0:00 If you live in Ethiopia or have family there, you know this feeling all too well. You go to the market to buy TE for Ingera, some cooking oil, maybe some vegetables, and you notice your burr just doesn't go as far as it did last month, let alone last year. Everything is more expensive. It's not your imagination. Ethiopia is in the grip of a severe inflation crisis. Prices for basic necessities have been skyrocketing for years, squeezing family budgets and making life incredibly difficult for millions. But the question everyone is asking is why? Why is this happening? To help us understand the complex forces behind these high prices, we're joined today by Dr. Benium Tes, an economist
0:46 who specializes in the Horn of Africa. Dr. Benium, welcome. Thank you for having me, Alex. It's a critical topic. So before we get into the why, can you just paint a picture for us? How bad is the inflation in Ethiopia right now statistically? Of course. For the past couple of years, the official year-on-year inflation rate has consistently been hovering around 30%. To put that in perspective, most stable economies aim for an inflation rate of about 2%. At 30% it means that a basket of goods that cost you a,000 burr last year would cost you 1,300 burr today for the exact same items. Your money has lost nearly a third of its purchasing power in just 12 months. It's like trying to fill a bucket with a massive
1:32 hole in it. You keep pouring your salary in, but the value just keeps leaking out. A 30% loss of value. That's devastating for an average family. And we know that for food items, the rate is often even higher. Right. Exactly. Food inflation has at times soared past 40%. This is the most painful part of the crisis because it hits the poorest households the hardest. When the price of teed, and cooking oil doubles, it's not a matter of cutting back on luxuries. It becomes a question of being able to feed your family. Okay, so let's get to the core of this. You've called it a perfect storm. Let's break down the different factors. Where do we even begin? Is this a global problem or a uniquely Ethiopian one? It's both, and
2:18 that's what makes it so difficult to solve. Let's start with the global pressures. First, the postcoid supply chain disruptions hit everyone. Then the war in Ukraine caused a massive spike in the global price of wheat, fertilizer, and fuel. Ethiopia is a major importer of all three. When the price goes up globally, it goes up in Oisaba, Mckelle and Bajir Dar. There's very little the government can do about that initial price shock from outside. So part of it is simply bad luck on the world stage. But that can't be the whole story. What's happening inside Ethiopia? Precisely. That leads us to the second and perhaps most significant factor. Internal conflict and instability. For years, conflicts in various parts of the
3:04 country, in Tigry and more recently in the Amhara and Aromia regions, have had a catastrophic economic effect. Farming is disrupted, meaning less food is produced locally. Trade routes are blocked, so it becomes difficult and expensive to move goods from a farm to a city market. Infrastructure is destroyed. All of this creates scarcity. And basic economics tells us that when supply is low and demand is constant, prices go up. You can't have a healthy economy in a state of conflict. So, we have global price hikes and internal supply shocks from conflict. What else is in this perfect storm? I've heard a lot about the government's role in monetary policy. Yes, and this is the third crucial piece of the puzzle, monetary and fiscal policy. For a long
3:50 time, the Ethiopian government has been spending more money than it collects in taxes, creating a budget deficit. A large portion of this deficit, especially during the Northern Conflict, was financed by, simply put, printing money. The central bank was essentially creating new burr to pay for government expenses. What does that do? Think of it like this. If you have 10 apples and $10 in an economy, each apple is worth a dollar. If you suddenly print 10 more dollars, but you still only have 10 apples, now each apple is worth $2. You haven't created more value, you've just devalued the currency. This massive injection of cash into the economy without a corresponding increase in goods and services is a classic recipe
4:36 for high inflation. And what about the foreign currency issue, the shortage of US dollars? That's the other side of the policy coin. Ethiopia has a chronic shortage of foreign exchange, dollars, euros, etc. This is because it imports much more than it exports. The official exchange rate is one thing, but the black market rate is much, much higher. Businesses that need to import raw materials, machinery, or finished goods often can't get dollars from the bank. So, they have to go to the parallel market and pay a huge premium. They then pass that extra cost directly on to the consumer. That's why a car, a phone, or even medicine imported from abroad is so incredibly expensive. Thank you for breaking that down. global
5:21 pressures, internal conflict, and money printing. It's a devastating combination. Let's talk about the human impact. What does this actually look like for ordinary people? For business owners, it's a daily struggle for survival. For many, for a government employee on a fixed salary, their income buys less and less each month. They have to make impossible choices. Do I pay for rent or do I buy enough food? Do I pay for my child's school supplies or medicine? For small business owners like a cafe owner, the cost of sugar, coffee, and flour is constantly rising. They're forced to either increase their prices and risk losing customers or absorb the cost and see their profits vanish. Many small businesses have been forced to close. It also destroys savings. If you
6:08 had a 100,000 burs saved for your future, after 2 years of 30% inflation, the real value of that saving is cut in half. It punishes savers and rewards debtors. It sounds like it hollows out the entire middle class and pushes the vulnerable into extreme poverty. That is the tragic reality. It is the single biggest driver of increasing poverty and food insecurity in urban and rural areas alike. This feels incredibly bleak. Is there a solution? What can be done to stop this crisis? There is a path out, but it's not easy and it requires tough, disciplined decisions. What are the key steps? First and foremost, peace and stability. Without it, nothing works. Farmers need
6:55 to be able to farm safely and traders need to move goods freely. This is the absolute prerequisite for tackling the supply side of inflation. Second, the government needs fiscal and monetary discipline. This means cutting back on non-essential government spending and crucially stopping the financing of the budget deficit by printing money. This is a major reason why the government is currently in talks with the IMF for a loan. The IMF's conditions will enforce this kind of discipline. Third, they need to aggressively boost local production, especially in agriculture. Better seeds, better techniques, and better irrigation can increase food supply, which would naturally bring down food prices. These sound like long-term solutions. Are there any quick fixes?
7:40 The quick fixes are often painful. The central bank can raise interest rates to make borrowing more expensive and cool down the economy, but that can also slow down growth. Devaluing the official exchange rate to match the market rate is another necessary step to fix the forex imbalance, but it will initially make imports even more expensive. There are no painless options here. It's a long hard road. So, to summarize, Ethiopia's inflation crisis isn't caused by one single thing. It's a perfect storm of global price hikes, devastating internal conflicts that supply, and years of monetary policy that devalued the burr. And the way out requires peace, government discipline, and a focus on production.
8:27 Dr. Benium Testfi, thank you so much for breaking this down for us in such a clear and understandable way. My pleasure, Alex. It's vital that people understand the forces shaping their lives. This crisis affects everyone. So, we want to hear from you. What are you seeing in your local market? How have rising prices affected your family? Let us know in the comments below. Your stories help us all understand the true cost of this crisis. If you found this video informative, please give it a thumbs up, subscribe to the channel, and hit that notification bell so you don't miss our next deep dive into the issues shaping Ethiopia and the Horn of Africa. Thanks for watching.
