nazret.com Merkato Blog

Somaliland is on the Verge of a Dark History Repeating Itself!

It has long been said that, “Those who do not learn from history are doomed to repeat it.” That is exactly what is happening today, in Somaliland! And if we do not act immediately to reverse the dark clouds hovering over the people and the country and nip the evil in the bud who had been hissing and for so long and sabre rattling constantly, executing brazen threats and deeds, and clearly been endangering of our just cause, hard won independence, peace and security, the overall developmental progress we made so far, the stability and territorial integrity of the country, and the existence of Somaliland—we may be doomed to suffer similar or worse consequence of our past and present colossal mistakes—May God forbid this dreaded scenario, Amiin.

As you are aware, on this day, April 6, 1981, marks an important historic Day that is written and sealed with our precious blood in our collective psyche or in the hearts and minds of our people or in the history of the modern Somaliland. It is the Day in which the Somali National Movement (SNM), the lion-hearted liberation movement was founded by a few gallant and heroic leaders in London, U.K. in order to liberate their people from the then, ongoing scorch earth policy, collective punishment, gross violation of human rights, pogroms and massacres, systematic use of rape as a political tool, systematic economic strangulation of the populace, horrendous crimes against humanity, war crimes, and the systematic genocide against the people of Somaliland, which was committed by the tyrannical military regime of Fascist Siyad Bare of Somalia particularly against the progressive Isaaq Clan and specifically against the poor and un armed civilians, innocent women, children, and the frail elderly.

This was a well planned and a well executed genocidal campaign that was put in place to entirely uproot and dispossess the Issaq Clan from their ancestral lands and to wipe them off the face of this planet and to replace them with other foreign tribes from Ethiopia such as Ogaden, Oromo, etc. and illegally settling them on their lands and country. In addition, the SNM was founded to entirely liberate the people and the country from the brazen ANNEXATION of Somaliland by Somalia following the ill-advised, voluntary, ungratified by both parliaments, and illegal “Somaliland-Somalia Unity” in 1960. And to restore the full sovereignty, territorial integrity the country and reclaim the long lost independence of the State of Somaliland.

As a result, after a long and bitter armed struggle (1980 to 1991), the lion-hearted SNM broke the back of evil and liberated the people and the State of Somaliland with their ever increasing efforts and all that they had in terms of wealth and properties, their sweat, tears, and the precious blood of hundreds of thousands of its brave sons and daughters and achieved a sound victory over the tyrannical military regime of Somalia, expelled them from Somaliland, and reclaimed their long awaited independence, and declared the independence and sovereignty of the Republic of Somaliland in May 18, 1991. What a costly, but sweet victory!

Since then, Somaliland turned inward and did some soul searching, reconciled its citizenry, extended a general amnesty to the former supporters of the defeated regime, began a national rebuilding process from the scratch or from the monumental rubble on its own and from the bottom-up—they resurrected the viable democratic Republic of Somaliland that had been at peace with itself and with its neighbours in the Horn of Africa region. And the democratization process was in place and in full gear. Somaliland is indeed the bastion of peace and democracy in this turbulent region. Some have deservedly dubbed Somaliland as “the little country that could do.” And we had been proud of our achievement since then. That is why tomorrow, on Monday April 6, 2009 marks the celebration of this historic and dearly cherished Day of the 18th Anniversary of the lion-hearted SNM, its martyred and living Mujahideen, and the overall liberation of the people and the State of Somaliland.

Nevertheless, the great and historic Day of April 6, 2009 also coincides with dark and uncertain Day in which the tenure in office of the lowly, unqualified, inexperienced, greedy, arrogant, and tyrannical “president” Dahir Riyaale Kahin and his inept and corrupt administration, which is heavily infested by the remnants of the dreaded former NSS Gestapo, which was the equivalent of the SS of the fascist Nazi Germany; Hangash, Faqash, and some backward tribalists who are hell-bent have on numerous occasions sabotaged and postponed the presidential election that was supposed to be held in April 2008 and later pushed to March 29, 2009 and again, pushed to May 31, 2009, and to September 29, 2009! in order to illegally and unconstitutionally extend the term in office and who had ever since been violating the prestige of the office of Presidency, abusing power, trampling on the Constitution and the laws of the land, sabotaging the just cause and the existence of Somaliland from within and without, undermining the democratic process put in place and attempting to replace it with raw dictatorship, muddling the international image and standing of Somaliland, frustrating the efforts of ever achieving the international recognition of Somaliland, targeting and ransacking the offices of the opposition parties and incarcerating their senior leaders and supporters particularly KULMIYE party, the official opposition party of Somaliland; suffocating the public by denying them their constitutional rights to stage peaceful demonstrations, committing gross violation of human rights, restricting the freedom of association, reversing the freedom of the press and imprisoning the journalists, and retarding the overall progress of the people and country at all fronts and in all aspects of life as well as literally holding the people and the country of Somaliland as hostage since 2003, will come to its end and to their detriment and demise.

It is de-ja-vue all over again. However, the nationalist and patriotic people of Somaliland as well as the independence War Veterans of the lion-hearted SNM are fully prepared and ready to re-liberate their people and country for the third time (First, from the European colonialists; Second, from the Annexation of Somalia; and third, from the remnants of the NSS Gestapo, Faqash, Hangash, and tribalists) who had hijacked the just cause, hard won independence of our people and country—Somaliland, our Motherland.

It should have come to this point in this information society, fast moving and globalized world, and in this 21st Century era or at this juncture of the state of affairs of our people and country. It is a shame that things we had to tolerate evil this long for things to deteriorate to this dangerous and uncertain point. We should not blame anyone else, but ourselves since we failed to learn from history therefore we are doomed repeat it. What a disgrace!

Whatever the case, we will once again rise up and nip in the bud the enemy of humanity as well as our avowed enemy and defeat them soundly as before. God willing.

