Ten-year plans are not that common in the national planning endeavors of modern Ethiopia. Five-year plans, on the other hand, spell the standard for the governments that have administered the country since the 1950s. Breaking that tradition, the incumbent has formulated a Ten-Year Perspective Plan (TYPP). Ashenafi Endale looks into the five major criticisms scholars raise against the planning document.
July was an eventful month for the National Planning and Development Commission (NPDC) as it was busy presenting afresh the Ten-Year Perspective Plan (TYPP) dubbed “Ethiopia: Beacon of African Prosperity”. The roadmap came in the middle of the implementation of the three years Homegrown Economic Reform Program, a medium-term plan launched in September 2019.
Odd enough, the roadmap also came while the world was throwing every stone at hand on the short-term goal of averting the impacts of COVID-19. In fact, opposition political parties argued that the long-term plans are rather the ruling Prosperity Party’s strategy to extend its grip on power by going beyond its transitional role. Regardless of the political party that implements it, the roadmap can be considered as a recovery plan from COVID-19.
The current roadmap is the second of its kind in Ethiopia’s modern history following the Dergue regime’s “Ten-year Perspective Economic Plan,” of 1985 to 1994. The Dergue’s ten years plan is regarded by scholars as the best long-term plan by far. Ethiopia’s first five years economic plan was formulated during the imperial regime and it covered the five years between 1957 to 1961. Since 2004, EPRDF introduced three five-year plans: PASDEP and two GTPs. However, all of them have a low implementation rate.
Some countries craft long-term roadmaps that span 50 to 100 years to earmark a clear direction into the future, embody new potentials, devise new approach and visualize new growth territory.
The overlapping span of the Homegrown Economic Reform Program and TYPP confuses implementing institutions and financiers. The Homegrown program targets remedying macroeconomic distortions inherited from the past administration. It envisages solving the distortions at macro, structural and real economic sector levels. Under it, the government is pursuing reforms ranging from improving ease of doing business to privatization.
The TYPP aims at growth, in which everything doubles. At the end of its implementation period, per capita income doubles from now and reaches USD2,248 by 2030, growing at 8.2Pct annually. GDP is projected to grow at 10.2Pct annually for the next ten years. The number of people living under the poverty line is expected to be slashed from the current figure of 19Pct to 7pct by 2030.
The TYPP has the ambitious plan of making Ethiopia a middle-income country by 2030. The GTPs sought to achieve the same target by 2025, but the feat proved too much. The TYPP lays out ambitious plans that require huge financial resources dwarfing those of the GTPs.
In a meeting held on July 24, 2020 featuring high government officials including the governor of the National Bank of Ethiopia (NBE), the Minister of Finance, Ahmed Shide remarked: “The TYPP requires sustainable funds through availing massive state financing.”
“The macroeconomic imbalance we face today is a result of the wrong financing model and policies we had. Structural solutions are needed to solve structural problems,” lamented the NBE governor, Yinager Dessie (PhD).
The TYPP seeks huge financing in all sectors. For instance, the power sector requires ETB80 billion annually for the next ten years, according to a document presented by Sileshi Bekele (Eng), Minister of water, energy and irrigation. At the end of the plan period, power production will increase from the current 4.2GW to 21GW. “This seems ambitious but it is critical to ensure that Ethiopia is ready for industrialization. We must achieve quality growth that entails maintaining stable macro economy and ensures people actually benefit from the growth as it would create decent jobs. These are our lessons from the past,” stressed Fitsum Asefa, commissioner of National Planning and Development Commission (NPDC).
The Homegrown program has come earlier but it is part of and the launching pad for TYPP. Similarly, GTP I was designed to pave way for industrialization during GTP II. Despite the tough economic, political and social current state of affairs in Ethiopia, economic growth seems to have persisted on the top end of the international community with the figures still within SDGs limits.
According to the World Economic Situation and Prospects 2020 recently launched by the World Bank, only the GDPs of Bangladesh, Benin, Cambodia, Ethiopia, Rwanda, Senegal and South Sudan are growing at above 7Pct per annum. Other LDCs remain far from achieving the ‘’at least 7Pct annual GDP growth,” required to fulfill the SDGs. ‘In Ethiopia, economic growth is forecast to exceed 7pct in 2020 and 2021, driven by rising private investment, robust public investment and growing business confidence as a result of economic reforms; nevertheless, it is essential that Ethiopia addresses macroeconomic fragilities, including low levels of foreign reserves and currency shortages, high levels of debt, and an elevated current account deficit,’ states the WB document.
“As growth continues trending with commodity price cycles, the need for a systematic diversification of the productive structure is clear. Industrialization lies at the heart of this transformation. However, other than in Egypt and South Africa, economic diversification across the continent remains low, though recent improvements are evident in a few countries, including Ethiopia, Morocco and Rwanda, as a result of proactive industrial policies. Also, global value chains tend to bypass the continent, as most African countries still export mostly raw or minimally processed goods,” underscored the report.
