Proposal:
A
Symposium for
REVIEWING
ETHIOPIA’S SOCIOECONOMIC PERFORMANCE 1991- 98
Third
Draft, June 1998
(
This proposal has been written by Dr.
Eshetu Chole, shortly before his death. )
1.
Background
From whatever perspective
it is looked at, May 1991 stands out as a decisive watershed in Ethiopian
history. With the fall of the military government and the assumption of
power by the EPRDF, the country entered a new historical phase, even if
the major defining characteristics of the new order were yet unclear to
most observers. An early pointer of the new course was the charter for
the transitional period, which gave a clear indication of the new political
direction, especially in as far as it placed “the national question” at
the centre of the impending political transformation. That the new order
would also aspire to be democratic was likewise enunciated in the charter.
But the socioeconomic
content of the charter was not substantial. However, a document outlining
the economic policy of the transition period was made public in November
1991, the major principles of which were moving in the direction of a market
economy; creating a conducive environment for investment, especially domestic
investment; and rehabilitating the war-torn economy. The economic policy
of the transition raised as many questions as it sought to answer, and
it did – as was only to be expected – draw considerable attention from
those interested in the Ethiopian economy.
It was against this
background that, in January 1992, Inter-Africa Group organised a symposium
on rehabilitating the Ethiopian economy, the major purpose of which was
to provide a public forum to discuss the state of the Ethiopian economy,
the challenges facing it, the policy options available, and problems of
the major sectors; and to make recommendations for rehabilitating the economy
and setting it on the path of sustainable growth and development.
In a large sense, the
symposium proved to be a unique experience and – on balance – a highly
successful one. It succeeded in bringing together participants from diverse
backgrounds (academics, civil servants, individuals from the private sector
and NGOs, Ethiopians residing abroad, representatives of donor agencies,
etc.), whose range of experiences greatly enriched the discussion. Equally
significant was the openness of the discussion, most sessions being characterised
by frank and lively controversy. The issues covered were also wide-ranging,
from those focussing on broad policy directions to those addressing specific
issues such as land. The symposium also came out with several recommendations.
It is now six years
since that symposium was held, and much has transpired in Ethiopian society,
in both the political and socio-economic spheres. The post-Derg order is
now seven years old, and it has a track record which has been variously
interpreted.
It has been hailed
by some as a new and bold experiment in political engineering with valuable
lessons for other African countries. But it has also been roundly condemned
by others as irresponsible, with nothing to be expected from it but the
destruction of the Ethiopian polity as it has evolved historically. Neither
is there a consensus on the socio-economic gains attained and the setbacks
encountered since 1991. And there has not been a follow-up to the 1992
symposium in terms of reviewing what has transpired since then, although
more than six years have elapsed since that event. Such a follow-up is
now felt to be highly essential, largely to take stock of developments
in the economic and social fields and to critically assess Ethiopia’s socioeconomic
performance during the post-Derg period. Apart from the fact that there
is a record of seven years to consider, the policy changes introduced and
the measures taken in the economy have been fairly far-reaching, a situation
which provides an excellent opportunity for an independent and informed
appraisal of what has transpired.
IAG therefore proposes
to organise a symposium for this task, to be held sometime in fall 1998.
2.
Major Socioeconomic Policy Developments 1991- 98
The wide range of policy
departures and measures taken in the socioeconomic sphere can be outlined
under three major headings, corresponding to the three main types of transition
that the new period was envisioned to usher in, i.e., the transition from
a command economy to a market economy, from a centralised to a decentralised
economy, and from a war to a peace economy. A fourth heading concerns regional
economic integration, including economic relations with neighbouring states.
This set of issues has gained special prominence since the eruption of
conflict with Eritrea in May 1998.
First, liberalisation
of the economy. The essence of liberalisation is to reduce the role of
the state in the economy (a corollary of which is expanding the role of
private capital) , both in economic decision-making and in the ownership
and management of economic enterprises. That significant moves have been
taken in this direction brooks no dispute. Largely through the instruments
of policy framework papers agreed to by the government on the one hand,
and the Bretton Woods institutions on the other, a variety of reforms have
been introduced, some of the most important being price decontrol, devaluation
of the Birr and the introduction of an auction system for foreign exchange,
opening up of banking and insurance to the private sector, new investment
and labour laws designed to enhance investment, etc. Between them these
and other measures have moved the Ethiopian economy from the high degree
of centralisation of the previous regime.
