By Wondwossen Mezlekia

Last month, coffee buyers across the globe had a rare glimpse into Ethiopians’ day-to-day experience, where {www:haphazard} policymaking is used by the government to interfere in and control people’s business whenever it feels like it. A new directive requiring the shipment of coffee in bulk container (a process of filling coffee in ‘dry containers’ fitted with a liner, as opposed to loading coffee packed in 60-kilogram jute-bags) suddenly surfaced in mid November and shocked the market.[read here] It was revoked thirty days later because of pressures from foreign diplomats, plummeting sales, and a cloud of fear of losing coffee buyers for good.

It’s not clear how it all began, but it appears some genius one day figured out the quickest way to “modernize the country’s export packaging and shipment standards” and the government decided to begin shipping coffee in bulk containers within two years. And, sometime during the 2010/11 fiscal year, an anonymous “investor” was granted a permit to import coffee blowers (machines equipped with a fan to generate a controlled pressure air current that throws coffee into containers, and a {www:suction} system to remove the dust created by the process.) Then, the operation began rolling out:

November 14, 2011 – the Ministry of Trade (MoT) concluded that “the conditions necessary for shipping coffee in loose container load are in place”. Therefore, Yakob Yala, State Minister of Trade, wrote a letter directing the Ministry of Agriculture to make sure that all coffee exports are shipped in bulk loads, unless exempted by his office, effective November 11, 2011. The letter described the initiative as a win-win-win proposition benefiting the country, exporters, and international buyers, thus the need to impose a restriction.

* The directive was not publicized nor published on the websites of the Ministries of Trade, Agriculture, or the Ethiopia Commodity Exchange (ECX).

November 30, 2011 – a coffee importer who was in Ethiopia at the time twitted a message which later landed on a Specialty coffee blog and beyond. The news stirred confusion and a rush of complaints from green beans buyers, distributors, and small to medium-scale roasters and retailers. The first breaking news blog post read:

“40,000 lbs in one big bladder or nothing out of Ethiopia is the word…coops are not exempt, this is wild. Lot separation in Ethiopia may now be illegal if this is true.”

December 3, 2011 – Ethiopian Coffee Exporters Association (ECEA) submitted a protest letter to Yakob Yala’s office demanding a revision of the directive to lift the broad restriction of bulk shipping. The board members of ECEA and ECX also held a joint meeting to discuss the concerns raised by ECEA.

December 8, 2011 – Yakob Yala convened with a group of coffee exporters to assess the progress of coffee export, which has been lagging behind the government’s ambitious plan of earning more than $1.1 billion in the current fiscal year. He complained that the quantity of coffee exported during the first four months of the year was short of the planned 66,400 tons by about 22,371 tons.

The exporters warned that the export may further decline and their customers may resort to other coffee growing nations unless the bulk shipment restriction is lifted promptly. They said, most of their buyers had already refused to accept the coffee in bulk containers and implored the authorities to consider a demand-based, progressive approach that ensures a smooth transition to bulk shipment. The State Minister won’t budge. He urged the exporters to speak in unison in support of the directive and tell their buyers to live with it. He assured them that, if any, the buyers abandoning Ethiopia’s coffee due to the restriction won’t be more than 5-10 percent – “a gap which can be easily filled.” “Tell them that we are doing all this for their own sakes,” he insisted.

Yakob Yala says the directive was issued after raising awareness among stakeholders. But, according to Reporter, only one of the 15 exporters who attended the meeting said his company didn’t have a problem with bulk shipping; the other 14 exporters strongly opposed the restriction. Haile Berhe Kinfe, Guna Trading’s head of the Agricultural Products Marketing Department tipped Reporter that bulk coffee shipping is a relief for large-volume exporters.

More than a dozen international coffee buyers submitted written complaints directly to MoT and, through diplomatic channels, to other authorities.

December 14, 2011 – According to The Reporter, members of the ECEA convened and concluded that “the directive was completely impossible to work with” and demanded that authorities revise the regulation. They also decided to explore fall-back plans, including submitting a petition letter to Prime Minister’s office. Separately, the ECX CEO Dr. Eleni Gabre-Madhin and Board Director, Ambassador Addisalem Balema confided with Yakob Yala’s boss, Kebede Techane, Minister of Trade.

December 15, 2011 – Kebede Techane called ECEA’s board members and told them that “the directive has been made null and void”. Again, the news was not published on the websites of the Ministries of Trade, Agriculture, or the ECX. The government’s two major developmental news agencies, Walta Information Center and Ethiopian News Agency did not cover the story either.

With that, a shocker came and gone, leaving the public with many questions to ponder.