Critics on the TYPP
The TYPP is criticized for five major reasons.
The first criticism is associated with the government’s failure to instate a new team of experts to craft the document. Experts drawn from the planning departments of all Ministries and public institutions prepared the TYPP in a piecemeal. These experts and institutions were part and parcel of past failures and current economic distortions. Planning and implementation cannot succeed without human capital. As Einstein pointed out: “We can’t solve problems by using the same kind of thinking we used when we created them.”
The National Planning and Development Commission (NPDC) has not prepared a compiled document like that of the GTP. The discussions among officials through July are also confusing as it was difficult to determine whether the government was gathering inputs for the draft or advertising a finalized economic plan.
Countries like south Korea prepare long term economic roadmaps by establishing a pool of experts from universities, public institutions, opposition parties, independent experts and even foreign experts. They either prepare a special capacity of local experts or hire from abroad. For the experts, they devise a new incentive structure that is higher than that of civil servants. Ethiopia’s first ever five years development plan that came into implementation in 1957 was crafted by the National Economic Council, established in 1955. The council consisted of a planning board and secretariat that are tasked with drawing plans. The executive committee of the board was chaired by the Prime Minister and consisted of all other Ministers. The second five-year plan of 1962-67 was also prepared under the same arrangement.
The Office of the National Committee for Central Planning (ONCCP), established in 1984, had 14 departments representing economic sectors, with regional planning offices in the then 30 administrative regions of the country.
In the current case, however, independent experts and university scholars say their input was intentionally sidelined. The leading economics professor in the country who lectures at Addis Ababa University and the London School of Economics, Alemayehu Geda (PhD) stated: “I am neither consulted nor given the draft document to comment on. They do not want to engage independent experts because the government knows that we are critical for real. They are afraid of critics.”
The absence of baseline is the second criticism. Although the second GTP just ended in June 2020, the government has not bothered to evaluate the detailed performance during the specified period, identify reasons for failure and instate a new way of thinking. Alemayehu (PhD) noted that the government did not evaluate past performance and considered population survey to come up with a baseline. He added: ‘it is difficult to plan without population survey.’
“We took our achievements over the last ten-years as a baseline. The second baseline is our vision of making Ethiopia an African beacon of prosperity by 2030. Local and regional reforms, international agreements, the African Free Trade Area (AfCFTA), regional bilateral agreements and international trends are taken as indicators. The Homegrown Economic Reform is part of the TYPP and it is the baseline towards a comprehensive growth,” said Ahmed Shide.
Yohannes Ayalew (PhD), macroeconomic policy director at the Ethiopian Development Research Institute (EDRI), pointed out that GTP II is taken as a baseline. He further pointed out that population trend is known as it is possible to project population for 40 to 50 years using previous survey.
The third criticism is that the TYPP has no official growth model. Yohannes Ayalew (PhD) affirmed that the TYPP does not have an officially adopted model used in its preparation. Alemayehu stated: ‘the government did not use any model to prepare the TYPP. Thus, TYPP did not capture even existing problems, let alone the future. It also contradicts and overlaps with the Homegrown Reform program. The three years homegrown reform program is more realistic because it has no ambition for growth and it focuses on resolving existing problems. It would have been better if the government had gone only with medium term plan.’
“Adopting an economic model is not mandatory unless we look for a label. In fact, the tenets of developmental state are still in place in the TYPP. Active governmental role in the economy, dictating financial flow and crowding out the private sector are still in place. Practically TYPP will be implemented by a developmental state, although the government does not use the term due to political issues. The government announced it will liberalize exchange rate regime, bank interest and some SOEs in the years ahead. However, these are not enough to change it from developmental to liberal,” said a micro-economic expert at the world bank who spoke to EBR on the condition of anonymity.
The fourth criticism is that real sector targets are not realistic. Agriculture’s share to GDP is set to be slashed from its current 34Pct to between 22Pct and 25Pct in ten years. Manufacturing is expected to shoot up from 5.7Pct to between 17Pct and 18Pct, while the share of industry is expected to surge from 25Pct to 35Pct. Construction’s share would be set back from 20Pct to 18pct. The share of the service sector is forecasted to stay almost constant with the current 40Pct share to stay between 40 to 45Pct. Agriculture is expected to grow at 6pct while the figure for industry is 13pct, of which manufacturing would take up 20.6pct. The service sector is expected to grow at 10.6pct.
The cost of abandoning agriculture is the failure to realize structural transformation, as witnessed in the GTPs over the last decade. The draft document devised by the Ministry of Agriculture, as an input to the new TYPP, offers no insight other than keeping up with the status quo. The only new development in the agricultural sector is the low land large scale farming recently kicked off. No modality is envisioned to relocate capital towards agriculture, transform the sector, and sufficiently address food security, input supply to industrialization and export.