However, to say this is not
to contend that the Ethiopian economy has succeeded in becoming an open
one or to argue that the pace and nature of liberalisation have received
universal acclaim. For instance, the land question remains as contentious
as ever, with the government solidly committed to state ownership, and
some critics unwilling to accept the anomaly of a market economy in which
land – perhaps the single most important asset in the country (especially
rural land) – continues to be owned by the state. Nor is there contentment
with the pace of privatisation. Some also contend that there is quite a
gap between policy declarations and their implementation.
In short, there is much that
is open to discussion regarding progress made in liberalising the economy.
To the extent that the move towards liberalisation has had its flaws, to
what extent can these be attributed to real constraints on the ground,
and to what extent are they due to policy failures? What have been the
major achievements and limitations of the liberalisation process? What
is it that can be realistically achieved over the medium term? These and
a number of related questions provide substantial food for thought.
A second crucial area is
that of decentralisation. While the decentralisation that has been promoted
in Ethiopia by the EPRDF is essentially politically motivated, it has also
has its economic dimensions. For this reason, a review of the socioeconomic
record must squarely address the impact of decentralisation. The economic
dimension of decentralisation has mostly manifested itself in the fiscal
system. Sub-national units of government have been given wide-ranging responsibilities,
and there has been some degree of decentralisation in the country’s revenue
system. Decentralisation is a novel phenomenon and is therefore at a fairly
early stage of implementation. However, sufficient experience has been
accumulated to enable at least a preliminary assessment of its impact.
There are several questions
to raise in this regard: How have the regions been coping with the responsibilities
assigned to them? What are the major constraints they face in terms of
implementation? How effectively is the system of revenue sharing working?
How much harmony and/or tension is there between the central government
and the regions? On balance, how effective has the system of decentralisation
been in promoting efficiency and equity?
A third question relates
to the transition from war to peace, and especially the question of the
peace dividend. With the end of the country’s debilitating civil conflicts,
there was much expectation that substantial peace dividends would be reaped
and that these would be used for much-needed socioeconomic transformation.
The government has steadfastly argued that a great deal of military expenditure
has been cut down and transferred to social development, especially to
health and education. A cursory look at budget figures tends to confirm
it. But the notice of the peace dividend needs to be critically examined.
Here too, there are a number of questions to raise: What exactly is the
size of the peace dividend? How much of it has been transferred to reconstruction
and development? What has been the regional distribution of the peace dividend?
It does not appear that these questions have been subjected to serious,
critical examination. The proposed symposium would be a useful forum for
addressing the issue.
The unexpected eruption of
conflict in May 1998 also led to the largest military mobilisation for
seven years. The economic implications of the conflict with Eritrea need
to be critically examined.
The fourth crucial area is
regional economic integration. The January 1992 symposium in Ethiopia followed
a few months after a conference in Asmara on the economic prospects for
Eritrea. At the time, it was clear that the Eritrean vision of becoming
the manufacturing hub of the Horn of Africa, an ‘African Singapore’, ran
the danger of conflicting with the economic visions articulated in Ethiopia.
Over the following years, this subject dropped from public debate. The
general issue of regional economic integration also faded from view as
relations with Sudan deteriorated and Somalia failed to achieve peace.
This lack of public debate
was unfortunate. One consequence was that the economic strains between
Ethiopia and Eritrea that developed over the succeeding years, coming to
a head in the months following the introduction of the Nakfa currency in
Eritrea, were not fully analysed and understood at the time. In retrospect,
a number of widely divergent elements in the economies of the two countries
have become clear. The nature of these differences and the means of dealing
with them are an important subject for discussion. In addition, there is
a need to ask how economic relations with other neighbours, including Djibouti,
Somaliland, Somalia, Kenya, Sudan and Egypt have been handled, and what
sort of future role should be played by subregional institutions such as
IGAD.
3.
