Ethiopian Renaissance End of the Road in Sight?

Not much is being said about the ‘Renaissance Movements’ in the world today, especially in Western Europe where the movement was born. However, the story of the Ethiopian Renaissance Movement currently seems to stretch either too long or is on the verge of sudden death. A number of authors have defined the renaissance movement as a bridge between the middle ages and modern history. However, in Ethiopia’s case, it seems to assume a reverse meaning. I had an opportunity to visit Addis Ababa recently, after a gap of 15 months and what I saw was so unique and diverse that no documented historical movement can co-relate. The markets have expanded. There are multiple players doing same kind of business. Infrastructure has improved, albeit not enough to cater to the burgeoning population. Except for capital cities, including regional capitals, there is no urbanisation due to an exodus of the rural population to the few urban centres. Construction boom is visible – new, glistening skyscrapers are mushrooming alongside antiquated bars and nondescript restaurants and meat shops. Amidst this “development brouhaha” I tried to understand the undercurrents.

Government is Everywhere
Ethiopia has a distinction of being one of the few countries in the world not to have been colonised. Consequently, Ethiopians take pride in evolving on their own. However, the average Ethiopian has realised that in the era of globalisation, this concept does not work and is therefore, trying to break free in business and development. Sadly, the institution that is shackling Ethiopians is the government.

The tax regime, foreign exchange laws and public debt viability has hindered growth in virtually every economic sector. On the micro level, an entrepreneur is just not able to pursue his priorities of growth and innovation as he has little time left out of his daily schedule after dealing with governmental challenges. Ethiopia offers 36 months of sunshine for companies. It means an enterprise can live healthy for first three years. Once the tax authority audit kicks in, the enterprise is guaranteed to close and/or flee if owned by foreigner – such is the degree of inflated tax claims, cost of tax audit settlement and the resultant mental torture.

Capital is scarce and foreign exchange availability is very poor. Thanks to the foreign exchange regime – it takes almost a year to open a Letter of Credit. With all the forex controls at the cost of choking the business, the local currency (Birr) has continued to depreciate at 8.40Pct annually during the past decade –the worst currency depreciation in sub Saharan Africa.

Currently, Ethiopia has 17 commercial banks, 17 insurance companies and 35 micro finance institutions. However, low capital base and even lower risk appetite, the ban on foreign banks as well as financial institutions to enter Ethiopia and the financial sector administration being pursued by the government has led to lowest economic multiplier effect chocking businesses. Interest rate spectrum is skewed – big business gets cheaper credit whereas loans if any, to micro and small enterprises are priced at over 22Pct.

The story of public debt is no different. Government takes credit for maintaining the 10-year annual average public debt to gross domestic product (GDP) ratio at 45Pct. However, when seen from the point of productiveness of public debt, Ethiopian economists have grudging concluded that an average Ethiopian has ends up being public debt ridden on a year on year basis rather than enjoying better standards of living.

The first and second phases of the Growth and Transformation Plan (GTP I & II) have been colossus failures because they were planned by authoritarian rulers to serve what they deemed good rather than what is a combined good at micro and macro level. Ethiopian power sector is a classic case study wherein millions of borrowed funds are being spent on building power transmission network to export cheap hydro power to neighbours while capital city, the regional cities and growth centres are suffering daily power outages. Despite garnering huge share of public debt, public infrastructure productivity is low. Consequently, the overall industry value addition rate is mere five percent of GDP as against 20Pct in sub-Saharan Africa. This has had a cumulative effect on the social sectors as well.

The government is quick to claim double digit economic growth. However, at the micro levels, 10-year annual average headline inflation rate has been over 15Pct. So, who is enjoying the growth? Is Ethiopia governed by “state capture” syndrome?

Truth Vs Hype
Since the change of leadership in April 2018, muted voices in Ethiopia are finding higher decibel levels. A part of Ethiopian intelligentsia sees a new resolve in Prime Minister Abiy Ahmed (PhD) and his administration to junk the age old Ethiopian Renaissance theory propagated by the erstwhile rulers. They say liberalisation is on the way. However, liberalisation has to be coupled with privatisation which is diagonally opposite of Marxist economics. World’s fastest growing economies: India and China have embarked on “minimum government maximum governance”. Can Abiy do it or will he continue to sing the “Ethiopian Renaissance” song?

During the recently concluded Armistice Day celebration, French President Macron made a defining speech. He said “patriotism is the exact opposite of nationalism. Nationalism is a betrayal of patriotism and is leading to protectionism”. Who understands this better than Ethiopians? For the past two decades, the Ethiopian economy is being directed from behind the façade of Ethiopian nationalism by an alliance of ruling elite and economic elite. This very process has created institutions like Metal and Engineering Corporation.

Many Ethiopians currently are saying things are changing under the leadership of Abiy. The government of the day has to globalise Ethiopia. There are no role models in Ethiopia and hence the Prime Minister has to bite the bullet of “accelerated globalisation” on social and economic front. There will be pain and despair for two years. The Premier has already pledged to carry forward his agenda with love and forgiveness. If the common Ethiopian sees financial inclusion, he will support the government and patiently wait for good times.


7th Year • Dec.16 – Jan.15 2019 • No. 69

Austine Sequeira (PhD)

is Director - Corporate Affairs, Overseas Infrastructure Alliance (INDIA). He can be reached at austine.sequeira@oialliance.com


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