Arkebe Oqubay (PhD) is a believer in meticulous and perfectionist approach. During the course of his research for his doctoral thesis, Arkebe had an interview with a senior manager of the state utility company where he raised the problem of power supply to industries. He was told the problem was addressed and the company had made a positive intervention. Arkebe took it upon himself to visit 50 factories for in-depth interviews with 200 of their owners and managers. Close to 11 of them were not in operation upon his visits, due to severe power cuts.
A well-known political figure since the days of the armed struggle against the Marxist-military government, and a former mayor of Addis Ababa, such encounters may have shaped the views published in his book titled, Made in Africa: Industrial Policy in Ethiopia. Published by Oxford Books, the pricey book has since become a subject of interest among policymakers and academicians.
To collect data for the book, Arkebe carried out field research for one year, during which he surveyed four sectors in the economy, three of which are in manufacturing. He conducted surveys at 150 firms, where 90pc of these responded to his questionnaires, in addition to interviews, which took him from two to four hours each.
Himself a senior government official and an insider, he had access to the Minutes of 100 meetings of the National Export Coordinating & Promotion Committee, chaired by the Prime Minister, covering thousands of pages. Minutes of the Board meetings of the Ethiopian Investment Commission, over many years; and documents from the archives of the Ministry of Industry, including letters written to the Ministry by individual companies and firms, were some of the sources he accessed during the research for his thesis.
Convinced that he succeeded in ensuring the diversity of data he used and their reliability, he recently sat down with Tamrat G. Giorgis, Fortune’s managing editor, to discuss the highlights and importance of his book in a country, which aspires to transform its economy to an industrial-led growth. Excerpts from the interview follow:
Fortune: The EPRDF came to power about 24 years ago; and back then the debate in the EPRDF parlance was about the place of industry in an economy where agriculture remains the mainstay of the economy and the first to be transformed. Thus, the agricultural development led industrialisation (ADLI) was born. Even then, the debate was that smallholder, fragmented, and subsistence farming dominate Ethiopia’s agricultural sector – literally. Do you believe this policy was justified then and is ADLI still alive as the main focus of this administration?
Dr Arkebe Oqubay (AO): ADLI was endorsed in 1994, preceding the first three years where the main focus was economic recovery and reconstruction. ADLI was absolutely important, despite the usual debate whether ADLI is preferred over export led industrialization for a specific development strategy to pick. In our case, close to 85pc of the population was dependent on agriculture. Even now, 77pc is dependent on agriculture. Unlike countries in Latin America and as the case was with those in East Asia, our agriculture is based on small farming.
There are two important basic principles to consider here: If you have to think in terms of strategic considerations – which is making the best impact with minimum input or resources – relying on the 85pc of the population to produce and make change in the economic dynamism was absolutely important. Development is about improving the livelihoods of the people. And a large segment of the population remains dependent on agriculture. It is a matter of strategic importance that we have to focus on how to improve and bring transformation, changing the existing dynamics to a higher level.
Judging by its results, in a period of 20 years, agriculture has helped the economy to take-off. It has achieved its mission. The next stage of development is thus, how manufacturing can lead the whole economy, for it has a much more spillover effect than agriculture. It does not, however, mean that agriculture plays a less prominent role. It will continue to grow; and play a more important role. The challenge is that of transforming agriculture so that productivity is increased, high-value products are produced, and it contributes to industrialization and foreign exchange earnings.
Q. But how do you reconcile this statement with the fact that today you are confronted with a major drought that has victimized over 10 million farmers? If agriculture has transformed that much, why would the country not be able to handle this drought on its own?
AO: You can find drought in Australia, as there is in the United States, where there is the largest wheat and corn production. And it is affected by rain, and other climatic factors.
It is not [because of] the weakness of our strategy that we are facing this drought. This country had difficulty feeding itself when it only had 20 million people, during the Emperor’s time, for instance the famine in 1974. And now feeding more than 93 million people highlights the success of the economic development path that we have followed. We have to recognise this is a fact to be celebrated.
But it also shows our agriculture is not yet fully transformed and the need to structurally reduce the sector’s vulnerability. This happens, when, for instance, we don’t use irrigation, greenhouses, and technological advancement. That is also why we are emphasizing one of the three pillar areas in terms of transformation – other than the export sector and building the manufacturing – the transformation of agriculture; so that we can produce high-value products and so that productivity can improve.
But this is work-in-progress and transformation of agriculture will take us years to come.
