At a sensitive time when the economy is suffering from inflation, unemployment, debt distress, poverty, conflict, and COVID-19, the nation prepares for the sixth national election to decide who rules for the next five years to end the transitional government that has been in power since April 2018.
Nonetheless, the political space is largely occupied by parties fanning and prioritizing ethnic quests instead of addressing underlying economic constraints. Ideology-based analysis and principled models for Ethiopia’s vicious economic circle are brands scarcely seen in the political parties’ campaigns. Out of the 47 political parties cleared to participate, 18 are competing for federal Parliament seats. While very few of the national parties have manifestos, even fewer have well-defined politico-economic policies to relieve voters of the ongoing economic strife. While almost all national parties are centrist and generally claim to be social democrats, their policies on pressing issues concerning the private sector, factors of productions, structural transformation, and growth model are contradictory, not well digested, and full of arrears. Most of the parties have diminished their outlook of voters to ethnic lines, instead of creating a policy-conscious supporter. Will the upcoming national election bring along a competitive party that can bail out the economy, or will the voter bail out the parties? EBR’s Ashenafi Endale explores.
In Ethiopia, where identity politics dominates and ethnic groups compete for power and influence, vital economic issues such as poverty reduction, job creation, inflation taming have barely gained the attention of political parties participating in the upcoming 6th national election.
As witnessed during campaigning, most of the 47 political parties vying for seats in the 547-seat Parliament, as well as in regional councils, have been bogged down with ethnic-driven politics instead of the crafting of a rectifying path for the nation.
Driven by massive public-led investment, Ethiopia has recorded phenomenal economic growth of around 10Pct in the last decade. In the same period, the country has been plagued by poverty, massive unemployment, and galloping inflation. Poverty and unemployment are serious social problems in the country. Close to 20Pct of the population in Ethiopia now lives below the international poverty threshold while more than 10 million people remain unemployed. In the past decade, inflationary pressure has immensely affected the great majority of the population with studies indicating average annual inflation for the last fifteen years at 39Pct.
The major contributing factor for these economic problems is the developmental state model adopted by the government which allowed the state economy to expand to such an extent that the private sector has become relatively irrelevant in the economy. With the government engaged in huge infrastructure projects, the development of the private sector has been constrained due to limited access to finance.
Without the active participation of the private sector, productivity levels of the economy have dramatically declined, efficiency has been lost, and inclusive economic growth has been elusive.
In a bid to sustain the 10Pct average annual growth, Ethiopia has been spending huge chunks of money equivalent to 36Pct of annual GDP towards public investment. Nevertheless, the investments could not materialize and pay off debts. The major source of financing for governmental investment over the last decade has been public borrowings. By December 2020, external debt reached USD29 billion while total public debt including local dues grew fourfold over the decade to reach USD54.5 billion by the end of 2020. The massive external debt stock which especially accumulated during the last decade constitutes a quarter of Ethiopia’s GDP.
The state’s huge appetite for finance coupled with resource wastage has deteriorated the country’s credit rating leaving Ethiopia unable to access much-needed loans to finance development endeavors and tackle the major macroeconomic, political, and social problems challenging the survival of the country.
Solving these issues by finding a delicate balance between the roles which government and private sector should play in the economy should have been the major assignment of political parties hoping to govern the country for the next five years. But only few have bothered to come up with a pertinent strategy.
The incumbent is among those strategizing an economic roadmap. In a sharp departure from the state-led developmental strategy adopted by its predecessor, Prosperity Party (PP) advocates for a liberal economic doctrine that provides ample room for the private sector in the economy.
According to the development plan prepared by PP for the next ten years, government’s role will be to empower the private sector. Creating a conducive investment climate and building friendly bureaucracy will be major tasks for the government. Privatization of public enterprises and the substitution of imported items like sugar, edible oil, and wheat with local production are also among objectives outlined in the plan.
“Prosperity is already working to create a favorable investment and business environment for the private sector,” says Fitsum Assefa (PhD), Minister in Charge of the National Planning and Development Commission and Executive Member of PP. “The change ranges from cutting out bureaucratic hurdles to amending laws.”
The ruling party envisions achieving an average annual growth rate of 10Pct up to 2030 in addition to classifying Ethiopia as a middle-income country in 2022 by raising per capita income to USD1,115, further projecting to reach USD2,220 by 2030. Crafted with the objective of laying down the foundation for the local manufacturing sector, the plan has been rolled out with the target of reducing the portion of the population below the poverty line from the current 19Pct to 7Pct in ten years’ time. By annually creating 1.36 million new jobs, PP plans to reduce urban unemployment from the current 19.1Pct to less than 9Pct in the period. To achieve such targets, the incumbent plans on disbursing ETB2.9 trillion in loans to the private sector in the next decade.
Helping successful small-scale farmers become investors by expanding their landholdings, encouraging the participation of the private sector in large-scale agriculture, and expanding urban agriculture are some of the distinctive strategies PP plans to implement to improve agricultural productivity.
Just like the incumbent, Ethiopian Citizens for Social Justice (Ezema), one of the nation’s largest opposition parties, favors a free market economic system that allows for a private-public partnership only when necessary. In its election manifesto, Ezema states that both the capitalistic and socialist economic systems have caused damages on economies across the world. “While the private sector cannot properly function under socialism, micro and small businesses will be dwarfed in a free-market economy as the system serves the big and powerful,” argues Kebour Ghenna, Ezema’s Addis Ababa City Council candidate.
