Transforming Ethiopia’s Developmental State
Model for the Future
Desta, Asayehgn, Sarlo
Distinguished Professor
“If it ain't broke don't fix it” (Bert Lance, May
1977)
Development role of the state
with little reliance on market forces was used as
the cornerstone for the renaissance of the
economically successful Northeast Asian countries,
such as Hong Kong, South Korea, Singapore, and
Taiwan (Zhang, 2018, Ricz, 2016). Following the
spectacular growth of many economies in East Asia,
developmental state is increasingly gaining ground
in sub-Saharan Africa. For instance, Botswana,
Mauritius, Cote d’Ivoire, Malawi, Kenya,
Tanzania, Rwanda, and South Africa are labeling
themselves as “developmental” (Seshamani and
Ndhlovu (2016).
To
avoid the colossal failure of famine, insidious
civil wars, poor education, and deteriorating
healthcare programs that Ethiopia faced during the
military rule (Dergue), the Ethiopian People’s Revolutionary
Democratic Front (EPRDF) established Agricultural
Development Led Industrialization (ADLI) in 1991
to deal with socio-economic challenges. According
to Leofort (2012), the ADLI was expected to
increase the productivity of smallholders involved
in subsistence farming and to facilitate national
food security in Ethiopia.
An
evaluation of the impact of the Structural
Adjustment Programs (SAPs), reveals that the SAPs
as intended failed to rescue crisis-ridden African
countries. Instead, the SAPs ended in disaster and
contributed to the lost decades of economic
development in Africa (Mukuria, 2014). Given this,
it was no wonder that the former Prime Minister of
Ethiopia, Meles Zenawi, persuasively argued that
neo-liberalism is “a dead end in Africa”.
Consequently, Prime Minister Meles urged Africa to
pursue the democratic developmental state paradigm
to free itself from the shackles of perpetual
impoverishment and work toward an eventual
renaissance (2006).
In 2001, Inspired by miraculous
transformations in Taiwan and South Korea, the
Meles regime began adopting and adjusting the East Asian Developmental
State Model to the Ethiopian economy. Thus, the
Ethiopian state developed wide-ranging, pervasive,
and discretionary intervention and control over
the market to allocate the country’s scarce
resources and influence the direction of its
economic growth and industrialization process.
Retrospectively,
the late Prime Minister Meles argued that he
implemented the East Asian Developmental State
Model to: 1) create state autonomy and have full
control over the commanding heights of the economy
(i.e., resources, banks, utilities, etho-telecom,
and other production sectors) 2) accelerate
Ethiopia’s economic growth and focus exclusively
on value creation, and 3) protect the domestic
micro-scale enterprises over foreign direct
investments ( See for example, de Waal, August
2018).
Realizing
the challenge and stress of a shift from an
agricultural to industrial ladder, the Ethiopian
government allocated twenty percent of its GDP to
reengineer its infrastructural services, such as
roads, schools, railways, air transport, dams,
telecommunication services. Also, it attempted
strengthen the backward and forward linkages of
agricultural and industrial sectors to promote
macroeconomic stability (Johnson, 1982, Desta,
2014, Shumuye, 2017).
After
Ethiopia emerged from the traumatic
post-2005-election political crisis between the
ruling party, Ethiopian Peoples’ Revolutionary
Democratic Front (EPRDF) and the opposition; the
EPRDF shifted its ideological orientation from
revolutionary democratic centralism to Democratic
Developmentalism in order to address the effects
of soaring political upheavals and embark on the
roaring wave of globalization. Instead of
continuing as a vanguard party, the EPRDF was also
reorganized as a transmission belt and serve as a
catalyst. Unlike
before, the Ruling Party, EPRDF, promised to
expand the country’s democratic space by
allowing the proliferation of think tanks,
including elements of political parties,
government departments, corporation and
philanthropists. It further initiated Ethiopia’s
economy to pursue a relatively free and
competitive market system (African Development
Bank Group, 2011, and Lefort, 2012, de Waal, 2018). Before
opening Ethiopian companies to private sector
investment, however, the
late Prime Minister Meles decreed, with an
authorized capital of 10 billion Ethiopian birr,
to establish Metals and Engineering Corporation
(METEC), a military-run industrial conglomerate,
to serve as greenhouses or major hub for training
highly qualified military force in building
factories and infrastructure (Reuters, November
14, 2008). Then,
to gradually attract foreign investment, Meles’
government not only invested heavily in
infrastructure, it also provided macroeconomic
stimulations, such as tax holidays, subsidies,
R& D support, tax relief on imported capital.
