Ethiopia's "Homegrown" Economic Reform Program: A Review

Published on 24th December 2019

 Introduction

In 1980s, Derg came up with the idea of reducing dependency on foreign countries and being self-sufficient. One of the components of that self-sufficiency was wearing domestically manufactured kaki dresses. Wearing and consuming domestic products were the order of the day. In fact, some of the top Derg/WPE officials used to wear European shoes to set their standard higher than the ordinary kaki wearers. After three decades and half, the idea of “homegrown” came back and we are hearing some songs of “hagerigna.” In one way or another, history is about to repeat itself in Ethiopia.

On December 11, 2019, an International Monetary Fund (IMF) issued End-of-Mission press release announcing that the Ethiopian government authorities and the IMF staff team reached preliminary staff-level agreement, subject to approval by IMF’s Executive Board, on the three-year US$2.9 billion financing package to support implementation of Ethiopia’s Homegrown Economic Reform Program. According to the statement, the IMF-supported reform program would consist of five main pillars:

(1) transition to a more flexible exchange rate regime;

(2) strengthening oversight and management of state-owned enterprises;

(3) strengthening domestic revenue mobilization and expenditure;

(4) reforming the financial sector; and

(5) strengthening the supervisory framework and financial safety nets. The details of these programs and the conditions attached to the funding are not yet available for the public.

According to the announcement made by Prime Minister Dr. Abiy Ahmed on December 13, 2019 on his Facebook Page, as of December 13, 2019, international donors pledged $8.9 billion to support the program called “Ethiopia’s Homegrown Economic Reform Agenda” (EHERA). He wrote, “I am pleased to announce that the Government of Ethiopia is right now finalizing additional funding for the ongoing Economic Reforms! Development partners have pledged well over $3 billion dollars to our Home-grown Economic Reform Agenda. The support is focused on the three pillars: Macro-economic, Structural, and Sectoral reforms. The pledge does not include additional reform financing from the World Bank ($3 billion), and from IMF ($2.9 billion). The UAE and Saudi Arabia’s support is also greatly appreciated. We anticipate additional resources from the United Nations agencies and EIB. This reaffirms both Governments’ and donors’ partnership to transition Ethiopia to a prosperous and peaceful nation.”

Regarding the resources, Ethiopian Government already secured $8.9 billion or 89% of the total of $10 billion it needs for the implementation of EHERA. However, the availability of finance alone cannot guarantee the success of the reform. Institutional capacity to utilize the funds for the intended purpose and achieving the intended results is also important. The purpose of this article is not to discuss how much resources have been pledged to support the reform program, but whether it is homegrown or not. 

What is Ethiopia’s Homegrown Economic Reform Agenda?

One of the distinct characteristics of Prime Minister Abiy’s Government is that the Prime Minister’s Office is the originator of most of initiatives, programs, laws, and projects  (http://aigaforum.com/article2019/Populism-in-Ethiopia.htm). For example, National Green Development Action Program to plant 200 million trees a day, Addis Ababa Riverside Project, the Menelik II’s Palace Renovation project, the establishment of Administrative Boundaries and Identity Issues Commission and National Truth and Reconciliation Commission have been initiated not by the relevant sector ministries or offices but by the Prime Minister’s Office. By the same token, EHERA is the initiative of the Prime Minister’s Office (PMO). According to the PMO, “Ethiopia’s Homegrown Economic Reform Agenda is a well-coordinated response and blueprint to propel the country’s economic progress. This agenda, crafted through a process of taking stock of our successes; an in-depth review of key bottlenecks and design of adequate remedies, outlines macro-economic, structural, and sectoral reforms that will pave the path for jobs and inclusive growth.”

According to Prime Minister Dr. Abiy’s speech made on the launching of EHERA on September 9, 2019 at ECA to diplomatic community and donors, the preparation of the EHERA took several months and spearheaded by some of Ethiopia’s finest minds. Its aim is to propel Ethiopia into becoming the African icon of prosperity by 2030.

The reform program reiterated what the World Bank, UNDP, World Economic Forum and other international organizations said regarding the macroeconomic, structural, and sectoral problems of Ethiopia and concluded that reform is required in these three areas. The list of reiterated constraints includes shortages of foreign exchange, lack of access to and reliable electricity, corruption and government inefficiency, poor internet service, lack of access to finance/credit, and poor work ethics of workers. In addition, inefficiency in the agricultural sector, underdeveloped manufacturing sector, untapped mining sector, and weak tourism sector have been mentioned as constraints. To solve these problems, the proposed solutions are doing 1) macroeconomic reforms, 2) structural reforms, and 3) sectoral reforms. It is also hoped that these reforms will lead to job creation, inclusive growth, poverty reduction, and creating a path to prosperity. 

