ANALYSIS
World economies built on the foundation of "Socialism" have a very interesting instrument to beat for their lifetime - the "National Plan" and Ethiopia is no exception!
This developing Sub-Saharan African nation has adopted a planned approach towards "sustainable development". The first five-year plan (2004/05 to 2009/10), named the Plan for Accelerated & Sustained Development to End Poverty (PASDEP), focused on meeting the Millennium Development Goals (MDG) as enumerated in the UN Charter.
The second five-year development plan (2010/11 to 2014/15), dubbed the Growth & Transformation Plan (GTP), also has MDGs fully mainstreamed into the development strategy focusing on almost everything - agriculture, industry, infrastructure, social development capacity building, and good governance.
So far, the Ethiopian nation has seen two five-year plan periods. The government is currently busy devising the third plan.
Given the secretive nature of the government, little is known about what is in store for the common man in Ethiopia.
Nevertheless, loud noise is being heard from government quarters, which suggests that GTP-II, as the plan is being named, will continue the legacy simply because the objectives of GTP-I are yet to be realised. Paradoxically, one can only say that unrealised objectives are a pointer towards jettisoning them forever and introducing a change in the planning doctrine.
A huge landlocked country with a population of 90 million growing at 2.5pc annually, clocking an average gross domestic product (GDP) growth rate of 11pc for the past five years, is saddled with an erratic annual inflation rate above the growth rates, effectively eating up all the economic success.
Growing unemployment, due to few growth and transformation opportunities at the micro levels and highly ambiguous local laws, is another aspect of the economic stagflation.
Against this backdrop, the planners have to realise that the service sector holds greater promise. The manufacturing sector cannot grow in Ethiopia simply because the local commodity sector is totally underdeveloped.
The size of a country does not automatically guarantee competitive advantage in manufacturing unless the basic commodities such as power, steel, cement, aluminium and copper are locally produced or at least locally refined. A manufacturing industry based on imported steel, copper and aluminium will be uncompetitive from day one!
Yet, the local press is full of news on how the government is focused on creating "world's factory" in Ethiopia. Recent news announced that the government-owned enterprise, named the Metal & Engineering Corporation (MetEC), started manufacturing Railcars.
MetEC was reported to have manufactured a helicopter some time back - one wonders how many it managed to sell. Ethiopia's experiment to build cars locally is a big disaster - low on technology and quality and high on price and state protection is the only highlight.
Remember what the Chinese leaders, post-revolution in the 1950s, told their citizens - build clay furnaces to smelt pig iron only then build railway.
MetEC would be better advised to build global scale iron and steel, aluminium and copper smelters in Ethiopia rather than building rail wagons and passenger cars. Else, Ethiopia would be producing technology static, low quality products with small value addition thereby generating employment for a select few or creating a class of underpaid workers.
There is another pitfall in this situation. Manufacturing industry is technology-driven and obsolesce is the order of the day. Despite 70 years of revolution and centrally controlled planning, Chinese products are yet to gain acceptance in the world.
Indian railway is over 100 years old and has been manufacturing everything from rails to locomotives and rail cars locally. Finally, it has realised that its rolling stock is way behind in the technology race and a virtual drag on rail infrastructure. It is now buying railcars from Siemen's and Bombardier.
The Indian auto industry is another example. It invited Suzuki, Honda, Hyundai, Ford and Toyota to build cars in India and today these world majors are exporting over 50pc of "made in India" products to the world. As Ethiopia embarks on the journey to manufacture, it would be prudent to learn from such examples.
Manufacturing cannot proceed without technology and labour. Both these activities are part of the service sector. Technologies that drive and support our lives, from mobiles to medicine, are born and developed in Silicon Valley by human beings and not manufactured in a factory by machines.
Labour, whether skilled or semi-skilled, is developed in universities and institutes. Therefore, for the manufacturing sector to be successful, a nation has to create a class of business service providing occupations viz. management, life sciences engineering, architecture, social services, food and so on, and embed them in the manufacturing process.
You may well call them service manufacturers. There are no statistics to prove that without service manufacturers factory manufacturing is a success.Necessity is a virtue of all inventions. A large, young and landlocked population needs to be converted into service manufacturers. This can be done by providing health and education facilities and making opportunities available.
The government's on-going efforts to build health and education centres need to be multiplied manifold by investing in universities, institutes and research and the development centres. Once created, the educationally empowered class will find its own mooring and create a vibrant service sector.
New avenues unfolding in e-commerce, transport, tourism, media, entertainment, health and food sectors are driven by neo-service manufacturers who are educationally empowered to take risk, develop and support a product in whole of its life cycle. On the other hand, a factory manufactured product has its own shelf life.
Another critical success factor is how the Ethiopian government treats the service manufacturers with regard to statutory environment. Laws relating to tax, permissions and sectoral reservations need to undergo a dynamic change to promote this class of contributors. Remember how Alibaba became a global enterprise out of Communist China!
Undoubtedly, Ethiopia has created a name for itself in some important sectors in Sub-Saharan Africa. Buying Africa's first Dreamliner is a feather in its cap. However, the success lies in operating it economically and efficiently. This is possible only if it has a class of engineers, captains and hostesses who can provide world class service to the discerning passenger.
While the government is formulating the second GTP, it will be in the interest of the nation that due weight is given to the service sector and an enabling environment is created. Otherwise Ethiopia will end up creating a class of inefficient manufacturing centres.
Austine Sequeira (phd) Austine Sequeira (phd) - Austinesequeira@ocorp.ae - Chief Executive Officer of Frontline Development Partners (fdp), a Dubai Based Economic Advisory Firm.
Source: AllAfrica
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