By Bereket Gebru
It has been quite a while since we started to hear positive international reports about Ethiopia. What used to be an overload of negative narrations about the poverty, famine, and general agony of the people of Ethiopia has consistently been replaced over the past few years with increasingly progressive accounts of the change taking place in the country.
The positive notes in the international media that started out in the form of skeptical reports of growth in the Ethiopian economy over a decade ago seem to have taken down their doubts since then. The impressive double digit yearly growth in the Ethiopian economy might have something to do with that.
Despite the fact that our policies have proved their efficiency and effectiveness over the course of a decade, some used to find it hard to swallow the fact that their favorite example of poverty in the world can do without their skewed and self-serving advices. That is why some of the positive reports on Ethiopian growth still have financial and economic suggestions to the “not civilized” people that have somehow managed to grow their economy double digits for over a decade.
I am saying all this because I saw a positive report on the Guardian that did not make one of those self-serving suggestions on opening up the banking, telephone and other sectors for foreigners. The article I am referring to is entitled “Ethiopia’s African tiger leaps towards middle income.” Therefore, in this article, I intend to look into the “African tiger” reference and check if Ethiopia fits the bill.
The “African tiger” reference came from the famous “Asian tigers”. The term the Asian Tigers refers to the countries South Korea, Taiwan, Hong Kong and Singapore (and primarily their economies) and the term started being commonly used in the 1970s. They have been labeled the four Asian tigers since the 1960s when they all followed a similar path to development and went on to become developed at the start of the 21st Century.
These countries have been hailed as models of development for other emerging economies. The Four Asian Tigers have developed in a slightly different way to most of the other developed countries in the world. The conventional step taken to kick start development in the 1960s was to implement import substitution. This involved raising tariffs to reduce the imports of consumer goods, thereby allowing a country’s own industries to develop and stabilize.
The Asian Tigers, however, decided to capitalize on the growing materialistic attitude and consumerism developing in much of Europe and North America and so pursued an export-driven model of industrialization and development instead. This was achieved by rapidly increasing the production of goods that could be exported to the highly industrialized nations of the world.
Various sources indicate that the main factors for their growth are mainly high saving rates and investment rates, outward orientation, factor productivity macro discipline, and other public policies. The common characteristics of the Asian tigers are:
• Focus on exports: where as other developing countries use import substitution strategies for economic development, the Asian tigers focused on export oriented industrial development to richer countries. Domestic production was discouraged through government policies such as high tariffs.
• Human capital development – they developed specialized skills for their personnel in order to improve productivity.
• They had an abundance of cheap labor
• Sustained rate of high growth rates (probably double digits) for decades
• Non democratic and relatively authoritarian political systems during the early years
• High tariffs on imports in the early days
• Undervalued currencies
• High saving rate
Sources state that a look at Singapore in particular between 1966 and 1990 show that the economy grew at a remarkable 8.5% per annum, 3 times faster than that of the growth rate of the US. Per capita income grew at 6.6% roughly doubling every decade. The employed share of the population surged from 27% to 51%. The educational standard of the workforce was dramatically upgraded. The country grew tremendous levels of physical capital and investment as share of output rose from 11% to more than 40%. All this is part of the developmental miracle the country has registered over the stated period of time.
Now that we have some idea of what the Asian tigers are and identified their common characteristics, let’s see if Ethiopia indeed fits the “African tiger” reference by analyzing the changes in the country against a good a half of the common characteristics. I think it would be fair to say that the fulfillment of a half of the characteristics of the Asian tigers by Ethiopia makes the reference valid as the country has the longer part of its future ahead of it to register growth levels equating those of the Asian tigers.
