For more than a decade, Kenichi Ohno (Professor), one of the commended Japanese economic scholars used to be closely attached to Ethiopia’s industrial development policies. He was involved in the high-level dialogues that used to get and talk with ministers and mid-level officials at least biannually. More often, previous prime ministers didn’t hesitate to spare a few hours to have a one-on-one conversation. Ohno is a well-cultured scholar in development economics and had been befriended by both Prime Minister Meles Zenawi and Prime Minister Hailemariam Dessalgen. He admires their leadership style and their keen interest to learn about economic policies and planning. The professor was upfront in speaking about the shortcomings of these leaders despite his attachment and admirations. For instance, Ohno says that Prime Minister Meles was bold in his development agenda yet inefficient and negligent in setting up the path for deregulation, liberalization, privatization process. Equally, both Meles and Hailemariam fail to deliver and implement the policies they had drafted. Now the new premier with his changed approach in style and policy approach is also doubted for his venture in the liberalization process. Prime Minister Abiy Ahmed (PhD) is bringing a lot of economic policy measures that some of his methods found to be questionable and Ohno pinned some pertinent once. During his recent visit to Ethiopia, Birhanu Fikade of The Reporter sat down with Kenichi Ohno to ask his views of the Growth and Transformation Plan (GTP I & GTP II) and whether these plans have met targets set. Ohno talks about the shortsighted approaches of the Homegrown Economic Reform agenda but backs some of the ideas such as undoing festered macroeconomic concurrences. Excerpts:
The Reporter Magazine: Let’s begin with the GTPs since you have been involved in the inceptions of these national economic plans. We have seen two GTPs being implemented, but we don’t know how much of the targets set in the plans have been achieved. Do you know the aggregates of accomplished targets?
Kenichi Ohno (Professor): With GTP I and GTP II, I can talk about Mr. Meles Zeawi and Mr. Hailemariam’s role in economic policies. While discussing economic policies the main point about them was that they were eager to learn from Japan, South Korea, Malesia, and other countries. I think learning was very serious. From that, they have included some general directions in the GTP II. For instance, improving Kaizen, improving productivity competitiveness were included but were not translated into concrete policy actions. I guess that was not intentional. I think Ethiopia didn’t learn enough to implement these things. They can draft policy, but the action was lacking. In summary, I will not just confine to the GTPs rather both Mr. Meles and Mr. Hailemariam’s legacy is a lot of learning towards policies. As Arkebe Oqubay (PhD) senior advisor to the Prime Minister often says it’s a trial and error process. I admire their serious interest to learn. But the results were not in. in our discussions, the main results missing include manufacturing exports out of the percentage of GDP. This remains flat. The transformation process into industrialization is not occurring and I think everybody knows about that in Ethiopia. The learning process was good, but lack of implementation doesn’t mean that the learning was unnecessary. You must learn more not drafting policies but how well to implement those. That will be the first step. The second step is to learn on the ground. The officials must learn in action. You should deepen Kaizen to a larger extent. Manufacturing sectors like garment, textile, food processing sub sectors are I think very timely to focus on. Compared with Asia, the big problem here is that when you grow 10 percent in one and a half-decade, you must achieve complete social transformation. That is, agriculture shrinks, and the industrial population grows. You will see lots of industries rising and manufacturing should become 30 percent of the GDP even sometimes 40 percent of the GDP before declining and overtaken by the service sector. The problem, however, is that Ethiopia was growing at a very high rate for years, but I couldn’t see any transformation comparable to Japan, Korea, Malesia, Vietnam or others. Why is that? I think this is a key question that you must ask.
Some local experts tend to say that Ethiopia’s growth mostly was structured to depend on huge public expenditure and investment. The agriculture and the manufacturing subsector didn’t perform the way they were expected. Shockingly, the service sector is also dependent on public investments. Do you agree with such an analysis?
Yes, our upcoming productivity report decomposes labor productivity into two components. The first is the total factor of productivity and the other one is a real efficiency is capital deepening, which means a lot of investment. In the case of Ethiopia, at the beginning it was okay. But in the last several years, the contribution of heavy investment grew very high that Ethiopia’s economy grew because the government was investing a lot. But that doesn’t mean there was a total factor of productivity or efficiency. The business was good because the government was investing a lot. That I think is clear when you look at the high-rise buildings, the roads, the railways and other visibly show you how huge the government is spending. This is also often happening in Asia. I have seen it in Indonesia, Malesia, Vietnam, Thailand, and others. When governments want to keep up the high growth for reasons of election campaigns or others, they spend a lot on such things. Even in Japan and Korea, they are doing the same. This is normal in political response. For a short time, it can be tolerated. But if that continues for a longer period, you sink into budget deficit, inflation, the balance of payment crises and the deteriorating hard currency crises. Hence, you must turn the clock and you must have the right approach. You might need to cut the budget and slow down the investment. But when you do that recession might occur. This is the usual political cycle. I think Ethiopia has spent too much on building roads. I don’t want to say the Grand Ethiopian Renaissance Dam is a mistake but that costs a lot amount of money. With the situation with Chinese investment and Chinese loans, I think the government will slow down the spending. That’s a normal response. You must balance your approach. You need to build infrastructures. At the same time, you want to keep a healthy macroeconomic growth. Usually, the healthiness and soundness of the macroeconomic situation are more needed. The industry and agricultural officials, however, want more investment to be made. This is a typical situation. China was so willing to lend money to Ethiopia and build many things. I think you have to slow down a little bit but not to stop what you have been doing. The main problem for Ethiopia is that the export sector is so low and export earning to debt service ratio is so high. The denominator, export earning is too small but not to the crisis level. It might not yet in a critical situation, but you must slow down the investment. I agree that public investment should be less and maybe a little bit of fewer constructions on buildings is important. Anyway, that is happening because of the hard currency shortage.
