Feature - Economic growth still beset by obstacles

A tatty poster peeling off a wall at the Ministry of Trade and Industry depicts Ethiopia as enjoying 13 months of sunshine – a land of golden opportunity. With economic growth rates outstripping almost every other country in Africa, and a vast population, the potential, according to trade officials, clearly exists. However, within the country itself, massive obstacles remain. Businessmen assert that many opportunities are strangled before birth. Economists say despite growth rates in excess of 5 percent, desperately low incomes stand in the way of real long-term economic gains. Dr Abu Girma of Addis Ababa University's economics department says Ethiopia still faces major hurdles on its long road to economic reform and development. "Abject poverty is widespread, and income per capita is extremely low," says Abu, who describes the private sector as remaining at the infant stage of its development. REVITALISING THE ECONOMY The burden of revitalising the Ethiopian economy and steering it towards market-led reforms falls on the shoulders of the government’s Ethiopian Investment Authority (EIA), which draws attention to the rapid expansion of private investment since the fall of the former military dictatorship of Mengistu Hailemariam in 1991. Since that time, the EIA says, 7,000 private projects have been approved, totalling around US $7 billion and employing 362,000 people. But although the statistics appear encouraging, the reality is less so. Of those projects less than one-third are functional, employing in the last decade some 82,000 permanent workers in a country with a labour force of 30 million. Only 5 percent of the projects are operated by foreign-backed investors, who bring in desperately needed hard currency. According to the UN’s latest World Investment Report, foreign direct investment (FDI) slumped to an all-time low of just $20 million in 2000 – partly due to the two-year border war with Eritrea. Even during the 1990s when FDI in Ethiopia was around $200 million a year, it was still one of the lowest in the world. The EIA and the Ethiopian Chamber of Commerce attribute this mainly to the negative impression rich states have of Ethiopia – that of a country of war, desert and famine. Muhammad Seyyed, EIA's head of policy research and planning, concedes that poor infrastructure and weak domestic purchasing power have also have contributed to the dearth of foreign investment. However, many western countries are still nervous, remembering how foreign firms were nationalised almost overnight by the former Marxist regime. Many are still unwilling to invest until they receive compensation running into millions of dollars. Pledges by the government that nationalisation will not happen again fall on deaf ears. BAN ON FOREIGN INVESTORS The Addis Ababa Chamber of Commerce (AACC), which in the past has been a vehement critic of the government's economic policy, says important strides in the right direction have been made, and that the government is now prepared to listen. But the AACC also says more needs to be done, and urgently. In particular, it cites the government's ban on foreign investment in the financial sector. Under current laws, foreigners are even barred from starting up dozens of types of business, including, for example, hairdressing. Individual businessmen abroad are also required to have a minimum capital of $500,000 before being entitled to operate in Ethiopia. Eyessus Zafu, the AACC vice-president, told IRIN that a climate conducive to both domestic and foreign investors would have to be created. "In concrete terms, we do not see a lot of investors coming in," he said. The EIA says a draft investment code, currently winding its way through parliament, will, if adopted, open up certain markets to both domestic and foreign businessmen. The size of capital needed to start a business is also expected to be reduced. However, the financial sector – often described as the main catalyst for development – will remain closed to international investments. No stock market exists in the country. NEED FOR LAND REFORM Under the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF), the country is pursuing its agriculture-based development plan. With 85 percent of the 65 million Ethiopians working the land, the strategy has won the backing of the World Bank and the IMF. But while there have been minor changes, the land remains firmly in the grip of the government. The UN's Economic Commission for Africa (ECA) argues that the lack of land reform is a brake on the otherwise healthy economy. Dwindling plots and "detrimental" credit schemes for seeds and fertiliser are also taking their toll on production, while farmers pay tax to toil on land they do not own. Eyessus says the government's plan puts the cart before the horse. He argues that subsistence farmers cannot provide employment for the rest of the population. Employment, he says, will come via industry and the service sectors, which in turn will inevitably bring about a gradual migration from rural to urban areas. "I disagree that you will develop your country faster or fastest if you concentrate on the 85 percent peasant farmers," he says. "For me, economic history says that over the years the predominately peasant agricultural-based population will have to go into some other kind of employment – like industry, services and manufacturing. "For me, poverty reduction is the creation of jobs, and, for me, the creation of jobs is not by the rural-based population - it is the small segment of the population that is going to create more jobs in industry and services," Eyessus added. "SLOW AWAKENING" TradePort, a US organisation providing the business community with information about opportunities abroad, and which is backed by the US government's commerce department, says Ethiopia still places "bureaucratic barriers" in the way of investors. It asserts that state-owned firms have "considerable" advantages over private firms. They have speedier customs clearance and better access to foreign exchange and credit. On the other hand, TradePort says, the future is beginning to look brighter. The private sector is "slowly awakening" and government policies are permitting competitive private-sector growth. A broad privatisation programme has also been launched, and since 1991 more than 150 state-owned firms have been sold. However, despite the privatisation, many large-scale enterprises are still predominately in the hands of the government, while about 40 private companies – including the country's largest textile firm - are affiliated to the ruling coalition party. "Such a system in a free market cannot be fair," Eyessus observes. "But I have to admit, it is a lot better than it was 10 years ago."