It was a couple of years into the first edition of the Growth & Transformational Plan (GTP), and a year into the passing of the strategy’s chief enthusiast, the late Prime Minister Meles Zenawi, that the National Planning Commission was established. It aimed at overseeing the implementation of the government’s ambitious successive five-year development plans. They will stretch into 2025, by which time Ethiopia is expected to become a lower middle-income economy.
But a mere two years before the end of the second edition of the GTP, the Planning Commission finds itself working on a new 15-year national strategy, incorporating the first plan. Expected to be drafted by the end of the current fiscal year, and come into effect therein, it is supposed to go side by side the ongoing GTP II, and its successor third edition, GTP III. And in drafting this document, it would be all too unfortunate if the goal and ambition are to continue to buoy development through state funding, and not institute structural changes that could serve as a foundation to a vibrant private sector and let autonomous institution take root in the whole system.
Rhetoric though signals movement in the opposite direction. At the end of GTP I, Prime Minister Hailemariam Desalegn invited Getachew Adem, state minister for the Commission, to the conference centre of the Economic Commission for Africa (ECA) for a consultative meeting with political parties. There, Getachew would assert that the recorded rapid economic growth in the first half of the decade was a consequence of the government’s developmental strategies, also the long-held ideological underpinning of the ruling party, the Revolutionary Democrats, as outlined by Meles.
With that encouragement, the developmental strategy continues well into to the second edition of the GTP to realise Ethiopia’s economic competitiveness. As if finance was not a concern, the government’s budget has by the current year reached 320.8 billion Br, almost 17pc higher than the previous year. While the bulk of the budget was allocated to subsidise regional states, and the chartered city, Addis Abeba, and of Dire Dawa, a little less than that, 115 billion Br, was set aside for capital expenditure.
Similarly, external debt has grown by about two billion dollars since the start of the second edition of the GTP to reach over 23 billion dollars, almost equivalent to a third of the 2016 gross domestic product (GDP).
But, GTP II has not merely been costly; it already shows signs of faltering. It is leaving a lot to be desired where implementation capacity and the setting of pragmatic, well thought out, strategies in realising good governance and a competitive economy are concerned.
The most famous of the first and second GTP goals have been an annual double-digit GDP growth rate, which for the latter has been to maintain it at 11pc. But for the last two years, growth has been in the single digits, according to the International Monetary Fund (IMF), blamed on unrests that have reduced investor confidence, stagnant export revenues and a devastating drought. And despite a forex crunch, average crop productivity and, of course, disappointing export earnings, the Ethiopian government contends that last year’s growth rate was 10.9pc. In any case, the UNECA projects that any African country should aspire to register no lower than 15pc in GDP growth to overcome the ongoing youth bulge and demographic trap.
Macroeconomic instability has been the primary cause here. A significant component of that has been the prices of goods and services, which the government is repeatedly trying to put a handle on. The 2015/2016 El Nino-induced drought had driven inflation to double-digits, but that was brought within the government’s targets, holding up for a couple of years before prices jacked up again only a short time before the devaluation of the Birr by 15pc last October.
And it even got worse in November, where headline inflation stood at 13.6pc compared to the same period last year, with food inflation at its highest in over half a decade at 18.1pc. All of this is despite a series of policy measures by the central bank to limit the money supply and put a plug on the inflationary pressure.
Add to this a widening trade deficit, which puts the government’s target of ensuring macroeconomic stability in tatters. Forex reserve cannot cover two months of imports, and state enterprises in charge of the commanding heights of the economy, from Ethio telecom to Ethiopian Shipping & Logistics Services Enterprise (ESLSE), have felt the effects of the lack of hard currency.
More critically, the government’s favoured forex regime, which has necessitated the prioritisation of forex allocation, has become a source of frustration for businesses, hampering private sector competitiveness.
Credit, though, has to be given where it is due. The structural economic transformation has been relatively successful in shifting the Ethiopian economy from one that is low productivity, subsistence in this context, to high productivity, that is manufacturing. Although it is the service sector that dominates the economy, the industry was the fastest growing, expanding its share of the GDP by 18.7pc, almost thrice of agriculture.
Unfortunately, this is unlikely to propel the country to lower middle-income status by 2025. Not with the mediocre implementation capacity of state institutions, best exemplified by the sorry success rate of the sugar development projects. Five of the planned 13 sugar factories can meet just half of the country’s demand, let alone fulfil GTP I’s objective of earning over 660 million dollars from the exports of the commodity.
The ambitious 2025 goal will be even harder with a weak and discouraged private sector that only benefits from half the credit state-owned enterprises receive. Or where private banks, whose 99.9pc of loans went to finance the private sector last year, find themselves regulated to correct the central bank’s untimely policy decision of devaluing the Birr.
It should be no wonder that the IMF doubts the nation will join the club of lower-middle-income countries within that time frame.
Thus, the new, unnamed national policy that is in the works by the Planning Commission will not be short of lessons in setting a strategy. And in designing the plan, those experiences, what constricts the economy, and what allows it to flourish, should be paid close attention.
Pivotally, it should strive to create a sustainable economy, less by injecting money into the economy and pushing the nation further closer to a debt crisis, and more by laying structural and institutional foundations for the private sector to thrive. The administration of Prime Minister Hailemariam should come to terms that it is time to let it go. Creating the independent and accountable institutions the GTP II alluded to should become centrepieces this time around.
A mechanism of performance monitoring and audit over what has been planned and instruments of accountability for failure to meet goals should be placed as an integral part of the plan in the making.
Most of all, the new national policy should not be captive to the Revolutionary Democrats’ ideological mainstay that is developmentalism. Such logic that decreed the state should play a heavy hand in dictating the fate of the economy should not be allowed to overshadow the importance of having an economy that is conducive to businesses, chiefly small and medium-sized enterprises (SMEs).
If that is not the case, it would just be a repeat of the GTPs. The policy can only make sense if it strays from the growth model that has been reflected in the first and second GTPs and be predicated wholly on the endeavour to create a free and fair market economy. Anything less than this, as far as the economy is concerned, is redundant.
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