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Growth Plan’s Exclusion of Politics Unrealistic in Light of Economic History

October 25, 2010

Recently, the public was presented with a postelection manifesto by name of the Growth and Transformation Plan (GTP). The ruling party pledged to bring about an annual growth of 11pc (in the base case scenario) or 14.9pc (in the best case scenario) in the gross domestic product (GDP) for the next five years.

The government’s invitation to the public to comment on the draft plan from various angles is a positive thing. However, there are factors which may enhance or impair its implementation. Politics could become its Achilles’ heel.

In business plans, the most important factors to analyse are political, economical, social, and technological, a.k.a. PEST.

The GTP identifies some of the economical challenges such as inflation and the availability of resources but skips political factors. The growth of 2005 to 2010 was achieved in a different political setting than in which the 2010 to 2015 plan is to be implemented.

This is a big plan and to be successful it needs to be collectively accepted by the nation. The propaganda should not outrun its substance and put off stakeholders or divert attention from the central message.

It must be a live and genuine consultation document to tap into the resources and talents of the wider public. It is also important to look back at the parameters which have affected Ethiopian economic development over the past few decades.

Although political events have been the most significant turning points in Ethiopia’s economy, the GTP avoids discussing political risks and changes. The document goes to great lengths to ensure that it is only about economic affairs with more careful use of the English word “transformation” than any of its Amharic equivalents which may have political connotations.

Unfortunately, there is ample evidence of ways in which the economy has been a victim of politics over the last few decades.

Ethiopia_GDP2

Figure 1. Ethiopia’s GDP date for 1990-2009 (World Bank) and forecast to 2015 based on government’s 11% growth rate

Ethiopia had negative economic growth for 13 years from 1992, according to data from the World Bank (WB). The country’s GDP went down by 51.2pc between 1992 and 1994 alone, from 14 billion dollars to 6.87 billion dollars.

This was not a recession but a collapse of the economy in those two years of political transition and chaos. It took 14 years to recover to the level at which the economy was in early 1992, for in 2006, Ethiopia’s GDP passed the 14 billion dollar mark of 1992 by reaching 15.6 billion dollars.

This is supported by GDP per capita data which is adjusted to population changes. GDP per capita shrank from 272 dollars to 124 dollars in two years beginning in 1992. There were some signs of recovery between 1994 and 1998 before the border war with Eritrea, which sent the economy into its second dip and the decline continued until 2002.

Ethiopia GDP Per Capita (1990-2009) Source: World Bank

Ethiopia GDP Per Capita (1990-2009) Source: World Bank

This was a lost decade in Ethiopia’s economic development and serves as evidence that political instability can reverse many years of positive progress overnight. In economic terms, Ethiopia has experienced a double dip recession for 13 years. Finally, in 2003, it turned a corner but it is only from 2005 onward that the economy began to show sustained growth.

These dates around 1991, 1998, and 2005 coincided with big upheavals in politics which significantly impacted the economy. The first two sent the economy downwards while the third one accelerated growth.

This year the country passed the fourth major political landmark which freed the ruling party from checks and balances. As a result, there is the risk of a monoculture of the mind manifesting as complacency and sloppy execution.

The impact of this political development could be judged in hindsight but failing to recognise it as a factor and develop the right strategy to reduce its impact carry the biggest risk.

There is enough evidence that the sustained economic growth of the last five years coincided with the 2005 election. It was for the first time that the economy became the central agenda. After 2005, the Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) became a “developmental state” and achieved economic growth.

People could be motivated either by a “desire to gain” or “fear of loss;” the past five years were characterised more by a fear of loss.

Although there was hardly a strong opposition party, the fear it created in the aftermath of the 2005 elections was a reminder for the ruling party that complacency or failure to deliver come at a price. The government also successfully used it to keep its cadres on their toes and have something to show before the subsequent elections.

The ruling party has been implementing several reforms and infrastructural developments. The fear of loss propelled Ethiopia’s GDP from 12 billion dollars in 2005 to 28 billion dollars in 2009, as shown by the WB’s data. This was at a time when the global economy was in recession.

There was real urgency to complete projects before the last elections: Gilgel Gibe and Tana Beles dams were completed before May 2010. In a previously unheard-of move, ministers spent nights away from their comfortable homes to monitor the drilling of tunnels and installation of power stations. Most of these officials worked their socks off over the past five years because the price of failure to deliver was too high.

Disregarding the impact of politics in future economic development plans may encourage collective delusion. The changing reality of the political spectrum in which the EPRDF has bigger safety margins needs to be recognised by the plan.

Given these conditions, it is unclear where a sense of urgency would come from. Complacency can easily become the new standard.

The question is who will have sleepless nights digging tunnels in the absence of competition? Would there be someone cracking the whip to make the newly appointed ministers and officials make sacrifices to achieve targets?

The EPRDF’s comfortable position, with 99.6pc of the parliamentary seats, could be its Achilles’ heel because, with this huge margin, it is easier to turn off the lights and go to sleep.

The political reality of Ethiopia over the next five years will be different and extrapolation based on the economic growth rate of the past five years would be misleading. New types of management tools are needed to motivate the officials to endure sleepless nights.

Creating a prosperous Ethiopia entails writing new lyrics to the tune of national pride, such as the slogan, “Your country needs you!” The alternative is to allow self-interests and get-rich-quick schemes as in liberalised economies. This also demands accepting a liberal political line for greater private sector participation.

The other alternative is somehow scaring them to keep the lamp burning overnight or a combination of all. These decisions are all in the political sphere and not in the realm of economics or fiscal theories.

Development or becoming rich is not only about having big ambitions but also about being motivated to work harder to achieve targets. If that was not the case, Ethiopia would have been prosperous already.

Ethiopian rulers never run out of ambitions to make the country great. What they have lacked was the leadership to motivate their supporters to share their dreams and go the extra mile in delivering beyond their calls of duty.

There were similar ambitious five-year green and industrial revolution plans. Mengistu Hailemariam (Col) looked towards Stalin’s amazing industrialisation of the Soviet Union and thought he could imitate it in Ethiopia. However, cracking a whip was not motivation enough for people to plant trees, let alone have a green revolution. 

Mengistu failed because political self-interest was emphasised over the national interest. Appointing cronies, political loyalists, and noisy cadres did not only corrupt the system by generating false data but also brought down the whole system with it.

Ambition must be matched with a desire to create checks and balances. A genuine consultation and taking note of the feedback could minimise the danger.

Human resources are the country’s biggest asset, but people need to be motivated to be productive and innovative. The plan needs to come up with the right motivational strategy and collective stakes to extract above average results from all Ethiopians inside and outside of the country.

The plan should be as honest and credible as possible. While achieving these growth rates would help to alleviate poverty and reduce dependency on foreign aid, it is unlikely to make Ethiopia a middle-income country as set out in the GTP.

Currently, Ethiopia is a low-income country and had a GDP per capita of 340 dollars in 2009. If the economy grows by 11pc and the population by 2.6pc, Ethiopia’s GDP per capita in five years’ time will be around 540 dollars, which is similar to that of Rwanda or a quarter of Egypt’s and well below the 970 dollars per capita needed to be considered a middle-income country.

Not even 11pc growth for 10 years will lift the GDP per capita to 826 dollars, which still falls short of the target. If Ethiopia is to become a middle-income country, it has to achieve 14.9pc economic growth for nine years. The other alternative is for the population size to grow at a much lower rate.

source: Addis Fortune

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