The following is a key note address by H.E. Ato Hailemariam Dessalegn, Deputy Prime Minister and Foreign Minister of the FDRE to the General Assembly.

(March 2011)- The Deputy Prime Minister was invited for this purpose by the President of the General Assembly following the latter’s visit to Addis in January, 2011 on the occasion of the AU Summit. It was not difficult for the General Assembly President to appreciate what was taking place in Ethiopia during his short stay in Addis Ababa. No doubt, he must have been impressed by what he saw and also heard with respect to how much the amazing phenomenon in Ethiopia was not limited to Addis, or the urban areas, but that it has become a feature of all parts of Ethiopia, urban and rural. The Ethiopian example is worth sharing, so thought the President of the General Assembly. That explains the Deputy Prime Minister’s presence in New York last week. The speech follows:

Mr. President,
Your Excellency, Secretary-General Ban Ki-moon,
Your Excellency Ambassador Apakan
Permanent Representative of Turkey,
Under-Secretary-General Cheick Sidi Diarra
Excellencies and Ladies and Gentlemen,

I am indeed very pleased for this opportunity to participate in this debate on “Investment in and Financing of Productive Capacities in LDCs.” I wish to express my satisfaction over this important initiative by the President of the General Assembly. I am also grateful to him for the invitation and for the opportunity to present Ethiopia’s perspective on this very vital issue for the LDCs. I trust that the result of today’s debate will contribute towards enriching the major task we have in Istanbul a few months from now. Let me say how much we appreciate the good work that Secretary-General Ban Ki-moon has been doing. In particular, I want to thank him for the enhanced cooperation between the UN and the AU that we have begun to see.

Mr. President,
Dear Secretary-General, Excellencies,

There is no doubt that a reasonably high level of investment and financing, not for the short-term, but on a sustained basis, is central to effective utilization of productive capacities, thus for accelerating growth and development. This is amply demonstrated by the economic development history of developed and newly industrializing countries. It appears, the Ethiopian experience is a further confirmation of this. It is to the consideration of our experience that I would quickly move.

Mr. President,
Excellencies,

There is no gainsaying the fact that until the beginning of the 1990s, there had been no possibility for Ethiopia to embark on sustainable economic development of any kind. The political conditions were not there as the country was firmly under military dictatorship which had brought the country to the brink of both political disaster and economic meltdown. Following the demise of the military government, the country was put on a promising trajectory both in the political and economic area. Politically, the onset of democratization based on a federal and decentralized governance arrangement, opened possibilities for the different nations and nationalities of the country to exercise self –rule and to thus be empowered. Since then Ethiopia has increasingly become a stable and peaceful nation, shown strong progress in building and strengthening democratic governance, built a decentralized governance system that strengthened public participation, accountability, and effective public service delivery. These radical political reforms were internally generated priorities rather than donor driven, and have been pursued with strong political conviction and commitment. We believe that such an internally driven and credible democratic political reform is a critical element of a conducive national environment that encourages citizens to venture into productive investment initiatives.

Mr. President,
Excellency the Secretary-General,

On the economic front as well, Ethiopia had to undertake a radical shift from the command economic management system pursued for nearly two decades, to one which is market-oriented. The legacy we inherited was a situation whereby the private sector was stifled. It was imperative, therefore, to take steps with respect to the creation of the requisite policy and regulatory environment to lay the basis for a market-oriented system conducive for private sector development. Since then, significant policy and administrative measures have been taken to promote the development of broad based and competitive domestic private sector. Tax and other non-tax incentives were provided to promote its development. Coupled with this, Ethiopia has been aggressively investing in the construction of roads, power, telecom and other infrastructure for the last nearly two decades in order to improve profitability of investment in the country. The government has also been cognizant of the problem of human resource constraints and their negative impact on investment. This has necessitated significant investment in education and training.

Indeed, we have from the outset recognized the link between the growth process and the development of human capital. Growth is key for poverty reduction and human development is in turn crucial for achieving rapid and sustainable growth. Development of human capital involves improved access to primary education and skill development via expansion of Technical and Vocational Education & Training (TVET), higher education as well as expansion of health services with special emphasis on primary health care.