Q. Can you pronounce that ADLI is still alive and it is a major policy strategy?
AO: ADLI is in action; and it is active. However, the growth of agriculture will slow down at some stage. If manufacturing does not grow fast – and does not ultimately lead the economy – which means that without fertilizer and improved technology (linked with growth of manufacturing), you cannot improve productivity of agriculture. It is about adding value to the raw materials we are exporting. In the coming 10 years, manufacturing will take over the lead and it will be manufacturing-led industrialisation. It will be able to lead and guide the whole economy, contributing a share of about 20pc to the GDP. We need to work hard to achieve this goal in order, because this is a way to sustain the growth of agriculture.
Q. In the absence of a full agricultural transformation, as you admitted, do you see that ADLI will be proclaimed mission-accomplished in the next 10 years? Or, regardless of what happens in the agricultural sector, nevertheless, you will move into manufacturing-led growth policy and strategy?
AO: The growth of manufacturing is going to go parallel with the improvement and development of agriculture. For instance, we will focus on light manufacturing [products] like apparel and textiles, leather and leather products, dairy products, beverage and food, as well as sugar development. Close to 80pc of the jobs that will be created in the coming 10 years are primarily from light manufacturing. And the key characteristics of light manufacturing is that it uses inputs from agriculture; it simply means that the larger manufacturing pie grows, the more agriculture will be forced to improve productivity for it has to be competitive in terms of cost. They will go together; they are complementary.
Q. Your book titled, Made in Africa came out at a time when those who used to argue about the premature de-industrialisation of Africa, overall, seemed to be gaining momentum and they now feel vindicated. Do you think your book could have come out at any other time than this; or is it just a coincidence?
AO: It is a coincidence. However, the increased interest in industrialization, and its policymaking, has helped the book to receive much wider audience. It has been well received in many places, by African policymakers, and scholars.
But you have to remember that Africa has gone through different periods. In the 1960s and 1970s, Africa had made substantial progress in industrialization. In fact, they are often referred to as the golden decades of Africa for the economies in Africa were growing much faster than the 1980s and the 19990s, during decades when the Washington Consensus was dominant. The dominant neo-liberal views has not been in favour of industrialisation in Africa, and the role of the active state. The main focus was a generic name that was “poverty reduction.”
It was very clear that the policies of the Washington Consensus had failed miserably, which increased interest in alternative development paths. Africa’s industrialization and industrial policy has become much more prominent in the last decade or so.
Q. Had it been the case that your book came out in the 1990s, when, as you say, the Washington Consensus was the prevailing order, would it have been accepted as much as it is now?
AO: I do not think so. During the 1980s and 1990s, in much of the literature, even the term industrial policy was erased. Talking about industrial policy was considered a restricted zone although well-known scholars published many books. But reception by, for instance, African policymakers would not have been the same.
Q. Were you just lucky?
AO: Yes, it is a matter of coincidence and luck.
Q. Apart from luck, you dwell quite at length bashing orthodoxy in industrialisation and tried to show the fault lines. But you have not explored as much on the alternatives. Do you think you have been honest to yourself and to the cause that you are promoting in ignoring the merit of the other side?
AO: No, it does not. The book promotes developmentalism and argues the merits of development state. Active industrial policymaking is the central theme of the book. Perhaps, if you are referring to the term known as developmental patrimonalism, I don’t think we can consider as developmentalism.
The origin of patrimonialism comes from Weber, who classified the types of states in three categories, including patrimonialist state or bureaucracy. He was referring particularly to Asian context – countries like China – basically analysing the evolution of state bureaucracy can move at different levels of development.
Patrimonialist interpretation school appeared in the early 1990s, at a time when it was evident that the policy reforms and prescriptions prioritised in the Washington Consensus had failed. A new justification followed; and, the tenet was that the reforms are correct and they have been quite successful in Asia, while failing in Africa, because of the fragmented ethnic culture and social underdevelopment. Coined in the early 1990s, it was promoted together with the issue of good governance since then.
I believe developmental patrimonialism had serious flaws. This school argues that countries like Ethiopia are growing fast because they have been able to distribute rents to their political base. This is a political biased view.
Q. Isn’t that true?
AO: Absolutely not; ours is not different from what you would find in Asia or what other advanced countries have gone through in the past. Developmental patrimonialism is applicable primarily to Africa. The issue here is, why is it linked to Africa? Why not to Asia?
