Book Review: A Blind Alley

Arekebe Oqubay (PhD) should be congratulated for a job fairly well done in his book titled, Made in Africa: Industrial Policy in Ethiopia. Whatever the merits of the book, the fact that an insider of the EPRDF can write a book of this standard is quite a revelation on its own, writes a macro-economist whose name Fortune withheld upon request.

The 384-page book is divided into eight chapters, most of them titled with sensational phrases. The first 60 pages of Arkebe’s book dwell on reviews of different literature but I want to focus only on the remaining chapters. This is not without mentioning the tenor of various blurbs written by well-known and qualified scholars.

One of these reads: “This is a profoundly original book. I think there is no better example than what is happening in Ethiopia, one of the fastest growing economies in the world.”

Another preface worthy of a good blurb by would-be Blurbist-in-Chief, President Barack Obama, “Ethiopia is a development miracle in the making.”

Reading all these laudatory remarks, Arkebe and his readers would rather only benefit from a focus on the shortcomings of his book. As if on cue, Arkebe begins in Chapter One of his book to heap praises on Ethiopia’s economic achievements in which his sense of leadership has not been inconsequential. He says, “The country has made spectacular leaps on multiple development fronts in recent years. Ethiopia has recorded double digit economic growth for a decade, quadrupling its Gross Domestic Product (GDP) per capita. This much discussed performance is partly the result of the country’s distinctive development path and bold experiment in industrial policy which is unlike any other in Africa. Few other countries on the continent have tried to implement an active developmentalist industrial policy.”

It is widely acknowledged Ethiopia has made some developmental strides in the past few years during which the former Prime Minister, Meles Zenawi, (though Arkebe appeared to have preferred not to give him credit), single-handedly crafted the country’s development discourse. However, to portray the country’s growth as “distinctive” and a result of bold “industrial policy”, is a more of development propaganda than one based on rigorous evidence and factual analytical findings.

Hyperbolic claim of a double digit growth is based on fabricated and doctored GDP statistics collected and collated by the Central Statistics Agency (CSA) which lacks professional independence. A close scrutiny of the national accounts reveals the data are full of double counting and inconsistency.

This year alone the Prime Minister came up with two different figures to depict the dramatic output increase in the agricultural sector. In one accession he claimed the total production of the sector had reached 200 million quintals. Less than two months later, he publicity announced that the total agricultural output had reached 252 million quintals. As a result, both the IMF and the World Bank have stopped using the face-value GDP figures after concluding that the CSA data are full of speculation and exaggeration. Even those individuals who produced the National Accounts failed to convince IMF’s experts on a number of occasions.

The dubious “double digit” growth figures also neglect the runaway inflation and do not factor into account the fact that over 2.5 million Ethiopians are born annually, which strips away any magical growth the country could have. There should have been a thoroughly investigated GDP calculation and Arkebe needed to look into alternative sources of data to come up with a credible GDP estimation.

Again Arkebe’s ‘distinctive development’ path is a bit exaggerated in a country where over 30 million people live in abysmal poverty and the literacy rate is the lowest in Africa. If Arkebe calls the recent infrastructure boom “distinctive”, the reality is absolutely nothing of the kind. While the rapid growth in infrastructure is very much appreciated, calling it distinctive is a misdemeanour to say the least. There is of course nothing distinctive about Chinese and Italian built roads, railways, and dams. They do it all over the world for a good fee.

What would have been ‘distinctive growth’ is if the country had witnessed a robust increase in agricultural output, rapid expansion of agro-industries, a vibrant manufacturing sector, and a move from low productivity to a moderate or high productivity industrial sector. Arkebe, in fact, cites some of the existing major industrial projects or those pending, singling out Ziway Winery, flower farms in Ziway, the Eastern Industrial Zone (a typical Chinese endeavour), the Huajian Shoe Factory, the Turkish textile and garment companies, and the UK Pittards Glove Factory to mention just few.

However, these are Arkebe’s major industrial projects in nearly 25 years, which can without exaggeration be counted almost on the fingers of one hand.

In contrast, there are credible estimates which demonstrate, provided an appropriate enabling economic environment is put in place with strong institutional capacity, there could be 150,000 micro to large scale projects in Ethiopia, many of which can be industrial projects or start up businesses.

Yet Arkebe claims on Page 61, “The government has since adopted a Growth & Transformation Plan (GTP) that aims for rapid growth and structural change and promotion of industry as the leading sector of the economy by 2020. The overriding objective of the GTP is to make Ethiopian a lower middle income country by 2025. This ambitious mission and strategy entails pursuing an appropriate industrial policy.”

The implementation of the GTP has been awfully dismal. A recent estimate has revealed that the overall implementation of the plan is between 30pc to 40pc. The GTP, which is more of a political statement than a serious plan, lacks key policy instruments critical to implement the plan. Lack of leadership, weak institutional capacity, inadequate finance and rampart corruption are the major reasons behind its poor implementation.

The author of the book lacks the brazen audacity to make a bold statement about the factor that contributed to the low performance of the GTP. Instead, he concluded the discussion saying, “there is a need to both extract “lessons” and acknowledge and engage with massive challenges and constraints Ethiopia still faces.” He should have dedicated a few more pages, if not chapters, to discuss the successes and shortcomings of the GTP with particular emphasis on the industrial/manufacturing sector.

