DEVELOPMENTAL STATE VERSUS ECONOMIC LIBERALISM IN ETHIOPIA

Deeq A. · April 4, 2020

ADDIS ABABA (PPM) — Spectacular economic growth in Ethiopia resulted from developmental state introduced by the late Prime Minister Meles Zenawi under the former EPRDF.

During 1990s the Ethiopian government rejected calls by Bretton Woods duo to open up markets to foreign competition. Government control of forces of production deepened control of political processes. Between 2005 and 2017 EPRDF, the dissolved party, became the only party to win more than 95% of votes cast. There was no a rival ideology against developmental state.

Things began to gradually change in 2018 when EPRDF appointed Dr Abiy Ahmed the Prime Minister of Ethiopia. Financial Times urged Abiy Ahmed “to finish the liberal reform he has started.”

Since then the Ethiopian government has adopted an economic policy to facilitate privatisation of key industries. Developmental state has come to be associated with suppression of Ethiopians’ entrepreneurial drive. To buy one SIM card an Ethiopian citizen had to queue in the morning before a shop with the possibility of going home without buying a SIM card. Ethiopia has one telecommunications agency that makes registration of mobile phone users mandatory.

Privatisation could loosen the government’s grip on the body politic but risks creating cartel. A select group of people with deep pockets could buy shares of privatised agencies. If foreign countries bid for the sale of major, government-owned industries, the policy to woo the Ethiopian diaspora could backfire.

Was it too early for Abiy Ahmed to write off developmental state for inefficiencies? Until 2008 Ethiopia was one of the least indebted African countries. Between 2008 and 2018 Ethiopia’s external debt ” increased by 25.5%” according to a paper by the Ethiopian Economic Association.

IMF rates Ethiopian debt as high risk due to: “increased non concessional and government guaranteed borrowing; delays in completing key export-oriented projects; maturing of non-concessional borrowing contracted in the last decade; Low export performance; erratic growth in FDI and other Foreign currency sources; low-return projects prioritization; a and absence of strict debt management guideline and legal framework.”

This trend has impact on the ability to borrow money from multilateral organisations or countries. It can discourage investors from taking advantage of potential business ventures in Ethiopia, and can lead to “high debt financing and a weak economy,”

Ethiopia’s debt stock substantially increased after the death of Meles Zenawi in 2012, a sign that fiscal discipline had disappeared. Less investment in public services or a policy to boost export and service industry to earn hard currency are two remedies that can lessen the impact of debt accumulation on the Ethiopian economy.

Against this backdrop how can the Ethiopian government justify a new borrowing from the World Bank given the assessment of IMF that

“Ethiopia continues to be at high risk of external debt distress, and consequently is at high risk of debt distress overall…”?

Abiy Ahmed might be paying a lip service to economic liberalism while keeping the EPRDF playbook to make the Prosperity Party the top dog in Ethiopian politics. He seems eager to stick to the fiscal indiscipline he had repudiated before the dissolution of EPRDF last year.

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