Focus on Exports
As has been mentioned above, the Asian tigers adopted exports as the main strategy of international trade instead of the then fashionable policy of import substitution. The present five year plan of the country, the Growth and Transformation Plan (GTP), states in its “Sustaining Faster and Equitable Economic Growth” and “Creating Favorable Conditions for the Industry to Play Key Role in the Economy” sections of its seven pillar strategies that industrial expansion will be promoted based on both export oriented and import substituting industries. The GTP document clearly states:
The GTP will focus on easing the pressure on balance of payments by means of promotion and diversification of exports. Exports are expected to grow by annual average rate of 28.4 percent. Sustaining the export growth of emerging products like horticulture and introduction of new export items will receive effective support. On the other hand, substituting import of goods and services will also receive government focus during the plan period. Share of exports of goods and non-factor services to GDP at current market price will reach at 31.2 percent at the end of the plan period. Similarly, share of import of goods and services to GDP at current market price will reach 45.7 percent thus contributing to a decline in resource gap by the end of the plan period.
Although tremendous focus has been accorded to the export sector in Ethiopia, the strategy in general focuses not only on exports but import substitution as well. Export promotion and diversification have generally enjoyed a bask in the sun during the last decade or so. However, export promotion and diversification had declined in the last couple of years. It declined by 2.5 percent in 2012/13. One of the factors for the low performance of the sector is the decline in international market prices of some export commodities while the key factor is limited supply and lack of product diversity to significantly expand the sector.
That calls for radical measures towards strengthening the export sector further with focus placed on increasing the production of diversified export commodities and creating a better competitive manufacturing sector. Some reports indicate that the emphasis should also be on “improving the effectiveness of the implementation of the various export promotion policies to accelerate export trade. The government and the private sector need to enhance their collective efforts to make a breakthrough in the country’s export sector as well.”
Human Capital Development
The Asian tigers are known for developing specialized skills for their personnel in order to improve productivity and the emphasis they allot education. The GTP has earmarked a major emphasis on education. On its education and training section, the document states that the government will increase its efforts in human resource development through improving access and quality of education.
The document states that efforts will be made to gradually address issues that limit children in particular girls and women enrollment in terms of improving access to education. As for improving quality of education measures will be taken to address the shortcomings through increasing the number of teachers and schools. The government will enhance the implementation of General Education Quality Improvement Program.
The GTP also indicated the use of the TVET System to serve as a potential instrument for technology transfer, through the development of occupational standards, accreditation of competencies, occupational assessment and accreditation, establishment and the strengthening of the curriculum development system. TVET institutions will serve as the centers of technology accumulation for Micro and Small Enterprises (MSEs).
The key priority for higher education during the GTP years (2010/11 – 1014/15) are indicated by the document to be ensuring quality and relevance. The government will also strengthen the expansion of higher education with a big push in science and technology. Furthermore, the established TVET program will be part of government’s capacity building program. The program will be undertaken in coordination with institutions engaged in micro and small enterprises to support and expand employment opportunities.
A cost effective and participatory early childhood care and education will be expanded in both formal and non formal delivery mechanisms. The education strategy for children with special needs will be fully implemented to meet the needs of this group. Further, functional adult literacy will be expanded across the country.
As a result of the emphasis on education, Ethiopia is among the countries in the world noted for spearheading “education for all.” In terms of budget allocation, public expenditure in education has increased to 25.3% in 2011/12 from 11.3% in 1999/2000. Education enjoys 4.7% of the country’s GDP.
Ethiopia’s education sector achievements include its stride in raising the gross enrollment rates from 30% in 1997 to 95% in 2011/12 accompanied by a spectacular endeavor in achieving an 85% net enrollment rate/NER of school age children to meet universal primary education for all. Another indicator of the strong commitment of the Ethiopian government is the gender parity index that stood at 0.95, during the academic year 2011/12 in the primary education sub-sector.
The number of schools has increased from 11,000 to 32,000 during the last fifteen years. Referring to the unprecedented expansion of access to Primary Education, grades 1-8. Enrollment of school age students has shown a massive stride forward from 3.7 million to 17 million while the number of teachers has seen a substantial growth from 100,000 to over 321,000 over the last decade and half. Declaring free primary education is another one of the major achievements.
Abundance of cheap labor
The Asian tigers were characterized by an abundant cheap labor. The International Labor Organization (ILO) estimated Ethiopia’s labor participation rate to be a consistent 84% between 2010 and 2012. Labor force participation rate is the proportion of the population ages 15 and older that is economically active: all people who supply labor for the production of goods and services during a specified period.
