Rethinking Ethiopia’s Growth and Transformation

By IndepthAfrica
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Nov 7th, 2012
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By Michael Street

The environmental management of this vital water tower of Africa, with its implications for global security, is among the most pressing issues of our time. No one could have been more aware of the enormous challenges than Meles Zenawi. The late prime minister’s core message was that tomorrow’s problems cannot be solved with yesterday’s thinking.

MELES ZENAWI’S TWO VISIONS OF ETHIOPIA

Following the death in August of Ethiopia’s prime minister, Meles Zenawi, the International Monetary Fund has made polite suggestions to the new leadership regarding elements of the country’s 2011-2015 Growth and Transformation Plan. The GTP, a brainchild of Mr Meles, is a crucial and extremely ambitious stage in a process aimed to transform Ethiopia into a middle-income nation by 2025. The IMF is urging caution in certain sectors. “I think there’s a need to rethink some of those projects a little bit to make sure that they don’t absorb all domestic financing just for that project”, IMF country representative Jan Mikkelsen told reporters in Addis Ababa on 13 September. “If you suck in all domestic financing to just a few projects that money will be used for this and not for normal trade and normal business.” Mr Mikkelsen did not specify any particular project.

This adds to previous concerns of the IMF and World Bank on Ethiopia’s macroeconomic situation. On leaving his post in 2011 World Bank country representative to Ethiopia, Ken Ohashi, wrote that Ethiopia risks “getting into serious problems” in its head-long rush into “aggressive” publicly-funded, capital-intensive projects that constrain local demand and “crowd out” private business. “On debt there is a danger,” Mr Ohashi wrote. “If this public investment-led growth at some point really stumbles or stagnates for a while then all these debt equations could unravel.”

Such concerns over aspects of the GTP have also been expressed by many Ethiopian economists as well as academics from other fields. The US$ 4.5 billion Grand Renaissance Dam on the River Abay or Blue Nile – “Africa’s greatest dam” and Ethiopia’s most ambitious project to date – has been singled out by many for particular attention. Egypt and Sudan, who will be exposed to most risk from the dam, have been the most outspoken. The GR dam is only one of a series of controversial, mega-scale projects – including more dams, farms and sugar enterprises encircling the plateau – which form a substantial part of the $79 billion, 5-year GTP.

Comment on Ethiopian affairs by foreigners has often been regarded with suspicion by the famously independent Ethiopians. Mr Meles was particularly dismissive of Mr Ohashi’s macroeconomic analysis. Responses to the recent IMF suggestions range from polite rejection by the new government, to outright hostility from others who see this as an international, imperialist conspiracy linking the IMF with an ancient Egyptian plot to control the waters of the Nile. Yet there are other Ethiopians, no less proud of their country, who are pleased that the IMF has spoken out to give more weight to their own grave and urgent concerns about where Ethiopia is heading with its GTP.

Ethiopia’s government says it will not reschedule construction of the GR dam. Communications Minister Bereket Simon, who co-chairs a fundraising committee for the project, said of the dam, “It was a well-considered plan and it is one of the mega projects for which the government commits itself unconditionally.” Ethiopian officials have vowed to implement the industrialisation program of Mr Meles and will finance the dam through the sale of bonds, primarily to Ethiopians. More than any other project, damming the mighty Abay symbolises Ethiopia’s hoped-for Renaissance. “This is the brainchild of the late prime minister and we want to show commitment to his vision,” Mr Bereket said.

However, the Growth and Transformation Plan – with the GR dam as its centre piece – is only one part of Mr Meles’ greater, green vision for Ethiopia. The country’s National Program of Action (NAPA) to adapt to climate change was initiated in 2009, followed by the Climate Resilient Green Economy Strategy launched in November 2011, the first of its kind in the world. Aimed to restore, protect and develop Ethiopia’s ravaged environment and build a balanced, carbon free economy by 2025, the $150 billion CRGE, as “the path to sustainable development”, will naturally stem from the ground-up, building on green growth achieved over the past 20 years and exploring new green fields. In his speeches of the last few years Mr Meles expressed with increasing conviction that “the future of the world is green” and the green economy is the only viable route towards “Africa’s structural economic transformation.”

