Economic Strategic Vision Roadmap for Ethiopia: Part Nine

Tsegaye Tegenu, PhD
2023-09-19

In part nine I will discuss the enabling environments and financial self-reliance principles of the vision of creating post-scarcity economy of Ethiopia. Before proceeding, I would like to summarize the different policy areas of post-scarcity economy of Ethiopia which I tried to identify in part eight based on the criteria of an aircraft flight phases: takeoff, climb, and cruise stages. The policy areas mentioned in part eight do not state the objectives of specific policies, choice of various instruments and tools to achieve the objectives, their time horizon, coherence and tracks. It is beyond the scope of part eight to discuss these details and I left the job to a long-term planning commission. In fact, in countries with a central planning tradition, the process of setting and pursuing vision, goals, missions and strategies over an extended period is a task of a planning commission.

The present part focuses on the enabling environments and self-reliance principles of the vision, goals, strategies and policy areas mentioned in the preceding parts. These parts of the roadmap require various enabling environments to thrive. Institutional and governance environments are the critical factors that influence and interact with the policies and strategies. They provide the necessary legal, regulatory, and political infrastructure to minimize risk and ensure the successful implementation of strategies and policies. The institutional and governance factors include:

1. Rule of Law and Property Rights:

The rule of law is a durable system of laws, institutions, norms, and community commitment that delivers four universal principles: accountability, just law, open government, and accessible and impartial justice. These foundational principles ensure that policies related to infrastructure development, trade, and technology are enforced and protected.

A well-defined legal framework is essential to protect property rights, enforce contracts, and ensure that individuals and businesses can operate in a predictable and secure environment. Property rights are the formal and informal arrangements that govern the ownership, use, and transfer of assets. Formal property rights are encoded into law, statute, ordinance, or contract. Strong intellectual property rights protection encourages innovation and investment in research and development.

2. Political Stability: The stability of a government and its effectiveness in implementing policies and strategies play a crucial role in their success. Stable political environments reduce uncertainty and encourage long-term investments.
3. Transparent and Accountable Governance systems that combat corruption, promote efficiency, and ensure the rule of law are critical. Transparency in government operations, budgeting, and decision-making helps build trust and accountability. Effective mechanisms for public oversight and reporting enhance accountability.
4. Regulatory Framework: The quality and effectiveness of regulations and institutions overseeing areas like finance, trade, and technology are essential for their success. Business regulations, for instance reduce barriers to entry, promote competition, and encourage entrepreneurship. Labor market regulations balances workers’ rights and business needs and they are essential to prevent excessive rigidity or informality in the labor market.
5. Efficient Bureaucracy: A competent and efficient civil service can implement policies effectively, reduce bureaucratic red tape, and provide responsive public services.
6. Fiscal Responsibility: Sound fiscal policies, including responsible budgeting, debt management, and taxation, help maintain macroeconomic stability and sustainable public finances.
7. Public Participation and Consultation: Involving civil society, businesses, and citizens in policy formulation and decision-making processes enhances policy relevance and legitimacy

Effective governance and institutional arrangements are the backbone of a thriving post-scarcity economy. When these triggering conditions and factors are well-developed and properly functioning, they create an environment in which economic policies and strategies can have a meaningful and sustainable impact on economic growth, development, and prosperity. The question is what happens if the enabling environments of long-term development plan are bad.

If the enabling environments of long-term development plans are characterized by high corruption, internal conflict, population displacement, and political instability, as in the case of Ethiopia, it can have severe negative consequences for the prospects of successful development. High corruption can result in the misappropriation of public funds and resources, reducing the available resources for development projects and essential public services.

Political instability and conflict can disrupt economic activities, leading to a decline in economic growth and government revenues and its ability to finance development initiatives. Internal war and population displacement can create a humanitarian crisis, with basic needs such as food, shelter, and healthcare becoming scarce. Human suffering and loss of life can be substantial.

Conflict and corruption can undermine the capacity and effectiveness of government institutions, hindering their ability to plan and implement development projects. Political instability and conflict can lead to insecurity, making it challenging for development projects to proceed safely. Investors and development partners may hesitate to engage in such environments. Conflict and war often result in the destruction of critical infrastructure such as roads, bridges, and utilities, hindering economic activities and development efforts.

Addressing these challenges and creating an environment conducive to long-term development planning requires a comprehensive and multi-faceted approach: This includes, among others, conflict resolution and peacebuilding efforts, anti-corruption measures, political reconciliation and economic recovery visionary plans and programs.

The financial need to support the post-conflict environment and long-term development plan is immense. The situation requires a range of financial sources to fund various projects, programs, and initiatives aimed at achieving an enabling environment and sustainable economic and social development. Theoretically, there are diverse financial sources: government budgets, domestic savings, taxation, grants and aid, foreign direct investment (FDI), capital markets, public-private partnerships (PPPs), and remittances.

Development planning often involves a combination of these financial sources, tailored to the specific needs and circumstances. However, effective long-term planning should be based on the principle of self-reliance. It must rely on the country’s own population and economic activities to generate funds for development. The principle of self-reliance emphasizes a nation’s ability to finance its development needs and achieve its long-term goals using its own resources and capabilities.

Of all the financial sources, the category domestic resource mobilization directly aligns with the principle of self-reliance. It involves individuals, households, businesses, and institutions within a country saving a portion of their income or resources. However, in a country where there is high dependency ratio (about 40% of the population below age 14), it is challenging to mobilize domestic saving. Incomes are used to feed more mouths than to save.

As the level of total consumption increases as the absolute size of the population increase, there is a decline in saving and investment. The difference between domestic saving and investment needs, known as the resource gap, led to an increase in the country’s external debt. Rapid growth of public expenditure and lack of fiscal discipline (lack of responsible management of government finances) have also contributed to the increased size of the country’s external debt.

Financing long-term development plan under such condition is challenging, if not impossible. A combination of fiscal discipline, economic growth, and financial inclusion can address high government budget deficits.

The government must assess its investment in major projects, particularly their rate of return and expected net monetary gain. It must reduce corruption and promote private sector development. It must promote investments in productive sectors of the economy, such as commercial agriculture, manufacturing, and technology, to stimulate economic growth, create jobs, and generate additional income that can be saved. It has to expand access to financial services, particularly in underserved and rural areas.

In the context of Ethiopia, the institutional, governance, and financial enabling factors that play a critical role in the formulation and implementation of long-term plan faces several challenges. Addressing these challenges through a collaborative effort is crucial for Ethiopia’s transition to a thriving and sustainable post-scarcity economy.