State Capture

State Capture

The Rise of A Shadow Government

State capture refers to systematic high level political corruption that establishes a hidden political regime at odds with the constitutional purpose of the state, by capturing politicians and parties, journalists and the media, the police as well as key state institutions such as the legislature, the executive, the judiciary and regulatory agencies in order to protect and to benefit its own private interests. Although state capture is a concept that has received extensive attention principally in the post-communist states of Eastern Europe and Latin America, it has also found its way into Africa’s political discourse in recent years. In fact, the influence of state captors is growing in developing countries. Ethiopia is no exception, as evidenced by the mismanagement of massive mega projects and numerous corruption scandals as well as political persecution, especially in recent years. EBR’s Samson Hailu investigates the extent of the phenomenon in Ethiopia.

In recent years, stories ranging from the mismanagement of mega projects, embezzlement of public money and numerous corruption scandals to political persecution and the use of extreme measures including torture to silence dissents are becoming more common in Ethiopia, a country currently making significant changes. Despite the extent of the problems, what has become striking is the way these tragedies are orchestrated and covered-up to conceal wrongdoings.

One of the major scandals and disguise attempts seen in recent years involves the Ethiopian Sugar Corporation, a government entity responsible for the expansion of sugar factories. The absence of accountability over the failure to complete 10 sugar factories while missing deadlines repeatedly after spending billions of birr shows the seriousness and complexity of the issue.

In fact, the swindle started when the executive branch of the government decided to begin the projects without conducting feasibility studies, and the legislative body allowed it to do so. Neither a single government official nor member of Parliament (MPs) spoke out when the construction of all sugar factories, at an estimated cost of ETB77 billion, was awarded to a single government owned industrial enterprise, the Metals and Engineering Corporation (METEC), without following proper procedure.

Even worse, when the construction of nine sugar companies was taken away from METEC and handed over to the Chinese contractors three years ago, not a single person was held responsible for not completing the projects, although a significant portion of the fund had already been consumed.

Eyob Tesfaye, an macroeconomist with many years’ experience, is among the scholars who have been probing the government’s ill-advised undertakings. “The problem started in the planning stage, when the government deliberately embarked on the sugar projects knowing the inadequate project management skill and capacity available in the country, as well as the fact that deprived public institutions could not conduct proper monitoring and follow-ups,” he argues. “Undertaking these huge projects without conducting feasibility studies lays bare the absence of a government and legislative body powerful enough to stop the deed.”

Of course, when Endawok Abite, CEO of the Ethiopian Sugar Corporation (ESC) presented the 11-month performance of the ESC in front of the parliamentary State Enterprises Affairs Standing Committee in July 2018, he did not deny the fact that although METEC agreed to deliver on the projects within a year and half, it could not finalize the construction of a single sugar factory in seven years. “The steering committee made up of top government officials decided to give the project to METEC although they knew METEC had no capacity to undertake it,” Endawok told members of the Committee.

Yet committee members rebutted that it was not acceptable to repeatedly postpone the due date. “The last time we heard your report, you agreed to finalize the construction of Beles 1 sugar factory by December 2017,” one of the members said to Endawok and his colleagues. “Seven months after the deadline, construction is still underway. This has to stop now.”

However, Endawok, who assumed the leadership of ESC two years ago, noted that making the current officials of ESC responsible for the delay is unjustifiable. “It is not fair to judge us while the executive body and Parliament remain insensitive. This committee knows the exact progress of the projects. But we are the only ones blamed.”
Of course, members of the standing committee are well aware of the status of the projects. When they visited the Beles sugar project sites last year, they admired the progress, saying they were going well. They even went further by indicating 85Pct of the Beles 1 sugar project was complete.

The Ministry of Public Enterprises (MoPE) is responsible for the 17 state enterprises, including ESC. “The Ministry assigns board members to state enterprises and corporations who report monthly to the Ministry on top of presenting reports to Parliament on a quarterly basis,” explains Wondafrash Assefa, director of Corporate Communications Directorate at MoPE. “The Ministry undertakes evaluations on the projects undertaken by these institutions. But we have no mandate to take direct measurements, because it is the job of the boards.”

When the Ministry presented its performance report for the 2017/18 fiscal year before Parliament on July 4, 2018, the main topic was the wide-ranging problems regarding sugar projects, including delays. “Parliament requested the Ministry to present another plan for the 2018/19 fiscal year and a definite reason why the projects failed,” adds Wondafrash. “The problem is due to a lack of contract management knowledge and poor follow-ups.”

However, Mekonnen Fisseha, associate professor of law at Mekelle University, argues there is strong evidence that corruption was used to shape the country’s economic direction and implementation of mega projects. “The fact that the state was heavily involved in many unfeasible projects shows that there is a desire for corrupt practices to help the state to unnecessarily expand its sphere of economic engagement,” he explains.

