The Reasons for Ethiopian's Poverty - Case Study Example

Ethiopian Poverty of the of the No Introduction A nation can succeed in political, economic, social and cultural dimensions only with the presence of low poverty level in its population. Resources available to satisfy unlimited human demands are always scarce. With the essence of equality in wealth and income distribution, scarce resources can be efficiently allocated. High poverty in a nation exists when income and wealth distribution is improper and uneven. Poverty in a country is responsible for extensive prevalence of malnutrition and poor health among individuals. Poor health of natives in a country engenders less productive human capital, capable of earning low income. Low income level in a nation is the primary indicator of extensive poverty in a country. Thus, poverty prevailing in a nation exists in the form of a vicious circle. Therefore, it is rational to study the primary causes of poverty because such an analysis would facilitate poverty eradication and growth orientation in a nation. This research paper will analyze causes of poverty in Ethiopia, a well-known nation in the continent of Africa (Abeles, 2001). Poverty and Ethiopia Ethiopia is a developing nation, where the primary sector comprises agriculture. The agricultural sector generates 46% of domestic income for the country and creates employment opportunities for almost 85% of the individuals. Although agriculture is the primary sector of the nation, it still suffers from several atrocities; and farmers here live on subsidies provided by the government. As recorded in 2010, domestic product of the nation was $ 90.11 billion and in 2012, its amount was $ 109 billion (CIA, 2013). Though domestic income level of the nation has increased, its average per person income level is probably lowest in the world. This is due to the prevalence of extensive poverty. So, it is highly cogent to mark and discuss the main causes of poverty in the nation. Causes of Poverty in Ethiopia There are various causes of poverty in Ethiopia; some are considered as internal factors and the others as external factors. Issues of Governance The poverty alleviation and social welfare oriented policies and activities are undertaken by the government authorities of a nation. However, it should be considered that if public authorities in a country are not powerful in the market, then welfare growth and poverty reduction cannot be addressed. Rise in income of a nation can be accompanied by high inequality in income and wealth distribution, if effective redistribution policies are not implemented by the public authorities. Existence of multi-party politics and free as well as fair election procedures in Ethiopia has led to severe losses in power of the government authorities. The weak public authorities in Ethiopia have employed fallible social security systems and safety measures in the country. Any type of natural calamities, like, famine, cannot be sustained by the primary sector of the nation due to lack of adequate government services. Though the country claims to possess a good democratic election system, yet the 2005 election of the country was recorded to be highly competitive and at the end of the session, the opposition party was found behind bars. In 2006, reports of Freedom House claimed that the economy of Ethiopia is “party free” (Vadala, 2009). Complete freedom of the country is denied due to existence of corruption, bureaucracies and controversies in the political sector. Such problems within the political segment of the nation are responsible for forming poor healthcare delivery systems, poor redistribution policies as well as inadequate subsidies and taxation in Ethiopia. Therefore, inadequate power and role of the government sector has ultimately increased incidence of poverty in the nation. In short, benefits of democracy are yet to trickle down to weaker sections of the country (Woodford, 2003). Existence of pervasive poverty in the Ethiopian economy marks high incidence of food insecurity and malnutrition in the country. Due to high fuel and food prices, inflation rate in Ethiopia was 55% in 2008. Such statistics indicate that policies of government authorities are incompetent in Ethiopia. The level of equity and social justice in the country is low; living standards of individuals are poor due to faulty policies of government authorities in the nation. Under the umbrella of EPRDF government, contribution of the agricultural sector to the nation’s GDP has also declined (Frumkin, 2006). Issues of Liberal Capitalism The norms of capitalism have become highly influential in Ethiopia, in the recent years. The country has started to experience incipient growth rates in its income levels, since liberal views are significantly seeping in the economic system of the nation. The levels of regulations imposed by the government on private companies have been substantially reduced under the regime of capitalism. Liberal capitalistic norms in the nation are significantly helping in improving growth rates of the service sector of the country. However, it should be noted that in contemporary times, most of the developed nations are governed by mixed economic principles. Under this regime, powers of public authorities are checked by governmental regulating bodies. Nonetheless, in case of Ethiopia, role of the government has turned out be minimal in context of imposing regulations in private companies. Thus, absence of adequate government control has generated strong concentrated powers in Ethiopian market. Many of these monopolistic business firms in Ethiopia do not abide by general norms of ethics. Here, existence of liberal capitalism has resulted in high inflation as well as rise in rent seeking activities and corruption. High appetite of profit and growth among the private firms often make them modify policies of the government