Issues for Debate
The issues for debate are
many and inter-connected, but they can – for the sake of analytical convenience
– be divided into four major categories:
- macroeconomic performance;
- sectoral economic performance;
- the social situation;
- regional economic issues.
3.1
Macroeconomic Performance
That the new government
inherited an economy in ruins is widely recognised. The challenge it faced
was therefore one of pulling the economy out of the depths to which it
had sunk and to create conditions for sustainable growth over the medium
and long term. In other words, the key question here is: how has the macroeconomy
fared under EPRDF rule?
Enumerating overall
successes is important. But it is also important to engage in a thorough
objective review of the performance of all sectors to analyse the reasons
for success and failure.
First, how has GDP
performed over the years, not only relative to the immediate pre-EPRDF
years, but also in comparison with the Derg period? Do the positive trends
usually highlighted represent merely recovery from an economy that had
been driven to bankruptcy by mismanagement, war and a variety of shocks,
or do they represent progress beyond mere recovery? Has per capita income
showed a respectable increase compared to historical trends? Answers to
these questions will have to incorporate the major causes of and constraints
to growth.
Second, and one of
the important factors in growth, is what has been happening to investment,
both domestic and foreign. Ultimately, little can be expected in the way
of sustained growth in the absence of substantially increased investment.
This calls for a review of the investment situation in the country as it
has been evolving since 1991, broken down by domestic and external, public
and private, as well as by sectors. It also requires a detailed examination
of factors conducive to investment as well as those inhibiting it. A related
but wider issue is that of the role of the private sector in the economy
as it has been evolving over the past few years. Specifically, is the sector
playing an optimal role or is it constrained by policy and other considerations?
Also related is the question of privatization of state enterprises, including
the pace of the process, progress attained and difficulties encountered.
Third, and as a corollary
of the above, is the situation with respect to domestic saving. In other
words, how much saving has the economy managed to mobilise internally,
both in the public and private sectors? How much of increased investment
is due to increased internal saving?
Fourth, and given the
importance of foreign resources in the Ethiopian economy, there is need
for a careful examination of the role and impact of external resources,
especially external aid, both multilateral and bilateral. There is need
to examine the size, sectoral and regional distribution, and efficiency
in the utilisation of foreign aid. Directly related to this is the country’s
external debt situation: its size, debt service position, efficiency of
utilisation, and sustainability.
Fifth, there is need
to look at the country’s external trade picture, both exports and imports.
How have exports been performing, not only the traditional ones such as
coffee, but also non-traditional ones, to the extent that trends worth
noting have been observed? This requires looking at both production and
value figures, as well as the geographical destination of exports. This
needs to be done on the import side as well. In addition, there is need
to examine what has been happening to the country’s terms of trade. In
general, an effort should be made to assess the impact of the new policies
on the external trade situation. An important sub-theme will be the evolution
of trade relations with Eritrea and their implications, and the importance
of informal exports to Somaliland and Yemen.
Sixth, there is need
to review monetary developments, especially the picture with respect to
inflation. Again, the official view is generally well-known, and it is
essentially that inflation has been brought under control. However, the
issue of inflation in Ethiopia raises many issues of methodology, which
are widely recognised but have not been fully addressed. This symposium
would do a great service if it succeeded in highlighting this problem,
which is fundamental to the welfare of the Ethiopian people.
3.2
Sectoral Economic Performance
While a review of macroeconomic
performance reveals much about the state of the economy in general, it
obviously does not tell the entire story; it has to be supplemented by
an analysis of how the major sectors have been faring. It would therefore
be instructive to consider agriculture, industry and services in some detail.
3.2.1
Agriculture
Now, as in the past, Ethiopia’s
economic performance is largely determined by the agricultural sector.
As conventionally conceived, the role of this sector is to feed the population,
generate foreign exchange, supply raw materials for industry, mobilise
saving for capital accumulation, and provide a market for the outputs of
the non-agricultural sectors.
In the country’s recent economic
history, these are roles that the sector has not played satisfactorily.