In retrospect, the now defunct bulk coffee directive had fundamental flaws that make the very intentions behind the government’s decisions appear very suspicious, hence this public scrutiny of the defective policy to help inform the public of the sources of the eternal problems facing the nation.

A sound government policymaking process involves at least three major stages: problem definition & analysis, formulation, and implementation. This directive fails the test in almost all of these categories.

According to Yakob Yala’s letter to the Ministry of Agriculture, the directive was meant, in part, to modernize the packaging standards, reduce costs, maintain the quality of the coffee, and minimize theft.

In other words, the government defined the problem (modernize the packaging standards, opportunities for cost cutting, and need to minimize theft) and identified the solution (bulk shipment) and issued a broad directive with ambiguous enforcement instruments.

To begin with, the policy being sought here is merely a response to perceived problems and their consequences (backward packaging and theft, for example), rather than directly addressing the underlying causes of the real problems facing the coffee sector. By definition, this is bad policymaking.

It is true that bulk coffee shipment has a number of benefits and is, in fact, enjoying a growing popularity by large coffee shippers and producing nations, such as Brazil. The popularity is holding steady because, among many other advantages, of direct cost savings due to increased payload of almost 17% (a container can hold at least 3 more tons of coffee when loaded in bulk) and reduced inland transport movement (although the MoT letter erroneously states that it increases inland transport). So, the reason the policy failed so prematurely is not because bulk shipping is not appealing to shippers; it is rather because of the shallow analysis, lack of stakeholders’ involvement, and amateurish implementation of the policy. This can easily be revealed by deconstructing the directive into its hollow components.

First, the directive requires all coffee shipments, unless exempted by the MoT, to be shipped in bulk container, but does not disclose the criteria or procedures for requesting or making such an exemption.

Second, the directive disregards the fact that most of the ultimate buyers of Ethiopia’s coffee need their coffees packaged in small bags.

A considerable portion of the global coffee trade is conducted through distributors (companies who purchase coffee in full container lots and sell it in bags to roasters and retailers). It is estimated that only less than 30% of the world coffee is directly purchased by ultimate roasters. The rest of the coffee is purchased by independent importers for redistribution to small and medium-sized roasters directly or via local subsidiaries in consuming countries. Among the group that buy small lots directly or indirectly (from independent distributors) are the Specialty coffee buyers and roasters, whose numbers in North America alone ranges approximately between 3,700 and 4,500. Since most of these businesses often purchase small quantities of distinct microlots (small lots of fine coffees that buyers or roasters select in a given harvest season) to feature to their customers, it is vital that their coffees are packaged at origin in small bags so as to preserve lot separation when shipped in the same container with other lots.

At the other end of the spectrum are the large-scale buyers who often buy multiple full container lots at a time. These buyers are not concerned about lot separation as much as they care about maximizing profit by increasing payload and reducing inland fleet at the receiving end. Obviously, these companies do not need to be told by the MoT when and how to make use of ingenious shipping techniques, such as bulk containers.

Third, the far-reaching directive mostly impacts international buyers and importers whom the government has no control over. It didn’t cross the policymakers’ minds that, Ethiopia, a country with the least bargaining power in the world trade, is not in a position to dictate how its customers should ship their coffee. That the commodity coffee market is a buyers’ market where sellers compete among each other to attract more buyers, not the other way around.

Fourth, selecting the type(s) of bulk liners (big coffee bags usually made from virgin polyethylene in a size that is equivalent to the inner space of a container) is a matter of choice for importers and regulators in consuming countries, not shippers or exporters. Due to variations in the brands of liners that are licensed and recommended by consuming countries, the selection of bulk liners is exclusively reserved for the buyers. Ethiopia does not have the rights to override consuming countries’ regulations pertaining to the selection of these liners. It is for this reason that industry experts recommend that coffee exporters and shippers in exporting countries must first get the buyers’ consent before planning to ship in bulk.

Fifth, despite MoT’s claim otherwise, most of the stakeholders in the coffee sector have not been engaged during policy formulation. Only 1 out of the15 major exporters was excited about the directive. This indicates the extent to which the government attempted to involve the stakeholders – even the ones that are based in Addis Ababa – and considered their needs.

Sixth, the directive does not specify its enforcement mechanism. It does not spell out the measures that will be taken in an event some or all in the coffee sector ignore the regulation.

Finally, there was no apparent reason for making this a retroactive policy. By making the effective date of the restriction three days prior (Nov 11, 2011) to its enactment (Nov 14, 2011), the directive automatically changed the terms of trade for all the transactions that were in the pipeline. In so doing, the directive changes the legal consequences of not shipping in bulk container even for the trade deals closed under a jute-bag shipping agreement.