On page 64, Arkebe parades a series of economic statistics of questionable authenticity. He claims of per capita GDP reached about 558 dollars in June 2013 (more than four times higher than in 1991 when it was 120 dollars). Capital expenditure (public investment) was 22pc of the total federal budget in the early 1990s and exceeded 56pc in 2011. Ethiopia’s budget allocation has focused on poverty reduction, agricultural development, infrastructure and human development. Military expenditure saw a significant cut to 1.1pc of GDP in 2011, down from 6.5pc under the previous regime in 1990.

Nonetheless, it is not clear if the 558 dollars per capita GDP figure was estimated at constant or current prices. Despite the 56pc capital budget share, it also indicates a reduction in private consumption and thereby crowding out of the private sector.

The reality speaks for itself on the issues of agriculture and human development. Despite a “rapid increase in grain production (270 million quintals according to the government statistics), market prices have continued to rise, unabated. The country’s import of wheat also increases each year. Similarly, the quality standards of academic and vocational education and training have collapsed so much so that current university graduates are barely functionally literate and numerate.

Arkebe transitioned in his book nonchalantly from economic overstatement to economic letdown.

Says Arkebe: “Despite government efforts to put the economy on a high growth path, the share of manufacturing in GDP remains low and the 10pc annual growth in national industrial output has not exceeded GDP growth . . . The sector also continues to be characterized by many structural constraints, such as low productivity, low value and lack of international competitiveness . . . Foreign currency shortages have become pervasive, despite the increased share of exports of three per cent of GDP in 1992 to 17pc in 2011.”

The reason for so many macroeconomic and sectoral imbalances is mainly that EPRDF’s statist economic growth strategy is heavily skewed towards infrastructure development. The painful foreign exchange shortage, despite the increase in share of exports in GDP, is nothing but a manifestation of low priority accorded to import substitution. Strangely, Arkebe goes on to say, “One major constraint on rapid growth and catch up is the inability to mobilize resources and concentrate on investment.”

This remark is in sharp contrast to a few paragraphs above where he pointed out that the “developmental state” has dedicated 56pc of the federal budget to public investment. If the failure is on the part of the private sector, then he has only his “developmental state” to blame for the crowding out effect. The root problem is thus in the distorted definition given to the “developmental state,” which in Arkebe’s book praised as “activist” rather than “facilitating.”

Arkebe tries to come to grips, in Page 79, with the main theme of his book.

He writes: “Within the broader ADLI [agricultural development led industrialization], the industrial development strategy of Ethiopia (IDSE) is the basis for the country’s industrial policies . . . The industrial development strategy aims at promoting industrial development that is export-oriented, agricultural-led and focused on employment generation through labor intensive industries.”

There are questions left unanswered in his assertion above.

How can an industrial policy be export-oriented and at the same time labour intensive? Is it possible to gain and enhance international competitiveness with labour intensive production technologies? Why ought industrial policy to be based on agriculture-led development strategy? Is it appropriate to say “agricultural-led” for “agro-industries,” and industrial development could also be based on mineral and other non-agricultural resources?

Speaking of employment generation, it is ironic that since the formulation of IDSE, Ethiopia’s youth unemployment rate has soared to 60pc.

Arkebe also states that, “planning is considered one of the tools of industrial policy and it is used with different liners of emphasis” (Page 80). Actually, economic planning under the EPRDF is not properly integrated, and lacks technical sophistication, with major development projects sometimes no more than figments of EPRDF’s bigwigs’ imagination. Several such development projects could be cited, including the Renaissance Dam, the Tekeze Hydro Power Plant, the Addis Ababa Light Railway, the Adama Wind Generated Power Plant, the planned airport, railway line and express road to be built to Hawassa. These are all demonstrations of projects built or under construction without a rigorous cost benefit analysis.

Arkebe raised (in page 82) the issue of industrial financing and the domestic banking system, which we all know to be operating on the basis of directives from the higher ups. The state-owned banks have suffered from “directed credit,” that is, credit granted on orders from above, and, one might add, “direct foreign exchange allocations;” these are subject to extensive state intervention, not to mention the rampant corruption.

In Chapter Four of his book, Arkebe’s preoccupation is with the cement industry, which claimed no fewer than 40 pages. I would argue that dwelling on a few selected sectors to this extent is not consistent with the main objective of the book. This also applies to the chapters devoted to floriculture and the leather sectors. The cement and floriculture sectors are presented as success stories while the leather sector’s performance was deemed “very disappointing.”

I believe all these sectors could have been treated in one chapter, for the objective is not to make an intensive study on the nature of each sector, its organisation, structure, backward and forward linkages, production technology, workforce, financing, marketing, and management. The aim is to identify the industrial policy instruments and special factors (such as high demand in the cement sector and the government’s drive to increase foreign exchange in the floriculture sector) which contributed to the success or failure of each sector. Mention should again be made of the need to ascertain whether floriculture is closer to agriculture than to industry, and as such, whether its treatment under industrial policy is appropriate.

The author does not state explicitly whether he is in favour of the “facilitating” type of “developmental state” or the out and about “activist” developmental state, which in the case of Ethiopia more or less simulates a command type of economy. This gap was only reinforced by another limitation of the book, its failure to provide a macroeconomic policy within which the author’s main focus of industrial policy as a sub-policy could be viewed.

The book could have come up with broad policy recommendations, a detailed industrial policy matrix, instead of dwelling too much on matters of little relevance such as the discussion on floriculture.

Nonetheless, Arkebe has displayed an extraordinary endeavour in giving food for thought on industrial policy, though the task is far from completed.

Published on Jan 04,2016 [ Vol 16 ,No 818]



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