On the macroeconomic reform side, the government planned to mobilize foreign exchange through implementation of the privatization plan, concessional borrowing, implementing remittance strategy, improving diaspora saving, easing control on foreign currency sales. On the structural reform side, the plan is to streamline bureaucratic and regulatory procedures, to improve governance of public institutions, to improve access to and reliability of electric power, to implement the telecom sector reform, and to improve the efficiency of domestic markets for goods and services. The sectoral reform focuses on enhancing the productivity of agricultural sector, overhauling the incentive structure of the industrial policy and strengthening the backward linkage of industries, developing policies and institutional capacities to create a sustainable and inclusive mining sector, and improving the attractiveness and access to tourist sites of the country. 

Are these Reform Ideas Homegrown and New?

In the past 28 years, Ethiopia implemented various reforms including economic reform (transforming the economy from central planning to market economy), political reform (changing the country from unitary to federalism with the devolution of power and fiscal decentralization), and legal and institutional reform (streamlining the regulatory procedures and bureaucracies). Even though our political leaders say that Ethiopians have short memories, we remember the privatizations done in Ethiopia. We remember the names of the factories, hotels, transport corporations, commercial farms, and other government owned companies sold to the private business persons to implement privatization policy. We even remember the Ethiopian Privatization Agency which was established in 1994 through Proclamation No. 87/1994. In addition, we remember the Business Process Reengineering (BPR) introduced into the Ethiopian government bureaucracies in 1990s and government employees who were laid off. At that time, under EPRDF, we were told that those reform measures were preconditions to get foreign aid from the World Bank, IMF and Capitalist donor countries, but also the country needs them. Now, under Prosperity Party, we are told that the reform program which will take similar measures is homegrown. This confused me as to the home of the reform program of EHERA.

As Alemayehu Gada put it "A closer examination of the ‘homegrown’ economic policy reform shows that it doesn’t look homegrown as strongly as claimed. Why? Because it is strikingly similar to a typical IMF program for reforming (read liberalizing) developing countries and copied from such templates (Just look at IMF Pamphlet series No. 47, 2019). Why? Because it doesn’t start from understanding of what the real economic problems at home are. As a result, the review and diagnosis in the policy are based on such templates instead of the real issue on the ground".  It is true that one of the principles of Medemer is using indigenous solutions to solve Ethiopia’s problems, but can taking anticipatory measures make the idea home grown? It looks like “sayterutabet,saylikutwedet or saykedmugnlikdemachew” kind approach.

According to Zinabu Samaro, EHERA is neither homegrown nor a pathway to prosperity. He says, “The administration has announced details of its economic road map and baptized it as, “A Homegrown Economic Reform Agenda: A Pathway to Prosperity”. However, the reform agenda is neither homegrown nor a pathway to broad-based prosperity.

The reform plan shares an eerie resemblance to the infamous and disastrous reform packages known as structural adjustment programs (SAP). These were neoliberal economic packages imposed in the early 1980s on most African countries by international economic institutions such as the World Bank and IMF and their Western backers as a precondition for lightening the weight of external debt and financial support to address economic malaises that were affecting the economies. The SAPs had five key components: fiscal austerity; liberalization of external trade, investment and finance; deregulation; devaluation and privatization of state-owned enterprises.” Thus, what makes an idea “homegrown”- is it the place where it first originated or regardless of where and who originated it the place from where it was echoed? We know the IMF, the World Bank, and other diplomats do not care whether it is homegrown or not, but we care because of two main reasons. First, we are the primarily target of that idea and it affects us. Secondly, we know the ideas which are homegrown and which are imported and we do not want to be cheated.

Conclusion

History tells us that those who came to top government powers in Ethiopia in the past 130 years were/are all clever.  They tricked their colleagues, their followers, supporters, and the people. However, this epoch is different from the past mainly because of availability of information and fast exchange of information. Therefore, the leaders need to think twice about what they are talking in public. Ethiopian “intellectuals” also need to be frank with those in authority and tell them the truth.  Just echoing what the leader in power said didn’t do good for Colonel Mengistu Hailemariam and may not do good for Dr. Abiy Ahmed. As Immanuel Kant said “By a lie, a man... annihilates his dignity as a man.”

By Assefa A. Lemu

Courtesy: Aiga Forum

References:

1.IMF. December 11, 2019. IMF Reaches Staff-Level Agreement on a US$2.9 Billion Financing Package with Ethiopia.

https://www.imf.org/en/News/Articles/2019/12/11/pr19450-ethiopia-imf-reaches-staff-level-agreement-on-a-us2-9-billion-financing-package

2.The Federal Democratic Republic of Ethiopia, Office of the Prime Minister.  September 2019.      A Homegrown Economic Reform Agenda: A Pathway to Prosperity  https://addisfortune.com/reform-agenda-neither-homegrown-nor-pathway-to-prosperity/


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