According to the latest economic information out of Ethiopia, the country is enjoying robust and unprecedented economic progress with reported GDP of US $72.2 billion, GDP per person of $872 and annual real GDP growth rate of 8-percent in 20092. Furthermore, on September 16, 2010, addressing the 8th organizational conference of the Ethiopian People’s Revolutionary Democratic Front (EFRDF),the Prime Minister Meles Zenawi claimed, “Ethiopia has registered remarkable economic growth for the first time in the history of the country over the past seven years,” and asserted: “…. the rapid economic growth registered over the past seven consecutive years is the direct result of the development policy implemented under the leadership of the EPRDF”3 . He is also quoted on many other occasions as declaring that “the “base-case” scenario of 11% average economic growth over the seven year-period was “doable” and that the “high-case” scenario of 14.9 % for the next 5 years is “not unimaginable”.
In reference to the prime Ministers statements, “base-case” scenario of 11% average economic growth over the seven year-period asserts boldly that on average the GDP of Ethiopia has expanded at a rate of 11-percent per annum since 2002. Using World Bank figures, the statement would lead us to believe that total production has doubled from $9 billion to $18.7 billion in just seven years. Furthermore, assuming an equitable distribution of income the average Ethiopian would have earned an increase in income of approximately $80 dollars. Even with the highly distorted distribution of income in Ethiopia, where the bottom 10-percent of the population only controls 4-percent of the income, the claim would be equivalent to a substantial poverty reduction. Nevertheless, any improvement in Per-capita income of Ethiopians cannot be viewed in isolation from the immense boost in foreign aid to Ethiopia during the period considered. Foreign aid to Ethiopia roughly amounts to $41 US dollars per-capita or nearly 50-percent of the hypothetical $80 dollars increase in per-capita income4. The assertion that the growth registered over the past seven consecutive years is the direct result of the development policy implemented under the leadership of the EPRDF is hardly justified since a significant portion of the growth in income is a coordinated global response to Ethiopia’s poverty and underdevelopment.
Ethiopia and its people have been the focus of global humanitarian concern on several occasions. In fact, this year marks the twenty-fifth anniversary of the great global response to one of the notorious episodes of starvation that prompted the “we are the world” fund raising campaign around the world. For most of the world’s population, the three identifying marks of Ethiopia are said to be Ethiopia’s frequent famines, Ethiopia’ fast and successful long-distance runners, and the late emperor Haile Selassie I–whose down fall was partly linked to one of the starvation episodes in the 1970’s.
The litmus test of any achievement in Ethiopia’s economic development such as growth in per-capita income, is how it transforms the down trodden peasants of Ethiopia who so often have borne the brunt of humanitarian disasters caused by nature and even more so by unwieldy governments. Successive Ethiopian governments have adapted themselves to take advantage of the misery of Ethiopians in a global setting by claiming they hold the keys to improving the lives of the poor in Ethiopia. The current Ethiopian government is no exception when it comes to using the perennial plight of poor Ethiopians for a cup-in-hand policy of acquiring international donor resources. .This legacy is also highlighted by the compulsion of Ethiopia’s governments to exaggerate their input towards improvements in the livelihoods of the poor. Nevertheless, no Ethiopian administration has come as far as recent claims by the current regime which not only has pronounced staggering rates of income growth but also has promised that the food insecurity of Ethiopia will permanently end in 2015.
If supported by appropriate facts on the ground, Ethiopia’s success would indeed be the earnest wish of all humanity, not just Ethiopians. However, the exuberance from the alleged accomplishments might need to be tempered when facts on the ground do not support the statistics. A good deal of skepticism emanates from the fact that the underlying data used to make the prime minister’s pronouncements are grossly unreliable and the statements are misleading without understanding the context in which the data can be used. A somewhat complicating factor in this alleged “Great leap-foreword”, to borrow a phrase from revolutionary china, is the use of legitimate sounding economic data as evidence of profound changes in the lives of Ethiopia’ poor. Another novelty is that, the overly optimistic claims by Ethiopia’s current government have not yet been publicly contradicted by information from international financial institutions.
