New Delhi: There has been an increased focus on the statesman-like character of Abiy Ahmed, Ethiopia’s Prime Minister and this year’s Nobel Peace Prize winner. His efforts to make peace with long-time rival Eritrea as well as his attempts to gradually usher in civil and political freedom in authoritarian Ethiopia are being celebrated, especially on the domestic front.
Beyond these remarkable achievements, Ahmed is also progressively turning around the Ethiopian economy – one reform at a time. No other African country is generating the kind of interest Ethiopia is among economic-watchers.
ThePrint takes a look at how Abiy Ahmed is gradually transforming the Ethiopian economy and what explains his success.
The old Ethiopian economic model
Unlike many other African countries, Ethiopia had managed to deliver sustained economic growth for over a decade.
“Unusually for Africa, Ethiopia has sustained a high investment rate: currently 38 per cent of gross domestic product,” writes Paul Collier, a professor at Oxford University in the Financial Times.
“This has been predominantly in infrastructure for energy and connectivity, without which the country could not reach middle-income status,” adds Collier.
The country has hydropower-driven affordable electricity, an aviation hub owing to a well-managed national airline, rail links and ports – along which urbanisation is taking place.
Behind this massive infrastructure push and economic growth was the country’s state-led developmental model. Ethiopia had a tightly controlled economy, and growth was brought about by state investments and foreign loans.
However, over the past few years, the economy developed bottlenecks, financial constraints and foreign exchange shortages.
Ahmed’s new economic model
Once Ahmed assumed power in April 2018, he decided to steer the country back towards growth and began to gradually liberalise the economy.
Using state investments and foreign funding, the country is nearing the completion of its massive infrastructure endeavour, but now future success depends on monetising it.
“The return on infrastructure depends entirely upon the uses to which firms put it. While central planning built the infrastructure, it could not uncover the myriad opportunities that will gradually open up as interdependent businesses cumulate. The country’s transformation depends upon igniting this process,” writes Collier.
Ahmed’s government launched the Homegrown Economic Reform Agenda to achieve that.
This agenda includes regulatory reforms – which would open up one sector after the other – and will ensure that firms function easily in the country. It also involves macroeconomic reforms such as liberalising the country’s financial and foreign exchange markets.
Ahmed’s reform style
Ahmed, a former military intelligence office, brought in a unique style of implementing economic reforms – involving part-accommodation and part-disruption.
The state-driven economic model of Ethiopia brought to light several entrenched economic interests and it was necessary to dislodge some of them to truly liberalise the economy.
“He (Ahmed) aims to fully privatise state-owned sugar plants, industrial parks, and railways, as well as partially privatize the four crown jewels of Ethiopia’s economy, including Ethiopian Airlines,” notes an opinion piece in Foreign Policy.
“Such reforms have profound political implications, dislodging long-established economic interests and marking a reversal from the EPRDF’s previous agenda of state-led growth (which has been linked to inefficiencies and corruption),” contend the authors.