New Dawn for Labour Market, Enhanced Productivity

As Ethiopia’s population galloped to over 90 million, supply constraint has been the primary flaw in the economy for at least the past two decades. Most of the government’s policies, from high public debt, foreign exchange allocation prioritisation to a recurrent devaluation of the Birr are all symptoms of a state desperately trying to skirt around the problem. The Revolutionary Democrats, forever pomp about making Ethiopia great, have rarely found the courage to tell the public the economy is not productive enough, lest it is competitive.

Of course, in pointing the finger at the public, the government would have three fingers directed right back at it. Tough, impactful reforms in policies have been of little interest to a party that desperately needs to appeal to voters, if not through a buoyant political climate, then by lax labour policies that play right into a poor working culture allowing little competition, and thus productivity.

It appears no more. Authorities at the Ministry of Labour & Social Affairs (MoLSA) have chosen to amend the country’s labour law, which has for too long been a source of frustration to employers. If the evidence for this is not empirical, then the outcry it faces from labour unions is a better indicator. It has set the Ministry on a collision course with the Confederation of Ethiopian Trade Unions (CETU). The embattled Confederation, in its general assembly, put forward 18 points that it believes unnecessarily impinge on the rights of employees and should be addressed. Otherwise, Kassahun Follo, president of the Confederation, warns a nationwide labour strike would follow.

Labour leaders’ main contention with the recent amendments is the lack of consideration for the economic and social circumstances employees are faced with. It one-sidedly argued, for instance, that it would be unfair to ask employees on notice not to be tardy to work, for more than two days a month, given the lack of reliable transportation during working hours. Or that raising the probation period does not have any benefits except to serve as a psychological burden on members of the labour.

In a nutshell, the amendments are unnecessary at a time when foreign direct investment (FDI) is flowing into the country, at least according to the unions. In their eyes, the bill incorporates the worst of experiences from other countries’ labour laws such as Vietnam and Indonesia, countries Ethiopia’s nascent textile industries aspire to compete with. Labour leaders argue the provisions in the bill do nothing but degrade the worker and are an antithesis to, well, the labour force.

Indeed, it is true that the bill makes the labour market more flexible. Doubling the probation period to 90 days does make it easier for employers to evaluate recruits better if not hire and fire at ease. The fact that companies do not have to pay severance pay for just any employee that has completed the probation period except under the specific circumstances set forward by the bill or a reduced annual leave are hostile to the labour force. And empowering employers to discharge an employee for an absence deemed inadequate (with the Union rightly asking for more detail on what the term entails), down from what used to be five consecutive absentee days, would do likewise.

The outcry, though, is based on misguided rationale.

As the unions point out, FDI has undeniably grown, in fact having outshined African economic heavyweights such as Nigeria, South Africa and Egypt, according to a study conducted by the Control Risk Group Holdings and Oxford Economics. Last year alone, over three billion dollars in overseas investment came into the country, a figure twice that of Morocco’s.

And the consecutive annual growth for most of the current decade has summed up to make Ethiopia the eighth largest economy in Africa in 2016,  as compared by the International Monetary Fund (IMF) using each country’s gross domestic product (GDP). These parameters though may not be adequate indicators of a country’s productivity; that would be GDP per capita, which can be calculated here by taking the nation’s total output and breaking it down for each of Ethiopia’s close to a hundred million people. The figures this time around tell a different tale, where the nation comes out 35th amongst its African peers.

What this shows is that productivity in Ethiopia has yet a long way to go. And if a new labour bill that looks to attract even more FDI was to alight, the time is ripe. The standard of living is increasing in both China and India, according to the United Nation’s human development index, which is an aggregate of a country’s life expectancy at birth, income levels of individuals and years of schooling. This means both the Chinese and the Indians will be expecting more wages from employers. Investors that are running from high costs will thus be looking to other countries where labour is cheap, like those in Africa. But it would not mean less productive or unruly.

If the administration of Prime Minister Hailemariam Desalegn wants to make a success of the opportunity by keeping the labour law flexible for employers to hire and retain a duty bound, disciplined and productive labour force, it is right. If the Revolutionary Democrats are thus able to create a politically stable environment and a sturdy economy by empowering institutions, encouraging credit for the private sector, make increased use of public-private partnerships to reduce debt while also holding on to a steady growth rate, then there is a real opportunity for a bulls-eye.

Of course, labour laws should also look out to ascertain the rights of employees. Women’s maternity leave should be both paid and extended. The legal working age has rightly reached 15 from 14 in the new bill, and there is more detail to what exactly entails workplace harassment – some points the Union has no beef with.

The amendment, though, will only be economically sensible if there are reforms in areas outside labour. It is critical to note that either FDI or home-grown investments need not just focus on the industry sector. There is service, which currently makes up almost 40pc of the country’s GDP. Although the labour law was drafted in 1993 to fit a market-oriented economic structure in mind, merely making labour law fit into employees’ taste will not incentivise them to hire more, reduce the 16pc unemployment rate or create corporate competitiveness in these areas.

The nation should not be limited to just low-cost labour as the sole means of attracting investment. This needs to change in a manner that also takes the standard of living into consideration. FDI needs to be diversified, especially into the service sector. But for this to happen, there needs to be a labour force that is educated, innovative and can lure investment because of its skills.

The solution for this would be to reform the education system so that it becomes a hub for innovation. This could be by setting up a threshold upon which the various publicly owned universities can get funding for research and development. The measure will ensure competition among them and protect against institutional failure.

Another is by allowing universities to pick their own parameters upon which they accept students, which could be extracurricular activities. Removing the national curriculum, so that higher learning institutions can experiment is not a bad idea either. Improving colleges and universities would also help to curb the human capital flight from Ethiopia to more developed countries, especially if push factors are removed by endorsing individual liberties and inviolable institutions.

As there always are more employees than employers in any given country, though, labour law reforms that are in the latter’s interest, even though advantageous in the long run, are unpopular and politically ruinous for any party involved. Despite Hailemariam steering clear of it during his briefing to parliamentarians two week’s ago, the new bill will not go down well with the public much like last month’s devaluation of the Birr by 15pc.

But unlike that regrettable decision, smoothening the labour market for investment is the most comprehensive policy instrument yet to undercut Ethiopians’ poor working culture. Labour leaders, knowing well the pathetic nature of the nation’s labour force, should not be allowed to take the economy captive

Published on Nov 05,2017 [ Vol 18 ,No 915]



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