Bottom line, the directive was doomed to fail although it could have had a devastating effect, had it not been yanked, primarily on the smallholder family farmers that are organized under coops. Following a similar misguided policy that enabled ECX to control the coffee sector, only commercial farms and farmers organized under coops are permitted to engage in direct trade with buyers – the only marketing channel that ensures lot separation. The rest of the farmers (approximately 90%) have been deprived of their rights to engage in direct trade with ultimate buyers, and forcing their high-value coffees to be routed to ECX to be sold at commodity prices to buyers who are familiar with the recognizable geographic origins and also demand lot separation.

The question, now begging for an explanation is, what is the real motive behind the bulk coffee policy? Was this supposed to be another part – next to ECX – of a bigger plot?

(The writer can be reached at [email protected])

By William Davison

(Bloomberg) — Ethiopia, Africa’s second-most populous nation, lost $3.3 billion to {www:illicit} outflows such as bribery and corruption in 2009, Global Financial Integrity said.

Mispricing of trade transactions to facilitate money laundering accounted for $1.9 billion of the funds in the Horn of Africa nation in 2009. The total lost was more than double the amount in 2007, the Washington-based advocacy group said in an e-mailed report.

Ethiopia earns 6.4 percent of {www:gross domestic product} from donor grants, compared with an average of 0.9 percent for all sub-Saharan African nations, according to the International
Monetary Fund. Illicit outflows exceeded the $2.8 billion in aid and export revenue earned in 2009, GFI said.

“There is no excuse for this,” former U.S. Ambassador to Ethiopia, David Shinn, said in an e-mailed response to questions on Dec. 12. “If this trend has continued into 2010 and 2011, then Ethiopia has a real problem.”

The government hasn’t had a full explanation of the figures yet, Communications Minister Bereket Simon said.

“Overall Ethiopia is a country where you can find financial discipline,” Bereket said in a phone interview from the capital, Addis Ababa, yesterday.

Ethiopia scored 2.7 out of 10 on Transparency International’s Corruption Perceptions Index 2010, with zero being highly corrupt. The country ranked 66th out of 157 nations for losing the most in illicit flows in the past decade, averaging $1.2 billion a year, GFI said. China was the highest ranked with $273.7 billion. After adjusting for economy size, only Kenya, Tanzania and Sudan had a better average from over 50 African nations, Shinn said.

“The calculations are largely picking up measurement errors and differences in weak data collection methodologies between countries, even though they will also include smuggling, underreporting to avoid customs duties and capital flight,” Stefan Dercon, chief economist at the U.K.’s Department for International Development, a major Ethiopian donor, said in an e-mailed response to questions yesterday. “But it’s extremely naive to assume that this is just {www:capital flight}.”

[Updated with some corrections]

By Elias Kifle

An Ethiopian man named Yared (his real name is withheld for his safety) went to Ethiopia a few months ago to sell his family house after his parents moved to the U.S. One of the reasons he decided to sell the house was that after hearing about the recent land ownership decree, he realized that a few years from now the house will have little or no value.

Yared succeeded in selling the house for 2 million Ethiopian birr. The buyer, probably some fool from the Diaspora, deposited the money in Yared’s account at the Commercial Bank of Ethiopia (CBE), which is run by the National Bank of Ethiopia (NBE).

After removing his furniture and handing over the house to the new owner, Yared went to the CBE to withdraw his money and either deposit it in a private bank or convert it into hard currency in the black market so that he can bring it to the U.S.

To Yared’s shock and surprise, the CBE management told him that the bank doesn’t have the money to give him and that he has to wait. When Yared asked how long he has to wait, the managers told him they don’t know.

Yared told an Ethiopian Review associate that he has been sitting in Addis Ababa for the past 3 months waiting for the bank to give him his money.

Ethiopian Review has been reporting that the financial system in Ethiopia is in deep crisis. Ethiopia’s central bank, the National Bank of Ethiopia, is running out of money because of huge number of borrowers who stopped making payments, not to mention the massive corruption that has been going on in the bank. NBE is also the personal piggyback of Meles Zenawi and Azeb Mesfin.

Those who are close to the regime know about the financial crisis and are getting their money out of the country as fast as they can.

The Woyanne junta recently ordered National Bank of Ethiopia (NBE) to print 50 billion birr [read here] to in preparation for further devaluation of the currency.

By Janice Winter

{www:COP17} is being hailed as “groundbreaking” as a deal was agreed after 14 days of difficult and, at times, deadlocked talks. One of the most contentious issues for Africa was the Green Climate Fund, which will go ahead despite anger at the overall failure of developed countries to commit investments. JANICE WINTER explains why this compromise is the best possible scenario.

