Editorial | Dec 19,2018
Mar 19 , 2022
By Abdulmenan Mohammed
The ruling party's defining economic tenets are implementation of some of the Homegrown elements, selective interventions, ad hoc interventions, vanity projects and office renovations. They have been a muddle that created an economic calamity, writes Abdulmenan Mohemmed (firstname.lastname@example.org), a financial analyst with two decades of experience.
For any curious observer of Ethiopia's economy, there has not been any time as the past few years during which the ruling party's economic policies have been in a muddle. The policy chaos has been caused by an effort to distance from the predecessors' policies, the sluggish progress of its reform agenda, and the inclusion of novel elements during the implementation.
The most notable reform package is Homegrown Economic Reform Plan. The Homegrown plan, although its content is not homegrown as claimed, is aimed at addressing the imbalances caused by the economic policies of the previous decade and bridging the private sector to the front seat of the economy. But the past few years’ experiences have shown that not only the implementation has been in disarray, but new factors have also been added.
Besides implementing some of the Homegrown package elements, selective interventions (for instance, the support provided to bread and cooking oil manufacturing), ad hoc interventions by supplying consumers goods, vanity projects and office renovations have become the defining characteristics of the policy sphere.
When the impacts of COVID-19, political instability and the conflict in the north have been added to the economic policy disorientation, the country found itself in a mess unobserved in decades: violent inflation, severe foreign exchange shortages, a slowdown in economic growth, increasing poverty, debt build-up and economic uncertainties.
The economic policy muddle has continued in the face of such worsening economic realities. The ruling party has come up with the basic outlines of its economic policies, among others, ahead of its first party congress. Its economic direction focuses on economic justice, the poor and intervention.
From the brief outline released recently, it is difficult to discern aim from policies. Keeping aside this confusion, it is vital to discuss interventionist policies, why they have failed before and the lessons to be taken.
Interventionist policies are not innovations of the Prosperity Party. The EPRDF used a range of interventionist policies under the auspice of developmentalism. The interventions range from cheap credit and tax privileges to direct investment. The direct investments include chemical plants, sugar projects and retail. Strikingly, there was a time when for every market woe, direct investments were prescribed.
The EPRDF reasoned the economic interventions on the grounds of market failures. This means there are investment areas that cannot be addressed by the working of markets as the private returns are less than the social returns, warranting state intervention.
If the rationale of interventionism sounds plausible, its implementation track record has been fraught with failures, proving the classic government foundering. And the costs of the losses have been enormous: from Ale Bejimla to sugar projects, from the Metals & Engineering Corporation (MetEC) to fertiliser plants, from the enormous bad loans of the Development Bank of Ethiopia (DBE) to the enormous guaranteed loans of the Commercial Bank of Ethiopia (CBE). The list goes on.
At the heart of interventionism failures, we find mainly two culprits. Firstly, lack of clarity about where, how, and how much to intervene. Secondly, absence of autonomous, capable, and effective state economic apparatus to implement the interventionist policies.
Despite not having addressed these problems, the prevailing ruling party went ahead with interventionism. Strikingly, apart from a few reforms, the whole body of interventionist policies, which should be rectified, is still in place.
Of course, any government intervenes in the economy in one or another form. It can be through regulation, influencing pricing and resource allocation mechanisms, and direct investment.
Now, the government, on the one hand, is charged with regulatory tasks. The past few years have shown that the government has failed in its regulatory roles (good examples are on cement and cooking oil). On the other hand, it extensively intervenes in the economy and will continue to do as such.
There are good track records of interventionist economies, particularly in East Asia. Their defining characteristics are autonomy, a capable state apparatus, particularly in the economic sphere, and market-friendly policies.
To carry on the extensive interventionist policies in a context where the state and party apparatus are mingled and priority to loyalty over merit and professionalism is a recipe for failure, as witnessed before. This entails a complete overhaul of the state apparatus to set boundaries between party, state, and markets. This should be complemented by a policy that clearly outlines where, how and to what extent to intervene. The policy should keep the costs and distortionary nature of the interventions at a minimum, set strong monitoring and evaluation mechanisms and provide an exit strategy.
PUBLISHED ON Mar 19,2022 [ VOL 22 , NO 1142]
Editorial | Dec 19,2018
Commentaries | Jan 31,2021
Editorial | Sep 14,2019
My Opinion | Jul 17,2022
Commentaries | Jan 28,2023
My Opinion | Aug 26,2023
Viewpoints | Mar 13,2021
Editorial | Mar 06,2021
Commentaries | Jul 01,2023
Commentaries | Oct 23,2021
Photo Gallery | 83300 Views | May 06,2019
Photo Gallery | 75466 Views | Apr 26,2019
Fineline | 58859 Views | Oct 03,2020
Fortune News | 58593 Views | Jul 18,2020
Commentaries | Dec 09,2023
Life Matters | Dec 09,2023
My Opinion | Dec 09,2023
Sunday with Eden | Dec 02,2023
Agenda | Dec 09,2023
Editorial | Dec 09,2023
Dec 24 , 2022
Biniam Mikru heads the department of cabinet affairs under Mayor Adanech Abiebie. But...
Jul 2 , 2022 . By RUTH TAYE
On a rainy afternoon last week, a coffee processing facility in the capital's Akaki-Qality District was abuzz with activ...
Nov 27 , 2021
Against my will, I have witnessed the most terrible defeat of reason and the most sa...
Nov 13 , 2021
Plans and reality do not always gel. They rarely do in a fast-moving world. Every act...
Leaders of the National Election Board are in a charm offensive mood, of a sort. Last week, they organised a rare tour for members of the me...
When the country's most senior diplomats and envoys return back to their posts after two-week debriefings, they leave behind a point or two...
Dec 9 , 2023
Making a paradigm shift seems elusive for those in the driving seat of Ethiopia's mon...
Dec 2 , 2023
The symphony of traffic noise in Addis Abeba is not just a sign of life, but a siren...
Nov 25 , 2023
Ethiopia's quest to develop a functioning capital market is a demanding yet not unach...
Nov 18 , 2023
Prime Minister Abiy Ahmed (PhD) has made a fervent call for landlocked Ethiopia to ga...
I have a love-hate relationship with my phone. It is my go to source for information. I enjoy interacting with text messages and browsing t...
While doing laundry over the weekend, I began video chatting with a friend from overseas. Amid our lively conversation, I told him to give m...
Dec 9 , 2023 . By BERSABEH GEBRE
Amhara Bank finds itself embroiled in a detrimental controversy after its Board Chair...
Dec 9 , 2023 . By AKSAH ITALO
Moha Softdrink Industries S.C., Ethiopia's leading beverage bottler, is in a precarious situation after seeing its founding General Manager...
Dec 9 , 2023 . By BERSABEH GEBRE
The Addis Abeba City Administration officials have sanctioned plot allotments for various developers, com...
Dec 9 , 2023 . By MUNIR SHEMSU
Ethiopia's manufacturing sector remains in a tangled web of macroeconomic pressures, security challenges...
Or see contact page