An overwhelming confusion exists in the circle of development partners – multilateral and bilateral aid agencies, international NGOs, foundations and other non-profits – as to their role in the ongoing industrial push in Ethiopia. Partly, the dilemma relates to the long overdue operational dichotomy of the development community.
Until recently, development support was divided into two operationally unrelated areas of humanitarian support and development support. While humanitarian support relates to providing emergency assistance to shock-stricken communities, development support involved investment in the long-term benefit of the country – in the form of provision of basic services, research, and development in agriculture, investment in rural infrastructure, support to improving household food security and so forth. The budgetary line of these engagements also varies.
Emergency assistance is often financed by seasonal fundraising and from permanent emergency funds, but the developmental support comes in the form of Official Development Assistance (ODA), which, in itself, could be direct budget support or a targeted pool of finance.
Lately, though, there has come an understanding that these two operational areas are not essentially unrelated. They, rather, can be bridged through investment in building resilience and a household asset base. Hence, there is an increasing convergence in the investment pattern of the international development community, including those active in Ethiopia.
The recent shift in the policy orientation of the government, from a focus on agriculture to industry, however, has created confusion in the development community. How to align national support strategies with the new policy orientation has become the headache of the planning experts of these different agencies. And at the core of the brainteaser sits the question of where to invest.
In two of the recent gatherings I have taken part, this question has been the central point of discussion. Largely, there is a consensual understanding that supporting the structural shift of the Ethiopian economy is key to alleviating problems, such as absolute poverty, youth unemployment, household vulnerability, maternal and child mortality, marginalisation, urban decay and so on. The question is which role has to be taken by the community, ranging from the United Nations to local non-profits.
Easier said than done; this question could be addressed by combining the answers to two other key issues. What is the competitive advantage of the development community? And where is the gap?
Nonetheless, a rather new approach has to be used in answering these questions, if the outcome is to be a viable one. The new approach has to be one that embraces honesty, critical reflection, and comprehensiveness.
Looking back in history, one would find that the engagement of the development community has been haphazard and at times, unpredictable. It is not surprising to find experiences wherein the development community, both intentionally and unintentionally, acted as a replacement to the market or the state. At times, it acted as guardian of the market, while at other times it acted as protector of the state. There were also times that the community acted as either an independent referee or a bridging agent.
One could easily see this trend by looking into the experience of the community during the era of the structural adjustment program (SAP) of the late 1980s and early 1990s or the pre-election 2005 situation.
During the SAP years, the community was acting as the godparent of the market and invested much in demonising the state. In contrast, in the immediate years leading to the 2005 national election, the community acted as promoter of fundamental human rights and as an independent referee.
As the ruling EPRDFites strengthened their hold on power since 2005, including by legislating their political intents, the development community has opted to become strong backers of the state.
These twists and turns in the history of the engagement of the development community means that there has never been a stance based on either principle or research. It looks largely like a herd mentality – called complementarity, in the parlance of the community. It, however, has to be underlined that flexibility is no bad trait for a development actor. The question is on the tolerable magnitude of variability in stand, approach, and investment that such an actor has to have.
An honest reflection of this history, therefore, shows that the development community has to support Ethiopian industrialisation effort based on a rightful identification of its competitive advantages and the real gaps.
The development community has a competitive advantage in facilitating policy discussions, arranging experience sharing platforms, designing networking programs, investing in soft skills, testing and piloting new models, research, and development, education and training, creating education-industry linkage, and supporting small and medium- sized enterprises (SMEs). Capitalising on these competitive advantages would, therefore, be crucial in guiding the investment of the community.
On the other hand, the Ethiopian industrialisation process faces challenges of a poor skills base, low productivity, lack of linkage between SMEs and large industries, low product utility, and lack of qualified marketing and branding services. Moreover, it employs a traditional operational approach; has inadequate technological uptake; and suffers from a lack of networking platforms.
One could easily see that there is much to be shared between the competitive edge of the development community and the real gaps in the process. It is in this edge of commonality that the community has to play a role. It is this facilitative role that could bring a higher return on investment (RoI) for the community.
Playing a facilitative role is not about replacing the market or the state. It is also not about serving as the guardian of one or the other. It rather means helping both of these agents to play their respective roles in the industrial process.
A successful industrialisation entails the market to serve as an effective medium of transaction driven by the factors of demand and supply. Price has to be a function of the demand and supply negotiated in a smooth marketplace.
Similarly, industrialisation could not happen without the regulatory and market correcting actions of the state. A relatively fair competition in the marketplace could only happen if there is a strong state that sets the rules of the game. Remember that the perfect competition hypothesis of the economic textbooks is unrealistic, due in large part to information asymmetry.
Yet, an effective functioning of the state or the market could not happen without the human, technological and organisational elements involved. And the fact is, as shown above, there are serious gaps in these aspects in Ethiopia.
Therefore, a favourable space for the development community is to fill these gaps. Building human, technological and organisational capacities that underpin the smooth functioning of the market and the state is the right place for the community to invest its money.
Building capacities at different levels, as Nobel Laureate Amartya Sen argued in his historically revolutionary theory of capacities, is key for economic growth and structural transformation. In the light of this, industrialisation is such a demanding process. It requires building production capacities at various tiers of the economy – from individuals to firms. Both the state and the market lack the incentives to invest in these capacities. And they also lack the competitive advantage.
In contrast, the development community has both the incentive as well as the capability to invest in this prevalent gap. While the incentive comes from the value-for-money factor attached by the financiers of the community, including taxpayers in the West, the competitive advantage emanates from the cumulative knowledge and networks the community has built over its centuries-old involvement in the global development arena. Combining the two and crafting targeted interventions is what needs to come as the confusion withers away.
By way of acting on the real gaps of Ethiopia’s industrialisation, through leveraging their cumulative competitive advantage, development partners could leave lasting marks in the structural transformation of the Ethiopian economy. And it is worth it!
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