Economic Growth and Income Inequality in Ethiopia – By Lakech Aderaw (Addis Abeba)

March 13th, 2009 Print Print Email Email

Since 2003, Ethiopia’s economy has been registering high rates of growth ranging from 7 to 10% per year (depending upon different sources of information). (more…)

Since 2003, Ethiopia’s economy has been registering high rates of growth ranging from 7 to 10% per year (depending upon different sources of information). High government officials have never missed an opportunity in telling the world that the party’s agriculture-led industrial development program has brought about an expansion of the productive capacity of the country’s economy to such an extent that it could join the rank of mid- income countries in a few years. In fact, the current president of the World Bank, Zoelleck, in his recent visit to the country had lauded the excellent performance of the government for its poverty reduction program. Of course, one has to temper such wild thoughts and diplomatic platitudes with a sober analysis of basic economic realities of average per capita incomes both in real gross domestic product and purchasing power parity terms and the attendant problem of high inflation rate for every major commodity and service that matters most. Ground realities on critical socio-economic indicators clearly dispel any hallucination on the part of those who generate such politically-motivated and grossly exaggerated claims.

Indeed, the high rate of economic growth over the past five or so years has manifested itself in a construction boom in the capital city and a significant expansion in the road infrastructure of the country. Likewise, a narrow class of business people, political cadres, and bureaucrats has struck it rich through a wide range of entitlements that its positions have garnered for it in the new political economy of the country. The gap between this tiny fraction of Ethiopia’s population and the overwhelmingly poor people is growing with astounding scale and intensity. This is a critical economic and political problem that needs to be systematically addressed by the government, civil society institutions and the international development partners that provide much of the foreign exchange support to the country.

Income inequality or more broadly opportunity inequality is a concomitant of economic growth and development of nations. Whether it expresses itself in income inequalities between persons, regions, social classes or ethnic identities is a matter of specific cultural contexts and stages of development. Ethiopia is one of the poorest countries in the world both in terms of GDP/capita income or PPP/capita. World Bank and other international sources of economic and social information suggest that close to 80% of Ethiopia’s population lives in extreme poverty (less than $1/person/day). If the 2$/person/day benchmark is taken, more than 90% of the country’s population could be legitimately categorized as living in absolute poverty. In such condition of income homogeneity, it may sound absurd to talk about inequality as a major concern in this initial phase of development. However, income inequality becomes a retardant factor in the dynamics of economic growth and development largely due to the fact that market forces are weakly developed and cannot serve as effective resource allocation mechanisms. When coupled with poor governance structures and inadequate manpower capacity, the problem becomes detrimental to sound socio-economic growth and broad-based national development.

Thus the issue of income and opportunity inequality in the economy becomes a critical one not only from the practical purchasing power differential that it creates but also its actual and potential impact on the expansion of the productive capacity of the economy. The lack of systematic income related studies on a national level makes it difficult to draw objective conclusions. This condition cannot however, preclude meaningful discourse on the subject matter. The daily realities of life for the vast majority of Ethiopians seem to suggest that the major beneficiaries of the fast pace of economic growth are the politicians, well-connected business people and bureaucrats. The massive housing program in the capital city has definitely benefitted a narrow group of bureaucrats and party affiliated individuals who may not fit into the category of the rich. The employment generation impact of the significant construction activity in the housing and transport sectors cannot be underestimated either. Elsewhere, in the economy, the political propaganda about “millionaire” peasants is undoubtedly either a product of lack of sound socio-economic imagination of scale or an overzealous political posturing by ill-informed and poorly-educated cadres of the governing party. In a country where 12 million people or 15%t of the estimated 80 million people face food insecurity bordering on famine, such simplistic assertions about the prosperity of the Ethiopian peasant cannot be anything but entertaining. Undoubtedly, many peasants could have improved their lots through the application of production increasing technologies and the politically manipulated local market system for grains and agricultural produce in general

