Too Much State Unhelpful to Rapid Industrialisation

Consuming a projected cost of 246 million dollars, or part of it to date, and planned to be inaugurated just about a year since construction started, Hawassa Industrial Park (HIP) was meant to herald today, July 3, 2016, a shift in the country’s march to industrialisation to the fast-lane. The inauguration was cancelled last minute, but the country keeps ahead towards raising the share of the industrial sector in the GDP to 27.3pc by 2025, from 14pc at the end of the first edition of GTP I, in 2014. A flagship project of the Industrial Parks Development Corporation (IPDC), Hawassa’s is just one of many similar public-financed projects estimated at 30 billion Br.

In the next 10 years, 20 million square metres of factory floor space, in locations across the country, will be serviced with industrial-scale infrastructure. The parks will be developed on 100,000ha of land. Under the IPDC, the Addis Industrial Village and the Bole Lemi Export Processing Zone are already operational. The Corporation is currently developing the Qilinto Industrial Park and plans to develop such parks in Dire Dawa, Meqelle, Kombolcha, Adama, Bahir Dar and Jimma. Just to speed things up, the Ethiopian Electric Power has recently entered two contracts for the supply of separately dedicated sub-stations for Dire Dawa and Kombolcha.

While IPDC, under the watchful eyes of Arkebe Okubay (PhD), chairman of the Board, is in full swing implementing its plans, a similar initiative, which has been warming up shelves as a proposal, seems to be gaining traction of late. Spearheaded by the Ministry of Industry (MoI), after two years of silence from the first round of engagement, 13 specialised agro-processing industrial parks are in the loop and are estimated to cost 1.5 billion dollars. Four of these mega parks are planned for completion in the next five years in the Amhara, Oromia, Tigray and the Southern Nations regional states, at a cost of 900 million dollars. The Ministry has plans for an international investment forum aimed at mobilising additional private investments in light manufacturing, for later this year.

Another player in the contextual mix is Metals & Engineering Corporation (MetEC), a military-industrial complex but publicly-owned in its legal standing; it is composed of more than a dozen semi-autonomous manufacturing companies and actively operates in several sectors. MetEC also has its plans for the industrialisation of the country, eyeing the establishment, in the Bishoftu area, of an industrial park designated for IT firms. MetEC, though established to produce machinery for other manufacturers and serve as a tugboat to pull Ethiopia’s industrialisation to shore, seems caught up in producing consumer goods. Ironically, all the three state-owned entities are adamant that they have the magic bullet, portraying themselves as the vanguard of Ethiopia’s transformation from an agriculture-reliant economy into industrialisation fit for the 21st Century. Already spending billions of Birr separately and planning to continue doing so in the future, all three bodies propose to bring about the structural transformation of the economy, where manufacturing industries will have a more pronounced contribution to the national GDP.

Though this sector has enjoyed a 13pc average growth over the first four years of GTP I, its base has remained narrow; it only managed to contribute less than five per cent to the overall GDP at the end of 2014/15.

Despite the tremendous amount of capital being mobilised by these three, and with no consideration of the apparently shared goal and priorities, there is a huge disconnect and lack of coordination among them. There appears to be a complete breakdown of communications, often bordering to competition between them. Sisay Gemechu, the CEO of the IPDC, which is mandated to develop and run industrial parks in the country, went on record to say they have no link with or knowledge of the Ministry developing industrial parks.

The ongoing turf war between IPDC and MetEC, and the ideological polarisation IPDC has with the Ministry is not the only strain hindering the nation from unleashing its full potential towards industrialisation. The evident deficit of a policy focus and coherence by the administration of Prime Minister Hailemariam Desalegn on what specific role each party ought to play and which path to take has left the question who is in charge unanswered. Clearly, it is casting a dark shadow over Ethiopia’s efforts to realise its goals for transformation to an industry-led economy.

