On Teshome Abebe’s Essay on Vertical Integration, Government Revenue and Prices


On Teshome Abebe’s Essay on Vertical Integration, Government Revenue and Prices

by Tsehai Alemayehu




A little 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.

I was 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.

Clearly 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.

What makes 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 unrelated article.

I should 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.

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