Furthermore, he allowed leases on virgin farmlands
to foreign investors (Desta, 2014).
Ten
years after these economic reforms, an
increasingly lazy and inept EPRDF drove the
country into political unrest. Consequently, the
Ethiopia’s unemployed and frustrated youth—the
Querro, Fano,
and
Zerma—began to rise up and challenge the
ruling party, causing political turmoil throughout
the Ethiopian landscape. Whether by design or by
default, these popular protests created a golden
opportunity for Dr. Abiy to step in and lead the EPRDF Party.
On April 2018, Dr.
Abiy (hereafter referred to PM Abiy)
emerged as Ethiopia’s Prime
Minister (Gelan, 2018, Desta, 2018).
A
cursory view of PM Abiy’s actions and speeches
over ten months suggests that PM Abiy has shifted
from EPRDF’s ideological platform. Often in
defiance of
his party members and the Ethiopian Parliament, PM
Abiy is unilaterally reversing the country’s
long-held developmental state. Using the dwindling
foreign-exchange reserves as an excuse, PM Abiy is
bending and bestowing to the core tenets of the
liberalization and privatization processes. For
instance, it surprised Ethiopians to hear PM Abiy,
in his inaugural speech, order Ethiopia’s
Privatization and Liberalization Office to
accelerate the sales of minority stakes of some of
the country’s most prized public assets to
foreign investors. More specifically, contrary to
the EPRDF’s long-standing policy, PM Abiy, in a
very noticeable way, is privatizing
government owned firms in order to generate
foreign exchange. Guided by the liberalization
policy, PM Abiy has ordered Ethiopia’s lucrative
state-owned mega companies, such as Ethio-Telecom,
the electrical company, and the booming Ethiopian
Airlines, to start liquidating minority stakes to
private investors.
To relieve the United States from facing
tough competition with China in Ethiopia’s
priority arena, PM Abiy’s regime has practically
turned its back on China. Over the years, China
has been Ethiopia’s major provider of hard-earned
strategic and concessionary loans, investments,
grants, and aid (Desta, 2018). As
a result, despite Ethiopia’s failure to meet
World Bank standards, the World Bank has
promised $1 billion for Ethiopia’s budget
support.
Based on Abiy’s
current tactics, critics could argue that he
rejects Ethiopia’s Developmental State Model and that he may even plan to
replace it with neoliberal model. As a result, a
number of African countries wonder why, when the
developmental state model has enabled Ethiopia to
achieve economic growth in the past, Abiy would
now consider a shift to the Washington Census
Model as a possible panacea for Ethiopia’s
future socio-economic development.
Given Ethiopia’s
current situation, many strategists of the
Washington Consensus—a program sponsored by the
World Bank and the International Monetary Fund
that requires dismantling the developmental state
and borrowing countries to have free market, open
goods and financial service markets to foreign
investors—seem ecstatic. Even though this
neo-liberal recipe has already ruined many
developing African countries and substantially
reduced their social welfare programs (Garcia,
2013, Balayan, 2017
and Gebre, 2018,
Stiglitz, July 2016), some former admirers
of Ethiopia’s developmental model are
re-considering the neo-liberal model as their
future path.
When Africa had no other choice, it had to
implement the neoliberal or the Washington
Consensus-structural adjustment process in order
to borrow funds from the IMF. As a result, it lost
a quarter century of industrialization. As
revealed, the SAPs, didn’t restore Africa’s
internal and external macroeconomic stability.
Rather, during the SAPs era, Sub-Sharan Africa
experienced a pathetic 0.35% GDP growth.
Politically, the SAPs process merely encouraged
authoritarian military regimes that ignored basic
human rights in most sub-Saharan countries (Kofi
and Desta, 2008).
Fortunately,
the African continent has been saved from the
disgrace that it encountered during SAPs period.
As the Chinese economy is transitioning through
the “Lewis Turning Point,” the cost of
production is gaining in productivities and China
is hollowing out of low-end manufacturing and
state-driven Chinese investments. As a result,
China’s investments in Africa are mushrooming
(Davis, 2015).
It is imperative to stress that, as
Ethiopia has pursued its developmental state
model, China has played a vital role and given
impetus to Ethiopia’s industrialization process.
Ethiopia has recorded one of the fastest-growing
economies in the world largely because China has
established cooperative, pro-business investment,
which has helped Ethiopia build fundamental
infrastructures (Stiglitz, July 2016; Desta,
2014).
