Growing with Depth

Although many African countries have shown steady economic gains in the new millennium, most are not positioned to sustain their progress. Instead, they continue to rely on traditional, low value-added commodity export markets that are unpredictable and not linked to the broader national economy. Or they rely on low-productivity, and in turn low-wage, traditional agriculture to drive employment. Any economic gains will be wiped out without a commitment to an economic transformation strategy; growth alone will not sustain development. Transformation is necessary and this means growth based on attributes that underpin an economy’s transformational change: diversified production, export competitiveness, productivity increases, technology upgrades, and human well-being. The African Center for Economic Transformation (ACET) defines transformation based on these attributes and Ethiopia has demonstrated a promising track record. How has Ethiopia put itself in a strong position for sustainable growth through transformation and what can other African countries learn from this?

Three Sectoral Policies in Ethiopia’s Structural Transformation

Ethiopia’s stellar growth performance, guided by amicable development planning, has created a common and shared agenda for economic transformation that has fostered better social outcomes in poverty, universal education, child health, and combating AIDS. This chapter attempts to explore the interest and fascination surrounding the Ethiopian development path, beginning with a consideration of the policy innovations that underpin the experience. It identifies the similarities that connect lessons from three disparate sectoral perspectives—industrialization, social protection/food security, and the success story of Ethiopian Airlines—underlining the pivotal role of coherence, ambition, and innovation in Ethiopia’s development trajectory. Central to these characteristics is the notion that structural transformation is an aggregate of socio-economic sector successes and its potential replicability by other African countries.

A Japanese Perspective oN Ethiopia’s Transformation

Ethiopia has learned much from the experience and advice from East Asia. The learning was carried out with strong country ownership and necessary adjustments, not by blindly emulating foreign practices. This chapter explains Ethiopia’s policy learning with Japan which began in 2008 where kaizen, export promotion, and other policy skills were absorbed through regular discussions, mutual visits, third-country research, and so on. Topics evolved as learning deepened and circumstances changed. Many proposals were followed up by concrete Japanese industrial cooperation for actual realization. Ethiopia’s industrialization is taking place in Africa where conditions are quite different from those in the East Asia of the late twentieth century. The major difference is the absence of a leading nation and structured layers of follower nations (the Flying Geese pattern), and weak economic linkages among African economies. The implications of this for Ethiopia’s development strategy are also considered.

Ethiopia’s Constitutional Framework and Legal Institutions for Development

Though one of the key organizing principles that underpin the current constitution is the creation of a single economic community, the country’s long history of legal transplantation does not necessarily complement this aspiration. This chapter examines how the state-managed developmental enterprise continuously negotiates with the rather ‘foreign’ legal elements, usually to the former’s detriment. The chapter takes a closer look at some of the key elements of the constitution and legal institutions vital for economic growth. Ethiopia’s federal state system together with the developmental state approach can only positively contribute to the creation of a single economic community when some of the key areas in the country’s legal development are revisited to align with its economic development model. The various areas examined in this work demonstrate the dilemmas faced when using law as instrument to achieve economic progress under the developmental state policy of the government in power.

The Ethiopian Manufacturing Sector Productivity, Export, and Competitiveness

Over the last two decades the Ethiopian manufacturing sector has experienced rapid expansion in terms of the number of firms, sales, and employment. This chapter examines the performance of the manufacturing sector using aggregate data and firm-level panel data compiled by the Central Statistical Agency (CSA) of Ethiopia. The focus is on three dimensions of performance: productivity growth, the extent of export orientation, and the competitiveness of domestic firms in the global context. Manufacturing remains a relatively small sector in terms of contribution to GDP and employment, and it has yet to become export oriented even by African standards. In examining productivity growth, the analysis addresses within-firm productivity growth and its heterogeneity across firms, as well as the role of resource reallocation from less efficient firms to more efficient ones.

