Ethiopia’s economy: Neither a sprint nor a marathon

Africa’s most impressive economic managers suffer from excessive caution

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(The Economist) — NOWHERE in Africa is modern China more of a lodestar than in Ethiopia, which on May 24th held an uneventful election with a predetermined outcome: another term in office for the long-standing ruling party. The continent’s second most populous country and fastest-growing big economy has close intellectual links with China’s Communists and often sends officials to their party school in Beijing. There Ethiopians imbibe the gospel of industrialization overseen by a strong state that exerts tight control over an ethnically diverse population with a history of strife.

But all is not well in the relationship. When a new Chinese ambassador arrived in Addis Ababa in February, he presented an unexpectedly awkward message to his hosts. La Yifan told the ruling elite—behind firmly closed doors—that it must discard the isolationism of the past and open up an economy in which the flow of money and information is still restricted. Banking and telecoms are almost antediluvian (see chart). Investors are frustrated. Trade lags expectations. After years of praising the government, the Chinese are now singing from the same hymn sheet as Ethiopia’s Western critics.

The problem is a lack of courage. Many in the Ethiopian government, ruling party and security apparatus acknowledge that only further reforms can sustain the goals of economic growth and political stability. But they are slow to enact them.

The government’s main priority is industrialisation. But endless red tape and restrictions on finance deter investors. Officials point to Huajian, a Chinese shoemaker that has gone from employing 600 locals to 3,500 in a few years. But Ethiopia needs a hundred Huajians. Without faster growth of industry, the country will struggle to absorb labour it hopes to free up from modernising subsistence farms that provide a living to 80% of its people.

The government is trying to help industry by building roads, railways, power stations and dams—following the Chinese playbook. These efforts have kept the official GDP growth rate above 10%, although outside experts reckon a more realistic tally is 7-8%. Inflation has dropped to single digits. But no progress has been made towards joining the World Trade Organisation in the past three years. And the prospects for attracting desperately needed foreign equity capital remain dim.

20150530_MAC316The fear of being overthrown looms behind the elite’s reluctance to reform. In some ways it is a victim of its own success. Discipline and administrative sophistication have given the elite access to coercive tools that many counterparts on the continent can only dream of. But now it finds it hard to imagine life without them.

The situation has become worse not better since the death in 2012 of Meles Zenawi, the prime minister and architect of the country’s resurrection after a bloody civil war between 1974 and 1991. By force of personality, intellect and ties forged in battle he could on occasion shift the system forward. Admittedly, he hated the private sector and civil society. But at least he removed logjams. After his death the government pulled off a peaceful transition of power. The deputy prime minister, Hailemariam Desalegn, took over as planned.

The new leadership is much more collective. The prime minister is no Meles, whose legacy as it turns out included masking how divided the regime has always been. Before ministers make decisions now they often need to seek the consent of the old guard. And ethnic Tigrayans, of whom Meles was one, still control the army, security services, telecoms and foreign affairs. It will take at least another decade for them to retire or die.

The new prime minister is a reasonable and, to some extent, reform-minded man. But he is a relatively weak figure. He is probably going to be confirmed as party leader at a congress of the ruling EPRDF in September, but his tenure is not assured. Few have forgotten why Meles chose him: as a political leader from the ethnically fragmented south of the country he is no threat to the more dominant groups.

One senior member of the Chinese community in Ethiopia describes, with some frustration, what he sees as the country’s big problem: that in China the central government dominates the regions but in Ethiopia everything is federal. Business parks are built by regional rota, for example, not in the best locations. Furthermore, Mao’s maxim that “the party controls the gun” is neglected; the securocrats are a law unto themselves.

And lastly, although the senior leadership in Ethiopia is very capable, the country lacks China’s talented mid-level administrators. Overall, many Chinese see a country that is dotted with too many powerful barons.

What the Chinese won’t say but many Western observers do is that political repression also weakens the system. Young people are angry and jobless. Outlets for their frustration are quickly shut off. Sensible opposition leaders are pushed into exile or prison, ceding the field to hotheads. Universities have grown more than tenfold but there are insufficient jobs for all these bright new graduates.

Ethiopia is stuck thanks to its paranoid elite. The country will be able to limp on for a while, given its impressive growth rates. It may even get further boosts from new infrastructure like hydropower. But Ethiopia is missing out on becoming something far more impressive.

4 Responses to Ethiopia’s economy: Neither a sprint nor a marathon

  1. Barii May 29, 2015 at 6:04 am #

    This is way better assessment of Ethiopia’s economy from foreign journalists. Moreover, Ethiopia’s economy is not self-sustaining by any account. It’s foreign-aid dependent and land-grab dependent economy. Both methods are not sustainable in the long run.

    China’s frustration is understandable. Economic freedoms in China are folds better than Ethiopia. Ethiopia’s core marketable economy is controlled by TPLF conglomerates and their affiliates like Alamudi. TPLF controls the government employment (civil service). People are becoming heavily dependent on the regime to get employment in Ethiopia more than ever before. The growing role of TPLF conglomerates and officers in the economy is part of it.

    Unlike China, which encourages private investment, including Foreign Direct Investment (FDI), TPLF-affiliated companies don’t want parallel growth of the private sector that challenge TPLF and its friends domination and control of Ethiopia’s economy. One needs to study Egypt’s economy under Mubarak to understand Ethiopia’s economy under the TPLF/EPRDF regime.

