Economic Planning Needs to Learn the Cost of Indiscipline

Dec 26 , 2020.

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It is refreshing to see a publicised high-level government meeting become somewhat confrontational. A conflict of ideas is not always a bad thing; in many cases, it allows for further deliberation and digestion. Prime Minister Abiy Ahmed’s (PhD) critique of the regional governments' attempt to widen the Dine for Nation projects' scope was encouraging.

But his putting down of their preferences for the projects – thereby agency – as unnecessary portends a continuation of central economic planning. Sure, the federal government has proven itself effective – if not transparent – in the progress it has made in public works such as the Sheger Beautifying Project. But it is usually the case that governments are effective at ensuring delivery on politically consequential projects. It says little though about institutions and local governments' capacity to perform. This calls into question the sincerity of one of the chief focuses of the 10-Year Perspective Plan – institutional reform.

The Plan has in its field of vision much more than institutional transformation. Endorsed on December 11, 2020, by the Council of Ministers, it is about as unique as most multi-year national plans a developing country can come up with.

The similarities to the series of editions of the Growth & Transformation Plans (GTPs), from the details the administration has chosen to make public throughout the discussions and presentations, are uncanny. The structural economic transformation from agriculture to manufacturing is still desired. It targets a double-digit growth, at over 10pc, and aims for single-digit inflation. These are the same old assumptions its designers have developed, only expecting different results.

Infrastructure development, energy efficiency and closing gaps in the education and health sectors are all included as targets by respective ministries. The same old desire to see massive public investments to finance them.

Says the document: “Public spending with [a] strong focus on capital investment, pro-growth, and pro-poor sectors should be maintained until the country's level of infrastructure and human capability reaches a critical minimum.”

The major difference with the GTPs, if any, is in the semantics. It aspires to see the "source of growth" coming from the private sector. The GTP documents did, in fact, acknowledge that the private sector could play a "driving role".

The contradiction cannot be more apparent. Massive public spending crowds out the private sector, especially as key industries and markets remain beyond the reaches of the private sector.

The Perspective Plan is no better in its lucidity, if not worse. The current administration does not mince words on curbing public spending, and on giving space for the private sector to play its part – to walk the talk the GTPs never did. The contradiction here is that the administration's policy continues to struggle to explain how a double-digit growth in GDP comes within the realm of realisation in the absence of an expansionary fiscal policy stance and monetary policy that encourages the central bank to print more money.

Initiatives such as public-private partnerships are welcome, but the private sector is notoriously hard to depend on when it comes to large projects with longer return periods. The reputation of several private companies in project management remains unsatisfactory.

There are positive differences between the Perspective Plan and the GTPs. The latter was planned in clusters for agencies to build on. The Perspective Plan is preceded by the respective 10-year development plans of ministries. Therein is a detailed assessment of challenges, strengths, and a description of strategies and programmes.

If institutions could be encouraged to implement these projects in a similar bottom-up approach, it would be one more break from the GTPs. But that is the tricky part.

Fitsum Assefa’s (PhD) Planning & Development Commission seems to understand implementation is an Achilles’ heel, hence it  emphasises institutional reforms. But her predecessors had similar sentiments as well. The second edition of the GTP, launched in 2016, also indicated the need for capacity building, public participation and good governance.

Ironically, it went on to make what amounted to a mockery of these targets. The administration’s assurance “to sustain . . . healthy external debt with tight monitoring of developments” ran up against unsustainable debts public enterprises were taking up. This included guaranteed external debt for these enterprises that stood at 25pc of the whole that Ethiopia owes to its external creditors.

Its pledge to give "utmost emphasis" to “planning and management capacity to execute projects on time and with the given budget and quality” was even less inspiring.

Even politically sensitive projects such as the Grand Ethiopian Renaissance Dam (GERD) were delayed and ran beyond budget. But that was just the tip of the iceberg, as Auditor General Gemechu Dubisso’s perennial disapproval of government agencies to parliament revealed. An audit covering the three years up to 2018/19 found a gap of 44 billion Br in the 1,962 projects it looked at. This represents an amount equal - in Birr terms - to over a third of the country’s earnings in goods export.

The enormity of the mismanagement of some projects boggles the mind the deeper they are looked at.

Take, for instance, the Zarema Mayday and Megech dams. The former, having been launched in 2012 for an estimated cost of 4.2 billion Br, was by last year expected to set the government back 14.5 billion Br. Megech was expected to cost double its initial estimate of 5.6 billion Br; the contractor on the project was paid without the consultant having to sign off on it, according to findings by the Auditor General.

When prodded, the Ministry of Water, Irrigation & Electricity and project coordinators on the Zarema Dam could not properly defend questions from MPs. All they had as a retort was that the Ethiopian Sugar Cooperation did not hand them the necessary documents and became involved in the project just four years ago.

The GTPs could hardly be faulted for such failure. They were plans. They could point out targets and call attention to challenges and shortcomings. In the end though they need to be followed up with political commitment and accountability, a system of checks that could be used as a bulwark to such rampant mismanagement of public resources.

What can make a difference here is ensuring that the stakeholders are themselves the custodians of development, which requires doubling down on the vertical decentralisation of power set out in the Constitution. Federal government oversight is necessary, but the leads on projects should be communities whose members are meant to benefit themselves.

Another important piece of the puzzle is the courts.

There is a rich literature on what is known as quasi-democratic institutions and competent administrations embedded within some non-democracies. In many cases, these make up the courts, which are used to check the discretionary power of bureaucracies and lower-level officials. Still, even this requires a semblance of political commitment from the highest corridors of power, where such outliers are tolerated as necessary to effective administration and management of the economy.

Inclusive economic institutions are also the best answer to the dilemma of developing a 10-year economic plan in a country that has elections every half decade. Here too, the GTPs offer a lesson.

The last two years have seen a reorientation from the statist approach to development. The multi-year plan was suddenly unseated as a document that serves as a foundation for economic policymaking.

The Perspective Plan can face a similar fate if those with state power now cannot form a majority coalition in parliament after next year's general elections or in the one five years later. Ownership of the plan, decentralisation of implementation and the courts are critical. The political mud-fighting above would be insulated to a degree from the key targets of the GTPs, the Perspective Plan or any other national multi-year plan that may come along.

After all, nearly everyone agrees that the poor level of human and physical capital is the key obstacle to growth and that addressing them is the viable route to development.

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PUBLISHED ON Dec 26,2020 [ VOL 21 , NO 1078]

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