Around the world, economic development is the central issue of our times. Much of the planet is out of reach of the consumer society and lavish paychecks of the rich countries, yet is growing quickly and has more opportunities for creating wealth than ever before. That’s why governments everywhere see their main task as promoting their countries’ development: the future looks bright, but the present is still not good enough and the past is often a reminder of how easy it is to slip back into destitution. The question is: What’s the best strategy for economic development?

Western agencies usually call for opening up markets and lifting restrictions on business, but this blog post will look at a country that’s trying a different tack.

Ethiopia is a big country dominated by mountains and highlands in a peninsula in northeast Africa called “the Horn of Africa.” It has an ancient history and grew rich in the 300s thanks to its strategic location up the River Nile from Egypt and across the Red Sea from Arabia. Its cultural outlook was much more oriented northwards towards the Persian, Greek and Roman world, and as a result it adopted Christianity as its national religion. It was hit hard by the rise of Islam in the 600s, though, and was cut off first from Arabia, then from the lower Nile, and finally from the Red Sea. Mostly unwilling to convert to the new religion, the Ethiopians stubbornly remained in their mountain citadels, cut off from the outside world and reduced to a miserly, meager existence of highland farming and arcane rituals — sort of an African-flavored Tibet.

And so it remained. Ethiopia (which was once also called Abyssinia) resisted the European onslaught that the rest of Africa succumbed to — although it was occupied by Fascist Italy in the 1930s. That meant it was spared the rampant exploitation inflicted on the rest of Africa by the colonial powers. It also meant that Ethiopia remained undeveloped, with rudimentary roads, an old-fashioned monarchy as a government, and very basic education and health care. Partially as a result, the old emperor was overthrown in a coup in 1974, and Ethiopia came under the rule of a Communist military dictator, Mengistu Haile Mariam. His coercive grain purchases and price fixing combined with a heartless counterinsurgency campaign to create a heinous famine in 1984, which led to over a million deaths. It continues to stain Ethiopia’s reputation in the outside world and haunts the country’s past like an eerie phantom.

Mengistu’s misrule only aggravated the insurgency he was fighting against, and it toppled his regime in 1991. The Ethiopian People’s Revolutionary Democratic Front took charge and created a single-party state under the guidance of Meles Zenawi. Their mission: to lift Ethiopia out of the gutter it had collapsed into without endangering their own control.

It’s a familiar objective from other countries, most notably China — another country that transitioned from a feudal empire to a genocidal Communist dictatorship. And indeed, Ethiopia took a lot of cues from China, opening up its state-dominated economy and welcoming foreign expertise and investment, but only to a certain extent and carefully maintaining a monopoly on power. 80% of its private firms are actually state-owned, and are often controlled by leaders at the very top or their cronies. The biggest, EFFORT (the Endowment Fund for Rehabilitation of Tigray), is a massive conglomerate that began as an endowment to aid in the recovery of Tigray (the famine-struck region) but has morphed over the years into a firm with tentacles in construction, mining, tourism, pharmaceuticals, agriculture, textile manufacturing, and more. It’s owned by Meles’s widow, Azeb Mesfin, who reaps billions of dollars in profits from it.

Agriculture and pastoralism (herding livestock) are the heart of Ethiopia’s economy and society; 79% of its workforce are engaged in them, and they makes up 46% of the country’s GDP. The government recognizes this and focuses much of its efforts on schemes to increase agricultural productivity. The Agricultural Transformation Agency plays a big part in this by teaching farmers ways to increase their yields, planning irrigation, and ensuring a secure food supply for its people to lessen the risk of another famine. As a result, Ethiopia’s fertile highlands (one of the exceptions to the geographical rule that lowlands are where the farms are) are more intensively farmed than before, and Ethiopia now has more livestock than any other country in Africa, with 50 million cattle (almost 1 for every 2 people)! On the other hand, government restrictions on private enterprise keep farmers in their fields and in their mountain valleys, relieving Ethiopia’s relatively small cities from huge slums of poor, uneducated and ambitious migrants.

