8 March 2014

Ethiopia: High Growth, Less Transformation

It appears that a handful of government officials, economists and commentators are taking interest in scrutinizing this plan, specifically its chances at success or failure. Rewind back to November 2010, when the GTP was first introduced, the environment surrounding the plan was all too similar to the one we have right now.

During launching, the plan received rather negative appraisal from the public and foreign partners alike. And the central issue was the reality of the targets, which are set by the GTP. "Ambitious" became the most chosen word qualifier for this grand development plan. But, from the side of the government the opinion was quite different. Given the experience of the Plan for Accelerated and Sustainable Development to End Poverty (PASDEP,) 2005/06 to 2009/10, where an average 11 percent annual output growth was possible, the authorities insisted on going for an even higher figure in the coming GTP period. The overall debate was rather bizarre since none of the parties could come up with incontestable evidence to support their cases.

Of course, there could not be such evidence because the future was uncertain. The criticism of over-ambition stretched to take into consideration the financial side of the equation; many argued that the economy could not muster the financial resources to pay for the GTP. Still many more argued, the country could not access resources in the form of foreign loans or grants. A lot of time and data went into these analyses but only to support a forecast of events that is to transpire over the course of five years.

In retrospect, especially standing only eighteen months from the completion of the GTP, one can see how such a debate could have been more productive if they could look past the ambitious nature of the plan. Still, the two sides could not achieve consensus; but now the issue is not whether the plan is ambitious or not. Nor is it about what can be realistically met and what cannot. Rather the problem now is whether the plan is achieving what it has entailed and whether the track record should bring about a positive future outcome.

As far as numerical targets are concerned, things do not look any better for the GTP. The overall foreign trade sector, export intake to be specific, is one of the sectors falling miserably from its target. Whereas textile and leather from the manufacturing sector showed a well-documented case of failing to meet their targets on time. In fact, the combination of the two sectors was projected to raise over one and a half billion dollars, 48.7 percent of the total export revenue of the country in 2012/13, in just eighteen months time.

The manufacturing export revenue could perhaps be one of the most peculiar cases of the GTP plan and its development challenges. It is also one of the sectors where the authorities showed a stronger resolve, at times bordering defiance of the clear picture, data shows. Ahmed Abitew, Industry Minister, looks to be addressing this particular matter quite frequently these days. Last Tuesday, Ahmed once again announced that the half-year export performance of the manufacturing sector was still disappointingly low.

The overall manufacturing revenue generation in the six month in question was added up to be 197 million dollars, textile and leather accounting for 58.8 and 67.5 million dollars. The story has been the same across the three GTP years and now, the trend looks to be continuing into the fiscal year in question. For the last budget year 281.1 million dollar, 18.7 percent of the expected revenue from just two of the sectors (textile and leather) was secured in form of foreign currency from manufacturing.

Head of the finance and economic cluster with the rank of deputy prime minister and minister of Information and Communication, Debretsion Gebremichael, told the state-owned Addis Zemen newspaper that most targets set on the GTP are about to come true. The minister argued that the trend is suggestive of the positive outcome that will be had at the end of the GTP period. In the interview, Debretsion alluded to the fact that failure exhibited in the manufacturing sector cannot have a black scare on overall GTP, since the overall GDP growth of the past three years is comfortably close to the lower case senior envisaged by the plan.

This leads one to pose a serious question as to what each sector, most importantly the manufacturing sector, mean to the overall GTP plan. To get to this, it would be important to understand, or at least deduce, the grand scheme behind the GTP. In a way, one would be exploring what the GTP is all about. Prior to GTP, the government devised two national economic plans focusing solely on poverty reduction and economic growth. One was the Sustainable Development and Poverty Reduction Program (SDPRP) 2002/03 to 2004/05, which was followed by PASDEP from 2005/06 to 2009/10, both managed to reduce poverty and bring about high economic growth.

Where it can be noted that the SDPRP and PASDEP do have a logical continuation to one another; the former is a plan for sustainable development to reduce poverty while the latter stands for accelerated sustainable development and ending poverty. Superficially, it can be claimed that poverty reduction has been achieved through these programs. Most importantly, if one is to follow this line of logical progression in policy designing, the goal of the next generation of development programs, which happens to be the GTP, is to build on the growth and transform the base of the economy from agriculture to industry. Hence, it would be fair to assume that the GTP inherently seeks to transform the economy while keeping the economic growth going.

And the transformation is to none other than the industrial economy where manufacturing value added would rise to claim better share of the national output (GDP). Across the three years, overall GDP growth held quite strongly at 11.4, 8.5 and 9.7 percent, respectively. Nevertheless, this only speaks of the growth part, but part of the plan, which is about transformation, cannot be explained by looking at the mere GDP growth, pundits argue. Debretsion seems to believe the opposite. "It is all good as long as our output growth held up against expectation.

On average, we have achieved a 10 percent growth for three GTP years. Although just shy of the low case scenario, the growth is high by any international standards," the deputy PM explained. Here the critical question is about transformation. According to the same pundits, one can evaluate if transformation is in fact happening. The relative share of the three economic activities- Agriculture, Industry and Service- is something to watch out for.

He further explains growth in each of the three sectors, the relative share of each in the national GDP and the speed by which this share from national GDP is shifting would offer a good indication as to how and if at all transformation is happening. In this regard, sectoral GDP growth of agriculture across the three GTP years, 9, 4.9 and 7.1 percent respectively, is quite encouraging, he says. However, the industrial growth of 15, 13.6 and18.5 percent and its service counterpart 12.5, 11.1 and 9.9 percent are even better in this regard. Thus far, what we can see is robust economic growth for each of the sectors and to the national output by extension. Rather important, according to the economist, is relative share of sectors from the national GDP and the changes there off.

For instance, agriculture, traditionally with the biggest share can be seen declining across the GTP period to 45.6 percent of GDP, to 44 and 43 percent respectively. Concurrently, industry showed slow rise in its share recording 10.6, 11 and 12 percent across the three GTP periods while service stabilized around 45 percent across the period in question. Given this data, the reading of professionals do vary, but one thing that is clear is that the GTP itself, while having ample standard to gauge growth, offers less in terms of clearly understanding how the transformation is progressing. Sadly, just like when it was announced, the plans looks to be coming to its conclusion without meaningful consensus. By the looks of things, the end evaluation might be controversial.

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