Jan Priewe, University of Applied Sciences, Berlin
Sintesi
Nell’ultimo decennio l’Etiopia ha registrato tassi di crescita economica molto elevati, nonché miglioramenti degli indicatori di sviluppo, collocandosi rapidamente in cima alle classifiche dei paesi dell’Africa sub-sahariana e catturando così l’attenzione degli economisti. Il presente articolo fornisce un’interpretazione del miracolo economico etiope alla luce delle teorie keynesiane e strutturaliste sullo sviluppo. I governi che si sono succeduti hanno chiaramente intrapreso una strategia di “state-led development”, basata su consistenti investimenti in infrastrutture e modernizzazione del settore agricolo, sulla presenza di vaste imprese statali all’interno dell’economia di mercato, su politiche monetarie e fiscali molto espansive e sullo sfruttamento dei termini di scambio positivi per prodotti legati all’esportazione. La conseguente crescita della domanda aggregata ha generato un aumento dell’offerta aggregata ed una spinta al progresso tecnico nel settore agricolo, con spill-over nel terziario. Se da un lato tali trend sono compatibili con affermate teorie riguardanti il big-push e gli obiettivi di crescita inclusiva, la mancata industrializzazione e una mancata politica di gestione del tasso di cambio , nonostante la crescita, rappresentano un peculiare elemento di discontinuità con tali teorie. L’articolo conclude con riflessioni sulla sostenibilità della crescita etiope e sulle conseguenze del boom edilizio e del land-grabbing in termini di conflitti sociali sulla distribuzione delle risorse.
Ethiopia’s GDP grew in the period 2003-2016 by 10.6% annually, per capita by 7.8% - the highest growth rate in Sub-Sahara Africa (SSA) in this period. This growth lifted the country at rank 12 (2014) from the bottom in SSA, in terms of GDP per capita, while it was the poorest country in 2000 (besides countries with no data available). With now 105 million population, it is the 2nd biggest country in Africa, after Nigeria. 75% of the labour force is still involved in subsistence agriculture as smallholder peasants, 61% of population are still illiterate (2012). What is more, on a broad number of development indicators, the country improved a lot. Absolute poverty (1.90 PPP US-dollar per day) fell, so did child mortality and child under-weight as well as under-nourishment in general; life expectancy at birth increased by 12 years (2000-2014), births per woman dropped from 6.5 to 4.4 (2000 to 2014), while the Gini coefficient rose from 29.8 to 33% 2014. All data may be somewhat dubious, but probably not much more dubious than in other African countries. In 2016 growth plummeted somewhat. In 2016 GDP growth dropped to 7.6% and only 6.1% was expected for 2017 (data from World Development Indicators and for 2015ff. estimates from Economist Intelligence Unit).
In autumn 2016, the authoritarian government declared the state of emergency after demonstrations with violent conflicts all over the country had occurred. The emergency was lifted in September 2017, but widespread political discontent seems to continue.
After the battle against the Communist Derg regime (1974-1991), the “People‘s Democratic Revolutionary Front” (PDRF), led by the liberation front of the north-western province of Tigray, came into power. Their charismatic leader Meles Zenawi became Prime Minister in 1995; after his death 2012 he was succeeded by Hailemariam Desalegn. The government receives support from China, but benefits also from official development assistance (ODA) from Europe and the US, to some extent for its geopolitical position at the horn of Africa. Following the “Democratisation Index” of the “Economist Intelligence”, Ethiopia ranks close to the average of SSA, but better than China or Russia. During the first decade of the PDRF regime, the growth performance was only slightly better than under Derg, but after 2003 the growth miracle started (see graph). The government is committed to a “state-led development” strategy, based on massive infrastructure investment, support for agriculture and targeting agriculture-based industrialisation, perhaps a reincarnation of “Developmental States” in a low income country.
Source: World Development Indicators, Estimates from Economist Intelligence Unit 2017 for 2015-2017
Even though the economy is in principle a capitalist market economy, apart from subsistence agriculture, the strategy involves a number of large state-owned enterprises such as the predominant commercial bank, furthermore a development bank, Ethiopian Airways, larger corporations in charge of public utilities as well as construction firms. Land ownership is by constitution public. While international trade is comparatively free, cross-border capital flows are under strict control, outbound financial investments prohibited. Large development projects, incorporated in the “Growth and Transformation Plan 2010-2015” (GTP I) and its successor for 2015/16-2019/20 (GTP II), comprise the construction of the “Grand Ethiopian Renaissance Dam” at the Nile River, a railway connecting the land-locked country to the port of Djibouti, massive road construction in rural areas, extension service for peasants, usage of fertilisers, promoting urbanization, strong emphasis on basic education and training, building of a large number of colleges and universities, electrification of the country etc.. The industrialization strategy, probably the weakest part of the overall strategy, promotes industrial parks targeting at certain industries, among others leather and shoes, garments, construction material, horticulture such as cut flowers and hydro-electricity exports.
