Ethiopia’s Developmental State
Model: A Reflection on Francis Fukuyama’s
Article
Asayehgn Desta, Sarlo Distinguished Professor of
Economic Development,
Dominican University of California
Introduction
Given that the core matrix of Ethiopia’s Developmental State
Model was economic growth, from 2005 to 2015,
Ethiopia remained as a compelling example of how
an African country could achieve steady
state-directed economic growth, social
transformation, and infrastructural investments,
by providing easy access to primary and
preventative healthcare, reducing social
inequality, and mobilizing peasant farmers.
However, due to administrative obsolescence, dysfunctional
appointive of bureaucrats, political upheaval,
ethnic strife, and weak macroeconomic management,
Ethiopia’s Developmental State Model has been
breaking down. Currently, Ethiopia is on the verge
of slipping backward into economic decline, facing
poverty, inflation, unemployment, heavy external
debt, and a rise in ethnic conflicts (Ottaway 2019
and Desta, 2019).
Alluding to the East Asian classical Developmental State
framework, in his article entitled “Democracy
and the Future of Ethiopia’s Developmental State
Conference,” Professor Francis Fukuyama (June
11, 2019) attempts to authenticate the “state
quality” and compare the difference between the
Ethiopia’s Developmental State Model and the
East Asian Developmental State paradigm.
An Observational Analysis of Fukuyama’s article
According to Fukuyama, some of the vital factors that have
contributed to the “ups and downs” and impeded
Ethiopia’s Developmental State Model arose from:
1) Lack of privately owned enterprises, 2)
inadequate recruitment and promotion of Ethiopian
bureaucrats, 3) imperfect valuation of the
internal rate of return (IRR) and the
externalities impact of the Chinese mega projects
in Ethiopia, 4) imperfect access of Ethiopia’s
exports to Western markets, and 5) lack of a
unifying national identity.
Using the above-stated framework, Professor Fukuyama (June 11,
2019) concludes that Ethiopia’s Developmental
State Model would have achieved a sustained
pathway of economic and social development,
provided the ruling party, the Ethiopian
People’s Revolutionary Democratic Front (EPRDP):
1) subscribed to an overarching sense of common
and uniting nationhood, 2) decentralized its
important forms of political power, giving people
local autonomy, and 3) pursued reflective
democratic praxis rather than leaving the
concentration of power in the hands of an
executive.
Privately Owned Enterprises: A review of the literature
indicates that during the Derge’s era,
Ethiopia lagged behind other African countries in
terms of the scale of privatization, because it
lacked political will. As a substitute for the
central planning system practiced during the
Derge’s period, the EPRDF ruling party
promulgated Proclamation No.87, in 1994, and the
Privatization of Public Enterprises (Proclamation
No. 146, in 1998) to privatize state-owned
enterprises. That is, the EPRDF decided to convert
the small- and medium-sized state-owned companies
to market-based, privately owned enterprises in
order to qualify Ethiopia for the conditionality
of the structural adjustment funds set by the
International Monetary Fund, World Bank, and other
multilateral funding organizations.
With the funds that Ethiopia received from the multilateral
funding institution for the implementation of the
Structural Adjustment Program (SPA), it was
expected to achieve macroeconomic stabilization,
generate competitive products for exports, relieve
the country from budget deficit and large external
debt, and improve the profitability and efficiency
of the then-newly-formed privately owned
enterprises (Gebeyehu, 2000, and Ismail 2018). To
the surprise of the Ethiopian government,
Selvam’s (2008) study showed that after the
implementation of the privatization process in
1994, the production level of the privatized firms
in Ethiopia declined by 14.21 percent from 1995 to
2004. Gebeyehu’s study (2000) also established
that out of 223 privatized firms, 69 percent (154
firms) were found to be relatively inefficient
compared to 75 percent (167 firms) and 71 percent
(158 firms) of other public and private firms,
respectively. Based on his findings, Gebeyehu
strongly warned the Ethiopian government that it
“…should revitalize its hasty move towards
transferring public enterprises to private
hands” (2000).
