The Pulse of the New Ethiopia

   Although instability outside of Addis Ababa continues, the Transitional Government of Ethiopia is working to diffuse the fighting and remains intent upon shaping the country into a functioning democratic state with a market economy.

   To this end, on 24 August 1991, Ethiopian Prime Minister Tamirat Layne presented an 86-page document entitled Draft Economic Policy of the Transitional Government of Ethiopia to the Council of Representatives of the Transitional Government of Ethiopia for its deliberation and subsequent adoption into legislation.

   The central theme of this document, which is currently available only in Amharic, is a severe criticism of the Derg regime for its gross mismanagement of the Ethiopian economy in all sectors, as well as the squandering and embezzlement of its finances.  The document proposes to launch Ethiopia on the road to a genuine market economy by abolishing state monopoly and introducing wide-ranging privatization in all sectors of economic activity.

Political Situation

   Politically, Ethiopia has set up a transitional government to lead the country towards full democracy.  This government is in the process of drawing up a draft constitution which will outline the framework of the new government.  This constitution will call for national elections and will mandate that the Transitional Government hand over power to the party or parties that gain a majority in the National Assembly.  The draft constitution proposes that the national elections should be held no later than two years after the establishment of the Transitional Government, but includes a provision that the period could be extended by the Council of Representatives for no more than six months.

   Additionally, the constitution proposes a law establishing local and regional councils for local administrative purposes defined on the basis of nationality.  Elections for such local and regional councils will be held within three months of the establishment of the Transitional Government wherever local conditions allow.

Economic Situation

   After setting forth the democratic basis for the economic policy, the document elaborates the priority aims of the national effort as being relief, recovery and reconstruction.  It also states that, just as in the political sphere, the objective of the economic policy for the relatively short transitional period is stabilization of the national economy, as well as the revival of the productivity of factories which are now operating at reduced rate, or, in some cases, have ceased functioning altogether.

   Following is a brief summary of the draft economic policy, broken down by sector:

   A.  Agricultural/Farm Sector

• Underscores the central position that agriculture occupies in the economic life of Ethiopia in food supply, as the major source for raw material and foreign exchange earning;  





• Sets forth to motivate the individual peasant farmer to till more land and produce surplus;  





• Abolishes acreage limits imposed on allocation of plots of farmland to the peasantry and encourages each peasant to till as much land as he can;  





• Permits the farmer to bequest his farm to his legal heirs, but not to mortgage or sell the farm plot;





• Allows the peasant absolutely free use of his produce and the sale thereof at competitive market prices of his own choice;  





• Advocates government assistance and free advice to the peasant on the use of quality seeds, fertilizers, farming techniques, etc.;  





• Condemns and abolishes any form of state interference that adversely affects free and competitive farming;  





• Abolishes the settlement policy of the defunct regime and proposes that the future of the peasants at existing settlements be decided in consonance with their free choice;  





• Cautions those affected by the policies of the past in that they could face land shortage and other resettlement problems should they choose to return to their original habitat;  





• To combat recurrent drought, recommends wide-ranging programs, including water and soil protection, reforestation, etc.; 





• Permits private capital to engage in large scale modern farming in areas of idle fertile farmland (without dispossessing the peasantry) and to produce raw material for export, as well as for domestic industries;  





• Permits private capital to engage in large scale modern farming in areas of idle fertile farmland (without dispossessing the peasantry) and to produce raw material for export, as well as for domestic industries;  





• Abolishes all limits previously imposed on investment capital and invites all potential investors to invest, individually or in partnership, any amount of capital in promoting modern farming;  





• Invites foreign capital/investors to participate in this sector, either individually or in partnership with domestic investors, or in joint ventures with the state;





• Gives preference, to the extent possible, to domestic investors with the objective of facilitating the recycling of income from farm produce;  





• Recommends the sale to domestic capital as first choice of unprofitable state farms or those which adversely affect peasant farmers in their respective areas;  





• Where domestic capital is either unable or hesitant to buy the affected state farms, foreign capital is invited to take over;  





• Only some state farms with special implications will be retained by the state.  

   B.  The Industry Sector

• Condemns the wholesale nationalization of industry without due consideration to the vital need of each as factors of the national economy;  

• Abolishes state monopoly over industry and transfers most industries to individual industrialists or interested capital owners;  

• Recommends that only key industries, such as mines and energy, major engineering and metallurgical industries, of chemical industries major fertilizer and pharmacological factories, should be run by the state in partnership with both domestic and foreign investors;  

• Stresses need for wider participation of private investors, both domestic and foreign;  

• Recognizes the key role that foreign capital and technology must play in the industry sector and recommends facilitation of such participation, especially where the capacity of the state and domestic capital are limited;  

• Emphasizes the need for incentives to encourage and promote investment in industry and identifies guarantees of private ownership as being one such means;  

• Rationalizes that preference is given to private domestic capital only as a means for promoting the accumulation of a growing and strong capital within the country;  

• Recognizes that domestic private capital does not have the capacity to compete against and win over foreign capitalists.