As one could expect, a construction boom was the result of this “big push”. However, although the construction sector grew 18% p.a. 2000-2014, its initial size was small. One third of the overall GDP increase in this period was contributed by agriculture. The share of manufacturing in value added remained small and dropped even slightly to 4.8% in 2014. So far, ambitions for industrialization were unsuccessful. Gross capital formation climbed up to 36% of GDP, whereas gross domestic saving reached only 20% (2014), leaving a huge trade deficit of 17.5% of GDP (2014). This is financed by ODA and commercial long-term loans, to an unknown amount by China. However, ODA per capita is less than in other African low-income countries (China not included). External debt rose again after debt relief in the early 2000s and stands around 30% of GDP (2015).
Our narrative for explaining Ethiopia’s growth miracle is summarized as follows. Positive initial conditions had most likely generated a considerable unexploited output potential. A favourable external environment, first and foremost high growth in the world economy until 2008 and increasing commodity prices (for coffee, gold and other commodities) with a terms of trade improvement for Ethiopia, induced strong tailwind for growth. Yet, the main determinants for the growth boon were continuous super-expansionary monetary and fiscal policies which fired aggregate demand, together with the income growth from terms of trade. The mobilization of domestic finance pushed public-investment-led growth which evolved into general investment-led growth with a high investment-to-GDP ratio. Foreign finance from various sources, targeted at importing investment and intermediate goods, complemented domestic finance.
The engine of growth is – structurally targeted – fiscal and monetary policy. The latter is a variant of “repressed finance” that facilitated low real lending rates, even negative for longer spells, at the expense of negative real deposit and saving rates; domestic finance and hence aggregate demand was channeled into comprehensive infrastructure projects, with pro-poor and pro-agriculture priorities. The well-known nexus of public banks and public enterprises were the initial engine of growth, inducing multiplier and accelerator effects, also forward and backward linkages. These affected investments of private and public enterprises too. As long as the overall growth rate is higher than the lending rates for public or private borrowers, the burden of domestic debt shrinks for the debtors.
Fueling aggregate demand spurred aggregate supply growth, pushing technical progress in agriculture which in turn accelerated the over-due transition from subsistence agriculture to a market economy. Progress in agriculture spilled over to the service sector and those parts of industry which produce non-tradables, in particular infrastructure, housing and utilities. Bulging investment fueled employment and wages, and subsequently household consumption. A virtuous domestic-demand-led circle emerged, unimpeded by tight monetary or fiscal policy. The authorities accepted a high dose of inflation in two short episodes, in face of food inflation, partly imported from world markets, and also in face of bottleneck-inflation, to some extent unavoidable in a nascent market economy. Reducing absolute poverty, malnutrition and illiteracy and improving health and life expectancy unleash strong productive effects; the costs of poverty and poor health are big, reducing them improves human capital and total factor productivity. Poverty reduction is not only a humanitarian objective, but also an economic imperative for development. However the growth boom is overshadowed by neglect of inflation-offsetting depreciation of the currency, thus leading to strong real appreciation of the currency which impeded exports and industrialization with a focus on manufacturing. The over-valued exchange rate even cheapened the cost of imported investment goods.
For many of its parts, the Ethiopian growth scenario is fully in line with Keynesian and structuralist concepts of development, such as the big-push strategy of early development economists, Kaldor’s notion of demand-induced technical progress, Prebisch’s and Singer’s understanding of the key role of the terms of trade and the quest for pro-poor growth with tripling aid by Jeffrey Sachs and MDG proponents like Kofi Annan. It incorporates a positive view on financial repression adopted in China and other Asian success performers, including using public banks and public enterprises, contrasting the late “Washington Consensus”.
What is not at all in line with these authors or country experiences is the failure of industrialization and related promotion of industrial policy with an appropriate exchange rate policy that avoids appreciation or calls for mild under-valuation. Instead of real exchange rate undervaluation, normally seen as an integral part of “financial repression” and key of heterodox approaches to development, the opposite is implemented. This should be the task assigned to GTP II, although the key elements are missing – an up-to-date concept for industrial and monetary policy with real exchange rate management that support international competitiveness. The past decade was in this respect closer to very conventional neoclassical wisdom of a “natural” saving gap and a concomitant net resource transfer from rich to poor countries, which includes overvalued exchange rates. Ethiopia’s growth concept is – despite its successes – not yet coherent, it needs fundamental changes.
The successes achieved so far generated also distributional conflicts and political opposition to authoritarian modes of decision making. The construction boom made some groups wealthy, led to rising real estate prices, rising rentals, real estate speculation and massive rent seeking. One cannot exclude that these activities have partly captured the government which then would be at risk of losing control over its developmental strategy. Fears of extensive land-grabbing with missing transparency aggravate tensions. There is no comprehensive minimum wage regulation. Conflicts over land-use under public ownership of land without clear rules for allocating property rights are the perfect fabric for social conflicts. These are fired by suppressing opposition groups, civil rights, disregard of the rule of law and the freedom of the media.
*This essay is based on the author’s paper presented to the Annual Conference of the Ethiopian Economics Association in 2016, to be published in the conference proceedings.
