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Is Ethiopia’s development plan too “ambitious”?

August 13, 2010

DAVOS/AFRICA

Ethiopia’s Prime Minister Meles Zenawi seemed to anticipate this week exactly what a lot people were thinking about his government’s plan to double the poor country’s GDP and wean it off food aid within just five years.

“I think that this is a very ambitious plan,” he said.

“This is indeed an extremely ambitious plan,” a few minutes later.

And, once more for luck, “We have put in place a high-case scenario which is clearly very, very ambitious.”

So far, so ambitious.

But, after those disclaimers, a man many see as Africa’s most economically literate leader didn’t shy away from saying he thought Ethiopia could get there.

The “base-case” scenario of 11 percent average economic growth over the period was “doable” and the “high-case” scenario of 14.9 percent was “not unimaginable”.

On food aid: “In the future, we will feed ourselves.”

The targets are contained in “Growth and Transformation”, the country’s latest five-year development plan.

A doubling of agricultural output, it says, is what will fire the growth. The government will urge  investors to pump money into the sector and it will dole out more licenses for large-scale farms. It will also help millions of small-scale farmers — upon which the country relies — to access markets.

But, while agriculture is the focus now, the plan also envisages eventual industrialisation.

Meles based much of his optimism on Ethiopia’s recent economic performance. The country has posted an impressive average annual growth of 11 percent over the last five years, something the prime minister says it will have no trouble repeating.

The only problem with the growth figures is that some people don’t believe them. The opposition in Ethiopia doesn’t and the Financial Times this week called them “dubious”.  A new Oxford University index shocked many Ethiopians after it said the country was the second poorest in the world, ahead of only famine-hit Mali and behind even war-torn Somalia.

Still, Ethiopia is undoubtedly attracting some foreign investment in agriculture and oil and gas exploration and a small middle class is emerging. Even the IMF, though less optimistic than the government, predicts healthy growth of 7 percent this year.

But it was the claim that the country won’t need foreign food aid at all within five years that raised most eyebrows in the cafes and bars of the capital Addis Ababa.

Six million Ethiopians needed emergency food aid last year and about another 7 million chronically hungry people are on a long-running food-for-work scheme.

When I questioned Meles about how Ethiopia planned to feed these people, he drew a clear distinction between the food-for-work scheme (known as the “Safety Net”) and emergency aid.

Though the Safety Net is now foreign-funded, Meles said he thought Ethiopia could maybe fund it alone at the end of the five years. But he saw it continuing as a “form of social welfare.”

Emergency aid would not be needed, except for “unheard of types of calamities”.

“Normal emergencies, we should be able to manage within five years,” he said.

So is this plan realistic or is it just wishful thinking? Why set goals that many think impossible? Could Ethiopia double agricultural output? Through what sort of farming? Who will invest? And what is the best way forward for Ethiopia’s development?

Comments

Let me start my comment from the plan of doubling agricultural output. We have a time of five years, thus the agri output can be doubled if and only if the average annual growth of the sector reaches 20%. Currently, it is close to 10%, which is less than the growth of both the service and the industrial sectors. The new plan is called “Growth and transformation”. By transformation I understand that in the coming 5 years the secondary and tertiary sectors would be given emphasis and the share of the primary sectors (manly of Agri.) will have declining percentage share from overall GDP growth. This means, the growth rate of the agricultural sector is supposed to be less than the industrial and the service sectors under the current strategy that strives for economic transformation. The plan of between 11 and 14 % growth for the overall economy means that the three sectors will be on average growing between 11 & 14%. Under the economic transformation scenario, the agricultural sector is expected to grow less than the overall economic growth. So how come the new plan set a target to doubling (or 20%) growth of agri. For me it does not make sense.

The focuse given to power generation could be achievable as there is potential and experience in the power generation.

Posted by Gashaw | Report as abusive
 

To double agri for the following 5 years, the sector has to grow by 14 %(=70/5). This figure is close to the “high-case” scenario of 14.9 percent overall economic growth target of the country. Given the historical 10% or less growth of the agricultural sector and the focus on economic transformation in the current strategic plan (i.e decreasing share of agriculture in the economy and increasing share of the industrial and the service sectors), Doubling agriculture is less likely

Posted by Gashaw | Report as abusive
 

There are a number of things raised here that need a lot of discussion. Why is the government ambitious? Partly it is an issue of legitimacy. Just like in the case of China, the government of Ethiopia knows that it is not exactly an elected government. Most Ethiopians, just like ‘international development partners’, need the assurance that this government can do something to improve the sad economic state of affairs of the country to prove its legitimacy.

Another perhaps reason for its overambitious strategy is that there is no way of proving the government wrong. All official statistics is collected through a centralized system by CSA, and the government can cook the data as and when it wants. It is difficult to prove this point, but a number of recent incidents seem to indicate this. A good example is what happened during the release of the most recent population census (regarding the population of the Amhara region). Another incident is related to the accuracy of CSA’s agricultural production figures. In a recent paper entitled “In Search of a Strategy: Rethinking Agriculture-led Growth in Ethiopia”, a group of authors find that, according to official figures, Ethiopia have achieved substantial increase in agricultural productivity in amounts that even supersede the experience of the Asian green revolution. They, however, find in the data no substantial change in input use or technology that seems to explain this which forces them to request the reexamination of the data by CSA. Considering the fact that the government appoints strictly party-affiliated people to all offices, and especially those of important ones such as CSA’s, it is easy to imagine that cooking numbers would not be that difficult for them.

