Ethiopia: foster child of Asian model in Africa

They have been engaging in policy dialogue with high level government officials in Ethiopia for the past seven years; more specifically in the area of industrialization. Probably, on their last engagement and consultation with the government, Kenchi and Izumi Ohno (Profs.) are still keen to pitch in policy ideas that are supposed to make Ethiopia become a leader in the light manufacturing sector in Africa. The two Ohnos are confident that Ethiopia can beat the likes of Egypt and South Africa and achieve industrialization even before the 2025 deadline it has set to reach a middle income status. As the Asian “flying geese” which have followed the footsteps of the big bird, which is Japan, and transformed their economies, the Japanese economics professors argue that Ethiopia could become the foster child of the Asian model in African. The two veteran scholars have concluded that the 14th session of the high level policy dialogue forum with Ethiopian officials recently. And now, they are uncertain whether coming back again to see how the Asian industry model could be advanced in Ethiopia. While packing to leave for Japan, few days ago Birhanu Fikade of The Reporter sat down with the couple to learn what new additions GTPII has so far and how the light manufacturing could flourish in Ethiopia. Excerpts:

The Reporter: I think by this time you have seen the final draft of the Growth and Transformation Plan (GTP II) document. Would you like to tell us what new ideas are included this time around?

Professor Kenchi Ohno: Nobody has seen the final draft. But we have heard about it. The National Planning Commission has allowed us to have a glance at it.

Professor Izumi Ohno: We have got the opportunity to read an English version of the draft of the plan which was disseminated for public consultation purposes. We understand that the Amharic version is much more complete and a detailed one than the copy we have seen in English. The Planning Commission, however, informed us about the key elements which are portrayed in the plan.

Professor Kenchi Ohno: We have up to date information but the commission and the ministers are very busy talking with and consulting stakeholders. Donors are one of the groups to whom they have to translate the plan. For the local people, we know the Amharic version of the plan has been tabled. But that version is incomplete as the original plan still keeps on changing and it is an ongoing process. The version that donors have read is very different from the currently circulated document. Nobody has seen it expect the internal people. Ethiopians have not yet seen the full version of the plan. Regions, academia, women and youth groups have incomplete information of the plan in general. We are not happy about the English version so far. We have had a detailed discussion with the newly appointed commissioner, Yinager Dessie (PhD), and his deputy Getachew Adem (PhD). They have verbally explained about what is going on. We are quite happy by that though we have not seen the final text of the GTP II. We mainly entertained the industry section and chapters. They have assured us the light manufacturing industry vision of the country is well articulated. The content is that Ethiopia will become one of the leading light manufacturing hubs by 2025. That statement will be showed in the GTP II. Hence, this could be considered as one of the deviations from GTP I. There will be new chapters to be included in the GTP II. Thus, it might include quality, productivity and competitiveness. We do not know what the content is. We have learnt that they still are working on that. But the productivity, quality and competitiveness chapter was one of the missing contents of GTP I. There was no mention of benchmarking or Business Processing Re-engineering (BPR) or Kaizen. But now, in GTP II Kaizen, benchmarking and productivity are everywhere.

Hence that means at least some of your suggestions are incorporated in the plan document, right?

Professor Kenchi Ohno: At least it looks like it, verbally.  We haven’t seen the final version yet. But it reasonable to say that it has to be shaped up and changed every day. But I think we will wait until the parliament endorses the new plan.

Professor Izumi Ohno: Last time in our discussion we have suggested that GTP II should include the notion that Ethiopia should become the leading light manufacturer in Africa as an instrument to become a middle income country. The country does not depend on natural resources; rather by enhancing the capacity and skills of the human resources in the industry sector it is possible to become light manufacturing frontier in the continent. Those kinds of suggestions seem to be well heeded in industrial segment of the plan. We also made suggestions like the inclusion of productivity, competitiveness and quality as an independent chapter. Two additional crosscutting chapters about human resource development and domestic private sector transformation are also to be included in the upcoming GTP II. Hence, we understand that in general three new chapters are to be included and we would be happy to see that happen.

How realistic is the bold notion of becoming a leading light manufacturer in Africa in 10 to 15 years' time?