While
straying from the Developmental State Model that
has helped Ethiopia
achieve such miraculous economic growth, Ethiopia’s
most recent GDP data reveals a slide from
8.7 percent in 2014/15 to 7.7 percent in 2017. As
noted in Ethiopia
Economic Outlook on Dec,13, 2018, Ethiopia can
attribute this decline to “…softer expansions
in the agricultural and manufacturing sectors,
while mining activity contracted sharply.
Meanwhile, foreign exchange rate shortages plagued
dynamics, hampering several sectors…”
More
recently, as rampant unemployment, staggering
inflation, poverty, and ethno-nationalistic
conflict currently plague Ethiopia, Ethiopia’s
survival as a viable state stands in jeopardy.
Instead of focusing of reviving the economy,
Abiy’s regime depends heavily upon the financial
aid of the U.S., Saudi Arabia and the United Arab
Emirates. Meanwhile, Abiy’s regime creates
aimless committees to diffuse the regimes’
fundamental leadership crisis and indulges in
empty polemics.
Given
the economic meltdown, political uncertainties,
and numerous ethnic tensions that prevail in
Ethiopia, this study will investigate and analyze
the status of Ethiopia’s development state model
as well as offer suggestions to Ethiopian policy
makers for the future viability of the Ethiopian
state.
The
article proceeds as follows: Part One analyzes the
economic vitality of Ethiopia’s current
developmental state. Part Two summarizes the main
findings of the paper, and Part Three proposes
political and economic suggestions for
restructuring Ethiopia’s existing developmental
state model for the foreseeable future.
The
Economic Vitality of Ethiopia’s Current
Developmental State model
When Ethiopia’s military
rule (1974-91) is assessed by almost every major
index of economic growth, it shows Ethiopia in
perpetual decline. Due mainly to poor policies,
war, environmental degradation, a rapidly growing
population, adverse external development,
Ethiopia’s per capita income became
progressively worse. As persuasively stated by
Cole (1992), though some called Ethiopia the
breadbasket of the Middle East, the country
couldn’t even feed its own people (Cole, E,
1992).
However,
pursuing the developmental state model for the
past seventeen years, the EPRDF, though not enough
to expand the country’s social services, lifted
Ethiopia from decades of slow growth under
socialist military rule to achieve a record of
staggering economic growth. Indeed, the United
Nations Development Programme (April 18-20, 2018)
persuasively demonstrates that from the demand
side of public and private investment, between
2003/4 and 2016/17, Ethiopia recorded a strong
growth of about 36.3 percent. From the supply
side, the value added in agriculture services and construction
sectors grew by 39.3 percent. Overall, between
2003/04 and 2016/17, Ethiopia has achieved over 10
percent growth rate per year in its Gross Domestic
Product (GDP).
Though
not sufficient for domestic investment,
Ethiopia’s domestic saving has shown a dramatic
swing from 17.2 percent in 2010/11 to 24 percent
of its GDP in 2016/17. Consequently, the overall
investment in hydro-energy and the reengineering
in infrastructures, such as building road networks
and improvement in tele-density and airports have
greatly contributed to Ethiopia’s economic
growth.
In
social services (such as education, health, water
and sanitation, as well as infrastructure—i.e.,
roads, railways, telecom, and power generation),
Ethiopia has demonstrated a phenomenal growth
rate. By 2015, access to universal primary
education, health coverage, and potable water has
accelerated by 100%, 98%, and 65% respectively.
Since Ethiopia’s Human Development Index (HDI)
increased by 16% from 2005 to 2011, the
country’s life expectancy has risen around 64.6
years. As a result of this miraculous growth in
its economic and social services, Ethiopia’s
poverty reduction, as measured by poverty head
count, has substantially declined from 45.5
percent in 2000 to 29.2% by the end of 2009/10,
and 23.5 percent in 2016. Overall, income
inequality as measured by the Gini coefficient,
Ethiopia has fallen below 30 percent (Shyumuye,
2017). In summary, when compared with other
sub-Saharan nations, Ethiopia had the best record
for reducing poverty per increase in GDP.
Writing
on developmental states, Zhang (2018) argues that
developmental states generally contribute to
positive economic outcomes, facilitate the
minimization of social problems, and avoid
dependence on the Western industrial powers. Given
Zang’s line of reasoning, the ruling party in
Ethiopia has exploited the developmental state
model to harness political stability, achieve
extraordinary economic growth and transform the
country into Africa’s economic-powerhouse.
