President Isaias on priority programs for 2016, increased National Service salary, food security

By Shabait

President Isaias Afwerki gave a live Radio and TV interview to national media outlets on the 22nd and 23rd of January 2016 on a wide range of domestic and regional issues. Excerpts of the Interview, (2nd part), follows:

Q. Mr. President, the measures taken already may not bring about a miraculous solution. However, prices of some consumer goods have declined sharply. What could be the reason? How can sustainability of the trend be secured, and, what other measures to stimulate similar price reductions in other consumable items? 

President Isaias: The details are available with the concerned bodies. What were the prices of millet,

sorghum, maize, teff, wheat and other local products or imported ones in markets of different areas of the country prior to the currency change? What were the causes for price fluctuations? And now if the price of a specific commodity has fallen, why has this happened? Is this correlated with demand and supply issues or is this largely dictated by speculative action? The analysis must be deep and comprehensive. Here, we are talking about primary perishable consumables including cereals, sugar, edible oil lentils and oil seeds, etc.

For imported commodities, fluctuation in global fuel prices is of course one determinant factor. This has ramification for the exchange rate as well as for the prices of various consumer goods and services. The availability or scarcity of liquid money in circulation may also have impacted prices of commodities. Changes in the inflow of foreign currency into the economy, in its diversified forms, may have also contributed to the price reductions seen in the past few weeks. There are numerous variables that could have influenced price behavior of the commodities in question. So one needs to examine all these intertwined variables in greater detail and over time before inferring a generalized conclusion or opinion.

Still, the current fall in prices amplifies that price rises in the past were mostly prompted by speculative conduct. Last year, we had a surplus harvest, particularly in the Southern Region. However, the surplus output was not reflected in concomitant price reductions in the market. Where did the surplus go? Was it stored in granaries? We have no clue on how it was appropriated by the merchants. The rise and fall of the prices in this case is determined by those who have stored it and not by the correlation between supply and demand or market rules. The fluctuation in prices is mainly a consequence of speculation.

Hoarding to inculcate artificial shortages and to increase prices when people are hungry are of course unscrupulous ploys that are often practiced to glean exaggerated profits. If the Government and government institutions fail to enforce strict regulatory measures, speculative conduct spirals out of control. Profit margins in these cases hike without limits; not only by hundred or two hundred folds, but by one thousand or two thousand folds. To revert back to the original question, is the current price reduction in certain food items due diminished speculative practices or because there is real adjustment of prices in a normative sense of the concept? The jury is still out and one needs to carry out meticulous analysis of all relevant factors to identify the real underlying causes and reasons.

Q. Mr. President, the Cabinet of Ministers decided, in its last session, priority programmes for 2016 will include focus on human resources, food and fuel oil supply as well as acquisition of machinery and public transport facilities. Can you please elaborate on these priorities and related government priority programmes for this year?

President Isaias: We have been acquiring, over the years, different resources including machinery, equipment, raw materials, oil, cement, enforcement bars, and other resources such as human resources. In order to effectively implement our priority programmes for 2016 and the period beyond that, we need to properly gauge the resources accumulated so far and those that will be garnered this year. Comprehensive assessments and appraisals have not been conducted in a meticulous way for a rather long time. As such, the first task is to conduct a comprehensive inventory of our resources; in terms of actual numbers, functional status etc. This applies not only to major capital goods such as machinery and equipment, but also to associated raw materials and intermediate inputs; both for those that are locally produced and those that are imported. Budgetary appropriations are dependent on this calculus. Revenue generation and how it can be augmented is another side of the coin.

Implementation of prioritized programmes is largely dependent on optimal utilization and management of our human resource. In this context, emphasis is placed on professionals and skilled manpower as they are the key drivers of economic growth. Skilled manpower is indeed critical for the efficient operation of machinery, equipment, and the effective utilization of raw materials, other resources as well as budget administration.

As indicated earlier, we have not effectively and objectively assessed our resources in general. In order to make 2016 a turning point, we need to systematically and thoroughly assess available resources as part of strengthening our implementation capacity. In the first place, we need to strengthen our human resources practices.

We have numerous college graduates (BA/BSc and diploma degree holders) and graduates of vocational schools and training centers who have acquired further experiences in various capacities. These aggregate competences will require painstaking assessment to determine our overall human resource capabilities. This is a major condition to have a refined plan for 2016. The overall resources that are at our disposal have been studied and sorted out. However, as stated earlier more emphasis has been placed on the proper assessment of human resources. To this end, the process of data entry related to human resources is under way. The intention is to ensure the right placement of human resources, especially the skilled ones. People must be assigned where they can be effective and productive. In relation to this issue, we need to question and assess what we have been doing in terms of placing the right person at the right place. Proper utilization of human resources is a critical factor towards introducing structural adjustments.