In his vision for Ethiopia’s Green Renaissance, Mr Meles hoped that the mega-scale strategies of the GTP would “supplement” his long-term commitment to sustainable development through commercial smallholder farms, ambitious environmental rehabilitation programs and a green technology revolution. His greatest challenge was to coordinate the two apparent opposites: the top-down strategies of the Growth and Transformation Plan with the ground-up strategies of the Climate Resilient Green Economy. This challenge, now passed on to the new government “committed to his vision”, cannot be overstated.

History shows that Ethiopia’s lowlands where many of the multi-billion dollar projects are taking place – including the GR dam – are difficult and costly places to manage and control, let alone ‘develop’. The environmental, social and economic transformation of these precarious landscapes in such hostile climates on the scales envisaged by the GTP could have unintended consequences of equally large scales across Eastern Africa, the Horn and Southern Arabia all the way to the Middle East and beyond. In an increasingly volatile and uncertain world where worse-case scenarios must always be considered, Ethiopia’s new government, led by Hailemariam Desalegne, faces important questions. Are the concerns of outsiders like the IMF and the World Bank worth listening to? Should the government consider “rethinking” elements of the GTP? And what are the risks if they don’t?

THE HIDDEN COSTS AND RISKS OF ‘BROWN’ DEVELOPMENT IN ETHIOPIA

Since independence, African leaders responsible for the welfare of millions of impoverished and vulnerable people have insisted on ‘development at all costs.’ While this once seemed justified, some of those costs, or trade-offs, have become so high that development may never be achieved. The problems arise from not being able to measure and therefore mitigate those costs. One of the major failings of the development model inherited by Africa is an accounting system that measures economic success by gross domestic product, a simple calculation that does not include externalities or ‘hidden’ costs and therefore tells us nothing about sustainability. Many of the world’s top economists are calling for “an end to the fet1sh with GDP.” The UN’s 2010 study of The Economics of Ecology and Biodiversity (TEEB) was a great international leap forward for green accounting as a way to assess “the global economic costs of ecosystem degradation and biodiversity loss, and to recommend solutions to policymakers, administrators, businesses and individuals.”

The reason why the IMF, World Bank and an increasing number of global institutions, organisations and individuals are concerned with the mega-scale elements of Ethiopia’s GTP is because the hidden costs of these 20th century development strategies are now well-known, there are more of them and they are increasing as the planet heats up, populations rise, resources are depleted and eco-systems break down. Between 1960 and 1990 the high carbon, resource intensive, ecologically degrading and socially divisive ‘brown’ development model incurred costs in Africa, and especially Ethiopia, which were rapid and severe. Risk management at the time was unknown. Billions of dollars’ worth of investments across the continent were abandoned resulting in billions of dollars of debt and millions of starving or destitute people. Many countries suffered more than a “lost decade.”

Economies of scale, as we know them, are notoriously difficult to achieve in Africa’s unpredictable and often hostile conditions. In addition to the potentially huge environmental, social, cultural and geo-political costs of Ethiopia’s export-driven, mega projects there are economic costs. Some result from the siltation of reservoirs and irrigation systems (“the cancer of dams”), water losses through high evaporation rates, virtual water losses through inappropriate crops, salination, degradation of soils and a host of virulent tropical diseases – plant and human – leading to well-documented inefficiencies and diminishing returns. Others arise from project cost overruns, rising input costs and fluctuating export prices over which Ethiopia has no control. On a local scale valuable traditional economies, or external benefits, can be quickly wiped out. On a national scale there are economic costs pointed out by the IMF, World Bank and others – a crowding out of private sector investment and a slow down in household consumption against a back-drop of accelerating and possibly unsustainable public debt.

Economic costs to investors can also be incurred through a form of unintended ‘financial repression’ when the return on government bonds at, say, 6 per cent for the GR dam is less than inflation which soared to more than 40 per cent in Ethiopia in 2011 and is hovering around 20 per cent. Also, the rising displeasure of lowland Ethiopians who feel they are being sidelined in the development of their ancestral lands, and the recent rumour that Egypt and Sudan are collaborating on a plan to bomb the GR dam, which lies only 40 km from the Sudanese border, raises the possibility of massive economic costs for security.