   C.  Trade Sector

• In both domestic and external trade, the policy document recommends outright privatization

• In the field of domestic trade, permits private enterprise to take over both wholesale and retail trade, leaving only a limited number of those that have broad socio-economic implications in government hands trade  

• Recommends total withdrawal of government from retail  

• Otherwise major role of government limited to supervising by issuing legitimate rules and regulations  

• Leaves external trade wide open for participation by private capital, both domestic and foreign

• However, import and export of major commodities such as energy and coffee that are considered to play a key role in the national economy are retained in government hands  

• Apart from directly handling such major commodities, the government would discharge its regulatory responsibilities by issuing and insuring the implementation of foreign exchange, import and export, tariff regulations  

• Otherwise, private enterprise is left unfettered, and free market mechanisms such as the laws of supply and demand are at liberty to govern trade and commerce

   D.  The Finance Sector

• The introduction to this sector gloomily states that the nation is saddled with billions of dollars of debt to foreign governments and organizations and reveals that even payment of only the interest on the debt would amount to more than half of the total of the national revenue  

• The serious imbalance between total national revenue (GNP) and expenditure is portrayed as constituting a problem of far-reaching consequences  

• An acute shortage of foreign exchange has driven no less than some 40 factories to a standstill, while many others are producing at much reduced capacity  

• These would be reorganized in such a way that they have greater autonomy as to enable them to operate profitably  

• Here again the main responsibility of the government is underlined as being one of regulating general financial policy and not to meddle with the independent activities of the institutions concerned  

• Recognizes and recommends the need for a cautious fiscal policy that strictly controls the amount of money in circulation with the view to avoiding spiraling inflation  

• Raises the question of the exchange rate of Birr against the dollar, and recommends the determination of its par value or the question of devaluation to be by stages and alongside the general recovery of the economy  

• Recommends urgent measures to balance government revenue and expenditure  

• Likewise, urges that the people should be relieved of the crushing burden of devious taxes by instituting a uniform and equitable tax

   E.  Transport Sector

• The overburdening of this sector by a variety of corporations and unproductive manpower is demonstrated by quoting the figure that, whereas in 1974 the Road Transport Authority employed a staff number mg 1,380, the staff of same Authority are now about 11,000

• That the entire transport system (land, sea and air) was geared to a war footing over the last 17 years  

• Over and above the fact that the transport sector as a whole is one of the weakest in both quantity and quality, the glaring imbalance within it is brought to focus by comparing that the number of public transport buses for the entire city of Addis Ababa are only 240, while there are about 4,440 taxis in service

• All the shortcomings of this sector are attributed to inept and grossly corrupt management and leadership  

• The new transport policy will insure that those transports which prove difficult to be run by private capital shall be owned by the government and that the administrative (management) problems stifling their growth will be resolved forthwith  

• Accordingly, air, sea and rail transport may be owned by the government during the transition period.  This is so because the objective situation in the country does not enable private businessmen to be in a position to run the said transport systems.  However, broad freedom will be granted in internal management and in operating on the basis of the principles of profitability  

• With respect to road transport, government transport corporations and road transport administrators, as well as the operating modality of transport companies, should be abolished, and a single Road Transport Authority should lead the system

• Subsequent to such reorganization, private enterprise should be allowed wide participation  

• That part of road transport capacity which had been under government control should be sold to private businessmen and the remainder should be reorganized in consonance with the new economic policy, after which it should be operated by a partnership between the government and private capital  

• Privately owned truckers, whose every deployment has hitherto been controlled by the government, should be entirely free to operate as they wish.  Checkpoints which had been set up to insure rigorous control, as well as the rules and regulations that had been in place for the same purpose, should be removed immediately  

• Other than regulating through rules and directives the proper functioning of the transport sector, the government should stop all interference with respect to the detailed operation of road transport  

• The major role and responsibility of the government should include the insuring of the balanced growth and expansion of the different transport systems  

• The government should likewise encourage the inception of associations and companies by private investors with the view to promoting their wide participation in all transport systems

   F.  Mines and Energy Sector

• The rich natural resources with which Ethiopia is endowed include mines and energy  

• There are enormous mineral deposits from gold, copper, iron ore, aluminum, etc., which will form a strong basis for Ethiopia's economy upon exploitation  