The World Bank puts Ethiopia’s total labor force in the years between 2010 and 2014 at 43,591,175. Total labor force comprises people ages 15 and older who meet the International Labour Organization definition of the economically active population: all people who supply labor for the production of goods and services during a specified period. It includes both the employed and the unemployed. While national practices vary in the treatment of such groups as the armed forces and seasonal or part-time workers, in general the labor force includes the armed forces, the unemployed and first-time job-seekers, but excludes homemakers and other unpaid caregivers and workers in the informal sector.
With the total population of Ethiopia estimated to be in the ninety millions though, the World Bank’s estimates could run short of the reality as the 84% labor participation rate of the country identified by ILO takes the figure up to 77-80 million. With the price of labor set at one of the cheapest in the world, not only European and American but Chinese companies as well are migrating in numbers to the country.
Sustained rate of high growth rates (probably double digits) for decades
The Asian tigers experienced decades of very high growth rates. In the case of Ethiopia, the economy has been growing for about a couple of decades now but double digit growth averaging 10.4% has been registered for over a decade. Recent data indicate that Ethiopia is the third fastest growing economy in the world next to China and India. Ethiopia has also been identified recently as a country on course to double its per capita income within twelve or thirteen years.
Although it has just been a decade since Ethiopia started to register consistent double digit growth, the trend this far shows that the economy has picked up momentum to continue growth for a number of years. The same sources that identified Ethiopia as the third fastest growing economy in the world claim that it is even set to take over the two countries and become the fastest growing economy in the world within the next five years.
The growth in the country is also noted for being cross-sectoral as the agricultural, industrial and service sectors have all enjoyed significant transformation within the last couple of decades. This cross-sectoral growth is considered to be the stable foundation upon which the country’s transformation is expected to be built.
Other characteristics
Similar to the Asian tigers, Ethiopia was under military repression within its short past. However, the rise to power of the Ethiopian People’s Revolutionary Democratic Front (EPRDF) has increasingly helped create a democratic system characterized by multi-party politics. Although there still remains a long way to go before the system can be labeled a developed democracy, the country is definitely on the right track to get there.
The other characteristic feature of the Asian tigers is their high saving rate. With the weak saving culture in Ethiopia, the government has been working hard to change that reality and build saving culture. The various awareness raising programs and incentive schemes designed to build on saving by enticing it with various programs like the condominium housing program and the lotto scheme in banks is paying off gradually.
Gross domestic savings (% of GDP) in Ethiopia was last measured at 16.41 in 2012, according to the World Bank. Gross domestic savings are calculated as GDP less final consumption expenditure (total consumption). However, saving rate in Ethiopia at present conditions is still considered to be low with investment suffering from the reality. The future, however, holds better chances of that changing drastically.
Conclusion
The association of Ethiopia with the Asian tigers is a great complement as these countries are known for their consistent and long periods of economic growth leading to them becoming developed states. As shown above, focus on exports, human capital development, abundant cheap labor and sustained rate of high growth rates for decades can be presented as characteristics working for Ethiopia as well. However, the emphasis on import substitution along side export, high saving rates and authoritarian governments stand as the points of difference with the Asian tigers.
Generally over the past two decades, there had been significant progress in key human development indicators: “primary school enrolments had quadrupled, child mortality had been cut by three quarter and the number of people with access to clean water had more than doubled.” The country had already achieved the MDGs target of reducing under-five child mortality in 2013, two years ahead of the target year of 2015.
With in the last three years of the GTP period alone the agriculture sector registered a growth rate of 7.1 percent, the industry 18.5 while the service industry spotted a 9.9 growth. “Over 10,000 km of roads were built and rural Ethiopia had over 30,000 km of roads built.
With such impressive changes registered in the country over a total of two decades and the growing rate of these changing happening in recent years, Ethiopia is deemed to be one of the most noted countries around the world for tangible development. The bright future awaiting its economy along with the certain similarities it has with the Asian tigers has prompted its recent reference as an “African tiger.”