One of the most unnerving things about analyzing politics in Ethiopia has been the need to start thinking in terms what financial analysts call “tail risk” the likelihood that events normally considered rare or unlikely will actually happen.
Five years ago, most pundits would have described as exceedingly small the likelihood of someone like Dr. Abye Ahmed a junior minister who had no political experience at all being elected prime minister. Yet it happened.
Two years ago, epidemiologists would have given a range of probabilities on the question of whether a pandemic would soon kill millions around the world in the space of 10 months.
Six months ago who would have predicted that the Federal Government would declare a state of war on TPLF?
Conditions in Ethiopia today resemble those of 1970s Ethiopia. The country is sliding for yet another civil war. Already the ties that bind us are fraying at alarming speed we are becoming contemptuous of each other in ways that are both dire and possibly irreversible.
One of the oddities of civil war is that it’s hard to say, except in retrospect, when a nation has passed the point of no return. Once you have crossed that fateful border, there’s no possibility of turning back.
Is that where we are today? For the answer to be “no” means either that one side in this devastating political conflict will simply admit defeat, or that there will be some softening of grievances, followed by a negotiated settlement. Does that seem likely?
You tell me.
What if civil war isn’t what we should be worried about but instead something different? Something like the Derg’s Red Terror, perhaps?
That’s even more terrifying. But let’s stick on the civil war issue, for now.
Looking at the deepening rift in Ethiopia between the administration of Abye Ahmed and the insurgents in Tigray the fundamentally incompatible visions of Ethiopian nationhood that the two factions hold, the huge damage already done, the scope of the humanitarian crisis, the thousands of people killed, and the implacable fury with which they grapple for every atom of power – can any of us imagine some way forward in which this Government and the people of Tigray just “bury the hatchet” and “hug it out”?
The war in Tigray will definitely tear apart the social and economic fabric of the country. The number of casualties is devastating, but the war is also destroying the institutions and systems that societies need to function, and repairing them will be a greater challenge than rebuilding infrastructure a challenge that will only grow as the war continues.
Some voices are beginning to be heard on the question of whether or not Abye Ahmed’s administration has the means to defeat the increasing insurgency in Tigray, prevent a possible conventional war with Sudan and its allies, resolve the GERD issues, halt the Eritrean forces (which cannot be labelled as pacific) from rampaging Northern Tigray, and the various internal ethnic strife and violence haunting the country today.
Is Abye Ahmed the right man to untangle this mess? While at the same time remake Ethiopian society… remold its economy… and reshape its politics?
Can he? You decide.
No matter how hard the administration tries to pacify Tigray, it will always prove to be unpredictable. The TPLF forces will certainly make sure the region remains in “not peace” condition, along with all the economic and security ramifications. As far as we know, no one has succeeded in making a country prosperous while waging a civil war.
The government and particularly the Prime Minister needs to be far more honest about the crisis in Tigray. It is far from clear how it (the Abye administration) plans to end the war. In any case, if it wins some form of tactical victory, the country still must live with the reality that follows, and purely military solutions will always account to the equivalent of cut and run. If it (the Abye administration) loses its grip, the wrath of the masses may be impossible to contain. Ethiopia with a history of cleavages and civil wars, and diverse population and socioeconomic disparity can be catapulted into Balkanization.
The question is, can this outcome be avoided?
At this stage it may require some miracle. But still, the Abye administration or the coming administration should give priority to stopping the war, first by withdrawing its forces from Tigray unconditionally and avoid, further social disintegration, political breakup, or collective nervous breakdown. Second, it should demand the withdrawl of Eritrean forces from the territories of Tigray. Third, it should seek mediation to end the conflict, and fourth it should mobilize sufficient buy-in from external actors to support the entire process.
There is no easy solution to this complex and destructive war, but if our leaders are going to follow advice our intuitions tell us that external actors play a crucial role in determining how (and whether) civil war concludes.
Don’t waste time on excuses. Do the right thing!
