economic sanction will have very little to no effect on the poor” is not a general blanket statement. It is made in the context of Ethiopia’s economic and political ills. Under the right leadership with robust economic and political policies and zero-tolerance for corruption, international aid can be a critical component in Ethiopia’s development endeavors.
Third, a letter that I co-signed with Professor Seid Hassan that was addressed to the World Bank and IMF did not call for sanction. The World Bank and IMF do not impose sanctions. The jointly signed letter’s aim, as explicitly stated, was to document for the record that any World Bank and/or IMF loan to Ethiopia would finance PM Abiy’s political machinery that is leading the nation to a genocidal civil. Equally importantly, the letter stressed IMF and World Bank loans in the current economic and political environment will undermine the two institutions’ fiduciary responsibility to international taxpayers. This is an issue the Joint Economic Committee of the Us Congress has raised, stating: “The IMF’s ‘hear no evil, see no evil’ approach [to corruption] has led to a crisis of confidence in the institution in the US Congress and elsewhere.”
Fourth, the aim of the proposed sanctions is to force the government to change course. In this regard, specific actions are recommended as verifiable conditions to avoid sanctions. To put it differently, the sanction I am proposing is conditional.
If the PM cares about the people of Ethiopia, he would have no problem meeting the proposed conditions. The conditions are targeted to address criminal endeavors that are harmful to the country. They include:
- holding corrupt leaders accountable, starting from the Addis Ababa mayor,
- stopping movement restrictions on Amhara people traveling to and through Addis Ababa,
- freezing land leasing in Addis Ababa and all major cities, until a full investigation of criminal practices is undertaken, and a system of check and balance is established for the future, and
- stopping the illegal Chaka project that the PM building outside of the oversight authority of the legislative branch, and so on.
Misconceptions about the Impact of Sanction
Many people mention Myanmar, Iran, South Africa as examples where long-standing sanctions have failed to achieve their goals. They fail to understand nations such as Myanmar, Iran, South Africa are rich with natural resources and reasonably large export sectors. Their percapita export compared with that of Ethiopia are: South Africa ($2200), Iran ($934), Myanmar ($342), and Ethiopia ($37). Another way of looking at it is the ratio of export per capita to GDP per capita: South Africa (0.31), Iran (0.23), Myanmar (0.28) and Ethiopia (0.04). The governments of the three countries can survive sanction. The Ethiopian government cannot. Therefore, PM Abiy is more than likely to fold under international sanctions.
Eritrea is another country mentioned as an exemplary country that has made itself sanction proof. True, Eritrea has managed to survive by making its economy less dependent on international aid. But this is not without cost. When Eritrea seceded from Ethiopia in 1991, its GDP per capita was twice that of Ethiopia. Today, it is significantly less than that of Ethiopia. Ethiopia cannot follow Eritrea’s example because its economy is deeply dependent on international aid.
Second, sanction that I proposed is limited to developmental aid. When there is poor economic policy and blatant corruption (as it is the case in Ethiopia), World Bank and IMF loans help sustain bad governments at the expense of the poor. It may sound absurd to think foreign aid does not help the poor in poor countries. In fact, there are many studies corroborating the view that where there is corruption foreign aid in the form of World Bank and IMF loans hurt the poor.
This has been shown by many prominent economists, most notably Princeton Professor Angus Deaton – winner of the 2015 Nobel Prize. He is the foremost authority on the subject matter. His Nobel Prize was in recognition of his work on how the poor decide to save or spend money. What makes his study different is his research is focused on household expenditures and the purchasing power of the poor at the micro level. I know his studies up close because I had the opportunity to manage a World Bank research project to which he served as the lead senior advisor.
There are many other studies who reached the same conclusion from a macro perspective. It is widely documented in leading international development journals that if a nation does not have a robust economic policy and zero-tolerance for government corruption, international aid does not trickle down to the poor. Not trickling down is half the story. The other half is it is bad for the poor.
Many prominent economists have shown that foreign aid tends to be correlated with lower economic growth, meaning it is bad for the poor. Chief among such economists is William Easterly, professor of economics at NYU. Another is Raghuram Govind, KDM Distinguished Professor of Finance at the University of Chicago and former chief economist and director of research at the IMF. Obviously, neither Easterly nor Govind suggest all aid recipient countries fail to promote development. The focus is on countries where there is corruption and bad economic policies.
