Real Accountability and the Need to Restore Billions of Dollars to Ethiopia's Poor
By Aklog Birara (Dr)
May 22, 2018

A change in the narrative of political discourse is always healthy and forward looking. As he reaches an important milestone in public discourse engaging various segments and stakeholders, both domestic and foreign, Prime Minister Dr. Abiy Ahmed has begun bold moves peeling off the rotten and debilitating layers of TPLF/EPRDF party, state and government corruption and debilitating repression.

Ethiopia won’t survive let alone thrive under the current system of party, state and government theft, graft, corruption and inhumane treatment of ordinary citizens. By all accounts, citizens have expressed their wishes that they want accountable government and competent officials who are free of tribal tendencies, nepotism, graft and corruption. The worst culprits of these tendencies and practices are party, state and government officials whose productivity is nearly zero; and whose appetite for graft and theft is insatiable. It is mostly the same officials and their allies who are inimical to free press and independent civil society.  This is the reason for my hypothesis that the system must be overhauled.

My second hypothesis is this. Ethiopia has enormous untapped natural resources and enormous human capital that is being wasted. No amount of foreign aid or Foreign Direct Investment (FDI) would alleviate abject and structural poverty, food insecurity, unemployment, technological backwardness and environmental degradation. Empowering governance that unleashes the productive potential of the Ethiopian people is fundamental in dealing with both policy and structure. The current malignant system is not suited for empowerment.

Ethiopian society has been “bleeding” or hemorrhaging from theft, graft, nepotism, corruption and illicit outflow of massive financial and human capital for almost three decades. Decapitalization of intellectual and human capital is corrosive in numerous ways. Among these, it diminishes creativity, innovativeness, competitiveness and Ethiopia’s capacity to solve its policy and structural problems using its own talent pool. This aspect of diminishing returns from social and human capital must be studied much more closely now than ever before.

The primary purpose of this commentary is that peeling off organized theft and systemic corruption and restoring the billions of dollars stolen from the Ethiopian poor is not only just; but is also a matter of national survival. The difficult work of removing the cancer of bribery, theft, graft, nepotism, corruption and illicit outflow of financial capital must start at the top of the pyramid.

We often take the old saying that a “fish rots from the head” rather lightly at our own peril. Theft, graft, nepotism, bribery, corruption and massive illicit outflow are all a consequence of state and economic capture. It is a systemic rather than an individual problem. They emanate from the top and spread like germs throughout the system. It is a systemic and institutional problem that must be tackled frontally and boldly in order for the society to move forward.

Secondly, governments that serve as safe havens for the stolen billions from Ethiopia’s poor and food aid dependent millions have a moral and strategic obligation to cooperate with Prime Minister Dr. Abiy Ahmed’s bold initiative. Destinations are as diverse as the culprits who steal and hide the monies. In addition to the normal suspects of Dubai and other Gulf states, faraway places such as Hong Kong, Singapore, Malaysia, Thailand, the Caribbean islands of Bermuda and the Caymans; and Panama as well as Western Europe and North America must be brought into the loop. Those of us in the Diaspora who are committed to Ethiopia’s sustainable and equitable development must, for once, cooperate fully and unreservedly by providing concrete and specific information.

Theft, graft, bribery, corruption and illicit outflow of funds are adversely consequential. Each dollar stolen deprives a child from attending school. Each dollar stolen deprives a pregnant woman from receiving maternal health care. Each dollar stolen deprives a malnourished child from adequate nutrition etc. etc. etc. Anyone with conscience must reflect on these social and human costs; and demand accountability from those who steal and move funds out of the country. There should not be a place to hide!!!

I surmise that Ethiopia cannot justifiably continue to ask for one additional cent of foreign aid, especially grants and soft loans, if it is unable to account for the billions of dollars it has received under the premise of alleviating poverty. The loss of foreign exchange revenue that could have been utilized to generate employment, raise income levels, enable Ethiopia to become food self-sufficient and generate surpluses for export has proven to be detrimental to the entire society. Over the past 27 years, Ethiopia lost billions of dollars in illicit outflow while begging for food aid.

I am not suggesting that donors stop aid entirely. I am suggesting that donors tie their aid to effective monitoring, results-based outcomes, strict adherence to the protection of human rights and the advancement of democratization. The restoration of stolen funds through illicit means back to the Ethiopian poor will go a long way in demonstrating that donors value freedom and rights as much as the fight against terrorism. Food insecurity is a form of terror. The Ethiopian people are capable of defending their country and their society from terrorism. But they are defenseless against party, state and government thieves who also suppress rights.

What is aid for?