There are other major risks in the large-scale strategies of the GTP. In this geologically active part of the world the seismic risks to dams are particularly high and have been well-documented. Also the 20th century dream of exporting hydro-power to Djibouti, Sudan, Kenya and even Egypt – some of the sunniest countries on earth – could be short-lived as a new generation of leaders in those countries, with a new generation of solar technologies, are more likely to produce their own endless, cheap and stable supplies rather than rely on precarious and inefficient hydro-power transported for thousands of kilometres across hostile lands from Ethiopia’s diminishing rivers. One long dry spell like the Great Drought of 1968-73 which ravaged the African Sahel, including
Ethiopia, could severely impact revenues of the water-intensive projects of the GTP. Climate change can only make things worse.

Another potentially expensive strategy of the GTP is to settle Ethiopia’s many pastoralists and bring them into the “modern” economy. This return to “villagization” is another controversial aspect of Mr Meles’ 20th century vision where the government still sees the pastoralists as “backward”. In Ethiopia where up to 70 per cent of the land is already subject to desertification and therefore increasingly difficult for agriculture, the knowledge of the pastoralists, which make up 15 per cent of the population, will have to play a major role in Ethiopia’s 21st century green economy in ways we are only beginning to understand.

Another looming 21st century cost is the opportunity cost of failing to achieve Mr Meles’ green vision by locking up billions of dollars, millions of people and vast eco-systems in the 20th century brown technologies and economics of the GTP (the Grand Renaissance dam was conceived and designed in the 1960s). If the brown economy with all its costs and risks dominates Ethiopia, green investors may be difficult to attract, a historic opportunity will be lost and Mr Meles’ green vision will remain just a vision.

The mega-scale strategies risk another opportunity cost of keeping Ethiopians (government officials and citizens) locked in 20th century thinking. Most Ethiopians, including the opposition and the Diaspora, seem to be supportive of Mr Meles’ mega projects, particularly the GR dam. They are buying bonds, convinced of the benefits of the dam and immensely proud that Ethiopia’s ancient dream of controlling the Nile is being fulfilled. Some Ethiopians have compared the country’s mega dams to the great obelisks of Axum as expressions of national strength and pride, forgetting perhaps that archeologists are still debating how long the two largest obelisks stood before they collapsed, or even if they stood at all because the foundations were inadequate for the scales.

If the GTP mega projects are the ‘magic bullets’ of Ethiopia’s 21st century development, like those of the 20th they could also misfire and it may not be long before mega white elephants appear on Ethiopian horizons. In Ethiopia most large-scale developments of the post-colonial model were a disappointment. In many cases the hidden costs were so high that returns on investment were zero. At the June 1992 Lem, or Green, Meeting in Addis Ababa, Mr Meles in his first green speech, said the “top down” and “irresponsible” development strategies of the previous government had cost Ethiopia dearly. The big question is whether today’s top-down decisions are any more responsible than those made by the Dergue 30 years ago.

In a rapidly changing world where global business executives are leading the call for us all to ‘innovate or die’ this might be the time for Ethiopians, who are among the most vulnerable people on earth, to ask themselves whether 20th century brown development strategies will give them a resilient 21st century green economy and middle-income status. Can the people of Ethiopia afford projects that are ‘too big to fail’ when the hidden costs of some of them could result in just that?

In 1992, surrounded by the wreckage of irresponsible development strategies of the previous regime, Mr Meles and Ethiopia embarked on a greener journey. Twenty years later it is becoming increasingly clear that the external costs of a GDP-based brown economy in Ethiopia can no longer be hidden and are potentially enormous. Across Africa one of the most glaring of those costs – inequality – is spreading fast and in some places to dangerous levels. Even with Mr Meles’ extraordinary influence, intellect, energy and vision the successful coordination of the top-down strategies of the GTP with the ground-up strategies of the CRGE, on so many diverse and challenging fronts, may not have been possible.

With the planet in peril and the global economy lurching from one crisis to the next, Ethiopia’s new leaders have an opportunity to “show commitment” to Mr Meles’ greater, greener vision and “rethink”, as the IMF suggests, some of the strategies of the GTP. If not, the costs of those strategies could quickly outweigh the benefits turning Ethiopia’s hoped-for Renaissance into another historic decline.

