Girma Bezabih is a property broker who uncovers and sales mainly houses almost across all sub-cities in the capital. He is familiar with most available patches of land in the capital after working in the business for twelve years now.
“I used to sell at least five houses a month. But the market almost came to a grinding halt recently. People are not buying land or houses. Just when we are recovering from COVID-19, inflation took over people’s pockets. Even the rich who used to shop from supermarkets now stand in line for subsidized items at consumer association shops,” said Girma. He added: “Some of the people with disposable income prefer to buy luxury vehicles. The car market is better than the house and land markets.”
Girma said price of villas has almost doubled from around Birr three million three years ago.
Ethiopia was, in its own context, molding an emerging middle class segment. This segment, whether self-made or a give-away from a corrupt developmental state regime, emerged following a positive economic performance over the past two decades. The new middle class, which was fermenting anew since the past two decades, does not only have earnings, but is also characterized largely by owning villas, condo units or apartments in the capital, which were meant to be for the low-income generating segment of society.
Shopping from high end supermarkets, sending kids to international schools with dedicated vehicles, spending days abroad at least once a year, and having hobbies are few of this segment’s perks apart from fulfilling basic needs like shelter, food and transportation. Of course, middle income in Europe is a different class compared to the one Ethiopia is aiming for.
The size of the middle class in Ethiopia is not well identified. However, senior employees and managers of large and medium scale businesses, directors and officials of the civil service, and professionals fall in this category.
“We don’t have a well identified middle class in Ethiopia. GDP has been growing substantially and Per capita income reached USD 1,200, but we have no evidence of whose pocket is being filled,” said Zelalem Hailegiorgis, a business statistics director at the Central Statistics Agency (CSA).
According to Zelalem, the agency is currently conducting the impact of inflation on all types of social segments. “We will finalize the study in two months. We have already taken samples,” said Zelalem.
According to data from the Ministry of Labor and Social Affairs (MoLSA), there are 7.5 million employed people in urban areas. Out of the 7.5 million employed urban people, 40.9 percent are self-employed, 20 percent are employed in the private sector, and 17.3 percent in government sectors. Of the total employed population, 52.3 percent are paid employees, while the rest are self-employed.
Of the 3.9 million paid employees, private organizations employed 1.49 million; the government employs 1.3 million; State Owned Enterprises employ 543,128; 374,602 are domestic workers, and NGOs and international organizations employ 74,388.
Out of the 3.9 million paid employees, only 305,035 people earn above Birr 7,000 per month. The bulk, 1.58 million earn between Birr 2,000 and Birr 5,000 while another 1.5 million people earn less than Birr 2,000.
Some 17 million households, constituting 80 percent of the population, are employed in agriculture, largely living on hand to mouth small scale farming. Close to 25 million people in rural and urban areas live under the poverty line, of which close to 8 million survive on humanitarian assistance, largely under SafetyNet program.
According to the CSA, official inflation rate rose to 34.8 percent in September up from 30.4 percent in August. The latest surge is spearheaded by food inflation, which stood at 42 percent. In fact, many compare the currently galloping inflation in Ethiopia with Syria, where people are selling properties just to buy food.
However, experts argue the real inflation rate is way more than the official figures admitted by government. Yet, Ethiopia’s emerging middle class beacon is currently falling back once again, following a debilitating stagflation.
“Actually, inflation is currently double that of government figures. Prices have been growing nonstop. That is attributable mainly to instability, unregulated market due to weak government regulation, wild money supply and imported inflation. On the other hand, revenue remained stagnant, if not falling back due to the pandemic and lower economic activities over the last couple of years,” said Atnafu Gebremeskel (PhD), a lecturer at Addis Ababa University who published ‘Inflation Dynamics and Macroeconomic Stability in Ethiopia: Decomposition Approach’ in December 2020, on the Ethiopian Economics Association Journal.
Ethiopia is currently categorized by the World Bank under low income countries with Gross National Income (GNI) lower than USD 1,045, along with Malawi, Eritrea, DRC, Somalia, Yemen and Sudan, among others. This means Birr 48,000 in annual income, as per the official Birr 46 per USD exchange rate.
“The World Bank’s calculation does not include big items like rent expense in Addis Ababa. Middle income revenue in Addis Ababa, to live a decent life, might need anywhere between Birr 30,000 and Birr 40,000 per month. But middle income is not just about income. A farmer or other professional can earn more than this but they may not be categorized under middle class. That is because middle income is about the taste of life. Currently in Ethiopia, only those who have owned a house previously when it was cheap are less burdened with inflation,” said Abdulmenan Mohamed, a seasoned financial expert based in London.
“Most of the Ethiopian population is currently struggling to afford bread and Injera let alone save and buy property, reversing decades of work. On the other hand, for those who have property, the inflation is a good opportunity because it fetches more. Their asset value grows but cash-wise, they lose, because inflation is growing faster than income,” said Abdulmenan. He added: “Inflation grew by 100 percent over the past three years alone while income is almost stagnant. Even saving at bank is no longer safe, since inflation eats the 7 percent saving.”
Only the banking sector has been increasing wage frequently, according to Saminas Seifu, a tech entrepreneur.
“The economy is not creating middle incomers anymore because the government is unable to create decent jobs. The close to 200,000 jobs created in the manufacturing sector are the least paying. The type of FDI Ethiopia is attracting tells Ethiopia has the least wage in Africa. Industries coming from China do not go to Kenya, South Africa or Tanzania because they cannot find labor with the wage they are paying in Ethiopia. On the other hand, if wage increases, it only fuels the inflation. Many self-employed people are also closing their businesses, unable to recover from the pandemic,” said Saminas.
However, a senior researcher at the Policy Studies Institute (PSI), Kiflu Godefe (PhD) is more worried about low income than the reversal of the middle income. “The surge in inflation is seriously affecting the lower income segment. Poverty ratio fell by half to 23 percent over the past fifteen years. Most of the population, who are close to the poverty line, is now falling back to the poverty trap,” said Kiflu.
For Kiflu, the source of the inflation is unchecked money supply and political instability, which is disrupting production and transportation to the central market. Other causes include depreciation of birr and imported inflation.
The reversing capital accumulation in Ethiopia requires three fundamental solutions to improve, according to experts. The first is focusing on inflation rather than devaluing birr. Government’s devaluation effort to boost export is rather back-firing, contributing to imported inflation. Secondly, reducing money supply is critical. Each birr the central bank prints and injects into the circulation becomes Birr Four, as per the birr multiplier effect. That is because a single Birr is on average used in four transactions on a daily basis.
Currently, the amount of currency circulating outside of banks exceeded Birr 127 billion, after it fell to Birr 64 billion immediately after the demonetization in September 2020, as per data from the National Bank of Ethiopia’s (NBE). The phony money in the economy also needs to be backed with tangible productions in the real economy. Thirdly, the government needs to put an end to the ongoing war, which is disrupting production.
“Arable lands are skipping cultivation seasons due to the war. This will create production shortage in the coming harvest seasons. Plus, the waves of sanctions will further deplete the forex reserve, which will halt import. Simply, ensuring agricultural output is cutting inflation by half,” said Abdulmenan.
“We are undertaking studies to introduce minimum wages in proportion with the growing expenses under inflation. We will ensure employees’ wages at least match the inflation. We have also planned to spread urban SafetyNet schemes to 70 regional cities, which was limited to rural areas up until a year ago. The government is also providing food, uniform and exercise books for school children, apart from spending billions to subsidize basic commodities monthly, which both low and middle income households are benefiting from,” said Dejene Bekele, director of Employment and labor market at MoLSA.
