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Thierry Henry

Price Controls Cause Chaos in Ethiopian Markets

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Price controls on many staple food items ordered by Ethiopia's government early this month have reduced grocery bills for many low-income families. But now shopkeepers are upset and some basic items are disappearing from store shelves. Economists are concerned about the long-term effect of the government's price-fixing strategy.


Confusion has been the order of the day at shops and markets across the Ethiopian capital this month. The government surprised businesses on January 6, the Ethiopian Christmas Eve, by announcing price caps on such items as meat, bread, rice, sugar, powdered milk and cooking oil.

Prime Minister Meles Zenawi said the caps were a response to price gouging by merchants taking advantage of global price hikes. He vowed to put a stop to what he called "market disorder.”

Consumers respond

The news was seen as a Christmas gift by many cash-strapped consumers, who had seen food prices jump after the government devalued the local currency, the Birr, by 17 percent in September.


In the first days after the price controls went into effect, Shenkut Teshome was among shoppers who rushed to markets to scoop up goods at newly lowered prices. He applauded government intervention as the only way to save impoverished Ethiopians from starvation.


"People are hoping they can buy with their salary a fair material at a fair price," said Shenkut. "[Prices] were exaggerated and people cannot afford to buy with their salary and live at the same time, paying rent, this and that. The main thing is that they have enough food for their children."


The price controls, however, have triggered chaos and tension in the local marketplace. Arguments, even occasional fistfights have been reported between irate shoppers and business operators as price controlled goods, such as cooking oil and oranges, have disappeared from shelves.


One customer at a local shop, who spoke on condition of anonymity, quipped that the net effect of the price controls is that nothing has changed. He said that earlier, goods on the shelves were too expensive to buy. Now the prices are lower, but the goods have disappeared.

Shopkeepers discouraged

Business owners said the past few weeks have been unbearable. Customers are unhappy, some products they bought before the price caps must be sold below cost, and neighborhood government representatives drop by several times a day to check that they are in compliance.


Shopkeepers contacted for this report all said they were afraid to give their names, but one who agreed to speak anonymously said she was ready to give up.


She said, "This is way too much for us. We are small traders. We don’t make much money. We get everything on credit, so when this stock is gone, we are closing up shop."

Government defends


Representatives of Ethiopia’s Trade Ministry did not respond to numerous interview requests for this report. But government officials have been quoted as saying price controls were needed because retailers had raised prices blaming global price increases and the devaluation, although such factors had had no influence on the availability of their products.


In addition, four economists not affiliated with the government, all of whom have previously spoken to VOA on the record, declined to be quoted this time, saying the subject was too sensitive. But all four privately predicted that price fixing would not help in solving Ethiopia’s deep-rooted economic problems.


Temesgen Zewdie, finance chairman of one of Ethiopia’s main opposition parties and a former Member of Parliament, called the price controls a step toward a Communist-style command economy.

In a free market economy, the preferred way of doing this is to increase the supply and increase competition," said Temesgen. "But the government did not do that. Instead they went directly to the producers and retailers, telling them to reduce prices and supply these products. These practices happen in Communist states, not in western democracies."

Critics warn

Retired opposition leader Bulcha Dimeksa is a former deputy finance minister and also a former World Bank director. He said history has proven time and again the folly of price controls.


"This government is doing exactly what all the classical dictators in the past have done and have failed," said Bulcha. "I do not understand how people do not learn. It does not work. Price control never worked. It will not work. It does not work. It may work for one month, but what’s that? The farmer is discouraged, the producer is discouraged, the retailer is discouraged."


Despite the uproar, government officials are hoping their experiment in price-fixing will help to curb inflation. Recently released figures show the inflation rate jumped from 10.2 percent in November to 14.5 percent last month.


Ethiopia is among the world’s poorest countries. The CIA World Factbook lists per capita purchasing power of $1,000 a year.

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The economic situation for the normal Ethiopian is worsening and there is no stopping it. The government intervene will only exacerbate the situation. Price controls have never worked, not even in communist countries. This failed economic policy by the TPLF who are extremely short sighted. Market based system is the best way forward, yet the government is killing it. Already there are reports, businessmen are taking products off the shelves because they are making huge losses. The cause of the problem isn't the normal Ethiopian businessmen trying to make a living but rather the devaluation along unregulated printing of money by the TPLF.

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[Kenya] Exporters to Ethiopia face massive losses


By Luke Anami


Kenyan exporters could lose millions of shillings after Ethiopia, a key market, implemented price controls on major food and non-food items, mostly imported from Kenya.


