4th International Trade Show Addis Ababa Ethiopia

Determinants of Market Value: Part II

By Abel Merawi

Negadras-Gebrehiwot-BaykedagnFebruary 25, 2020 (Ezega.com) – It is common in Ethiopia, to hear people talk of how they will be successful if only they could go to Dubai and bring items. Well, the things we bring from Dubai or China may bring prosperity to the individual importer, but it harms the domestic market of our country. To illustrate the point with an example, think of the traditional cloth weaver in Ethiopia, and the printed traditional cloth importer from China. Since the imported material is cheaper, thanks to the technological advancements in foreign countries, the local producer will not have a chance to compete. To make matters worse, the government taxes importing goods the same as machinery needed to build factories in the country. Thus, the trader will not consider becoming a producer when there is a better option in simply importing processed goods. The determinants of market value, as we have seen in the previous article, are effort, time and utility. Living in a globalized world, we must further consider who the producer is and who benefits from it.

The world we live in has come closer than it used to be. This is more evident in the rapidly increasing commerce we see today. For developed countries with advanced manufacturing and technological capabilities, the global market is a huge opportunity. On the other hand, this globalization has adverse effects on developing countries even though it seems to be beneficial in its immediate effect. Currently, developing countries are exporting raw materials and importing processed goods. The Ethiopian writer Negadras Gebrehiwot Baykedagn explains how this process works in ‘Mengist ena Yehizib Astedader’, which translates into ‘Government and Public Administration.’ He elaborates on how importing processed goods while exporting raw materials by using the clothing industry as an example. Ethiopia exports hide and cotton while the foreign country that processes and produces them sends clothes. When our country imports it, we pay more than double the price. Thus, we are always on the losing side because the producer will consider the price of the raw material and the cost of production. It is good to remember the value of production depends not on the fruits of nature but on the knowledge of human beings in fashioning it to serve their purpose.

As long as there is the prospect of importing goods from foreign countries, innovation within the country will be hampered. The progress of technological innovation in Ethiopia is stagnant because we have decided, as a country, to depend on imports. Our country does not have a uniquely Ethiopian car, phone, computer or any other technologically worthy product. The best progress we have made is assembling such products by importing the components, or by allowing countries like China to open a factory in our country. If the trade deal we have with foreign countries goes bad, we will lose all the technologies on which we currently depend on. Just imagine if other countries stop sending phones, cars and every other gadget to Ethiopia. We will then return to our traditional lifestyle without any local innovator to save us.

The local producer can exist only when there are customers willing to buy the products and pave the way for further innovation. In the absence of that, such innovators will soon change trade and become merchants themselves. If a creative college kid produces a phone or a car, there will not be any customer or government incentive to support it. Such creative producers will not stand a chance to compete with international giants like Samsung or General Motors. But if we are willing to limit our immediate pleasure and invest in the future, we will see huge benefits from supporting local producers. Negadras Gebrehiwot Baykedagn argues that local innovations with high prices at the initial stages but declines as the power of the producers grow. Returning to the previous example, when the creative kid produces a phone, the price might be high since the materials are not readily available. But once enough capital is raised, the local producer will be able to build a factory, educate other employees and devise better ways of production, which will decrease the price and increase the quality of phones. That’s why many countries provide all kinds of incentives to homegrown industries until they reach that level of competitiveness.

The problem of importing also applies to foreign aid. Dambisa Moyo in her book ‘Dead Aid’ shows how even foreign aid hurts the local African market. She gives an example of a local mosquito net producer who produces 500 nets per week. When a malaria outbreak occurs in the country, the current production will not suffice. The options are either to expand the local market through incentives or importing the nets from other countries. Currently, donor countries will not boost the production of the local market but bring the mosquito nets from their own country, which will end up stopping both the disease and the local producer. The same is true in agriculture because foreign aid brings crops, but never supports the agricultural industry to build a reliable capacity of its own crop production. Yet, there is a way of mitigating such problems. And that is through government education and economic plans.

The role of the government in creating a structured market is paramount. To begin with, education is the key to economic progress. Ethiopian curriculum should be designed by considering the existing and future demands of the country. When there are more people trained in various fields, different products will be available. This will increase the exchange amongst citizens and create self-sufficiency. As the economist, Alfred Marshall states, “The development of the organism, whether social or physical, involves an increasing subdivision of functions between its separate parts on the one hand, and on the other a more intimate connection between them.” A functioning economy is created in a society that benefits each other, and this is accomplished through education. Money has value in circulation rather than a deposit, and when things becoming affordable, the middle class will be able to buy various goods with reasonable prices and more tax can be collected. This will also avoid foreign dependency.

The economic plan of a country should lay out the general principle upon which people trade. If a country adopts the tax regulations of foreign countries without considering the local context, it will create more problems. Laws of any nature should come from the norms and values of the society that hold it together. The various institutions set up to defend the rights of consumers, do not seem to function properly. For instance, there is the ‘Consumers’ Protection Authority’ in Ethiopia, which currently acts as a competitor in the market by setting up shops to provide good. It should be stressed that the government is not a participant in the market but a regulator. It is required to set up rules to allow fair play and check their implementation. Accordingly, it should not meddle in the market but set up the basic principles and guidelines that enable healthy competition in the market.

In summation, the determinants of market value or price should be identified in order to create a functioning economy. The three major participants are the producer, the trader, and the government. Furthermore, the system could function only when the rights of customers are protected. The way we set price should also not be random; it should represent the reasonable components. More importantly, the fate of the Ethiopian economy should not be at the hands of foreign countries. We should be able to create a strong market by focusing on education that leads to innovations.

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Abel Merawi is Addis Ababa-based contributor for Ezega.com. He can be reached through this form.

Other articles by Abel Merawi:

Determinants of Market Value: Part I

Your life Matters Too

Manifestations of Artistic Expression

Achievements vs Natural Accidents

The Grip of Sacrifice

Injustice is Never Justifiable

Education Demands of the Future

Job Security, Life and the Unpredictable Future

The Shift From Racism to Culturism

Sacrificing Meaning for Power?

Culture and Market Forces

Intersubjective Reality

Seeking Cosmic Justice

National Myths: Makers and Destroyers of Nations

Are We Truly Free?

Maturity: The Prerequisite to Freedom and Democracy

Loyalty to Truth, Not to Group

The Value of Work

The Flaws with Ethiopian Political System

Intellectuals and the People

Where Are Our Pathfinders?

The Allegory of the Cave and Its Lessons to Leaders

The Truth Behind Humanity

The Seven Virtues

The Seven Deadly Sins

What is the right thing to do?

Building National Identity

Adey Abeba and the Spirit of Change

Mob Violence

Living the Truth as a Human Being

Hubris - The Tragedy of Not Learning from Others

The Era of Group Mentality: Us vs Them

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