Freedom And Growth Management In Ethiopia

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Written by Staff

From TheEconomist.

Ben Abeba is widely considered the best eatery in the highlands surrounding Lalibela, nearly 700 kilometers (435 miles) north of Addis Ababa, the capital of Ethiopia, by bumpy road.

The restaurant’s name is a fusion of Scots and Amharic, Ethiopia’s main language.

Yet the obstacles faced by its owners illustrate what go-ahead locals and foreign investors must overcome if Ethiopia is to take off. Electricity is sporadic. Refrigeration is ropey, so fish is off the menu. So are butter and cheese.

Susan Aitchison, the restaurant’s resilient co-owner, won’t use the local milk, as it is unpasteurised. Honey, mangoes, guava, papaya and avocados, grown on farmland leased to the enterprising pair, who have planted 30,000 trees, are delicious.

All land belongs to the state, so it cannot be used as collateral for borrowing, which is one reason why commercial farming has yet to reach Lalibela. Consequently supplies of culinary basics are spotty. Local chickens are too scrawny. The government will not yet allow retailers such as South Africa’s Shoprite or Kenya’s Nakumatt to set up in Ethiopia, let alone in Lalibela, a UNESCO World Heritage site.

Bookings at Ben Abeba are tricky to take, since the Internet and mobile-phone service are patchy. Credit cards work “about half the time”, says Aitchison. Imports for such essentials as kitchen spares are often held up at the airport, where tariffs are sky-high: a recent batch of T-shirts with logos for the staff ended up costing three times its original price. Wine, even the excellent local stuff, is sometimes unavailable, because transport from Addis, two days’ drive away, is irregular and private haulage minimal. The postal service barely works. Fuel at Lalibela’s sole (state-owned) petrol station runs out. Visitors can fly up from Addis on Ethiopian Airways every morning, but private airlines are pretty well kept out.

Many of these annoyances could be removed—if only the government were brave enough to set the economy free. “The service sector here is one of the most restrictive in the world,” says a frustrated foreign banker. The government’s refusal to liberalise mobile-telephone services and banks is patently self-harming. Ethiopians have one of the lowest rates of mobile-phone ownership in Africa. The World Bank reckons that fewer than 4 percent of households have a fixed-line telephone and barely 3 percent have access to broadband.

The official reason for keeping Ethio Telecom a monopoly is that the government can pour its claimed annual $820 million profit straight into the country’s grand road-building program. In fact, if the government opened the airwaves to competition, as Kenya’s has, it could probably sell franchises for at least $10 billion, and reap taxes and royalties as well; Safaricom in Kenya is the country’s biggest taxpayer.

Moreover, Kenya’s service has vastly improved the livelihood of its rural poor, whereas at least 80 percent of Ethiopians are reckoned to be unbanked. For entrepreneurs like Aitchison and her partner, Habtamu Baye, local banks may suffice. But bigger outfits desperately need the chunkier loans that only foreign banks, still generally prevented from operating in the country, can provide. A recent survey of African banks listed 15 Kenyan ones in the top 200, measured by size of assets, whereas Ethiopia had only three.

Land reform is another big blockage, though farmers can now have their plots “certified” as a step towards greater security of tenure. Given Ethiopia’s not-so-distant feudal past and the dreadful abuses that immiserated millions of peasants in days of yore, especially in time of drought, the land issue is sensitive.

The late Meles Zenawi, who for 21 years until his death in 2012 ran the country with an iron fist and a fervent desire to reduce poverty, was determined to prevent a rush of landless or destitute peasants into slums edging the big towns, as has happened in Kenya. But the increasing fragmentation of land amid the rocketing increase in population is plainly unsustainable, even though productivity has risen fast through government-provided inputs such as fertilizer and better seed.

Ethiopia is Africa’s second-most-populous country after Nigeria. By some estimates it has nearly 100 million people. Most women still have four or five children. The standard family plot has shrunk to less than a hectare (almost 2.5 acres).

Yet, despite these self-imposed brakes, Ethiopia’s economic progress has been spectacular. Its growth rate, if the latest official figure of 11 percent is true, is the fastest in Africa; and even the lower figure of around 8  percent, which the IMF and many Western analysts prefer, is still very perky.

Social and economic indices are reckoned to have improved faster than anywhere else in Africa, albeit from a low base. Extreme poverty, defined as a daily income of under $1.25, afflicted 56 percent of the population in 2000, according to the World Bank, but had fallen to 31 percent by 2011 and is thought to be dipping still. The average Ethiopian lifespan has risen in the same period by a year each year, and now stands at 64. Child and infant mortality have dived. Protection for the rural poor in time of drought, which presently afflicts swathes of the north and east, is more effective than before. The government has “the most impressive record in the world” in reducing poverty, says a British aid official. (Britain gives its fattest dollop of largesse to Ethiopia.)

Nonetheless, at least 25 million Ethiopians are still deemed to be “extremely poor”. A waitress at Ben Abeba, a university graduate in biology, seems happy to get a monthly wage of $26. A laborer earns a lot less.

Most independent observers feel that, overall, Ethiopia is on the rise, and may even emerge as an African powerhouse alongside South Africa and Nigeria—and ahead of Kenya, its regional rival. It is proud of having the African Union’s headquarters and of providing more U.N. peacekeepers than any other African country. It is a leading mediator in the region, especially in wartorn South Sudan, and has won plaudits from the West for its fierce stand against jihadism. It also caters for more refugees than any other African country—some 820,000 at last count.

On the home front, Ethiopia’s infrastructure plans have attracted the interest of potential investors from across the globe. Yet unless the government gets a move on, frustration will grow at home and abroad. If the ruling party had the courage to open up the economic and political system, the pace of Ethiopia’s progress towards prosperity and stability would quicken. Even lovely, remote Lalibela would gain.

Read more at TheEconomist.