The main reason behind the NPDC’s projected reduction of agricultural share to GDP is the international standard of less than 25Pct share of agriculture to GDP to be categorized as a middle-income country. For a country like Ethiopia to really achieve this status, manufacturing must grow dramatically and fill the void left by the shrinking agriculture. Under current conditions in Ethiopia, the miracle needed to rocket manufacturing into a new stratum in ten years is not visible yet.
In defense of the establishment, Fitsum pointed out: “we have built big infrastructures and industrial parks. They can be a huge source of growth, if we can make them productive.” For the time being though, that is only a wishful thinking as their performance is rightfully depicted by her comrade Yinager as being in shambles. He remarked: “industrial parks performed way below our expectations. They are not even paying their debts, since they are not operating at full capacity.”
However, the experienced micro-economist at the world bank who spoke to EBR on condition of anonymity argues there are avenues to boost manufacturing. “Ethiopia can use the opportunities in the international system. The big opportunity is that labor intensive industries are moving from advancing economies to developing countries, especially in Africa. Ethiopia’s manufacturing started to takeoff only after manufacturing industries in China, Vietnam, Thailand, Bangladesh and other countries started to move to Africa looking for cheap labor. Especially light manufacturing industries, which first moved from the West to Asia, are currently moving from Asia to Africa. These countries are focusing on high end industries and the wage is hiking. Small industries cannot afford high wage; so, they move to low wage countries. African countries fit that bill ideally. Manufacturing took off in Ethiopia when the country was ready for FDI. That is still the hope. Only Myanmar exceeds Ethiopia in attracting FDI to low wage countries. Ethiopia was in the top five FDI destination in Africa,” explained the microeconomist.
The biggest opportunity in this endeavor, according to the microeconomist, is that the light industries do not move alone, when they move to low wage countries. “Their suppliers and buyers also move with them. When PVH, H&M and other global industry brands moved to Ethiopia, they also brought their input suppliers and customers. This bridges the supply gap in Ethiopia. Cheap labor and surging supplies of electricity still have a huge potential to attract FDI and boost manufacturing in Ethiopia. FDI was growing fast until three years ago when the political unrest started. Currently, most industries in coastal China and in many Asian countries are looking at which African country to move their factories to. Peace and stability determine their destination,” he added.
“The TYPP plan will be amazing, if it can increase manufacturing to 18Pct and reduce agriculture to 25pct. this is the real sector mix of middle-income countries. What worries many is that the share of agriculture might diminish, but the service sector will balloon again repressing manufacturing. Manufacturing can replace agriculture by hiring more people, increasing value addition and supply side improvement. The right kind of service sector has not emerged in Ethiopia. There are capital consuming and petty trading services. The middle way type of service sector, which hires many people, did not emerge. Such sectors like IT contributed a lot to India’s growth, also absorbing huge human capital. The TYPP is a good plan but I worry a lot about whether it would work out. It might succeed if all the constructed industry parks produced in full swing. The TYPP is hanging by many ‘ifs.’ It is good to make the plans ambitious, but the government also needs backup plans,” added the World Bank expert.
“If manufacturing grows fast, the share of agriculture to GDP will diminish. Manufacturing can grow faster in the next decade, if efficiency can be achieved,” remarked Yohannes. The TYPP also overlooked the importance of launching economic backbones such as iron ore industry, pulp and chemical industries, which are prerequisites for import substitution.
The fifth criticism is the marginal status given to the private sector. Due to absence of a well-defined model, the developmental role still rests on government shoulders and its development enterprises (SOEs).
The imbalance between demand and supply is Ethiopia’s main problem. This is caused by the failure to make the huge public investments made in the past two decades productive and boost the supply side. The financing model in use prioritizes state hands rather than financing the right private sector. Financial resources are directed to public projects and SOEs, at the expense of private investors. The practice leads to the starting point of a vicious circle that includes printing and supplying fresh money to SOEs, ballooning broad money supply especially since the ambitious GTP was launched in 2009/10. Re-inventing real private sector is also critical and equal to overhauling public sector reforms.
The private sector is still given low attention. The financing mechanism has seen no reform. Although the Minister and Governor admitted the GTPs failed due to our financing model which prioritized inefficient SOEs, the government has not changed the status quo. The government’s ambitious resource mobilization followed by public investment through SOEs indicates that it has not detached from the past. The private sector does not grow because the government privatized some SOEs. The huge debt SOEs bear would be transferred to the Ministry of Finance (MoF), so they can take more loans and start new projects. The TYPP has all the attributes of a developmental state. The difference is that 20Pct of public investment will be covered by the private sector now, under PPP.
In general, experts agree that the government should focus on short and medium-term plans, until it undertakes full-fledged reform. With such sharp criticisms directed at the TYPP, the government needs to bend a bit from the usual trend of things and engage scholars and other relevant stakeholders. Afterall, more reviews and constructive criticisms would only help bridge the perceived gaps in the planning document.
9th Year August 30 – September 30 2020 No. 90