Its capacity for feeding the population has been highly flawed. It has
been an inadequate source of inputs for the country’s limited industrial
sector. Although it is the single most important sector in generating foreign
exchange, agricultural exports have not shown appreciable improvement in
volume, value and composition. Although it is still the single most important
sector in terms of contribution to national income, its role in resource
mobilisation has not matched its role in the structure of output, largely
due to low and stagnating levels of productivity. This has also meant low
purchasing power of the rural population for non-agricultural goods, both
consumption items and agricultural inputs. For these reasons, far from
acting as a pace-setter for the rest of the economy, it has tended to act
as a bottleneck.
The proposed symposium would
provide an opportunity for examining if there has been a positive change
in this bleak picture. It would address overall agricultural performance
in terms of the roles outlined above: What has been the track record of
food production? How have agricultural exports performed? What has been
the contribution of the agricultural sector in terms of government budget
revenue and in terms of other aspects of resource mobilisation? How much
of a market does the rural population represent for industry and services?
To pose these questions is
to raise fundamental issues of structural transformation, and structural
transformation does not, of course, come about in a matter of five or six
years. However, it would be instructive to find out if there are any discernible
trends in this direction. If there are, there is need to delve into the
major factors that have made these trends possible (policies, environmental
factors, technology, land utilisation, etc.). If there are no positive
trends, one needs to examine the underlying constraints (possibilities
again including environmental, demographic and technological factors, as
well as issues of policy).
3.2.2
Industry
Industry is here defined
broadly to include manufacturing proper, construction, power and mining.
Ethiopia’s industrial sector has always been limited in size, although
its performance has almost invariably been superior to that of agriculture.
The government’s declared strategy is one of agriculture-led industrial
development. The linkages of the two sectors are quite obvious, and it
is difficult to envisage appreciable growth in one, with stagnation in
the other.
There is therefore need to
examine what has been happening in the industrial sector, broken down into
the major sub-categories mentioned above. This would mean looking at the
size and composition of industrial output as they have evolved over the
last few years, the contribution of the sector to foreign exchange generation,
and any change in its capacity to supply industrial inputs to the agricultural
sector and consumption goods to the rural population. It would also mean
taking a close look at both positive and negative factors at work.
3.2.3
Services
The same analysis needs to
be made for the services sector, here defined to include trade, transport,
distribution, banking, insurance and tourism. This is the sector that has
perhaps been most affected by policy reforms, especially on account of
the liberalisation measures introduced over the last few years. An analysis
of how the sector has responded to these reforms and what the impact on
its growth has been would have much instructive value.
3.3
The Social Situation
Development is more than
economic growth, although growth is an indispensable component of it. Development
is essentially about enhancing the quality of life of people. For this
reason, the symposium would be incomplete if it did not include an explicit
examination of what, if any, changes the last few years have brought about
in the well-being of the Ethiopian people. However, here again, such an
examination must be based on the recognition that a fundamental transformation
in the quality of life cannot be expected within a short period of time,
especially in a society such as Ethiopia with a complex of web of interlocking
economic and social problems. The search is therefore for any visible trends.
This means, in the first
place, looking at what has been happening to the state of poverty in Ethiopia.
Indeed this is the single most important socioeconomic issue. Unfortunately,
it is also probably the most difficult to address, for reasons that are
related to conceptual and methodological issues as well as the perennial
problem of limited and unreliable information. However, the symposium would
be seriously wanting if it did not tackle this question – however tentatively
– based on whatever data are available and taking advantage of the large
body of work on poverty that has been done on a global scale. Specifically,
the impact of policy reforms on poverty reduction needs to be carefully
looked into. At the most elementary level, one should be able to provide
a preliminary answer to the question of whether or not there has been change
in the state of poverty in Ethiopia in the last few years.
Issues intimately related
to poverty are health and education. It is therefore important to review
what has been happening in these sectors, by looking both at the policy
reforms introduced and the measures undertaken. In both health and education,
one needs to look at scope of coverage, resources devoted to the sectors,
efficiency of resource use, and distribution of benefits by income groups
and regions.
Another issue directly related
to poverty is employment. No meaningful inroad can be made into the country’s
deep-seated poverty without a substantial expansion of employment in both
the formal and informal sectors. The symposium should therefore take a
close look at the unemployment problem in Ethiopia as it has been evolving
over the last few years. It should in particular review the state of employment
in the private sector, given the fact that the thrust of recent policy
reforms has been to put the accent on the private sector. This should however
be complemented by a review of employment in the public sector as well.
