Speech by HE Meles Zenawi
Prime Minister of the Federal Democratic Republic of Ethiopia
Africa Task Force
Brooks World Poverty Institute, Manchester University, UK
3rd to 4th August 2006
I am glad to be here amongst you, most distinguished economists, for the first meeting of the Task Force on Africa to evaluate policy options especially for accelerating growth in Africa. It is my hope and expectation that the task force will look at policy options not only within the current neo-liberal orthodoxy but also outside it. Indeed the sole justification for my presence in a meeting of renowned academics would be that we in Ethiopia have embarked on a reform programme that is based, not on the neo-liberal paradigm, but on an alternative paradigm of the establishment of a developmental state. I would like to believe that I am here because I represent a specimen that is of interest to you as researchers and practitioners.
Our economic reform programme, which was initiated in conjunction with the IMF and World Bank, started in the early 90s with a focus on changing the command economy, inherited from the past, and establishing a market economy. This objective was achieved by the mid 90s. While I cannot say that we had an alternative to the neo-liberal reforms that the IMF and World Bank wanted us to introduce, we have never been comfortable with it from the very beginning. Our initial reaction was in effect to conduct a rear-guard battle of delaying and preventing the introduction of reforms that would reduce the state to the proverbial night watchman without presenting an adequately articulated alternative.
By the late 90s, our thinking as a ruling party was evolving in the direction of elaborating an alternative development paradigm that we have called democratic developmentalism. This was a rather slow and painful process. Painful because the full articulation of the paradigm with all its policy implications was one of the key causes of the most serious split in the history of the ruling party that took place in 2000 - 2001.
While our policy has therefore been evolving in the direction of democratic developmentalism for about a decade, the full articulation of such a paradigm in the Ethiopian context is barely 6-7 years old. I would argue that it is only in the past three years that we have begun to see the result of the shift in paradigm. We have had three years of fast economic growth averaging a little over 9% per year. This is not only significantly higher than what we have achieved in the previous decade but it is also the first time in a decade and half that we have had three consecutive years of fast growth. Our exports have been growing at over 25% per year. Our plans are to sustain and enhance such growth rates over the next five years with the view to doubling our GDP in 8 years. Our economic performance appears to have entered a new trajectory of fast export-led growth, as would be expected from a successful implementation of a developmentalist paradigm. I would however be the first to admit that it is too soon for us to declare success, indeed as American members of the task force would say, the jury is still out.
It would be presumptuous for me to try and lay out the contents of our developmentalist paradigm to a task force composed of academics and practitioners who have articulated the theoretical foundation of the paradigm and analysed its East Asian variant in such great detail. At any rate, I am told a monograph in which I try to summarise your ideas and arguments is being circulated to the members of the task force. I will therefore try to briefly outline what we are doing to implement the developmentalist paradigm in Ethiopia.
The key task in this regard is to transform our political economy from one of pervasive rent-seeking to one that is conducive to value-creation, in the context of establishing an effective and democratic developmental state. This in turn is predicated on building the constituency of a developmental state and developing the institutions and policy instruments to curtail rent-seeking and promote value creation. I will try to outline our efforts in this regard, by taking agriculture and the leather industry in our country as examples.
Agriculture is vital in kick starting and sustaining export-led fast economic growth and transformation, as the developmental experience in East Asia has shown. It is also the case that developmental states in East Asia have had to base themselves on the explicit or tacit support of the peasantry. It is therefore no wonder that Agriculture has been the center of our efforts to implement a developmentalist paradigm in Ethiopia.
Land had been nationalised by the previous regime and we had to decide early on, what to do with the land ownership system as we dismantled the command economy and established a market oriented economy. The advice we got from practically everyone was that we should privatise land and liberalise the market in agricultural products. We were convinced that liberalisation of the market in agricultural products had to be part of the solution, but we were not convinced that privatisation of land was the way forward. Instead we opted to ensure tenure security for the peasantry and introduce a long-term land lease system for commercial farmers. There are a number of reasons for the choice we made.
In the first instance, we feel that privatisation of land would divert the limited capital in the country from productive investment to that of acquiring land. Given the factor endowment in the country it would not make sense to encourage businessmen to buy-up land, displace the peasantry, and bring about agricultural transformation through mechanisation and other labour augmenting technologies. Nor would it make sense to encourage businessmen buy up land and introduce a share cropping system - a quintessential rent collecting system. If such a system were to be firmly entrenched in agriculture, not only would there be very little likelihood of fast growth and agricultural transformation, but the rent-seeking political economy would be very difficult to dislodge as the peasants would be beholden to the rent-seeking landowners and could not thus constitute the social basis for a developmental state. The decision we took in terms of the land ownership system is therefore one of the critical decisions that have made it possible for us to try and implement an alternative to the neo-liberal paradigm.
