Economic Sovereignty

Economic Sovereignty of States

New Trend in Present Day Ethiopia

Regional governments are waking up and responding to burning economic issues. Unlike the top-down economic command chain under the former centralized government, regions have started strategizing on how to tap into and benefit from the huge opportunities in the economy. To end this and in contrast to trends of the past decade, they have set up separate offices for international relations and have started dealing with neighboring countries and non-regional towns. While such practices are welcomed by those calling for the economic sovereignty of states, it is feared that this would further sour the relations between the central and regional governments. EBR’s Ashenafi Endale writes.

Two months ago, Shimelis Abdisa, President of the State of Oromia and his team of trade and investment advisors visited Djibouti. This surprised many in the diplomatic community and general public as such issues were exclusively handled by federal authorities, particularly by the Ministry of Foreign Affairs (MoFA). During the visit, the State inked agreements formalizing the trade of livestock, khat, and agricultural commodities, among others previously smuggled out of Oromia’s borders. The Djiboutian government also pledged to avail 50ha of land near Djibouti Port for the construction of quarantines and loading spaces for livestock from the eastern part of Ethiopia.

Few weeks later, a Djiboutian business delegation visited Adama Industrial Park and Modjo Dry Port and discussed possible investment opportunities in Oromia. In similar fashion, Ordin Bedri, President of Harari regional state and his team visited Djibouti on January 22, 2020. Arta city in Djibouti offered a plot of land for the establishment of Harar Cultural Center, in addition to other agreements of cooperation. Such trends have become the new normal in today’s Ethiopia, home to nine autonomous regional states and another in the making.

Contrary to trends observed in the past, regional states are now trying to create relationships with neighboring countries on their respective borders. This should not be surprising for Ethiopia, whose constitution states “nations, nationalities, and peoples have the right to self determination, up to secession.” Even though politically speaking, regional states in Ethiopia’s existing federalist system have full autonomy as they are established by their own independent constitutions, the reality remained to the contrary.

Immediately after toppling the unitary pro-socialist regime in 1991, EPRDF declared its intention to implement a plan to devolve power from the center to regional states and local governments. However, when it fully materialized, Ethiopia’s new state building attempt through federalism became a near-to unitary federation rather than a devolutionary one. The highly centralized decision-making culture under the party principle of ‘democratic centralism’ also prohibited regional states from making a single economic decision without a nod from the central government.
The interests of regional states in Ethiopia were constrained due to the absence of an inter-governmental relations (IGRs) platform, explains Bekalu Mulu, in his research dubbed “The Move Towards Developmental State in FDRE: The Role and Autonomy of Regional States for its Implementation.” Nowadays, it is MoFA serving as a center facilitating and harmonizing IGRs between the federal and regional states in Ethiopia. Such a procedure, however, has been criticized for being inefficient and partial, given the complexity of IGRs. Understanding the gaps, some regional governments started dedicating a separate office for international relations and diplomacy.

In fact, there is a department of international relations under the Amhara regional state. Addis Ababa, also has made sisterly city agreements with a number of foreign cities, including with Washington DC just last year. Tigray regional state also has experience in attracting investment directly, though some Chinese business delegates were unable to travel to the region a few months back due to federal government intervention. Engaging in full-fledged economic relationships and agreements, even with neighboring countries is a trending paradigm shift for Ethiopia’s centralized economic command.

“We are entering economic agreements and cooperation with Djibouti, Kenya, Somaliland, and other neighborly countries to legalize and integrate economic activities, create clear value chains, and contribute to jobs creation as well as economic growth,” said Dhenge Boru, Head of Oromia Trade Bureau, who was part of the team that visited Djibouti. Although Oromia has vast economic potential, significant portions of foreign trade along the region’s boundaries are illegally conducted. “Foreign trade is controlled by contrabandists, just like the domestic market is dominated by brokers. Legalizing the regional economy in the horn can also significantly contribute to peace and stability,” Dhenge added.

Ethiopia loses significant portions of its foreign currencies to contraband through all border corridors. Close to 1.5 million cattle are smuggled out and exported to the Middle East, mainly via Djibouti, in addition to agricultural commodities. On the other hand, unregulated, substandard, and poorly handled industrial products are smuggled in to Ethiopia, including medicines, processed foods, electronics, and garments.

Such a problem, according to some, can be avoided by strengthening the relationship between regional states and their neighboring countries. Dhenge says his region is creating economic relationships with neighborly countries, in line with Ethiopia’s foreign policy framework and national interests. “We know it would be better if the relationship and agreements were done at a national level. However, the issues of improving employment, export performance, and supporting GDP growth are urgent and can be better handled by the regions themselves,” he says.

Currently, Oromia is replicating a new economic revival model called “Big Fast Result,” from Malaysia. The model, applauded by the World Bank, was developed by associations ten years ago when Malaysia faced its worst economic slowdown. The model has also worked in reviving the Indian, South African, and many other dwindling economies. By adopting the model, the regional government plans to improve activities of trade and investment, especially stagnant for the past few years.

Some 341 large and highly expected investment projects in Oromia and around Addis Ababa during the last couple of years failed to become operational due to power, water, raw material, and foreign currency shortages as well as miniature decisions that officials failed to pass. Unemployment is out of control in the region and further economic decline is ahead. To avert these problems and succeed in our new economic model, having better relations with neighboring countries and others is nothing short of vital, according to Degu Setegn, Economic Policy Advisor to the Oromia Regional State President. “The relationship this region is creating with neighboring countries has broad future plans to be executed in economic, social, and security aspects.”

