In August, 1991, Prime Minister Tamrat Layne presented his economic proposals for public debate. The 35-page (Amharic) booklet entitled Draft Transitional Economic Policy for Ethiopia sought to comprehensively address the country’s diverse economic problems. Generally, the proposals are uninspired, timid and cumulatively favor maintenance of the status quo.
Magnitude of Economic Problems
Ato Tamrat’s proposals are derived from his analysis of the country’s dir economic situation. He claims that the country’s agricultural infrastructure has declined over the past 17 years as a result of mismanagement and poor economic planning. He laments the country’s inability to feed itself and the need to import foodstuffs. He asserts that the country’s industrial productive capacity continues to deteriorate because of the lack of raw materials and spare parts. He sounds the alarm on the depletion of the country’s foreign exchange reserves and accumulating debt. The country’s trading and commercial capacity, inflation and transportation infrastructure are all said to be approaching critical status. In sum: “Because our country is in such a desperate economic situation, a substantial segment of our population is facing starvation.”
Reasons for Economic Problems
Ato Tamrat points to the Derg’s relentless suppression of private entrepreneurship as the principal reasons for the country’s economic decline. The Derg’s war efforts are particularly blamed for the diversion of valuable resources from economic development programs. The Derg is also accused of overcentralizing and overbureaucratizing economic planning and policy making.
Tamrat’s Proposals for Transitional Economy
Ato Tamrat underscores the fact that his proposals are presented as stopgap measures for the transitional period preceding general elections. The Charter requires elections within two years. He asserts that efforts must be undertaken immediately to reverse the country’s economic decline. He claims the “democratic process” established under the Charter can facilitate economic revitalization.
Government Role in the Economy
According to Ato Tamrat, the transitional government should be concerned with “setting progressive economic policies and undertaking a limited role in those economic activities in which it is particularly efficient.” The transitional government should also be “involved in assisting the process of capital formation and mobilization of private enterprise. There shall be no limits on private investments and national capital should be given preference over external capital.” Government should also actively involve and encourage the public to participate in the debate over the economic policy. Ato Tamrat sees a special role for his government in promoting group investment ventures and in initiating diverse small-scale economic enterprises. “Government should actively seek foreign aid and use the assistance for economic development
programs.”
Agricultural Policies
Land ownership will remain with the government. Ato Tamrat argues that privatization of land will create severe economic and social problems. He feels his transitional government is ill-equipped to address the issue of land tenure and reform. In the short term, Ato Tamrat proposes removal of price controls on agricultural commodities and reductions in producer taxes. He proposes to give agricultural producers special assistance including farm tools, technical advice and improved transportation to facilitate access to markets. Drought-ravaged areas in the north are to be given special rehabilitative assistance.
Ato Tamrat also proposes a major reduction in state involvement in agriculture. He proposes to “sell off or dismantle unprofitable state enterprises. Only the profitable ones should be held by the government and operate competitively and without subsidies.” He favors the expansion of “modern agriculture” and aims to encourage commercial agriculture by providing concessions, tax incentives, loans and guarantees.
Industrial and Related Policies
Both heavy and light industry will be owned by the government. Banking and risk management institutions will also be government-owned. Rail, sea and air transportation will remain under government control. Private entrepreneurs will be permitted to engage in joint ventures with the government. They will be allowed to engage in wholesale trade and small businesses. Indemnification of private capital is also proposed as a means of encouraging risk-taking.
Housing Policy
Individuals will be allowed to build private homes but the land will remain under government ownership. Homeowners, however, will be allowed to rent, sell or otherwise transfer their interests in their homes freely. Persons who lost their home to the Derg’s nationalization program will be able to reacquire them by presenting proper authentication. Large buildings will not be returned to their former owners nor will they be offered compensation.
Problems in Tamrat’s Proposals
Prime Minister Tamrat’s proposals on short-term economic issues appear to be on target. The transitional government could effectively act to aid farmers by providing tools and technical advice. It could remove stifling bureaucratic regulations on the economy and reduce taxes on producers. It can play an important role in seeking humanitarian aid to meet food shortages and avert another large-scale starvation. On the other hand, the his proposals on restructuring the economy are of dubious economic efficacy and constitutional validity.
