|
"Price fall is not growth indicator" |
| (Last part) In our previous issues, we presented the first and second parts of the interview Minister of Trade and Industry Girma Birru held with the Ethiopian Radio and Television Enterprise on the role of the trade and industry sector in the economic growth the country has registered for the past three successive years. Here comes the last part of the interview. Q: Regarding import trade there was a challenge arising from external shocks. How do you explain this challenge? A: The major challenge in the import trade is external shock. There are situations we have to face which cannot be avoided. For instance the price of oil in the world market has risen in many folds in a short span of time. The rise in price will pose a significant challenge on our foreign currency reserve. Had it not been for the governments system of dealing with the negative impact of the rising oil price, the effect on the entire economy would have been disastrous. Fluctuation of price in our export commodities is the other challenge. These challenges would continue to exist in the future. It is possible that at times you just get trapped with challenges and fail to register economic growth. This is the worst kind of challenge. The other type is a challenge that you face in the process of growth. There is a situation in which we pass one sort of problem and we face another one while carrying out a certain development scheme. I am delighted that most of the challenges we are facing in the process of development can be addressed. The risks arising from external shock can be addressed through capacity building. The worst type of challenge is the one that is faced when there is no development. We can possibly change the problems we face while undertaking development activities into opportunities. Q: It is known that existence of appropriate market system is essential for economic growth. When this system involves import and export it would further enhance the economic growth. It essential that all import and export commodities should be up to the standard. Otherwise, it would affect the economy of the recipient country. What measures would the government take to address this problem? A: Checking quality and standards of production is the responsibility of the government. Both import and export commodities should meet standards. A standard is set almost for all export items. But the standard has not been enforced on all export items. Once standard is set for certain commodities, it would be left for the seller and buyer to keep the standard. However, some commodities can not be imported or exported without meeting the set standard. For example of the export items, pulses and oil seeds cannot be exported without meeting the standard set by Quality and Standards Authority of Ethiopia. We cannot do this for all products. Doing so would affect the overall trade activity. Nonetheless a standard should be enforced on those products which could damage the trade image of the country. Standards Council has been set up to carry out such activity. In this fiscal year, it would identify products on which standard ought to be enforced. Parallel to the growth of export trade, those products which ought to fall under enforced standard category are being identified. There are some import items, which fall under enforced standard category. A standard is set for about 5,000 different products in the country. Since the country can adapt international quality standard we can say that there is no difficulty in setting standards set for imported items is changed to an enforced standard. This can be seen from safety perspective. For instance, if a safety match-stick keeps on burning and set on fire what is around after the person who strikes the match tosses it away (e.g after lighting a cigarette) that would be a matter of safety. And there are various food items entering into the country from abroad. Of these products some of them can not enter into the country unless enforced standard is met. This is due to health and safety concerns. Given the flourishing trade, a study is being conducted to decide on which items to apply enforced standards, for which ones should standard be set on the agreement between the buyer and seller and implementation be left for them. The other means of maintaining standard is mutual recognition agreement between countries. Ethiopia and China are going to sign an agreement this month to exchange commodities, which meet standards set by the two countries. The solutions I stated above would rectify the problem of quality and indicate what the government is doing in this regard. Q: Some people comment that to say Ethiopian economy has grown there must be a balance between import and export trade. Can we say there is an economic growth when a country’s export exceeds its import? A: This comes due to lack of knowledge about the scientific measurement of a country’s economic growth. There is a system called national account which measures annual growth of a country. It is internationally accepted and offered as a course of study in schools. The practice is to be done by professionals not by ordinary persons interested in the economic growth of a country. Some persons who does not know how to calculate growth assume that it is done by guessing. As to answer the question how can we say there is an economic growth when there is a gap between import and export, we need to see how the import and export trade is calculated in the overall economic growth of a country. If we take a data of one year, the share of import and export trade does not exceed from 32 to 35 percent of the total economy. Even when we sum up import and export trade the rate of external shock is very low