I therefore urge all the noble, proud, good cultured, nationalist, patriotic, and intrepid people of Somaliland to stand up to Evil and to sacrifice, at all times, their precious blood in the defence of their hard won independence, peace and security, stability and the territorial integrity of the country, the just cause, and the existence of Somaliland by whatever means available and at any costs so as to, once again, defeat this Devilish enemy in its tracks, once and for all. Then, rejoice with your sweet victory, as usual, with the famous song: “Dheg Dheer Dhimatoo Dhulkii Waa Nabad…” while keeping in mind not to make the same mistakes of ignoring history again, but to learn from it so that we may not be doomed to repeat, time and again, or in the future. I say: Victory and Liberty to you all. Insha Allah.

Farah Ali Jama,
Ottawa, Canada.

Ethiopia - The G-20 summit- Promises that cannot be translated easily!

On the 2nd April, major leaders from the industrialized west and other newly industrialized countries from Asia, now called the G-20 met in London to discuss about the current financial and economic crisis which has now encompassed the entire globe, and cope with the crisis before it is too late. The conference which is seen as a mile stone not only in tackling the crisis but also to take drastic measures to control the financial market so that global players do not twist the market as they wish is a measure step forward. As the meeting was nearing, there are controversies whether the Americans and the English are this time willing to take drastic measures against hedge funds and other speculators, or continue with their old policies of leaving everything to global players in the belief that the market could adjust itself at the end, and everything comes to an equilibrium position. If the situation remains business as usual this time, both Mrs. Merkel of Germany and President Nicolas Sarkozy of France are not ready to go ahead with the Anglo-American plan, and especially Mr. Sarkozy protested from the outset that he will leave the conference if there is no substantial result which is not considering strong financial control mechanisms. The two leaders which represent two strong EU member countries, feel this time that they have full confidence that history is no more on the side of the Anglo-Americans, and especially the new American administration which is lead by President Barack Obama will not frustrate the European vision of bringing a workable solution to cope with the present financial and economic crisis. It is not secret that President Barack Obama is attracted by the welfare state model of the European type which is until now proved to be a workable model which could keep social harmony within the western capitalist model. It is believed that the laissez fair model of the Anglo-American type, which is especially accentuated in the 1980s, and propagated world wide as the only viable solution which could bring economic growth to all countries which apply it, become disastrous. The Popes of the free market ideology are now on the defensive; and they are crying that the state must intervene to curve the economic down turn before it is resulted into major depression.

This type of meeting was first organized in 1975 when that time the industrialized west was hit by economic crisis, which was manifested in high unemployment rate, inflation and high oil prices. Almost after three decades of more or less continues economic growth, with mini recessions in the 1960s, there comes visible economic down turns, beginning the 1970s. The unilateral action of the Nixon administration not to be abiding any more by the Bretton Woods agreements and the introduction of a flexible exchanger rate system in 1973 had deepened the economic crisis, which were needed concerted actions to slow down the recession. Hence, President Valery Giscard d’Estaing of France initiated an informal meeting of the G-6 countries, which has slowly grown to G-7 and G-8. The inclusion of Russia and now other 12 countries shows that the world economy cannot be dominated by few groups. The rise of China as a major economic and political power with high growth rate over the last 30 years, and strong currency reserves of 2 trillion dollars, and favourable trade balances, proves that there is a growing shift of political and economic power in favour of Asia which cannot be undermined any more. In order to assert her power, China has this time spoken out what other nations have never challenged before. The dollar must be replaced by other forms of reserves which cannot reflect any more the economy of a single nation. The Chinese as the main lender to America are not pleased with the way how the American government is pouring money into the economy. The Chinese fear is justifiable for two reasons. The permanent printing of dollars will devalue their reserves, and the debts they have borrowed to America. Secondly, the Chinese believe that America cannot easily come out of this deep financial and economic crisis and restore her trade balances deficits, and build again a strong economy from within. That means the dollar has only a military and political backbone and is not any more supported by any physical economic activities which strengths the entire economy. Brazil and India too have shown over the last 5 years in other major economic meetings like the WTO meeting, that they are major forces to be reckoned, and can hinder any suggestions which cannot favour their interests and the interests of other developing nations which are the member of the WTO. Especially, Third World Countries should be delighted that the world economy cannot be dictated any more by few countries as the last 5 decades which has completely marginalized them and blocked their economies from within.

The G-20 meeting of this time which took place in London, hosted by prime minister Gordon Brown, is confronted with economic and financial crisis which was never seen like this after the major depression of the 1929. As such, finding real solution to the crisis and control the entire global financial and economic order could no be easy. It seems that many governments are confused by the ideological blasts of experts who still believe in pure market philosophy, and who are beating around to block any fundamental solution. The economic and political elite seems that it is still in a position to regain its power of manipulating governments, and as such the G-20 meeting will be simply a photo-shoot gathering without substantial effects on the economic setup which is messing the entire globe. As is seen from the conference, the leaders are still swearing that free trade is the only solution to tackle the problem; and any action which blocks free trade will be confronted with punitive action. Especially Prime Minister Gordon Brown has warned nations not to take protectionist measures which hinder the free movements of capital and goods. That means the real problem of the present crisis is not jet recognized, or even if there is any, the belief that one can go ahead business as usual by giving lip services rotates in the heads of many leaders. It is not well recognized that free market needs to be regulated not only at home but also on global scale. Each nation wants to be sovereign in all aspects, and wants to see a harmonious society. Free trade cannot guarantee this.

