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Ethiopia: Marching to Prosperity

Ethiopia: Marching to Prosperity

Amen Teferi

10-16-15

Introduction   

As the renowned historian W.E.B. BuBois has once said, Ethiopia is a good example and best signifier of the promise of what a native people, untouched by modern exploitations and race prejudice, might do. When chanced to see Ethiopia’s GTP, I recall this kind of complimenting statement about Ethiopia.

 

Ethiopia has preserved her political autonomy for millennia and thus comparatively kept herself free from the irksome liabilities of the colonial rule. Consequently, many had perceived Ethiopia as the last Blackman’s citadel. Hence, during the transgression of Italy, in 1935, many Blacks that are living in Asia and Latin America were shocked by that incident.

 

That was the prelude to the rise of modern Black internationalism that arise a combination of intellectual and political protest and lobbying on the ambivalence of the global powers to the plight of black man’s citadel in the face of Italian transgression. Ethiopia thus became the triggering factor for a modern black political tradition, which combined political activism with trade unionism and anti-colonialism with early civil rights initiatives.       

Since the start of its post-1991 reforms the ruling party, EPRDF has repeatedly defied many predictions of its demise that has been presumed as impending. The key to EPRDF’s success lies in its policy independence that has pushed its detractors to refer it derogatively as “authoritarian regime.” The fact nonetheless is that Ethiopia continue to have sustained, accelerated and inclusive double-digit growth, which is the fruit of the genuine democratic system it has put in place two decades ago.

In fact, Ethiopia has registered many successes in many fronts while ensuring the sovereignty of the Ethiopian people through ever-increasing popular participation and taking decisive steps that deepens democracy.

Ethiopia on Move

After the demise of the Derg regime Ethiopia had reorganized its economic policy and created suitable conditions that had enabled her to register remarkable economic achievements and notable progress in many sectors.

The economic policy reforms Ethiopia had designed were meant to transform all the sectors of the economy with particular attention to its agriculture for that is the abundant resource that the country has. This policy has also unleashed entrepreneurial gift of its hardworking citizens.

After Ethiopia had officially enshrined market economy policy it had embarked on privatizing and reforming state-owned enterprises in a measured steps as is befitting its objective conditions and the reform in this regard was meant to ensure the social security of the labor force without compromising efficiency and productivity of the enterprises concerned.

In fact, many international agencies were expecting such sweeping reforms in liberalizing the financial sectors. However, Ethiopia chose to take measured steps in its liberalization and privatization ventures. The need for further reforms may still exists, but reforms will be introduced with prudent and due consideration of the objective reality of the country. Ethiopia is on the march to prosperity by designing and implementing five-year plan to keep the momentum of growth and effect transformation.  

Now, it is getting ready to embark on the second five-year plan. The second GTP is a dominant development project that reflects Ethiopia’s commitment to augment and sustain its achievements in economic, social and political sectors.

Ethiopia took the second GTP as a matter of life and death project. The second GTP focuses on the key issues that require improvement. Addressing the weaknesses and further strengthening its achievements will allow it to register more achievements and realize economic transformation. 

Dominant Theme

Ethiopia’s growth and transformation program of course is not exclusively production oriented. It seeks to promote social equity for traditionally underprivileged groups like women, greater equality of economic opportunity and incomes, a reduction in the country’s massive unemployment and underemployment, and adherence to constitutional processes of social change.

Most directly, the strategy that has been adopted for the second GTP period (2015-2020) is aimed at the following main goals, of these, the first one is speeding up the country’s march on the road leading up to its transformation and renaissance envisaging the joining up of the club of lower-middle-income country by the year 2025. 

Ethiopia proposes to achieve average 11 % annual growth rate and ensure increase in real income (and output) per capita, where citizens have equal opportunity to participate and reap fair share from the country’s economic growth, and thereby establish developmental politico-economic system that foster a single political community. Consistent with the prescription of the constitution the government sought the maintenance political stability and the retention of constitutional development procedure.

