RENEW Strategies

Steady the Course, Ethiopia

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Matthew Davis, CFA
| April 22, 2016

There is an allegory that goes something like this: A group of people walking along a riverbank sees people drowning in a river and rushes down to help. Soon others rush in to pull people out of the river. These heroes risk their lives to save what seems like an endless number of drowning victims coming towards them. Then another group starts walking upstream. Those pulling people out of the river ask where they are going. They say, “to stop people from falling in.”

Some of you may have heard this allegory before. While a little oversimplified, I find it helps me stay focused and not become caught up in the emotional frenzy of certain situations - for example, Ethiopia where the country is going through another drought. As an impact investor in Ethiopia, it can sometimes be tempting to rush down to the riverbank, versus steadying the course to fix the issues causing people to fall in.

The River: Scientists report that El Niño, a cyclical climate event that can cause drastic shifts in normal weather patterns, is creating drought conditions here in Ethiopia.* While Ethiopia is industrializing, its economy is still largely agrarian, especially in rural parts of the country. As of 2015, Ethiopia’s agricultural sector generate 41.4% of the country’s GDP and 85% of employment.** Agricultural actors are not major commercial farms with sophisticated irrigation systems that can tap Ethiopia’s vast water reserves thousands of meters below the surface. Rather, these are small farmers managing their own plots of land, relying on predictable weather patterns to plant, water and harvest their crops. When the climate changes, as is the case during El Niño years, the rains are neither as long nor as heavy, and yields decrease. In severe cases, families are not able to make an income from their harvest, or worse, they run out of food. They are the metaphorical victims in the river.

The Heroes: Seeing this drought unfold, government and international aid organizations mobilize the international community to rush down to the river and begin pulling people out. In an ideal situation, this would be efficient and perfectly coordinated. Food would be shipped into the worst hit areas, and people suffering from the drought would receive much-needed, but temporary relief. However, in less developed countries, infrastructure issues can muck this up. Containers can be held up in poorly managed ports, import documentation is lost, trucks break down and food spoils.

The Group Heading Upstream: So, why does this cycle seem to happen every seven to ten years? Where exactly are people falling into the river? How can the situation be fixed so that we no longer have to pull people out? It’s a challenging question to ask: “Who will step away from the riverbank and venture upstream to address the reason people are falling into the river in the first place?”

The images of drought tug at my heartstrings, prompting action. However, the reason people continue to suffer on account of volatile weather – i.e., in terms of our analogy, falling in the river - is a lack of resilience. At the most basic level, this is evident in agricultural practices, but also more broadly in the agricultural economy, which lacks the technology, financing and diversity to weather the drought. The agricultural economy is the bridge Ethiopian farmers rely on to earn a living and sustain themselves, yet this bridge needs work before it is structurally sound. When it starts to give way in times of stress, causing victims to fall into the river, we need heroes to go down river and pull people out. This is critical, but not sufficient. We must also build a stronger bridge; a resilient agricultural economy.

The Hole in the Bridge: At this point, I should clarify an assumption I am making about you, the reader: this is, that you believe many of the challenges we experience in developing countries can be solved when the economy strengthens in an equitable way (i.e. not just a small group of wealthy elites, but a thriving private sector with many thousands of businesses of all sizes).

If people are falling in the river because a bridge is failing, responders must fix the holes in the bridge in a lasting way, with stones and cement. In the case of Ethiopia, the “stones” are companies – lots of them, in all shapes and sizes - little ones, medium ones and big ones. Together, these companies make up a diversified, and therefore resilient private sector, providing jobs, generating tax revenue and lifting incomes of millions of people. Taxes pay for the “cement” of the bridge, or the infrastructure for wells, electricity and roads around the country. The teams working around the clock to build these companies are the bankers, investors, entrepreneurs, brokers, government leaders, development workers, construction and road crews, dam builders, policy reformers and tax collectors. These individuals know droughts will come and, thus, are preparing a bridge to withstand the challenge. They know they must steady the course.

To the heroes - those in Ethiopia and in the international community that are responding to the drought, we thank you. It is both deeply important and critical you are there. And in this time of emotion, let’s also remember to keep on building that bridge – to invest in the thriving, varied economy that will withstand the next challenge. Steady the course, builders! We are in this together.

*BBC: Hunger in Ethiopia After Drought Exacerbated by El Nino
**CIA The World Factbook: Ethiopia


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