In terms of principles of allocation of rents, we could look at literature written on South Korea, including Alice Amsden’s works. Rent management, or what is referred as performance-linked rents or principle of reciprocity, are important and key component in industrial policy. This is extensively elaborated in my book. But trying to present the growth of countries like Ethiopia as patrimonial is not convincing.
And, since you are interested in this question, let me just quote from one of the books written on developmental patrimonialism in the past five years. Says the author, “Our own view is that even though the new patrimonial concept is not without problems, to discard it will be premature.” They are not trying to look at the empirical evidence and then come to a conclusion. They are saying, let’s give it a chance because we are hearing a lot of noise about it.
“Africa needs more ambitious industrial policies, if it is to develop; but, we accept the conventional wisdom that in many African states neo-patrimonialism is a problem.”
Why should it be different from China or Japan of the early days? Why should it be different from South Korea or Taiwan?
My book in Chapter Seven discusses this particular issue in depth and that developmental patrimonialism fails to explain Africa’s context of policymaking. Not even the authors say that they are supporting it based on strong empirical evidence or observation.
Q. But do you consider it fair and appropriate for the state to control the resources, and allocate rent to the few that it picks as winners, in spite of the opportunity that is given to all the players on the ground? Some people sit in a state house and consider some potential winners, and they just handpick them.
AO: But the essence of industrial policy is to give incentives and rent from non-productive players or sectors towards productive sectors and players. We find it in much of the literature written on catching ups of East Asian fast industrializing countries. Again, the conceptual basis of this developmental patriotism is a different one, with a lot of confusion in terms of theory and empirical evidence.
It has been covered extensively in my book that managing incentives and linking them to performance is important because that is the way you can shape the players’ behaviour. Incentives have to be linked with performance and sanctions have to follow on those who are non-performing and non-productive.
In Ethiopia, we are aware that many people want to go to trade or real estate, where they can easily make money, while they shy away from getting involved in the manufacturing sector due to fear of the stiff global competition. We need ensure that those who would be involved in agriculture or manufacturing sectors get more incentives and support in policies, infrastructural and training.
For the others, we have to make sure that it is not an area where they make a lot of money, and the rent they collect is gradually shrinking. We have to remember that those who are already involved in unproductive sectors can move onto productive sectors anytime as long as we ensure that the right conditions are in place.
Q. I understand the prerogative the state has in driving resources to where it considers are strategic. Don’t you think the best allocation of resources for optimum returns is to leave it to the market, instead of the state interfering with it?
AO: The market may encourage the flow of resources to unproductive sectors. That is why industrial policy is important; as it helps to create and nurture new industries. You need to protect a new industry because it is a newcomer and has yet to accumulate the required skills, to build confidence, and the time to be on par with others, particularly international players. It is about protection and nurturing. When we talk about protection, many of us may narrowly link it to tariff protection, which is probably the least important among the supports given. They should get loans, serviced land, and infrastructure as well as facilities in industrial parks, as we are trying to do now. We also have to ensure they get incentives when they export; and duty free privileges for machinery imports.
Q. Your book is overwhelmingly about industrial policymaking. Yet, you seem to have chosen not to give a critical overview of the macroeconomic context and environment of the Ethiopian economy. Is that by choice?
AO: Yes, it is a matter of choice. You can write books, tens and dozens of them, studying macroeconomic policy. It is a wide topic. I needed to deal with macroeconomic policy to the extent that it is relevant for my core thesis on structural changes, industrialisation and industrial policy. In terms of macroeconomic policy – on issues like inflation, exchange rates, and revenues – it is clearly outlined in Chapter Three. My take on these is that the government has adhered to prudent management of these macroeconomic issues.
There is one major structural problem we have to focus on, though; that is the imbalances in the current and trade accounts. There is shortage of foreign exchange earnings; we are not earning much from the export sector. The pace of a country’s progress is constrained by the level of foreign exchange earnings it can have.
From a macroeconomic aspect, I have focused on this particular issue because it is directly related to the structural transformation and rapid growth of the country and its industrialisation. When we talk about structural transformation, it is essentially about the role of high productivity, growth, and technology sectors.
Q. You have been praising the massive infrastructural development over the years. But one of the missing links in your overview of the macroeconomic context of Ethiopia is a mounting debt that is meant to finance this infrastructural development. Is it because you are not worried over the mounting external debt?
AO: Ethiopia is in fact a country that could be considered in the top list of those less dependent on external debt. Having debt on its own is not a problem. Look, for instance, how the private sector operates. They get 70pc or 75pc loans from the bank, use part of their equity to make more money and pay the banks. This is how capitalism works all over the world. It is the same with countries.