The urban scene is where the contrast between the newly rich and the absurdly poor is most stark and disconcerting. Addis Ababa, the capital city, has definitely registered commendable and significant quantitative and qualitative growth in its housing amenities and basic infrastructures and services. It is also here where massive unemployment and underemployment, beggary, prostitution, vagrancy and a host of other social problems manifest themselves with vexing scale and tenacity. The gap between the well-heeled and wheeled ‘nouveau riche’ and the vast majority of the urban population expresses itself in absurdities of conspicuous consumerism with all the trappings of western gated- communities on one hand and the gut-wrenching poverty of the unemployed, the street children, orphans, the aged and the homeless. Gas guzzling hammers and other four wheel drive vehicles have become the signs of success as has the mindless mimicry of western dresses, fashions and gadgets. Multi-million birr homes with swimming pools and all the outlandish design concepts of American middle class and upper class homes are vying for space amid the hundreds of thousands of substandard mud and wood hovels that house the majority of urban dwellers and have earned the capital city the ignonym of the “slum capital of Africa”. The new elite leaves no stone unturned in displaying its wealth through a cacophony of gross and crass displays of wealth and other ‘signifiers’ of social worth. The moral bankruptcy of those who cherish this obscene exhibitionism of wealth is quite obvious and does not bode well with the rather austere and subdued living styles of most Ethiopians. With the mindless aping of western consumption patterns, we may soon celebrate ‘Thanksgiving Day”, “Valentine’s Day”, “Halloween” and even “Columbus Day”. That is what happens when a nation loses its moral compass.

The growing inequality of wealth, income and opportunity is particularly more pernicious when it is tinged with ethnic and party affiliation. It is widely alleged that ethnic identity and party affiliation have become significant factors in determining access to employment, business and decision-making power. If true, it not only creates resentment among the poor and the broad segment of other identities but also insecurity among the rich who use all forms of subterfuges to transfer their wealth to foreign banks and countries. The positive incentive effect that income inequality is often credited with can only bear system-wide results when it motivates people to work harder, produce more, generate employment and make innovations. Unfortunately, such creative dimensions of inequality do not seem to operate with any degree of efficacy in Ethiopia where government is basically suspended in political thin air and markets are not strong enough to reward effort and innovation. Thus the inequality in Ethiopia is what some scholars call destructive in that it bestows privileges to the already well-off without increasing the possibility of lesser rich and poor people to contribute to growth and development. This form of inequality leads to broader societal moral lapse into systemic and widespread corruption at the work place, the market and even the spiritual institutions of society such as churches, mosques and civil society organizations. Poor public policy and failure of government programs are results that emanate from a condition in which the rich and their close associates face no systematic checks and balances. Selfish interests in society know no physical and moral bounds for their behavior. What Ethiopia is facing today is a very difficult type of economic growth in which benefits are inordinately concentrated in a thin layer of well-connected political, business and bureaucratic groups and their hangers-on. Economic growth and development that does little to uplift the millions of poor people who recurrently suffer from food insecurity, poor level of consumption of basic goods and services can neither be sustainable in its process nor politically and socially uniting and elevating in its purpose. It has all the ingredients that make discord and corruption norms of social behavior and civic moral standard. The role of government should be to create opportunities to the widest possible horizon so that economic growth and development can become both wealth generating and socially uplifting. High rates of economic growth are definitely indicators of a positive trend in any society’s production and consumption functions. However, they can have significant negative externalities if the benefits are concentrated in the hands of the few who have entitled themselves to the booty through unfair political, business and ethnic affiliations and machinations. That is why the struggle for democracy and social accountability holds ever more urgency and public resolve in present day Ethiopia than ever before. It is a time when every Ethiopian has a moral and patriotic obligation to pose the higher question of the direction that the country is currently going in the economic, political and cultural spheres of national life. Economic growth is necessary and supportable to the extent that it promotes the reproduction of wealth for the benefit of all Ethiopians. Economic Growth that accumulates wealth for a tiny minority of internal and external speculators and rent-seekers and mercilessly exploits the labor and natural resources of the country cannot be anything but destructive and unsustainable.