The real problem is not detected- many theories that confuse

It is now widely believed that the financial bubble and with that the subprime crisis in America is the major immediate cause for the present financial crisis which has encompassed the entire globe. The different financial instruments which are developed in America, and the debt mechanism which is the main engine of the American economic growth, especially during the Clinton era, and which is continued during the Bush administration, brought imbalances between the real economic sector and the financial market. As more and more Americans are not any more relying on their own incomes to buy houses and other durable goods, they are compelled to take credit, and consume more and more to keep high standard of living. The financial alchemists began to realize that such kinds of credit mechanism will bring high provisions and ensure them high standard of living. The development of sophisticated financial instruments and the high gain out of such kinds of artificial mathematical models, which have nothing in common with the real sector blinded those players that they can indefinitely enrich themselves by fooling innocent people who do not have reliable income. Hence, with no or few income, millions become house owners, with credits, mounting debts and compound interest. This kinds of subprime credit which are given to innocent people, again packed and divided in many parts., and thrown on the world financial markets in order to spread the risks of the few banks. Many state owned and private European banks believed that this kind of game brings higher returns, and shifted their major activities to the global market which is created in America. The American investment banks which could not generate enough money from the borrowers as usual to forward enough returns as is promised to investors from Europe, created a situation so that the entire financial system could collapse easily as a house which is built out of cartons. The break up of Lehman brothers one of the major American investment banks has shaken the entire global financial system, and many new economies of the 90s began to lose their entire assets which they have developed in few decades. Ireland and Iceland are the few which become bankrupt from such kinds of financial melt down, which has its beginning in America. In major European banking systems, the inter banking lending mechanism become halted, and this in turn blocks the flow of credits to consumers and investors.

Many critical economists see in such kinds of financial bubble and uncontrolled credit mechanism one of the main causes of the entire present financial crisis which has slowly, but surely encompassed the real sector. Some go a little bit further and attach the problem with the breaking up of the Bretton Woods system, which paved the way for the emergence of a new financial market system, and enabled many to participate in currency and stock speculation. The delinking of the dollar from gold, and the introduction of a flexible exchange rate system has shifted the economic setup of the four decades from the real sector to the financial sector. It is believed that participating in currency speculation and in secondary market activities brings higher returns than investing in long term economic activities, whose returns can be realized after a long time. This kind of money making mentality and the loosening of financial and banking control mechanisms have developed a new financial class which it believes that it could outsmart governments across the globe. The globalization of the 90s has strengthened this process of money making; and the shifting of wealth from the real sector to the financial market in order to gain higher returns become a normal process which is widely believed that without producing real wealth one could enrich easily himself if he shifts his money here and there. In this kind of money making process and development of new and ever sophisticated instruments, the petro dollar and non-investible dollar reserves from China, Russia and India have swollen the financial market and opened the door for those speculators to continue with their gambling.

Though this is the immediate cause for the present financial and economic crisis, other critical economists see the present crisis within the construction of the capitalist system itself. In their beliefs that the capitalist economy is characterized by ups and downs; and as the system is based on commodity production, the billions of products must be sold permanently in order to close the cycle. As there are many actors which participate on the market, all could not be competitive, and others are compelled to introduce new technologies in the belief that they could reduce costs. The reduction of costs and production of goods with the aid of few workers and ever intensive technologies could solve the problem for a while, but in the long run the market will be saturated. Millions of goods are produced above what the market needs. That effective demand which is available on the market could no absorb the products which will be supplied to the market. There is an over production, which is a huge burden to the producer. The solution for this is to sell the products on foreign market.

The emerging of new actors in the 1970s which could build their economies by borrowing money from the capital market, and have problems for decades to pay back their debts, have learned in the mean time to reorganize their economies and become competitive in certain areas. Other emerging economies like that of China become importers and exporters at the same time which have helped to a certain extent to revitalize the world Economy. On the other side the export from China begins threatening many countries, and as a result of open door policies of the West it is no more possible to compete with the low quality of Chinese products. Especially, those textile and shoo producing companies are hit by Chinese products. Such kinds of imbalance and on a global scale, and the eroding of the industrial bases of certain countries, like that of the United States which still propagates the free trade doctrine has undoubtedly brought new economic frictions. As few countries still dictates the world economy and control the production potential of the world economy, they could not sell their products as they have planned. That means, though it seems that many countries are integrated into the global economy, still billions of people in many countries are peripheral to the system. They cannot buy and consume what other countries produce due to their very low buying powers. The uneven development of capitalism on a world wide scale, the growing pauperization of billions of people, and the blind exploitation of their resources, inevitably narrows the home market in those undeveloped economies. One observes that in the last 30 years, millions of people in Africa and Asia could only consume second hand products of all types. The Markets of many African countries are filled with second hand cars, refrigerators and other house hold materials and clothes. Very few people, who could profit from the free market of the IMF and the World Bank type, could afford to buy new cars and other luxury goods. This new class become simply consumer of new products which are produced some where rather than engaging himself in investment activities, which could create jobs, real income through that develop and expand the home market. I am not saying that this will entirely solve the inherent contradiction of the system, however, still broadens its markets across the globe. As we see today, the Chinese export market is collapsing, and they are not importing machines and cars like in the 90s. The Chinese are shifting their activities to develop their neglected home market. It is believed that 2/3 of the population is still poor and not fully integrated into the market activities. Cities, market centres and production activities are concentrated in few selected major cities and areas.

From this analyses one come to the conclusion that decreasing interest rate in order to widen the money supply, or any stimulus plan could not help the economy to regain its old strength. It could only postpone the crisis. On the other hand, the gap between those who are rich and poor is widening, as the richer class absorbs the wealth of the society, millions of people in the industrial west lose their buying power. With this, the growing power of the banking sector and other financial intermediaries is absorbing wealth and canalising somewhere to accumulate more fictive wealth. This and other complicated mechanism of tax payments which ruins especially the hard working middle class and those small producers is eroding the economic power of the system. Thousands of middle and small class people, even though they work 12 and 14 hours a day, they could not afford decent lives. After 40 years of work many are compelled to live with minimum rents which cannot guarantee them the old way of living style.

It is not as such as many believe that it is simply a financial crisis which is widespread to the real sector; it is a systemic crisis which is inherent in the system itself. The G-20 meeting could not discuss all the hundreds issues that erode the entire system. It simply believes that by regulating the financial sector, which is doubtable, because those who have created the problem are assigned to solve the problem, will solve the complex problem that the entire political and economic setup has created. Especially, the mechanisms that are created over the last 30 years which is eroding the system from within cannot be tackled easily. In addition to this, unless the wealth gap which is widening at alarming rate is not curved, and the political power of those economically dominating class is not diminished, the system will have difficulties to get out of the complex contradiction that are produced and overlapped.