Ethiopia, under PM Abiy, has seen an unprecedented level of corruption. For the first time, gold export dropped by 59 percent (US$600 million). This is not caused by a drop in the price of gold. The nation’s gold was smuggled out of the country illegally. It makes no sense to rely on international aid that burdens the future generation when the nation’s wealth is sent offshore by corrupt officials. The minister of Mines and Petroleum who needed to do some explaining was allowed to leave the country, soon after the 59 percent export drop hit the media.
The current mayor of Addis Ababa, one of the top three members of the Oromo-Prosperity Party (Oromo-PP), was caught with a one-time 40 million Birr deposit in her personal bank account. At the time it was equivalent to $1 million. After a journalist broke the news, she had him arrested. Her explanation for the 40 million Birr was that she did not know who deposited it and that she has given the money to the poor. She did not explain why she failed to follow proper government procedure to transfer the money to the government. Nor did she produce evidence that she had given the money to the poor. No investigation was conducted.
Not long after, another blatant and high-volume scandal came to light involving 200 Chinese-made buses. The Mayer needed to do some explaining. Once again, no investigation was conducted.
The PM has conceded to the rampant corruption and resorted to trying to make a deal with corrupt officials. As Professor Hassen and I noted in our letter to the World Bank and IMF, the PM appealed to the corrupt officials to use their loot to open business and hire the unemployed youth. He announced on national TV that his government will not go after them if they put their loot to a good use such as opening a bakery or similar private enterprise.
The running joke in government offices is that they will continue to loot until they have enough money to open a five-star hotel with its own bakery. The damage such a culture causes to the nation’s economy is far more than any international sanction will cause. This is not the only problem facing Ethiopia. The PM’s economic and political policies are attributable to the economic crisis. Let me provide two examples.
The President of Oromo tribal land in close collaboration with the mayor of Addis Ababa and with the full knowledge of the PM, has denied people from the Amhara tribal land access to and through Addis Ababa. This is not limited to a gross violation of political and citizenship rights; it is also a violation of economic rights. Businessmen and women living in the Amhara tribal land are denied the right to sell their goods and services to people in Addis Ababa and to regions South of Addis Ababa, since Addis Ababa is a transit city. The damage this causes to the economy is far more than any international economic sanction would cause.
In addition, people must ask this: What will hurt the poor more: The PM’s $15.26 billion Chaka project or international sanction. Many find it hard to believe this. It is widely reported including by Le Mond,
France’s flagship newspaper. The PM is financing the Chaka project by printing money, which is why Ethiopia’s inflation is nearly 500% higher than that of Kenya and 1500% higher than that in Djibouti.
Here are some examples: አንድ ኩንታል (100 kg) Teff 10,000 Birr to 12,000 Birr (it used to be 30 Birr when I lived in Ethiopia 40 some years ago); አንድ ኩንታል onion 5000 Birr to 6000 Birr; one egg (12 Birr); one good size chicken (1200 Birr); one good size sheep (12,000 Birr to 15,000 Birr); and አንድ ኩንታል wheat flour 7,300 Birr.
The IMF attributes Ethiopia’s high inflation to “loose fiscal policy,” meaning the government is borrowing and spending beyond its means. The consequence is a very high food inflation rate of 33.6% that is 17% higher than the general inflation rate. The total expenditure poor households spend on food represents a larger overall portion of their budgets compared to high-income households. This means they are the ones who suffer the most from food inflation. There are economic studies showing inflation increases poverty.
There is no reason to think the PM will stop printing money until the Chaka project is done. This means the current inflation rate will continue at an accelerated rate. The consequence will be hyper-inflation and bank runs, followed by economic collapse. The only thing that will force him from destroying the nation is international sanction.
The fact that the PM is giving priority to a vanity white elephant project rather than reconstructing the war-torn economy and resettling 5 million displaced people shows that he has no regard for the poor. He is driven by his ego to build a legacy project. There is nothing wrong to aspire for a legacy project, but Chaka is coming at the expense of the poor. If Ethiopia has $15.26 billion to spare, it should use it on projects that will help the development of the nation. A palace surrounded by three artificial lakes and shopping centers with European luxury products will have zero value to the poor.
We must also remember the thousands of poor people whose houses are demolished to build his palace and surrounding luxury condominiums and shopping malls. The proposed sanction is to help protect the poor from a PM who has shown no sympathy and empathy for the poor.
Ethiopia’s economy is going down the drain. The Berlin-based international transparency has reported corruption is worsening (it was improving under TPLF). The Washington DC headquartered Heritage Foundation has documented that Ethiopia is economically less free than it was in the past. The Hong Kong-based Fitch Rating has consistently downgraded Ethiopia’s credit ratings on its ability to meet its financial obligations. In 2018, when PM Abiy came to power, Ethiopia’s rating was (B+). In 2019, it was downgraded to (B) and to (CCC) in 2020. In 2022, it went down again to (CCC-).