In
other words, given the core matrix of Ethiopia’s
Developmental State model is economic growth,
Ethiopia remains a compelling example of how an
African country has achieved a steady
state-directed economic growth for the last
fifteen years. In recent years, however, the
Federal Democratic Republic of Ethiopia is posed
with high youth unemployment, rampant inflation,
superfluous extensive foreign debt, and profound
environmental challenges.
Youth
unemployment:
Although there are variations
in the measurement of unemployment rate, over
fifty percent of young Ethiopians (ages 15-24),
with secondary and higher education in Ethiopia,
though willing to work, are either actively
seeking jobs or have given up looking for work (Badalau,
2012). Types of unemployment generally include
cyclical or demand deficient unemployment (caused
by falling output during an economic recession),
structural unemployment (results from a mismatch
between training and job placement, and frictional
unemployment (arises due labor turnover or the
continuous flow of workers from one job to other).
By
and large, youth unemployment in Ethiopia can be
attributed exclusively to structural factors. Put
simply, schools fail to meet the needs the labor
market, resulting in structural unemployment.
Meanwhile, the longer the youth remain unemployed,
the more likely they indulge in illegal activities
such as robbery, kidnapping, drug trafficking, and
prostitution. For example, in Ethiopia, the school
systems lack the capacity to provide adequate
information on job vacancies to their students.
This inadequacy in employment information has
increased the waiting period of the certified to
attain productive employment. As a result, many
unemployed Ethiopian youths, aimlessly roam the
streets of Addis Ababa and other cities and towns
(The Ethiopian Herald, Addis Ababa, April 18,
2018).
The Ethiopian
Herald (April 18, 2018) documents how these
highly-trained but unemployed Ethiopian
youth—blocked from attaining their goals by
flaws in the system—fall prey to drug addiction,
face depression, vandalize private and public
properties, and generally disrupt Ethiopia’s
peace and tranquility.
If
the present political upheaval and trends in
massive unemployment in Ethiopia continue
unchecked, Ethiopia’s sustained productivity and
economic growth over last fifteen years will
gradually diminish. Also, the wasting of highly
trained and qualified young workers due to
structural limitations will deprive the country of
the valuable skills knowledge, and services they
could be providing.
By
and large, the unemployed youth in Ethiopia who
inadvertently created the opportunity for Abiy to
come power have turned to violence because they
see that both the educational system and labor
markets are distressed. More particularly, higher
educational institutions in Ethiopia have
seriously failed to meet the challenges of the new
millennium. In particular, the universities and
TVET (Technical Vocational Education and Training)
programs have seriously failed to create the
necessary structured experiential learning or
internship programs to provide the graduates with
current knowledge and skills. Instead, they have
abandoned their graduates to swim aimlessly,
looking for jobs they’re not qualified to fill (Nwogwugwu
and Irechukwu, 2015).
Inflation
With accelerated economic
growth, inflation-- a continuous rise and fall in
the prices that consumers pay for a standard
basket of goods has remained a scourge of the
Ethiopian economy. With a sustained economic
growth, Ethiopia has been experiencing an
unsustainable double-digit increase in the price
of goods that averaged 16.12 percent from 2008
until 2018 (Ethiopia Government Statistics).
Overall, the rampant inflation in Ethiopia is due
to demand-pull (the availability of too much money
but too few goods), cost-push (acceleration in
production cost), and structural inflation (i.e.,
deficiencies in food production with inefficient
distribution system) proliferates inefficiency and
disrupts investment and results in currency
devaluation (Desta, 2009, Biresaw, 2013).
More
specifically, for the last several years, Ethiopia
has been driven into an inflationary trap of about
15 percent per annum due the lack of articulation
between demand-pull and cost-push factors,
monetary phenomena (qualitative easing or increase
in the quantity of money that encourages
imprudence among banks that lend at a massive
scale), and budget deficit. As established by
Barro (1996), since the rate of inflation in
Ethiopia exceeds 15 percent of the break-even
point, inflation will most likely damage
Ethiopia’s economic growth. The rise in
inflationary pressure generates distortions in the
allocation of resources and reduces the purchasing
power of the birr. Thus, with the current increase in inflation, Ethiopians now
suffer from expected inflation and a loss of
confidence in the stability of the Ethiopian birr.
Therefore, if uncontrolled, Ethiopia’s
current inflation will most likely deter savings
and prohibit productive investments.
External Debt
Short of internal low income and relatively low domestic savings, a country—provided it can
make future payments on its debt—can borrow funds from external sources, such as bilateral
institutions, multilateral institutions, and international capital markets to gain the necessary
resources for internal capital formations and to harness economic growth. For example, during
the Dergue’s era, the military government relied on domestic sources (such as the capital of
nationalized firms, taxes, domestic loan,) and external sources (mainly from foreign remittance
and loans from the Soviet Union and other socialist countries) to finance its military missions
and domestic projects (Adugna, 2015).