Different solutions and many contradictions

It is amazing to observe and hear that those who were opposing government intervention in the economy are now crying that governments should pour money into the economy in order to stimulate production and create income. These economists who are now shouting have never expected that such a deep crisis will occur and encompasses the entire system. Over the last 30 years they have been preaching that a market economy has its own inner mechanism, and moves always to an equilibrium position. What is generated as income finds its ways to buy goods. As such the market works without any major disturbances. If crisis occurs, this happens due to the irrational nature of trade unions who want to have the greater share of the profit, which ultimately reduces the investing capacity of the individual capitalists. In all no-liberal economic books there is no room for a crisis theory, because it is believed that everything functions harmoniously. Due to this belief they have only solutions, which are econometrically sophisticated but never solve the real economic problems.

In the real world the economy works not as is imagined by the neo-liberals. The income which is generated during the production process could not be consumed entirely. Workers as well as capitalists either withhold or save a part of their incomes. At the same time workers and capitalists, could not always rely on what it is directly generated during the production process, either for consumption or investment, but on banking systems to fill the gap what the income from direct employment cannot create. That means in the capitalist economy the banking system plays a major role to serve as an engine for the production and reproduction of the economy. Keynes and the Keynesians who have realised this in case of insufficient demand and lower production activities have suggested that governments should intervene via deficit spending to create jobs by investing on infrastructures, schools and other public sectors. In this way governments not only create new income but through that generate taxes which enable them to pay back the money they have borrowed. In fact all major industrialized countries have followed this path and created also new credit mechanism to develop the broken economy. That means there is no as such a pure market economy which operates on the free play of demand and supply. There have been always government interventions of different types to support the economy. What is missed over the last 30 years is that the shift from this principle and follow dominantly a supply side economy has brought imbalances in the system. Governments and the neo-liberal advisers believed that via tax systems and monetary policies they could strengthen the role of the capitalists. Only when capitalist are strengthened and have sufficient money they will invest and create jobs. This has been proved as a failure if one observes the policy of President Reagan in the 1980s, and the policy of Mrs. Teacher in England, and later on the policy of the Schroeder government at the beginning of 2000. The policy agenda of the Green and the social democrats, which was called Agenda 2010, has expropriated the masses, especially those old people, and has shifted over 45 billions of Euros in few years to the wealthy people. With such kinds of neo-liberal policy the Schroeder government could not create real jobs for those who seek employment.

This policy has been criticized well by those well known economists who were in the same cabinet during the first term of the Schroeder government in 1998. These highly qualified economists propose now that the massive intervention of the state is inevitable and crucial if one wants to avoid mass unemployment which could threaten the entire system if it is left alone for the market. These economists propose farther that a low interest rate is crucial for the system, since capitalists could only borrow and invest when the return is higher than the total cost of production. To curve speculation and hinder capital movements, these economists propose a fixed exchange rate system and strict control of the financial markets, and especially those casinos like financial operations which absorb money from the real sector. Though this is a workable solution, many governments are not willing to go back to the old system of exchange mechanisms. On the other side there is a limit to such kind of proposal, because it does not take into account the inner contradictions of the system, and the problem of wealth accumulation in the hands of the minority, which create great imbalances in the system. When in all major industrialized societies 2-5% of population controls over 80% of the wealth, there is always a social and economic crisis. Above all, most of the people are being indebted to buy cars and other durable goods to keep the system. Unless such kinds of imbalances and the debt burden are reduced, a pure Keynesian policy alone cannot save the system.

The policies of the European and the American government to curve the crisis could not until now bear fruits. The pure pouring of money into the banking systems and other financial intermediaries remain without any positive effects. In Germany alone, the government has poured over 100 billions of Euros to save the major real estate, without bringing any substantial results. Now the government is moving towards nationalization, which is against the market economic principles. In America too, the biggest insurance company, AIG has become over 170 billions of dollars from the government. This has not effected in positive results, and it is assumed that this has become a major failure, and AIG cannot be saved. That is why prominent economists like Professor Stieglitz and Professor Krugman oppose such kinds of money pouring into the failed banking system, which is resulted in nothing. Irrespective of the many suggestions and contradictions, governments are now in great confusion, and are jumping from one policy to the other. In Germany the government supports the car industry by giving a premium of 2500 € for consumers who are ready to crush their cars which are older than 9 years. In France, the government of President Sarkozy is pouring billions of Euros into the car industry to stop the economic down turn. Whether all these suggestions and supports could help regenerate the economy depends on many factors. The growth of the world market plays a decisive role, since the German economy relies heavily on the world market. That means the American and the Chinese economy must grow to a certain level so that demands for German cars and machines will rise. But the realities on the ground show that the economic situation in these and other countries is so bleak that there is no major turn up in the near future.

The Fate of Africa

The G-20 countries have promised to give over 700 billion of dollars to developing countries which are in a dire conditions. Because of the low demand of raw materials and price falls on the international markets, many African countries which are relying on one or few export products are hit heavily and could not finance the existing projects, let alone finance new ones. The world economy has been always operating against Africa, and many governments seem that they could not learn from the past mistakes. During the 1950s and 1960s, when export prices were high many governments believed that the situation will continue like that. When the oil crisis and the economic recession in 1973/74 hit them heavily, they must rely on aid and on IMF interventionist policies which have aggravated their economic systems, and narrowed the home market. Though, beginning the end of the 1990s raw material prices rose up again, many governments still thought that the economic growth in China and India could go indefinitely. As such the money what the African governments have earned could not be allocated in sectors which could expand the economic activities and create strong home market. Due to the weak policies which African governments have pursuing over the last three or more decades, the systems become more fragile, and could not build strong tax base.

