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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