At least on the surface, the current Ethiopian government appears to have been joined by international institutions such as the World Bank and the IMF in asserting the good times of Ethiopia’s poor. To the uninitiated, therefore, those that have doubts about the exuberant outcomes are subjected not only to the usual anti-nationalist tirade of a well orchestrated government propaganda system but also those that accept the sanctity of reported economic data by international institutions such as the World Bank and the IMF. The appearance of complicity or silence of international institutions such as the World Bank and the IMF requires a bit of an explanation.
First, it is worth noting that the independence and objectivity of international institutions themselves is now debatable as they are under pressure to justify their huge expenditures in the pursuit of permanent changes in the conditions of the poor in many developing countries. These international institutions have acquired increased prominence promising the success in implementing several international commitments such as the Millennium Development Goals (MDGs) and need to show positive outcomes to maintain their relevance and credibility while supporting otherwise near failed states like Ethiopia. The strategic interests of some international institutions have consequently come to coincide with those of the Ethiopian government they supposedly monitor. This coincidence of interests has a significant impact on the reliability of the sources of the reported successes in Ethiopia.
Second, a big misunderstanding is at work regarding the responsibility of data generation and the role of international financial institutions. Most countries are members of international financial institutions like the IMF & the World Bank and are required to report their macroeconomic information following certain guidelines. The IMF which is the depository of the reported data from all member countries is not required to and does not necessarily verify the accuracy of reported data of member countries. It only verifies that the methodology prescribed in some agreements is followed to the best of the reporting country’s abilities. At the moment, the only original source of macroeconomic data out of Ethiopia is the Ethiopian government. This means that the statistics cited by all including the IMF, the World Bank, and the United Nations are originally generated by the Ethiopian government. Although, the Ethiopian government is required to follow international conventions and agreements on how it should generate the macroeconomic data, inadequate resources, limitations in methodologies, and political motivations cast doubt on the relevance, reliability, adequacy, and consistency of the underlying information. Unlike data from more developed countries where data on the economy can be checked against private and non-governmental sources, all reported data on Ethiopia is a mere recast of the original information. Consequently, if there are errors and omissions in the data reported by the Ethiopian government, then all subsequent third party sources, including the IMF and the World Bank are merely disseminating information that is of dubious quality.
Moreover, when this data is recast by a variety of organizations, the fact that it is unreliable and lacking the sufficiency, competence, relevance, reliability, adequacy, and consistency often goes unmentioned. To address the sufficiency, competence, relevance, reliability, adequacy, and consistency of the underlying information of the reported data, one needs to examine the methodology of how the data are gathered , what care is taken to avoid errors, and how accurately does the gathered information reflect the true reality of millions of Ethiopians. Data reliability is a state that prevails when data is sufficiently complete and error free to be convincing for its purpose and context. In addition to being reliable, data must also meet other tests for evidence. For all types of evidence, various tests of sufficiency, competence, and relevance are used to assess whether standards for evidence are met.
Data is relevant if it has a logical, sensible relationship to the finding it supports.
Data is sufficient if there is enough of it to support the finding. Sufficiency establishes that evidence or data provided has not been overstated or inappropriately generalized.
Data is competent if it is both valid and reliable. The fundamental criterion for judging data competence is: “Are we reasonably confident that the data presents a picture that is not significantly different from reality?” The criterion is NOT simply “Are we sure the data is accurate?” In order to address competence, the data must be more than accurate; it must also be valid, complete, and unaltered.
The third, perhaps the least understood, component explaining the puzzle is that there is a discrepancy between what the Ethiopian government and the IMF have publicly stated regarding the achievements being touted and their semi-public written documents on the reliability of the data. These documents attempt to explain how data used to make the critical conclusions are collected and combined. The documents also describe the limitations of the underlying data. Some of the limitations described cast doubt on the reliability and accuracy of the data used to make the alleged economic success stories. Consequently, both the IMF and the Ethiopian government have frankly disclosed in their technical writing that the data and information has limitations and may be unreliable. Nevertheless, in their popularly used statistical data sources no mention of the limitations is made.