Our agricultural development strategy is predicated on commercialisation of small-scale agriculture, increasing agricultural development through the utilisation of land augmenting technologies. To start with, we have promoted primary education, particularly in the rural areas. Primary school attendance rate country-wide has thus increased from less than 20% in terms of gross enrolment ratio, a decade and half ago, to over 80% now. Well over 85% of the primary schools we have built over the past decade and a half have been built in the rural areas. This will substantially upgrade the human resource base of agriculture in the coming years. At the same time we have established several junior agricultural colleges to train agricultural extension agents, and are now reaching our target of producing 60,000 trained extension agents.
Emphasis has also been placed on building rural infrastructure, particularly rural roads to facilitate commercialisation of agriculture. Side by side, we have been trying to establish an efficient marketing system with marketing co-operatives at the base and agro-processing and agricultural export companies at the apex. We are beginning to see a shift towards higher value and exportable crops over the past three years.
Our strategy has thus been based on putting in place a land ownership system that curtails rent-seeking behaviour and promotes value creation, an educational and agricultural extension system to promote agricultural technological change, and a marketing system designed to promote the commercialisation of small-scale agriculture and export-led agricultural development. While the results so far have been very encouraging this is still work in progress. Increases in agricultural productivity have been limited to the surplus producing regions and to a shift in cropping patterns and the drought prone areas have yet to overcome the structural problems that have curtailed growth in those areas. The marketing infrastructure we have is still beset with inefficiencies and continues to evolve.
One of the distinguishing characteristics of a developmental state is its relations with the private sector. While the developmental state has to establish a very close relationship with the private sector engaged in productive activities, it has to curtail the activities of those engaged in rent-seeking activities and, hence, has to have adequate autonomy from both sections of the private sector, to provide directive support to the first and restrict and ultimately overcome the second. The partnership we have established with the private sector engaged in the leather industry, which is almost exclusively domestic in its composition, is a good example of the nature of our relationship with the value creating private sector.
The leather industry in our country faces problems of inadequate supply of good quality raw skins and hides. It has focused on producing and exporting semi-processed leather, because the global trading environment militates against the export of finished leather and leather products. The skill of the labour force and management is quite low. Our strategy for the leather sector has been to produce finished leather and leather products for export as well as the domestic market, and provide comprehensive support to the private sector to do so. We have banned the export of raw hides and skins.
As part of our work on commercialisation of small-scale farming, we are trying to improve the quality of raw hides and skins and its marketing system. We have established a leather industry support institute to provide training to operators at all levels of the industry, and extend laboratory testing to the sector. Additionally the Institute has a first rate tanning plant through which it can provide leather finishing and garmenting services to the industry. Experienced foreign consultants have been hired to help run the institute which is now in the process of twinning with a centre of excellence here in the U.K. We have thus put in place an Institution that we need to build up the technological capability of the industry.
As an entry point towards increasing the value added in the industry we have been actively promoting footwear products. We have actively sought European shoe marketing firms and have linked them up with local companies. These companies have helped our shoes factories to improve their productivity and quality of products and opened up markets for them. The price for that has been the very low prices of around $10 per pair that they pay to our companies. We consider this as an investment cost to upgrade the marketing and production capabilities of our companies.
As the shoe industry has begun to pick up momentum, we have offered the leather tanning industry a comprehensive package of support to upgrade their facilities to produce finished leather for the shoe sector. We have offered free training for their personnel in the Leather Institute, offered to help them procure foreign expertise to help them manage the transition and to share the cost of doing so with them. We have also provided loan facilities at low interest rates, and export credit guarantees. On the other hand, we have announced our intention to begin to tax the export of semi-processed leather over the next few years to discourage those who do not wish to upgrade and encourage those who do.
The government has established a forum for dialogue with the private sector in the industry through a monthly meeting of government representatives and leather industry operators. We bring a lot to the table: commitment to improve the infrastructure to enable them to successfully integrate with the global economy, state-owned banks to provide comprehensive financing support, and a Leather Institute to beef up their technological capability. We also bring our taxing powers as the final card. We have tried to combine all these instruments to support the industry to add value and become competitive. The results so far have been encouraging. The private sector has been responding very positively, our monthly meetings have been very business-like and productive. Indeed I dare say the relationship has become a model of the relationship between our developmental state and the private sector.