Therefore,
to restore economic growth battered by civil wars,
droughts, and the previous military regime’s
mismanagement, to facilitate social services
(education and health) to the vulnerable groups of
the Ethiopian society (African Development Bank
Group, 2000), and to transform the country from
central planning to market economy, Ethiopia has
to date borrowed US $63.55 million (i.e., 69 % of
the funds were from the International Development
Agency-IDA) from the World Bank’s soft window.
Meanwhile, Ethiopia borrowed an additional 24% of
the funds from the African Development Fund to
implement the Structural Adjustment Program (SAP)
from 1993-1996.
Following the loan period and the full implementation of the
EPRDF’s developmental state model, on the basis
of growth expectations, Ethiopia’s external debt
dramatically increased by 41.8%, 26.9%, 20.5%,
27.4%, 31.8%, 34.9% and 33.5%, in 2006, 2008,
2010, 2012, 2014, 2016, and 2017, respectively
(Trading Economics.com, 2018). Due to rapid inflation,
bad harvests, and deterioration of export
earnings, Ethiopia’s total debt service (% of
exports of goods, services, and primary income,
including the sum of principal repayments and
interest) dramatically increased from 3.95 % in
2010 to 21.01% in 2016 (IMF, 2016). Similarly,
Atingi-Ego etal, (2017) argue that Ethiopia’s
exports in 2016/17 deteriorated “…due to a
weak external environment and delays in completing
key export-oriented projects, and the maturing of
non-concessional borrowing contracted in the last
5 years.”
As
stated above, Ethiopia has used most of its
external loans on productive projects.
Nonetheless, Ethiopia currently carries heavy
debt, either because the overvalued birr
might have choked off the country’s exports, the
borrowed funds were mismanaged to run inefficient
state-run companies, or they were invested on
over-ambitious infrastructural projects or other
capital intensive projects. Thus,
Ethiopia’s external debt crisis can be
systematically attributed to a combination of
imprudent lending (supply side), internal mis-management
of borrowed funds, and international economic
conditions that deal with interest rates on
borrowed funds, terms of trade, and the prices of
oil imports (Desta, 1993).
Nonetheless, to enhance its capacity to service its external
debt, Ethiopia must undergo macroeconomic
adjustments to leverage its export earnings or
reduce its debt burden through rescheduling,
refinancing, or spreading its debt obligations.
However, as suggested by Lovejoy (1984), one of
the most innovative strategies to alleviate
external debt crisis would be for Ethiopia to
deliberately swap its external debt for
sustainability projects.
In other words, Ethiopia could avoid defaulting on its loans
and gain access to further external loans,
provided some philanthropic, environmental
non-government organizations (NGOs) could buy
Ethiopia’s loans, helped by private creditors at
substantial discount. Then, the NGOs could
negotiate with the Central Bank of Ethiopia to
issue the face value of the total external loan in
domestic currency, or biir, and earmark the total loan for the environmental protection or
conservation projects stated below.
Environmental
degradation
Over the years, partly
conditioned by the law of diminishing returns,
Ethiopia’s rapid economic growth has
simultaneously contributed to massive degradation
(Desta, 2009). Aklilu (2001) argues that
environmental degradation in Ethiopia could be
explained by the interplay between physical
environment and population. With the increase in
population, Aklilu states that the limited land
holding, mass land degradation, soil nutrient
depletion, and inefficient production techniques
play a major role in explaining Ethiopia’s
environmental degradation.
In
rural areas, air burning, the use of dung for
fire, the use of dry aquifers, or the overuse use
of chemical fertilizers are the main causes of
environmental degradation. In urban Ethiopia, smog
release of carbon dioxide from old cars and
outdated industries causes particular concern. As
Edwards pinpoints (2004), through the misguided
application of chemicals, Ethiopia has accumulated
one of the largest stockpiles of obsolete
pesticides on the African continent. Specifically,
the use of agro-chemicals such as herbicides,
pesticides, and fertilizers for horticulture
commodities—all designed to earn foreign
exchange—has flooded Ethiopia with hazardous
waste (See Edwards 2004, and Desta, 2009). Thus,
if Ethiopia is to improve its degraded environment
in a sustainable way, Aklilu (2001) persuasively
suggests that it can be “…accomplished
effectively through education to create awareness
and shape the capacity of people’s attitudes in
such a way they would use environmental resources
without damaging the resource base and compromise
the needs of the next generation to make use of
the same resource base.”