Since the PM came to office, the poor has increasingly suffered the most, be it inflation, mass murder, forced displacement, and untold social anxiety. If Ethiopians fail to avert the swirling crisis, it will not be too long before the nation falls victim to a genocidal civil war. The only force the PM responds to
is international economic sanction. People who are opposing sanction are doing so at the peril of Ethiopia as a nation and the defenseless poor.
The last question is: Is the international community amenable to impose sanction? The international community sees Ethiopia as the most critical geopolitical Sub-Saharan Africa nation. Since 2018, Ethiopia has been the number one US aid recipient every year because it is the anchor nation for the stability of the Horn of Africa.
Nearly $3 trillion worth of goods pass through the Red Sea. The international community has seen how the disintegration of Somali created havoc and disrupted the safe passage of ships through the Red Sea. If the entire horn becomes unstable the Red Sea will no longer be a safe zone for big ships.
Sadly, the PM and Oromo-PP are using the Oromo-Amhara nexus as a political conflict center for their divide-and-rule strategy. This is a dangerous and reckless gamble. The catastrophe can be approximated by the population size of Amhara and Oromo, the militarization of both people, the number of Amhara people living in the Oromo region (more than the entire population of Tigray), and the size of Oromo population in the Amhara region. Further The TPLF will see this as an opportune time to recapture Welkait and trigger another civil war. The result can be tens of millions of people flooding neighboring countries. The international community has enormous stake (in terms of protecting its trade route) to avoid such a crisis.
Recently, the US Assistant Secretary to the State Department has publicly stated the current ethnic-based system is the source of the problem. To win international support we need two strategies. First is to show that the PM who has lost credibility with the international community is a danger to the entire Horn of Africa. Second, we need to present ourselves as stabilizing forces. The international community has come to the realization that the PM and Oromo-PP are destabilizing forces. We need to be seen as an alternative by employing strategic position that contributes to the stability of the region.
The West is not Ethiopia’s enemy. Ethiopians at home and in the diaspora need to let US and European conservative leaders know two things. First, the World Bank and IMF are lending to a country that is spending $15.26 billion to build a palace. Second, the same country is asking US and European taxpayers to pay $28 billion for the reconstruction of war-torn areas. The Republican party is the majority in the US congress. The House appropriation committee is chaired by Kay Garner of Texas 12th district. She is one of the leading voices demanding accountability in foreign aid. She is the right person at the right place at the right time for a campaign to impose a conditional sanction on Ethiopia.
Other conservatives in the appropriations committee include Harold Rogers of Kentucky, Tom Cole of Oklahoma, and Ryan Zinke of Montana. These are all well versed in international aid and will support the proposed campaign. Other conservative members that the diaspora can lobby are listed here.
The first critical step the diaspora needs to take is to stop being geopolitically heedless. That is all.
6 thoughts on “International Sanction on Ethiopia is Good for the Poor”
This is a well written article. It would have been very helpful for us readers to come up a well informed conclusion if we hear from both sides of the issue of sanction. I understand that the finance of the old country is being managed by a group of experts in the field led by the incomparable Obbo Ahmed Shide. I hope someone close to those experts would say something in response to this article and the letter sent to IMF and The World Bank. Such civil discourse is what that country desperately needs. Let’s go!!!
Really? Are you a comedian, Ittu Aba Farda, writing ” . . .the finance of the old country is being managed by a group of experts in the field led by the incomparable Obbo Ahmed Shide” Well, I have always known you are a PP cadre – pretending to be an objective observer, trying to fool some, give it up man!
That makes you what then? OLF Shane, right? Ok, then can you explain why you are massacring and displacing innocent poor farmers from where they have been living in peace and harmony with my Oromos for decades?
Otherwise, just forget it what I was about to say next.
FALSE. A BIG LIE. There is no economics theory that supports your fallacious and misguiding lies. You put yourself under the cover of being an “economist” and spread lies to achieve your political objective. If this is your training in economics, you were at a wrong school and you have to start learning economics from the scratch. Go back to school.
This is reply to TANTU comment
The economic analyses given by Dr. YONAS is vary complex to understand to a moron like you because you are narrow minded ethnic nationalist who is not out from the jungle.
You are right, the World Bank fired him because it could not comprehend with Yonas’ complex economic thoeries. His theories were beyond their ability to grasp.
On another note, good riddance with your “non-ethnic” politics. Soon, you will come to your senses.