Zenawi’s Voodoo Economics: The Road to Nowhere

Tuesday, January 11, 2011 @ 12:01 PM ed
By Tibebe Samuel Ferenji

“Arrogance and rudeness are training wheels on the bicycle of life — for weak people who cannot keep their balance without them.” Laura Teresa Marquez

Whatever else can be said about Ethiopia’s Prime Minister Meles Zenawi, he certainly does not lack chutzpah (nerve). His latest pronouncement to curve the growing inflation in Ethiopia, must rank alongside Arthur Laffer’s famously misleading advice to the US former president Ronald Reagan that cutting income tax for the rich would actually increase tax revenue, a statement (rightly) dismissed by the then US Vice-President, George H W Bush, as Voodoo Economics.

In a recent “meeting” held with Addis Ababa merchants, Mr. Zenawi gave directives to the business community to put a price cap as a counter measure to the out of control inflation in the country. Like in the past, the prime minister is putting a bandage for a serious illness that requires surgery. The action taken may fool the general public for a while hoping that such a price control may bring some relief to their predicament. The fact however is the price cap on the 17 items announced and the warning that was sent to the business community in arrogant and threatening manner will not make a dent to curve the growing inflation.

About three years ago, Mr. Zenawi in his report to the Ethiopian parliament indicated that the major contributing factor for Ethiopia’s inflation was property rent. According to his statement Rent contributed 70%. Few days after submitting his report, Mr. Zenawi announced that the government would sell 25 Kilogram Wheat to the general public below the market price to control the growing trend in price increase. Few days later, he announced that in order for the government to recover the cost of providing 25 kilogram wheat below the market price, it would add 10% tax on imported luxury items.

In a news paper that this writer published at that time in Addis Ababa, criticized the Prime Minister’s policy and made it clear that the Prime Minister was barking on the wrong tree; and that the prime minister failed to address the real issue and suggested that the action the government should take to fight inflation. This writer also pointed out that increasing the luxury tax by 10% would lead to price increase in other items because the merchants would pass their cost to the consumer; thus negating the original purpose of fighting inflation. In turn, the government reacted by forcing this writer to shut down his newspaper.Read More