Policy, Political Economy, and Performance in Ethiopia’s Coffee Sector

Coffee is of great strategic significance in Ethiopia given its potential role in wider structural transformation and the enormous scope for market gains from increased output and higher productivity. But Ethiopia has not succeeded in promoting the improvements in productivity and quality that are possible. This chapter outlines the main failures of recent coffee policy on which most observers agree. It goes on to summarize prevalent diagnoses of the policy and political economy problems in the sector. It argues that there are important shortcomings in the most common policy prescriptions to remedy the problems in coffee production and trade. Above all, a large number of external and internal reports have failed to provide a foundation for priorities in policymaking for coffee; instead they provide long lists of things to do. We offer a small number of high priorities if the long-lasting under performance of the coffee sector is to be overcome.

Livelihoods and Mobility in the Border Regions of Ethiopia

Ethiopia’s borderlands are key sites of population mobility and migration. Not only do these areas host most of the 800,000 refugees who have entered Ethiopia from neighbouring countries, they also are home to populations whose movements are heavily influenced by the livelihoods, trade, environment, and border management regimes working in their areas. These systems create opportunities for, and blockages to, movement within borderlands and across the country’s borders. This chapter analyses the social, political, and economic influences on mobility decisions in the border regions of Ethiopia. It considers the ways that these decisions are undertaken differently according to gender, youth, and wealth group, given the different resources and constraints that people face at individual and group levels. The chapter also considers the ways in which shocks—including natural hazards, violence, political turmoil, or economic pressure—impact upon livelihood systems and influence mobility decisions.

Trade Policy in Ethiopia, 1991–2016

The chapter reviews the trade policy regimes and the evolution of the trade policy reforms implemented in Ethiopia since 1993. Trade policy reform measures included import liberalization through rationalization of the tariff structure and reduction of quantitative restrictions, simplified licensing procedures, the introduction of market-oriented and more transparent allocation of foreign exchange, new investment codes, and labour and public enterprise laws. Additional trade policy instruments were introduced to promote investment, exports and industrialization. By the early 2000s, Ethiopia was moving away from the conventional market-oriented policy reforms, and instead pursuing a developmental state approach. In addition, Ethiopia has taken concrete steps with regard to its accession to the WTO, and is a member of a number of continental and regional integration efforts. The chapter assesses how Ethiopia balances its goal of pursuing a trade policy that supports its long-term development objective with the goal of regional and global integration.

Infrastructure and Economic Transformation in Ethiopia

Investment in infrastructure has a central role in the development agenda and is critical for supporting economic growth and poverty reduction. Infrastructure affects growth through two channels: directly through physical capital accumulation and indirectly through improvement in productivity. Investment in infrastructure enhances private sector activities by lowering the cost of production and opening new markets. Infrastructure investment in power generation, water, sanitation, and housing improves the social well-being of citizens. This chapter examines the pace and scale of infrastructure development in Ethiopia in the post-1991 period. The unparalleled expansion of infrastructure since the EPRDF came to power in 1991 has had a significant influence on the trajectory of Ethiopia’s economic growth. Investment in infrastructure now accounts for more than 15 per cent of GDP annually. Heavy investments in power, roads, rail network, irrigation, aviation, and logistics have helped to unleash the country’s potential both economically and as a major manufacturing hub in Africa.

Building an Industrial Workforce in Ethiopia

This chapter provides an overview of the factors and dynamics involved in the creation and formation of an industrial workforce in an agrarian-based economy. The main argument is that the process of building an industrial working class is uneven, protracted, and requires interventions and important economic and social shifts over long periods of time. Historical lessons of early and late industrializers are highly relevant for contemporary Ethiopia as it seems that history does repeat itself in some ways. The chapter focuses on a number of structural obstacles to the process of building an industrial workforce, particularly: addressing socio-cultural barriers and the problem of ‘work cultures’ and work ethic; sourcing workers, managing and especially housing migrant labour; scarcity of employable skills (including soft skills); mismatch in expectations between employers and workers, largely related to wage-setting mechanisms, non-wage conditions, and labour productivity.