Summary,
Conclusion and Policy Implications
Inspired by the miraculous
transformation achievement of Taiwan and South
Korea’s developmental state model, in 2001,
Ethiopia adopted and thrived by adjusting the
East Asian state-led Developmental
State Model to reflect its own historical
conditions and specific context. As a result, the
Ethiopia’s Developmental State Model was
designed to have a preponderance of discretionary
intervention and control over the market to
allocate its scarce resources and influence toward
economic growth and industrialization. In short,
Ethiopia adopted its Developmental state model
with the belief that the state economic
intervention could enhance economic growth and
wipe out poverty. Specifically, the Ethiopian
state exerted strong control on natural resources,
land, infrastructure development, airways, credit,
agriculture, manufacturing and investment, foreign
trade, foreign currency transaction, and on the
international movement of capital by both firms
and individuals.
In
addition, to address the wave of globalization and
adjust to the post-2005-elections political crisis
that arose between the ruling party—the
Ethiopian Peoples’ Revolutionary Democratic
Front (EPRDF)—and its opposition, the EPRDF
shifted its future ideological orientation from
revolutionary democratic centralism to a
Democratic Developmental State. Modifying itself
from a vanguard party to a transformation belt,
the EPRDF Party began encouraging the
proliferation of think tanks that included
elements of political parties, government
departments, corporations and philanthropists.
In
economic terms, the ruling Party promised to
pursue a freely competitive market system (African
Development Bank Group, 2011, and Lefort,
2012, de Waal, 2018). To
induce direct foreign investment, the ruling party
invested heavily in rebuilding its infrastructure.
Furthermore, the Ethiopian state promised to
provide tax holidays, tax relief on imported
capita, various investment incentives, and to
allow foreign ventures to lease virgin farmlands
(Desta, 2014).
At
the time, Ethiopia recorded the fastest-growing
economy, and it emerged as hub of economic engine
in sub-Sharan Africa. In
2015, an increasingly lazy and inept EPRDF began
to drag the country into political unrest.
Protests by the angry and increasingly unemployed
youth cost the ruling party its power and control
over Ethiopia’s landscape. Either by design or
default, these popular protests opened the door
for Abiy to become not only the chair of the
EPRDF, but also Ethiopia’s Prime
Minister on April 2018, (Gelan, 2018, Desta,
Ethiopian Observer, 2018).
To
the surprise of some party members, PM Abiy
started took an ideological turn after he became
Prime Minister. In opposition to his party members
and the Ethiopian Parliament, PM Abiy started
unliterally reversing the country’s long-held
developmental state. Imagining that implementation
of liberalization and privatization could succeed
and using the dwindling foreign-exchange reserves
as an excuse, PM Abiy ordered Ethiopia to start
opening its doors to world investors to purchase
publicly-owned stocks.
As
stated above, Ethiopia’s Developmental State
Model has created
miraculous economic growth for the last fifteen
years. And yet, as if PM Abiy had not been part of
the old process, he currently ridicules and and
openly questions Ethiopia’s economic successes.
However, due to
political instability, ethno-nationalistic
conflict, and communal strife’s, the
Ethiopian topography has made it almost impossible
for citizens and merchants to move freely from one
ethnic-zoned region to another. In addition,
exporting of processed goods by the recently
erected industrial parks and competitive firms to
foreign countries has become unmanageable.
Domestic merchants and entrepreneurial farmers
have also struggled to sell their products in
Ethiopia’s other regional states. Consequently,
a gradual decline in the GDP, rampant poverty,
inflation, external debt, and unemployment
have led to an inevitable demise of developmental
state model.
Looking
forward
Over fifteen years,
Ethiopia’s economic growth has enabled it to
become Africa’s greatest success story. However,
Ethiopia now faces a decline in GDP, rampant
inflation, and gradually rising unemployment. If
the recent wide-scale economic crisis is not
addressed immediately, it could ultimately disrupt
Ethiopia’s political legitimacy. Instead of
using the achievement of the existing
Developmental State model as a base to create
future harmony, PM Abiy’s regime is undoing past
successes and sheltering Ethiopia under the
hegemony of the U.S. and U.S. Arab states allies,
guided by the Washington Consensus paradigm. As
chronicled by Stiglitz (2016), the neo-liberal
model has damaged the economic health of many
nations. Given the experience of other developing
countries, observers can reasonably predict that
if Ethiopia pursues the neo-liberal model, Abiy
could harm his country politically, economically,
and socioeconomically.