In general, appropriate budget allocation is a critical factor for the effective implementation of our development plans and priorities. The largest portion of 2016 budget will be appropriated to salary. Right placement alone is not enough. Employees must also be rewarded. From 2016 onwards, all those who have endured for long and sacrificed a lot need to be rewarded properly. No matter how this issue is prioritized or balanced relative to other top priories, certainly it has to be among the top priorities. The other priorities include investments related to machinery, equipment and raw materials; transport and communication facilities; water supply; energy and essential social services. Failure to address the needs of human resource (public servants) has definitely negative effect on the realization of the other priorities. All the issues incorporated in the 2016 plan have to be viewed from the perspective of the framework that we need to revise the way we do things in order to transform the economy.

Q. Mr. President, you mentioned the issue of salary increment. When is this plan going to be implemented fully?

President Isaias: It has already started (in mid-2015). Those for whom the required information has been recorded in the database have already started receiving their new salaries. All government bodies have been informed to collect the required information of their respective employees. For an employee to be placed in the right salary category corresponding to his/her competence, the data entry process has to be accurate in accordance with the established criterion. If it is possible to retrospectively deal with the cases of those whose information has not yet been reported, it will be addressed accordingly. However, the required information has to be provided first.

With regard to the rationale of the salary adjustment, periodic salary adjustments that take into account the cost of living prevailing in the country have been overlooked for long. Consequently, while this has helped the country to stabilize its fiscal balance and catalyze the development endeavors, many people (the labor force in particular) have paid considerable price - sacrifices. Now the process of salary adjustment has been started to address the aforementioned concern. However, it has to be noted that the fact that the salary adjustment process has been started may not solve such a cumulative problem radically in a short period of time. This is the first step towards an incremental process of solving the problem on sustainable basis. The normal process will be restored gradually through continuous improvement based on objective assessment of the issues at hand.

In sum, what matters more is not the digits of the salary an employee receives. Rather what matters more is what one can do purchase with the amount of the salary he/she receives – the purchasing power of an employee’s salary. If inflation is not comprehensively addressed, and salary increment worsens the existing level of inflation, salary increment is useless to the employee.

Q. What measures will be taken along with the salary adjustment process in order to check inflation?

President Isaias: This is a broad topic and many policy measures can be proposed for addressing the issue. First and foremost, the regulatory and supervisory capacity of government organs has to be strengthened. There are many factors that influence the purchasing power of an individual’s salary. The amount of salary is just one of the factors determining purchasing power. Therefore, to adequately address such problems, as asserted above, the regulatory and supervisory capacity related to taxation, measures aiming at ensuring price stability and the like have to be enhanced so that the purchasing power will not be dictated by unfounded speculation, which exacerbates the cost of living by escalating the prices of consumable goods. In this case, I believe the habit of saving has to be cultivated in order to counterbalance the effect of unnecessary consumption as the latter together with speculation worsen inflationary problems. In such a situation where unjustifiable speculation prevails, one has to be aware of such invisible hands influencing the market. As a result, the effect of salary on the standard of living of public servants should be viewed and assessed from the perspective of such conditions as the ultimate (and net) effect of salary is combined with and can possibly be counterbalanced by other equally important dimensions of the economy. Therefore, more emphasis should be placed on stabilizing the overall economy and promoting productivity. Otherwise, the gap between the haves and the have-nots will be wide and this can have far-reaching undesirable effects.

People’s civic awareness in relation to public policy can also play a significant role. To this degree, regarding how the overall effect of the policies that are being introduced will look like in the coming months, it is necessary to conduct open public discussions.

Q. Mr. President, in regard to this issue, implementation capacity of government institutions and enhancement of productivity are, indeed, critical factors. What plans have been designed to achieve these objectives?