In what has been dubbed a shocking move by free market campaigners, the Federal Ministry of Trade of Ethiopia set price ceilings for products entering its market.


Kenyan manufacturers have since cried foul over the move.


‘‘This month, the Ethiopian Government has imposed price ceiling on major commodities to stamp out inflation. Unfortunately, the price of some items doesn’t take the current international market into account,’’ Polycarp Igathe, Deputy Chairman Kenya Association of Manufacturers said.


The affected products include edible oils, pasta and macaroni, powder milk, which are largely manufactured in Kenya.


In addition, soap, pens and textbooks, textiles, shoes, steel sheets, medicine and medical supplies, and tiers are slated for price fixing.


The move has, however, affected not only Ethiopians, in the retail business but also those who have already ordered items from outside the country.


‘‘The dictum on price ceiling may have serious impact on Kenyan manufacturers. We expect massive cancellation of manufactured goods if the matter is not looked into,’’ Igathe who is also the MD of Haco Industries said in an interview.


Ethiopia’s minister for Trade, Ahmed Tusa said the decision was taken to curb inflation, which has currently declined.

The country will start to face more shortages since exporters to Ethiopia will be making losses because of the cap. In the long run, prices will increase. Government has claimed and praised agriculture as the source of the "Ethiopian growth" yet its basic necessities such as sugar, oil,milk, bread suffering the huge increases in prices. Even with the devaluation of the Birr, the so called increase in supply should have stabilised the price levels

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A major newspaper based in Madrid, Spain, ABC Internacional, has reported that Azeb Mesfin, the wife of Ethiopia’s dictator Meles Zenawi has spent 1.2 million euros for clothing. (Read here) newspaper identifies Azeb Mesfin as one of the most wasteful wives of African leaders and accuses her of siphoning off millions of dollars.


Azeb is known among Ethiopians as the mother of corruption.


The other wives of African dictators the newspaper listed include Grace, the notorious wife of Zimbabwe’s dictator Robert Mugabe, and Leila Trabelsi, the wife of the recently deposted Tunisian dictator Ben Ali./QUOTE]


Ethiopia's so called first lady makes distinction between herself and the people.




Ethiopians were promised 3 meals a day in 1995, yet in 2010 the dream is further away from reality than ever. To add salt to the wounds, the TPLF first lady spends millions on clothes while 80K eat from Rubbish dumps in Addis along with unbelieveable food prices,


Next she will say, why don't Ethiopians eat Cake

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Without a doubt, Ethiopia is for now not one of those hugely important Kenya’s trading partners.


Evidently that can be attributed to historical factors that needed to be addressed before smooth flow of goods and services.


Amongst them is that despite the two countries establishing harmonious relations once Kenya became independent in 1963, the road links have been horrible, especially on the Kenyan side.


Two, Ethiopia was afflicted by political conflict for years, preventing effective participation on the regional integration front.


Up to now, the country is yet to accede to the Common Market for Eastern and Southern Africa Free Trade Area.


Finally, the Ethiopian economy and politics remain tightly controlled, to a large extent affecting commercial interaction with the region.


While Kenya, with useful help from multilateral donors, has set out to sort out the bottlenecks on its side of the border by building a major road link to the country, Ethiopia is not helping the situation.


It has recently taken the misguided step of controlling prices of basic commodities in an effort to control inflation rates.


Morally that is much welcome in Ethiopia as the aim is to cushion the common citizen from imported inflation—following the September devaluation of the Birr.


But price control happens to be a questionable concept, despite recent support for the same by the Kenya Government in the petroleum sector.


It is likely to stunt production and imports to Ethiopia, putting pressure on the very price it seeks to control through shortages.


On top, it should also check foreign investment in the country.


Kenyan investors have already raised the alarm on the impact of the move on regional trade.


Despite the fact that the Sh4.3 billion export bill is comparatively minor, the fact that both countries are seeking increased business links should make Addis Ababa rethink its long-term economic policy and factor in its regional obligations.

We hold that the best way forward for Ethiopia and other Comesa countries is to make their economies competitive enough for investors to make attractive returns.


If that fails to happen, citizens of the country will forfeit gainful employment even as they grapple with supply side constraints that can easily be ironed out by the market forces.


On top, there is little trade relations to be enhanced if the regional production levels are hampered by retrogressive domestic economic policies.


We urge the Comesa secretariat to impress upon its members in general and Ethiopia in specific that they need to embrace liberal economic policies as far as practically possible.


If not, Africa may never bridge the vast economic gap between us and other continents.


Comesa has already shown faith in the country by locating its leather training centre there, just the kind of gesture we feel the country should seek to reciprocate.

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