During the G-20 summit, the IMF which was once discarded is now accorded with the same mission of helping the African economy. As seen over the last 6 or more months, the IMF intervention in Rumania, Hungary and other east European countries could not improve the situation there. While major Western countries are following active roles and lowering interest rates, the IMF prescribes its old policies for these countries. That means those countries which get the IMF financial aid must reduce state budgets; they must not invest in job creating economic sectors. They do not have to expand their home market by investing in multiple economic activities which have chained and multiplier effects. Most East European countries which have dreamt that the market economy will bring miracles and followed a strict neo-liberal economic policy are now confronted with situations which they cannot master them. Neither the pure integration in the European market economic activities and follow simple open-door economic policies could bring them real wealth. What happened is that as a result of neo-liberal economic policies few become richer and the majority of the people are thrown into abject poverty. The political corruption in many countries has worsened the situation, and many countries are now on the brink of collapse.

As these and other experiences prove that the IMF policies and the reorientation of many African economies to rely heavily on market mechanism by no means solve the deepening social and economic crisis in these countries. As in the past, the political elite benefits from such kinds of economic package, while the majority of the masses will remain poor. The past 6 decades prove that the political elite in Africa has no any concept of nation building, and is not willing to be engaged in wide range economic activities by mobilizing the masses and the resources which are available in abundance. The pure business making mentality which is spread in many African countries, prevent many governments not to see beyond short term gains. The logic of capitalistic production and reproduction system seems, is not well realized in many African countries. Innovation, developing newer technologies and helping small and medium size industries to build a strong home market is not in the interest of the African elite. In light of this indifference the neo-liberal prescription and the open-door policy which major European countries and America want to be followed strictly could not help Africa. Open door policies will destroy the existing industries and ruin the peasants. The result will be mass unemployment and continuous pauperization. Free trade and pure market economic policy could not bring Africa out of the present economic and social crisis. The one trillion aid over the last 60 years did not help Africa. This time too this supposed aid will never help the African masses, and the African governments will enrich themselves rather than developing a coherent economy. If the major industrial countries want that Africa must develop, a new kind of institution which is free from the ideological ballasts’ of neo-liberalism must be set up. What Africa needs is not only the creation of material wealth, but also the continent must spiritually be renewed so that the creative capacities of the people will be improved and decide over their fates. Only major institutional and educational reforms and political as well cultural renaissance set free new energy and bring new dynamism. The African problem is not a monetary problem. It is a cultural and mental problem which could be dealt only through a holistic approach. The main aim of this approach must not be as such to eradicate poverty, but to build a nation-state on the basis of big and small projects which are interconnected with each other. Only by thinking big one can eradicate poverty.

Fekadu Bekele, Ph D

Ethiopia - Let There Be Light - The Gilgel Gibe Saga, The Bond & Dilemma of the Ethiopian Diaspora

By Genet Mersha,

6 April 2009

The corporate bond issued by the Ethiopian Electric Power Corporation (EEPCO) to finance the Gilgel Gibe III hydroelectric project (GGHEP-III) has generated a lot of interest and serious concerns within the Ethiopian diaspora. Discussions on the blogs and other webpages on the matter reflect how much Ethiopians are torn between their sense of commitment to their country on one hand and concern with the behavior of the regime on the other. On its completion, the Gilgel Gibe dam will have 1870 MW electricity generation capacity and 6,400 GWh of average energy per year to Ethiopia’s interconnected system.

Those opposed to the government fear that buying the bond is tantamount to encouraging the TPLF/EPRDF to persist in its authoritarianism. Politics aside, some individuals struggle with themselves out of environmental consideration. Others worry about the prospects of GGHEP-III, whether the controversy surrounding it would spill over into the realm of the happy state of Ethio-Kenya relations and eventually impede the project’s fruition. For this, they point to the rising pressure the Kenyan government is facing from its citizens around the Lake Turkana region and the many professional international environmental campaigners that have joined hands. The fear is that Kenya may saddle off with the local and international environmental campaigners, thereby making the project a kiss of death from business point of view for potential financiers, perhaps forcing them to reconsider their interest and possible identification with it.

On the merit of the project, many Ethiopians are convinced that GGHEP-III is a great transformational opportunity for Ethiopia. Above all, to date electricity coverage of the country is 17 percent. The simple fact is that, in spite of its huge potentials, today Ethiopia is among the least electrified of Sub-Saharan African countries. If this state of affairs were allowed to continue, the awareness has sunk that the lives of our people would hardly improve. Nor would the country be able to ensure its continued survival by increasing domestic production and meeting local needs, improving productivity and trading gainfully with the outside world. Of course, everyone realizes that electricity facilitates innovation and enhances productivity.

Nevertheless, the positive recognition that the success of GGHEP-III would bring our country’s long journey a step closer to modernity and the threshold of industrialization and brighten the lives of our people is being challenged under every a few pretexts. There is no doubt that discussions both for and against the project emanate from citizens with genuine concerns for their country. Indeed it is one expression of the undercurrent of political polarization amongst Ethiopians that is crying out for solution. What is lacking in these debates, however, is an alternative suggestion by those opposed to the Millennium Bond, the absence of which seems to ignore the pressing needs of the country. For development experts, this situation has become a rich mine of live experiences revealing the extent to which unsettled political problems hamper national development no less than the lack of appropriate institutions, know-how, investment or the market for goods.

This article attempts to discuss the advantages and disadvantages of purchasing the Millennium Bond. In its first part, it responds to the invitation to me by a participant in a web discussion, alias Ehhron, who, in commenting on my article Ethiopia: Troubling Times & Troubling Actions (www.nazret.com of 30 March) asked for my views on the pros and cons of buying the bond. Here I am offering that view. Please note this write-up is not intended to be an advice to any one, but an attempt to shell out the relevant issues in the context of our country’s particular situation.

MAIN FEATURES OF THE MILLENNIUM BOND

Being the first of its type, the Millennium Bond is an experimental initiative. The bond is limited to Ethiopians with access to dollars, euros, pound, yens, Swiss franc, etc. Its success and failures would provide a wealth of information to both the government and the diaspora, although this many not be that opportune a moment for the diaspora, this being a time of economic downturn.