The altruistic intent of aid is to help poor people help themselves. It certainly is not intended to enable political elites to repress, steal aid monies and enjoy luxurious lives on the back of the poor. Every single dollar stolen from Ethiopia society is almost a tax and a drain in terms of available resources that would ideally boost productive employment capacity. No aid is worthy of its name if the aid supplement or subsidy continues for ever; and if the monies granted or loaned to boost the capabilities of the poor are, instead, diverted to enrich the privileged few and their families, their cousins and other relatives. During a visit to Ethiopia years ago, former Secretary of State Hilary Clinton told officials, “Our goal is to help countries’ economies grow over time so that they can meet their own needs.” The EPRDF failed to heed to this guidance; and instead condoned graft, bribery, corruption and illicit outflow unchecked. The system became the problem.

On May 15, 2018, Prime Minister Dr. Abiy Ahmed met with members of his “new cabinet” and other senior government officials. He is quoted saying that his government is “investigating foreign bank accounts held by senior government officials.” This is a courageous move that no pervious Prime Minister had the stamina to reveal. Private actors must be included in the mix of bad apples.

I recall that the late Prime Minister Meles Zenawi had met with businessmen and women and told them that his government knew the locations and owners of billions of dollars of assets in Western banks. Not a single corrupt officials of high value was held accountable. Not a single cent was returned to Ethiopia. This is because, there was no institutional or leadership muscle behind the rhetoric. The thieves had connections in high places. Not only did the late Prime Minister fail to hold any corrupt official accountable; he also possessed no moral authority to ask foreign governments where monies were hidden or invested to cooperate in returning the billions siphoned off from the Ethiopian people back to Ethiopia. The criteria in removing the scourge of theft is for high officials to be free of the practice!

The job of cleansing Ethiopian society of the cancer of theft, graft, bribery, nepotism and corruption resides in Ethiopia. For the cleansing to be effective; it must start with the “big ‘fish” within; and not in Bermuda or the Cayman Islands. That will follow next.

If you do not go after “the big fish” and if you don’t ask, no government is going to cooperate with you. If you ask, the chances are very high that governments would cooperate. In the age of transparency, no single government worthy of its name wishes to be identified with party, state or government thieves or with private money smugglers either. Nigeria succeeded in retrieving billions of dollars. It has a long way in cleansing itself though.

Rise in aid and escalation in theft

In 2010, Ben Rawlence of the Huffington Post wrote a critical piece on aid to Ethiopia and repression and theft. “The World Bank Feeding Repression in Ethiopia,” informed us that “Overall, between 2004 and 2008, annual aid spending on Ethiopia doubled to $3.3 billion” from a low of $1. 8 billion in 2004. Illicit outflow begins to rise up from there on.

I shall provide illustrative examples to support my thesis that Ethiopian society continues to bleed from theft, graft and illicit outflow. On MAR 3, 2017, David Steinmann of Forbes wrote a fabulous piece, “Ethiopia's Cruel Con Game and documented that Ethiopian party and government officials have stolen billions of aid monies and diverted it out of the country. At the same time, these party and government thieves unashamedly beg for emergency food aid to feed millions of Ethiopians.

“1. The amount of American financial aid received by Ethiopia’s government since it took power: $30 billion.

  1. The amount stolen by Ethiopia’s leaders since it took power: $30 billion.” This is a staggering sum. Nothing is left to improve agricultural productivity or to establish small and medium size enterprises or to improve safe drinking water and sanitation or to improve shelter.

Why did USAID continue to give monies if Ethiopia is unable to use aid to improve the economy and the welfare of the population? This is a political and strategic decision; and has nothing to do with productivity or welfare.  Imagine what $30 billion would have done if invested in a “green revolution” in Ethiopia?

“Ethiopia’s government believes it has America over a barrel and doesn’t have to be accountable to us or to its own people. Like Mr. Guterres, UN Secretary General, past U.S. presidents have been afraid to confront the regime, which even forced President Barack Obama into a humiliating public defense of its last stolen election. The result has been a vicious cycle of enablement, corruption, famine and terror. Whether the Trump Administration will be willing to play the same game remains to be seen. The answer will serve as a signal to other foreign leaders who believe America is too craven to defend its money and moral values.”

The unanimous passage of H.R. 128 by the House of Representatives goes further in recognizing the ill effects of embezzlement, famine and corruption. If passed into law this legislation and the passage of S.R. 168 by the Senate will strengthen the anti-corruption and asset recovery campaign initiated by Prime Minister Dr. Abiy.  

The amount of precious foreign exchange stolen and taken out of Ethiopia is not limited to the entire U.S. aid cited by David Steinmann. It is more. The latest extensive study was conducted by a panel of experts chaired Thabo Mbeki, former President of South Africa. His report shows that Ethiopia lost $11 billion over a period of less than 5 years. The panel recommended that African governments can no longer pay lip services to graft, theft and illicit outflow that hurt the poorest of the poor the most.

