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December 20, 2008

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TM

Well, I think we are not exceptional people! The black market is invisible to the the officials but it is still there. I am not sure it can disappear with shortages. If you go to the right place, which my sister did last week, you can see premium of close to 20% on the official rate for dollar. But, for other currencies it is mixed. For some currencies, it is zero for some even greater than 20%[Euro being the prime example]. I don't advice you to try to sell, but if you insist then doing it in places that are congested with people--like in the evenings of the ramadan month around Sultan Ahmet mosque- is surely not the right idea.
BTW: I do hope that you would advice the leadership the importance of a true broad based growth. I wish you the best stay ;)

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Alas, no exceptionalism. Main reason that there is no parallel market is because businesses and indivduals are not allowed to use own-source forex to import goods. Forex has to be acquired through official channels. This restriction has the effect of reducing demand for forex on the parallel market.

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Hi Prof. Rodrik,

That is an interesting puzzle.

One can say, and I hope not in a naive manner, that the positive legal market gains, far outweigh the costs associated with black market operations; higher relative costs of transporting contraband; higher surveilance of black market activity; growing incentives to have a direct private market, to keep up growing commercial ties with other developed countries and; a greater political will to maintain stable markets.

Also, perhaps the Ethiopian mafioso, which their has to be a black market mafia in every country in the world, would have just as much changed countries over into Somalia, where they simply have no fear of authorities.

I was told by a good friend of mine from Haiti, that in his country, the black market thrives and is kept in place, on purpose, by folks, country and region wide, who make millions in profits every month in the Haitian black market.

Mo one would have the gaul to search an already black corner in the world--unless you know what to go for and are expected. Some places in Jamaica are like that as well--no go zones, by even the military. Everything and anything goes goes. Somalia, is that type of zone. And, I have no quams with saying that the black market, has no color, class or race preference--a hot shot oil tycoon, may have greater economic gain in a destabalized country, than does a Gotti does with a mafia friendly Italy!

I would also like to add however, that democracy, probably took hold in Ethiopia. By which manner, is beyond my scope. Perhaps their involvement with interventions in the region, spurred this on?

One can only make those general assumption.

Best,

Youri
http://globalviewtoday.blogspot.com/

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Dear Professor Rodrik;

It is very sad to see the most eminent political scientist and well known economist having anything to do with the most disgraced and corrupt Mafia group of the so-called Ethiopian government. Your remark regarding Ethiopian government’s ability to control the black market and grow Ethiopia’s economy at the Chinese rate is deprived of an intellectual imagination because black market itself was controlled by former gorilla war lords who currently are the Ethiopian government. Needless to say, the minority Tigrean tribal rulers of the current Ethiopia do not have to use the black market to finance their objective anymore because they can do it as leaders of the country today.

Furthermore, for those brilliant economists of the capitalist world, IMF and world bank numbers, including Gregory Mankiw’s good governance index may interest the intellectuals and puzzle them when they read an altered data fed to them by cunning disciplined Mafia group such as the unrepresentative government of Ethiopia. But for the majority of Ethiopians, questions such as “What hidden hands put and keep us on the world’s beggars list” is a real puzzle. Hence, unless one wants to convince us that the Chinese argument stating that they do not need democracy but only a learning ability from the death of the former Soviet Union to bring economic growth to there country, Ethiopia is far from developing into anything worth mentioning. A sad thing however, is they are already using your good name to persuade the American congress to release the funds that were frozen back in 2005.