Socio-economic data is primarily the responsibility of each member of the international financial institutions. Each member of the International Monetary Fund is required to report a set of national economic statistics. How each country collects this data and how each country defines the meaning of the data it collects is specified under a common agreement for membership. The IMF has established a system and standard to guide members in the dissemination to the public of their economic and financial data. Currently there are two such systems: General Data Dissemination System (GDDS) and the Special Data Dissemination System (SDDS), for those member countries having or seeking access to international capital markets. The primary objective of the GDDS is to encourage IMF member countries to build a framework to improve data quality and increase statistical capacity building. This will involve the preparation of information describing current statistical collection practices and setting improvement plans. Upon building a framework, a country can evaluate statistical needs, set priorities in improving the timeliness, transparency, reliability and accessibility of financial and economic data. The IMF calls this the Data Quality Assessment Framework (DQAF) which identifies quality-related features of governance of statistical systems, statistical processes, and statistical products. The DQAF supposedly provides a structure for assessing existing practices against best practices, including internationally accepted methodologies. The DQAF’s coverage of governance, processes, and products is organized around a set of prerequisites and five dimensions of data quality consisting of assurances of integrity, methodological soundness, accuracy and reliability, serviceability, and accessibility. The DQAF, therefore, is used for comprehensive assessments of countries’ data quality, institutional environments, statistical processes, and characteristics of the statistical products.
IMF Assessment of Ethiopia’s Data
In May 2010, the IMF assessed the reliability of Ethiopia’s national accounts data in a report titled, Assessing data adequacy For Surveillance, IMF Country Reports # 10/175. The IMF concluded that the data provided to the Fund are adequate for “surveillance and program monitoring purposes”. What is not mentioned in this apparent endorsement by the IMF is the lack of reference to analytical purpose which would have implied that the data could be used in making analytical predictions and cross-country and cross-temporal comparisons. The data quality requirements for surveillance and program monitoring may not rise to the quality requirements of analytical purposes.
The IMF also noted that despite recent progress, there are some shortcomings in real, fiscal, and balance of payments statistics. In terms of Ethiopia’s National Accounts, the fund stated that shortcomings in the source data and compilation practices affect the accuracy and reliability of the statistics. The IMF went as far as saying that the GDP estimates are heavily dependent on benchmark data that are outdated and therefore, may not reflect current economic activity. Further, the techniques used to compile the estimates for construction, distribution, and some other services activities do not conform to international best practices. While some progress has been made in compiling estimates of GDP by final expenditure, there remain substantial shortcomings, particularly in the estimation of private consumption and fixed capital formation. The statistical discrepancies between the estimates by expenditure categories and output remain large. The fund also noted that Balance of payments data still require improvements on coverage, valuation, timing, and classification of transactions. These include long delays in the collection of trade and tourist arrival data and poor data on capital flows5. With regards to government finance statistics, the IMF stated that despite recent improvements, general government fiscal statistics continue to be affected by shortcomings. Timely data on the consolidated operations of local governments is unavailable. Significant discrepancies between data on the domestic and foreign financing of the budget deficit and the monetary accounts continue to complicate assessment of fiscal developments. The IMF concluded that ensuring the integrity of consolidated budget reporting in a timely fashion will be a continuing task.
Regarding Monetary statistics, the IMF concluded that the monetary statistics are broadly adequate for analytical purposes despite a need for improvements in data submissions by the National Bank of Ethiopia. The fund goes on to state that for policy purposes, however, ensuring data collection and reporting in a timely manner continues to be critical.
Ethiopia’s Own Assessment of Its Data
Ethiopia participates in IMF’s General Data Dissemination System (GDDS) which is designed to enhance capacity building in statistics in Anglophone Africa (2006–09) including macro-economic and financial statistics and socio-demographic statistics. The purposes of the GDDS are to encourage member countries to improve data quality; provide a framework for evaluating needs for data improvement and setting priorities in this respect; and guide member countries in the dissemination to the public of comprehensive, timely, accessible, and reliable economic, financial, and socio-demographic statistics. Ethiopia prepared a General Data Dissemination System (GDDS) of its own in compliance with IMF’s requests to describe the methodology as well as weaknesses of its data6. In the GDDS Ethiopian authorities explained various aspects of their data collection methods and processes, and weaknesses, and needs. The National Accounts Department of the Ministry of Finance and Economic Development produces annual national accounts figures and some definitions & concepts of national accounts aggregates. Dissemination is mainly through the annual publication of the Central Statistical Abstract of the Central Statistical Authority.