    China’s economy is moving in opposite direction compared to Ethiopia’s economy of the TPLF/EPRDF regime. China is loosening government/party control of the economy by encouraging private entrepreneurship and investment. The TPLF regime is tightening the control of Ethiopia’s economy more than any ruler of Ethiopia. Thus it’s an opposite trend.

  2. Anisa May 29, 2015 at 10:25 am #

    Thank you Bari for your professional input and comment on the article. I thought the same way. This article is way better and more accurate than any of those written by foreign journalists. This TPLF mafia government will decay and cramble from within. It is just a matter of time

  3. sirreessaa May 29, 2015 at 11:16 am #

    The article by the Economist is quite informative. Specially the Chinese connection is very interesting. I have been following the process of economic development in Africa since independence in the 1960’s. As is well known several theories and methods have been tried and most of it failed. Especially the ideas that came from the West were not at all helpful despite the fact that the will to help has always been there.

    The main problems were lack of capital and technology. Leftist ideas, and later, ideas from the West have not helped in obtaining neither capital nor mass education.

    Today we have more possibilities. Countries have improved level of education where literacy rate is improving rapidly. Due to globalization there is huge amount of capital around that is easily moveable i search of profit. So in order to achieve viable economic development policymakers have to work in multiple fronts. Educate their people, build basic infrastructure including the energy sector plus create conducive conditions for foreign capital to confidently participate in the process.

    The appearance of the Chinese on the scene in Africa has contributed a lot to the recent progress being made. They came with capital and know how in exchange for row materials. They build roads, schools, railroads, power stations, etc. This has greatly enhanced economic growth in Africa today. Indians are following same line as the Chinese. Brazil is also very much interested in cooperating with African nations.

    This means there are possibilities that can be exploited. Unfortunately the contribution of the West is not very significant. i wish they could find better ways to positively contribute to the process by providing capital and know how.

    The case of Ethiopia is not different. The job done so far is very impressive for a country with very poor background that lacks any significant amount of fuel or other valuable minerals.
    The road to economic growth and development is bumpy and I am sure even in the future economic growth in Ethiopia and in Africa at large will continue to surge in the right direction.

    The role of educated Africans, old and young, should be to work hard to find new and creative ways to support the process so that it does not lose momentum.

    • Barii May 30, 2015 at 2:03 am #

      Ethiopia’s economy is not on the right direction for a number of reasons. The West is the least to blame. The West finances the TPLF/EPRDF to the tune of 30-50% budgetary support, depending on the sources of information. Billions of dollars of capital inflows from the West enter Ethiopia. Ethiopia’s very heavily dependent on the West under the TPLF/EPRDF regime. The regime and its economy cannot even survive 6 months without the support it gets from the West and West’ financial inflows to Ethiopia. Even with the huge inflows, the regime itself confirms that its foreign reserve does not cover more than a couple of months imports.

      However, the billions of dollars that inflow into Ethiopia flows out of Ethiopia illicitly. Information abounds on the illicit outflow of hard currency from Ethiopia and other African countries.

      Even dictators with developmental state mindset have nationalist commitment to develop their respective countries. Ethiopia under the TPLF/EPRDF regime is different. There is perpetual conflict between the governed and the ruler. The regime also considers some people in Ethiopia as their enemies. For instance, with certainty, from the evidences of the TPLF leaders’ words and actions, the regime considers the Oromo people as its enemies. It is absolutely naive to believe that the regime creates equal opportunity for the people it considers as enemies. Facts attest to the fact that political discrimination equals economic discrimination.

      Simply put, political marginalization in Ethiopia equals economic marginalization. Foreign reporters on Ethiopia’s economy generally give bird’s eye-view perspective of the economy. For instance, they don’t discuss the issue of the ownership, lack of equal opportunity, sectoral issues, etc. But it is very sensible to ask who owns the new buildings, factories, industries, large scale farms, etc., which are mainly accounted as the major part of the economic growth in Ethiopia. Most certainly, they are owned by TPLF conglomerates, TPLF leaders and families, TPLF-affiliates, and some foreign companies. Even without political bias, any humane person need to worry about the skewed benefits of the so-called fast economic growth in Ethiopia.

      What is its long run impact on the sustainability of the economy? What will happen to Ethiopia’s economy that heavily depends on the regime if the regime changes and skewed favoritism of the TPLF conglomerates ends? What’s the long run impact of creating public dependency on the regime as sources employment in various fronts? What is the political impact of creating an economy that heavily depends on the regime? And many more questions to add to the list.

      It’s natural for the people to resist and complain about unequal opportunity in the economy. The economy is enriching few people, who are affiliated with political leaders, one way or the other. Exceptions are very few and far in-between in Ethiopia. The TPLF/EPRDF regime has not built sustainable foundation for the economy except for the infrastructure the regime builds here and there. Even then, there is clear location bias. There are microeconomic and macroeconomic imbalances. The financial sector is very weak. The same goes for the balance of payments. The regime survives on foreign aid and remittances for hard currency.

      In short, the TPLF/EPRDF is not conducting an economic model that serves the general public to improve the living standard of the average person in Ethiopia. The core focus of the regime is how to make their conglomerates and their affiliates rich and powerful much more than how to make the general public economically better off. It’s a wrong economic model. It’s not sustainable and not serving the majority of the people. It’s not the process of equally shared economic pain either. High time people consider the economy in more than new buildings.

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