Daniel’s Reflection on Ethiopian Business Review (Part I)

Reader's Reflection on Ethiopian Business Review (EBR) is Daniel's reflection on some of the articles published on the monthly magazine (this in particular is on the Aug 2013 Edition No6 which is not yet posted on EBR's website). In this post I am sharing the summary of few of the articles from the magazine.

Reflection on the article, 'Discovering Oil in Ethiopia: A Curse or A blessing? The Macroeconomics of a commodity Boom' by Alemayehu Geda (PhD)

There are reports of a possible oil discovery in Ethiopia, if it does so happens, it will require a careful macroeconomic management in the short run to minimize the adverse effect it will have. One of the possible challenges is going to be, the traditional export sectors could get neglected, a term known as the “Dutch Disease” the domestic currency the Birr’s value will increase in relation to the foreign currency which encourages the consumption of foreign goods and when the domestic currency’s value increases it also leads to decrease in export. The second challenge of a resource boom could lead to mishandling of the resources (corruption) tag of war amongst political elites and distrust and a sense of marginalization between groups; as well as decline in the culture of savings both the public and the private sector.

The take away point: Oil resource discovery in Ethiopia would be tremendous, in that, it would help the country achieve its pursuit to become a middle-income country in the near future and decrease the number of Ethiopians living under poverty, which stands at ~29% of the population. Dr. Alemayehu provides some insights as to how responsible actors could prepare to reduce the inevitable by sighting best practices and policies followed by other countries. I also hope and suggest leaders and decision makers especially those in the specific sector read a book by Pro. Paul Collier called 'Bottom Billion', and pay close attention to the chapter in the book that talks about the natural resources trap. 

Daniel’s Reflection (DR) on The Rise of The Middle Class in Addis Ababa.

Lets look in to at least two of the possible indicators of a growing middle class in a society, vehicle

ownership and housing. Cars are extremely expensive in Addis. A used car that could be bought for USD 3,000 or less in the USA, with out a doubt is marketed and sold for more than USD 10,000 in Addis Ababa. Data shows that in the past 5 years the number of customers has increased dramatically and when comparing 2008 to 2012, the number of imported cars increased by three fold (an increase more than 162%).  The number of car assembled with in the country has also followed the same positive slope. All of this with out having credit services; yet, it seems there are way way too many cars on the streets of Addis. People say, owning a car is no longer a luxury thing, but rather has become essential for work and to get things done around town.

The trend of housing and urban life style is no different. As Addisu Deresse writes, people are no longer looking only for decent living places and backyards. They are looking for spaces that fit their personality, reflect their status and ambitions. There is a growing market for interior designers to satisfy the taste of the growing middle class. With growing economy comes the specialization of skills and more work hours in order to optimize on one’s competitive advantage and that leads to people outsourcing some aspects of their tasks to others; including families hiring maids or people just simply eating out and eating in less. As a result, restaurants and services are seeing constant increase in their customers and noticeable change in their customer’s demographics. To get a sense of in depth insight on the rise of the middle class in Addis Ababa, read ‘On Sale: The Growing Car Market and the Emerging Middle Class by Berihun Mekonnen and ‘The Metropolitan Way of Life: The Changing Life Style of the Urbintes’ by Addisu Deresse. 

The take away point: Although there are no shortage of restaurants and services in Addis, I believe that the market for high-end restaurants and services, is still untapped. If you stumble on to one of such status, it is usually full to capacity. As pointed out in the article, people are choosing for the high-end goods and services over prices, which I think is an indicator of the growing economy and standard of living.

Check back again, soon I will post few more summaries of articles that I found are good read. I will also try to post the links to the original articles onces they become available.

Cheers,
Daniel