Ensuring macroeconomic stability is yet another measure that we have taken over the last two decades to encourage effective private investment decisions. Although the challenges are already addressed now through effective policy and short term administrative measures, we of course have faced inflationary pressures and foreign exchange constraints over the last two years following the recent world financial and economic crisis. But, in general, our commitment to maintain macro-economic stability has created impetus for the development of the private sector. The end result of all this has been that the private sector has begun to be important in the Ethiopian economy. Though still small, the domestic private sector has now started to play an important role in trade, real estate, banking and insurance, tourism, and the construction industry. Yet given widespread market failures and imperfections in the economy, we recognize also the indispensable role of the government in the economy. We believe that the government plays a crucial role in delivering social and economic infrastructure, in supporting small-holder farmers and small urban enterprises and businesses, as well as in the development of a vibrant domestic financial sector. We recognize the bad experiences associated with interventionist policies, and hence we promote only transparent, selective and well designed government intervention, in the economy. This role should not in any way displace private investment or distort a well functioning market system. More importantly, government interventions should be pursued with utmost care lest unproductive rent-seeking behaviors are nurtured. Thus while we have been pursuing a market-oriented economic system where the private sector is encouraged to play a leading role in the economy, we have also adopted policy instruments designed to maximize the benefits of an effective government intervention.

As a result of the implementation of its home grown development policies and strategies, after decades of economic decline, the Ethiopian economy started to pick up in the 1990s following the far reaching political and economic reforms. These modest improvements achieved in the first half of the 1990s were maintained throughout the turn of the new millennium. With the intensification of the economic reforms and consolidation of experiences in economic management, the performance of the economy also improved significantly such that Ethiopia has been registering one of the fastest economic growth rates in the world for the last seven years. The economy grew on average by more than 11 per cent per annum between 2004 and 2010. The Ethiopian economy is also set to grow by over 11 percent in 2011. This economic growth has been broad based, and not driven by primary commodity booms. The major source of growth has been agricultural production and productivity increment, particularly that of the small-holder farmer. Economic and social infrastructure, industry and services have all expanded and have significantly contributed to the faster economic growth realized over the last seven years in Ethiopia. This growth registered in Ethiopia has also largely been pro-poor growth.

Mr. President,
Dear Secretary-General,

It is in this spirit and with the commitment that goes with it that we launched recently a five years Growth and Transformation plan running from 2011 to 2015. The plan envisages a minimum of an average rate of growth of 11 percent. The plan also envisages that agriculture would remain the major source of growth. The plan also however aims to further transform the economy by diversifying the structure of the economy. In particular, the development of the industrial sector and mainly small & medium domestic enterprise development is given due emphasis.

From its development and governance experiences so far, Ethiopia recognizes the importance of enhancing its productive capacities and thereby also increasingly relying on its own domestic resources. Consequently, we have been increasingly financing our development programs from our own sources. For instance, last year domestic revenue accounted for over 81 percent of our total revenue, including grants. This is in no way to undermine the significance of development grants in our endeavors to ensure sustainable development, but rather to indicate how we are using the development assistance we are receiving in enhancing our productive capacities such that we are able to generate an increasing share of domestic revenue overtime.

Ethiopia also recognizes that domestic revenues cannot finance all its developmental needs. Thus, we have been setting and strictly pursuing priorities in public investment allocations. The priority areas for public investment have been agriculture, education, health, water supply, and infrastructure like roads, railways, and power generation and distribution including rural electrification programs. These sectors are critical not only for improving the livelihoods of the poor, but also for generating broad based economic growth that would eventually enhance financing of the development of national productive capacities. For the last five years for instance, Ethiopia has been spending more than two-thirds of its budget on such pro-poor sectors. In addition, the government has on average been spending nearly 55 percent of its budget on capital investment expenditures that further enhance our productive capacities rather than on recurrent expenditure. Such productive and pro-poor investments have paved the way for the broad-based economic growth achieved over the last seven years, while also creating additional physical and human productive capacities that further sustain the economic growth. The fast and broad based economic growth of Ethiopia has further enabled us to enhance our capacity to finance investments in productive capacities. Growth generated more resources for financing investments in productive capacities. I am happy to tell you for instance that only last year we commissioned three large hydropower generation plants that more than doubled our power generation capacity. Two of these hydropower plants were entirely financed by the government from its domestic resources. The government has increasingly been able to generate an increasing amount of resources from the economy to finance investments in productive capacities.