Conceptually, the battle on the path to industrialisation involves two schools advocating for two different and competing approaches. Officials such as Arkebe argue that highly specialised, ultra-modern, environmentally friendly and safe industrial parks can only bring rapid industrialisation to the country. Such parks will be constructed in population centres and distributed strategically across the nation. They are designed to ease accessing services for manufacturers with a one-window service through collaboration with the Ethiopian Investment Commission (EIC) and Ethiopian Revenues & Customs Authority (ERCA). This approach also calls for the nurturing of export-oriented manufacturing industries and proposes generous government incentives, especially for local investors, to take an active role in utilising the parks. Not only do they attract capital from overseas, they enable the transfer of technology and create massive jobs in the shortest time possible. Proceeds from exports can be gained within few months of starting operations, helping the country foot its bills.

They are not without a challenge. Their critics, mainly in the Ministry of Industry under Ahmed Abitew, point out that given the sheer size of Ethiopia’s rapidly increasing population, it will not suffice to meet the challenges of unemployment. Its vulnerability to heavy reliance on foreign capital is another point of contention, on the ground that no country is wise to leave its fate to trans-national companies which are only interested in the “race to the bottom”.

Ahmed and his experts call for an approach that has the capacity to cover wide portions of the country with small- and medium-sized industries mushrooming all over. They rather would like to see rural satellite industries developed in the form of medium and small enterprises, creating job opportunities and also linking local farmers who can, not only sell their produce, but also consume manufactured goods. They hope to see the formation of the national capital in the hands of the indigenous private sector.

As the ideological debate continues and the lack of consensus among EPRDFites lingers, the practical implementation of the different plans for various aspects of industrialisation is well underway. The blurred policy approach is causing disharmony in the government’s ability to effect change. In addition, prospective industrialists are left confused not knowing which route the government will adopt in the end, undermining their confidence.

Most importantly though, there is fierce competition among these groups for resource allocations. The economy does not have the luxury of handing out cash at will. A resource-constrained economy wored better be in the hands of policymakers who know how to prioritise and where to place resources for optimum results. A poor country like Ethiopia cannot afford experiments carried out by competing interests to see what works best in the end.

Frankly, the Revolutionary Democrats appear to be wasting time and resources where they should not. It should not be the business of the State to drive the formation of industries where it prefers. Many countries have travelled that road and for years have little to show for their massive investments. They would rather focus elsewhere with the potential to effect change better and faster.

Driving industrialisation is all about reallocation of labour and resources from less productive sectors of an economy to where there can be more productivity both in volume and value. A state can achieve these objectives where it is relevant and rightly prepared with potent policy tools. Rather than claiming the roles of enabler and operator all in its own, it could choose and focus its priorities. It can invest whatever little it has under its disposal on skills development, while at the same time it should enhance access to finance to citizens on the basis of equal opportunity.

Addressing critical constraints in land provision and public infrastructure, particularly of power, goes a great length to help firms compete. It is worthwhile to bear in mind that in the globally competitive markets, it is not nations which compete, but the firms created as a result of a conducive business environment under light regulatory burden.

As it is, regardless of what Hailemariam’s administration does in setting up industrial parks or promoting satellite agro-processing units in rural Ethiopia, no industrialisation can take off while the regulatory burden is painful, the logistical corridor is costly and the Customs procedure is cumbersome. A manufacturer operating inside the Modjo Eastern Industrial Parks is robbed of its competitiveness when it imports containers from China which cost four times more from Djibouti to its factory than from China to Djibouti. A sensible thing would be to have a meaningful start in simplifying the procedures and opening up the corridor for competition.

No less important is to improve the tax administration system in a way that it simplifies codes both to the taxman and the taxpayer. The tax agency has to create an environment of transparency and a mechanism for recourse by taxpayers to bring to account those who misuse and abuse their office there. Most importantly, though, the State should limit its role to creating an enabling environment where the private sector thrives in the industrial sector, on its own merit and far from a policy-induced approach. Issues of legislation, provision of basic infrastructure and incentives should be the State’s preoccupation in bringing structural transformation to the country’s economy.

Published on Jul 05,2016 [ Vol 17 ,No 844]



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