Unresolved inflation of Ethiopian market
Inflation has been steadily rising since Ethiopia’s economic growth. Inflation in the Ethiopian market has risen sharply since 1998. Twice there has been inflation. One was in 1998. It had a rate of up to 40 percent. Global inflation was a major factor in the rise in inflation. High inflation has been another factor in inflation. Then in 2012. Similarly, inflation of nearly 20 percent occurred. The inflation follows the departure of former Prime Minister Meles Zenawi. Eight years later, in 2013. Inflation is over 20 percent.
The current inflation is alarming and different from what it has been so far. Inflation is up to 5 percent economically recommended and healthy. If inflation is more than 10 percent, it is stressful, and 20 percent to 50 percent is extremely dangerous. The current crisis in our country is more than 20 percent, so we need to be careful. There are accumulated and historical reasons for this inflation. In today’s article I will try to address these reasons.
High cash flow
Economics has linked inflation to monetary policy. If there is a high level of emissions in the economy over the years, the emissions will increase the demand for social goods. If a product does not grow according to the growing demand, inflation will occur.
Studies show that inflation is a major factor, especially in developing countries. Developing countries release large sums of money into the market for economic development. However, they will not be able to create a supply chain that will meet the demand for the product due to the emissions. As a result, inflation occurs. It is a fact that the government acknowledges that the government has been releasing large sums of money into the market over the past decade, which has exacerbated inflation.
Lack of a developed market system
Most developing countries have a long history of economic domination. When these countries enter the market-led economic system, their markets will be disrupted as they do not already have a well-organized and strong market system. In countries where the market is dominated by the government, the market for the masses is weak. When they enter the free market with this poor market management system, there is a serious economic crisis.
The market system in Ethiopia, for example, is not responsive to inflation. According to economic science, as the price of a product increases, so does the amount of production. An increase in product prices will cause the manufacturer to produce more. In the Ethiopian market, however, commodity prices have increased, but we have not seen an increase in production. This shows how volatile the market is. It is the broker and the trader, not the producer, who are benefiting from the price increase. Although there are many producers in the Ethiopian agricultural sector, there are few distributors. There are also few importers of basic commodities. Some sectors are in the hands of a few. The sheer number of actors and brokers in the market chain puts pressure on the market. The value and reliability of these products to the market without adding value to the product has played a key role in exacerbating inflation.
Weakening of financial institutions and capital capacity There is not enough capital capacity to invest in Ethiopia to produce enough products. The government lends most of its loans to banks. In addition to loans, the biggest investment in this country is government.
On the other hand, the profit margins of the banks are very low and the participation is low. The country’s economy is based on cash, which has left banks without sufficient credit. Only 10% of the population saves and saves money in the bank. Due to limited resources, banks are not lending enough money to individuals or groups seeking loans. This has led to a lack of strong investment in the country.
There is a high birth rate in developing countries. When the EPRDF joined, Ethiopia’s population was 25 million, now more than 110 million. But the country’s growth has not slowed down. There is a huge gap in terms of making new manpower skilled and productive. If the population does not become more productive, it will increase demand. If this growing population is not productive, there will be a shortage of produce. He is experiencing. Eighty-five percent of Ethiopia’s population is subsistence farmers. It also has a high birth rate in this part of the country.
In recent years, there has been a lack of capacity for rural communities to build their capacity. It is the rural youth who are migrating from the countryside to work in the suburbs. If there was an opportunity to increase productivity while supporting young people, demand could be increased by increasing production capacity. But this has not been the case over the years.
The problem of industrial policy
The fact that our industrial policy is based on foreign trade has been one of the reasons why this country’s supply chain has not grown. For the past six months, most of our exports have been taxed. Next comes the mineral. With the construction of several industrial parks, the construction of all those asphalt roads, the share of the industrial sector is about 15 percent. The benefits are no better than agriculture.
An industrial policy that encourages foreign trade is a policy that has failed in the experience of many countries. While industries can focus on replacing previously imported products, they can also address domestic production to some extent. Over the years, these problems have become the main reason for the current inflation. In order to solve these problems in a sustainable way, investment opportunities need to be created. Strengthening the capacity of financial institutions is key.
To clear the illegal actors in the market so that the market system can be trained; In order for a product to be easily accessible from manufacturer to consumer, the marketing process needs to be streamlined. The farmer’s son needs to be able to become an entrepreneur while he is there. Job creation and bureaucracy-related bureaucracies must be called for and efficient services provided. When bureaucracy is addressed, investment will expand. As investment expands, productivity grows. As production increases, market prices stabilize.