• Robert Looney, “Ethiopia’s Economic Miracle is Running out of Steam,” Foreign Policy, April 16, 2015
• Thirty years ago a major famine in Ethiopia
•
However over the last decade, country has averaged a growth rate of better than 10% per annum
•
Dominant political party, EPRDF, continues to focus on high growth strategy
• Goal is to make the country a middle-income country by
2025
• Country has already met or close to meeting its
Millennium Development Goals
• Country’s poverty rate fell from 44% in 2000 to 30% in
2011
• Unemployment has been coming down
• Number of Ethiopian millionaires has increased faster than any other country
2

• Problem – success has come at a price
• Government obsession meeting growth targets at any cost has resulted in widespread anger
• Much discontent along regional and ethnic lines
• Land grabs have been common – leasing out large acreages to international agri-business has not produced good results – have caused
• Human rights violations
•
Abuses of power
• Growing resistance may be difficult to overcome without major reforms
3

• Country’s development strategy conceived by Meles
Zenawi – revolutionary who became prime minister in
1995
• Believed as did Singapore’s Lee Kuan Yew – prosperity essential before democracy could take root
• Adopted “authoritarian developmentalism” model
• Prioritizes state-directed economic growth over human rights or political pluralism
• Model has paid off, but unlikely success cannot be sustained much longer
•
Even assuming government can control unrest
– country’s limited financial capacity poses a major problem
4

• Ethiopia’s public investments in infrastructure, state enterprises, and human capital have averaged 19% of
GDP – third highest in world
• Outrunning country’s financial capacity
• Government’s hope of achieving goals will depend on willingness to scale back control of economy
• Let private sector fill the gap
• Will require democratic reforms
• Some selective governance and economic reforms have already begun
• Corruption fallen sharply in recent years
• Major civil service reforms have increased ranking in government effectiveness
5

55
50
45
40
35
30
25
20
15
10
1996 2000 2003 2005 2007 2009 2011 2013
Legend
Uganda
Kenya
Tanzania
Mozambique
Ethiopia
6

40
35
30
25
55
50
45
20
15
10
1996 2000 2003 2005 2007 2009 2011 2013
Legend
Uganda
Kenya
Tanzania
M ozambique
Ethiopia
7

55
50
45
40
35
30
25
20
15
10
5
1996 2000 2003 2005 2007 2009 2011 2013
Legend
Uganda
Kenya
Tanzania
M ozambique
Ethiopia
8

60
55
50
30
25
20
15
45
40
35
10
5
1996 2000 2003 2005 2007 2009 2011 2013
Legend
Uganda
Kenya
Tanzania
M ozambique
Ethiopia
9

50
45
40
35
30
25
20
15
10
1996 2000 2003 2005 2007 2009 2011 2013
Legend
Uganda
Kenya
Tanzania
Mozambique
Ethiopia
10

55
50
45
40
35
30
25
20
15
10
5
1996 2000 2003 2005 2007 2009 2011 2013
Legend
Uganda
Kenya
Tanzania
M ozambique
Ethiopia
11

45
40
35
30
25
20
15
10
1996 2000 2003 2005 2007 2009 2011 2013
Legend
Uganda
Kenya
Tanzania
M ozambique
Ethiopia
12

70
65
60
55
50
45
40
1995 2000 2005 2010 2015
Legend
Uganda
Kenya
Tanzania
Mozambique
Ethiopia
13

90
80
70
60
50
40
30
20
1995 2000 2005 2010 2015
Legend
Uganda
Kenya
Tanzania
M ozambique
Ethiopia
14

• Limited progress in other areas
• Hardly any political opposition in House of
Representatives
•
Very low scores in voice and accountability and political stability/absence of violence
•
Since 2005 experienced an almost continuous decline in economic region – now last in the region
• Government points out it took East Asian countries several decades to deliver on their socioeconomic goals
15

• However revenue shortfalls forcing government to finance some major projects with loans from China, India and World Bank
•
Domestic financing is adding to inflation
– reached 40% in 2011
• IMF has identified the country’s financing trade-offs
• Excessive borrowing from financial system could cause inflation to jump again
• Hits low-income ethnic groups and regions very hard
• Likely to cause social discontent and turmoil
• Alternative external borrowing eases inflationary pressures but adds to country’s debt burden
16

• IMF recommends – stay within safe limits domestic credit and external debt
• Means Ethiopia will have to scale down growth targets to more achievable levels
• Could be good – other countries that have tried to maintain high growth over time have run into harmful side-effects
• Problem more fundamental
• Even slower growth may be a moot point
• State led development model is starting to hit diminishing returns
• Also unlikely government has capacity to further expand the rates of public investment needed to sustain growth and overcoming growing resistance of large segments of
17 the population.

• Only realistic alternative is to scale back state control of economy enabling private sector to drive further growth
• To be viable the private sector will need
• Secure property rights
• Impartial third party contract enforcement
• Increased economic freedom
•
All cornerstones of democracy
• If EPRDF unwilling to relinquish control and enact necessary reforms – country will probably not achieve a viable functional democracy
• Instead will default to a “transitional democracy”
• Neither fully democratic nor fully authoritarian
• Not often associated with sustained growth and development
18