1 March 2016

Ethiopia: We Want 'Equitable, Broad-Based Growth' – Prime Minister Hailemariam

Photo: AllAfrica
Prime Minister Hailemariam

Addis Ababa — Since Prime Minister Hailemariam Desalegn became head of Ethiopia's government upon the death of Meles Zenawi in 2012, the economy has been one of the fastest growing in Africa, with rates exceeding 10 percent. In September, the fifty-year-old Hailemariam was elected unanimously to another term by the lower house of Parliament, in which the ruling Ethiopian People's Revolutionary Democratic Front (EPRDF) won all seats in last May's elections.

In an exclusive interview with AllAfrica's Reed Kramer, after the Corporate Council on Africa's U.S.-Africa Business Summit in Ethiopia last month, the prime minister outlined why his government is seeking private investment to boost job creation and generate foreign exchange. He also addressed local and international criticism of the government's forcible handling of recent protests, its record on human rights and press freedom and the issue of security in a troubled region.Addressing the severe famine facing Ethiopia due to the worst drought in 50 years - which experts say is attributable to the El Niño effect exacerbating climate change - the prime minister points to a 'lackluster' international response. Distinct from the famous famine of the 1980s, which prompted performances by musicians worldwide to promote aid amid hundreds of thousands of deaths, Ethiopia is spending its own resources to avert the worst effects. But less than half the international aid needed to avert severe malnutrition and widespread starvation has been pledged.AllAfrica interviews are edited for brevity and clarity.

There were more than 1400 attendees at the U.S.-Africa Business Summit here in the capital. Is trade and investment with the United States a priority for your government?

We feel it is time to strengthen this relationship. Ethiopia wants to diversify trade and investment with our traditional partners including the United States of America. The United States is a major market for light manufacturing, floriculture [flower farming], coffee and [other] high-value crops that Ethiopia is producing. The advantages are mutual.

Ethiopia is a fast-growing economy because we are investing heavily in infrastructure. If we want to harvest the infrastructure dividend, we need to attract more investment. Otherwise, the infrastructure investment has no return. U.S. investors with their high-quality production can support us by building local capacity, including transferring technology know-how. We have a vibrant, young, dynamic population that needs more skill, know-how, and technology transfer into the country.

We have been trying for years [to attract U.S. investors], but now we are seeing a growing number coming to Ethiopia – especially in the floriculture sector, like KKR. In light manufacturing, companies like PVH  and Vanity Fair are coming into Ethiopia. Companies like GE and Boeing are very active. In addition, there are equity investors that have already started engagement with us - Black Rhino and others. We want to make Ethiopia a hub for this kind of manufacturing and maintenance services. [links]

This is a good time for us to push forward and get more investors. and this is a good time for more companies to come into our country.

U.S.-Ethiopia relations have been good for a long time. Why do you think the investment has been slow to come?

I feel it's the perception U.S. investors have about Africa in general. I think that's now changing. When big companies like those I mentioned invest, then others get confidence. We want to make those pioneers to be successful; then others can be attracted more.

Your government has made major strides in meeting the Millennium Development Goals agreed among countries worldwide at the United Nations. Now there are Sustainable Development Goals. How is Ethiopia doing?

For the Millennium Development Goals, we successfully achieved all except one. And we'll continue to do this in the coming 15 years with the Sustainable Development Goals as well. We have made this progress because we engage our people fully into the system. In health, for example, our women are very active in the process. In the poverty goals, our farmers are very active – 70 per cent of our people are residing in rural areas and depend on farming for their livelihood. If our young people are engaged, then we can achieve. If we put people at the center, we can achieve those goals.

What role do women have in your government's policies and plans?

Women are very active [through] their own organizations - at the grassroots up to the federal level, and they strongly fight for their rights. They have [political] clout.

What part does agriculture play in your economic priorities?

Agriculture is the backbone of this economy. It's going to continue as a backbone for the economy. Small-holder farming which is integrated [with] private-sector contract farming, is one of the areas we're focusing. The second one is big companies investing in large-scale farming and intensive agriculture like floriculture, where some of the U.S. companies have already started.

The combination of small-holder farming and big companies involved with livestock development processing and also in large-scale farming in soybean and other crops that are very high value – this combination helps us to further our agriculture modernization program. Vertical integration is very important, and manufacturing comes as one of the pillars.