“SOMETHING BEAUTIFUL” FOR AFRICA AND ETHIOPIA

With the stakes so high words of caution for Ethiopia come not only from the ‘imperialist’ IMF, World Bank and their allies, but also from China, Ethiopia’s most important new partner whose state-led, development model inspired Mr Meles and much of the GTP. At the World Economic Forum on Africa held in Addis Ababa last May – Ethiopia’s Moment – Gao Xiqing of the China Investment Forum warned Mr Meles: “Do not necessarily do what we did”. Policies of “sheer economic growth” should be avoided, he said. “We now suffer pollution and an unequal distribution of wealth and opportunities…You have a clean sheet of paper here. Try to write something beautiful.”

Since the 1992 Lem Meeting and the concurrent Rio Summit in Brazil, the first chapter of “something beautiful” in Ethiopia and in Africa has been written. It could be called Africa and the Green Economy and Meles Zenawi was one of the main authors. Africa’s Consensus Statement to the Rio+20 Summit last June is a summary of that chapter. If one of the greatest achievements of Rio+20 was recognising the need for a global green economy as the only viable path to a sustainable future – for us all – one of the greatest disappointments was not recognising that Africa has the potential to take the lead. Africa, where the brown economy is least developed, is where growth in the green economy can be easier, faster and cheaper.

If Africa, as Mr Meles once said, is a green field for investment Ethiopia is one of the greenest parts. In the past 20 years under his leadership Ethiopia has laid the green foundations and earned the green credentials to play a major role in accelerating the journey towards a green economy in Africa and the world. The Cradle of Mankind holds clues not only to our past but also to our future. The next chapter of “something beautiful” can now be written on Ethiopia’s clean sheet of paper.

In “An oak falls and the forest sways” – an assessment of Mr Meles’ legacy – the October Africa Report demonstrates the complexities and wide-ranging challenges surrounding Mr Meles’ succession. The report suggests that the west, led by the US and Britain, might exploit the vacuum created by his absence by pushing the new government for political reform. While reform in Ethiopia is necessary, as it is worldwide, the emphasis on top-down change in Ethiopia at such a critical stage in the country’s development risks not only destabilising an already fragile situation but also losing sight of the more immediate opportunity for changing the situation from the ground-up, in economic development strategies where revolutionary, democratic decision-making is most urgently needed and can be most readily advanced.

Ethiopia, Africa and the world are at a cross roads. The redundant brown economy, which ignores the hidden costs of economic growth, is having its last big push in Africa, the final frontier. Ethiopia’s mega projects – dams, farms and sugar enterprises – are among the most potent symbols of this push, driven by a 20th century hope that they will bring ‘development.’ Foreign critics of Ethiopia’s mega projects are often accused by Ethiopians of wanting to keep the people hungry and in the ‘dark ages.’ While there have always been foreign agents wishing to keep Ethiopia down the irony is that the hidden costs of the mega projects might turn the suspicion into a self-fulfilling prophecy.

If the Congo forest is the planet’s 3rd lung the great, green Ethiopian plateau with its fertile lowlands is another essential part of the organism supporting millions of people, countless species and effecting global weather patterns in ways we might not yet understand. The environmental management of this vital water tower of Africa, with its implications for global security, is among the most pressing issues of our time. No one could have been more aware of the enormous challenges than Meles Zenawi.

After 21 years of Mr Meles’ guidance, Ethiopia is poised for a Renaissance that could be green and therefore meet the great challenges ahead. The late prime minister’s core message was that tomorrow’s problems cannot be solved with yesterday’s thinking. With that in mind this might be the time for everyone to have a rethink of Ethiopia. Creative engagement on the green economy between Ethiopia and its global partners at this critical time is a historic opportunity that cannot be missed.

About the author:
Michael Street’s connections with Africa began 40 years ago. In the 1970s and 1980s he worked in a number of African and Asian countries as a ‘brown’ development expert on various agro-industrial projects. He first visited Ethiopia in 1975. During the 1990s and early 2000s he travelled extensively in Ethiopia and lectured widely on the country’s history and ecology. Since 2001 he has been based in Sicily where he is establishing two small biosphere reserves as part of an initiative to understand and expand Sicily’s green economy. For the past five years he has been exploring the green economy in Africa.

He blogs at http://workingtowardsagreeneconomyinaf.blogspot.co.uk/

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