Second, the purpose is to make this growth process, once established, domestically self- sustaining by assuring the steady expansion of the net investment, technical skills, managerial, and other input flows continuing growth requires.

Third, it is proposed that the expanding economy shall become self-supporting -that exports and a continuing net inflow of foreign private investment shall balance imports- within a limited period. The second plan stretches out the target date for this achievement until 2020.

There are critical scarcities that pose formidable setbacks to the successful implementation of the GTP. The second GTP is meant to accomplish multiple objectives. Hence, the project is expected to surmount the critical scarcities that could hold it back, while at the same time it strives to create enabling conditions for the forthcoming third GTP.

Apart from accomplishing some outstanding tasks from projects included in the first GTP, the second GTP is entrusted with the cumbersome task of accomplishing the groundwork for third GTP. Given these purposes, this dominant development strategy may be thought of as essentially a scheme for breaking the bottlenecks, lessening the restraints, and overcoming the critical scarcities that have been obstructing productive expansion of the economy.

Both commentaries from critics as well as the general pronouncements of the GTP-2 planners themselves would suggest that the overwhelmingly worst shortage that would impede expansion in Ethiopia’s economy is, among others, weak execution capacity in project implementation.

There are constraints other than execution capacity that do seriously obstruct Ethiopia’s effort for economic development and transformation. These other, more critical scarcities include, in the first place, domestic saving, shortages of skilled manpower, and of scientific and organizational technique.

Ethiopia is encountering a shortage of relevant technology; and it is plagued by a scarcity of specialized professional and skilled personnel to press the transformation and man and administer the new processes. Moreover, it is troubled by rent-seeking practices, maladministration and other organizational deficiencies. In addition to rent-seeking attitude (practices) corruption would also contribute in spoiling the political economy of the country shaky at best, calamitous at worst.

Twin Sectors  

For a long time to come or at least for the next five years Ethiopia is going to find it extremely hard to sell enough exports to pay for the importing that it will be disposed to do at rising income levels.

If the country were to keep relying on foreign suppliers for all the types of goods and services it has poured aboard in the past, imports would rise precipitously -much faster than total income- because of the changing composition of consumer, enterprise, and government demand associated with expanding incomes. There will be no corresponding easy growth of either Ethiopia’s present types of exports or new products. Thus a balance of payments problem will persist.

The feasibility of import substitution is increased by the fact, first, that the Ethiopian economy is expanding, and so are the potential sizes of its markets. Second, Ethiopia is blessed with a fairly good mix of natural resources for servicing the material and energy needs for her projectable end-use requirements. The effort to economize on the use of foreign exchange in the longer run is the very thing that gives the development design such a heavy net import requirement in the shorter run.

The second five-year plan will enable Ethiopia to intensity its effort to create balanced development. The strategy attempts to promote agriculture and the industry simultaneously to achieve economic transformation. In addition, the second GTP will try to redress errors and shortcomings of the first GTP, and so adjusted, made effort to bring about transformation.

The strategy’s twin emphases upon agriculture and the economy’s industrial core are essential for the development of either sector will create increased demand for the products of the other by raising incomes. Gradually the manufacturing sector will mature enough to compete internationally.

In fact, the manufacturing sector in Ethiopia has been expanding very noticeably during the past two decades. No one would dispute that Ethiopia had been made aggressive efforts to draw investment from both outside and inside. We saw investment activities in the manufacturing sector in unchartered areas ever in the history of the country. We have also seen different international studies that had put Ethiopia among the countries poised to become heavy weights of international manufacturing.

Although, manufacturing products do not yet make the top list of Ethiopian export items looking to the trends in Ethiopia’s manufacturing sector in the past two decades would show very encouraging trajectory. Particularly after the slowdown of the Chinese economy, there were speculations predicting investment destinations that would replace China.