We focus on textile and apparel, which has vertical integration to the cotton production value chain. Another linkage with agriculture is leather. Ethiopia is very good in leather production and shoe manufacturing – we are the best in Africa, and we are exporting to the United States, to Europe and China.

Integration contributes to the comparative advantage we have in Ethiopia. In China, India, Turkey and Korea, labor has become very expensive. So the only choice for multinationals is to come to Africa. And in Ethiopia, we want to become a hub within the African continent. My government has prepared industrial parks for these companies to settle. We have completed three, and we will have more seven industrial parks within the coming five years.

The parks are designed to deliver services to the companies that set up plants there?

Yes. We want to avoid the hassles that many developing countries have [for investors]. Manufacturing needs reliable power and internet and telecom services, as well as utilities like water and other infrastructure. Similarly, the customs and logistics aspect is essential, and transport cost has to be less compared with our competitors. All of this can be given as one-stop service in the industrial parks we provide for investors.

We call this 'integrated agro-industrial production" with the focus on light manufacturing. That doesn't mean that we shouldn't go into heavy manufacturing like steel, metal and engineering, petrol chemicals and chemicals and pharmaceuticals. These are also possible in Ethiopia. But our comparative advantage is in the light manufacturing sector which is agro based.

Pursuing Green Energy

As you invest in energy infrastructure and ramp up power production for the industrial parks, what will be the impact on the climate?

As far as power production is concerned, our objective is to have a zero-net carbon emission by 2025. So we need to produce our power entirely from renewable sources. Ethiopia wants to show to the global community that we contribute as a global citizen. In this regard, we have abundant resources from hydro, from geothermal, from wind and from solar.

We need to produce our power entirely from renewable sources.

We signed an agreement with Reykjavik Geothermal and a U.S. conglomerate to produce 1,000 megawatts from geothermal. We need these kinds of companies to invest in the country, not only [to benefit] Ethiopia but also for neighboring countries like Kenya, Uganda, Rwanda. We can export to the whole eastern Africa corridor, and we need investors to help us diversify and produce the power that is needed. The government is doing its best to increase the capacity of the power sector but we need the private sector and we are working on that now.

Your most ambitious project to date – the Grand Ethiopian Renaissance Dam – is self-financed – no outside capital?

It is entirely financed by the Ethiopian government and bonds issued to the public. You don't find a single Ethiopian who hasn't bought a bond for this project. So it's a public investment.

Modernizing the Business Climate

Among concerns raised by private sector is the bureaucratic hurdle that makes closing deals difficult for both domestic and foreign-owned businesses. Are you addressing this?

We a hundred-year old backward bureaucratic system, starting from the feudal system up to now. We have been trying for the last 20 years to reform this bureaucracy. It's very difficult to teach an old dog a new trick. So with that difficulty but with a new generation coming, we are trying our best to bring about efficient and effective systems. Bureaucracy is always there but we have to minimize it.

In order to cut red tape, we have designed systems to help us reform - like the industrial parks development, customs and logistics and modernized IT. We are using best practices from everywhere, especially countries who have been modernizing their system like Singapore and Korea. They are coming here to train us. Of course we have to adapt to our own situation. It's improving but we need to work very hard.

We already have best practices like with Ethiopian Airlines, which is competing globally [whose employees] from the CEO to the cleaners all are Ethiopians. We have companies trying to emulate Ethiopian Airlines, companies like Ethio-Telecom. For investors, we have to focus on solving constraints. We are continuously engaged with investors, and we seek to settle their problems.

What is the government doing to address limited access to capital for the private sector?

There is a shortage of capital, so we are trying to mobilize more funds domestically by mobilizing people to save. Our savings rate has grown by 29.5%, which is remarkable compared with other African countries. But still the demand is huge, so there is a demand-and-supply gap. As foreign investment comes in, more capital comes.

We have to export more in order to get more dollars to come to the country. That's why we are focusing on industrial parks. One industrial park we have almost completed in Hawassa is going to export next year $1 billion U.S. dollars. If ten of these parks export half a billion to $1 billion dollars, our shortfall is going to be solved slowly. Maybe after 10 or 20 years, we will have a surplus. Korea, China, all of them - when they started at a similar stage, they had currency shortage.

