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Ethiopian HG Economic reform: missing a holistic strategy? - FurtherAfrica
Africa Development Economy Ethiopia Government

Ethiopian HG Economic reform: missing a holistic strategy?

On early September 2019, Ethiopian government launched a three year economic reform program, Homegrown Economic Reform, at a briefing held for Donors, Partners, Ambassadors & Investors at UNECA hall in Addis Ababa, in presence of PM, Dr.Abiy.

1. What are the main pillars of the reform?

Here I have enlisted them into 5. No.4- corporate affairs- buying & selling of stocks & bonds among investors, facilitates ongoing liberalisation move on public enterprises and later opening of financial sectors.

1.1 Opening the finance sector for Ethiopian born foreign citizens, which is the first time since free economy was endorsed in early 1990s.
1.2 .All banks including the two public banks (CBE & DBE) would be seen equally by the NBE as per the international banking experience.
1.3. The monetary policy will be improved & change the T-bill and lift the NBE bill that private banks buy a 27% bond on their every loan approval.
1.4. The secondary bond market will be also introduced regarding to access to finance.The market ensures valuation, liquidity and return of an investment for investors.
1.5. The IMF recommendation that the government expand access to finance for the private sector than consuming under public projects will be implemented.

2.Major considerations of the reform:

2.1. The reform requires huge government budget and  expected to mobilize additional revenues. It relies on every layer of government really working towards achieving the strategy.
2.2. Total factor productivity and increasing the efficiency of an economy requires time. The reform set three years.

3.Major areas of reform:

3.1. Unemployment
3.2. Inflation
3.5. Trade deficit
3.6 Lower private sector financing
3.7. Dual government involvement (huge loan and huge expenditure)
3.8. Inefficient and capital intensive public enterprises

4. Major strategic instruments

While the economic reform initiative is clear in covering the issues and areas of reform, it fails to summarize, categorize and specifically provide a corresonding reactive or proactive strategy(instrument) of each reform in any or order of implementation schedule. However, I enlisted here them based on my understanding of the reform narration document .

4.1. Structural change
The doing business reform has been reviewed (sets to reach below 100 in doing business ranking) and new Investment Law that allows Ethiopian born foreign citizens join financial sector is promulgated.

4.2. Repatriation
Working to incentivize foreign investors to retain their capital and reinvest it.

4.3.Government expenditure control
Government stops borrowing on commercial basis from external sources and instead fully or partially privatize inefficient and huge capital industries or to partially privatize/license additional operators to make ethio-telecom competitive and efficient.

There is a plan set out to create some three million jobs and a Job Commission has been established and is aggressively working to create those jobs. In terms of ICT sector, the Ministry of Innovation and Technology is working hard to create 250,000 jobs we think that is possible through introduction of two more additional telecom operators & with emerging digital economy.

The Ethiopian Investment Commission now permitted international companies to come and distribute key commodities to the local market

5. What is/are the missing strategy(ies) and instrument(s)?

5.1.Unemployment area of the reform sets numbers.
However, it still needs to set a job creation strategy well suited with current research findings as to prioritize and support the best sectors. The strategy shall set sectors and incentives  and investment law shall embody such strategy. Half of the countries that experienced strong economic growth in 2017 were African countries. Five sectors have been identified as the main drivers of growth in the coming years. These are advanced manufacturing, infrastructure, natural gas, service exports, and agro-processing.

New data released by Mckinsey &Company suggests rural electrification can be one important contributor to alleviating joblessness, especially for youth and women. access to energy can help scale agriculture, which is seen to future growth of still largely agrarian economies.It’s clear from the census data that there is a linkage between energy access, labor and agriculture. It would be unwise to ignore decentralized renewable energy as an important catalyst.

5.2 The reform on repatriation needs first improving on doing business.
Foreign trade deficit and forex deficit could also be minimized by repatriation. Hence, improving doing business (atleast reach top ten rate among African) shall be given priority. A committee chaired by PM and led by Ethiopian investment commissioner is set to propose ways of improving doing business.However, it set a goal to reach the country below 100 rating. Hence, The reform seems to ignore or fails to focus on a  holistic strategy- doing business. Such holistic strategy will  improve the overall reform areas in the upcoming three years period.

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