As long as the country is having very rapid economic growth, and the country earns sufficient foreign exchange, then there is nothing to worry about. Look at the US; it is one of the countries with very high debt of 17 trillion dollars, if I am not wrong.
Do we also have sufficient amount of foreign exchange earnings; and mobilise savings? In the last five years, during GTP I, we have seen substantial improvement in national savings as opposed to the low saving base in the years prior to 2010. We will continue to increase these savings. But, when the country is growing at a rate of 11pc, and when we also aim to grow the manufacturing sector by 25pc a year, we need to have funding for investments.
A high investment rate is not a problem for a country; indeed it is a strong point for growth, particularly at the early stage of development. We have to focus and move to the maximum level of mobilising domestic savings on top of using loans as much as possible. There are many innovative ways we can tap these loans in ways that make us less vulnerable.
Q. How do you reconcile the level of confidence you have about the nation’s increasing external debt, with your acknowledgement that one of the disappointing things about the macroeconomic evolution is the fact that the current account and trade balances have remained negative and widening?
AO: This is why I am emphasising the development of manufacturing. We are importing more than what we are exporting, we have a growing deficit. What do we have to do to address this? We have to promote and expand our exports, if only we can produce manufactured goods. If we aim not to be net exporters of primary commodities – because we cannot earn much from these – we need to develop domestic industries so that we will be consuming manufactured goods produced domestically, in order to replace imports.
We are going to import capital goods for a long time to come, which I see as a healthy trend. This is because if you have to develop your industrial base, if you have to modernize agriculture, and if you have to develop infrastructure, you will be importing a lot of machinery. But we do not need to import cheap manufactured goods. We have to produce them domestically. That is why we are especially focused on manufacturing in order to have a solid base in foreign exchange earnings as well as to reduce imports.
Q. One of the strongest, most emphatic themes in your book, is the theory of a learning and active state, as a prerequisite for industrial policymaking. But, you chose to be very selective with your evidence because you may have wanted to avoid some of the most burning and critical issues. And that is about the institutional limitations in the country, that are obvious – the democratic deficit that the ruling party openly admits, and the poor state of human rights, which is one of the major criticisms directed at the ruling party.
AO: I am talking about how a poor country is emerging as a middle-income country; and the focus is on policymaking. We have to be very clear that the charges on human rights and democracy are highly exaggerated. We know that there are indices produced annually by many international organisations, but are not free from subjective bias. We believe we are building a robust multi-party system and it is not smooth process.
There has been over the last 20 years one ruling party, and having different parties every five years by itself does not prove democracy. We know from the history of Japan, Singapore, or of Sweden, countries recognized to be democratic, but who have followed a dominant party political system not because there is one but the ruling parties had been re-elected many times in consecutive elections. Gradually, parties that have stayed long in power have been contested by other parties such as in Taiwan in the 1990s; South Korea in the 1980s, and Japan, gradually. Having won in four elections does not prove that the system is undemocratic. For instance, it was very clear to international observers that the ruling party received strong public support in the most recent election.
If we have to build a strong democratic system, we should be able to create a situation where social groups with different political views can contend, in a peaceful way, under the rules proclaimed in our Constitution. Our government and the ruling party need to be quite proactive to promote and develop peaceful political activism. The ruling party may be re-elected not only due to our track record but because of its capacity to deliver. Thus, the ruling party is not afraid to contend and compete with other political parties.
We have to focus on promoting democracy on par with rapid economic growth. Nonetheless, has democracy been a prerequisite for rapid economic growth? I would say it has not always been a condition. Historical facts show that this has not been the case in many countries. I am raising this point here because I would like to differentiate it from the rhetoric we hear. Some critics would argue, countries that have shown rapid economic growth are countries that have been able to build democratic institutions or governance first And the fact shows that it was not the case. Institutions are outcomes of rapid economic growth and social progress. Taiwan and South Korea are good examples [of countries that] have been able to achieve rapid economic growth.
Q. Obviously you think you do not have to democratize in order to achieve economic growth. But the empirical evidence to link democracy to growth is abundant in Paul Collier’s book titled, Wars, Guns, and Votes: Democracy in Dangerous Places.
AO: Let us look at, for instance, Singapore. For 50 years, there has been one ruling party and the Prime Minister has been in power for more than three decades. It became independent in early 1960s and the first party in power, the Peoples’ Action Party (PAP), is still the party in power even today – for almost more than half a century. Singapore is among East Asian Tigers that has shown impressive economic performance. What does this really show? We also know about South Korea and Taiwan.
