Winner of national prize for best B.A thesis, noted Ethiopian Economist Dr. Abdi Yuya Ahmad

Ambo Mekasa interviews Dr. Abdi Yuya Ahmad

Today’s guest is Dr. Abdi Yuya Ahmad. Abdi was born in 1978 in Ethiopia’s Oromia State, more specifically in Eastern Harerghe Chelenko town. He started his elementary education at Chelenko Elementary school, after which he joined the Chelenko Secondary School, completing his preparatory education at Harar Senior Secondary School. He studied Economics at Ethiopian Civil Service University and received Bachelor of Arts. Then he pursued Economic Policy Analysis at Addis Ababa University and received a Masters of Science in the field. In addition, he earned his PhD in Innovation Economics from Aalborg University, Denmark. Currently, he is Post-doctoral fellow at Aalborg University, Denmark. In addition, he had earned a Diploma in Plant Science (with specialization in Coffee, Tea and Spice) from Jimma College of Agriculture.

Abdi was the winner of a national prize; Mekonnen Taddesse’s Memorial Award for the best BA thesis of the year 2004 GC. The prize was prepared by The Ethiopian Economic Association in Collaboration with Addis Ababa University. He is married and a father of five children.

This journalist had a short interview with Dr. Abdi on the Ethiopian Economy and Economic system in the country from past to present:

AM: What inspired you to learn economics?

Dr. Abdi: My choice of economics discipline was more of arbitrary though the perception I had regarding the anticipated returns out of the alternative fields also contributed to some extent.

AM: How do you define Ethiopia’s economy?

Dr. Abdi: As to my understanding, Ethiopia’s economy is among the least developed economies of the world with per capita GDP of about 800 USD (at official exchange rate) in 2016/2017. The economy heavily relies on agriculture which is largely a rain-fed one and technologically an underdeveloped one. In other words, it is among the least diversified economies with agriculture accounting for the highest in terms of Gross Domestic Product (GDP), employment and export earnings.

Nevertheless, Ethiopia has been marked by many as one of the fastest growing countries over the last decade. However, the growth has been driven mainly by the government’s aggressive investment in infrastructure, which is believed to improve the business doing environment.

AM: What are the major problems manifest in Ethiopia’s economy?

Dr. Abdi: Ethiopian Economy is striving to cope with diverse problems. Linked to the narrow basis of the economy, the recent economic growth has failed to generate adequate productive jobs to the increasing number of working -age population and university graduates, increasing gap between domestic saving and investment, rising current account deficit, inflation etc. There is mismatch between demand and supply of goods and services which is worsening as population growth appears to be far higher than the country’s capability to meet the corresponding demand. The much-boasted double digit growth has yet to have any significant effect on food insecurity.

Ethiopia has very low pace of economic structural change as the contribution of Manufacturing to GDP remained to be around 5% over the last two decades. Factors of production tend to move from agriculture to service sector instead of moving to the manufacturing. Domestic investors are also more interested in service businesses than

investing in manufacturing sector as opposed to the government’s expectation. The absolute increment in the number of manufacturing establishments in recent days is due to increased entry of foreign firms which are attracted by different factors including, cheap labor cost, government investment incentives and construction of industrial parks. However, the productivity and competitiveness of the manufacturing industry are below some comparable countries.

As is the case for any other countries, geographical, structural, social and political factors have their own ramifications on Ethiopia’s economy. Recurrent drought and poor national technological and institutional capabilities are among the major culprits behind the economic malaise. Structural change in general and manufacturing performances in particular have been disappointing in view of the national targets set both in GTP-I and GTP-II.

In my view, the apparently wide gap between the policy principles and practices mainly emanates from problems linked to the political settlement. As a country with multi-ethnic and diverse political interests, Ethiopia is facing tense power competition among political groups. This in turn complicated strategies pursued along the ‘developmental state’ philosophy. Added to the delicacy of industrial policies in developmental states, policy rents created by the government has been vulnerable to misappropriation by corrupt officials and rent-seeking private businessmen. The lack of separation between party and government affairs led to highly politicized bureaucracy instead of assigning capable and independent technocrats as suggested by the experiences of successful developmental states. Moreover, centralized policy making has debilitated the mechanisms for accommodating ethnic and political pluralism in the country which has its own contribution to the current political change. In relation to this, the resulting power relations accentuated informality and reciprocity which has made policy implementation difficult.

AM: Could you comparatively relate to readers the Ethiopian economy during the emperor and Derg regimes as well as EPDRF’s incumbency?

Dr.Abdi: Economic system in Ethiopia has evolved with the political ideologies of individuals or groups who have been in power.

