Ethiopia: Procedural Headwind to Ethiopia's Growth – AllAfrica.com

by Zelalem
opinion

There is a very good reason to identify blocks to progress on the individual and enterprise levels, let alone on the scale of a nation’s economy, as it gives the chance to put them aside in time. Ethiopia’s determination to achieve its first Growth & Transformation Plan (GTP I) was remarkable. It put most of the targets in the pipeline, but with significant slippage in terms of time – and I do believe procedural efficiency problem is to take the blame more than anything else.

The second Growth & Transformation Plan (GTP II), which has a special focus on manufacturing is expected to be put into action soon, after exhaustive public consultations and deliberations.

I would like to highlight the effects of procedural inefficiency on the economy based on personal experience, findings and suggestions of development partners and industry experts in a bid to bring the shortcomings to the public’s attention for everyone to act on them.

Looking deep into Ethiopia and its economic activities being undertaken, the level of excitement and increasing opportunities for business and investment are promising. The diversity and scale of investments have been slowly growing for quite a while and are expected to continue at an even faster pace, at least in the coming few years.

The government’s strong push of the economy towards industrialization mainly through manufacturing to achieve the long awaited structural transformation is intended to become a new normal. With GTP II and Vision 2025, a five year programme and a ten year perspective plan respectively, Ethiopia is showing its commitment not only to be a manufacturing powerhouse but also to build a climate resilient green economy.

Acknowledging the investment and business challenges and noting other countries’ experiences, Ethiopia aspired to establish industrial parks (IPs), in its GTP I. However the initiatives themselves have been partly the victim of the same causes or constraints. Special economic zones or industrial parks are expensive undertakings and involve careful and skilled planning, design and management. Hence, they are applied only when the investment constraints cannot be addressed through countrywide reforms, sector-wide incentives and/or universal approaches.

The rationale for the development of special economic zones or industrial parks in Ethiopia is, therefore, not only to address the market failures related to land access, infrastructure, logistics costs, and the high costs of doing business. It is also in recognition that the systematic investment climate reforms in multiple areas will take time and are politically challenging to implement.

Zemedeneh Negatu, managing partner of Ernst & Young in Ethiopia, in his recent interview with the Ethiopia Reporter, opined, “the ramp up phase [of the manufacturing sector] did take longer exacerbated by the then low level of competitiveness of Ethiopia to the global market.”

When the Chinese introduced the special economic zones and industrial parks to their economies in the 1980s, they were in more challenging circumstances than Ethiopia is today but their level of commitment and thorough coordination helped them achieve their intended goal. China is now an example of success and Ethiopia has so much to learn from the Chinese experience, mainly to address the issue of procedural inefficiency and realise its dream.

Every business strategist dissects and analyses the market to find out what comparative advantage his business has to position his company better than others and take control of a significant share of the market value. For a strategist, Ethiopia now many factors contributing to its comparative advantage to attract investment.

Cheap and easily trainable labour, larger market size with a growing middle class and numerous but selective investment incentives are only a few of the drivers of investment from virtually all of the continents. If the skills and productivity concerns are attended in a short span of time, indeed, Ethiopia will be a manufacturing powerhouse in a matter of few years. Olivier Poujade, general manager of East Africa Gate, in his recent article in Pulse, questions whether Ethiopia could be the next manufacturing powerhouse. Taking the ongoing trend into consideration, Ethiopia’s answer, I guess, would be, yes of course, provided all the challenges are addressed in a coordinated manner and in time.

One of the most astonishing achievements the nation has made over the past few years is the change of the mindset that Ethiopia has become a place for business. An investment thrown into Ethiopia is now believed to be money well spent. It starts there.

What follows then is how much of a return could be made on the investment, and the calculation has already begun. People and businesses are joining the market. It should then be supported by speed and agility to maintain the status quo, if not excel in the overall business environment.

Apart from attracting investors and businesses, Ethiopia needs to provide special consideration for existing businesses as well. The overall business environment should be lively enough, promoting consultation and consequent reform where necessary.

If Ethiopia does not treat existing businesses the way they should be treated and in a manner that enables them to take advantage of the benefits they considered prior to making their investment decisions, it will be a bad bet. People and businesses alike trust their neighbours more than media outlets or other sources of information and if the nation does not get this right, the outcomes will not turn out right. All the investment incentives promised should be maintained for businesses to flourish, and send the right signal across boundaries.

All emerging literature and survey results have been strongly suggesting that Ethiopia should work on the impediments to its economic growth to fully realise the benefits from its economic activities. A recent World Bank report highlights some of the shortcomings to the nation’s economic growth, particularly to the development of its IPs. According to the report, “the manufacturing sector has grown an average of 10.9pc in the last decade- about the same rate of expansion as real gross domestic product (GDP); nonetheless, inefficient government bureaucracy, foreign currency regulations, access to finance, corruption and inadequate supply of infrastructure have been noticeable headwinds and require immediate action”.

We, arguably, could agree on that finance is a challenge, but operational inefficiencies and business entry barriers have been the real monsters to the economy in general and disproportionately to the small & medium sized enterprises (SMEs) which are thought to be the engine of growth. “Recognizing documents exchanged electronically in relation to e-commerce, e- signatures, and e-payments, for example, could transform the speed of operational communications in the nation,” according to the World Bank.

Specific to the power and energy sector challenges, in its another pilot, the World Bank explores extensively the improvements and reforms which should be made comparative to successful countries. Out of the four categories of planning, policies and regulations, pricing and subsidies, and procedural efficiency in the three pillars of the report of energy access, renewable energy and energy efficiency, the worst weakness of Ethiopia is registered in procedural efficiency in all three pillars. In contrast, Ethiopia is better off in the planning category highlighting the gap in the implementation or execution, indirectly referring to the procedural efficiency problems. This specific power and energy investment indicator report is most likely a reflection of the general economic activity in the country.

Project delays, for example, may not be peculiar to Ethiopia but there are many ways to deliver them relatively on a shorter time and low cost. Some of the infrastructure being built, unless delivered in the planned timetable, may soon be outdated given the pace of technological innovations around the world. As recent findings by McKinsey, a consultancy, have suggested, over optimism and over complexity, poor execution, low productivity, and weakness in organisational design and capabilities are the main reasons projects go bad.

I think the case very much applies to Ethiopia as well. Moreover, citizens’ expectations for transparent, accessible and responsive services from the government are increasing day by day, and so implementing a “citizen-centric approach” to delivering those services should be at the heart of government agencies. A kind of pressure testing mechanism applied to the systems and operations of agencies could help them learn if they are delivering as promised.

The shortcomings in relation to procedural efficiency have been made clear, thanks to technology and development partners. Reviewing systems that are blocking progress and eliminating them as they happen should be the priority of every executing organ every day.

Implementing initiatives and learning along the way is not normally a bad idea, but it requires being proactive to form proper balance. Time matters and efficiency does the trick to shape Ethiopia’s path to 2025, as planned.

Tigabu Atalo a Power, Energy and Infrastructure Consultant

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