The minimum purchase requirement is USD 500. The interest payment is annual and the offer has three term structures of five, seven, and ten years of 4.0%, 4.5% and 5.0% rates respectively. The Ethiopian government has guaranteed the bond, with the Commercial Bank of Ethiopia (CBE) acting as EEPCO’s agent. Interest income is tax-exempt. When buying the bond, the investor is promised the option of opening a diaspora foreign currency account or direct cash payment by presenting a foreign currency declaration form.

This Millennium Bond is not a complicated instrument, since Ethiopia does not have a secondary market—a market for trading securities and bonds by original owners and/or their agents who happen to be in an immediate need of cash, or wishing to change their portfolio. In addition, the Ethiopian economy is not that sensitive to interest rate movements. Nevertheless, interest rate is fixed throughout the life of the bond. In that sense, it is much like a certificate of deposit (CD), that is, with no direct market risks.

However, rest assured that there is no free lunch. There are certain factors that would chip into the bondholders’ earnings or other charges. At maturity, the annual interest is paid in either foreign exchange to the account or in birr if one were to collect the proceeds in person while vacationing. The brochure expressly states that payment would be made at the prevailing exchange rate. Regardless of sources of income, inflation erodes value. If inflation is high, it affects the exchange rate value, as the bond is not inflation-indexed. Here we are not talking about the level of today’s inflation or its immediate effect, which could have been disastrous by any standards, in interest earnings were payments to be made today. This is more applicable especially to a person who would collect it in birr.

Suppose the global inflation average rate is five percent and Ethiopia’s ten percent. The five percent differential would sap out the strength or purchasing power of the local currency. Still another uncertainty is the fact that the Ethiopian birr does not respond freely to the real situation in international currency market. It is adjusted by the central bank, as needed. Moreover, it is important to remember that going forward no one can tell with certainty what kind of economic environment would prevail in Ethiopia and at the global level, even by the end of this year, and how the impact of time affects the value of money.

A few remaining considerations include taxation and bank service charges on both ends. First, a buyer of the funds must be prepared to seek clarification on payment of taxes in his country of residence, unless Ethiopia has signed treaty waiving double taxation with the country concerned. Second, when one opens an account or sends money to buy the bond, banks in the country of residence charge for their services, as would CBE since it is a bank living on income from services, among other sources.

Not a serious concern though, but a third issue is call risk, which is unlikely for EEPCO to seek a recall of the bond. Call risk occurs when the issuer decides to withdraw the bond half way through the term or at some point. The question is, how would call risk. Under normal circumstances, call risk occurs when interest falls significantly and the bond issuer realizes that it is paying high rate than the market and decides to make the bond callable to reissue it in line with the lower interest rate. In such circumstances, or when the bond is reissued at a lower rate, bondholders lose out on the original high rate of their bond. The objective of the corporation is to make a good use of its money (profitability).

In contrast, if at some point a bondholder is in need of money and contemplates to call CBE to cash in his/her bond, the line would surely go dead. Bond in a country without a secondary market is not a liquid asset to be converted immediately into cash. Therefore, he or she would have to sit put until its maturity.

Another consideration is what would happen to the bond, if the government collapses, or if EEPCO goes bankrupt. The two are inseparable, as EEPCO is government owned. In any case, with respect to government collapse, payment would not completely be lost, though it may take a bit longer time. Following international law and existing practices, the successor government would inherit the debt and would be required to settle it, unless Ethiopia goes the Somalia road. Once such instruments are issued, guaranteed by the government, the government is under obligation to honour it. Failure to do so not only create a bad image for the country internationally, but also discredit the government once and for all in the eyes of the diaspora, irrespective of whether they are TPLF/EPRDF supporters or not.

Furthermore, it would give rise to political pressures by the adopted home countries of the bondholders in defence of the hard-earned assets of their adopted citizens/legal residents. The international community would see such failure as a serious breach of contract by the government. In this context, suffice it to say that it is our national character and tradition, equally shared by successive Ethiopian governments, to loathe delay or fail to honour debt obligations.

The last point I want to raise at this point is whether the interest rates offered adequately remunerate capital (bond price). On the surface of it, besides the above-mentioned risks, an affirmative answer is inhibited by the fact that the rate is low. However, the offer has to be judged not only by the face value of the bond, but also within the context of the prevailing reality and what motivates the individual to invest in the Millennium Bond in the first place. If the motive is higher income, there may be better alternatives outside Ethiopia.

It is important to remember that bonds are good only when interest rates are high. Unfortunately, we will continue to live for some time to come in a low interest rate global environment. For instance, in the first weekend of April, the inflation-indexed ten-year US Treasury bond was paying 2.89 percent. The ten-year tax-exempt municipal bonds, the ‘munis’, in the US reached an annual yield of 3.44 percent. Similarly, in the UK, a ten-year bond pays 3.42 percent (source Bloomberg). On top of all this, sign of recovery in the world economy is unlikely to occur before the end of 2010 or early 2011, according to the latest revised international forecasts. Bear in mind also, our country’s economic tribulations have not yet begun in earnest, as the rest of the world is grappling with the dangers of deflation—falling prices.

GGEHP-III & ITS PROMISES

In shedding light on the importance of the GGHEP-III, a monthly international publication International Water Power and Dam Engineering writes, “The project's dam will be one of the highest in Africa, at 240m, creating a reservoir with storage capacity of 14.7 mm3 of water, while the ten turbines are expected to provide electricity from 2013. Claudio Lautizi, managing director of Salini, says that it is the largest hydroelectric project under construction in Africa. He added, 'As the price of oil is getting more expensive, hydro power could be the white oil of Ethiopia'. The project, which will be located in the Omo-Gibe Basin in the south-west of the country, will cost a total of US$2B including transmission sector requirements.”

In late February, when the African Development Bank (ADB) postponed its consideration of the project’s profile and its funding request for the dam, it created a sense of anxiety that it might decline. However, on 4 April, the manager of EEPCO disclosed to the media that ADB has given form commitment to fund it. While ADB’s commitment level is not clearly known, at least to this writer, it is estimated to be in the range of $200 million, out of the close to two billion dollars required for completion of the dam, including power lines.