However, the modalities under which regional states are dealing with neighboring countries is unclear even to most government officials. “The relationships regional states are creating with other countries are most likely considered similar to sister city cooperation agreements. It has nothing to do with the decentralization of Ethiopia’s foreign policy framework or power sharing issue. For instance, officials and business delegates of Chinese provinces can come to Ethiopia for investment deals. This is similar,” said a MoFA official.

However, Fikru Tadesse, Director of Bilateral and Regional Trade Relations and Negotiations Directorate at the Ministry of Trade and Industry (MoTI), argues that the trade and economic deals regional states are making with other countries is not legitimate and cannot be implemented, unless the respective ministries of the two countries sign binding agreements. “There is no law that prohibits regions from visiting other countries, but it takes amending the Ethiopian constitution for regions to enter agreements and autonomous economic activities with other countries,” says Fikru. The presidents of regional states are not contacting other countries without the knowledge and direction of MoFA. The visits and agreements are part of the efforts of the ministry.”

The pace regional states walk the ups and downs will determine how fast Ethiopia can recover from the economic slowdown that it has been going through, as well as put a check on unemployment. Indeed, Ethiopia’s economy owes much to the pro activity of regional states, which has been lacking in the past. But when the country’s and respective regions’ economy and politics fumble, the immediate action of the regions is necessitated. Regional states have achieved better human capital development and reached a point where they can better operate their economies when under proper economic autonomy, and not when they receive aid and orders from the central economic command.

Beyond such efforts, in a new type of move, the Amhara regional state selected Debre Berhan, as its economic hub, in addition to its political capital, Bahir Dar, and tourism hub, Gondar city. Zoning-in on Debre Berhan makes sense as it is already becoming an industrial hub owing to its livestock and crop resources as well as logistical convenience. It is also targeted at reducing the pressure on Addis Ababa serving as the economic, political, diplomatic, and residential capital, overstrained by massive migration, inflation, absence of housing, and infrastructure congestion.

Currently, the regional states are moving to establish large cooperative market centers at the entrance corridors of Addis Ababa, at a cost of ETB2.5 billion, according to Usman Surur, Director of the Federal Cooperatives Agency. “The market centers will supply agricultural and processed items directly sourced from their regional cooperatives, to the central market in Addis Ababa. They will replace informal markets like Atiklt Tera and grain markets in Mercato, in addition to addressing escalating inflation.”

The market straightening efforts of regional states is not limited to the domestic economy.
Regional states are following different paths regarding their economic relationships with neighboring countries in the horn, in addition to their new approaches towards the domestic economy.But such moves, according to experts, are part of a paradigm shift within the ruling party system rather than Ethiopia’s federal structure. “It is just part and parcel of Prosperity Party entrusting loyal regional presidents to act on behalf of the federal government. Such visits and agreements are unlikely in the case of non-trusted entities like the officials of Tigrai regional state.”

The new changes in the party give autonomy to people rather than states. Structurally speaking, the federal system is now more centralized,” a legal expert says. But Prime Minister Abiy Ahmed (PhD.), in his recent address toParliament, rejected such claims, adding that there is no intention of excluding Tigray. “Members of Parliament should rather ask why the delegates were not given permission to go to Mekelle. And even after this incident, other delegates of many other countries have gone to Tigray,” he said. While saying so, Abiy seemingly legitimized the quiet detachment of the regional state from democratic centralism and the crafting ofa new economic order towards creating better foreign economic relationships for the region.

For Firew Yirgalem, PhD. candidate in Humanitarian and International Relations in Italy, the issue has more to do with economic urgency rather than politics. “There is officially no changed law in foreign policy that allows regional states to exercise more autonomy than before, create unilateral relationships, and send delegates abroad. They are bypassing the laws but for good reason,” Firew said. “The federal government is just transferring the pressure of national unemployment and economic stress to the regional governments.” This is not surprising.

Regional states and federal ministries have taken orders to create up to 14 million jobs within the next five years. The rush for independence between regional states is also igniting economic self-sufficiency. As the majority of the population, especially the youth, keeps expecting economic magic and employment from the new government, regional states are given more empowerment. But with more empowerment comes more pressure, to bring the much-desired change, according to Firew. But this, for Degu, is a practice that needs to be encouraged.

“We cannot exercise full autonomous economic power because FDI, foreign currency, and even minor infrastructure issues are still entirely under the mandate of federal government. The role of regions in investment is limited to providing land to the federal government. The fiscal system is also centralized,” says Degu. “This is despite regional states having their own constitution, council, and economic development policies and plans.”

Firew argues Ethiopia can fundamentally change the economy as well as politics by decentralizing the concentration of power and giving more economic autonomy to regional states. He says this can significantly contribute in three ways.

Firstly, giving more economic autonomy can unlock positive competition between regional states. It can lead regions to scrutinize research papers, find out their comparative advantages, and intensively work on developing their respective economies, according to Firew. Secondly, economic autonomy can contribute in boosting inter-regional economic ties. Its third contribution, according to Firew, is ensuring the proper implementation of policies. “Regional states know the problems on the groundmore than the central government. Usually, economic targets in Ethiopia fail because they are top down endeavors. It can also help in sending the right investment to the right region,” he said.
However, Fikru warns of two implications. “During the last three decades under EPRDF, investments were directed to few regions where the officials had affiliations. Giving autonomy can balance the injustice of the past. However, government must keep the field open and even for all regions and be careful not to give preference to few regions and create another imbalance as seen in the past,” he said.

Another problem might be the misuse of power by some rogue officials of regional states. Using the economic autonomy to buy arms and build regional special forces, as witnessed in the past, creates an unhealthy competition for dominance, according to Firew. The federal government must keep this in check, if it is to really give regional states economic autonomy,” he warns.EBR

9th Year • Feb.16 – Mar.15 2020 • No. 83

Ashenafi Endale

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