Imperial regime (before 1974)

The economic system in the imperial regime was market-oriented and private-led. Some evidences suggest that there was improvement in the productivity and economic structure where the share of agriculture was decreasing while the shares of industry, service and public sectors were increasing. However, the economic gain was suddenly revised due to the fact that peasant farmers, industrial employees and armed forces failed to benefit from the economy which relates to restrictions in the ownership of economic factors to certain groups.

During the Derg regime (1974-1991), the government pursued ‘a socialist economic policy’ and introduced various restrictions on the private sector and the market. It was a command economy in which all factors of production were held as the property of the state and public-owned enterprise dominated the economy. Wide ranges of products were subject to price controls and the labor market was highly regulated. Lack of incentives for innovation and entrepreneurial efforts had limited the productivity of the economic sectors.

EPDRF (post 1991)

Following the overthrowing of the military regime, EPRDF declared a radical economic reform in favor of increasing the role of private sectors in the economy and opening the economy to free competition. The government wanted to take active part in areas of market failure, while extending policy supports in areas where private businesses care is believed to perform better. Some sectors have been reserved for domestic private-owned enterprises while foreign firms are encouraged to invest in manufacturing and other areas of comparative advantage. Different national infrastructure investment projects have been implemented towards building the basis for poverty reduction and stimulating sustainable growth. These measures resulted in significant improvement in Ethiopia’s economy and hence reduction in poverty.

AM: How do you define Ethiopia’s export and import system and performance?

Dr. Abdi: To begin with the performance, Ethiopia’s export targets have never been realized over the past decade in terms of both volume and diversification. The country’s export basket is mostly filled by commodities with the dominance of agricultural products. On the other hand, the fact that the country is undergoing huge infrastructure development, capital goods import takes the leading position. Thus, there is huge and increasing gap in the current account balance.

The system of export and import in Ethiopia is among the countries with the most difficult bureaucratic and logistics capability. There are problems of poor infrastructural, material, human and accompanied service capabilities which make import and export business less attractive. The length of lead time and the complexity of bureaucratic process have remained to be the issue of complaints to businesses. Access to foreign currency is another difficulty for traders.

AM: What is the difference between economic growth and economic development?

Dr. Abdi: Economic growth is the change in the monetary values of all goods and services produced in a given country over a given time period. It shows aggregate change in the productivity of the country.

Economic development is a broad concept comprising of both economic and non-economic aspects while economic growth is only a single of the economic aspects. As such it should include income distribution, social and institutional mechanisms that are necessary for bringing large scale improvements in the livelihood of the people. In respect of this poverty reduction; improved provision of basic needs (including goods and services); reduced income inequality; political right; and human capital are among the major issues to be considered.

AM: What are the parameters for measuring economic growth? Can we consider the infrastructural facilities in Ethiopia as economic growth?

Dr. Abdi: As I have indicated earlier, economic growth is measured by the changes in the values of all goods and services produced in a given year. It is commonly measured in terms of changes in Gross domestic product (GDP) or Gross national product (GNP) of a country. No other complex measures like that of economic development which should include diverse aspects.

Infrastructures development in Ethiopia can be a manifestation of growth rather than economic growth. The money spent on infrastructure by the government is included as public investment in the traditional national income accounting.

It is to be noted that measures of economic growth have many limitations as they fail to reflect important aspects of welfare.

AM: What should be taken by the government as a way forward?

Dr. Abdi: First, the government has to put the current all-rounded reform into practice, if the economy has to grow. There should be a strong institutional arrangement that rewards developmental investors and value-adding economic activities that can absorb redundant labors and migrants to city centers.

Second, strengthening efforts towards advancing the manufacturing sector and diversifying the export bases of the economy remains to be a viable avenue for economic transformation.

Third, its crucial to exploit all the potential natural and human capital of the country. It is a must that every citizen share common stake in kick starting the country’s economic structural transformation and exert his/her capabilities and efforts to this end. Ethiopia’s potential in natural resource-based activities in the agricultural and extraction sectors should be developed well practically as per the GTP goals.

Forth, above all there should be an effective type of political settlement that would enhance competition-based allocation of policy rents. Achieving common national interests may not be easy without ensuring inclusive national consensus among diverse competing parts of the societies and building strong political and institutional ground. There should not be room for those persons in both the government bureaucracy and private business that allows miss-allocation of policy rent at the expense of national interests.

In addtion, all the government institutions in charge of implementing development policies should build their policy implementation capabilities and work in coordinated manner. Independent and capable technocrats should be appointed at the right place with adequate incentives and systems that foster accountability.

Generally, the policies should focus on strong sectoral linkages innovation and learning orientation of private enterprises, based on competitive base.

Dr. Abdi Yuya Ahmad

Ambo Mekasa

EPA reporter, earning his BA in English Language and Literature from Arsi University.