There are those who say export-led growth can't work for Africa like it did for the so-called 'Asian Tigers' because global conditions are different. But you believe exports can drive expansion of your economy?

Yes, I think that's possible, because light manufacturing sectors provide our comparative advantage. Also, we have gold and potash and other mineral resources available, which Asian Tigers didn't have. We also have recently discovered gas.  Exports from manufacturing products, from traditional agricultural products and from mining can help us move forward.

What are you doing about corruption, another major concern for investors?

Ethiopia is one of those countries with less corruption. Transparency International and the World Bank studies show there is less corruption in Ethiopia [than many other countries]. The government is vigilant. Our anti-corruption campaign is very strong, and we are zero tolerant. Any minister who has any kind of corruption, then immediately the government takes action. Some have been jailed. We are very active in this regard.

Security Means Fighting Poverty

Ethiopia is in a rough neighborhood, and security is a concern for everyone. How are security issues impacting your economy?

We are expending much of our energy and time securing the country. Ethiopia is an island of stability within the Horn of Africa, which is a troubled region. The government is very active in trying to keep security at the highest possible level - not only for foreign companies here but for our own people. Security starts from home. You have to secure your own people so that those who are coming from outside also will be secured.

Our people are very much engaged in fighting anti-peace elements and terrorism. There is tolerance within our community, both Muslims and Christians living together in harmony. These traditional values we have should be enhanced. We put people at the center of securing the country. You can't secure your country with only a security apparatus and missiles.

The more you reduce the poverty rate, the more secure the country will be.

We believe that poverty is the worst enemy that brings insecurity. We have to fight poverty tooth and nail. It's essential. The more you reduce the poverty rate, the more secure the country will be. It's an internal problem – in-out, not out-in. People always think about Al-Shabaab in Somalia. Yes, it is a threat. But if you are secure at home and if your people are free from poverty, then it's possible to secure the country. That's the philosophy we're using, and the result [to date] is very good.

Governance and Free Expression

A related issue is political discontent. You recently had protests from Oromo people, and your government responded with force. Human rights groups report that many demonstrators were killed or detained.

The root cause of protests in this country is not politics. It is having so many young people who are unemployed. We haven't addressed the unemployment problem in Oromia and also in other parts of the country. We have a 16.5% unemployment rate, which is very big. It's higher among the youth, and 70% of our population is below the age of 30.

Even though we are trying our best, we haven't addressed it properly. The [recent] protest is triggered by unemployed youths. If you create hopefulness in this society, then it's possible that this kind of unrest will be vanishing. We want to focus on the young people and creating jobs as quickly as possible. In the industrial park I mentioned to you, we can create 60,000 jobs. We must be very fast in creating jobs for the youth – both in self-employment as well as in wage employment. If we don't do that, then unrest will be there.

We have lagged in Oromia in creating jobs and in some [other] parts of the country as well, so we have to expedite this.

The second issue which created this problem is the governance issue. There is lack of good governance, especially at the grassroots [in Oromia]. Farmers are evicted from their land without proper legal process. Those who want [to take] land in a corrupt way, working with some private sector people, are evicting farmers, and the farmers resent. Farmers are the social base for this party. So if farmers resent, then there will be unrest.

We have clearly identified why this protest has come about - unemployment and lack of good governance. If we address those issues, I think this kind of thing is not so much a problem. We recognize the problem. We don't externalize it. We have been engaging the people. We are addressing those [issues] which can be solved in a short period of time and others which take a longer period of time and need more resources and more engagement. By discussing with the people, we can solve the problems as quickly as possible. Now the unrest has settled, because we discussed [with] them properly.

Your government's human rights record has come in for harsh domestic and international criticism. What is your policy on the right to dissent?

Every country is criticized, including the United States, on human rights. But as a fledgling democracy, we have much more difficulty. The training and the change in attitude [required] to shift in a short period of time from the undemocratic culture [Ethiopia had] for many, many years to a democratic way of thinking is a very difficult job. Building democratic culture will take some time. But we are on the right track. It's improving. We'll continue to do so.

What role does civil society have in building this democratic culture?

Civil society organizations are very important. They are very active. Political parties and other organization should engage, peacefully. We do not agree [that] violent means [can be used] to achieve their goals, but below the violent means, everything is possible. They can protest. They can speak out. They can demonstrate. They can pressurize the government.

The people should resist whatever undemocratic means governments are using.

