Development Policy Choice in Ethiopia

By IndepthAfrica
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Nov 7th, 2012
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Tsegaye Tegenu

Public deficit, trade imbalance, macro-economic instability, food insecurity, structural
unemployment, lack of physical infrastructure facilities, changes in the absolute size of the
population (adding two million people over the country every year) and the consequent
outmigration and horror stories of immigration makes me to reflect on the choice of
development policy in Ethiopia. Development is not only a matter of endowments and
opportunity factors; it is also a matter of choice.
What type of policy does the country need? What are the desired impacts of the current
development policy and the various instruments it uses to solve constraints? How did the
Ethiopian government come to identify and define policy issues? How is policy priority
selected? What are the criteria used to assess the economic performance? What are the
measures used to address the observed performance weaknesses and how are these measures
identified?
Approaches to policy priorities
These questions can be answered using different premises. In the digital media we often
read discussion based on the premises of political ideology. While the government considers
policy choice as the outcome of collective participation of the people, some opposition groups
consider it as imposition of EPRDF power and party agenda motivated by group interests. The
calculus of policy objectives based on the premises of political ideology, can in the extreme
cases, lead to a tendency to disengage from reality. For instance, if a company is owned
and/or managed by individual not belonging to our ethnic group, we expect a complete
failure. In a discussion based on the premises of political ideology what can induce change
and what governs the actual activities is not performance but belief system.
While I recognize the interaction of politics and economics (political economy of
development) to understand the distribution function of the economy, my view is that
assessment of policy choice should be based on scientifically-rigorous evidence performance
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criteria than mere belief system. There are indeed scientifically based models which explain
the design of development policy in Ethiopia. But most models are competing in explaining
priorities and some are even repeating and repeating themselves to the extent of excluding
others. For microeconomists poor performance is related to access to assets for households
and firms, property rights, transaction costs, diffusion of new technology, incentive for new
investments, formation of co-operatives, etc. For those interested in sector policy poor
performance is related to the overall effectiveness of the sector they are interested and it can
be agriculture or education. Sector based analysis focus on the strategy, work plan, financing
mechanism and implementation. At this level the policy reform includes investment in
research and development, public investment in infrastructure, extension programs,
mobilizing saving and credit institutions, etc.
There are also packages of community and right based policies. While the sector policies
aim to address mainly the needs and capabilities of the public sector, the objectives of the
community and right-based policies are tailored to address the unique development challenges
of the community and achievements of the human rights. The community-based approach
uses baseline data of the area to design a strategy that strengths the local economy. The
objective of right-based development approach is to strengthen the claims of the most
vulnerable, such as women, children, minorities, etc. It is mainly concerned with individual or
group entitlements to basic services.
Finally we have macroeconomic stabilization policies dealing with inflation, exchange
rates, financial transactions, budget deficits, trade imbalance, tax reforms, etc. Depending on
their school of thought the blame for macroeconomic performance is put either on the state or
market. Those who use aggregate demand model (total expenditure on goods and services)
assume that state/government intervention is the primary drivers of economic performance.
Those who use aggregate supply model (total goods and services produced) assume market
factors/incentives as the primary drivers.
We, therefore, have several approaches and different competing models used to explain
policy priorities. Varying in basic, fundamental ways, they make different assumption about
the functions and drivers of the economy, use different concepts and categories, and explain
the economic performance differently, and suggest different policies. The question is should
the weight be given to individual factors or the validity of competing explanations. My view
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is that all policy suggestions are basically true and they complement each other. The difficult
task is how to structure them and find sequence and timing among suggested reforms.
Identify structural policy priorities
There is no development policy without underlying objectives. My approach is that
development policy should aim at solving short-term consequences of rapid population
growth (economic shortages including food insecurity, unemployment, private and public
deficit), and long-term consequences related to labour productivity, human development,
structural and spatial imbalance and environmental degradation. Development policy should
nurture the ability of the country’s economy to recover from backlogs (long-term
consequences of population growth) and adjust to new downside or additional economic
shortages (short-term consequences of population growth) to which the country is inherently
exposed. The country should follow a type of development policy that provides possibilities
for short-term adjustment (shock counteraction) and for longer-term changes in the economic
structure itself (shock absorption). In other words, the country’s development policy should
bring the future into the present. The country cannot solve the short and long-term
consequences of population growth without productivity increase and structural
transformation.
From this perspective, I find the Growth and Transformation Plan (GTP) of the Ethiopian
Government very interesting and relevant. The question is what is that one can find out in the
policy package? I have already presented my reflection on GTP two years ago (see
http://aigaforum.com/articles/reflection_on_gtp.php). I found GTP very much influenced by
its preceding policies of agricultural and export-led growth, which I assume are conceived on
the basis of incremental and selective approaches to reforms. “Basically what GTP intends to
do is a scale up process. My question is can a scale up process (quantitative ambitious growth
targets) bring about fast and intense structural transformation (a qualitative change in labor
productivity)? Reproducing oneself on a larger scale may not bring about structural
transformation. The essence of structural transformation is the introduction of technology to
dramatically change the output and employment structures.”
GTP could not clearly identify structural policy priorities that focus on hosts of
microeconomic factors. I advocate policies of green revolution technology and industrial
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decentralization to increase labour productivity and production scale. Even if GTP aims to
double the domestic agricultural production, there is no green revolution document showing
how to solve constraints and achieve stated objectives (see reference). In case of industrial
decentralization, GTP does not contain programs of rural industrialization.
It is beyond the scope of this article to discuss the reform packages of green revolution,
industrial decentralization and population policy: What should be done? How it should be
done? Who should/could do it, and how it can be adopted to existing policy framework. For
the purpose of illustration and examples, I will make a list on the question “how it should be
done” (limited again to employment generation and productivity levels):
• First, state-led green revolution (meeting the demand for green revolution by the
regional state and private entrepreneurs).
• Second, irrigation led green revolution by smallholder farmers in areas of comparative
advantage
• Third, rural industrialization as related to green revolution inputs (for creating
horizontal linkages). The demand for agricultural inputs depends on the stage of green
revolution itself.
• Fourth, food processing industries in small towns (to link agriculture and
manufacturing through agro-industries)
• Fifth, institutional reforms (land reform) for the purpose of resource reallocation
particularly in areas where labour density per cultivated land is high.
• Sixth, to speed up division of labour and specialization both in the agriculture and
small manufacturing sector, focus on human capital development. Increasing returns to
scale depends on specialization and division of labour among smallholder agriculture.
• Parallel with these reforms; introduce institutional changes (around market factors as
an example) and programs of fertility decline to speed up capital accumulation needed
for green revolution and rural industrialization.
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I do not have space and time to discuss further the macro and microeconomic policy
instruments (incentives and disincentives) required to realize the different process. My own
study on the consequences of rapid population growth in Ethiopia and historical case studies
of China and India shows that there will be no growth and economic structural transformation
in Ethiopia without the policies of green revolution and industrial decentralization.
To conclude, given the severity of the country’s economic problems there is very little
discussion about development policy. Instead what we have is more of split political
discussion and debate. I believe that governance by democratic institutions and political
stability are necessary to all policy performances. I think there is a broader recognition across
the political spectrum, both in the government and opposition parties. As I see it the economic
problem of the country is recognized but it has not yet matched by a corresponding discussion
on alternative development policy options.
For comments I can be reached at tsegaye.tegenu@epmc.se

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