In general, want went wrong with the GTP I and GTP II?
I think both were just statements or will or directions that didn’t hold the implementation capacity. Another thing is that many of the targets were set very high and we were complaining during the GTP I & GTP II formulation period about that. The industrial targets were set way too high. The targets should have been put more scientifically. Targets were set much higher than what you would get without any efforts. You must have a sense of what should be the right target in your planning. You don’t have to set your targets too high or too low. I don’t think the people in the planning process had realistic targets. When that is the case, at some point they will be forced to give up. Lack of implementation capacity and unrealistic target setting were the major problems with the GTPs.
15 years ago, before we knew nothing about the GTPs, the targets were set on how to eradicate poverty. But poverty remains challenging any government efforts. During the GTPs era, we talked a lot about transformation and that neither being achieved. Now we are talking about a new national plan called, a Homegrown Economic Reform Program, which in ten years will result in prosperity. What do you think about that?
I think homegrown economic reform is a three years program having a ten years perspective. By the way, I was asking the responsible people who made the homegrown economic reform agenda and we have been talking with relevant ministries. The problem is that I only have PowerPoint slides that brief about the program. They say that they have a document in Amharic, about 100 pages or more and translating it. I need to see that to make a reasonable comment. But with the limited information I have, I would say that there is some debate in the media and the parliament. In general speaking, I have no problem with the framework of the program. At first, it gives a situational analysis. What are the problems? I agree many things have not been achieved and missing. Public expenditure was too high, and transformation didn’t occur, and the likes have been discussed in the program. I agree and they might have included the labor mobility situation and the unresolved mindset issues. But other than these missing elements, the situational analysis is not that too rosy. The productivity report we are about to publish support the situational analysis that is in the homegrown economic reform. I have no big problem with that. But they call it reform, and everything seems about reform. The first pillar of the reform program is about macroeconomic issues. That’s uncontroversial and you must do it. The question is whether you can do it or not. Every country must do it as a precondition for growth. The second pillar is structural reform. I would call it liberalization, deregulation and selling some of the State-owned Enterprises (SOEs). We call this approach a general framework policy. The third pillar is the promotion of the selected industries or as they call it sectoral reform. Now we might have some debates on the last two real sector issues. I think the traditional Washington Consensus both the Both IMF and World Bank Group had launched a long time ago says that countries need to the general framework. It also advises countries not to target and indulge in any industry sector. Even at present these Breton Woods institutions still require countries, with a bit of modification, not to target industries in their policy reform processes. They argue the industrial promotion of any specific sector. I don’t think will accept that and rejected it already. Mr. Meles rejected it very strongly. The problem with Mr. Meles was that he did industrial promotion very much and leaned from Japan, South Korea, Malesia, Indonesia and others about garment, leather and these other industries. He made a good effort. But the problem was that he didn’t have a long-term plan to liberalize and deregulate and privatize the economy. I was not very happy with that. It was okay not to liberalize and do the big bang thing during his term. But I least there should have been a long-term plan. I think he should have shown the direction and the direction should have been on the conditions of real competitiveness. You could say, we want to improve garment; we want to improve the leather sector, types of machinery or others and if we improve, we will liberalize the sector to this or that extent. You don’t open the economy just for the sake of liberalization or deregulation. As you improve, your competitiveness grows. When you become competent with global companies you will open at the right stage. That is the right way to liberalize. In the process, you don’t have to expect that some firms survive the opening impact. But Mr. Meles didn’t do at least the long-term planning. I like Mr. Meles very much. But he didn’t do two things. He ignored the long-term liberalization plan. He failed to succeed in his industrial sector promotion. The new homegrown agenda has three pillars and I find them fine and very standard even in East Asia, but some people criticize the homegrown agenda as very much like the IMF and World Bank’s policy templates. But I don’t think that is the case. The contents you put in the pillars and how much weight you give to the agenda is the real game. During the post-war period, Japan had paced the process and liberalized its economy only after achieving its competitive age. We call that a gate round approach and we have succeeded in our sector capacity building before we deregulated and liberalized them.
Does it mean Ethiopia setting its feet in the wrong of a way of liberalization?