Ezema, running in 412 election districts out of the 547 nationwide, believes that the main driver of the economy should be agriculture with its potential to produce not only for local consumption but also for export and industry’s raw material. As a favorable landholding system is essential to improve the productivity of the agricultural sector, Ezema proposes introducing a system that allows for private and communal land ownership alongside the existing system. The private sector will be encouraged to involve in agricultural input and technology supply and provide extension services to farmers.
“Ezema will work to transform subsistence farming by supporting and promoting commercial farming,” says Aaron Seife, Executive Member of Ezema. “Commercial farming will be supported by research and extension work as well as with finance, technology, and skilled manpower.”
When it comes to manufacturing, Ezema states that the government’s policy that injudiciously focused on foreign direct investment overshadowed domestic investors. As such, the party stresses that the local private sector should be the major actor in the productive sector with special attention to be given to import substitution. To facilitate this policy, tariff barriers will be imposed to protect and enable the competitiveness of local manufacturers on a temporary basis until they become capable enough to compete in the global arena.
“In order to boost the involvement of private investors in the manufacturing sector, financing will be provided,” Kebour explains. “The collateral-based credit system will be reconfigured in order to accommodate those who only have feasible business ideas. We will also establish a secondary market that will encourage the formation of primary markets.”
Unlike Ezema and PP, Enat Party believes there is no single economic philosophy that fits the country. So, the party proposes an economic ideology mix to solve the nation’s existing macroeconomic problems. The party is the third largest, following Prosperity and Ezema, in terms of number of candidates listed.
“The private sector in Ethiopia is still in its infant stage and needs more governmental support to grow,” says Getachew Asfaw, National Planning Expert for Enat Party. “Ever since the imperial regime, the private sector has just been an extension of the state and has not been given the chance to grow.”
According to the election manifesto of Enat Party, the expansion of large-scale farming and commercial animal rearing will be the focus of its agricultural policy. The party plans to adopt a private landholding system to realize its vision for the agriculture sector.
Taking industrialization to rural parts of the country is another strategy. “The party will focus on expanding cottage industries in rural Ethiopia as we see the reason for the failure of industrialization in Ethiopia in the past is due to government’s abandonment of the handicraft and cottage industries,” argues Getachew. “We will also open up the banking sector to foreign companies.”
Ethiopian National Unity Party (ENUP), which advocates for a social democracy stance, believes in government intervention in the economy to promote social justice within a framework of a capitalism-oriented mixed economy.
“We believe in the power of the private sector. But in an underdeveloped country such as Ethiopia, state support is critical,” argues Mikias Seyoum, ENUP Vice President. “But the role of the state should be limited to the provision of support and building infrastructure.”
Mikias admits that avoiding capitalism is impossible. “Capitalism needs state intervention to avoid the accumulation of wealth in the hands of a few. This is why the country needs a mix of strategies from both capitalism and socialism.”
ENUP states that poverty, unemployment, and inflation are the results of weak macroeconomic performance. To improve productivity, the involvement of the private sector in commercial farming and manufacturing is vital, according to ENUP. “Manufacturing could not grow because agriculture did not grow. The state has been crowding out and snatching finance from the private sector,” argues Mikias. “Supply side shortages occurred because the private sector, which is the production arm, was denied finance.”
However, ENUP believes the narration that depicts Ethiopia as the land of cheap labor must change. Since the government is building infrastructure, the party stresses that foreign investors should especially pay higher salaries. “But first, producing skilled labor is required. After achieving this, the salary of factory workers can be increased,” says Mikias.
ENUP also plans to leave the financial sector closed to foreign institutions. “Banks must have the autonomy to do business independently without being dictated to by the government,” says Mikias. “They must be given the freedom to finance only feasible businesses.”
A coalition of four political parties, Ethiopian Federal Democratic Unity Forum (Medrek) supports a social democratic economic model and believes that only the private sector can save the national economy. Ethiopian Socialist Democratic Party, Arena for Sovereignty and Democracy, Sidama Liberation Movement, and Oromo Federalist Congress are the parties that form Medrek.
According to Medrek, the ruling party has been favoring few businesses which have connections with politicians. Such state favoritism has been negatively affecting the operations of those that play by the rules of the country. “Manufacturing and agriculture cannot grow without a competitive private sector. So, our core principle is that there cannot be a competitive private sector without political and economic freedom in the nation,” says Desta Dinka, Secretary of Medrek and Head of Oromo Federalist Congress (OFC). “We encourage the private sector to invest freely.”
The election manifesto of Medrek states that commercial agriculture is highly feasible in Ethiopia. But it has failed to live up to expectations because access to finance was controlled by politicians. Desta stresses that the opening up of the banking and telecom sectors along other key areas requires caution. “The closure of banks to foreigners has helped the growth of domestic banks. So, we will open these sectors gradually.”
In all, even though some individual experts try to defend their organizations’ possible approaches to existing economic challenges, the parties lack an organizationally proven, articulated and documented ideology and principle that can be a contractual promise which the voter can hold as guarantee should they win the election.
The parties’ policy alternatives for the upcoming national election are highly fragmented, shallow, flimsy, and barely qualify as hypothesis. They largely tend to be centrist. But it is difficult to define the parties as such, or with any ideology, due to their contradicting, overlapping, and similar policies. Either the parties’ diagnosis of the economic situation in Ethiopia is wrong, or they are purposely avoiding sticking to a single ideology to keep their options open and eat from different plates. EBR
9th Year • May 16 – Jun 15 2021 • No. 98