  1. Solomon
    | #1

    The writer has commented on an important but well-known issue from an economist point of view. However, I see some naivety in the message as she seemed to assume that the inequality observed among Ethipians is an unitended side effect of a genuine government’s effort for economic development. I would like to comment that all the inequalities observed is a well-planned and sought after objective of the Woyane government starting from its control of political power in Ethiopia. You can see its political programmes all along, how they have been dividing Ethiopians along ethnic lines, sometimes disguised in political ideologies such as nefetgnas, narrow ethnicists, rent-seekers, and using such identfications to favour and disfavour different groups. But I agree on one point that this is a very dangerous and destructive development. It is also futile effort by the perpetrators as such evil acts are doomed to fail eventually. The current political leaders have totally left the concern for the unity of Ethiopia to others. They assume that their victims will never end their love of Ethiopia and will never give up their struggle for unity. Hence, they are enjoying their free-ride doing everything as they wish leaving the task of keeping Ethiopia and Ethiopianess to others. But, I believe that everything has its limit.

  2. Bezuayehu
    | #2

    ይህ ፅሁፍ የሀገራችንን አባባል አስታወሰኝ ሆድን በጎመን ቢደልሉት ዳገት ላይ ይለግማል ይላሉ አበው
    አሁንም የችግርን ጎዳይ ከወያኔ ይበልጥ የሚያወቅው አለ ቢባል ላሳር ነው።ታዲያ እንዲህ ህዝብ እየተራበና እየተቸገር የኢኮኖሚው እድገት እንደካሮት ወደመሬት ነው?ወይስ ይህ ተሰራ የሚባለው
    መንገድና ህንጻ ለልጅ ልጆቻችን የምናወርሰውን እዳ(ብድር)ነው የኢኮኖሚ እድገት እያለ ወያኔ የሚቀልደው ያ ቀን ይደርሳል

  3. Teshome
    | #3

    A magnificent article by someone who is well informed and intimately knowledgeable of the subject at hand. It is a very fine read as well as scholarly! One thing I wish to add is that the deliberate and planned policy of ethinic fragmentation of the country has also contributed to the unequal development of the various regions. While it is axiomatic that capital will not go where the returns are either uncertain or very little commensurate to the risks taken, the ethinisization of the labor force, the ethinicly inclined educational system, and the artificial impediments to the mobility of labor have all contributed to the ongoing problem of unequal development as well.

  4. dan
    | #4

    who wrote this?? an eritrean?? this must be an eritrean government cadre trying to put negative story about ethiopia

  5. Tsion Tesfaye
    | #5

    A well organized and framed article.The writer graphically demonstrated the uneven opportunity created by the regime by favouring political cadres,well-connected businessmen and kens men and women of the TPLF.

    As one of the writers above put it succently,the regime did it purposely to advance the political and economic intrest of their own men and subservient supporters.We shouldn’t forget that the main objective of the TPLf has always been freedom and wealth for their people.

    Amidst abject poverty in the country it’s insanity to say that the country would in the coming few years belong to the Mid-level countries.

  6. atuba dolla
    | #6

    When the tplfwoyane came into Ethiopia they were barefoot and broke but with a lot of guns and bullets to loot and murder Ethiopians of all ages and walks of life.After countless murder committed and brutal suppression and oppression in placed,they turned the land,Ethiopia that they invaded into their personal business empire to benefit members of the crimefamily,close associates,and relatives of all kinds.

    There are indisputable ample evidences that in fact,the wealth they accumulated through ruthless murder and continuous theft has spilled over across the globe that indeed, they became vast property owners leading them to establishing wealth empires and became the richest mafiafmily in the history of robbery in the country they invaded twenty years ago.

    These robbers did not come into Ethiopia for creation or invention,they weren’t either entrepreneurs or investors,they are not either mindful or likeable;they are murderers and looters.They have stolen a lot;and they know how to steal and kill.

    At this very moment,there are people who are murdered and robbed.Of course, the very foundation of the crimefamily is built upon the to-do list they designed and planned while they were conducting anti-Ethiopia destructive activities from their main headquarter,Nakfa cave;yes great opportunity had been lost in capturing them while they were hiding in nakfa cave and harbored in the Sudan.

    Bashir,as he is wealthy,he is a murderer.He did not steal from his competitors, either did he earn through genuine sweat;got the wealth through illegal means.Yes,his name has been posted all over the world as a wanted murderer committing crime against the citizens he oppressed and suppressed for years. An arrest warrant has been issued by ICC for the capture of Bashir and sending him to his awaited prison cell for life.