Nevertheless, Ethiopia is beginning to look beyond farm fields and into manufacturing, which was Asia’s secret to becoming more relevant. Chinese investment has led to a shoe factory for the company Huajian, and leather and textile factories churn out goods for companies like H&M, Primark, Tesco and Wal-Mart. The government has set a target of $1 billion in textile exports for 2016 and is courting foreign investors more. Export-oriented agriculture in oil seeds and flowers is also growing. Yet the government also sets strict limits to the amount of outside investment — earning export revenue is fine, but businesses geared towards the local market remain in local hands. In the heartland of coffee, there is no Starbucks yet.

Like China, the Ethiopian government is also interested in expanding the nation’s infrastructure. A road network snakes around the country, and its many rivers are being dammed. Ethiopia dreams of being an electricity exporter and is building a big honking dam (it will be Africa’s largest) on the Blue Nile, a branch of the Nile that runs out of Ethiopia. Its name, the Grand Ethiopian Renaissance Dam, gives an idea of officials’ expectations for the project. A railway network is being planned, with a line running to Djibouti scheduled to open later this year which would give Ethiopia an outlet to the sea.

As for the other side of development — social development — Ethiopia is making progress too. Ethiopia used to have only 2 universities (Addis Ababa in the capital and Haramaya in the east); now it has 32. Schools and clinics have spread across Ethiopia’s countless little villages. Infant mortality is down, literacy is up.

All of this is largely possible due to one crucial factor: the officialdom. For any state-controlled economy to work, it has to have dedicated, knowledgeable bureaucrats who know what they’re doing and how to get things done. That Ethiopia has. Its officials set targets and generally reach them. They’re flexible and welcome outside advice and aid. Corruption, while still pretty bad, is low by African standards. As a result Ethiopia is favored by international development institutions like the World Bank and has seen annual productivity gains of 2-3%. As for its overall economy, that has grown by a whopping 11% annually. (Well, O.K., the World Bank doubts that and thinks it’s more like 5-7%, but that’s still high.) Extreme poverty* fell from 45% in 1995 to 30%. Millionaires are being created faster than anywhere else in Africa — there were 1,300 in 2007, but 2,700 only 6 years later!

Ethiopia is one of Africa’s success stories — but within limits. The most obvious one: it’s still really poor. It ranks 173rd on the Human Development Index, a UN metric of 187 countries’ standards of living. Average income is $470 per person, which comes out to a little over $1.25 a day — the international definition of poverty. Education remains very basic (literacy is 39%), with malnutrition continuing to affect children’s ability to study. The Ethiopian diet remains meager — usually just some injera (a spongy flatbread), a few vegetables, and maybe eggs. Many farmers and villagers remain isolated from the outside world (that is, the rest of the province), even near the capital.

Ethiopia’s investment in its infrastructure is also unaffordable. Interest rates and savings are low; the government forces banks to devote 27% of all their loans to itself to keep it going. All this state spending also makes for high inflation (15%). Foreign exchange is tightly regulated, restricting imports.

Like much of Africa, Ethiopia is also beset with high population growth. Its population has doubled since the late ’80s (yes, the famine barely made a dent) and is now about 88 million. The highlands are one of Africa’s more crowded regions, and available arable land is getting more and more scarce. Over half of the population are kids, making it economically unsustainable to keep them all in school. (Many start helping out on the farm when they’re 5.) Combined with ruthless government land seizures and long-simmering ethnic tensions, the situation is ripe for unrest. The government may have to encourage more manufacturing and urbanization to relieve the pressure on land.

Ethiopia also lags behind the rest of the continent in mobile phones. Mobile phones have become ubiquitous around the world and are being tapped as an easy way to provide services to far-flung poor people. But the government is nervous about the potential for easy communication to undermine its dictatorship, so it has maintained strict control over telecoms and sought Chinese support and advice in establishing its broadband network. The result: only 25% of the population has cell phones. Even fewer have Internet (2.5%). Of course, being connected to the power grid is also something of a luxury.

Thus, Ethiopia is an interesting illustration of the potentials and limitations of state-guided development. On the one hand, it’s forged a brighter future for its people than the emperor and the Derg** ever did. It is clearly developing and finding a place in the global economic web. Standards of living are rising. But it’s not entirely clear how far the government can go without encouraging more private enterprise and fewer small family farms. Certainly Ethiopia is outshone by its smaller neighbor to the south, Kenya. We’ll have to see.


60¢ a day


Mengistu’s regime


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