Professor Kenchi Ohno: I think it is likely to happen if conditions improve as much as we want them to improve. If the country’s industrial policy, educational policy, human resource policies and others remain as the same as they are today, then it is true that achieving the targets will be very difficult. We have seen enormous policy changes in the past eight years. A few years back, nobody was able to talk about industry zones or industrial parks. Nobody knew about Kaizen some years ago. New things are been introduced. The quality of polices are still low but at least there are improvements. If the trend goes on, in the coming five to ten years, we assume that it will be possible to achieve the targets. Bear in mind, however, that it is not automatic. This is not something you can have for certainty. That is why we are discussing. We see many problems in the private sector. We have seen Cambodia, Bangladesh and Vietnam. Twenty years ago, Vietnam was in a very terrible situation. There were so many problems with the investors. One simple example is that foreigners and local citizens were subject to pay different amount for airfares. There were many problems and everyone was complaining by the time. Japanese and other investors asked and pushed for policy improvements and that has happened. Yet, the changed policies were not perfect in Vietnam or Cambodia. I expect Ethiopians will learn about policies faster than Vietnam, Cambodia or Bangladesh. Assuming that we will help, assuming that other investors and donors will help, I think the vision of becoming the leader in light manufacturing industry in Africa may happen even before 2025. If you ask how we measure that, well one is the size of the light manufacturing goods and commodities which are destined for export. The domestic demand for this may not be that big but if you are able to export to Europe, Japan or to the US, I think you can become number one in the field.

Professor Izumi Ohno: The competitive advantage that Ethiopia will have in the light manufacturing includes the abundance of labor. The cost of labor is not that expensive here. In general terms, Ethiopians are serious and hardworking in what they are entitled to do. The agro processing, textile and garment, leather sectors are the main focus of the light manufacturing process. I think these are the areas where Ethiopia has a comparative advantage. Hence, the idea is that Ethiopia should take advantage of what other countries didn’t.

But we also know that Africa as a whole is enjoying a remarkable growth period. So, do you think at the current pace we will be able to catch up and surpass some of the advanced economies in the continent (South Africa, Egypt, etc…)?

Professor Kenchi Ohno: You have to overtake Egypt, Tunisia or Morocco. One advantage they have over Ethiopia is the proximity they have for the European markets. Geographically, it is easy for them to ship goods out faster. However, currently, some of these countries are facing tough political situations in their country and region. Despite that fact, the bigger problem these countries face today is increasing labor cost. Labor is no longer 50 or 100 dollars per month. Yes, they already have industrial bases. They do have locational advantages. Ethiopia is a bit farther from Europe, North America or japan. There are logistical problems. In fact, the government is trying to stretch railways and reform institutions like the revenues and customs authority. Ethiopia in the next five to ten years will be able to keep its cheap labor; and improve its productivity. It is certain that the world is looking at Ethiopia for its light manufacturing potentials. China has officially stated that many Chinese firms will be migrating to Ethiopia quite soon. The Turks are still coming. Indians are in the list. Japan is in discussion to have an industrial area here. The Koreans are coming. Hence, I don’t think there is a country which is able to receive the amount of Foreign Direct Investment as Ethiopia doing at this time. South Africans have the accumulated manufacturing base but many have lost appetite there. No doubt Ethiopia is a new frontier. The details we have discussed during the latest high level industrial policy dialogue forum include the productivity and wage data of the country. We have dealt with the remaining issues of the GTP II too. We have discussed how the Cambodians were able to attract as many as 70 companies including 34 Japanese firms in the seven years time. They were able to introduce special economic zones. In Cambodia, nobody thought the Japanese will be interested to invest. Backward infrastructure, mines would explode everywhere. But now, Cambodia is at least a hub for major Japanese companies. We discussed that as an experience sharing here. Since we started our engagements with government some seven years ago, we have seen some problems being solved. Some still remain limping around. We have concluded the industrial policy dialogue and we don’t know whether the government wants to continue for  the coming years. If we can continue, we would help the government to think about how to create competitiveness in the light manufacturing sector. The important thing is that the foreign companies located in Ethiopia should be kept comfortable and profitable and let them expand more. That is the best marketing strategy to let others follow suit by coming into the country.

Some are having concerns that the advent of putting in place a manufacturing strategy heralded the termination of the Agricultural Development Led Industrialization (ADLI). Do you sense the discontinuation?

Professor Kenchi Ohno: I think the meaning of ADLI has been changed. Of course, the current policy is very different from that of the 1994 policy document. During that time, agricultural inputs such as cotton, leather, sesame or coffee were planned to be processed by the manufacturing sector. Domestic agriculture was anticipated as a key source and feeder of the industry sector. But it is not happing that way, now. We are witnessing the surge of FDI and some of them require imports of agricultural inputs. The bulks of inputs are imported. Cotton has to be imported for the textile and garment sub-sector. But the country’s natural cotton is very similar to that of Asia’s. ADLI can be understood as both a political and policy statement. It states that even though manufacturing is rising, agriculture cannot be forgotten. The linkage may not be the same as it was believed to be in the ADLI. Agriculture and Industry may or may not have that linkage as expected. But the government clearly believes that both sectors should have positive relations. Another thing we need to see is that FDI alone is not enough and not a single option. Strengthening domestic firms and domestic competitiveness is essential so that linkages with FDI can be straightened. You can be a supplier of  high quality cotton, leather or high quality components and parts or even machineries. This is what the government wants to see happening and I agree with that. Attracting high quality FDI and improving domestic firms and at the end letting them work together is an East Asian strategy. In addition to improving the agriculture sector, work has to be done in areas of manufacturing SMEs. According to my judgment, very little effort in terms of policies has been exerted towards manufacturing SMEs. It is very important, however, for this government not to forget ADLI. In fact, they continue prioritizing agriculture. But in some countries farmers were left out. There is always a risk of that happening even in this country.  Hence, the government needs to worry about that. Poverty is yet to be eradicated. Jobs and animal diseases still require exerted efforts.