According to the project profile document, “the government plans to increase electricity coverage from 22% in 2005 to 50% by 2010 and the number of customers from, 138,000 to 2.6 million. Establishing new connection to the grid requires that there is an adequate supply of power. The increase in generating capacity provided by Gibe III, together with ongoing rural electrification programmes will facilitate improved access to electricity for the Ethiopian population with associated downstream, benefits.”

In the periods between World War II and the present, Ethiopia’s hands had been tied, rendering it incapable of using its natural resources, partly because of the selfish interests of neighbouring countries, especially Egypt, and the collusion of international politics and finance. Thus, not only the previous two governments lacked the resources and fortitude, but also intermittent wars, conflicts and famine had misdirected resources and attention. As a result, the various energy plans that have been developed since the late 1960s remained stacked in government drawers until the mid-1990s the TPLF/EPRDF began dusting them off and bringing them up to date with newer projects included.

In the light of this, if a diaspora investor’s motive were to respond to an initiative that would transform Ethiopia’s future, surely there would be no better opportunity than this, despite citizens’ detestation of the authoritarianism of their government. As an Ethiopian, I strongly believe that GGHEP-III is a vital undertaking for Ethiopia’s economic future and its social development.

THE MILLENNIUM BOND & VOICE OF THE DIASPORA

Should Ethiopians be persuaded by their total and justifiable disagreement with government politics and reject this opportunity? If the answer to this question is in the affirmative, those opposed to GGHEP-III should come up with alternative proposals how to build power infrastructures for the country, ensure energy supplies and funding sources, lest rejection become tantamount to throwing the baby with the baby water. the country’s backwardness and the pressing urgency of necessity requires that politics should give precedence to the country’s vital interest on this matter.

Otherwise, opposition to a developmental project of such magnitude until we see the back of Meles, I am afraid, may share kinship with none other than smug complacency with backwardness. True, if Meles departs, perhaps one could assume reluctantly that a more amenable political environment for pluralistic democracy could be created in our country. Nevertheless, a delay of GGHEP-III would only compel the country to forego the lower opportunity cost today in preference to higher actual costs in future. The outcome of such a choice would be unbearable debt burden on the country, which the future borrowing would entail.

I am not saying the fact that Ethiopia gets electricity would solve all its problems. With Meles or without, Ethiopia needs to take concerted actions in all fronts of its national endeavours. Chief among these are:

Respect to the human rights and civil rights of citizens;

Freeing the civil service from servitude to the ruling party whose short-term interests often conflicts with the national interests;

Democratizing the country through the building of an independent institutional mechanism as a vehicle to assess continuously the country’s steps along the path of democracy by submitting to the public and parliament official reports on progress and setbacks. Countries such as Indonesia have garnered great benefits from such an approach and have become confident in the future of their democracy;

Resolving the agricultural problem through national consensus and modern scientific methods free from party political entanglements;

Bridging the ever-widening chasm between the regime and the educated citizenry and ensuring that national development, especially economic growth is broad based.

Equally, the Millennium bond provides an opportunity for the diaspora community to prove its financial strength and cultivate its influence on national politics. To date, at least, until economies in the developed countries began to nosedive, remittances from Ethiopians abroad have figured second or third place after export earnings and foreign aid. Some estimates put its share as high as 3.3 percent of GDP. The 2007/08 figures from the Ministry of Finance come close to that estimate, as I touched upon en passé in my article of 5 February 2008 entitled, “THE CASE FOR MUCH NEEDED REFORM: IS ETHIOPIA’S ECONOMIC GROWTH SUSTAINABLE? (www.abugidainfo.com). It shows that the senders of such monies wield considerable potential power the impact of which has so far been diminished by its fragmentation. Were the diaspora were to act in an organized fashion on a platform of common cause with the nation, it could have given them a weighty say in our national affairs.

If this influence is to be exercised responsibly, to start with, it could weigh in on the style of governance in our country mostly by restraining the ‘l'état, c'est moi” attitude—literal meaning—‘I am the state’. One gets a better sense of this phrase when the oft cited expression of Ethiopian leaders—‘mengedun cherq yargilach—is translated in Amharic. History has initially documented it to expose the arrogance of power exhibited by the defunct French monarchy centuries back, although it is still maintained by Ethiopian leaders. Therefore, a deliberative use of that power by the diaspora could have forced the TPLF/EPRDF regime to curb its hostility toward educated Ethiopians in general and its strident campaigns against Ethiopians in foreign countries in particular.

At some point, if careful thought and framework is given to it, this diaspora financial strength may open up lines of communication that could bring sanity to our political processes and contribute to the speed of democratizing our country. In a country with weak opposition parties internally and fragmented entities in the diaspora, perhaps the time has come to assess how such influence could be utilized in future. I see the possibility of it in bringing many citizens to focus on more practical goals and work together to be able to provide the much needed support and encouragement to those in the country who have genuinely committed themselves to bring better days to Ethiopia and to all Ethiopians, irrespective of religion and ethnic origin.

THE GGHEP-III SAGA & THE ENVIRONMENTAL LOBBY

Earlier I touched upon the growing rage of the international environmental lobby against Ethiopia and the Kenyan government. With their consistently anti-dam philosophy anywhere and everywhere, environmentalists from different countries have bandied together opposing the construction of the Gilgel Gibe III dam. Their campaign papers discredit the environmental assessment done by Ethiopian experts, in most instances even without verifying the accuracy of their information. For instance, a case in point is the opposition by International Rivers (www.internationalriviers.org), one of its charges against Ethiopia being, “the project is a commercial one: they [Ethiopia] want to make money selling the power elsewhere, not provide power to their own people. For Kenya, it’s a matter of allowing one part of the country to be devastated so that others may get a little more power.”

