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HEGEMONIC TROUBLES
The current world system with the US as its hegemon is delving more and more into deep trouble. The old ways of doing things are hitting the wall, so to speak, but entrenched interests don’t seem to notice. From geopolitics to globalization, from ecological limits to ethnic rife, the global status quo is rapidly unraveling. The economic paradigm, which has always been based on cheap energy, is running out of steam or rather fuel. What keeps the phony façade of societal stability going is the well-orchestrated hype of incessant economic growth and frequent warmongering. These two notions are systemically inculcated into the psyche of the global sheeple to make it docile and pliable, but the hidden truth is finally coming to the fore, with vengeance one might add!
The manipulation of nature or what we anthropomorphically call progress is, to a large extent, the result of cheap, abundant and very convenient source of energy. However, this fossil fuel based civilization cannot be sustained at this rate, both from the point of view of extraction as well consumption. The ‘sink’ required to store the waste products arising from the burning of fossil fuel as well as associated activities, is also being exhausted and imbalances are showing up all over the planet. Natural limits to the misguided activities of Homo sapiens or the ‘limits to growth’ don’t seem to affect entrenched interests and their servile drones. As long as overall dominance over pro-life alternatives, supported by critical analyses is secured, the status quo is happy. In this regard, the willful abandoning of even basic reasoning by the reigning hegemon is quite scary. For instance, the hegemon has rejected the Paris climate agreement, inadequate as it is, without offering meaningful alternative in its stead. Doubling down on mistakes seems to be its vision of the future. Obviously, the hegemon still commands immense economic power, mostly due to its globally imposed monetary system. The US dollar is the acknowledged global reserve currency. Even in this domain, the hubris of the hegemon has started to undermine the dollar regime. De-dollarization is now an accelerating phenomenon. In addition, SWIFT (Society for Worldwide Interbank Financial Telecommunication), a US dominated entity, is being reconsidered even by the hegemon’s own allies, like the EU, Switzerland, etc. China, Iran, Russia, Turkey, etc. and other resource rich counties like Venezuela are systemically distancing themselves from the US dollar!
Even though militarism is still the hegemon’s forte, its overreach might undo its virility. With around 1000 military bases scattered all over the planet, with a combined budget of about a trillion dollar, the hegemon commands massive destructive capacity. Nonetheless, such a colossal fighting machine can hardly be sustained in a world of increased scarcity and strife! Besides, military adventurism and overextension has always been the ‘Achilles Heel’ of empires. What is even dangerous as well as sad about the implied intention of the current hegemon is its unreasonable conviction to control the whole world and subjugate the global population to its whims! The flawed doctrine of ‘full spectrum dominance’ can easily lead to WWIII. In the era of WMD (Weapons of Mass Destruction) this reeks of lunacy! From the way ascending powers are organizing themselves, it is obvious that no military power can ever achieve full control/dominance of the planet! To start with, rising powers are more than capable of challenging or thwarting off the hegemon’s many moves. Many of the strategic arsenals the hegemon used to rely on have been rendered useless. In the face of more advanced weapons systems (anti-symmetric) being developed by Russia and China, the hegemon is well advised to refrain from costly and unnecessary military adventurism! Moreover, all the countries of the world that feel threatened by the hegemon are coalescing together, in order to defend themselves from covert and overt planned aggressions!
SCO (Shanghai Cooperation Organization) is a case in point. This organization was set up only in 2001 and has managed to incorporate under the firm principle of ‘multi-polarity’, the countries of Russia, China, Kazakh/Kyrgyz/Tajik/Uzbeki—Stans, India and Pakistan. Iran, Turkey and many others are clamoring to join. The BRI (Belt and Road Initiative) of China/ the Silk Road is giving economic impetus to this emerging multipolarism, which is directly challenging the prevailing unipolar world. All in all, instead of coming up with new accommodating policies in all spheres of human affairs, the reigning hegemon keeps on pushing its unrealistic ideology of ‘full spectrum dominance’ by ‘sabre rattling’! Unfortunately, this is the way empires crumble,
Financial liberalization: GO SLOW AND STEADY TO WIN THE RACE
This administration is in a tight spot. Once again it put itself there.
Its economy is at a standstill, unemployment is high, very (very) high. The Birr continues to plummet against the Dollar, contributing to high imported inflation. And now with the war in Tigray the country faces more tragedy. The current crisis in Ukraine is also one out of a handful of crises that may rival the COVID-19 pandemic in its scope and long-term impact.
