1. http://www.ft.com/cms/s/0/802ccb86-74ef-11dc-892d-0000779fd2ac.html
2. http://www.ethiopianreporter.com/modules.php?name=News&file=article&sid=17401
3. http://africa.reuters.com/country/ET/news/usnL0882300.html
Source: Financial Times
1. Ethiopia to exchange famine for food
Barney Jopson
October 7 2007
The government of Ethiopia, which has one of Africa’s most state-dominated economies, is stepping into uncharted territory by launching a commodity exchange to help alleviate food shortages and encourage the commercialisation of agriculture.
The Ethiopia Commodity Exchange (ECEX), which is due to open in December, will sit at the hub of new price dissemination and quality control systems designed to improve liquidity and transparency and reduce transaction risk.
The plan shows how a buzz around fast-growing commodity exchanges has reached Africa from Asia – particularly India and China – which is now home to six of the world’s top 10 commodities futures markets by volume.
But given the myriad weaknesses of Ethiopia’s agriculture sector and the government’s insistence on maintaining a tight grip on ECEX, there are doubts about how much and how quickly it will make a difference.
It was food shortages in 2002 – not the famous famine of 1984-85 – that led in government circles to the idea of a commodity exchange. The 1980s’ famine was caused in part by the Derg regime’s denial of food to areas loyal to anti-government rebels, who toppled it in 1991 and remain in power today.
Eleni Gabre-Madhin, who is leading the exchange project, said the 2002 shortages were purely the result of “market failure”.
The country had consecutive bumper maize harvests in 2001 and 2002. However, they triggered an 80 per cent price collapse and led to 300,000 tonnes of grain being left to rot in fields because it was not profitable to harvest. In July 2002 Ethiopia made an international appeal for emergency food aid for millions of people.
At the time Ms Gabre-Madhin was studying how to use the expected surplus. “It was like: ‘What happened?’ You can’t have huge surpluses, prices collapsing, then the grain disappearing,” she says.
ECEX and the nationwide infrastructure to be built around it, she says, should prevent a repeat of 2002 for maize as well as wheat and teff – two other staples – for which the combined domestic market is estimated at $1bn (€715m, £500m).
The exchange will create a pool of liquidity and reference prices that reflect the amalgamation of demand from across the country, thereby reducing the price volatility caused by the existence of multiple fragmented markets.
Price tickers at 200 rural sites will give farmers independent access to price information from Addis Ababa, enabling them to negotiate a fairer deal with middle-men and giving them incentives to produce.
Traders, meanwhile, will be able to profit from arbitrage opportunities by buying cheap grain in areas of surplus and selling it at higher prices closer to areas where there are shortages, which will itself facilitate food distribution.
Ms Gabre-Madhin hopes the exchange will drive a belated surge in productivity by creating a more stable environment where farmers will be able to invest in fertiliser, machinery, irrigation and new crop varieties.
In turn that should provide a more solid foundation for exports, as will a network of 10 exchange-run warehouses where produce will be independently weighed, graded and certified. The exchange will trade three cash crops: coffee, sesame seeds and haricot beans.
The government’s close involvement in ECEX is part of its agriculture-led development strategy, well-suited to a country where farming accounts for 47 per cent of gross domestic product and has helped lift economic growth by close to or beyond 10 per cent in each of the past four years.
But just as the government is suspicious of unfettered markets – it took Ms Gabre-Madhin a year to persuade ministers to allow futures contracts – traders are likely to be suspicious of the government’s 100 per cent ownership of the exchange.
“It’s a very government-driven project,” says Assefa Admassie, director of the Ethiopian Economic Association. “The private sector has to internalise the whole idea.”
Market participants who profit from price opacity will have other incentives to keep trading off the exchange. And the success of the network of price tickers will depend on the country’s telecoms infrastructure – which is unusually bad, even for Africa, and run by a state-owned monopoly.
Adam Gross, of the United Nations Conference on Trade and Development in Geneva, says that while commodity exchanges should not be seen as a panacea for agriculture, the Asian successes have “enlarged the bounds of the possible”.
But if farmers remain isolated by poor roads and public transport, and state-owned financial institutions remain reluctant to provide farmers loans to invest, the exchange in Addis Ababa will seem a long way away.
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2. Somali breakaway republic postpones elections
Mon 8 Oct 2007
HARGEISA, Somalia, Oct 8 (Reuters) - Electoral officials and political leaders in the breakaway Somali republic of Somaliland have decided to postpone forthcoming elections to allow for voter registration to be completed.
Local government and presidential polls for the region bordering Ethiopia had been scheduled for December 2007 and April 2008, but have been postponed to July 1 and Aug 31, 2008, respectively.
"We have been demanding that registration of voters is a prerogative for holding fair, democratic and free elections," Feisal Ali Warabe, chairman of the opposition Justice and Welfare Party, said on Monday, praising the decision.