You must liberalize. Let me put it this way. Priority must be on improving competitiveness. The targeted sectors including agriculture are well improved. The government must learn a lot more about how to be effective in implementing plans and achieving targets. If you succeed as planned, then you might shift to liberalization. You must commit internationally your liberalization after five to ten years later. You need to drive yourself against the wall so to speak. The government and the private sector must work to that end. Do your best efforts. This is the ideal game you should play when you liberalize and open and privatize the economy.
Ethiopia is at the peak stage to liberalize the telecom sector. But do you see Ethiopia being competent in the telecom sector?
Ethiopia is liberalizing but it’s not competitive in that sector because of the monopolistic approach that remained the same for years. Internet speed is questionable and other issues need more attention before liberalization. If the government thinks liberalizing telecom or logistics sectors that are very quick money makers, that’s a mistake. Before liberalizing these key money-making sectors, first, you must have a study. Then you must restructure and improve the profitability then sell them. But the Soviet Union had done what Ethiopia is trying to do and they failed and collapsed. The Kirgizstan, Kurdistan and the like have collapsed even with the help of the European Development Bank. Hence, you must analyze which one is worth to say and to keep. I don’t think you need to sell Ethiopian Airlines very quickly. It’s very efficient and you can keep it under the public ownership for many years to come. Now you don’t have to worry about Ethiopian Airlines. Perhaps in the future when your income rises high, you might sell it. Logistics and telecom will be problematic if sold now. You might let competitors in the power sector. I think it’s reasonable. From the East Asian perspective, high priority is given to competitiveness and substance. When you say telecom, what type of telecom industrial market you want to have? What are the benchmarks? How is the new buyer up to that standard you want the buyer to adhere to? These things are more important to me than the laws and legalities. The Americans and western institutions often worry about the legal issues, rights, and procedures in the liberalization process. But japan is always worries about the competitive aspects when liberalizing economic sectors. It wants to be sure that the sectors are not hijacked by foreign firms. It must be well studies to avoid a state of no money and no profit retained to Ethiopia’s coffer. That’s very important to consider than procedures. Hence, the liberalization process will take many years and you don’t have to worry about that. But if you do it right away, well you will end up a loser.
You said both Prime Minister Meles and Prime Minister Hailemariam were quick learners in economic policy aspects. They were involved with industrial talks with experts such as yourself. The new Prime Minister’s approach, however, is different. Tell us a bit about that?
I think both Prime Minister Meles and Prime Minister Hailemariam are exceptional. There are no leaders like those in the world. They were very much interested in industrial promotion. They were personally committed to Kaizen, garment, textile, types of machinery and even in individual companies like in the sugar sector. They were happy to talk to me and other professors more famous than me, investors and ambassadors out of their busy schedules. That’s what I think will not be happening in other countries. Prime Minister Abiy’s (PhD) style is more standard and it seems that Prime Minister is not an easy person to talk to that easy to spend two hours of talking. I think he gets briefed by his economic, political or diplomatic experts. His main interest in the economic area is innovation science and other than solving the problems at hand. Inflation, hard currency crisis or working with WB on liberalizing the telecom sector, improving the rankings of ease of doing business in Ethiopia. I think Mr. Abiy is more different in style and direction. He is interested in general improvement and liberalizing the SoEs which Mr. Meles didn’t prioritize. I think Abiy (PhD) delegates policy-making to his economic team, PM Office, Ministry of Finance, Ministry of Trade and Industry, Ethiopian Investment Commission, and National Planning Commission. I think people leading these institutions are mandated to draft policies and these are the people we are talking to, not directly to the Prime Minister and that’s probably proper. I only ask the Prime Minister to personally commit to the ongoing economic activities. It doesn’t have to be everything. It should be in selected areas. I think Kaizen should be continued but new things are also coming. I think the homegrown reform and the ten years perspective should define and the primer should select what his priorities are within the agenda.
What do you think Ethiopia will be in the coming three years? The huge macroeconomic challenges have stifled the normality status of the economy. Unemployment, inflation, acute hard currency shortage and the like are becoming very critical problems. Hence, where is the country ending up in three years as homegrown reform pledges solving these problems during this time?
Previously, there was Horizon of Hope. Now you have homegrown reform agenda and then the ten-year perspective for ensuring the direction for prosperity perspective. I think you must streamline a little bit. Otherwise, that will make the planning people too busy and leaving no much time to implement and monitor the progress of actions. Annual planning is okay but one critical document could serve you well. You don’t need to overproduce the plan. I want to say that the homegrown economic reform agenda is set to be implemented for three years and expected to create a ten-year perspective and a five-year term plan. I think. But the things put in the homegrown economic plan are more general and broad, especially in the real sector side. The macroeconomic measures must be dealt with as soon as possible. The hard currency problem, inflation, debt sustainability should be resolved within three years or even sooner. But the reason sector environment like ICT, mining, manufacture all that had been tried by prior prime ministers and they did a lot of effort. But they couldn’t succeed. Hence, you must put them in the long-term perspective say in ten years.