If Tigreans former gorilla lords ability of murdering and jailing tens of thousands majority Oromians is considered to be political stability and used as a good economic growth index of Chinese style, then a 500 years capitalism theory must be entirely false. Simply put, Adam Smith’s theory of “human’s perusing of self interest resulting in an economic growth and prosperity can’t take hold in Ethiopia. This is because Ethiopia, a country that is controlled by it’s 0.03% minority tribe, lacks a governmental infra-structural system that allows majority ethnic groups such as the Oromo nation to have a say in their own affairs or vent their grievances. The truth is, the Tigre minority tribe, who currently rules the country with an iron fist, may alter the economic data and black market since it has a controlling power on it and then feed it to the world bank. But, it can’t alter the cultural identities of nations and nationalities of Ethiopia, thus it’s holly alliance with America alone will not alter Ethiopia’s beggar status for many years to come. So, the Ethiopian puzzle is similar to Americans puzzle of post 9/11 where many asked, ”Why do they hate us?”, not knowing the fact that the crisis was the result of America’s ill informed foreign policy.
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Liben Serbelo

Dear Professor Rodrik:

I donot see an Ethiopian puzzle here in your posting of "the Ethiopian puzzle" and "self discovery in practice". What is puzzling rather is your unfounded statements on your blog. First, I would like to know what takes you to Addis Ababa? Is it your intellectual interest to personally witness a living history of an economy exhibiting "take off" over night on a basis of cooked data? Or as a consultant? I am sure you and your readers understand what constitutes an economic take-off and tell where they witness one? How do you reconcile an economy generating millions of starving children and adults, more than 20 percent and increasing unemployment in urban areas and emerging land-less peasants across rural areas and yet described by one seasoned political economist as an economy at the verge of economic take off? Perhaps, it is just perhaps, such a poor country could not possibly have any independent and capable economists with whom you can exchange views and make your observation more credible. Or you did not bother to consult them for they are below your scale of sophistication.

I am just wondering how you happen to pencil such statements without blinking. Does your visit to Ethiopia involve in any way consulting the Ethiopian government and your statements be part of your publicity service to your client? Is there any possiblilty, whatever minor, that you might be compromising your academic standards to please your hosts? It is important that you account your observation in Ethiopia in a more elaborate research form instead of sloppy statements written at high altitude with acute shortage of Oxygen. Until you resolve this puzzle, it is hard to make sense of what your statements mean in understanding the situation of the Ethiopian economy.

Former student

Dear Dani,

I am a former student of yours who has held you in high regard until I read this stunningly simplistic view of what has been happening in Ethiopia. I would like to believe that you would be more careful in the future.

Your article is a classic case of a foreigner (with a good name, I might add) going into a country that is totally alien to him (and a government that is desperate to get attention from any credible source) and trying to make profound observations in a rash--in one week or two. As you well know, things are not quite what they seem on the surface and you would have to dig deeper to understand the reality and be able to tell the fully story. Ethiopia is a more complicated--and I might add a sadder--place than your blogpost portrays.

So let me take issue with the three points you make in your blog. First, you say that there is no black market. Really? Let me assure you that there is one --you just did not take the time to find it. As recently as July of 2008 when I was there, the black market rate was one dollar to 10.15 Ethiopian Birr (while the official rate was 1 US dollar to 9.60 Birr). It is of course not easy to find it when you jet in a hurry, all you talk to are people in the government or the "private sector", and you forget that there is an open, crowded, and dirty marketplace called Merkato where foreign exchange is only one of the many things that is illicitly traded everyday.

Second, you say that the environment for the private sector has much improved since your last visit. Which private sector are you talking about? The quasi-government companies masquerading as private companies on the one hand and thriving on government handouts and connections on the other? You may be right that the environment for these companies may have improved, but I would really think twice before calling them a private sector. In fact, I would argue there is no level playing field whatsoever for a true private sector in Ethiopia. I urge you to go beyond the surface and ask who owns most of the major companies (other than a few ones such as Alamoudi's and the Turkish textile company you mention) and how they do business everyday. IF you did this, you would find out that there is really very little private sector to speak of, not to speak of the corruption and kickbacks involved. After nearly two decades of "reform", this is after all a government that is still in the business of running hotels, banks, and telecommunication, among many other things. I would expect an economist of distinguished name like yours to highlight these glaring facts instead of venturing into questionable observations that seemingly support your "self-discovery" theory of economic growth.