When Chinese economy began to show some signs of abating there were western reports discussing about the ailments in the Chinese economy that was triggered by the international economic crisis started in 2008 and the ensuing fall of manufacturing orders from Europe and the United States. Then, China began to move away from the high dependence on exports and turned its attention towards greater domestic consumption.

As those reports had suggested that the slowdown of Chinese economy after three decades of fast economic growth, the Chinese manufacturing sector began to cool-off a bit. Then, the abundant and cheap Chinese labour force had begun to show relative expensiveness and investors opt to decamp to countries that have excelling comparative advantage in the labour market. The large influx of companies from all over the world to China has, as a result, been affected negatively.

The report titled: “The PC16: Identifying China’s Successors” by Stratfor (Strategy Forecasting inc.), an intelligence think-thank, was published. That report had claimed, “as the process matures, low wages rise — producing simple products for the world market is not as profitable as producing more sophisticated products — and the growth rate of Chinese economy began to slow down in favour of more predictable profits from more complex goods and services. All nations undergo this process, and China is no exception.”

The Stratfor founder and Chairman, George Friedman, two years ago had noted the a continual flow of companies leaving China, or choosing not to invest in China. The study further argues that China is too big of a manufacturer to be replaced by a single country. Therefore, the study goes on to denote, a combination of sixteen countries would take over as the global manufacturing hub. It is these countries that the study named PC 16 – Post China 16. Ethiopia has been identified as one of these countries. The remaining 15 are:- Kenya, Tanzania, Uganda, Bangladesh, Sri Lanka, Indonesia, Myanmar, Cambodia, Laos, the Philippines, Vietnam, Dominican Republic, Mexico, Nicaragua and Peru.

The logic involved in the patterns of investment is simple. We can just put is as “where a handful of companies are successful, others will follow, so long as there is labour, some order and transportation.” When we try to look into Ethiopia’s involvement in international textile, shoe and mobile assembly trade, we would realize pronounced increment over the last few years.

The large influx of Turkish and Swedish companies from Europe and others from Asia in the textile industry along with Asian investment in shoe and mobile manufacturing are substantiating evidences of the demographic, climatic and policy suitability of the country for foreign investment. Some of the major factors making Ethiopia favourable for such investments are:-

Abundant land, plant, animal and mineral resources:- the abundance of land for agricultural and industrial purposes coupled with other resources that can be used as raw materials makes the country favourable for investment.  

Abundant cheap labour resource:- with a population of about 70 million, and with cheap cost of labour, Ethiopia can provide sufficient labour force which can provide the edge in cost-competitiveness. The cost of labour in the Ethiopian market is lower than some Asian and African nations.

Support through policy and incentives:- The Ethiopian government has been steadily pushing towards market-oriented reform by means of developing the private sector, deregulating rigid control over the economy, liberalizing foreign exchange, lowering tariff rate, etc. Given that export promotion is of paramount importance, the government has issued a series of export incentives. All in all, in terms of macroeconomic policy, the Ethiopian government has created an enabling environment for the development of the manufacturing sector.

Increased domestic demand:- Ethiopia has a large territory with a large population. The growth rate of the population is 2.7%, creating a large potential market. According to the country’s economic development programme, the average growth rate of GDP in the coming years is expected to be more or close to 10%.

As a result of the development of the economy and the progress in reduction of poverty as well as the improvement of people’s living standards, it is believed that not only the present market demand would increase, but also a new market demand will arise. The increase in Ethiopian per capita also shows better purchasing capacity of the people.

Proximity to major international markets:- the location of Ethiopia, in the horn of Africa, on the cross-roads of the Asian and European markets provides easy access. Proximity to the Middle East and the Far East along with Europe is essential in cutting transport costs that increase cost competitiveness further in addition to cheap labour force.

With the fast growth recorded over the last decade in Ethiopia, there is an evident urge to keep the growth going and eliminate the scourge of poverty.