Things are not going well!
In all this, we hear the intention of the Prime Minister to open the banking sector to foreign financial institutions “to keep pace with the growth of our world and to compete with the banks of other countries as well” as he puts it. He said he will not protect local banks anymore; they had the market for themselves for too long.
These locally owned banks are getting nowhere – it’s time to bring out the big guns!
The opening-up of the banking sector to foreign participation should be a key decision within a broader reform strategy. In fact, Ethiopia’s banking sector and its financial system in general remains small and under-developed; it still is relatively undercapitalized and saddled with non-performing loans (NPLs). In terms of monetary aggregates, the ratio of M2 to GDP still remains low, implying a small banking sector even compared to many Sub-Saharan countries.
Prior to the 1990s, the development of Ethiopia’s banking sector was slow, with only one dominant state owned commercial bank. Today the number of privately owned banks has grown to 29 and is still growing. The profitability in the banking sector has also been higher than other countries in Africa.
Doesn’t this imply positive signs of financial sector development? Note this happened despite few to no significant measures taken to overhaul the sector. In fact inertia had set in for a long time, except for shock responses during periods of crises.
On the other side, many people take it for granted that external financial liberalization is desirable on efficiency grounds: it is said to have positive effects on the level and allocation of investment, and these efficiency gains more than compensate for the loss of policy autonomy, i.e. reduced ability of governments to achieve national objectives by using the policy instruments at their disposal. A very questionable proposition.
Impact of foreign entry on domestic banks
Some of the most positive impacts include:
The introduction of state of the art technology and training for domestic bankers: Foreign banks are familiar with sophisticated financial instruments and techniques, and have faster and cheaper access to international capital markets and liquid funds.
Studies suggest that foreign banks presence encourages other foreign firms to invest in the domestic economy.
Studies also indicate foreign banks (assuming the foreign banks healthier than domestic banks) improve the functioning of national banking markets, both by increasing the degree of competition and by introducing a variety of new financial products and better risk management techniques.
It’s argues that the entry of foreign banks may have positive effects on employment and wages in the sector.
The main apprehensions
First, despite the almost universal assumption, studies suggest that the positive relationship between financial liberalization and economic growth is rather weak in the case of developing countries.
Second, foreign banks may not address directly issues of poverty and the access of low-income and rural-based savers and borrowers to financial services. In most cases only wealthy people gain from financial liberalization.
Third, foreign banks have historically followed their home-country customers to the emerging markets, they are often seen as specializing in servicing large corporate customers, either multinational companies or “cherry-picked” host country large corporations. This has led to concerns that some segments of the market – rural customers, small and medium-sized firms – would be left unattended.
Fourth, foreign banks appear very cautious about lending to smaller firms because of their limited knowledge of local industry. They usually attract better credits with more sophisticated products and marketing and have “deep pockets” to put domestic banks at a competitive disadvantage.
Fifth, foreign banks are said to look at lending opportunities around the world and may neglect the host country economy if its prospects deteriorate or if prospects improve in other countries Domestic banks, by contrast, are more committed to the domestic economy, in the sense of having both longer-term business relationships with customers and a patriotic affinity with the national interest.
Sixth, foreign banks are also less likely than domestically owned banks to heed exhortations by the domestic authorities to maintain lending during recessions. In some cases, foreign banks have been less cooperative in rescheduling loans in times of crisis.
Seventh, there is also concern that foreign banks may dominate the inward and outward flows of capital through capital and money-market transactions; credit operations; personal capital movements; etc. This may cause foreign exchange and liquidity shortages, with potentially adverse effects on the country’s capital account.
Eighth, the existing tendency to encourage residents to hold foreign exchange deposits with banks at home, can push these residents to withdraw their funds from the locally owned banks in favor of the foreign banks, increasing the accumulation of foreign currency with the foreign banks.
Ninth, foreign banks will provide needed credit to borrowers if they are certain they will get back their money in foreign currency.
It is evident from the preceding discussion that there may be both economic benefits and costs to be derived from financial sector liberalization, in particular from the entry of foreign banks and the privatization of state-owned banks. So the question authorities should ask is: how to balance the market share between local and foreign banks.