Somaliland broke away from the rest of Somalia in 1991 when warlords in Mogadishu overthrew the dictator Mohamed Siad Barre. Since then, it has been relatively more peaceful. Somaliland permits only three political parties by law. In July, the government arrested three politicians who tried to form another opposition party.
The ruling on the polls was taken by the three approved parties and Somaliland's National Electoral Commission.
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Source: Reporter, Ethiopia
October 6, 2007
3. Inflation remains a serious agenda
Kaleyesus Bekele
The spiral inflation rate observed in the Ethiopian economy has been a talking point among the public as wel as government officials for quite some time now.
The much talked about millennium celebration did not deter the public from discussing the issue. Even in the new millennium the increasing cost of living remains a priority agenda. At a meeting organized by the Addis Ababa Chamber of Commerce and Sectoral Associations (AACCSA) on Wednesday, representatives of the business community and government officials deliberated on the causes of the inflation and measures that need to be taken to mitigate the problem.
Dr Haile Kibret, president of the Ethiopian Economics Professionals Association, who was a guest speaker, said that the Ethiopian economy was not hit by inflation in previous years.
Dr Haile said the inflation rate stood at seven percent for the past several years. However, he said it started to increase in 2004. The inflation rate, which was nine percent in 2004, has been increasing steadily and this year reached 20 percent. The highest inflation rate, 24 percent, was registered in April 2007.
Dr. Haile said that higher price hike was observed on agricultural products than on industrial goods. The price hike on agricultural products (food items) such as grains is as high as 33 percent. Haile said that the common cause for inflation was the gap between demand and supply.
In a bid to alleviate the impact of the increasing measures the government has been taking various measures. The government has imposed a ten percent surtax on most imported goods and the money generated from the surtax is used to control the inflation rate. The government is supplying wheat and cooking oil with cheaper prices for low income families in Addis Ababa and in the regions. The government recently made salary increments for civil servants.
Many people are skeptical about the measures taken by the government. Dr Haile believes that the salary increment and the surtax imposed on imported goods aggravates the price hikes.
In the course of the meeting, government representatives explained the measures taken by the government. Hailu Abeba, head of the promotion and public relations department with Ministry of Trade and Industry, said that an inflation rate of 3-10 percent was a moderate figure. Hailu noted that the inflation rate in Ethiopia was in double digits, adding that was a wake-up call.
Hailu said that in an effort to control the price hike the government had imposed restrictions on wheat, barely, teff and corn exports. The government is selling a quintal of wheat for 180 birr and 20 litters of imported cooking oil for 300 birr. Sugar is imported from other countries and the floor price of a quintal of sugar produced by local factories was reduced to 500 birr. To produce the price hike on cement the government allowed investors to import cement free of customs duty. This year investors imported 45,000 tons of cement.
Hailu said that though the price of fuel is revised every three months the government did not make price adjustments for the past nine months. He said the government spent 1.6 billion birr to subsidize fuel imports in the past nine months (from December 2006 to June 2007). He also said salary increment was made to enhance the purchasing capability of the public. The government allocated 1.2 billion birr for the salary increment.
Desta Lambebo, representative of the Ministry of Finance and Economic Development (MOFED), said that the country registered a remarkable economic growth in the past consecutive years. "When there is economic growth, inflation is inevitable," Desta said. He said that the hoarding of goods by traders was one of the factors that contributed to the price hikes.
Desta said the surtax was not imposed on all imported goods. "Basic commodities such as chemicals, fuel, fertilizers and medicines were exempted from surtax," he said. Desta noted that the Ministry of Trade and Industry and MoFED in collaboration with the World Bank was undertaking a study that would enable the government to come up with a long-term solution. He stressed the need to have a strong monetary and fiscal policy.
Eyessus W.zafu, President of AACSA, said that the government was reluctant to admit that there was inflation. "But it is good that now the issue is recognized as a problem. Various reasons are given for the inflation, "Eyessus W.zafu said. He said that the business community should not be blamed for the inflation. He said it is sad to hear business people were responsible for the price hikes. "Let us stop this campaign against business people. It is a country where business people are defamed," he added.
Eyessus said that there were huge infrastructure development projects under way. "There is a boom in the construction sector and a huge amount of money is injected. Experts of the IMF advised the government to reduce public expenditure and I think this is something that should be given due attention.
Maybe the unbalanced growth of different sectors could be one of the causes for the inflation," he said. Dr Haile shares Eyesus's view, "When one of the sectors is growing fast and the other one lags behind this will have its own shortcomings. The business people should not be blamed for the inflation. If I can make a profit by piling up stocks, there is nothing wrong with it in a free market economy," he added.
Members of the business community expressed their concern on the distribution of wheat and imported cooking oil. "This violates the free market policy. They also criticized the government's decision to impose the ten percent surtax on import goods. "This has its own impact on aggravating the inflation," they said.
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