President Mbeki’s panel recommended the hashtag or slogan “Track it! Stop it! Get it!” This is a clear message to track all illegal transactions; to stop illicit outflow by dealing with the root causes or sources; and by retrieving the stolen funds wherever they are hidden.

“The latter figure is based on the UN’s own 2015 report on Illicit Financial Outflows by a panel chaired by former South African President Thabo Mbeki and another from Global Financial Integrity, an American think tank. These document $2-3 billion—each year, an amount roughly equaling Ethiopia’s annual foreign aid and investment—being drained from the country mostly through over- and under-invoicing of imports and exports.”

This is why I suggest that the private commercial sector must be included in the tracking, stopping and retrieving efforts.

Surveys by UNDP, Global Financial Integrity and U. of Massachusetts show that in 2004-2009 alone Ethiopia lost an astonishing $16 billion dollars, four years’ worth of aid at the average flow per year of $4 billion.

 

How does this happen?

Illicit outflow operates successfully to the extent that there are enablers and beneficiaries within the system. Ethiopia’s enablers are party, state and government officials who have become super wealthy by stealing from the public purse. Sadly, this is done under the mantra of development; and the enabling developmental one party state.  

“Ethiopia’s far-left economy is centrally controlled by a small ruling clique that has grown fantastically wealthy. Only they could be responsible for this enormous crime. In other words, the same Ethiopian leadership that’s begging the world for yet another billion for its hungry people is stealing several times that amount every year.”

Four years before the Mbeki and Forbes reports, Global Financial Integrity (GFI) had conducted a similar study in 2011 that revealed that the “African Nation Lost US$11.7 Billion in Illegal Capital Flight from 2000 through 2009,” 9 years.  Illicit financial flows out of the African nation nearly doubled to US$3.26 Billion in 2009 over the previous year, with corruption, kickbacks and bribery accounting for the vast majority of that increase. The report concluded that illicit outflow was on the rise. This annual figure has persisted ever since, practically making impossible for Ethiopia to meet its foreign exchange needs.

It is commonly known that kickbacks in connection with capital construction equipment procurements by the federal government are among the most lucrative means of getting rich quickly in Ethiopia. The lead beneficiaries of this lucrative business include TPLF generals, party and other high government officials. The average illicit outflow of $3.26 billion per year has persisted since then. This alone puts the amount stolen and transferred out of Ethiopia at close to $30 billion.

Here, I would like to underscore the explicit opinion and apt conclusion offered by Economist Sarah Freitas of GFI. “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 ( I would say, Tsunami) of illicit capital leakage.  The global shadow financial system happily absorbs money that corrupt public officials, tax evaders, and abusive multi-national corporations siphon away from the Ethiopian people.”

Freitas (financialtaskforce.org) also noted that “Ethiopia, which has a per-capita GDP of just US$365, lost US$11.7 billion to illicit financial outflows between 2000 and 2009.  More worrying is that the study shows Ethiopia’s losses due to illicit capital flows are on the rise.  In 2009, illicit money leaving the economy totaled US$3.26 billion, which is double the amount in each of the two previous years.” The increase is attributed to “increased corruption, kickbacks, and bribery while the remainder stems from trade mispricing.”

It goes without saying that Ethiopia is one of the poorest countries on earth. “Plagued by famine, war, and political oppression, 38.9% of Ethiopians live in poverty, and life expectancy in 2009 was just 58 years.  In 2008, Ethiopia received US$829 million in official development assistance (ODA) but this was swamped by the massive illicit outflows.  The scope of Ethiopia’s capital flight is so severe that our conservative US$3.26 billion estimate greatly exceeds the US$2 billion value of Ethiopia’s total exports in 2009.”

This drainage in available capital to invest in productive enterprises that would at the same time offer job opportunities for Ethiopia’s bulging youth population and enable Ethiopia to meet essential domestic demand is a major push factor that forces thousands of young people to exit Ethiopia. This in itself is a source of shame for the country and its 110 million people.

I commend Prime Minister Dr. Abiy for raising the issue of Ethiopian migrant workers during his visit to Saudi Arabia and for the prospect that hundreds of those in jail will soon be released. The exodus is in part, attributable to lack of meaningful and productive life in Ethiopia.

One can pinpoint the origins, trails and destinations of this massive capital hemorrhage. Those who have amassed enormous wealth and have hidden this ill-gotten wealth abroad are both knowable and traceable. One aspect is to track the origin of the capital inflow and how it was procured; used or misused. Interestingly, there is a correlation between massive government led and ODA financed investments---infrastructure and the like following the aftermath of the 2005 elections on the one hand; and official and private theft and illicit outflow on the other. How was the contracting for infrastructural projects done? Who won the contracts and how? What was imported and from where? How much was expended? Etc.