I do not agree with the assertive conclusion you have mentioned because we have to look at the historical facts. We have to understand that there is no universally agreed meaning and model of democracy. Let’s look at how the models of democratic systems that operate in the Scandinavian countries, in the United Kingdom, Switzerland, and the US; they are all different from one another in many ways.
Q. Let me hold you on this one because you have made a very bold assertion that there is no evidence to the claim that the country has democratic deficits and issues of human rights concerns are exaggerated. You have a parliament whose seats are 100pc controlled by the ruling party and its affiliates. That is not good evidence to show how the multi-party democratic system is “robust.” You have people going to jail arbitrarily and staying there for a number of years before they get acquitted. You have people, whose property rights are trampled as their human rights are violated.
AO: What I am saying is that we do not have a perfect democratic system. It is a nascent democracy. If you look back at the 20th Century, there was no history of democracy in Ethiopia. We had the absolute monarch, followed by a totalitarian military regime. It was in 1995 that we adopted a new constitution and a history of 20 years since then. We cannot compare the democracy we have with countries that have had democracy for two or three centuries.
Although we recognise we need to improve, the libellous charges on human rights abuse are highly exaggerated and are sometimes politically and ideologically driven. Sometimes, it is because they feel that the EPRDF is not a party that could be easily manipulated and it has not been known to be quite a ‘good student’ to accept prescriptions, for instance in the economic policies. Again, there is no an ideal model of democracy, and all countries have adopt that best fits their local realities that maximizes the active participation of their citizens and social groups. In our case, we are trying to build it and we need to be focused as prime aim.
Q. One of the major criticisms that I have come across about your book is that many of the statistics or the data that you have used in your praise of the Ethiopian economic model of growth as distinctive in the development of Africa, are from Ethiopia’s Central Statistics Agency (CSA), and you have not corroborated them from other sources. For instance, these data coming out from the Agency have disputable credibility in the eyes of the IMF and the World Bank. There is a wider view that Ethiopia’s growth statistics were inflated by an average of three per cent, particularly the agricultural productivity. Why haven’t you used other alternative data sources in order to compare, contrast and corroborate?
AO: I am glad that you brought this up. It is not easy to find reliable data in many African countries, including Ethiopia. You find two different sets of data from two different ministries on the same subject. If you look at data quality for population, one of those important sources of data is the CIA Factbook for it gives all the basic facts on all countries. Our population size, according to the CIA, is 100 million; and the World Bank has it at 97 million. According to Central Statistics Agency of Ethiopia (CSA), it is at 93 million. If it appears prestigious to have large population size, then Ethiopia is a large nation with 100 million people, we would rather stick to the data put by others rather than CSA.
We all agree there is a problem with data. Addressing this issue is very important for policymaking. If you do not have the right and reliable data on a timely basis, it is difficult to know whether you are on the right track, and whether the same policy is appropriate.
But this does not lead us to conclude that the data from the IMF and the World Bank are accurate. We need to know how they get the data from every village in the country, while they do not even have surveyors on the ground, and when they don’t carry out the expensive periodic census.
The issue of methodology has been very central to this book and one of its strengths. I had to primarily rely, for proving the central thesis of this book, on my research methodology. The book has assembled multiple reliable sources of data. I have used CSA primarily for three types of data: Population and housing; annual surveys on manufacturing which has been conducted for more than 40 years; and the latest surveys on agriculture, including on livestock, farmers’ production, and the amount they bring to the market.
But I did not limit myself to the CSA, although it is recognized as one of the leading statistics agencies in Africa, and with a very good track record, as a reliable source. On exports, the most reliable [source of] data is the Ethiopian Revenues & Customs Authority, where every export is registered with all the supporting documents. For exchange rates, the most reliable data come from the National Bank of Ethiopia. It also monitors all inputs in terms of physical resources and money that is imported to this country through foreign direct investment (FDI.) Data on the macro-economy was from the Ministry of Finance & Economic Cooperation (MOFEC), which is revised on regular basis by national accounts system (NAS).
This shows that I have tried to use the most reliable sources within the existing context. For international comparisons, I have used data of the Department of Economic & Social Affairs (DESA) of the UN, while for commodities and trade I used the UN COMTRADE database, which is widely and referenced by many scholars and institutions. I had to use UNCTAD data for data on FDI, because they are the ones with a very good database. On livestock, leather and leather products, the most reliable data are from Food and Agriculture Organization (FAO).
