Liberalisation hurdle for thriving Ethiopia
New ruler has many balls to juggle in booming economy
● Ethiopia’s new leader faces a critical decision on whether to open up parts of the nation’s booming economy after making moves to reduce the stake of the military, former prime minister Hailemariam Desalegn said.
Premier Abiy Ahmed inherited what the IMF ranks as Africa’s fastest-growing economy when he took office early last month.
But he also confronts the biggest challenges to the ruling coalition’s power in more than two decades as sporadic unrest against its authoritarian rule and intercommunal violence threaten the federal structure of Ethiopia, a US ally in its battle against Islamist militants in the Horn of Africa.
Hailemariam said that last year he introduced a proposal to the ruling coalition’s 36member politburo that all but the financial sector of the economy, including the state telecommunications monopoly Ethio Telecom, be partially liberalised.
While the debate continues, Hailemariam said he had laid the foundations for partial liberalisation. “I am sure Abiy is going to complete it,” he said in an interview in Addis Ababa.
Hailemariam quit as prime minister in February after failing to end protests in the Amhara and Oromia regions that began almost three years ago amid demands for the state-planned economy to provide greater inclusiveness.
Abiy has already made some cuts to the role of Ethiopia’s military — one of Africa’s largest — in the economy. The army has been involved in projects including the $6.4-billion (about R80-billion) Grand Ethiopian Renaissance Dam.
Abiy took office three months after Hailemariam appointed Deputy Prime Minister Demeke Mekonnen chairman of the military-industrial conglomerate Metals and Engineering Corp. Since then, Metec has had a key sugar project contract cancelled and a deal to build a fertiliser complex is under review.
Only the country’s second head of state since the then-rebel Ethiopian People’s Revolutionary Democratic Front seized control in 1991, Hailemariam’s six-year reign saw foreign direct investment surge from less than $1-billion to more than $4-billion, mostly in manufacturing. PVH, the parent company of Tommy Hilfiger and Calvin Klein, and China’s Huajian Group have factories in Ethiopia.
The earlier, closely guarded discussions on liberalisation were met positively by the majority, “but there are some corners who somehow oppose it”, Hailemariam said. “In the majority, I hope they will endorse it.”
Abiy’s term began halfway through Ethiopia’s five-year Growth and Transformation Plan, which emphasises large-scale infrastructure and export-focused manufacturing. He’ll have an opportunity to address unspecified “imbalances” during an interim evaluation, Hailemariam said.
Abiy will have a “very deep influence” on the next plan to be implemented from 2020, although “a big directional shift” is unlikely because “you don’t fix something which is not broken”, he said.
A problem hampering growth has been foreign exchange shortages, a result, Hailemariam said, of a widening gap between exports and imports. The country’s trade deficit quadrupled to $14-billion in 2016 from $3.19-billion a decade earlier, as imports grew by a similar margin, according to UN data. Ethiopia’s central bank devalued its currency by 15% in October to boost export earnings.
Two weeks into office, Abiy told local business leaders that what he described as a foreign currency crisis could last two decades. Hailemariam said he expected the problem to last “maybe a decade or a decade and a half as experience shows elsewhere”, citing China at an earlier stage of its development.
“It is export-led industrialisation that helps to bring more foreign currency and on the other hand helps the forex problem to be resolved,” he said. “Our structural transformation into industrial development, especially in manufacturing, has been a little bit delayed.”
Hailemariam said a 17-day meeting in December
You don’t fix something which is not broken Hailemariam Desalegn Former prime minister
of the ruling coalition’s politburo identified areas for reform including corruption and bad governance, the trade regime and licensing, land administration, administration of public contracts, and tax and customs.
In his last year in office, Hailemariam presided over a purge of alleged corruption that led to the arrests of dozens of officials including a state minister of finance. That, he said, will likely continue under his successor.
Abiy, who previously served as deputy president in the restive Oromia region, “has been a very prominent fighter of corruption” there, which can be “extrapolated to the national stage”, Hailemariam said. Abiy at the December meeting showed “adamant” support for the consensus of rooting out corruption, according to the former prime minister.