    In fact,there is no as such public ownership in the invaders’ regime.Everything beneath and above the land,Ethiopia they invaded have one and only one ownership,members of the crimefamily and their associates.They were broke and barefoot;now,they are rich,wealthy,and millionaires beyond their devilish dream.

    They took over the city and created wealth for themselves and ghetto and prisons for the citizens,they demolished families and sent their little children into the street and wasted mind and lives.Hundreds of streets kids are sent to the customers in the middle east.Supply exceeded the demand.Customers in the middle east have voracious appetite for meat and little boy and little girls exported from crimefamily’s regime.Huge profits have been made off the lives of the innocents.

    Bashir’s regime helped the tplfwoyane destructive activities in invading Ethiopia;so are symmetric members of the crimefamily for Bashir being on arrest warrant issued by ICC.During the tplfwoyane invaders third year illegal rule,old things with Isaias Afework were okay,and new things were on their way to flourishing;alas,devil interfered and old and new things went astray leading to one being hurt and the other being a winner.Isaias Afeork went through unimaginable nightmare due to his a one time parners in distruction denied him the spot that has been vied by the now crimeboss,Meles Naziawi beyond the awareness of Isaias Afework for those years that they together took bath in the same river and ate from the same plate.What made Naziawi distinct from the rest of the family was that he never disclosed a slant hint for the position that held now as the owner of 80 million people and vast land.He spoke and wrote about anything that would or had pleased Isaias Afework and his followers and supporters during those dark years with the goal in his mind to completely charging and polarizing their emotion in just one direction that they have been looking for and heading to what seemed to them bright future and yet now is just the polar opposite.Such is artful deception that Isaias Afework could never been enable to either bear or swallow;every time, such things come into Isaias’s mind, he gets chocked of with the deeds of his sourblood,Naziawi.

    For years,followers and supporters of Isais Afework-shabya waited impatiently that Isais Afework should have or must have accepted the superiority of Meles Naziawi both in power and money so that the loot would flow from Ethiopia to its desired and planned destinatination. Bad enough,of course, to the greatest disappointment of the followers, Isaias Afework insisted that he must have been the chief boss overseaing and controlling the loot,not his sourblood Meles Naziawi.Then things went out of control and the rivals met at the battle field and collided head-on. Isais Afework would not settle for anything other than meeting his sourblood in the upcoming battle which is going to determine either the winner or the loser.

    Years ago Isaias Afework made clear to his supporters and followers and broadcasted the good news to the rest of the world,”eritrea, in just five years will have the ability to feed 17 million citizens,at least 1-2-3 times a day,and the rest of the produces would be exported to the rest of Africa.”

    Did it happen? or will it ever happen? Thousands and thousands of shabya followers and supporters have setteled and still are settling in Ethiopia.It is the greatest illegal opportunity they ever had in their lives. They are making money and are making fortunes engaging in distructive business activities:- Businesses currently they are doing- magazines and movies 2.pimping young girls and adults to tourists customers in the middle east 3. small and medium businesses of all sorts 4.narctotics 5.night clubs,bars and after-ours, and spying and informants and many other distructive activities.

    A huge portion of the profit made in Ethiopia has now become the nearly the sole source of economy in shabya’s regime.In short, manufacturing industries,sevice sectors,transportation,banks,insurances and the rest are controlled.owned,and run by members of the crimefamily and their associates.Bloodsettlers,not only they are looting Ethiopia,they are destroying Ethiopia.In few years times the lives of Ethiopians will be blackout by distructive activites of members of the crimefamily and the settlers.


  7. Tesema
    | #7

    Great article, the income disparity is very alarming. ‘thanksgiving’ in Ethiopia? that is what you call progress!

  8. Lemlem Tsegaw
    | #8

    If the story is true, how come There is starvation in the south and poverty as bad as it was 40 years ago except among parlamentary members?


  9. tewbel
    | #9

    Excellent and truthful article.
    Unfortunately al this calamity is happening with the connivance of the US, EU, MGO’s the World Bank and IMF who parrot economic fiogures supplied to them by the regime. It is said some 2 billion dollars a year of foreign aid is has been extended to Ethiopia for the past 16 years, where did the money go? It would be worth a serious investigation.
    Gigh ruise building where water can reach the third floor, and electricity is unavailable more than often, and where Ethiopian cannot afford to live in, is considered economic progress sounds hollow.
    According to UNICEF 4.9 million people need emergancy food, the country has no foreign exchange, inflation is 100 percent, unemployment overwelming,etc.etc. to talk of economic progress is simply preposterous.