Instead
of sticking to an ideological premise that
politics will determine a large aspect of the
Ethiopia’s economy, it is high time that PM Abiy
should follow the advice of Bert Lance: “If it
isn’t broke, don’t fix it” (May,1977).
Ethiopia currently faces an abysmal economic
decline, political upheaval, and ethnic strife
because the country’s chief engine of
growth—Ethiopia’s Developmental State
Model—has been cracking due to administrative
obsolescence.
Tragically,
the Ethiopian federal government has remained
indifferent when residents, because of their
ethnicity, are butchered, killed, harassed, and
beaten with batons. Angry protesters are burning
down churches and residential homes. Innocent
victims who manage to escape on foot to other
regions are found starving while sheltering in
crowded churches, mosques, or other dilapidated
buildings. Meanwhile, as ethnocentric outlaws and
myopic bandits deliberately block inter-regional
roads, Ethiopia’s Federal Government seems to
turn a blind eye. Consequently, merchants, farmers
and various entrepreneurs from local areas are
prevented from crossing inter-state roads to offer
their commercial operations. Sadly, starvation has
become rampant in many communities.
In
its current state of anarchy, where citizens
literally slaughter one another, Ethiopia has
become number one globally in terms of internally
displaced people and human misery (Abraham, 23
Nov. 2018). Given this horrible truth, PM Abiy’s
regime has no choice but to take responsibility
and enforce peace, stability, and legitimacy so
the Ethiopian people can move freely between
regions and interact peacefully without fear of
atrocities.
To
honor the Federal and state governments’
promises to foreign investors who have invested in
the various Industrial Parks by bringing new
technology, acted as incubators for new
entrepreneurs, and promoted just-in-time export of
the internally produced products to the outside
world, PM Abiy’s regime should realize the
economy’s hard infrastructure (road network,
buildings, power supplies, water, sewer systems,
railways, airports, internet services), and the
soft infrastructure (educational, legal framework,
security, labor force) are malfunctioning in some
parts of the country.
Hoping
that peace and tranquility would thrive in
Ethiopia—and using the same methods Japan, South
Korea, Taiwan, Malaysia, and other countries
undertook to tackle the “Asian Crisis of 1997”
(Ginsburg, 2002)—PM Abiy’s regime must conduct
a systematic analysis of the Strengths,
Weaknesses, Opportunities, and Threats (SWOT) for
Ethiopia’s Developmental Model. The results of
the SWOT analysis could then be used as
foundational base to sagaciously redesign an
ongoing dynamic adaptive post- developmental model
(Cai, 2010). Furthermore, using this type of
analysis, Ethiopia could skip shock therapy and
smoothly traverse the era of globalization to
achieve dynamic, long-term growth.
Modifying
the premise of Ethiopia’s existing Developmental
State model so the embedded state autonomy is
primarily tailored to achieve economic growth, PM
Abiy’s regime must surge forward and apply a
competitive market; this market must be driven by
sweeping privatization that Ethiopia could take
advantage of backwardness in its industrial
upgrading process (Lin 2011). Given
this, future Ethiopia could design its
post-developmental reform to incorporate the three
pillars: i.e., the economic, social, and
environmental factors sustainable development.
In
other words, from the core contents and strategies
of the current Developmental state model, PM
Abiy’s regime doesn’t need to sell the stocks
of some of the profit-making state-owned
enterprises (SOEs), such as Ethiopian Airlines,
Ethio-telecom, and others to private investors
because they have a solid history of surviving
tough competition in the global markets. However,
to minimize the monopoly power that these big
companies have long entertained, as state-owned
enterprises, in tandem with market liberation
principle, they must be encouraged to compete
seriously with other global investors. That is, PM
Abiy’s government must gradually reduce the
various domestic subsidized credits and foreign
currency that the SOE’s monopolies have been
collecting at no cost from the government budget,
as well as the artificially repressed interest
rate loans they accessed for many years. It is
time that the SOE’s monopolies be charged to pay
the market-determined interest rates for funds
borrowed for investment and/or to lower
operational expenses.
To
transit from the patterns that prevailed during
the earlier developmental state period to the
proposed post-reform state with a well
-functioning market economy, PM Abiy’s regime
would have to remove the structural imbalances and
distortion in finance and natural resources
(except for the command-quality standards and
control-negative externalities regulations) (Cai,
2011, Maman and Rosenhek, 2012).