The government has been mobilizing these resources without undermining the long term sustainability of its fiscal systems. Ethiopia has, in this regard, shown an impeccable record of maintaining a responsible fiscal system that ensures stability of the macro economy. Last year, the government deficit was kept at 1.3 percent of gross domestic product. Needless to say, such a responsible fiscal balance is crucial for ensuring a stable macro economy thereby also encouraging private investment.

Mr. President,
Excellency Secretary-General,
Dear Ambassador Apakan,
Mr. Cheick Sidi Diarra,

Yet given the developmental challenges that Ethiopia currently faces, the government revenue and domestic saving mobilized are still small. We believe that due emphasis on domestic resource mobilization is necessary not only to finance increasing needs of citizens, but also for providing countries a space to make responsible public policies. We need to improve here because the share of tax revenue in gross domestic product is only about 11 percent in Ethiopia, which is considered low even compared with those of most developing countries. The domestic saving rate is also low by many developing countries standards. The economy is also constrained by foreign exchange shortages. We are working to address the root causes of these two challenges of low government revenue and low savings in order to mobilize adequate resources for investment in and financing of productive capacities in our country. The overarching strategy is promoting faster, sustained and broad based growth so as to generate a broad based and adequate income for taxation and savings. Another important strategy that we have been implementing over the last several years is public education with regard to tax obligations of citizens and the importance of savings. To ensure fair, transparent, accountable and effective tax administration system, we are working on developing an efficient tax information system and building our human capacity. We have planned therefore to further improve our tax administration system so as to achieve the target of collecting tax revenue that accounts for 15% of gross domestic product by the year 2015.

We have undertaken policy measures that encourage domestic savings too. Thus, we are aggressively expanding and modernizing our financial and banking services so as to create better conditions for domestic savings. Export development of both traditional and non-traditional commodities is also promoted in order to generate adequate foreign exchange earnings required to finance investments in productive capacities and other critical sectors. Our export earnings showed impressive performance over the last years, growing on average by about 20 percent per annum. Export is also starting to diversify with some new items like floriculture starting to play an increasing role in the sector. But this achievement remains low compared to the foreign exchange demanded by the fast-growing economy. Hence, diversifying and expanding the export sector remains critical in order to adequately invest in the development of our national productive capacities.

Foreign direct investment could also benefit Ethiopia to further enhance its ability to finance investments in productive capacity that would in turn help us sustain our growth and diversify our economy. Since the last seven years, significant progress has taken place in ensuring conducive policy and regulatory environment and the inflow of foreign direct investment is showing rapid growth. Let me seize this opportunity to indicate that the friendly country that Ambassador Apakan represents, Turkey, is one of the lead countries in investing in Ethiopia.

Needless to say, Ethiopia has been absolutely committed to utilizing whatever official development assistance it receives in a transparent and accountable manner, and in a way that strengthens further our productive capacities. Although we are grateful to our development partners for their generous assistance so far, it must be emphasized that official development assistance to Ethiopia is still low in per capita terms compared to those of many other developing countries. Official development assistance to Ethiopia has also been unpredictable, sometimes undermining the country’s bold developmental initiatives. Things have to change in this regard, and this is amply justified by our track record and our performance.

Mr. President,
Mr. Secretary-General,
Ambassador Apakan,
Mr. Cheick Sidi Diarra
Excellencies,

I wish to conclude by saying a few words on matters related to climate change. It is obvious that Ethiopia contributes nothing to the deteriorating climate change in the world. However, it has been one of the countries that is hard hit by the consequences of climate change. To address this challenge, Ethiopia has been pursuing a green development strategy. It is aggressively undertaking natural resource and soil conservation measures that have succeeded in improving soil and water conservation and forest coverage of the country. Ethiopia is developing clean sources of energy from hydropower, wind and geothermal sources for its own growth and even for the needs of its neighbors. We believe this strategy is an effective way of strengthening our productive capacities required to ensure sustainable development. Thus the international community need to acknowledge these bold initiatives and commitments that Ethiopia is undertaking and support us in this noble endeavor.

Let me finish by reiterating my appreciation for this invitation and by thanking you all for listening to me.
I thank you.