Similarly, a study by Rebeka (2001) of the 25 Ethiopian
private enterprises, indicated that while
privatization had a positive technical efficiency
in the food-processing industries, it had negative
effects on the beverage, textile, and leather
sectors, and showed no effects on the non-metal,
wood, printing, and chemical industries.
Similarly, a study by the World Bank revealed that
out of 29 sub-Sharan countries that had adopted
the structural adjustment program, including
privatization, the economic conditions of the nine
showed insignificant improvement, nine companies
showed no improvement, whereas the economic
conditions of eleven enterprises deteriorated.
Proponents of neoliberal economics assume that developing
countries can successfully lure foreign direct
investments provided they adequately pursue
policies of privatization. Interestingly enough,
after the privatization policy was proclaimed by
the Ethiopian government in 1994, Ethiopia’s
balance of payments status persistently
deteriorated (Desta, 2019). Part of the reasons
for the sustained decline in Ethiopia’s balance
of payments were because Ethiopia’s exports
were: 1) agriculturally based (such as coffee,
live animals, leather products, flowers and
chewable leafy shrub (chat)), 2) sensitive
to weather conditions, 3) strongly affected by
price shock, and 4) low value-added, causing them
to remain uncompetitive in the international
market.
Gebeyehu’s (2000) study further demonstrates that despite
privatization initiatives, the share of foreign
owners of privatized firms in Ethiopia amounted to
less than 20 percent. In addition, Selvan (2005)
persuasively argues that privatization had little
impact on capital accumulation. According to
Gebeyehu (2000), however, Japan, South Korea, and
other East Asian Tigers achieved economic success
not only because of privatization schemes, but
also because the governments arranged export
promotion subsidies to help private firms.
The above results of investigation on the effects of
privatization on the Ethiopian economy don’t
seem to align with Fukuyama’s (2019) assertion
that the slumbering of the Ethiopian Developmental
State is attributable to Ethiopia’s nature as
“state-driven with very weak private sector.”
Even though, like the East Asian Tigers, “there
has not been a partnership between strong
government and strong private sector” in
Ethiopia, privatization stumbled in Ethiopia
because the government failed to pursue giving
consistent government subsidies to the privatized
firms. In addition, the privately-owned
enterprises in Ethiopia were left at the whim and
the mercy of a fragile and fragmented market. So,
what the Ethiopian government can learn from the
East Asian countries is that for its Developmental
State plans to flourish, Ethiopia needs to pick
winners and aggressively pursue active government
intervention to energize its privately-owned firms
(Gebeyehu, 2000).
Recruitment on Meritocracy and Promotion on Performance: The classical Developmental State
Model assumes that government business planning
and intervention in the market rekindle economic
growth and facilitate social development. That is,
even though Fukuyama didn’t develop a
theoretical framework that pertains to this, a
Developmental State becomes more effective and
efficient when managed and run autonomously by a
group of professional elite (Evan, 1994). However,
I entirely agree with Fukuyama that the
recruitment of professional bureaucrats in
Ethiopia should have been based on merit, and
promotion of employees should have been based on
achievement. As narrated by Haggard (2018),
qualitatively, the political foundation of a
Developmental State needs to rest not only on the
role of the regime, institutional accountability,
and the rule of law, but also on the
professionalization of personnel, bureaucratic
autonomy, and the capacity of the state to deliver
services, and get feedback and criticisms from its
constituency that make sense.
Article 39 (3) of the Ethiopian Constitution states that
“Every Nation, Nationality and People in
Ethiopia has the right to equitable representation
in state and Federal governments” (1994). Under
this pretext, appointments into the Ethiopian
bureaucratic structure should have been based on
equality. Fukuyama rightly argues that the
“civil service” in Ethiopia hardly meets the
above-stated quality. As thoroughly reviewed by
Desta (2014), an examination of the Ethiopian
Developmental State Model over the last fifteen
years reveals that higher positions in various
governmental departments were literally assigned
according to an ethnic-based quota system. Once
recruited, the higher-level employees are expected
operate in line with their ethnic affiliation
rather than in pursuit of the goals of the
organization. Since the Ethiopian government elite
were by-and-large politicians and heavily involved
in the country’s political process, they never
had a selfless devotion to the Ethiopian economy.