Q. If your research was that extensive, why have you chosen to limit your focus only on the four sectors?
AO: If I had chosen more than these, it would have taken me many years. It is a matter of looking at the aim and the benefits. You may focus on bigger number of sectors but you may not gain in-depth knowledge. On the other side, you can focus on fewer sectors, which could serve as case studies, which provides in-depth and thorough knowledge. The question here is, are these right sectors to serve as case studies. We can divide them into export oriented and import substitution sectors. In the export sector, we focused on leather and leather products and textiles. In import substitution, I used cement industry and the floriculture industry as modern agriculture. The narratives in those sectors diverge and provide comprehensive picture.
Q. Why is floriculture an industry? It is agriculture I suppose.
AO: The floriculture sector recognized to inhibit a lot of characteristics of manufacturing and requires high level of management and understanding the export sector. For instance, you need the basic management skills in floriculture. In the greenhouses, temperature has to be monitored continuously. It has to be stored at the right temperature in the cold room storage. The workers have to be very careful because they are dealing with a perishable good. It has to be transported carefully to arrive early morning at the auction centre in Amsterdam. You need to understand the international market. It is recognised; floriculture is similar to manufacturing in many ways.
It really helps to understand the reasons behind the success of floriculture, which is 100pc export. We have been using an active industrial policy to promote this sector, which grew from zero in 2004, to generate one billion dollars in seven years. It has created 51,000 direct jobs, and 130,000 indirect jobs in non-floriculture sectors.
It was a matter of curiosity for me to understand the driver of success in this sector, and important subject for policy learning.
The three sectors are representative of the whole economy, and again, it is not about coverage, as much as it was about quality and depth of research. Why does industrial policy have different effects in different sectors? What are the key drivers of success for industrial policy in different sectors?
Q. Obviously, you seem to be very fond of the state. Because you believe that an activist learning state is sine qua non to industrialization. But, reading between the lines and listening to you, you seem to be convinced about the role markets are playing and how important they are. Where do you place the market in industrialization? How important are the forces of market play within the evolution of an industry-led economy?
AO: There have always been two players over the past three centuries: market forces and the visible hand, which is intervention of the state. This has always been a fact in all countries. We have got to understand that there is no country in the world where there is no state intervention. Let us look at property rights – intellectual property rights – for instance. They have to be respected and regulated; the state has to play a role here. In any country that claims to be quite free – with free trade and free market economy – you need the police force to make sure that the factory operates peacefully. There has never been any historical period where these two forces were not work side by side.
The issue is not about making the state replace market forces. If it were, it would be a recipe for failure just as it was under the Dergue’s command economy. Market forces are important; part of an essential reality. But market forces are not always perfect. We operate in an imperfect market; we can only talk about market realities. The issue for governments is not merely about intervene. It is rather about understand the purpose of and the nature of intervention.
The state intervention has to be selective on where it can make a difference in strategic areas. We have also to understand that state intervention is not an end by itself; it is a means to an end. The purpose is to make sure that the economy is structurally transformed; that the country is able to move forward, upward, and to climb the ladder of catch up.
Q. It is true that it is all about the extent of the state’s intervention in economic policymaking and running the economy. But which developmental state do you prefer a strong active state or a facilitating state?
AO: The book’s central thesis is that we need an activist industrial policy; we need an activist state to pursue development and grand development vision.
Q. Less so facilitating?
AO: From my perspective not facilitating or definitely not a follower. I know some scholars advocate for facilitating and in particular this is related to the concept of comparative advantage. But if a country wants to create new comparative advantage, and record technological catch up, it must intervene in an active way. The central idea of this book is that active industrial policy and active state intervention are equally important. An activist state is required, not just for Ethiopia but for every African country. That is the only way you can move forward. Facilitating means being a follower, watching the game – and that should not be the case.
Q. You just mentioned comparative advantage but in your book you seem to be dismissing it as irrelevant and obsolete. But the jury is still out, the debate is still there between comparative and competitive advantages. Don’t you think there is merit to the fact that you focus on where you are good at in competing?
AO: The theory of comparative advantage evolved in the 18th Century and as pioneered by the British economist, David Ricardo. According to Ricardo, UK would sell industrial goods to the British colonies and other underdeveloped countries while buying primary commodities and raw materials from them. It was oriented to ensure that the colonies continued to grow primary commodities, supply raw material to UK, and the latter lead in industrialization – develop its manufacturing sector. It was essentially keeping in mind that the UK should keep the lead, and the others remain where they were.
