Double Digit Growth with Unemployment and inflation?

hiopia: Houses Opening Draws Attention to Unemployment, Inflation
BY YETNEBERK TADELE, 14 OCTOBER 2012
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Photo: Chris Kirchhoff/MCSA
Construction workers (file photo): The Prime Minister plans to create more than a million job opportunities during this budget year.
The joint session of the two houses started on Monday, October 8, 2012, after the moment of silence in honoring the late Prime Minister Meles zenawi followed by the national Anthem.

A drawn-out an hour speech from President Girma Woldegiorgis, that ushered in the parliamentary season that started by a joint meeting of the upper and lower houses had MPs hear that inflation and unemployment still remained critical problems that the government faced.

The third year's joint ordinary session took place on Monday, October 8, 2012, in the absence of the late Prime Minister Meles Zenawi for the first time in two decades.

"The government has strictly followed its decision to limit the amount of money circulating in the economy and not to borrow or cover its budget deficit from the banks," the president said.

Ethiopia's annual inflation rate remained stubbornly high at 19pc though the pace of increase in food prices slowed marginally, but still high at 17.7pc in September 2012.

The year-on-year inflation rate in September was 19pc, down from 40pc same time a year ago according to the data from Central Statistic Agency (CSA).

"It is eroding the purchasing power of the citizens," says Aseffa Gessesse, an economist who runs a private consultancy.

The decision made by the government not to borrow money from the National Bank of Ethiopia (NBE) during the last fiscal year was one of the major factors for the reduction of inflation rate, which the IMF advisory committee had said earlier this month and which the president reiterated in his address; but the IMF still warns that if the government borrowed money in 2012/13, it could aggravate the problem.

The net domestic borrowing was 7.4 billion Br in 2010/2011 fiscal year.

Ahmed Shide, member of parliament and state Minster of Ministry of Finance & Economic Development (MoFED) talking with other MPs before the third year session of the House of Peoples Representative and House of Federation was opened on October 8, 2012.

Aseffa comments that the major contributing factor for the current inflation in country is not only government borrowing but other factors like anarchic 'free market' and unbalanced growth of the construction sector.

When there is a significant inflation, people will reduce their saving and consumption. Consequently, reduction in investment will occur. A reduction in investment contributes to unemployment.

"When the demand for their products is reducing, some firms start reducing their labour force and hence adding to unemployment," explains Aseffa.

Currently data from CSA show that unemployment rate in the urban areas is 18pc, with Addis Abeba reporting 25pc.

"Unemployment is one of the biggest social problems," the president said in his address, mentioning that the government had created more than 1.1 million jobs in the past fiscal year. But many of these jobs were low skilled.

In the last fiscal year 51,983 micro and small scale enterprises had generated 541,883 jobs.

Aseffa likes the micro and small enterprises interventions "but they will remain small to address the huge unemployment of the country," he suspects.

"The best way to address unemployment properly is addressing the issue of land and investment in rural areas to reduce the influx of young, productive and energetic labour from the farming community," Aseffa recommends.

The data from Ministry of Urban Development & Construction (MoUDC) shows that about 193,241 small scale job opportunities were created during the construction of condominium houses in different regions.

The president also mentioned in his address that over the past seven years, over 300,000 houses were built to address housing problems adding that the construction of 100,000 low cost houses was also underway in the capital.

Under the condominium housing project that started in Addis Abeba in 2005 and in regions afterwards, about 207,069 houses were built, 119,431 of which were transferred to the residents, according to the data from the MoUDC in July, 2012.

In the condominium housing project, about 453,000 residents were registered in Addis Abeba, only 72,826 of whom had obtained houses until July 2012. Many are waiting for opportunities in the new 40/60 housing scheme.

"There will be a major construction programme of low-cost housing for the low income segment of the society," promised the president.

The first ordinary meetings of the House held on Thursday, October 11, 2012 and postpone the motion on the president's address since the Prime Minister was not present.

The House of People's Representatives will convene on Tuesday October 16, 2012, to debate on the president's address, with Prime Minister Hailemariam Desalegn appearing to defend it. Girma Seifu, the only opposition MP, declined to comment before the Tuesday meeting.