The civil servants by-and-large were political
cadres, mainly recruited for the existence of the
ruling party in power.
As narrated by Fukuyama (June 11, 2019), over the years, the
Ethiopian developmental state paradigm was
administered by civil servant functionaries who
were politically accountable to their parties.
That is, in comparison to the East Asian
Developmental State Model, which was administered
by highly educated meritocratic bureaucrats, who
exerted professional discipline to plan and
implement efficient policies, the Ethiopian people have never been empowered to expect the minimum
from public servants.
The Internal and External Rate of Return of Chinese Investment
in Ethiopia: Because of an exponential and sustained growth in its economy, the
Peoples’ Republic of China (hereafter referred
to as China) has been positioning itself at the
forefront of challenging Western firms in terms of
establishing investments in Africa. More recently,
China has deepened its involvement in Africa by
bestowing a mix of loans with generous terms,
direct investment, training, debt forgiveness, and
infrastructural development.
As a professional, Fukuyama (June 11, 2019) refrains
from bashing China. Also, Fukuyama appreciates
China’s insistence on promotion through opening
and sharing development opportunities with
developing countries. Without presenting clear
evidence, however, it was shocking to learn from
Fukuyama that he blames China for Ethiopia’s
heavy indebtedness. Sadly, to make his argument,
Fukuyama, without presenting empirical results,
claims that China failed to prudently estimate the
internal rate of return (IRR) and gauge the
externalities of its mega-investments in Ethiopia.
Contrary to Fukuyama’s assertation, it needs to
be made crystal-clear that the Chinese EXIM Bank
policy requires that in all overseas investment,
prospective investors are required to estimate the
internal rate of return in order to qualify for
all the loans. Thus, without taking into
consideration the size of projects, it is probable
that the Chinese IRR estimates have taken into
consideration that the interest rate at which the
present value of future cash flow is equal to the
required capital investment. For instance, in
terms of estimating the IRR, while other foreign
companies make profit margins of 15-25 percent,
Chinese companies operating in Ethiopia make
profit margins of under 10 percent (Desta, 2014).
At this juncture, it needs to be emphasized that China has
been Ethiopia’s major provider of hard-earned
strategic and concessionary loans, investments,
grants, and aid (Desta, 2019). Particularly in the
natural growth of Ethiopia’s Development State,
there is no doubt that Ethiopia has drawn
considerable knowledge, experience, and policies
from China. More recently, Fukuyama should have
understood that while still dominating the infrastructure space, China’s
engagement with Ethiopia has been deepening and
broadening in scope, and China has agreed to reduce and restructure or
overextended the repayment period for some of its
loans, ranging from 10 to 30 years (Kiruga, 2019).
Though barely touched on by Fukuyama, as the cost of
manufacturing goods has shot up in China,
state-driven Chinese investments have been
transitioning and mushrooming in Ethiopia. The
driving force for China’s interest in Ethiopia
has been to acquire natural resources, diversify
its supply of industrial inputs, serve as a source
for oil and other industrial materials, utilize
the Ethiopian market for Chinese export, and use
Ethiopia as its back-door entry point to Western
markets. However, it needs to be made clear that
in the process of generating and working on
various forms of Sino-investments projects,
State-owned companies arrive in Ethiopia with
their own work force. The Chinese investors
by-and-large control decision-making. Chinese
investment in Ethiopia creates limited local
employment opportunities and mismanagement of
Ethiopia’s renewable and non-renewable
resources. Also, though barely examined by Fukuyama
(June 11, 2019), it is sad that Chinese
investment in Ethiopia has been insensitive to
negative environmental externalities (see Desta,
2014).