Ethiopia’s internationally noticeable favourability in the manufacturing sector is set to continue strongly in the years ahead. But this trend should be complemented by mounting our effort to improve the quality of exportable products.

POLITICS

The government believes that the current rapid economic development and our surefooted unity are the result of the federal democratic constitutional arrangement that recognize the full diversity of the nation. Ethiopia’s sustained, accelerated and inclusive double-digit growth is in fact the fruit of the genuine democratic system it has launched two decades ago. As stipulated in the second Growth and Transformation Plan the project outlined in the plan is a serious matter that assumes a gravity of life and death.

A government that has such a huge project like the GTP really needs to have committed and law abiding public servants and officials who have gut to uphold the public interest over and above their selfish agendas. The ruling party does not need spineless camp followers who would sell their political oath short. I think that was the message EPRDF had sent from the 10th congressional meeting held in Mekele.

Notwithstanding to the fact that we have so cumbersome tasks that are to be done, Ethiopia has taken decisive steps in deepening democracy and ensuring the sovereignty of the people through an ever increasing popular participation.

On the 10th congressional meeting, the ruling party EPRDF had identified various shortcomings, which it claimed would deplete the democratic and constitutional system. It has reaffirmed its position and expressed its resolution to address the identified shortcomings.

The party has duly acknowledged the malaise effect of rent-seeking activities that is rampant in the urban areas, which it perceived as acute problem that damage its political, social and economic agendas. It has made it clear that rent-seeking and corruption are its most avid nemesis and if left unheeded it will lacerates and frustrates its health and existence as a party.

Rent seeking practices and corruptions will in fact pull the rug from under its feet and hamper the economic growth and foster inequality as well. Therefore, it has vowed to recharge its batteries. Thus, as it embarks on the second GTP, it has reorganized the structure of the executive organs of the government to exploit the country’s potential human and material resources and march its journey on to realize the country’s renaissance. 

The government has tabled the draft document of the second growth and transformation plan for discussion with various social groups with a view to incorporate the suggestions and comments the participants would forward as inputs to consolidate the Plan.

The government has shown its resolve in strengthening the multi-party democracy, which could be substantiated by the recently “all-party” forum held in Addis Ababa and chaired as well as graced by the presence of PM Hailemariam Desalegn. That was the occasion where EPRDF and opposition parties deliberated on the GTP - 2.

The ruling party has understood that excessive adversarial politics would tarnish and spoil the common mission any political community. In fact, adversarial politics is said to create the right conditions for effective scrutiny of the government, and for genuine debate. However, when political adversaries are blindly engaged in an unbridled powers struggle driven by zero sum-game principle it would lead the democratic system to crisis. Thus, the party vowed to create platforms where it will have genuine consultation with opposition parties.

The joint forum established to promote close working relationships among political parties. This forum also serves as a catalyst to improve the culture of adversarial politics without undermining the core values of a democratic system. The Plan has put in place mechanisms that could facilitate consultations between the government and opposition parties on every major national issue. Moreover, it also aimed to strengthen political participations citizens to promote deliberative democracy.

Capacity building activities will be undertaken to enable the mass media play a constructive role in promoting national consensus and the building of a democratic system. The Plan further stipulates to put in place regular mechanisms that enhance timely dissemination and free flow of public information to both the public and private media.

The government has shown an unprecedented readiness to support media practitioners and institutions operating without being defiant to professional ethics and compromising the rule of law. The media will be encouraged to seek, impart and disseminate information that would expose illicit actions and ensure accountability and good governance. The government vowed to promote investigative journalism and guarantee the full implementation of the freedom of information Act.

Similarly, it has committed itself to dispel the preponderance of rent-seeking orientations and practices to ensure the supremacy of developmental political economy. The government also determined to dry-out the quagmire that would allow rent-seeking ideologies and tendencies to thrive. Redoubling effort in this regard would push aside the major obstacle in the journey to our renaissance.