One way is to make sure local Ethiopian banks retain at least half of the market. Another way is to restrict foreign banks’ activities is to require that these banks have a minimum capital double that required for domestic banks. The government may also consider to diversify the number of foreign banks to avoid domination by a single or a couple of banks, or it may restrict their activities to doing business in foreign currencies only, or to doing business in local currency in only one or two cities.
More and more countries are realizing that they have long lost their financial sovereignty and fallen into the hands of institutions beyond their jurisdiction. And once it (sovereignty) is lost, it is usually lost forever and with it, those invaluable powers that enable a state to protect and govern itself as its people see fit.
Can the administration do anything about it?
There may be eagerness by the administration to open up the banking system to foreign competition quickly, but for now we can only say, start by upgrading the capacity of domestic supervisory authorities, increase the size of their staff in order to supervise the more sophisticated activities and new products that are usually introduced by foreign banks. Before supervisors gain sufficient skills, they may be exasperated by highly sophisticated foreign bank operations, not knowing what questions to ask, or not being able to convince the authorities to withdraw the licenses of institutions with suspect operations. Remember foreign banks often are at least one step ahead of the supervisors.
The administration may also choose to limit the degree of foreign ownership for a specified period of time in an effort to help domestic firms to prepare for future competition and enhance the quality of governance.
Finally financial liberalization is not a panacea for Ethiopia’s broader economic problems. It will not solve all of Ethiopia’s economic problems. It may be an important component but not a sufficient condition for development. To attain sustainable growth and poverty reduction the government should at the minimum, ensure macroeconomic stability and a high investment-to-GDP ratio, put in place reliable accounting and legal systems, construct stable political conditions, as well as responsible government institutions, and sequencing of reforms in order to reap the prospective benefits of financial internationalization without falling prey to its potential costs.
CZECH-ETHIOPIA TIES
The Czechs and Ethiopians have long standing relations that interestingly date back to the 17th century. In the current modern world, the Czech Republic has remained an integral partner to Ethiopia. In light of these ties, Capital’s Metasebia Teshome reached out to the Czech Republic’s Ambassador to Ethiopia, Amb. Pavel Mikes, for insights on past and current blooming relations. Excerpts;
Capital: What prompted you to choose a profession in diplomacy?
Amb. Pavel Mikes: In my younger years, I had a deep interest in foreign countries and languages. Moreover, I’ve been interested in Africa since my childhood. I grew up in České Budějovice, and one quite famous Czech traveller, Ladislav Mikeš Pařízek, was born in our city and lived there for quite a long time.
I was inspired by him and also by two names known to every Czech ‘schoolboy’, no matter if he’s six or sixty, Jiří Hanzelka and Miroslav Zikmund.
They made a spectacular trip around Africa in 1947 and 1948 and wrote a book, Africa, the Dream and the Reality, which became kind of a holy scripture for everybody who was interested in the outside world during the Communist era.
Following that spark, years later, I was fortunate to study African History and Linguistics at Charles University in Prague in the 1980s. Despite not being allowed to travel to the continent under communism, I managed to learn fluent Swahili and Amharic, the dominant Ethiopian language, along with English and French. After a long career in academia, I joined the Czech Foreign Ministry in 1999, and have since served as head of mission or ambassador in several other African and Middle East countries including Yemen, DR Congo, Nigeria, Mauritania, Zimbabwe, Guinea and now Ethiopia.
Capital: How would you characterize the current state of relations between Ethiopia and the Czech Republic? How far does the Czech- Ethiopia tie stretch in the past?
Amb. Pavel Mikes: We have had long and fruitful relations over the years and we currently have great relations. Of course, as the ambassador, it is my wish and task to see our relations flourish to even greater heights.
Our business relations date several decades back, which consisted especially of importing leather, intestines to make sausage casings, and arabica coffee. In the 30s during the fascist invasion, Czechoslovakia supported Ethiopia both diplomatically in the League of Nations and delivered arms to the Ethiopian army. Czech even served alongside Ethiopia’s soldiers at the war front.
It’s something the Ethiopians were very grateful for because not many countries helped them at that time. And if you go to the ethnographic museum in Addis Ababa, you will find a nice example of a machine gun with ‘Made in Czechoslovakia’ written on it.
But our relations are older than that. The Czechs learned about Ethiopians in the middle ages through contacts between Czech and Ethiopian pilgrims in Jerusalem. In the 17th Century, Czech Franciscans, Catholic missionaries, went to the Imperial Court in Gondar, stayed with the emperor and wrote a book about their experiences in Latin, of which the description are in Prague in the archives of the Strahov Monastery.
