2 December 2012

Ethiopia: Costly Passivity


Interdependence seems to have become the typical characteristic of the new global economic order. In a way, aspiring to be independent has become futile. Economies rely on each other to produce and consume. Both bliss and pain are shared.

It does not mean that competition is no more important, however. Instead, it means that competition has evolved in both form and intensity. A globalised production system would call for identification of comparative advantages and fitting rightly in the value chain.

The issue of fitting rightly in the global value chains was one of the themes raised on the latest US-Africa Agribusiness Investment Forum, held in Addis Abeba. At the core of the debate was the fact thatAfricais fairly unrepresented in the global value chains. Various suggestions were made by experts, from private equity managers to agriculturalists, on how to change the reality.

While listening to the panellists, I was wondering where the place ofEthiopiais in the global production system and how it could be improved. My mental tour through the varying value chains shows me thatEthiopiastands at the rear of most of them.

There seems to be little understanding within our economic system that the old way of doing business, producing alone, has gone obsolete. There are few indications of national readiness to fit in a globalised production system.

My experience in the business circles of our economy shows me that such a debate is far off. I have never met a businessman who seems to have a grasp of the changing global production system andEthiopia's place in it. Neither do I see investors ready to bet on the future of the nation.

Relatively, the government has a better understanding of the change. It is seen trying to provide essential infrastructure, important for reducing production cost, and incubate local champions through policy protection.

Yet, the response from the business side has been relative passivity. There is little going on in terms of tailoring investment towards global value chains. What seems to be happening is copycatting. Nothing could showcase this better than the bulging service sector that remains to witness the addition of a new restaurant, a bar or a juice house each day.

Rightly fitting in to the globalised value chains calls for thorough studying of comparative advantages. It demands answering the questions that a close friend of mine considers as inquiries of soul-searching: What can we do better? How better can we make it? And what would it take to make it better?

By addressing these questions, a typical business can position itself better in the global production system, my friend believes. I do agree. After all, only winners could fit in a globalised a value chain.

Complacency has no market price in the new global economic order made of value chains with competent growers, processors, packagers, marketers, transporters, and sellers. Only those that bring unique advantages could thrive.

Eventually, our fair nation hosts many complacent market players that give less attention to their competitive advantages. As a result, it is not rightly represented within the global value chains.

Ethiopiahas to start soul-searching. It has to create new institutional ways of engaging its large farmer population in the global value chains. These new ways have to make dealing with smallholders easy. No multinational giant could have the willingness to trade with numerous smallholders for it is costly.

Local manufacturers and traders have to also find edges in which geography, natural resource base, labour, or population size could be in advantage. They have to get out of their conventional trading, which one Western diplomat recently referred as a 'cousins' dealing', to a more productive endeavour.

That the service sector would be threatened by the amplified integration of the economy into the global value chains is a must. But, it could thrive by specialising. Selling what is uniquely Ethiopian to a wide consumer base could be made as lucrative as selling what is accessible to a narrow consumer base.

I would imagine how challenging learning the new science of economic interdependence could be. But, value chains have made the learning easy and less costly.

What is now required for business people and policy makers in our fair nation is to unchain themselves from the old thinking and start to sense the new global economic order. As it appears, the world is organising itself along the lines of value chains and Ethiopia has to fit in.

Getachew T. Alemu Is the Op-Ed Editor for Fortune. 

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