• Similarly, in the field of energy, the country has enormous sources of energy which are capable of benefiting neighboring countries over and above Ethiopia's present and future needs  

• What has been exploited and utilized to date from both mines and energy is negligible  

• This area of the economy has not in the past been given sufficient attention  

• While there was some research work and a number of project proposals in the field of mines and energy, none of them were translated into practical action  

• Moreover, although the research made so far cannot be taken lightly, the areas covered were limited.  There are widespread areas throughout the country which have considerable mines and energy deposits.  The development of mines and energy resources should, therefore, be carried out with due regard to the general economic situation in the various regions of the country  

• Another problem in the sphere of mines and energy resource development is that, by its very nature, such a task requires a long time and is rather expensive.  Yet, it is also true that there are some types that can be accomplished in a relatively short time, whereas others would take longer time.  Over the past years even sorting out this much and developing the more facile ones was not undertaken and/or implemented  

• The mines and energy policy of the transitional period will, therefore, be twofold.  On the one hand, it will strive to lay the basis for long term development; on the other hand, it will identify those which can and must be exploited in the short term and take appropriate action  

• Mines and energy development should, in general, be guided by the government, but their exploration and exploitation must be carried out by partnership between the government and private capital  

• Those that can be exploited within a relatively short time, such as natural gas, should be given priority attention  

• Similarly, electric power deserves particular  

• With regard to those which can be the basis for future economic development and whose exploration and exploitation require more complex technology, research and preliminary work should start without delay  

• The government should accordingly embark on producing such research work, as well as the necessary rules and regulations

   G.  Urban Land, Housing and Construction Policy for the Transitional Period

• Urban housing development should decisively be left to private developers and urgently implemented  

• A modality whereby any citizen can build an urban house for personal use or for rent and sale should be created  

• Others wishing to invest their capital on building houses of different standards for rent and sale should be encouraged to do so and their rights dully protected

• There should be various incentives to increase and expand the participation of private investors.  Houses built by private individuals must be guaranteed on the basis of thoroughly studied government regulations

• In addition, it may be necessary and useful for the government to build low-cost houses and either rent or sell them to the public.  However, care should be taken that such government activity does not in any manner adversely affect individual investors or house builders  

• The major role and responsibility of the government is to retain ownership of urban land and to allocate plots to investors wishing to build houses and to ensure and control the process of its utilization  

• The other duty of the government is to give guidance, through well-studied projects, so that the question of urban land and housing is in consonance with general urban development  

• The government will issue laws and regulations that will define and protect the rights of both the house owners and their tenants, and more specifically, to safeguard the tenant from undue exploitation  

• The government should, likewise, issue rules and regulations that will encourage individuals of the low income category to build their own dwelling houses singly or in association with others of their category.  To this end, banks should also arrange favorable loan facilities in consonance with the present policy or review existing ones  

• Thus, while houses that were nationalized by the previous government will be restored to their legitimate owners, buildings that have national and international demand, as well as large grain silos, will be under government supervision  

• Buildings constructed by high officials of the previous government are subject to confiscation depending on the results of investigations as to how they were built  

• In the field of construction, it is essential to strengthen participation of private capital and increase its role and contribution  

• Regulations and directives enabling individuals or organizations to resume their activities in this important field  

• Should the government wish to establish its own construction work, it should be on the basis of free competition with the privately run firms  

• The main function of the government is to guide construction activities in general and ensure their balanced place within the overall economic situation in the country.  The government will be responsible for issuing regulations governing construction activities, giving appropriate support to private participants, facilitating conditions for the improvement and promotion of construction works, etc.  

• The government will issue laws and regulations that will define and protect the rights of both the house owners and their tenants.  

   Conclusion

    Although the draft economic policy focuses primarily on the transitional period, two points are worth highlighting:

   First, it is a transition from the rigid command economic system to a new, free market and privatized system.  

   Second, in view of the deplorable economic conditions inherited from the Derg and the urgent needs of the country, the document endeavors to present a blueprint as to what should be done as a matter of priority during the transitional period.

   In both instances, the document is particularly reassuring to potential private investors, both domestic and foreign, in that it provides for absolute guarantees against arbitrary government action.

   It is also relevant to note that, in all sectors, the policy document takes due account of the surplus labor force that will be released in the process of the full privatization of the economy and envisages a just solution to the problem.

   There is no question that the new Ethiopia is firmly and surely committed to a market economy and promoting private enterprise.  The prospects for private investment in every sector of the economy are good and limited only to the extent that the governmental coalition is able to hold together and maintain a smooth transition.  The fact that the provisional government has held together thus far, and has embarked strongly on the road to a market economy, democratization of the political system and full respect for human rights, bodes well for private investment in Ethiopia.