Third, you say that the economy has been growing at a Chinese rate. Really? I don't think so. No one with a rationale mind will deny that there has been growth in Ethiopia in recent years, but not to the degree (double digit) that the government claims. The actual rate may be around 5-6 percent (see a recent issue of The Economist on Ethiopia growth) and nothing like approaching the Chinese rate. The goverment is simply cooking the data to make it look like the Chinese rate.

Finally, call me cynical but there is a sad political angle to all of this. After having brutally suppressed political dissent, and alienated most of its own people over nearly two decades, this is a government that is desperately searching for a credible stamp of approval on its nonesensical economic policies (eg. agriculture led industrialization, which has failed to lift people out of hunger let alone serve as a basis for industrial takeoff). Your statements, however inaccurate, may well have been the endorsement that the government may have hoped for and indavertently secured.

Best,

Jim

There is a black market, in fact clear and white. So there isn't a puzzle to talk about! It is a pitty to see such a big name making this unsubstantiated and hasty conclusion.

Jim

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Your remark regarding Ethiopian government’s ability to control the black market and grow Ethiopia’s economy at the Chinese rate is deprived of an intellectual imagination because black market itself was controlled by former gorilla war lords who currently are the Ethiopian government.
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I urge you to go beyond the surface and ask who owns most of the major companies (other than a few ones such as Alamoudi's and the Turkish textile company you mention) and how they do business everyday.

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Ethiopia is also the 10th largest producer of livestock in the world. Other main export commodities are khat, gold, leather products, and oilseeds. Recent development of the floriculture sector means Ethiopia is poised to become one of the top flower and plant exporters in the world.

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I have no quams with saying that the black market, has no color, class or race preference--a hot shot oil tycoon, may have greater economic gain in a destabalized country, than does a Gotti does with a mafia friendly Italy!

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This is because Ethiopia, a country that is controlled by it’s 0.03% minority tribe, lacks a governmental infra-structural system that allows majority ethnic groups such as the Oromo nation to have a say in their own affairs or vent their grievances.

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Ethiopia has shown a fast-growing annual GDP and it was the fastest-growing non-oil-dependent African nation in 2007 and 2008.Since 1991, there have been attempts to improve the economy; however, there has been some political opposition to the policies as well as a 2008 drought which slowed progress.The effectiveness of these policies is reflected in the ten-percent yearly economic growth from 2003-2008.

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I am sure you and your readers understand what constitutes an economic take-off and tell where they witness one? How do you reconcile an economy generating millions of starving children and adults.

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The major agricultural export crop is coffee, providing about 65% of Ethiopia's foreign exchange earnings. Coffee is critical to the Ethiopian economy. More than 15 million people (25% of the population) derive their livelihood from the coffee sector.

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Other exports include live animals, hides, gold, pulses, oilseeds, and khat (or qat), a leafy shrub which has psychotropic qualities when chewed.

Dependent on a few vulnerable crops for its foreign exchange earnings and reliant on imported oil, Ethiopia lacks sufficient foreign exchange. The financially conservative government has taken measures to solve this problem, including stringent import controls and sharply reduced subsidies on retail gasoline prices. Nevertheless, the largely subsistence economy is incapable of supporting high military expenditures, drought relief, an ambitious development plan, and indispensable imports such as oil and, therefore, must depend on foreign assistance.

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Dear Dani,

I am a former student of yours who has held you in high regard until I read this stunningly simplistic view of what has been happening in Ethiopia. I would like to believe that you would be more careful in the future.

Your article is a classic case of a foreigner (with a good name, I might add) going into a country that is totally alien to him (and a government that is desperate to get attention from any credible source) and trying to make profound observations in a rash--in one week or two. As you well know, things are not quite what they seem on the surface and you would have to dig deeper to understand the reality and be able to tell the fully story. Ethiopia is a more complicated--and I might add a sadder--place than your blogpost portrays.

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