Hard to argue that war is for the defense of people
APPROPRIATE TAXATION
It is generally assumed those who benefit from the reigning economic system (in a given society) should pay tax. It is also assumed those who disproportionately benefit from existing setups, should pay even more taxes. But like water, capital flows to areas of least resistance. The thing is; investment in areas of least resistance might not be what a society wants at a given time and space. To encourage those who are tackling the important and relatively difficult tasks within a society, states usually devise compensatory tax regimes. If a tax system fails to properly address the various sectors of a given economy, rather equitably, rent will soon start to dominate economic activities. Beware; easy money doesn’t build character. If anything, it promotes degeneration, as is visible in many parts of the world system where parasitic oligarchs reign!
‘Unearned income’ is a phrase used to denote net revenues that accrue without much hassle. Rents of all kinds (real estate, financial, mineral, land, etc.) fell into this category. Therefore, taxes must take into consideration the light efforts expended to earn these respective (rent) incomes. In general, those who benefit from rent tend to be numerically small, yet they are politically powerful. Tampering with their interests can cause political disruption. In a society where election matters, politicians (most likely) will not get elected by promising to increase tax, especially in the urban sectors of the world system where rent is deep rooted. On the other hand, there are critical sectors of an economy where there is hardly any profit to be made. For example in Ethiopia, the agricultural sector is very important and sustains the livelihood of about 80% of our population. This sector is not lucrative, hence is hardly taxed. As a general principle, work and rent must be clearly delineated so that operators are made aware of their obligations, particularly in regards to taxation.
Earning decent income is becoming very difficult, all over the world. Without accounting gimmicks over 60% of businesses in the mature economies of the world system might not be viable. It is becoming more or less the same even in the poorer countries. It is claimed the market economy, with all its neo-liberal vagaries intact, operates more brutally in the peripheries, than in developed economies, mostly due to institutional weaknesses and out right corruption. Be that as it may, the tendency of profit to decrease over time is one of the defining tenets of modern capitalism. We will not go through the ‘whys’ of this important thesis; suffice is to say, this phenomenon is what renders many a business (old and new) non-viable. The current deafening war drum by dominant interests is a direct consequence of the accumulation problematic! In the above, we single out crony capitalism, as it is a different animal altogether. The motto of crony capitalism is akin to the Orwellian story; ‘…all animals are equal but some are more equal than others.’ If truth be told, one is not actually talking about genuine business activities/operations in crony capitalism, but rather planned extortion, which takes place in broad daylight in cahoots with the power that be (TPTB)! The classic examples are our own recently minted parasitic oligarchs, who are uniquely allowed to access public/private resources while impostering as market operators!
Taxation regimes can distort markets and lead operators astray. The practice of allowing interests to be deducted from income; or in other words, interests to be considered as business expense, has led to the destruction of many a company. The so-called private equity funds tend to leverage this reckless business strategy to their advantages. These entities usually buy a relatively healthy company and saddle it with massive debt. The interest on the debt is allowed as expense. So long as the company can service the debt, it might be considered ok, but it certainly is not as healthy as it used to be before the buyout. These vultures run away with the accessed loan while the balance sheet of the company is systemically ruined. Studies have shown that by eliminating interest deductibility (in a regime of 35% income tax) the corporate income tax rate is effectively reduced to around 15%. By not allowing interests to be deductible, states can also help create viable and resilient companies! Naturally one of the resistors to this scheme, even though it is gaining wider acceptance, are the banks. No surprise here! The alpha and omega of bank’s or their raison d’etre, is to peddle loans. These loans, created out of thin air, make the banks plenty of money in form of interests, to say nothing about their accumulation of wealth by stealth!
Excessive debt is what ails most economies, including ours. Unless our attitude towards debts changes, situations will only get worse. “Change is never painful. Only resistance to change is painful.” Buddha. Good Day!
ECX to start trading industrial products, spices
The Ethiopian Commodity Exchange (ECX) announces that it will commence the trading of additional nine commodities including industrial product and spices.
The exchange that opens new facilities on the western Ethiopia to simplify the supplies of commodities into the trading floor stated that in the coming year it will add more commodities at the electronic trading platform that is expanding the products that it manages exclusively to connect buyers and sellers.