Allow me now to briefly touch on the challenges we have faced in our endeavours to implement a developmentalist paradigm in Ethiopia. There have been three major challenges.
The first and most crucial challenge has been in the realm of ideas. I am sure those of you who have gone to great lengths to articulate the concepts of a developmental state, and alternative development paradigm based on it, will be surprised to note that this is indeed the case. Let me briefly explain why. First of all it takes time and effort to study your work and to convince the leadership of a ruling party that this is indeed a viable proposition. In our case it not only took time but caused a split in our party. Taking your work as a basis and coming up with a workable proposition is not as easy as you might imagine.
This has become even more complex in our case, as we have tried to establish not an authoritarian developmental state but a democratic one. The fact that our party has traditionally had very strong ties with the Ethiopian peasantry gave us a bit of a head start. But an atomised peasantry has traditionally been the social base of autocracy rather than democracy and we needed to transform our political base in the peasantry to sustain democratic change as well as economic transformation. Commercialisation of small-scale agriculture was the only path open to us to firmly ground democracy in our country. That takes time and poses its own challenges. We also needed to articulate a democratic vision based on the developmentalist paradigm, which of necessity had to be different from the neo-liberal package on offer.
Building a democratic developmentalist paradigm also requires convincing a solid and stable majority of the population that this is indeed the path to salvation. We have for nearly six years been engaged in massive debates and discussions in Ethiopia, to do so. But that alone has proved to be inadequate. The developmentalist paradigm has to begin to deliver results before the societal consensus supporting it can be firmly established. It is only in the past three years that our paradigm has begun to show results.
The debates and discussions within Ethiopian society have not been carried out in a global ideological vacuum. Indeed, to the extent that foreign actors have affected the debate they have done so largely on the side of the neo-liberal camp, which in essence means the rent-seeking coalition in the country. The impact of these forces have been all the more significant because of the global dominance of their views, because of their control of the aid and loan resources that we need for our development, and because of the inevitable shortcoming of a fledgling developmentalist paradigm and its teething problems on which they have capitalised. I believe we have made significant inroads in establishing a stable and solid majority for the developmentalist paradigm in spite of the challenges, but I have to admit that we are far from out of the woods yet.
The second challenge has to do with developing the institutions and policy instruments. It is true that the institutions and policy instruments of a developmentalist paradigm are very well known as they have been articulated at great length by many of you in the task force. But in the first place these have to be adopted to the specific circumstances of each country. More importantly, building the institutions and sharpening the policy instruments can only be done in the process of implementing the paradigm which means that it takes time, and that it is, sometimes, difficult to avoid very costly mistakes.
The last challenge we face has to do with the availability if resources, particularly availability of foreign savings that our export sector is as yet unable to generate. It is no surprise to me that our experiment with an alternative development paradigm has not been rewarded with adequate foreign assistance. In per capita terms we get less than half of the average of the aid that other African countries get. Perhaps more importantly, much of the aid we get comes with massive pressure to change our development strategy and in a manner that makes it very difficult to effectively utilise for our purpose.
In spite of these challenges, I believe the developmentalist paradigm is beginning to gain political traction. It is no longer an idea that academics toss around. It is an idea that we in Ethiopia are trying to implement. As the neo-liberal paradigm continues to show very little prospect in Africa, more and more people are searching for alternative paradigms. Indeed during a recent meeting of the Progressive Governance Network in South Africa, the issue of developmental states in Africa was raised and discussed at some length. That was the first time I have heard the issue discussed in polite company that included the presidents of South Africa and Brazil, and the Prime Ministers of the UK and Canada and also the Director General of the WTO and the Trade Commissioner of the EU. I dare say there is still a lot of hope for the developmentalist state in Africa.
Let me conclude, by making a few suggestions on how best the task force can help in the search for alternative policies to accelerate growth in Africa. I would like to suggest that the task force include the developmentalist paradigm as one of the options in its research agenda. Indeed, I would argue that in view of the fact that a lot of research on improving the performance of the neo-liberal paradigm and modifying it has been carried out by other well-endowed researchers, the task force ought to concentrate much of its research on articulating a developmentalist alternative for Africa.
I thank you.