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Ethiopian businesses disappointed by new PM’s economic stance

Aaron Maasho

FILE PHOTO: Ethiopia’s newly elected prime minister Abiy Ahmed attends a rally during his visit to Ambo in the Oromiya region, Ethiopia April 11, 2018. REUTERS/Tiksa Negeri/File Photo

He took power on April 2 promising a “new political beginning”. But four people who heard his dinner speech said he signaled he would stick with policies to keep the government’s hand in sectors such as infrastructure, banking and telecoms.

Ethiopia has let foreign companies such as fashion chain H&M set up factories in a decade-long push to change the economic focus from agriculture exports, such as coffee, to manufacturing. Other sectors are also open to investors.

Analysts say the government must free up the economy further to sustain annual growth rates it estimates averaged nearly 10 percent in the past decade and to create jobs.

Anger over high unemployment fueled violence over ethnic tensions that led to the resignation of Abiy’s predecessor Hailemariam Desalegn in February.

But those at the speech said Abiy did not outline plans to open up new sectors, a move which could also ease a shortage of foreign exchange. He said state spending on infrastructure, which has crowded out local companies, would continue.

“Point blank, Abiy said that demanding the state be out of the business sector is not feasible,” said a hotel owner who was at the dinner. He said Abiy was responding to the business leaders’ requests.

“The state will remain in the business sector.”

Abiy named 10 new ministers to his cabinet on Thursday to clear a path for political reform. He told the new ministers to tackle graft and streamline bureaucracy. [L8N1RW1OI]

But he retained the rest of Hailemariam’s 34-strong cabinet, including the finance minister.

That is consistent with remaining a “developmental state”, the term the four businessmen said Abiy used at the banquet. His office did not respond to requests from Reuters for comment on his policies.

Economists describe a “developmental state” as one where the government is deeply involved in the economy. The philosophy was embraced by rebel-turned-statesman Meles Zenawi, who died in power in 2012. It continued under Hailemariam.

“It’s frustrating to see that for all Abiy’s intentions to bring about changes in politics, that is not translating into the economic sector,” said Tsedale Lemma, the editor of the Addis Standard news website.

Local businesses say they find it hard to compete against the state.

The government has spent hundreds of millions of dollars in recent years building roads and railways to support the manufacturing expansion.

Many of the projects are funded with foreign exchange. Some is borrowed domestically, depriving local businesses of loans to fund their own projects.

It also depletes foreign exchange reserves that could be used to support other areas of the economy. This means it is hard for foreign businesses to send profits home and for local businesses to import.

Access to loans and hard currency is the “biggest headache” for businesses, Endalkachew Sime, secretary general of the Ethiopian Chamber of Commerce said.

The International Monetary Fund said foreign reserves at the end of the 2016/17 fiscal year stood at $3.2 billion, less than the cost of two months of imports. The government does not regularly release foreign reserves figures.

The hotel owner said Abiy had lectured the business leaders at the dinner with a “moralistic” tone for buying foreign cars during a foreign exchange shortage.

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