As
other developmental countries have done, Ethiopia
could form a hybrid paradigm where some
developmentalist practices coexist with the
prevalence of privatization policies to harness a
free market operation. Thus,
the Ethiopian state could strategize the:
1)
entry
of joint venture investors, joint production, and
wholly-owned green investment (with new production
facilities), facilitating cheap inputs, lower
operational costs, liberal exchange rates, and
providing incentives like lower taxes and free
land;
2)
entry
of investors in telecommunication, power, internet
services;
3)
entry of foreign banks
to invest in Ethiopia;
4)
privatization of the
state-owned commercial banks;
5)
efficiency of market
forces to determine interest rates and the
exchange rate on the Ethiopian currency (birr);
6)
upgrading of the
regulatory and supervisory capacity of the
National Bank of Ethiopia to facilitate efficiency
in the banking sector (Bezabeh and Desta, 2014);
7)
development of small
local banks which could extend credit to small
household farms and small and medium-sized
manufacturing enterprise; and
8)
Privatization of
depleted urban public houses (nationalized by the
Dergue to fulfill
the
pillars of socialist welfare ideology that
propagated that housing is not a commodity with an
exchange value, but must instead be provided by
the state citizens at a nominal rent); and sell
them to current residents at approximately
25 percent of their monthly income
amortized by public banks for thirty years. The
privatization of public houses could not
only help refurbish the depleting houses
but also improve the infrastructures (i.e.,
pipes, sewer systems, power
supplies) that
residents lack. The privatization of public urban
houses could also
harness employment and contribute to
economic growth.
In
addition to the current, meager, urban safety nets
designed to help unemployed youth search for jobs,
PM Abiy’s regime must reform the country’s
educational quality in order to prepare graduates
with skills suited to the modern labor market, in
lieu of the fact that employment is a cardinal
human right, as stated in my book (2017)
Re-thinking Ethiopia’s Ethnic Federalism:
a)
in collaboration with
Technical and Vocational Education and Training (TVET)
institutions, the current government must
integrate an “Employer of last Resort” (ELR)
model to retrain unemployed youth on sustainable
projects and expose them to work in
community-based, environmentally sensitive public
services across a wide range of institutional
settings.
b)
To control the
inflationary pressure in Ethiopia, the fiscal
budget must be tightened. The National Bank of
Ethiopia must be immune from political pressures
in order to tighten monetary policy by auditing
financial institutions; this would maintain
reserve requirements and help encourage more
prudent lending procedures.
c)
To achieve optimal
sustainable development, and thereby feed its
people, Ethiopia must focus on an integrated,
environmentally sensitive, and cooperative
agro-industrial style of development. By improving
its environmental quality, Ethiopia can venture
into the proposed post-developmental state era.
However, to adopt a green development path, each
state in Ethiopia must consider green technology
development necessary as engines for economic
growth, employment, and innovation ( Mazzucato,
2013 and Ricz, 2016).
Currently, political cadres
recruited from various ethnic groups run the
Ethiopian Government. To make it efficient,
governmental recruitment needs to be intensively
competitive. Once recruited, in addition requiring
each recruit to undergo a political orientation,
government employees must act as autonomous civil
servants—primarily recruited on merit and
obliged to their institutions as opposed to their
own political ends.
Instead of recruiting state employees from
a single ethnic group or based on political
connections, PM Abiy can best serve the public by
hiring people with technical expertise in order to
professionalize the federal state bureaucracy and
fully realize Ethiopia’s post-developmental
model.
However,
for fundamental change to occur in Ethiopia, the
existing mono-party system must give way to
multi-party system. With the new political
atmosphere, Ethiopia’s journey toward autonomous
democratic federalism can become a reality if it
redesigns its form of federalism and practices
predictable and transparent democracy
incorporating adequate checks and balances. For
example, the decentralization system promulgated
by the Ethiopian government in 2001, a democratic
self-rule of woredas
could serve as the organizational structure for
Ethiopia’s federal system. Transferring
political authority to local government through
the establishment of democratically elected local
government would propel direct citizen
participation and accountability in Ethiopia.
Therefore,
as this author suggests (Desta, 2017), to
implement true democracy, the election system in
Ethiopia must follow a proportional electoral
system that allows multiple ballot choices to all
Ethiopian citizens. Under this broad electoral
spectrum, no Ethiopian eligible to vote can be
left out. Proportional representation also
minimizes the rampant ethnic tensions in Ethiopia.
Therefore, with adequate public participation
using the proportional electoral system, Ethiopia
would undoubtedly remain stable as it marches
peacefully toward the proposed post-development
state paradigm.
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