Headlines last week declared: “Meles Zenawi cries foul over climate money pledges”. Well, that’s rich.

Leading Africa’s heads of state and government panel at the COP17 climate talks in Durban, the Ethiopian prime minister’s biggest emphasis was on the Green Climate Fund. Not only did he complain that funds pledged at Copenhagen COP15 in 2009 had failed to materialise, but also that, rather than being “new” money, much of it seems set to be recycled from existing aid budgets. He warned that such disingenuousness risked undoing the modest gains made towards the Millennium Development Goals and undermining the credibility of the entire process “in the eyes of the people of our whole continent”.

His position seemed reasonable enough: there was compelling scientific evidence that climate change will have a disproportionate impact on socio-economic development in Africa and that considerable financial investments were required from developed countries to assist Africa to adapt to the impact of climate change. But I am “of this continent” and something else risks undermining the credibility of the process in my view: that a corrupt dictator is provided with such an influential platform from which to hijack a critical cause for his own, probably illicit, interests. Coming from Meles, statements about credibility are hypocrisy at its most nauseating.

The Green Climate Fund is aiming for about $100-billion a year by 2020. The man clamouring for this considerable fund is regarded as one of the most repressive leaders on the continent. His government claims to have won a ludicrous 99.6% in the 2010 elections, jails the highest number of journalists in Africa using a law that criminalises dissent as terrorism and brutally tortures critics and opposition figures. Most crucial for this discussion, his government faces widespread, credible and sustained allegations of abusing Ethiopia’s enormous $3-billion of annual developmental aid as a tool of political repression and as a co-option mechanism to bolster his 20-year rule. Detailed and robust investigations include those by Human Rights Watch, The Bureau of Investigative Journalism, and Newsnight.

According to a report to be published by Global Financial Integrity later this month, Ethiopia has lost $11.7-billion to outflows of illicit funds in the last decade. In 2009 alone, the figure was $3.26-billion, exceeding both the value of its total annual exports and the total development aid it received that year. And it is on the increase. The candid finding: “The people of Ethiopia are being bled dry. No matter how hard they try to fight their way out of absolute destitution and poverty, they will be swimming upstream against the current of illicit capital leakage.”

Yet despite these exposés and a significant deterioration in the country’s human rights situation since the brutal post-election crackdown of 2005 (in which 199 people were killed in just four days), international development aid to Ethiopia has doubled since 2005. Something as critical as the Green Climate Fund should not repeat the serious failures of developmental aid in this regard.

Meles Zenawi’s international credibility lies largely in Ethiopia’s official double-digit annual growth rates since the questionable 2005 elections and its asserted progress towards the Millennium Development Goals. As exiled Ethiopian journalist Abiye Teklemariam writes, Meles has forged an image as “a technocratic, if dictatorial, leader who had been able to crack the code of east Asia’s rise and download it into an Ethiopian hardware.”

Conveniently for Meles, no independent institutions in Ethiopia exist to check the veracity of his government’s figures, despite the credible scepticism by some international economists and substantial discrepancies in conclusions about Ethiopia’s performance and progress toward the MDGs. Indeed, the average growth rate for Meles’ entire 20-year rule (including the purported fast-paced period of the past few years) is less than 5% (below the African average of 6%) and that the country only overtook its 1975 GDP in 2006. Even if we take his spectacular recent figures at face value, which would be very generous, these are not representative of his rule. And despite these impressive, if contentious, figures, the Ethiopian economy is characterised by very high inflation, widespread unemployment, a stagnant private sector and corruption.

Before the enormous intended investments are endowed to the Green Climate Fund, far closer interrogation is needed of the ways in which this money might be spent and by whom – whether, in fact, there would be effective guarantees that the funds would be spent on projects to counteract the impacts of climate change, or would instead risk being used by undemocratic leaders such as Meles to counteract the challenges of political opposition and dissent.

The figures for the Green Climate Fund have been calculated by the African Climate Policy Centre, based in Addis Ababa. As it currently stands, African countries and institutions would be eligible for direct access to the fund. Oh, and some of these countries would also be part of the governing structures ensuring their own transparency and accountability.

Before the Green Climate Fund becomes operational and offers developing countries direct access to significant sums of money, it is vital to establish firm eligibility criteria of countries based on an independent corruption index and a strong accountability mechanism to ensure funds are spent transparently. This is necessary to prevent the situation of other aid endeavours where direct access to funding and weak accountability procedures enable corrupt and undemocratic governments to augment their rule through the politicisation of foreign funding.

If the Arab Spring has taught democratic leaders and donor nations anything, it is surely the need for far greater caution before financially assisting – and inadvertently bolstering – repressive leaders and a climate of corruption.