Export-Led Growth Policy: Neoclassical economists stipulate that Export-Led-Growth
or outward-oriented export promotion strategies
focusing on open trade, ease on foreign exchange,
increase of imports of high-quality intermediate
capital inputs, enticing export-oriented foreign
direct investment, and access to international
markets contribute to growing productive capacity,
and encourage diffusion of technology knowledge,
improvement in economies of scale, and improvement
of human capital, as well as faster economic
growth (Krugman and Obstfeld, 2014). Using an open
trade policy with an export-led growth strategy,
during the classical Developmental State era, the
four East Asia “tigers”—South Korea, Hong
Kong, Singapore, and Taiwan—achieved a
remarkable record of high and sustained economic
growth (Allaro, 2012, Palley 2011).
According to Araia (2012), South Korea and Taiwan achieved
miraculous economic growth during the classical
developmental period not only because they had
visionary and committed leadership, but also due
to their prior experience with development
projects from when they were Japanese colonies. In
addition, Araia persuasively argues that South
Korea and Taiwan had “…a unique historical
circumstance during the Cold War that they took
advantage of. They enjoyed massive amounts of
economic, technological, and defense aid from the
United States.”
Nowadays, Fukuyama argues that given Trump’s trade policy,
the US can no longer provide “free riding” of
its domestic market and run a trade surplus over
an extended period of time to developing
countries, as it did to South Korea, Taiwan, Hong
Kong during the middle of Cold War period,
accelerating their economic growth (see also
Haggard, 2018). Using the same line of argument,
Haggard strongly argues that “development states
emerged in a particularly permissive international
context, in which both the geostrategic and
economic interests of the advanced industrial
states provided space for their aggressively
export-oriented growth strategies. But,
says Haggard, if all developing countries pursue
the same course of action, “…their combined
manufactured exports would eventually trigger
protection in industrial countries.” Fukuyama
extends Haggard’s assertation by stating that
“it is very hard for developing countries to
break into an existing form of manufacturing
because the efficiency of East Asia is so
great.”
Contrary to Fukuyama’s controversial assertion, empirical
studies seem to show that the economies of
Southeast Asian countries and other emerging
economies are in the process of shifting or
transitioning their investing to low-cost African
countries in order to lower their production
costs, using Africa as a conveyer belt to sell
their products in developed markets at competitive
prices (see Davis, 2015).
Ethiopia has the largest domestic markets in Africa. Thereby,
it enjoys preferential market access to the
European Union markets. More recently, Ethiopia
has initiated the African Growth and Opportunity
Act (AGOA) in order to access US markets. Given
that Ethiopia has the largest domestic market,
along with access to foreign markets, several
South East Asian started collaborating with the
Ethiopian Industrial Parks Development Corporation
(IPDC) in 2014 to establish the development and
construction of industrial parks in several parts
of the Ethiopian region. Currently, Ethiopia has a
target of 30 industrial parks. These industrial
parks are designed to enhance economic
transformation by attracting foreign investment
from Southeast Asian countries; processing
technological learning, upgrading and innovation;
and improving the competitiveness of local
industry, thereby generating foreign exchange by
manufacturing exports. While projected to
contribute 20 percent of Ethiopia’s GDP, the
Industrial Parks in Ethiopia are expected to be
“Eco-industrial Parks” and address
environmental issues from the outset (UNDP 2018).
As a footnote, it needs to be emphasized that Ethiopia has the
largest domestic market in Africa. In addition to
its export-led growth strategy, which some
consider having exploitative characteristics in
terms of extracting surplus from the domestic
economy (Palley, 2002), it is high time that
Ethiopia also focuses on domestic-led growth.
Domestic-led growth and export-led growth are
inextricably intertwined and can create rapid
employment increases, providing sustained
household income (Allaro, 2012). That is, meeting
internal market demand can have many positive
spillover effects. It stimulates the country’s
export sector and can deter a possible
global-market, crowded-out effect.
Unifying National Identity and Democracy: Fukuyama (June 11, 2019) arrives
at the conclusion that nations like Japan and
South Korea, which successfully implemented the
Developmental State Paradigm, shared common
national identity characteristics (i.e., common
language, common ethnicity, common historical
traditions, and common bureaucracy) as basic
requirements for economic takeoff. According to
Fukuyama, Ethiopia’s developmental state lacks
not only these characteristics, but also power
remains concentrated in the hands of an
“executive who might use it to suppress social
forces that are active on the ground.”