Ethiopian authorities have described the methodology they use to generate some of the key components of the country’s production and expenditures information. As can be inferred from the Table, the data appear to depend on outdated selective, surveys whose information may not be applicable to the whole Ethiopian economy. For example, a sample survey of 21 major crops grouped under cereals, pulses and oil seeds and marketing data from cash crops e.g. coffee, tea, sugar, etc is used to estimate agricultural output. The Ministry of Agriculture estimates major inputs like fertilizer, seed, improved seed, chemicals etc. The Central Statistical Authority (CSA) produces livestock figures annually based on an agricultural sample survey but does not provide livestock data regarding nomadic areas and urban centers. Data on manufacturing is grossly in adequate. For example, for small scale manufacturing, only one time data as a benchmark is available from a survey in 1995. A 1995 sample survey also is the basis for information on the handicraft and cottage manufacturing industry. The 1995/96 “Distributive Trade and Services survey” of Central Statistical Authority is the source for the number and average per capita output of persons engaged for part of the services sector.
An indication of the weaknesses of Ethiopia’s economic data is the Ethiopian authorities’ assessment of needs and their plans for improvements. In the short term, they report that they intend to finish the revision work and produce the national accounts of Ethiopia with the new base year 1995/96. They add that in order to improve data quality currently the Central Statistical Authority is conducting the Agricultural Sample Census. They also stipulate that in the short term they need funds, study tour, training, attending of different international workshops related to national accounts and capacity building in internet, web site and CD-ROM usage for data dissemination. In the Medium Term, the authorities indicate that they intend to continue to implement the 1993 Standard National Accounting (SNA) as much as possible in coverage & dimension and; start to compile institutional sector accounts; Improve, coordinate and encourage the regional accounts; Improve the data dissemination quality through internet and web site. Even the simple task of establishing a web site for the Ministry of Finance & Economic Development is presented as a medium term plan. Furthermore, in the medium term they explain that they need financing for overseas study tour and capacity building, office facilities and staff training, increase internet facilities to improve communication among international colleagues and data users and suppliers and to improve data dissemination.
Limitations of Growth in GDP per-capita
There is yet a different tack to why the reported rise in GDP and its growth is objectionable to many around the world. The undue emphasis on GDP and its growth hides the fact that neither a large increase in GDP nor in GDP per-capita may correctly address the nations’ fundamental problems.
As the famous economist Simon Kuznets in his very first report to the US Congress said in 1934,
“…the welfare of a nation can, therefore, scarcely be inferred from a measure of national income…”
There is also a difference between economic growth and economic development. Economic development refers to social and technological progress. It implies a change in the way goods and services are produced, not merely an increase in production achieved. While Economic growth implies only an increase in quantitative output; Economic development typically involves improvements in a variety of indicators such as literacy rates, life expectancy, and poverty rates.