in favour of their own interests, thereby acting against benefits of the poor. Much of the consumer surplus in economies is grasped by these profit making firms. Moreover, private multinational companies of the country outsource employments to other nations, which reduce income earning opportunities of commoners in the country. The cardinal norms of capitalistic growth in a nation persistently influence disposition of wealth. Liberal capitalistic growths experienced in economy of Ethiopia is responsible for the fall in communal and welfare activities in the country. This has remarkably reduced the level of welfare oriented development programs and aggravated deprivation of the poor in the nation. In other words, profit and growth achievements are given greater value, than equity and justice, in the new, capitalistic, liberal society of Ethiopia. Issues of International Organizations The level of poverty in a nation can only fall if the scope of domestic business increases. Since incidence of globalization in 1990, extent of business internationalization in the global economy has notably increased. Many international organizations have started to run successful businesses in the economy of Ethiopia (OECD, 2009). These giant international firms enjoy benefits of economies in business operations and acquire several competences in business. Such competent firms in the industry serve strong and fierce competition to domestic companies of the nation. Fall in competence of domestic business sectors in Ethiopia has also contributed considerably to the rise in its poverty level (McEachern, 2012). The strong international companies in Ethiopian economy manipulate decisions of the government in their favour. Furthermore, these firms generate several entry barriers for domestic companies in the country. Limit pricing and predatory pricing strategies heighten the challenge for native companies to grow in the nation. Such lack of growth leads to low domestic employments in the country and hence, raises the level of poverty. The high income group of individuals in the nation demands for advanced products and services of international organizations, which reduces national income. In order to enjoy special benefits, these international companies provide funds to the political parties for campaign funds and other purposes. This forces the government to adopt lesser import substitution and export promotional policies in Ethiopia. The commoners of the country neither gets access to adequate employments nor the benefits of strong welfare oriented policies of Ethiopian government; this substantially aggravates the rise in poverty in the country (Bogale, 2002). Issues relating to Transnational Activity The transnational activities are various tasks that are executed by a group of countries, collectively. Since the emergence of globalization in 1990, state of economic affairs between nations has significantly intensified. The contemporary trading nations experience economies, which are highly integrated with each other. Such high integration has deepened the need of policy coordination in the global economy. Through various transnational activities, a group of nations aims to achieve common benefits for each of their economic systems. Initially, it was assumed that transnational organizations in Ethiopia would help in developing its rural economic status and reduce the persistent poverty. Institutions like, New Partnership for Africa’s Development (NEPAD) and African Union, are famous transnational organizations in Africa, which bring back foreign migrants in rural nations of Africa (for development purposes) from developed economies like, Sweden, U.K. and France. These organizations also help native skilled workers from under-developed African nations (like Ethiopia) to travel to foreign nations for earning higher amount of money (Lindenberg, 2008). In short, the transnational activities of African nations aim to improve the level of national income of the country by levelling the income and wealth distribution. In reality, it should be noted that poverty level of African nations, like, Ethiopia, did not fall through the assistance of transnational activities. As these activities failed to boost the motivation level of economic entities in Ethiopia, the overall level of productivity could not be enhanced and higher growth oriented opportunities were not generated in the country (Pugel, 2007). After the global financial crisis, developed economies like, U.S. and U.K., has decided to reduce their level of foreign outsourced employment opportunities. These developed nations are facing recessionary trails in the market, which have forced to reduce the level of in-migration in their domestic economies. Thus, several educated individuals, who had migrated to other developed nations from Ethiopia for work, had lost their jobs, after the 2008 crisis. As a result, transnational activities in Ethiopia failed to succeed in lowering the level of poverty to the desired extent. The government authorities in certain developed nations avoid making trade or development deals with that of Ethiopia as they do not trust the latter. In reality, there are very few transnational organizations marked as successful in Ethiopia. INGO Intervention International Non-Government Organizations (INGO) are the Non-Government Organizations working in cross-country boundaries to ensure adequate social services in less developed nations of the world. Such organizations have helped in reducing misery of the poor and also, assisted in protecting and preserving the environment (Mankiw, 2011). The above analysis states that the economy of Ethiopia faces profit seeking, selfish private sector and unjust public sector authorities in business. Even so, it is true that active initiatives of INGOs can offer considerable help in lowering level of poverty in Ethiopia. Yet, in reality, NGOs in