  10. An Eritrean
    | #10

    @atuba dolla The economic reality is that Ethiopia from these days on will forever be at the mercy of its neighbours Eritrea, Djibouti and Somalia; Kenya is anyway not a suitable outlet, so it doesn’t matter if it’s included in the list or not. These three/four countries together can at any time call an embargo on Ethiopia. What does that say about the future of Ethiopia? Politically dominated by its neighbours as it was in the 1991-1997 period by Eritrea. The truth hurts but its so.
    Sorry, too late for nice talk Ethiopian dreamers.

    We the true Eritreans are like our Martyrs, no cultural and religious differences. Our culture and religion is the prosperity of our children, and we will achieve that by all and any means necessary.
    Like our Martyrs who didn’t pray to any God for 30 years so that they could put all differences aside and fight their enemy until victory or glorious death, we the present generation too will do the same and continue their work – even if it takes standing up to God himself. Eternal tributes our Martyrs!

    Victory is ours!

  11. gomida
    | #11

    TO an eritrean. “bad dreamer”
    you wrote “The economic reality is that Ethiopia from these days on will forever be at the mercy of its neighbours Eritrea, Djibouti and Somalia; Kenya is anyway not a suitable outlet, so it doesn’t matter if it’s included in the list or not. These three/four countries together can at any time call an embargo ”

    WELL…..HA HA, Lisen Kido,,
    We Ethiopians do not expect positive or development thaughts from you anyway .
    but Let it be clear for you, we Ethiopians never sell out our national interest nor bow to any country. As regarding to sea port for now we are using Djibouti temporarly but for the future when ethiopia has its own
    democraticaly elected president and when the shaebia simpathizers tplf
    gone for good then and only then we will own ASAB PORT WHICH IS ETHIOPIAN
    HISTORICAL sea port.
    So “an Eritrean” worry about yourself, we Ethiopians never had at the mercy of any country and we never will be.

  12. Mastewale
    | #12

    My ertri brother/sister -wushete sidegageme ewente yimeslale honbehale or honobeshale. Sleep and let it pass…teganan or tegnane benklfe yileflhe.

  13. koster
    | #13

    What is going in Ethiopia is not development it is looting like JELZIN RUSSIA. Even in Hitler Germany and Mussoloni Italy, there were some who were benefiting from Fascist and Nazi policies and it is no wonder if some Ethiopians are enriching themselves using the Woyane “Loot and let`s loot policy”

  14. An Eritrean
    | #14

    @gomida ha ha .. we Ethiopians never had at the mercy of any country and we never will be .. did you just write that .. first the English is so f*** bad and how bad you people lie too and how bluntly .. but that’s Ethiopia .. there is no other Ethiopia .. just one big lie and an international conspiracy .. created by outside forces to give Afrcans a false sense glory .. but only the educated with brains know the facts and some idiotic monkeys running around pretending to be human.

  15. shellewa
    | #15

    This is a nice topic wthat everybody has to read and follow for its realization.

  16. Dan
    | #16

    The one and only one reason for the inequity is politics and ethnic background which has been deliberately practiced by the tplf gangs to achieve their jungle goals. The writer could have explicitly framed this sole reason.

  17. Demeke
    | #17

    The Amharas dominated gopvernments destroyed Ethiopia for the last 100+ years, now meles Zenawe got to correct and fix amharas mess.

  18. Shewa
    | #18

    Mr. Demeke, what you just said is not wrong but it is too early to raise such burning issues in this time of confusion .Let’s remove woyane first and all will be brought to light .It is one of the major political highlights to be discussed in order to put the country on the right truck.The Amhara group never ever want to raise these core problems and take responsibility for their mess.Demeke keep speaking up!

  19. gomida
    | #19

    To an Eritrean…….”first the English is so f*** bad ”
    I don’t think my english is bad at all..but for sure my article might caused you a heart attack….oh well!

  20. Robele Ababya
    | #20

    The amazing chorus of comments on this execellent article clearly demonstrate the bankrupcy of the brutal tplf regime.

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