Like his mentor, Huntington (1993), Fukuyama argues that
Ethiopia cannot achieve unity based on equality of
nations, nationalities and voluntary unions, as
designed in the Ethiopian Constitution of 1994,
because according to Fukuyama’s argument, the
disharmony that exists between the ethnic
territorial units and the orientation of the
various existing forms of ethnic political parties
would have a disastrous effect on national unity
and political stability.
Though different than Sen’s (1999) human capability index (which includes adequate
nourishment, leading a long and healthy life,
literacy, shelter, and political and civil
rights), Fukuyama,
by giving little empirical information, assumes
that the quality of the Ethiopian government
doesn’t reside at the intersection of autonomy
and capacity, but is rather measured by the
quality and professionalism of the people who work
within the autonomous bureaucracy.
As stated in Article 50(4) of the 1994 Constitution, the
Ethiopian federal system is supposed to devolve
from the center to the local units in order to
improve the effectiveness of the state and advance
the democratization process, creating conditions
that would better allow the system of checks and
balances to work. Like the Africa Development Bank
(2009), Fukuyama narrates that in practice, the
executive branch exerts greater power vis-a-vis
other branches of government. Though not loudly
articulated by Fukuyama, the dominance of one
party behind the façade of regional and local
autonomy in Ethiopia seems to have severally
hampered Ethiopia’s proclaimed democratic
rhetoric to be matched by democratic practice.
Other research shows that local autonomy is rarely
respected in Ethiopia. Except through sham
elections, local people are never allowed to
choose their own leaders. Thereby, the needs and
interests of the communities are undermined,
because local accountability is offloaded to the
central regional government or the federal level
(see Araia, 2012, and Desta, 2017).
Fukuyama asserts that “without the imposition of an
overriding unifying element, ethnic federalism by
itself would not have kept Ethiopia together.”
Given that Ethiopia’s ethnic diversity is its
greatest asset, Ethiopia could have achieved
full-fledged federalism had it made a concerted
effort to effectively socialized its citizens. It
was necessary to teach them not to be focused
solely on protecting themselves, believing that
their ethnicity was superior to all other
ethnicities, to instill a positive multiethnic
feeling and respect for the cultural ornaments of
other ethnic groups (Kiros, 2019). This
instillation, in conjugation to implementing
strategies and tactics that can attract and
develop autonomous democratic decentralization,
could have enabled Ethiopia to achieve political
stability and economic growth.
Overall Reflection
In its content and setup, Professor Fukuyama’s article is
well-written and seems to be designed for
policymakers. Given this, the article is very
inspirational and has educational value.
Fukuyama’s analysis is convincing. Currently,
Ethiopia’s Developmental State Model is in a
state of paralysis because Ethiopia overwhelmingly
suffers from a lack of national unity and
democracy. However, when Professor Fukuyama’s
article is examined from an academic perspective,
it does not strictly follow the hallmarks of the
scientific method. That is, Fukuyama’s article
is not rigorous enough and not well-documented.
Before Fukuyama arrived at the conclusion that the
current state of Ethiopia’s ethnic federalism
impedes unity, it would have been worthwhile for
him to have developed a theoretical framework and
sound methodological design from which to examine
his premise. This would have given him an intimate
understanding and a better grasp of the formation
of Ethiopian federalism.
Briefly stated, Ethiopia’s federalism was established after
a coalition of ethnic liberation movements routed
the Derg in 1991. The past centrist
unitary-oriented regimes that ruled Ethiopia were
dehumanizing, insensitive to certain ethnicities,
and by-and-large contributed to a colossal failure
of Ethiopia’s economy. To render equal
power-sharing provisions, strengthen ethnic
identities, and eventually accomplish Ethiopia’s
stability, in 1991, a committee composed of
multi-ethnic groups took the liberty to demarcate
Ethiopia’s ethnic groups into nine
self-governing entities and two chartered cities.
