Issues for Debate

Ethiopia now stands at a defining moment whether or not to develop the private sector economy, if at all. The institutional inefficiency of the state economy, the low productivity trap of the population economy, and a growing surplus of labor underline the need for a long-term strategy of private sector development in Ethiopia. The economy cannot operate as usual and massive strategic change is inevitable. One of the core strategies and policies of private sector development in Ethiopia is the launching of institutional reform in the area of property rights. In political economy, there is a consensus that property rights matter a lot for investment incentives, efficient resource use, and economic growth.

Although development banks have existed since the imperial era, there has not been a time where they played as significant a role as in the past fifteen years. The developmental state paradigm, which was adopted since the mid-2000s, has given renewed impetus for development banking.

The economic policy that envisages fast-track industrialization has developed successive industrial policies. Credit policy has been the lynchpin of the industrial policies. As a result, both state-owned banks, the Commercial Bank of Ethiopia (CBE) and the Development Bank of Ethiopia (DBE) have emerged as major policy instruments.