Posted by Florad | Report as abusive
 

A number of things raised here need a lot of discussion. Why is the government ambitious? Partly it is an issue of legitimacy. Just like in the case of China, the government of Ethiopia knows that it is not exactly an elected government. Most Ethiopians, just like ‘international development partners’, need the assurance that this government can do something to improve the sad state of affairs of the country’s economy to prove its legitimacy.

Another perhaps subtle reason for its overambitious strategy is that there is no way of proving the government wrong. All official statistics is collected through a centralized system by CSA, and the government can cook the data as and when it wants. It is difficult to prove this point, but a number of recent incidents seem to indicate this. A good example is what happened during the release of the most recent population census (regarding the population of the Amhara region). Another incident is related to the accuracy of CSA’s agricultural production figures. In a recent paper entitled “In Search of a Strategy: Rethinking Agriculture-led Growth in Ethiopia”, a group of authors find that, according to official figures, Ethiopia have achieved substantial increase in agricultural productivity that even supersedes the achievements of the Asian green revolution. They, however, find in the data no substantial change in input use or technology that seems to explain this. This forces them to request the reexamination of the data by CSA. Considering the fact that the government appoints strictly party-affiliated people to all offices, and especially to important ones such as CSA’s, it is easy to imagine that cooking numbers would not be that difficult for them.

The most important thing, however, is the fact that the government has enough reasons to work towards achieving economic growth. Despite of the lack of transparency and the possibility of being inflated, positive figures of economic growth are not also harmful to promoting and selling the country for investors. The important question related to this strategy is, therefore, can it really be achieved?

I can mention two reasons why it cannot be achieved. True, the strategy might set the foundation for the future transformation of the country, especially with respect to investments in public infrastructure. However, transforming the economic structure of the country in 5 years is wishful thinking for a number of reasons.

Beginning with agriculture, the first challenge is of course the commitment to invest enough towards improving the technology of small holders and the capability to successfully coordinate various policy efforts towards improving productivity throughout. That has been lacking so far. Despite its focus on agriculture, the government hardly succeeded to its commitment of spending a minimum of 10% of its budget on agriculture. Even if production could be improved, sustainably transforming the economy requires successfully shading extra labor from agriculture towards industry. The most significant challenge to ‘transforming’ the country is related to this process of labor allocation. Improving agricultural productivity permanently and transferring the huge agricultural labor (which stands almost at 85% of the population) towards industry requires not only a concomitant increase in the industry sector, but also training and education on the part of the human resource that will be reallocated towards industry. This naturally happens over decades of years when younger generations of people are educated and move to the urban area for industrial employment. It is thus impossible to surpass this process in a time as short as 5 years.

The final big challenge which makes the strategy overambitious is the challenge to increase share of the industrial sector. Ethiopia has no industrial sector to speak of (it stands at 13% of total GDP as of now which is far below the African average). Due to extremely low per capita income and very low saving rate, local investment is not big enough to transform such a large country. Unfortunately, the government is not doing enough to attract foreign investment in manufacturing. True, there are growing investment ventures into this country from Turkey (in textile), China on a number of areas, and from India (mainly in agriculture), and to a small extent from other countries such as Egypt. However, this scale of investment is not significant enough to transform the country.

In addition to unfavorable conditions related to the country’s poor political institutions and its unstable geopolitical position (bordering rogue states such as Eritrea, Somalia and Sudan is no advantage), the governments ideology itself is the biggest obstacle in the country’s effort to attract large foreign investment. Recent episodes of economic transformation in Asia have shown us the significant role of export-based manufacturing, which can be driven by foreign investment. FDI in manufacturing from countries in Asia where labor is becoming increasingly expensive could spill over to Ethiopia and save the country as it deed for other East Asian countries. But the country can benefit from such opportunities only if the government is ready to make sweeping reforms in several areas. To become a dynamic hub of FDI, the country needs very efficient banking and communications sectors, and a less distorted market. That needs the (gradual) liberalization of the banking and telecommunications sectors and joining the WTO. However, the government is either overtly opposed to such moves or is heading at a very sluggish pace towards them. Without these changes to dramatically change the business environment into a more vibrant and open one, I don’t expect substantial change in Ethiopia’s industry.

Posted by Florad | Report as abusive
 

Wonderfully detailed, thoughtful comments on this. Thanks a lot.

Posted by barrymalone | Report as abusive
 

“In the future, we will feed ourselves.”

touched me.

Posted by kenyanjui | Report as abusive
 

The prime minister himself told us that the plan is over over ambitious! I don’t want to add any thing on what is already said and well known and again I don’t think the motive behind for such comments is …. But I want to share with people how and what could I contribute for that. Let’s have at least an ambitious plan though we couldn’t have an extraordinary achievements or successes in the history!

Posted by Ethiopiawi | Report as abusive
 

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