It engineered democratic federalism to increase
self-government, political participation, and
consolidate and harmonize all Ethiopian groups. In
line with Lenin’s philosophy that the masses
might resort to secession only when national
oppression makes life intolerable, the 1994
Ethiopian Constitution allowed every multinational
state to have the right to self-determination,
with a constitutionally entrenched right to
secession (Desta, 2019).
As stated above, Ethiopia’s landscape is composed of
multi-ethnic groups. Instead of using draconian
measures to encourage diversity and solidify the
horizon of national unity, the federal Ethiopian
government should have encouraged interpersonal
dialogue, open communication between its people on
a personal level, to build respect for the
culture, beliefs, ideas, attitudes, and knowledge
of all its citizens. Given this framework, instead
of analyzing at abstract that Ethiopia’s
Developmental State is struggling because it has
lacked unity, Fukuyama needs to know that
federalism is a landmark in Ethiopian history and
regarded as a unifying factor. He should have
attempted to explore how the Ethiopian
Developmental State Model is currently struggling
because the Ethiopian government failed to
systematically socialize its citizens, instilling
in them that “Ethiopianity is not an
abstraction. It is a lived reality embodied in
ethnic and national consciousness” (Kiros,
2019). As persuasively suggested by Professor
Kiros, had the Ethiopian Government fully
attempted to effectively inculcate ethnic
consciousness at the local level over the last
twenty-five years, there is no question that its
ethnic nationalism would have transcended and
fully flourished, resulting in a true Ethiopian
consciousness. Since the Ethiopian government
hardly used systematic methods to implement and
integrate ethnic consciousness with the national
consciousness of the Ethiopian people, it can be
argued that Ethiopia’s political federalism
landscape is rife with flashpoint indicators of
ethnic disunity, separatist tendencies, and
loyalty conflicts, as well as ethnic looting,
harassment, and displacement.
To concretize Fukuyama’s concept of democracy to Ethiopia,
Ethiopia would have needed to have a vision, and
then to have designed policies and strategies, and
initiated flexible governance to achieve robust
democratic autonomous federalism. Contrary to the
devolution of power grounded in the 1994 Ethiopian
Constitution, and more particularly stated in the
2001 amendment, the Ethiopian federal system and
the regional states didn’t allow the
democratization process that could have generated
manageable and democratic self-rule of communal
constituents. In pursuance of the 1994 Ethiopian
Constitution, the nature and possible challenges
of Ethiopia’s federalism could have ethnically
designed the regional states and subdivided
them into manageable units. Following the “new
federalism” practiced by Canada, India,
Switzerland, and South Africa, the newly formed
constituent units (states) in Ethiopia could be
effectively managed by breaking them into several
manageable democratic autonomous states. For
example, the current nine states and two chartered
cities in Ethiopia could be divided into
thirty-three regional states. Each of the
now-existing states and chartered cities could be
further be sub-divided into three regional states
(i.e., 11 times 3 =33). The ten or fifteen woredas
in each newly designed state could be left to be
managed autonomously, governed on consensus,
proportionally represented, and ultimately
agreeing among themselves to form a common
regional state. Stated differently, without
intrusion from any central or federal authority,
each woreda within the newly formed
regional states could have complete sovereignty
over aspects of its political life by having
several municipalities run by community-elected
mayors and council members.
In addition, Fukuyama’s abstract concept of democracy could
be concretely translated into
the Ethiopian situation, provided there is a
devolution of real power from the center to local
units. Thereby, political power needs to be
transferred through the establishment of
democratically and proportionally elected local
governments that ensure direct citizen
participation. Simply put, public officers in
Ethiopia need to effectively represent their
citizens, be responsive by delivering services in
line with their citizens’ demands and held
accountable for their decisions.
Given these factors,
Ethiopia’s journey toward autonomous,
transparent democratic federalism can become a
reality if the government in power has the
political sway to sub-divide the existing regional
states into manageable geographic regions that
incorporate adequate checks and balances. More
importantly, Ethiopia could develop strategies for
the future and “… form a hybrid paradigm where
some developmentalist practices coexist with the
prevalence of privatization policies to harness a
free market operations” (Desta, 2019).
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