Initially, one is struck by the curious similarities between Ato Tamrat’s proposals and the privatization and economic reform programs announced by former dictator Mengistu in the twilight of his regime. It may be recalled that Colonel Mengistu proposed a “mixed economy” which sought to allow a greater role for private enterprise in the economy. In much the same way, Ato Tamrat now proposes to reanimate the Ethiopian economy by a combination of superficial incentives and regulatory reform while essentially preserving a dominant role for government as an economic actor in the market place. The differences between the current proposals and Col. Mengistu’s “mixed economy” approach is imperceptible.
Ato Tamrat’s proposals on the transitional government’s role in the economy are puzzling. He proposes a diminished role for government limited to broad policymaking and selective participation in the market as an economic actor. Yet he insists on government ownership of heavy and light industry, monopoly in mining, energy, banking, transportation and a whole range of other vital economic activities.
The Prime Minister’s proposals on foreign investment and local capital formation are quixotic. Ato Tamrat claims that there should be no limits on private investments. Yet private investment may not even compete with government in critical sectors, e.g. mining, energy, banking, transportation. At best, private capital can form joint partnerships with majority government ownership. Ato Tamrat claims that domestic entrepreneurs will be given preference over external capital. He fails to realize that few foreign investors would tolerate second-class treatment. Any foreign investor today is guaranteed special and preferential treatment in Eastern Europe, the Soviet republics and Asia.
There is another major risk that is likely to chill both external and domestic capital investment. An elected government in two years could change the policies adopted by the transitional government. This risk is compounded if the country is governed under the current proposals for regional decentralization.
Ato Tamrat claims that his proposals are short-term and aimed at the transitional period. This is not borne out in the content of his proposals. He could not reasonably expect to achieve the major structural reforms he proposes in the next 18 months. The manner in which the proposals are cast suggests that Ato Tamrat is certain about the outcome of the anticipated elections including the likely composition of the leadership, the nature of the federal structure (presumably there will be a national or central government with supreme powers in economic policy), and the exact methods on how legitimately elected government could decide on how to open the country’s economy to internal and external market forces. If fair elections are anticipated prudence would urge greater circumspection on the part of the prime minister in the proposals he makes. Needless to say, only a legitimately elected government can authoritatively decide on whether to open the country’s economy to foreign investment and on what terms, sell off state enterprises or undertake long-term economic programs for infrastructure development.
There is another disturbing aspect of Ato Tamrat’s proposals. His proposals may lack constitutional (Charter) authority. It is dubious that the prime minister or the transitional government has the constitutional authority to auction off publicly-owned enterprises, commit the country to long-term international economic obligations or begin to unilaterally effect wholesale economic changes without the imprimaturs of an elected legislature. To be sure, the transitional Charter is notorious for its complete silence on the nature of the transitional economic.
Certainly, there are some urgent and very pressing problems that are within the proper sphere of a transitional government. Orderly demobilization and economic and social rehabilitation of both former soldiers and EPRDF fighters should be a prime consideration. The transitional government could act to quickly revitalize certain sectors such as tourism to generate foreign exchanges. As proposed, price controls should be removed while closely monitoring inflation. Moreover, the transitional government could act to remove other restrictive banking and currency regulations. It could employ its budgetary allocations not only to reenergize agriculture but also alleviate urban unemployment. Such kinds of issues should be the foci of a transitional economic program.
In the final analysis, there is little that Ato Tamrat offers to bring Ethiopia out of 17 years of economic hopelessness and malaise or insure a smooth transition to a market economy. The poisonous tree of Marxist economic planning is still in Ethiopia complete with roots and branches — its symmetry a bit warped and tarnished, but no less towering andpernicious. Well, back to the future!
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Alemayehu Gebremariam, Ph.D., J.D., is Senior Editor of ER