I am doubtful that the Ethiopian and Kenyan governments could promote their interests by conspiring against their citizens. Moreover, there is nothing wrong with the marketing aspect of electricity, once the country has met its local needs. However, if government were to give priority to exporting power, that is, without electrifying the countryside, I fully share their concern. Nonetheless, there is a public pledge by Ethiopian officials that not a single watt of electricity would cross Ethiopia’s international frontiers before the country’s needs are addressed. Electrification of the countryside is also put as one objective of the five-year national plan. Not that the regime is known for keeping its promises, still should its pursuit of foreign currency prevail, the Ethiopian diaspora should be prepared to engage in a sustained campaign to expose government irresponsibility in abandoning the welfare of its own people.

Environmentalists and the world media have justifiably raised the issue of consultations with the local people on their priorities. The chorus of condemnations in this regard is not surprising, many around the world being aware of this government record of disregard to respect for fundamental human rights. Personally, I associate myself with their scepticism about the level and nature of prior consultations with the population around the areas of the tributary rivers and the Omo, where the humongous dam is likely to upset their way of life and natural habitat. The environmental assessment programme covers all issues affecting the people and seems to be in order, if it is implemented, as indicated in the study. In the event that its conclusions are not any different, the mission the Italian government is planning to send shortly to review the whole situation would also strengthen the Ethiopian impact assessment of construction of the dam.

Having said that, I must confess I am already fully warmed up by idea of the benefit those long forgotten people would derive once the project is up and running. Of course, this is assuming that simultaneously with the building of the dam appropriate support and developmental projects, including resettlements, should have been conceived and implementation began, instead of staking credibility on the cash compensation to be paid to the affected population as a sign of commitment. Nonetheless, if consideration of their habitat is to be given priority over construction of the project, I am certain that this would only relegate the population there to an eternity of backwardness—a status of abandonment that has prevailed for many ever since Adam and Eve were expelled from the Garden of Eden. Hence, on this front the diaspora should be prepared to keep its eyes open and be at the forefront to defend the rights of those people.

Equally valid is the criticism regarding the awarding of the construction contract to an Italian company Salini Construttori S.P.A, without international bidding. There, the government has disgraced itself with its habitual haste to err and disregard for legally acceptable standards in this matter. There is no doubt that it has miserably failed the transparency test. This has provided the World Bank additional reason to refuse funding for the project. The Bank’s argument is that there is not sufficient energy demand in the country to justify such a huge investment.

At this stage, where the construction has progressed with boring deep into the ground and tunnelling through forbidding terrains, heavy costs have been incurred, and, therefore, irrespective of whoever is contemplating the notion of termination of the project is ill advised and inconsiderate of the vital interests of the country.

Consequently, however, aware that the transparency question is legitimate, it is important for government to make the terms of the contract including the costs public information. I might add that this issue should not cast stain on the integrity of the Italian company, given its highly appreciated standard of performance in Ethiopia running several decades in contractual agreements undertaken by successive Ethiopian governments.

WHY THE MILLENNIUM BOND TO THE DIASPORA ONLY?

Bonds are debt instruments to the issuer—governments and corporations alike—and a source of regular income to its owners during the life of the bond. This is also true of the Millennium Bond, which is issued to finance GGHEP-III. Its issuance is an indication of the seriousness of foreign exchange shortage in the country. The government’s intention is to raise as much foreign exchange as possible exclusively from the Ethiopian diaspora. Government is aware that the bond would be dead on arrival, if it were offered at the international bond market due to the unfavourable international ratings it would receive. Foreign investors would be disinterested in this bond mainly for the following reasons:

First, as mentioned above, the rating is problematic. There would be concern that the high risk it entails for capital is not matched by comparable remuneration with the present offer being at a low rate of 4.0% to 5.0%.

Second, analysts would tell investors that the economy is undiversified, mainly because of the country’s low level of development. While they are aware that Ethiopia has benefited immensely in recent years from the improved global economic environment, the economy remains fragile and its fundamentals iffy, especially as the last three years of macroeconomic instability have shown. Internally, factors driving inflation range from drought to unsound policy measures. Sensitivity to external shocks is strong, at times their impacts devastating— especially the escalating prices of oil, chemicals and food imports, as the 2005-2009 levels of inflation and the unbearable level of prices have shown.

Another factor is the rigidly backward structure of the economy and the country’s self-imposed landlocked condition that hampers higher production, gives rise to chocking economic problems, eats into profitability and depresses productivity, thereby contributing to chronic economic difficulties. On government side, this imposes the need for constant borrowing and accumulation of internal and external debts that are barely sustained by matching increases in domestic production and exports. That is also the primary reason for the chronic imbalances in the balance of payments and the constant shortage of foreign exchange.

Thirdly, foreign investors do not see Ethiopia as business a friendly country. The economy suffers from excessive political interference and arbitrary controls, hence the main factor for Ethiopia not to enjoy a surge of foreign investment or higher per capita foreign aid. Consequently, the lack of confidence on the part of the fledgling private sector has restricted its role in the economy, although in recent years the pressure from donors and the World Bank has shown a few encouraging signs. Nonetheless, these gains are often undermined by impulsive government actions at every turn.

Fourth, for foreign investors Ethiopia’s stability as a Horn of Africa country is a source of constant concern. Government is unpopular; there are open conflicts in the east, a no war no peace situation in the north and the presence of ethnic and religious conflict concerns that the government has recently attributed to some government officials trying to exploit the situation. Low intensity conflicts exist in the different parts of the country, although their impact is limited. In the eyes of many observers, Ethiopia is one of those few countries that continue to lose its trained and experienced manpower even in times of relative peace.

In brief, government’s choice of the diaspora as market for its Millennium Bond is a tacit acknowledgment of the above-enumerated hindrances.

Related Links

Friends of Gibe - Full steam ahead የ ወንዤ ልጅ

ADB officials express commitment to finance Gibe III

Gilgel Gibe III managers dismiss environmental concerns

The World's tallest dam is under construction in Ethiopia (BBC News)

Gilgel Gibe dam unites Ethiopians in Cyberspace