On GTP -2

The second GTP is designed to push Ethiopia in the trajectory of development, without leaving anyone or groups behind. The second Growth and Transformation Plan is assumed as a decisive project for it has charted Ethiopia’s road to prosperity. The second five-year Plan is expected to take the country halfway to its destination –to the club of lower middle-income countries– by 2025. The Plan aimed at speeding up the transformation of Ethiopia’s agrarian economy to industrialized one and thereby create condition that would enable the country realize its vision to reach lower middle-income status by 2025.

The second Growth and Transformation aimed to further widen the base of the economy and accelerate its structural transformation with a view to ensure the benefits of the people from the rapid economic growth and the democratization effort. The Plan would ensure both the sustainability of the economic growth and its inclusiveness.

The government had developed a fiscal policy that enables it to generate finance from domestic resources and it will continue to implement it by allocating resources to areas that can bring rapid, sustainable and fair growth.

It also envisages to intensify measures that will progressively improve the revenue collection system and the custom and excise regimes. Thus, it will carry on its effort to modernize the tax administration by strengthening the ongoing reform programs, which aim to expand the tax base and boost the institutional capacity of the administrations.

This is also assumed as an important measure in fighting rent-seeking tendencies. The fight against rent-seeking practices and tendencies require us to modernize the trade system by opening-up the market for competition. It also requires putting in place a government procurement system that would ensure accountability and transparency.

Efficient procedures in contract management and ensuring more stringent supply and administration mechanism of land resources are also essential in this regard. Special attention will also be given to carry out reforms in the judicial system and enhance the capacity of the judiciary. Every effort will be deployed to make the system of the judiciary transparent and accountable.

In order to achieve this, a concerted effort must be made to maintain the annual growth rate at around 11% and ensure a stable and healthy macro-economy. The inflation rate also should be kept to single figures and a stable currency exchange rate is imperative. From the fiscal policy perspective, the government envisages to have a budget deficit that will not exceed 3% of the GDP∙

However, before Ethiopia effected structural transformation where industry play significant role in its economy, the agriculture sector will continue to be the major contributor of the GDP.

Many factors inhibit the development of the agricultural sector in much of Sub-Saharan Africa: poor infrastructure, limited dissemination of new technologies among others. It is well understood that smallholder farmers in Africa are exposed to a wide range of risks, including those deriving from climatic events, economic shocks (such as sudden drops in output prices or increases in input prices), illness and death, and social and political conflicts. Not only is the threat of such adverse events pervasive, but also formal credit and insurance mechanisms in much of the subcontinent are badly underdeveloped.

Transformation of the Ethiopian economy, on one hand, relied on the industrial sector, more specifically the manufacturing sector. On the other, it relies on the agricultural sector- to be more specific- livestock development.

The Growth and Transformation Plan has taken the leather and leather products, sugar and ethanol, metal and engineering, agro-processing and cement as very important subdivisions of manufacturing sectors. Apart from these, the government had planned to accrue substantial income from the exports of agricultural produces. Nevertheless, there is huge gap between the projected and the actual performance of the first GTP, as data over the last five years indicated. Thus, the contribution of the export sector to the general growth rate of the economy over the last five years remained to be unsatisfactory.

In 2007, the share of the export sector for the GDP is showing a declining graph. Its share stood at 17 % in 2011, while it went down to 11 % in 2015 -the last year of the first GTP.

The export sector is stranded by various drawbacks that limit our capacity to produce exportable commodities with highest quality and appreciable quantity. While the growth in the export sector is held back at the lowest level, the import has shoot up to 29.5% in 2015, which creates 17.8 % deficiency in the balance of trade.

In view of improving and expanding the agro-processing sector through value addition, the second GTP will give focus to textile and garment, leather and shoes and sugar production.

Exploration of gold and other minerals is another focus to promote foreign currency earnings through export. In sum, the agriculture, industry and other sectors are expected to expand their output for export and raise their standard and be competitive in the global market.


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