Ethiopia failed to reduce the level of poverty there. According to regulations of the Ethiopian government in 2009, amount of restrictions imposed on fund raising and civil society activities in Ethiopia have increased (Novak, 2000). A letter of recommendation is required to be produced from Ministry of Foreign Affairs, before any NGO can start its activities here. Such strict regulations have lowered interests of INGOs in Ethiopia. Since 2009, number of registrations of NGOs in Ethiopia has fallen from 3822 to 1500 (Ravelo, 2013). Furthermore, the Ethiopian Prime Minister had claimed in 2009 that INGOs were toiling under depression, given that available funds with these organizations, for welfare oriented purposes, were very low. The organization of Civil Society Support Program is an NGO owned by British Council in Ethiopia. The performance of this organization had also been doubted in the country. Confusions and misinterpretations are highly prevalent in activities of INGOs in Ethiopia. Lack of adequate funds and too many regulations on INGOs in Ethiopia have turned out to be primary obstacles in this context (Mankiw & Hakes, 2011). Other Issues Apart from abovementioned issues, there are also other problems that hinder the reduction of poverty level in Ethiopia. Poor infrastructure Economic and social growth in a nation can only be facilitated with the help of sound infrastructural facilities. Roads are primary means of transportation in Ethiopia. Despite this fact, road infrastructural facilities in the nation are very poor in the country. Poor network and condition of roads in Ethiopia creates problems in attaining economic integration, hinders growth of the domestic market and also, induces problems in diffusing exports across other nations of the world. Therefore, wide spread poverty in rural regions of the country cannot be easily eradicated for such problems (Poverties Org, 2013). Poor communication The communication facilities in the country are very poor. The telephone lines facility is the worst in Ethiopia, compared to other nations of Africa. This signifies that commoners in the country still lack adequate access to fruits of Information and communication technologies, both socially and economically. If communication facilities in the country were effective, then human resources could be adequately used, along with reducing the persistent poverty. Education The overall investment made by government authorities in Ethiopia, in order to improve the educational sector, has increased since 1990. Nevertheless, access to superior quality education is not enjoyed by a large section of the society, even in the present scenario. Without assistance of proper educational facilities, the skilled workforce in Ethiopia cannot be formed and hence, generating higher income would become challenging and poverty would also not fall (Casson & Wadeson, 2012). Health Hazards It is analyzed by many researchers that one of the primary causes of poverty in Ethiopia is high prevalence rate of HIV/AIDS. On an average, in rural regions, every 1 person in 13 is infected with HIV/AIDS and in urban areas, the prevalence is even more (1/6) (Poverties Org, 2013). Therefore, the cost incurred for providing preventive and curative healthcare services in the country is very high. Otherwise, such funds could be utilized for the purpose of growth oriented investment in the nation (Bigsten & Shimeles, 2007). Natural Calamities The occurrence of multiple natural calamities in the country is also responsible for the wide spread poverty. The country has faced droughts and famines several times, which have in turn significantly augmented misery of the under-privileged population (Mankiw, 2011). Common issues in Africa The paper here concentrates on the causes of poverty in Ethiopia. However, in reality, it is seen that poverty and misery is a common issue for the entire African continent, with the presence of common causes of poverty on the whole (Pettis, 2013). The arable land available in the African continent is vast, but the ownership laws and management patterns on land are quite ineffective. A large portion of land in the country is owned by the tribal authorities. Similar to Ethiopia, the level of corruption and political wars in African nations are high. Such factors drain out large amounts from financial reserves of the nation in unproductive purposes. The health status and healthcare delivery systems performance in nearly all African nations are very weak. Poor health and poverty exists in a symbiotic relationship in the entire continent (Tucker, 2010). Conclusion Long run stable and equitable economic growth of a nation cannot be sustained without the existence of low poverty level. From the above analysis, it can be stated that poverty in Ethiopia is the primary barrier for the desired long run economic growth (Aulakh, 2006). The government of the nation exercises unnecessary powers and regulations as well as fails to introduce efficient and sound welfare oriented policies in the system. Furthermore, the transportation, communication, health and educational sectors of the country are also in an unstable condition. The transnational activities are found to be incompetent and performances of the INGO activities are also deemed inappropriate here. Prominent changes in the external world, like, global financial crisis and the consequent recession, have added fuel to the fire of dismay in the country of Ethiopia. Though the level of GDP (Gross Domestic Product) and GDP per capita in the country is apparently high, in reality, the GNP (Gross National Product) and per capita GNP is way below the required level. In order to draw an inference, it would be correct to mention that only after rectification of the abovementioned problems; Ethiopia can achieve a sustainable and equal growth in the long run. 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