Finally, no review of poverty
would be complete without a look at the housing situation. That this situation
leaves much to be desired is beyond contention. It is also clear that the
backlog of housing problems that have accumulated over the last twenty-five
years is substantial, and that it would be unrealistic to expect dramatic
improvements over a period of a few years. Still, it would be useful to
review any developments that may have taken place in the post-1991 period.
3.4
Regional Economic Relations
In the years 1991-7, there
was much talk about a ‘new leadership’ in Africa, led from Addis Ababa
and Asmara, which encapsulated a new vision in which national boundaries
meant less, and African governments collaborated in assisting their neighbours.
Although action was primarily taken at a political level, notably with
regard to developing a common approach to the problem of Sudan and forming
an alliance to remove the dictator Mobutu Sese Seko from power in Zaire,
this vision also had an economic component. The symposium plans to address
the question of how this plan for regional economic integration and cooperation
translated into practice, if it did so at all.
The question of the functioning
of the Eritrean economy and economic relations between Ethiopia and Eritrea
is, for obvious reasons, the most pressing issue that arises. The Eritrean
economy was, in 1991, essentially an adjunct economy of Ethiopia, highly
dependent on Ethiopia for money supply, food and most basic commodities.
Phasing out this adjunct economy was a challenge. Success in this project
was not assisted by the differing economic visions of the Eritrean and
Ethiopian leaderships. It was further complicated by the unconventional
nature of the Eritrean economy, which was highly reliant on remittance
income from the Eritrean diaspora and informal economic activities including
currency trading.
An in-depth study of the
Eritrean economy is hampered by lack of basic statistics including a national
budget, and difficulties in interpreting what statistics exist due to the
informal and grey nature of a substantial part of the economy. However
it is an important exercise to undertake, for several reasons. First, it
is essential to understand the Eritrean economy, not merely for the future
development of Eritrea, but also for future economic relations with Ethiopia.
Second, many of Sudan’s neighbours have unconventional economies, with
a high component of income provided by remittances, the informal sector
and grey economic activities, such as the chat economy or unlicensed trading.
In some regards, the entire economy of Somalia can be regarded as informal,
and there is a danger that it may evolve as an entrepot for illegal economic
activities. There are therefore important lessons that Ethiopia must learn
about how to manage its economic relations with its neighbours, which may
have contrasting economic systems.
The economies of Djibouti,
Somaliland, Somalia, Kenya, Sudan and Egypt all warrant attention. All
these countries have an actual or potential impact on the Ethiopian economy,
though to varying degrees, and there is an interaction between economic
relations and Ethiopia’s strategic national interests.
In the case of Djibouti,
its integration into the Ethiopian economy is self-evident, as is the Ethiopian
strategic interest in a stable and prosperous Djibouti. The Somaliland
economy is also closely linked to Ethiopia, particularly Region Six. At
the other end of the spectrum, the Egyptian economy is almost completely
separate from Ethiopia, but the two countries are strategically connected
by the River Nile. Egyptian economic prospects are closely tied up with
its ability to exploit the Nile waters, which in turn dictates Egyptian
policy towards Ethiopia, which is the source of about 80% of those waters,
and which to date has exploited virtually none of its potential for irrigation
and hydro-electricity. No Ethiopian government can afford to ignore the
regional strategic implications of increased use of the waters of the Blue
Nile.
Another important theme is
border economies. All Ethiopia’s borders are to some extent artificial,
and all have seen extensive cross border trade, both formal and informal.
The functioning of these border economies is an important subject of study,
which has too often been neglected by economists. The advent of regionalisation
in Ethiopia has made the border economies still more complex. The handling
of border trade and border economies in general is emerging as an issue
of importance for Ethiopia’s national security.
A final theme relevant to
regional economic integration is the functioning of subregional institutions,
especially IGAD. Comparable subregional organisations in southern and western
Africa have important economic functions to fulfil. This is not the case
for IGAD. It is not appropriate to blame IGAD for failing to undertake
a task it was not mandated or asked to do. Nonetheless it is important
to make comparisons with the operation of other subregional organisations
in Africa, and to draw lessons for what kinds of structures might be appropriate
to facilitate economic integration in the Horn.