Yes, comparative advantage is important but it is only important to know and to understand your industrial structure. You would look at in what area you are strong enough and try to get the most out of it. But time changes; technology moves forward. You may need to rely on comparative advantage to develop but you do need to develop new comparative advantages in line with your strategy.
You may need to exploit what you already have. We are earning foreign exchanges from exports of primary goods such as raw coffee. We are using that money to build new industries. Or in manufacturing, we start with labour intensive industries like textiles and leather. But we need to create new industries and develop new competitive and comparative advantages.
The comparative advantage may serve as a compass to understand where you are, but countries should not limit themselves on existing comparative advantage but also build new capabilities that bring break-through in economic development.
Q. An industrial policy of promoting manufacturing for the aim of export is a highly competitive business globally – that you need to play in the global arena with other countries and protection comes into that picture. In your analysis, you seem to be interested in limiting your analysis of protectionism within the national border. You seem to be reluctant to address the global impact; race to the bottom is what brings all factories that are coming to the industrial parks in Ethiopia. Nothing else. Why is that?
AO: One of the prominent figures in terms of the concept behind industrial policy is Alexander Hamilton, who was the first secretary of USA Treasury. That was in the years after 1795. There is a comprehensive document on how US tried to catch up UK, its forerunner and leading industrialized country. It is about national protection and the foundation about industrial policy is about nations’ catch up and not about international protection.
The race to the bottom means that countries will try to compete by giving more generous incentives to investors to attract them; but this concept is a highly exaggerated. We do not need to worry about the race to the bottom. Look at the history of China, for instance. After 1978, during China’s opening up and reform, it had attracted a lot of FDI from abroad and it had given quite generous incentives – even compared with this time.
Many factories and multinationals had been attracted primarily not because of the incentives. It was because of the huge Chinese market. It was a market of one billion during that time. It was also about using competitive workforce – to produce shirts and produce toys, for instance. It was basically about a trainable and skilled workforce that cost a fraction. It was also about the country’s infrastructure.
Even in our case, many companies are currently investing in Ethiopia because of the basic competitive factors. A growing domestic market, the second most populous African country, and young work force are major factors. Some countries would also consider resource as an important factor. When they invest in leather, for instance, tanneries look at the potential of the livestock. When they invest in floriculture, they consider the conducive climate and availability of land as an important factor.
Many researchers, including by the World Bank, show that incentives are not the prime factor for investors’ decision. But they are sweeteners and serve as bonus.
Q. Let’s talk about the linkages, backward and forward. Your book shows that much of the linkages are unpredictable. So what do you think is the best way of [incorporating] industrial backward and forward linkages in policymaking?
AO: If you follow an active industrial policy, you cannot intervene in all sectors. This will be a hopeless exercise as your resource is limited. You have to focus on fewer priorities sectors; and in which sectors should you be involved? You have to be involved in sectors that have the maximum linkage effects, in other words, with maximum spillover effect in the economy. You may start with tanneries. By expanding tanneries, then backward linkage to improve the quality of skins and hides, and increasing the size of the supply could really come into play. If you think of forward linkage, it means that you would also go and encourage forward linkages in footwear industry, so that the leather can be used by the footwear industry, and is value added domestically before exported. You earn more money by selling tanned leather, and tanned skins than raw skins and hides.
When countries like Ethiopia start industrializing, the dilemma they have is starting from the scratch. They do not have much resource for investment, or other resources. Where do they start? They have to target few key priority sectors with the maximum linkage effects, both backward and forward linkages, which are referred as production linkage. But the linkage dynamism evolves and changes through time. When you start intervening, you may start with promoting a specific linkage, but the dynamics even lead to another new one. That is why you need to have an in-depth understanding of the industry, and understand the dynamics of the linkage effect is moving.
If you look at floriculture as indicated here, there was no packaging industry producing corrugated cartons. But now, there are more than 15 firms producing more than 100,000 tons, completely replacing all imports of corrugated cartoons.
I have tried to apply this concept to policymaking. If you have success in one specific instance of policymaking, you can apply that thinking and experience to other areas of policymaking as well. A good example is the Development of Bank of Ethiopia. At the beginning it was too generous in giving loans to firms in the floriculture sector; but, few were defaulting and over time it got lessons and tried to tighten the system. These principles could also be applied to other industries.