For those not familiar with GDP and GDP-per-capita, there are several remarks that need to be made. While GDP per-capita simply measures each person’s share of the total value of production (income), the underlying figure that is often controversial is the GDP. When properly defined, the GDP is the total market value of the goods and services produced by a nation’s economy during a specific period of time. It is defined to include all final goods and services — that is, those that are produced by the economic resources located in that nation regardless of their ownership and are not resold in any form. GDP is commonly used as an indicator of the economic health of a country, as well as to gauge a country’s standard of living. Critics of using GDP as an economic measure say it does not take into account the underground economy – transactions that, for whatever reason, are not reported to the government. Others say that GDP is not intended to gauge material well-being, but serves as a measure of a nation’s productivity, which is unrelated. Also, GDP ceases to be an accurate indicator of production if there is a long term shift from non-market provision of services (for example cooking, cleaning, child rearing, do-it yourself repairs) to market provision of services, then this trend toward increased market provision of services may mask a dramatic decrease in actual domestic production, resulting in overly optimistic and inflated reported GDP. This is particularly a problem for economies which have shifted from production economies to service economies. Other criticisms of the GDP include that it does not take disparity in incomes between the rich and poor into account; GDP ignores externalities or economic bads such as damage to the environment. GDP does not measure sustainable economic growth. A country may achieve a temporarily high GDP by over-exploiting natural resources or by misallocating investment. For example, Oil-rich states can sustain high GDPs without industrializing, but this high level would no longer be sustainable if the oil runs out. Economies experiencing an economic bubble, such as a housing bubble or a low private-saving rate tend to appear to grow faster owing to higher consumption and the mortgaging of their future for present growth. Economic growth at the expense of environmental degradation, for instance, can end up costing dearly to clean up.
Furthermore, the growth that is reported to have occurred in is said to have taken place in service and government sectors of the Ethiopian economy and not in the agricultural and industrial sectors. Growth in the agricultural and industrial sectors may have suffered because of the misguided policies of the government. There is also an objection based on the societal (ethnic) concentration of the beneficiary population of the alleged economic growth. Many Ethiopians in the Diaspora believe that only a minority of political supporters of the ruling party have benefited from the seemingly apparent growth.
It is also worth noting that the supposed increase in GDP and GDP per-capita appear to be out of line with other countries’ experiences. For example, rapid growth in GDP usually goes along with rapid increase with use of electricity. The correlation of electricity consumption and economic growth points toward the critical role that electricity plays in industrialization and urbanization. Thus, while Ethiopia’s GDP per-capita is reported as having nearly doubled since 2000, Ethiopia’s electrical consumption remained surprisingly constant. For example, Energy use in 2003, is reported by the World bank at 288 kg of oil equivalent per capita, the 2009 World bank figure was 290 kg of oil equivalent per capita. Also, for a nation so heavily dependent on agriculture, Ethiopia’s agricultural growth should correlate closely with any data indicating substantial GDP growth. Agriculture has however finite sources of growth such as growth in area cultivated, growth in machinery used, and growth in fertilizer use. Examination of each of these can show the reality of agricultural output and its direct effect on GDP and GDP per-capita. For example, according to the World Bank data on fertilizer consumption in 2003 was reported at 6 kilograms per hectare of arable land, and 2009 data shows 7 kilograms per hectare of arable land. Also, data on agricultural machinery used, and agricultural land under cultivation does not appear to have exhibited dramatic changes enough to sustain nearly 10-percent annual real growth in income.
Finally, the Ethiopian government authorities prefer to cite the economic growth rate to highlight their economic accomplishments. But using growth rates alone hides a basic and fundamental illusion concerning what the growth means. The simplest way to illustrate the illusion is by first supposing that that each Ethiopian earns $100 per year and that a gift from heaven gave each Ethiopian with an additional $10 dollars. As a result the per-capita income of Ethiopians goes up to $110 and the per-capita income of Ethiopian would have grown by 10-percent. If instead Ethiopians initially earned $1000, the additional $10 dollars from heaven would only have increased their income by 1-percent. So, one reason the country appears to achieve a high growth rate is because it is starting from such a low level of income. It is interesting that even at the so-called high growth rate of Ethiopian per-capita income; Ethiopians would take another 25 years to catch-up with the rest of developing Africa.
In conclusion, Ethiopia needs a genuine sustained economic development policy and a supportive democratic government to bring the income of its people above the requirements of human subsistence. This would mean a protracted investment in the education of the young, increased productivity of its farmers, intensified supportive business measures for of its entrepreneurs, and peace and social cohesion that has proven to be catalysts for rapid economic progress elsewhere in the world. The Ethiopian governments also must realize that citing dubious statistics can not improve the lives of its citizens. Instead it should attempt to bring genuine economic development that improves the quality of life for the majority of Ethiopians!!!