in the country. Thus economic growth may or may not be registered even when import and export trade are equal. On the contrary there can be an economic growth when there is a gap between the two. For example, when we consider trade balance including import and export trade the total GDP is about 96.5 billion birr. The sum of the two is less than 39 percent of the GDP. If we see 2003/2004 it covers about 32 percent of the GDP. The other point is that GDP does not refer only to income generated from trade. There is another income which is part of the economy and not generated from trade. For instance, of the total produce of the farmer the one that is consumed would be calculated as part of the overall growth of production. Not only the amount of production consumed rather the by-product will also be calculated. Whether trade balance is positive or negative, it does not relate to economic growth. When we compare the volume of import and export trade of both developed and developing countries the volume of import trade exceeds that of export trade. We cannot say these countries did not register economic growth just because their import trade surpasses the export trade. The volume of import trade of the country was surpassing that of export trade while our country was registering economic growth. The growth of our GDP is explained by the agricultural produce put on the market and the one that is consumed. Thus it is not trade balance that determines economic growth. Q: Can there be an economic growth when there is a price rise and inflation? Do price rise and inflation exist? A: People consider that there is an economic growth when price of commodities does not rise. But that is not true. When a country predicts its economic growth it would forecast the average price of commodities. Economic growth is unthinkable when there is a fall in price. That is called deflation. Thus the logic that says there cannot be economic growth while there is a price rise is wrong. Rather economic growth is unthinkable when there is a fall in the price of all or most commodities. Economic growth should be measured against the type of inflation. For example in a country where the general annual inflation rate reaches 8,100 and 1000 per cent during crisis, there cannot be economic growth. So it is wrong to perceive a fall in price as growth indicator. In 1996, 1997 and 1998 the country’s economy has grown by 11, 8.9 and 8.4 per cent respectively. The growth has been calculated taking price into consideration. The calculation is made using factor cost, i.e the direct cost of production. For instance, the growth in agriculture could be described in quintals. Therefore, the growth has not been calculated disregarding price and trade balance. The growth of a country could not only be measured by trade balance. Sometimes countries having a profit in their trade balance may not register growth. Perhaps the reverse could also happen. Q: Could you tell us what the government is doing to substitute foreign products by local ones? A: If investors could be able to produce imported items here locally and sell at fair price, it would have two advantages. One is it will create job opportunity. The other one is we will save hard currency. Therefore the government encourages the activity. As I have mentioned earlier, the tax holiday from 2-7 years includes these. However, it should be noted that it does not mean we are capable of producing the imported items competitively and excel the foreign produce. Even if we produce some of the goods, we would be limited by the local market. May be the local market could only entertain the products of some businesspersons. When we begin producing extensively here locally and if the local market could not entertain it, we would be forced to export what we have produced. The other one is when some factories start producing the items locally, some others won’t be banned from importing the items. So the imported items could compete with the local produce. It does not mean that we would set up a factory to entirely substitute the imported items. But we are carrying out a study to identify products which we could produce at lower price and sell them locally. All investors should enter into operation bearing this fact in mind. In this regard we extend much support to the investors. Q: Some people comment that there is a high inflation rate in the country. How could this be explained? A: There are indicators, which are used to measure these concepts. One of these is black market. In countries where there is a high inflation rate, and the exchange rate for one dollar is for instance 20, 30 or 40 dollars and for instance an item sold for 8 birr previously reaches 20 birr, then we could say it has entirely lost its buying power. Therefore, before jumping to such conclusion, one has to use these measures. I do not share such kind of opinion. Let alone in legal exchange rate but also in the black market our money has not lost its buying power. Q: If you have anything to add? A: We are now proving practically that we could bring growth and extricate ourselves from poverty. The efforts of the public attested that economic growth could be possible. Therefore, private investors especially those in my area, i.e, trade and industry sector should come to the country and exploit the opportunity. By doing so, we could create new jobs. Hence, the private sector should contribute their share in the endeavour. The youth also could play pivotal role in the development as well as support the private sector. I call up on the youth to either be job-creating or employee and strive wholeheartedly to change their lives. I would like to affirm the government’s commitment in this regard. (Ethiopian Herald) |
|
|
|
|