Then, in the 19th Century, a few Czechs travelled to Ethiopia. The most prominent is Antonín Stecker, a medical doctor, who served as the doctor for different Ethiopian emperors in the 1880s. He wrote many articles published in the prominent Czech newspapers in that time.
Capital: What are the main projects, events, or activities that the Embassy is currently hosting and working on?
Amb. Pavel Mikes: The Czech Republic’s activity in Ethiopia is catalyzed by a strong bilateral development cooperation programme which is in line with the Ethiopia’s needs and development priorities. We are active in, agriculture and rural development, ensuring universal access to safe, nutritious and sufficient food at all times of the year. We do so by introducing sustainable soil and landscape management strategies.
We also focus on sustainable management of natural resources by ensuring universal and equal access to safe and affordable drinking water in addition to adequate sanitary and hygiene facilities, with special regard to the needs of women, girls and young children. We also build sustainable drinking water supply systems.
In addition to bilateral development activities, the Czech Republic is ready to provide humanitarian assistance to Ethiopia when need arise, primarily in the event of major disasters or increased influx of refugees from neighboring countries and also in response to comprehensive and long-term humanitarian needs. We are also keen in cooperation within the health sector.
We also offer scholarships, which are provided by our government within the framework of Foreign Development Assistance. Scholarships are earmarked for Ethiopian students as every year. They are offered to students who wish to study their Master’s or Post gradual degrees in the Czech Republic. The study programmes are available in the English language with recommended fields in Geology, Forestry, Agriculture, Environmental studies, Energy, Engineering, Mechanical engineering, IT, Mathematics, Statistics, Economics and Finance. Currently, the scholarships were opened as of July 30, and will be closed on the 30th of September.
We also have a reforestation program in line with the green legacy for peace initiative. Furthermore, stemming from our very intensive cultural relations, the Embassy often organizes an exhibition of Ethiopian painters and sculptors called Ethiopia in Czech Colors.
Currently, we are preparing an exhibition for our development activities which will take place at the Hyatt Hotel on the 27th-28th October, 2022.
Capital: What needs to be done to further bolster the political and economic ties between the two nations?
Amb. Pavel Mikes: Currently, the Czech Republic and Ethiopia have very close relations. Our links are wide and strong and cover all areas. We have good political relations and we fully support the Ethiopian government in its endeavor to secure peace for the whole of the country.
With regards to the economic exchange, we can strengthen our economic ties by creating conducive platforms for the exchanges of business ideas. We can also have an exchange of ideas in academia and art, which are economic drivers as well.
Capital: Over the past few years, Ethiopia has seen a lot of conflict in a variety of locations. What have you done to try and end this conflict?
Amb. Pavel Mikes: As I mentioned, we support the just cause of Ethiopia in many ways. We appreciate and support the Ethiopian Government´s will to negotiate a peaceful solution to the conflict in the north and bring peace to all Ethiopians amongst providing humanitarian assistance when need arise.
Capital: What is your nation’s position on the ongoing conflict between Russia and Ukraine, and what is the best way to put an end to it?
Amb. Pavel Mikes: We stand on the position of international law and the respect of sovereignty and human rights.
Capital: The Czech Republic was singled out as one of the greatest economic accomplishments of post-communist Eastern Europe because of its ability to keep unemployment and inflation low while maintaining consistent development. What is the hidden meaning of these tales?
Amb. Pavel Mikes: The Czech Republic inherited a very strong industrial base. Through hard and bold economic and financial reforms we managed to change our economy from state owned to mostly private owned, and modernized our industry in the process. The opening of our economy to foreign investors, and at the same time a newly gained access to foreign markets helped our economic growth. Being a member of the EU also means that our market is a market of 500 million consumers, which helps a great deal to our success.
Capital: Please list the top priorities for the Czech Republic’s EU Council presidency. What function do catastrophes like the COVID-19 epidemic and the Ukraine conflict have?
Amb. Pavel Mikes: The top priority of our presidency is the war in Ukraine. Then energy prices – electricity and gas are other big priorities, especially because our winter is fast approaching. To solve this problem the Czech Republic is looking for European solutions.
Capital: Is there anything you would like to add?
Amb. Pavel Mikes: I wish all Ethiopians a happy new year; and let the New Year be a year of peace, prosperity and happiness for all Ethiopians.