Yonatan Tesfaye, an opposition figure and former Public Relations head of the Ethiopian Blue Party agrees that there are groups within the government structure that shape the nation’s policies, legal environment and economy to benefit their own private interests, saying, “We know that there were puppet leaders put there by the state captors.”
Yilkal Getnet, former leader of Ethiopian Blue Party and prominent opposition figure, agrees with Yonatan, and explains the country has been under state capture for a long time. “The wealth of the nation has been controlled by a few people since the ruling party came to power close to three decades ago,” Yilkal says. “The legislative, judiciary and executive branches of the government are all controlled by a few people, who even go as far as crafting policies in favour of their needs.”

According to Transparency International, an international non-governmental organization working on corruption, state capture is a situation where authoritative individuals, institutions, companies or groups within or outside a given nation determine its policies, legal environment and economy to benefit and protect their own private interests through corruption. All state agents-the legislature, executive and judiciary-as well as regulatory agencies both at the federal and local levels can be subject to capture.

The expression ‘state capture’ was first used by the World Bank to describe the conditions in central Asian countries such as Kazakhstan, Uzbekistan and Kyrgyzstan, which separated from Soviet Union in 1991 and were in transition starting from the mid 1990s. The World Bank principally adopted the phrase ‘state capture’ to describe how small but powerful groups used their corrupt influence over the government officials of these countries to change and shape decision making process so as to strengthen their own economic positions.

However, there is no universal consensus over the precise definition of state capture. For instance, Rasma Karklins (Professor Emeritus) of the department of political science at the Chicago Public Research University defines state capture as systematic high level political corruption that establishes a hidden political regime at odds with the constitutional purpose of state institutions.

Daniel Kaufmann, an economist and president of the Natural Resource Governance Institute, on the other hand, stresses that relating state capture with corruption is downplaying the extent of the problem, because when it comes to corruption, the outcome of the practice, whether it is a policy or regulatory decision, is not certain. In contrast, in cases of state capture the outcome is assured and likely to be beneficial to the captors. Scholars, however, have a common understanding of the broad definition of state capture: the existence of the influence of interest groups over laws, policies regulations and decisions.

Endawok’s defense of himself and his colleagues against the accusation forwarded by the standing committee sheds light on the reality and degree of state capture in Ethiopia. “In order to finalize the projects, we recommended to our board to discontinue some of the construction activities and focus on selected ones,” he said. “But the board told us not to; it would be like crashing against a concrete wall. Even a few top government officials outside of the board warned us to go on as planned.”

Mekonnen explains, “There are clear indications that the ruling elite and the economic elite have been engaged in unhealthy and unprincipled benefit-driven relations, which the government itself has admitted. The mrger of political and economic power has been the manifestation of power politics in Ethiopia, and are seen both at federal and regional levels.”

The marriage between the political elite and economic elite are seen in the growing economic dominance of endowments established by the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) coalition. In particular, the Endowment Fund for the Rehabilitation of Tigray (EFFORT), which is an umbrella company for a group of businesses involved in major industrial activities such as import and export, construction, agribusiness and mining, among others, plays a big role in the economy. Started with an initial capital of around USD100 million, EFFORT’s capital has now reached around USD3 billion, according to WikiLeaks.

Government protectionism and excess demand in major sectors such as transportation, cement, and construction have ensured that many of the larger EFFORT companies are reaping large profits, according to information released by WikiLeaks in 2009. The same source also quotes Seeye Abraha, CEO of EFFORT from 1995 to 2001, as saying that these “party-statals” likely receive preferences even over the special treatment received by state-owned enterprises.

Party affiliated businesses can be considered manifestations of state capture, according to Mekonnen. “But the degree and gravity of the problem needs further inquiry. I don’t have ample evidence to boldly state that the hold of party affiliated businesses on the economy has greatly affected state capture in Ethiopia. However, conglomerate-controlled businesses are the biggest channels for corruption and embezzlement of public’ money.”

Experts argue that the non-transparent nature of the four parties that formed EPRDF, and their economic sources have strengthened the grip of political party affiliated businesses. Thus, the main source of the problem lies in the huge government intervention through fusion of party and state as well as party property and state property.

Tsegaye Tegenu (PhD), senior lecturer of Social and Economic Geography at Uppsala University in Sweden, is one of the proponents of a free market economy. “Government intervention through a ‘picking winners and saving losers’ approach involves not only risk of misjudgement such as distorting competition; it also exposes the state to capture by interests that benefit from its intervention,” he says.“This is despite the fact that the market itself can ensure efficient allocation of resources. Instead of becoming directly involved in the market the government’s role should not be more than incentivizing the market.”

Experts like Eyob, however, go further. “State capture happens when groups capture some parts of the system. But what happened in Ethiopia is a deliberate action by the government itself,” he says. “The government fabricates and distorts every official report and statistic in order to gain legitimacy, including the annual economic growth rate, the level of poverty, and the unemployment rate.”

In a commentary entitled ‘Ethiopia at Cross-roads Again’ published in the 62nd edition of EBR edition, Alemayehu Geda, professor of economics at Addis Ababa University, noted the political course of gaining state legitimacy through the ideology of developmentalism invariably makes economic growth, poverty, inflation and related indicators political competition tools. “This, in turn, may blind political leaders from looking at the real unemployment and poverty levels on the ground,” he wrote.