We are so active now since the demonstration has taken place in Oromia. We woke up from our sleep - so we run. This is how democracy works. Governments cannot be sleeping over the people. And the people should resist whatever undemocratic means governments are using.

Every government has an undemocratic element. That checking and balancing is very essential, and our people are ready to do so. If you go anywhere now, if you ask any young people or women or farmer, they talk to their heart. They never shy out. They talk about the government. They talk about the prime minister. I think this is the achievement we have got this time. We want to establish and strengthen this achievement.

There will always be differences. Ethiopia is a very diverse country, and those differences can be accommodated in a democratic way. My government is working to engage with all these groups. The resentments that come out is subsiding.  But one thing which I do not want to hide is that we follow a developmental democratic state system of governance. That is - government has to intervene in a specialized way into the economy, which many neo-liberals do not like. We have ideological conflict with those who criticize us. They want to prove that this system is wrong by bombarding Ethiopia and its leaders [with criticism]. They want to prove that they are right. When we have a problem, it's exaggerated because they want to prove that their ideology is correct.

Ethiopia is also criticized for restricting the media. What is your policy on press freedom?

I do not feel that the press itself is immune from this ideological baggage. Those who are working impartially and ethically, they show both sides - our weaknesses and our strengths so people can understand better. But those who are ideologically driven, they show our weaknesses only. The most important thing is we have to be true to our people. We have to be loyal to our people. Their freedom of speech, their freedom of association as per our constitution has to be observed, and my government is committed for that.

Economy: Government or private sector?

You have said that the government must have a major role in directing the economy. How does the private sector fit into your development plans, and why does government maintain control over telecommunications?

Our philosophy is that government should intervene in areas where the private sector is not willing or is not able to perform. The engine of growth is not government, it is the private sector. Telecom is government because the private sector is not willing to go to remote rural areas. We have to get the profit from the cities and distribute those to the remote rural areas. We have laid 25,000 kilometers of fiber optics. In our neighborhood [east Africa], where the private sector is running the telecom, the biggest [amount of fiber] is 10,000 kilometers. Governments do not have the finances for that [without revenues from operating urban telecommunications]. Telecom sector is a cash cow. You get huge profit out of it. That profit has to go to the rural areas. When we complete that backbone and when we do not need government intervention, then the private sector will take over. Government will not stay there.

We fill the gap where the private sector is not willing or is not able to go here. Look at energy production. Until now, the government is producing energy because the private sector was not willing to come. The domestic private sector is very young and the international private sector because of their perception [of risk] has not come in. If the private sector is able and willing to achieve the amount of power required, we pull out. That's our philosophy.

What about the financial sector?

We do not allow foreign private investment in our financial sector like banking. We do this simply because [when] we ask foreign banks to lend to our small and medium enterprises, most of them, they don't. Seventy percent of our private sector comes from small and medium enterprises. When foreign banks come in, they swallow the local banks, and small and medium enterprises do not get loans - and the country suffers. In many African countries where foreign banks are operating, the Gini coefficient [which measures income inequality] is above 0.5%. But our Gini coefficient is 0.29. For us, development should be equitable, broad based and shared. Otherwise, we'll be in trouble. Neo-liberals say we have to open everything to the private sector. We say "no". In America, one percent of the population is taking most of the money and the resources. We don't want this to happen in our country. We have a difference in ideology. We'll fight [for this] to the end.

In the midst of so much progress in living standards, which is changing perceptions of Ethiopia as perpetually poor and hungry, the country is in the midst of the worst drought in decades. Ethiopia is spending money to alleviate the crisis, but international attention, including media coverage, is lagging.

The government has long invested on building resiliency of our people in those areas [where famine is worse] through a safety net program that helped withstand the shocks for quite some time now. The early warning system we had put in place and the strategic grain reserve we had built over the years have also gone a long way in giving us a fighting chance throughout the last few seasons.

We will take every step necessary to avert humanitarian disaster

The famine, which is the result of the El Niño effect, is unprecedented in our country. The government is doing everything possible to feed our people and prevent starvation. We want to do this without slowing down progress we have made in health and education. To do that we need to work with our international partners. The response to date has not been sufficient.

In the event that the lackluster response continues, the government will take every step necessary to avert humanitarian disaster, including diverting funds from other priorities, if that is what it takes.


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