The pool of foreign exchange available to siphon off increased dramatically. There was no regulatory or institutional framework to monitor theft and illicit outflow. Contracting is done secretly and based on personal and party relationships. There is no competitive bidding.  In fact, the institutions in charge of anti-corruption and illicit outflow are staffed by persons who were either state thieves or partners. Although no one knows with certainty the facts of hidden or black market transfers of funds, the amount of illicit outflow of funds a year before the 2005 election was less than half a billion dollars. Therefore, it did not generate much alarm. By comparison with Angola, Equatorial Guinea, Gabon that were shamelessly corrupt, Ethiopia had fared well.

By 2010, the picture changed dramatically and corrosively. By this time, Ethiopia became a darling of the donor community and received $4 billion in ODA per annum.  Additional millions were received in the form of humanitarian aid and via remittances. This is why some experts estimate that the country lost $5.6 billion in illicit outflow in a single year. Export earnings, ODA, remittances, humanitarian and other aid contribute to this enormous sum that the World Bank acknowledged (The World Bank). Forbes opinion that $30 billion of U.S. aid was stolen is therefore credible. This figure matches the earlier figure of total loss in 9 years.

Following this massive loss, the World Bank initiated and financed a study on corruption. But, nothing happened in implementing the recommendations. Findings suggest that during the period 2004 and 2013, Ethiopia lost a staggering $26 billion through illicit outflow. The amount of money stolen from Ethiopia in 2013 was close to 11 percent of the country’s GDP, one of the highest in Africa.

One Ethiopian expert determined that this was similar to “stealing an average of $300 per Ethiopian citizen” at the time. Another way of putting this is that the amount stolen would have built the equivalent of at least five Great Ethiopian Renaissance Dams (GERDS).

Was any high party, state or government official watching for the public interest while such massive bleeding was taking place? Clearly not. This is because illicit outflow is traceable to public and or government officials as well as to their private sector allies. It is also traceable to commercial entities such as exporters and importers, brokers and their official counterparts. Party, state and government businesses are intertwined with private commercial entities. Those who steal cannot be expected to monitor themselves.

For too long, the culprits operated with a high level of secrecy, interconnectedness and absolute impunity.

Thieves of party, state and government as well as their accomplices used numerous methods to steal. Import mis-invoicing (accounting for an estimated $20 billion in stolen foreign exchange during the period 2003 to 2013); and export mis-invoicing and underpricing served as tools to steal and to hide monies abroad. These are easier to manage under such a neatly interwoven system where there is no transparency or institutional checks and balance. Thieves do not leave trails. It is personal relations that count most. Thieves protect one another!

A person who steals agrees with a partner that he or she will price the imported good (machinery or other) from country X that costs one million dollars at $2 million, pocketing or sharing the balance of one million etc. An exporter who ships out 3,000 tons of goods to say Dubai shows instead 2,000 tons on the invoice etc. He or she pockets the difference in revenue etc.

Imports of large machinery for infrastructural projects such as telecommunications and dams offer huge opportunities to inflate prices and or to buy low quality goods and report them at inflated prices. This is not where the tragedy stops.

In both every instance, the thieves deposit the money outside the country. Ethiopian society is deprived of capital. This is one way illicit outflow operates.

The black or underground market conducts a thriving business in foreign exchange transactions. This distorts the market and conceals the level of illicit outflow of foreign exchange. For example, members of the Diaspora take dollars or other hard currency and exchange it in the underground market where the rate is significantly higher. This hard currency is either bought by merchants starving for hard currency or by persons or black marketers who collect the currency and smuggle the currency out of the country to the preferred safe haven (destination).

It is not uncommon for members of the Ethiopian diaspora to exchange dollars or other hard currency to Birr where they reside. The Birr is then given to a designated receiver in Ethiopia. This informal system proves to be highly effective and lucrative for both parties; but entails an immense cost to Ethiopian society.

There isn’t credible data on remittances from Ethiopia’s huge diaspora. The unreported exceeds the official statistics.

While I was at the World Bank, experts conducted a study on remittances to Ethiopia and found that the amount of official remittances reported through the National Bank of Ethiopia was much lower than comparable countries. The bulk of remittances is underreported.

In summary, I applaud Prime Minister Dr. Abiy Ahmed for taking the initial steps of following the money trail wherever it might lead. The rest of us should do all we can to provide concrete evidence of safe havens and fraudulent investments anywhere in the world. 

The global community has a moral and long-term strategic responsibility to cooperate with Ethiopia so that the tens of billions of dollars stolen from the Ethiopian poor are returned and invested in Ethiopia.

May 19, 2017


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