Professor Izumi Ohno: I don’t think the government has abandoned ADLI. The government is trying to improve the quality of raw materials in the agriculture sector. They are trying to feel the gap of input shortages via imports at least for FDIs.

It seems that the industrial shades which are being developed are meant for FDIs; but what about the local investors?

Professor Kenchi Ohno: I think the main intention of the government is providing all the services for FDIs across the industrial parks. The government seems willing to accommodate local firms as long as they fulfill the criteria. They have to be quality oriented and environmentally friendly. I think the government will be very happy to create the linkage easily between FDIs and local manufacturing firms. But the problem is that the industrial parks are getting expensive than other areas. Previously, it was cheaper to lease a plot of working area or a shed in Bole-Lemi Industrial Park. They have set prices cheaper as it was the first; but lately prices are set commercially in other industrial parks.

By the way, the government has promised to avail industrial parks that exclusively cater for Japanese firms. Is there any development in that regard?

Professor Kenchi Ohno: That was what we have been discussing since last year. We are making some progress. It took time to make sure that everything is rightly set. We have dealt with more details lately. We have identified potential developers from Japan and from the government side we learnt what the terms and conditions are. We have engaged the World Bank Group. Hence, so far, the process seems be progressing okay in principle. We will be announcing developments when the time comes.

Professor Izumi Ohno: Currently, the Japanese side is engaging the Ethiopian side. Discussions are progressing well. We will share the information with members of the private sector in Japan.

We are in a transition period. The new government has been formed and some public offices have been restructured and ministries have been formed. Do you think the new setup of agencies will easily and quickly be familiarized into the system and work out to your level of expectation?

Professor Kenchi Ohno: We wanted to know the logic of reshuffling the cabinet. Everybody is talking about guesses and suggestions. This time we didn’t meet the Prime Minister. But I think it’s a politically sensitive matter splitting ministries and whom you nominate. I don’t know how that goes through but I only have my imaginations. But the bottom of that is implementing and achieving GTP II successfully. Most of the changes are meant to serve that purpose. But again, I don’t know why the Ministry of Agriculture is split into two. You have created a new Ministry of Public Enterprises. Of course, the government wants to improve the competitiveness of the public enterprises but is that the best way? Can the new ministry function immediately? There are many questions. Ethiopian Kaizen Institute has moved out from the Ministry of Industry and will that work? I don’t know. I don’t know whether things will get better or worse from the current arrangements.

Ethiopia is facing drought and one tenth of the population is facing food shortage. Industries like textile are witnessing declining supply of raw materials. In such circumstances, do you believe the GDP growth forecast for this or next year will be affected?

Professor Kenchi Ohno: Of course, drought, the global market recession or the political instabilities are external factors. The government cannot control the weather. These things happen in life all the time. This time agriculture is hit in a very negative way. But I don’t think this will change the government’s drive for industrialization in the long run. At the same time, the government has the responsibility to take care of the crisis. I don’t know what strategy the government has for this situation but I hope it will not stop the industrialization policy due to the circumstance. But at the same time the government must show a policy competence to minimize the impact of drought on both people and animals. Long-term development and short-term crisis management are the two things the government is believed to be capable of. But I am not a drought specialist and I don’t know the extent clearly but I only know that the situation is pretty bad this year.

I brought this issue to your attention because we have a rain fed subsistence agriculture which fails to supply all the required inputs to other sectors.

Professor Kenchi Ohno: I don’t think you can change that in a short run. Unlike the Vietnamese farmers who are concentrated in the north and southern part of the country, Ethiopian farmers are spread all over the places. It is difficult to supply fertilizer, water or electricity to all the scattered farmers. I don’t think this situation will change very much in the short-term. But the government should show strong, competent crisis management capability. Irrigation can’t be put in right now. I think drought, food shortage and famine are economic questions as well as technical issues. But the immediate solution is assisting the affected people to have a purchasing power. In my opinion, free cash or helicopter money is to be given for the people in question for the time being to safeguard people’s health. The next step is to let the NGOs and government agencies and traders to transfer the existing food and materials for the affected areas. I think a significant number of livestock has been lost due to the drought and that cannot be replaced immediately. Next year, you will begin to worry about the livestock and crops. But the livestock loss will be a short-term problem. In the long run a solution is to bring in more farmers to the manufacturing sector and less farmers will be remaining affected.