It said that in the coming year it will add nine commodities including cotton, spices and different type of pulses at the trading floor. The news for planning to trade cotton is not new, while it is yet brew fruit.
The trading floor is not new to trading industrial products since early last year it had introduced the trading of soybean, which is mainly considered for industrial purpose than using as a raw product for the household level. When the trading of cotton is included it will be another step for the commodity exchange to expand the trading for industrial commodities.
However, ECX is yet to trade spices in its 13 years operation.
The modern trading floor that celebrates its 13th anniversary has made available warehouses and other facilities at Mizan Aman and Tepi towns in the western part of the country.
The Mizan Aman, 576 km west of Addis Ababa facility that was inaugurated mid this week has a warehouse with the capacity to manage 40,000 quintal and other relevant offices and laboratory.
According to ECX, the facility located in Bench Sheko Zone, SNNP shall serve eight woredas in the zone additional to other seven woredas in West Omo Zone.
“The facility will reduce 120km on average for the farmers in the two zones to transport their products to the trading centre,” the trading floor explained.
The area is the major coffee beans source in the SNNP region; ECX says, “The facility will help to enhance the supply of quality product for the international market.”
The area is also producing sesame seeds, mung beans, which are traded at ECX exclusively and different spices. ECX said that the facility at Mizan Aman would be crucial to host spices products thus will start the trading by next year.
The other facility inaugurated on Wednesday April 28 was at Tepi, 626 km west of Addis Ababa, which is also located at Sheka Zone of SNNP. The facility will serve four woredas in the zone and two woredas in Mazang Zone of Gambela region. Like the Mizan Aman facility it will also reduce 130 km for farmers to supply their product to market compared with the previous trend.
Sheka and Mazeng zones are also popular with their coffee product, which are the major hard currency earnings for the country. They are also producing sesame seeds and mung beans besides spices.
The south and western Ethiopia is well known on its enormous spices resources.
Currently, ECX has 25 branches and trading 12 commodities. In its 13 years history the exchange has facilitated the trading of 7.13 million metric tons commodities with the value of 308 billion birr.
More facilities in Bahir Dar, Shakiso, Qelem Welega, and other places are expected to be opened.
Tax immunity landscape for diplomatic, international missions
Ministry of Revenue (MoR) reassures all tax offices to effect the waiver of the diplomatic missions and international organization from value added tax (VAT) for their house rent and telecom services.
It is to be recalled that MoR expressed on its directive no. 148/2019 which introduced the VAT immunity for diplomatic mission, international and continental organization and international nongovernmental organization.
On the latest circular issued on April 6 and signed by Meseret Kebede, Tax Refund Team Leader at MoR, the ministry reaffirmed that tax offices will continue to operate under the directive that was issued in 2019.
The circular showed the clarification of West Addis Ababa Small Tax Payers Branch Office which asked the head office about the VAT exemption for house rent for one of the diplomatic mission and the letter confirmed that it is correct to exempt the same by mentioning the 2019 directive.
The letter which showed the branch office clarification added that all branches should follow the directive.
It added that the branch offices to issue a VAT exemption certificate for those who are immune.
The directive article 9 sub articles 1 and 2 indicated that the stated diplomatic missions, international and continental organizations and international nongovernmental or nonprofit organizations are immune from paying VAT for house rent and telecom services.
It added that from the stated service, government shall not receive the VAT on behalf of the tax authority, moreover the tax authority is supposed to give a certificated for the stated type of organization as a reference that they are exempted from the stated tax.
Some international nonprofit told Capital that they were not aware about the directive, even though they are getting the stated service as per the previous trend.
Some of them are also reconsidering to request for the refund from MoR for the payment they already did since the issuance for the directive.
The 148/2019 directive was issued to review the previous directives on the aim to harmonize and modernize the VAT refund scheme. It has combined 4 different circulars and six directives under a single directive. The directive has enabled to shorten the refund scheme time to 45 days from the previous two months.