President Isaias: This issue has been implicitly addressed in my responses to the previous questions. Strengthening organizational and institutional capacity in relation to agriculture, industrialization, provision of social services and other different sectors of the economy is a key factor that needs to be addressed properly. While a lot has been invested in relation to these issues, we still have a long journey to go. For this reason, our overall achievements and limitations in relation to lying foundational infrastructure such as adequate road networks, other dimensions of transport facilities, well equipped airports, energy, water supply (for meeting drinking, industrial and agricultural water demands) and other infrastructural projects have to be assessed meticulously on a case by case basis as these are the key drivers of economic transformation. The plans for 2016 and 2017 have to take into account such a situation. As discussed earlier, these infrastructural investments enhance our capacity to implement the plans we design.

With respect to food security, it is determined not only by the efforts we exert, but nature has also a significant effect. To offset total dependence on rainfall, we need to give more weight to irrigation. Food security is not related to the harvest of cereals but also includes pursuing an appropriate livestock strategy.

Q. Last year’s rainy season was not satisfactory in the entire region. Consequently, the countries in our region are experiencing chronic lack of food supply. How is our case in relation to this issue?

President Isaias: It may sound an exaggeration, but in reality we do not have such a problem. The reason is that in spite of satisfactory rainy seasons in the past years, we have been doing our best to further augment our food reserves. For example, in 2014 in general there was satisfactory harvest and particularly there was surplus in some regions. However, one should never be misguided by the good harvest of a single year. We cannot be complacent and relax the imperative of augmenting our food reserves and strategically addressing the requirements linked to basic needs such as food and other basic consumable goods. Some countries have a ten year food reserve and food supply in lean years is tapped from this reserve. While we have not reached this level, it is important to cumulatively and proactively increase our food reserve to last from one-year to two years; this has to increase gradually from a two-year to a three-year reserve and so on. This is helpful when crisis happens. It means in our case, even when there is a budget deficit, food security will remain an utmost priority. We endeavor to have a reserve of not only those produced locally but also for the basic imported items such as sugar. It does not mean that all our demands are met, but we have not faced serious shortage of such basic needs in the past years. It is because we proactively purchase the required amount of basic items. Such proactive measures are useful for offsetting the undesirable effects of unsatisfactory rainy season in 2015.

Q. Mr. President, the government has funneled huge investments for water infrastructure in order to increase agricultural productivity and thereby achieve food security. What additional investments are required in order to reach a stage of reliable annual harvests?

President Isaias: Annual demand and consumption in relation to different cereals, bread associated with increasing degree of urbanization and cash crops should be studied. Cash crops such as sugar are mostly imported. We are trying to transform agricultural practices by introducing irrigation so as to complement what is produced with the help of seasonal rainfall-fed agricultural practices.

With respect to the investments related to the agricultural sector, however, there were some practices that could not be as effective to the extent desired, especially in relation to flood-water diversion projects. The effectiveness of such projects has to be measured in terms of their contribution in meeting the overall food demand in the country. When compared to such large scale projects, irrigation practices that we have been introducing in relation to small scale agricultural practices have been so far more effective. Actually, there are also improvements and useful lessons learned in connection to some large scale projects particularly and separately targeting vegetables, fruits, cereals, pulses and cash crops. In sum, taking into account the size of areas that are being cultivated and effectively used for the said purpose, the annual harvest that has to be produced from the overall cultivated areas, and options available for producing different harvest types, we are in a transition stage.

Taking into account different considerations (mainly infrastructural requirements), issues related to introducing effective and large scale irrigation practices are easier said than done. Lying down the foundational infrastructure related to irrigation is a considerably demanding task. The financial investment and, the regulatory and management capacity required for introducing effective irrigation practices are two major examples of the demanding tasks we are talking about. Securing adequate water, electric supply, competent manpower, research facilities, seeds, fertilizers, insecticides and the like are also major investment requirements associated with irrigation. Hence, we will need to invest much more to successfully introduce large scale irrigation projects.

With regard to irrigation practices, while there is commendable progress (at least when measured from the perspective of a transition stage) in relation to the projects that are being introduced in the western economic zone, yet the opportunities (e.g. adequate water availability) in the large plains of the eastern zone have not been exploited to the extent required due to lack of infrastructure in the area. The area extending from Foro and Irafaile to Nakfa is opportune for irrigation practices and it must be cultivated. Nevertheless, the large investment required for making an effective use of such opportunities is also a major constraint.

In general, considering the overall investments in the areas mentioned above as well as the investments in the highland part of the country, there is steady progress. However, ultimately all the efforts or investments have to be measured in terms of their effectiveness or end results (what is actually produced). The litmus test will be the overall contribution they make in augmenting our food reserve of strategic items; the revenues that are generated which includes foreign currency savings and earnings both through import substitution and export promotion.

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