To make his case, Alemayehu examines the official figure of people below the poverty line, which was officially declared by the government as 23.6Pct of the population in 2016. However, this figure is computed based on the assumption that an individual can survive on a minimum of ETB20 a day (ETB600 a month) for all his/her expenses including food, rent, transport, and clothing, which in his opinion, is very little to live on. But using the international poverty line cutoff of US1.25 a day (around ETB1,000 per month) raises the percentage around 65 to 70Pct (65 to 70 million people).

While briefing Parliament about the 2018/19 budget in May 2018, Abraham Tekeste (PhD), minister of Finance and Economic Cooperation, rejected such conclusions, reaffirming that the percentage of people living under the poverty line is below 25.3Pct of the population. “Although the economy slowed down in 2016/17, Ethiopia managed to register 10.8Pct economic growth in 2017/18,” he told MPs. “The country registered 10.6Pct economic growth on average in the last 14 years.”

Although the government claims the annual economic growth rate remained above double digits in the past decade, Alemayehu disagreed with the assessment while presenting his findings at a discussion organized in June 2018 by the Addis Ababa Chamber of Commerce. Using the double rule and source of growth analysis, he stated the most likely annual growth rate is between five percent and 8.8Pct. Yet Abrham argues economic growth has been inclusive and fairly distributed.

Studies indicate that the economic growth and political transformation achieved by most developing countries like Ethiopia has started to lag in recent years, and with it trust in elected leaders. According to a study published by the Electoral Institute for Sustainable Democracy in Africa in 2017, although corruption outrages and inefficiencies are common in these countries, currently there is a far more threatening concern: countries experiencing democratic transition are becoming vulnerable to state capture aimed at democratic pillars of society such politicians, parties, journalists and the media as well as the police, the legislature, the executive, the judiciary and regulatory agencies.
South Africa is an example. For the first time in its history, a state capture narrative – as opposed to corruption – has emerged and gained momentum in South Africa in recent years following an escalating number of political scandals and thousands of leaked emails between the Gupta family and prominent government officials, including former President Jacob Zuma.

The considerable theory developed in Eastern Europe and Latin America as well as recent revelations and developments in South Africa reveal that state capture has profound implications for the erosion of democracy. In fact, the developments in South Africa raised the questions of whether and to what extent state capture may be affecting other African nations.

Just like South Africa, Gudeta Kebede, student at the University of Gothenburg (Sweden), in a study entitled ‘Political and Economic State Capture in Ethiopia’ stressed that the artificial nature and failure of the country’s transformation to democratic governance, and its legacy to the deficit of the political system, opened the door to corruption and facilitated a fertile breeding ground for human rights violations.

Evidence found during investigations by the Ethiopian Human Rights Commission (EHRC) support his findings. Addisu Gebregziabher (PhD), Chief Commissioner of EHRC told MPs the extent of human rights violations occurring in the country when he presented the Commission’s report prepared after visiting Kality and Zeway prisons last year. “Although there are signs of human right violations in various prisons, nothing has been done,” he said.

According to legal experts, Ethiopia’s constitution does not explicitly regulate state capture. “But other relevant provisions such as accountability and transparency (Article 12) and the economic objectives under Article 89 provide the government’s economic objectives,” explains Mekonnen. “The whole sprit of the constitution makes it clear that the government is to strive for the interests and needs of its people. A government that engages in state capture is in clear violation of the will of the Ethiopian people.”

Some improvements have been seen after Prime Minister Abiy Ahmed (PhD) assumed power. Attorney General Berhanu Tsegaye recently announced the dismissal of five top prison officials for alleged human rights violations. “The top prison officials were relieved of their posts for failing to discharge their responsibilities and respect prisoners’ human rights,” said Berhanu.

Even the Office of the Prime Minister is aware of the growing influence of interest groups. According to a press release issued at the end of June 2018, the Office declared that orchestrated activities have been undertake in order to block ongoing reform in the country. The statement read, “Interrupting electric power and telecom networks as well as creating economic collusion in an organized manner is being observed across the country. The committees drawn from various bodies are conducting investigations to bring the perpetrators of these illegal activities before court.”

Despite these attempts, experts argue no concrete measures have been taken to fight the problem. “The new administration is unclear in a number of ways,” says Mekonnen. “So far, what we know is Prime Ministerial decrees over TVs and public forums. Except for the decision of the Executive Committee of the ruling party, I did not see any policy options from the new administration.”

In fact, Mekonnen says, state capture is still going on, against the the back drop of a growing personality cult. “When a society develops the idea that a leader is always right, there is a problem and what I see these days is the growing tendency towards populism at the expense of legalism.”

Yilkal also believes that state capture has continued during Abiy’s administration. “It seems like the Premier is attempting to become a king. He is trying to control everything from the media, opposition figures, and artists to religious leaders and investors. That is another way of monopolizing the political ground. This is, indeed, a character of state capture,” he says.

Yonatan argues differently. “There is a hope that power will be shared by the majority after the new Prime Minister took power, contrary to the situation that existed for more than two decades,” he says. “It shows that the influence of interest groups is weakening.”EBR
Ashenafi Endale and Samson Berhane contributed to this article.

6th Year • July 16 – Aug. 15 2018 • No. 64

Samson Hailu


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