4.
The Symposium
4.1
Objectives
-
To review the economic and social
situation in Ethiopia as it has evolved over the period 1991-97, with a
view to drawing up a balance sheet of achievements and setbacks -
To examine linkages between
policy reforms and socioeconomic performance, with a view to providing
an overall assessment of the policy framework, i.e. the extent to which
it is conducive to development -
To examine the performance of
the major economic sectors -
To provide an assessment of
the social situation -
To assess progress towards and
impediments to regional economic integration and the economic relations
between Ethiopia and its neighbours -
To make recommendations on policy
options and measures necessary to accelerate growth and development. -
To publish, as an outcome of
the symposium, a book containing a selection from the papers presented
at the symposium, the intention being to provide, within one volume, an
analysis of the country’s economic performance during the period under
consideration.
4.2.
Participants
-
The symposium is expected to
bring together participants from a wide variety of backgrounds – academics,
policy makers and implementors, representatives of the private sector,
donors, and NGOs, as well as any others with knowledge of and interest
in Ethiopia’s development. The emphasis should be on representation of
a broad range of opinions and perspectives, and the choice of participants
should reflect this consideration. Economists from neighbouring countries
will also be invited where appropriate.
4.3.
Structure of the Symposium
-
The symposium will have plenary
and working group sessions. The plenaries will be devoted to cross-cutting
issues (e.g., the policy framework) while the working groups will deal
with specific issues (e.g., agriculture). The following structure is proposed:
- Plenary Sessions
-
The Policy Environment for Economic
and Social Development - Macroeconomic Performance 1991-97
- The Social Situation
-
The Impact of Decentralisation
on Social and Economic Development -
Economic Relations between Ethiopia
and its Neighbours
4.4.
Working Group Sessions
- Agriculture
- Industry
- Services
- Neighbouring countries
Based on this structure,
papers need to be commissioned sufficiently in advance of the symposium.
Resource persons for this task should be carefully selected for their expertise
in particular areas. Possible titles for papers are the following, but
this is something needs to be refined and developed over time. The list
is deliberately long, although by no means comprehensive. Since not all
topics can be effectively covered in a symposium lasting a few days, there
is an obvious need for being selective. In some cases, it would be useful
to commission two papers on the same topic (e.g., the policy environment)
to benefit from a diversity of perspectives (e.g., the government position
vis a vis a more independent assessment).
-
Ethiopia’s Macroeconomic Performance
1991-97: A Balance Sheet -
The Policy Framework for Economic
and Social Development in Ethiopia: An Assessment -
The Role of the Private Sector
in Ethiopia -
The State of Poverty in Ethiopia,
Rural and Urban -
The Economic and Social Dimensions
of Decentralisation in Ethiopia -
The Peace Dividend: Reality
or Myth? -
The State of Domestic Investment
in Ethiopia -
The State of Foreign Investment
in Ethiopia - Ethiopia’s External Debt Situation
- The State of Health in Ethiopia
- The State of Education in Ethiopia
-
Employment and Unemployment
in Ethiopia - The Housing Situation in Ethiopia
- The State of Ethiopian Agriculture
-
Ethiopia’s Food Situation and
Prospects -
The Land Question in Ethiopia
Revisited -
An Assessment of Ethiopia’s
Foreign Exchange Rate Policy -
A Preliminary Assessment of
the Role of the Private Sector in Banking and Insurance -
A Review of Ethiopia’s Industrial
Performance 1991-97 -
A Review of Ethiopia’s External
Trade 1991-97 - The Eritrean Economy, 1991-7
-
Economic Relations between Ethiopia
and Eritrea -
Economic Relations between Ethiopia
and Djibouti -
Strategic Considerations in
Ethiopia’s Economic Relations with its Neighbours -
Opportunities and Obstacles
for Regional Economic Integration - Ethiopia’s Border Economies
- Sub-regional Economic Institutions
The symposium was succesfully
held at the UN-ECA Conference Hall in Addis Ababa. You may contact the
Inter-Africa Group for detail about the symposium.
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