On Teshome Abebe’s Essay on Vertical
Integration, Government Revenue and Prices
by Tsehai Alemayehu
more than a week ago, I prepared a note intended to correct a technical error
in a widely disseminated essay regarding the likely consequences of the
devaluation of the Ethiopian birr authored by Professor Seid Hassan, a
respected public intellectual. In the very first paragraph of my note I made
it clear that my conclusions do not differ from those of Professor Hassan. I
repeated these sentiments in my concluding paragraph. In the balance of my
note, I outlined two technical errors in Professor Hassan’s essay in a style I
believed to be accessible to the general public. In one I demonstrated the
mechanics of currency devaluation and in the other I illustrated how increased
remittances support the value of the birr rather than putting downward pressure
on its value.
surprised and disappointed to read today an article titled “ETHIOPIA: VERTICAL
INTEGRATION, GOVERNMENT REVENUE AND PRICES: A THEORETICAL AMPLIFICATION”, by
one Teshome Abebe which characterizes my note as follows: “Tsehai Alemayehu, in
his “Professor Hassan’s Essay on the Devaluation of the Birr”, rebuts the
conclusions advising an exercise of caution in using the model presented by
Said.” I wish Teshome Abebe had taken the twenty minutes it would take to
read my note and put it to good use. If he had done so, he would have noted
the following sentence in it. “I should state at the outset that I have no
quarrel with the essence of his conclusions regarding the likely consequences
of an announced discrete devaluation for the country’s trade balance and for
the stability of domestic prices.” Obviously, my note was note written as a rebuttal.
This sentence is instead acknowledgement that, notwithstanding his mistakes in
illustrating the mechanics of devaluation, Hassan’s general conclusions are
similar to mine.
Abebe had not read my note. In fact there is every appearance that he had only
glanced at Hassan’s essay. If Abebe had read Hassan’s essay he would have
noted that what he calls Hassan’s model is in reality not a model. It is
rather the standard definition of the real exchange rate of a currency and
Hassan presents it as such. I have no quarrel with this definition and I said
nothing which could be construed to the contrary.
this especially bothersome is the fact that the main element of Abebe’s article
has nothing to do with changes in currency values. He needlessly and
incorrectly referenced the two pieces while seeking a launch pad for his
state that I have read at least two pieces Abebe had previously posted on
Ethiopian news websites and had been impressed with his ability to clearly
articulate complex issues. I hope that Abebe was just having a bad day and
returns to form soon. Perhaps he can then clarify whether his essay is a commentary
on the vertical integration of multinationals operation in Ethiopia who might
use the occasion to avoid Ethiopian taxes or he is suggesting that the
structure of the Ethiopian tax system is such that Ethiopian firms can reduce
or avoid some taxes by acquiring upstream or downstream firms.
I will certainly look forward for his clarification.