Ethiopia: Face to face with institutional injustice

PM Hailemariam offers lucrative incentives to animal husbandry and meat export businesses but he may wish to fix the country’s institutional mess first
Tsedale Lemma
(Addis Standard Newspaper)

Coming face to face with a sea of business men and women in one large ball room and looking directly into their eyes is surely an intimidating experience for a first timer; coming face to face with a sea of unhappy business men and women in one large ball room and looking directly into their eyes and then listening to their grievances is for sure both intimidating and bulky. In just about a month and a few days after taking office, Prime Minister Hailemariam Desalegn has decided to face the later. By any account, on Wednesday Oct. 24th he may have taken to his office more assignments than what he came prepared to take after his first account with a mass of unhappy industrialists in Ethiopia.

Similar get together were common rituals between the late PM Meles Zenawi and the business community representing different sectors before the unfortunate aftermath of the 2005 national election. Now when Mekonnen Manyazewal, Ethiopia’s Minister of Industry, announced the get together between PM Hailemariam and the industrialists, he said it was part of that effort by the late PM Meles. But between now and then many things have gone from bad to worse.

The metal and steel industry sector is frustrated by the labor law; the meat processing and export sector and the leather industry are incapacitated by illegal live animal exports; the cotton industry is hit hard by unreliable land lease policies in regions where it grows best; the chemical industry is forced to lose out in billions because of port bureaucracy including extended delays in processing bill of loading and staggering costs of transportations; the horticulture industry, once envied by all other sectors for the extra coddle accorded to it by the late PM Meles, looks no longer rosy thanks to the unavailability of extra land for expansion and short lived tax holidays. The list goes on. But the three common grievances shared by every sector are: erratic industrial policies, lack of finance and intolerable bureaucracy.

As it is there is no universal remedy that works as model industrial policy for all low-income countries. Ethiopia’s industrial policy, which was modified in the beginning of the 2000s, showed a significant departure from its predecessors both under the Marxists Derge and the Emperial Hailesselasie regimes. Institutional reforms, increased incentives and market friendly policies have helped establish useful institutions such as the leather and leather processing, textile and garment, and horticulture and floriculture. But according to a 2012 industrial production index by Mundi, Ethiopia’s annual industrial production growth rate has been showing a significant decline particularly between the years 2007 – 2010 when it failed from a record 11% in 2007 to 9.5% in 2010. Once again, many blame the industrial policy misfit, lack of finance and intolerable bureaucracy.

However, the underperforming industrial sector and the business discontent in Ethiopia lies far beyond that. First is the manner by which policies are designed and lack of consistent policy implementation. It’s an open secret that the government has no tradition of involving stakeholders when designing policies that directly affect them; and even after designing policies that no business knows about, it shoves them with endless additional directives that no civil service is able to follow consistently.

The second is the country’s institutional set up that has no culture of entertaining institutional incentives – most civil service offices are staffed by underpaid civil servants who often spend their times fretting about how to live off their meager salaries from one month to the next than making decisions; and many of them are cut off from any important decision making process because of issues related to political loyalty and ethnic affiliation. To make matters worse the leaderships in many institutions are occupied by political appointees than by professionals while the few professionals have no incentives to perform.

The third is the government’s targeted preferential treatment from one sector to another – the horticulture industry, for example, is treated more equal than the others, not to mention the unholy relationships between a few businesses and the government – there are countless party affiliated companies in almost all sectors doing the same businesses but thriving over their non-party affiliated competitors. This in turn has created an opaque resources allocations scheme including foreign currency, land and credit facilities. The result is a heavy burden of institutional injustice shouldered by the private sector that is going from bad to worse.

A shift to animal husbandry

During the meeting PM Hailemariam, surrounded by veteran party officials including his deputy Demeke Mekonnen and his advisor Arkebe Equbay, Minister of Industry Mekonnen Manyazewal and his deputy Tadesse Haile, promised a flood of institutional improvements from fixing the mess created by the newly introduced multi-modal transport system (a system he said his government has failed to implement effectively), to land lease, a system he admits is the main source of corruption in his government. Many of the business people felt relieved by his attentive and indulging manner in engaging them while as many felt it was business as usual.

But according to information obtained by this magazine, his inspiring offer came the next day on Oct. 25th when he summoned representatives of seven companies involved in animal husbandry and meat export business. PM Hailemariam told the business people who were led by representatives from the Ethiopian Meat Exporters Association that his government would offer each company a lease free land of close to 2000 hct in and around Bale, some 500 kms south east of Addis Ababa, and a 70/30 credit facility from the Development Bank of Ethiopia (DBE), should they wish to expand their already existing businesses into modern animal husbandry and meat export. He told the business people that his main plans were to see them buying live animals directly from destitute farmers and establish an effective value chain system before exporting their products. For that, according to our sources, he promised his government would stand by their side in every step of their efforts.

PM Hailemariam’s desires to encourage this particular sector are justifiable. Global food and agricultural products are showing a lucrative increase in prices over the last few years and the need for Ethiopia to diversify its export economy never looked imminent. But his desires face two fundamental shortcomings that may prove to be more expensive both for the country and the feeble private sector at the same time.

First, Ethiopia continues to be a country tangled by institutional snag, including but not limited to, lack of effective cooperation between institutions both at federal and regional levels (as was loudly mentioned by the business community at the meeting) and insufficient financial incentives for the countless underpaid civil servants who are living confronted by a double digit inflation but have to deal with the practical part of his decisions.

Second, his decision may signal yet another danger of singling out a handpicked sector instead of outlining a consistent industrial policy and reliably following it through to benefit all sectors than a chosen one.