THE ETHIOPIAN DREAM AND ITS CAVEATS

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Prime Minister Meles Zenawi’s death in August 2012 was supposed to be a turning point for Ethiopia. According to some, perhaps naive, idealists, the end of Zenawi’s two-decade-long regime – no matter how popular – suggested the East African country was ‘ready’ to transition toward a pluralised democratic society. In this vision, Ethiopia would steer away from being an entirely state-run system of political and economic governance, ruled almost exclusively by the Ethiopian People’s Revolutionary Democratic Front (EPRDF). Likewise, there had been hope Ethiopia might finally fall in line with the Washington consensus and adopt a neoliberal economic model. Pessimists, however, saw Zenawi’s untimely demise as a warning sign the country would descend into chaos, with rival political, ethnic and even religious factions engaging in protests-turned-violent clashes. As it turned out, neither camp proved correct.

In the end, the post-Zenawi transition period proceeded without a major hitch, and Prime Minister Hailemariam Desalegn took over the reins from where his predecessor left off. Moreover, the International Monetary Fund (IMF)’s hopes of seeing Ethiopia immediately become a neoliberal-based economy were also dashed, as Desalegn continued with Zenawi’s ‘Asian Tiger’-inspired economic system. And, perhaps to the annoyance of some Western leaders, these policies (so far) seem to be working. To be sure, the East African nation is now one of the fastest growing non-oil based economies in the world, with GDP expected to increase by at least 10% over the next year. Billions are now being set aside for major infrastructure development projects, including the ambitiously-titled Grand Ethiopian Renaissance Dam, under its Five-year Growth and Transformation Plan (2010 – 2015). International cash is also flooding the country, with Ernst & Young Ethiopia predicting Foreign Direct Investment (FDI) to reach US$1.5 billion per year by 2016. Ethiopia’s progression toward stability since the harrowing 1980s, when millions were affected by government mismanagement, conflict and famine, is commendable. However, the question remains: should investors ‘rush in’ on the Ethiopian dream?

Commence the Economic Boom

Despite confrontations from the impatient IMF, Desalegn’s government is more or less “dipping its feet” into the pools of capitalism by slowly encouraging foreign investment, all the while ensuring that the leadership in Addis Ababa has the final say in Ethiopia’s financial landscape. In this manner, Ethiopia has styled itself as a Chinese-style economy, with Addis Ababa still holding majority ownership of the country’s most significant businesses. Taking its interpretation of the Beijing approach even further, Ethiopia is transforming itself into an African manufacturing powerhouse by encouraging foreign firms to shift their production centres to their newly furbished industrial sites.

One such interested firm is Turkish garment company, Ayka Addis. On 02 August 2013, representatives from the Ankara-based company indicated their desire to establish a new “industrial zone” in Ethiopia, which would lay the foundation for at least fifty Turkish textile firms to set up shop. In the process, the company would provide some “60,000” new jobs for Ethiopians, whilst simultaneously cutting costs for Turkish firms are cutting Costs. To be sure, the East African country is now believed to be beating its inspiration, China, at its own game. Whilst China ‘boasts’ an average total manufacturing salary of US$550 per month (this includes wages and other added industrial costs), Ethiopia reportedly commands a low average monthly wage of US$80. This is a huge incentive for foreign industrial giants who are increasingly losing their appetites for doing business with China. Overall, it seems Desalegn’s decision to carry on with the legacy of Zenawi, despite the best wishes of the Western-based IMF, may prove to be an economic boon. But this does not mean Ethiopia will not hit some snags along the way.

The Hidden Risks

As can be expected, Ethiopia’s political and economic miracle should not be viewed with rose-tinted glasses. Its clear success stories aside, the country is still afflicted by many of the same issues which have plagued Ethiopia for decades, including rampant youth unemployment, threats of terrorism and secessionist movements. Interestingly, many of these problems stem from the uncertainty facing Ethiopia’s Asian Tiger-inspired economic paradigm. Under Zenawi / Desalegn’s Five-year Growth and Transformation Plan, Ethiopia is trying to push its economy ahead at an almost exponential pace by increasing its government expenditure. Whilst this could prove beneficial in the long term, it is effectively worsening the country’s already significant inflation problems. To be sure, the latest reports suggest that Ethiopia saw its inflation rise by 7.4% between May – June 2013, with food prices generally increasing by 3.7%.

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The graph illustrates what The World Bank called Ethiopia’s greatest threat: inflation. In 2008, Ethiopia recorded a 44.4% rise in its Consumer Price Index. (Information derived from theglobaleconomy.com)

In addition to the rising cost of essential goods, is the government’s failure to quickly address the jobs crisis. At least 50% of individuals between the ages of fifteen and thirty are unemployed; and this in spite of major economic gains. Making matters worse, Ethiopia produces 150,000 graduates each year, meaning that the government must get creative in order to keep up with the yearly additions to its skilled labour pool. To be fair, Desalegn’s administration is actively trying to encourage young people start Small and Medium Enterprises (SMEs) linked to “textiles, leather, agriculture” and trading. However, the government’s plans have arguably only served to benefit Ethiopia’s urban population, whose members generally fare financially better than their rural neighbours. Indeed, the overwhelming majority of those living in abject poverty (the total rate of which stands at 29.6%) live in the countryside of an African nation whose economy still centres around agriculture. That being said, recent reports suggest the financial gap between the urban and rural population is shrinking; but this might have something to do with the fact that thousands of unfortunate Ethiopians are emigrating every year.

A Militant Threat?

With the nightmare of economic disparity comes the spectre of Ethiopian militancy. In addition to being exacerbated by hidden economic problems, the terror threat has been heightened by long-standing disputes between ethnic and religious groups. To begin with, the largely Orthodox Christian, and ethnic Tigray-based, Ethiopian Government has already been accused of launching heavy-handed counter-terrorism tactics by unfairly targeting the ethnic-majority Oromo population, a significant number of whom are Muslim. The perceived abused has led many Oromo people, who make up a reported 40% of the populace, to call for greater government reform, and in some cases, succession. The secessionist movement among the people of Ogaden, an area located in the south-eastern corner of Ethiopia, is even stronger. The vast majority of the Ogaden are impoverished ethnic Somalis who follow the Islamic faith and feel Addis Ababa ignores their plight. Their calls for independence have gone unheeded, despite numerous attacks by the Ogaden National Liberation Front (ONLF). More recently in 2007, the ONLF was blamed for a horrific attack on a Chinese oil firm, which resulted in the death of at least seventy-four workers, including nine Chinese nationals. The Ethiopian Government arguably opened up the doors to militancy even further by deciding – or being pressured by the US – to send troops to Somalia to counter the Islamist al Shabaab insurgency.

The Way Ahead

By now, the basic benefits and risks facing Ethiopia’s economic transition plans are well understood. The question, however, remains: should investors “rush in?” In a word: no. Foreign firms must weigh the positives and negatives with regard to planting their feet in Ethiopia. Indeed, the country still has a long way to go to completely rid itself of its image as a conflict-ridden, anti-privatisation African nation. However, as the evidence shows, Ethiopia is progressing. Indeed, even the World Bank believes it could reach “middle income” status by 2025 – not bad for an African nation with “no major natural resources”.

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