Q. Much of your book made its basis on background review and analysis of GTP I. But the GTP is just a policy framework that was preceded by at least three of them. In the early 1990s, right after the EPRDF took power, there was a poverty reduction strategy programme, which was followed by a sustainable development programme to reduce poverty, and then finally, the plan for accelerated and sustained development to reduce poverty, nicknamed PASDEP. You have avoided looking at all these. Why?
AO: It is not true. This book was published in May 2014, a year before GTP-I ended. The manuscript was submitted in 2013, which means that it covers half of GTP-I. The prime focus in the whole book is from 1991 to 2013, although the historical background goes back to the Emperor’s time. We basically adopted our industrial development strategy in 2002. We may have had pieces of policies in different areas prior to that, but the government approved a coherent industrial development strategy after the renewal within the ruling party, in 2002. Things begun to progress faster after 2004, and the book covers the first five years and the programmes (both PASDEP and SDPRP) you just mentioned. The GTP is distinct from the earlier ones because for the first time it brought to the agenda the issue of structural transformation. That was a marked departure.
Q. I remember when the late Prime Minister Meles Zenawi wrote his thesis, ‘African Development: Dead Ends and New Beginnings’, he had a disclaimer saying that in no way his book represented the policy of the government of Ethiopian. We all know that it ended up being just that. Will we end up having the same situation where your book will be a major policy framework for the government?
AO: It should be made clear that while I am a government minister, and I have held a range of positions, the views presented in my book are personal. They are not expressed on behalf of the government or other organizations with which I am or have been affiliated to. The disclaimer is indicated in the preface. And this is an academic contribution and not policy recommendations.
I wrote this book so that many policymakers, Ethiopian, African, and scholars, could look at it because there is very limited literature on industrial policy related to Africa, and in particular to Ethiopia. And this is a book written by a policymaker, and it is not just hypothetical or theoretical but founded on understanding of the policymaking process.
I would be very glad if all policymakers would read it. I know they would benefit from reading the book. They may have differing opinions but after all, learning is not about having the same views. Learning is about better understanding; and, when you have differences, it is about understanding other perspectives. Above all, I would be very happy if university students would read this book. This is so that the young generation could be encouraged to make more scholarly contributions. It will also offer them an opportunity to have understanding of the political process and the development path Ethiopian government is following.
Because it is not about being partisan or sharing perspectives of the ruling party. The country belongs to all citizens, with diverse political views.
Q. Let me rephrase my question. How likely will your book end up being an official government policy at this time, as was the case with the former Prime Minister?
AO: I cannot comment on this particular point, and it all depends on the readers. And by the way, I do not think your assertion on Meles is true. His book is not strictly about Ethiopia after all. It is much broader and his central thesis is that neoliberalism is a dead end, and the new developmental path and developmental state is the way forward.
As highlighted earlier, I did not write this book so that it could be adopted as a policy recommendation. I wrote it, because I believe in the perspectives I argued in the book. And of course, as I have indicated in the introduction, I cannot be free of any bias but I believe that I have done my best to be open-minded.
Q. Would you like to see the government adopt it as policy?
AO: It is not a policy recommendation, so I would not say it should be. It all provides insights on how to design and execute industrial policy. For instance, it recommends in the last chapter that the government needs to deeply study each sector and design the industrial policy based on the understanding of each sector. Some industries are growing faster, such as the brewery industry while some sectors do not show similar growth rate. The contribution of this book is that it provides an alternative approach, concepts, and insights and it encourages policy learning. If people who read this book could learn and take lessons, that would be great satisfaction to me. I don’t expect all readers to agree with me on all issues.
Q. You said you wish to see as many people, including policymakers but most of all students of colleges and universities, read your book. The cover price seems to be prohibitive – 55 pounds, or 75 dollars, or close to 2,000 Br. And it is beyond the means of many Ethiopians. How much say did you have in the determination of the cover price?
AO: An author does not have any say in pricing. An author is happy that his ideas and views are brought to the public. That is how the publishing industry operates. I have heard this complaint that it is expensive and I agree. The book has been published by leading academic publisher, Oxford University Press (OUP), and hard copies have higher price. Academic publishers are not commercially driven. The publisher has planned to release the paperback April or May, at about 40% of the hard cover. I hope this would encourage more readers.
This will give more reading opportunity to some people but not to everyone. I believe many organizations will be able to buy copies and make some available in their libraries so that their staff or other interested readers will have access.
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