No doubt that Ethiopians are political animals.  In living rooms, weddings, bars, etc., all conversations (assuming it is between trusted friends) will touch on politics.  The basis of one’s political position is almost always driven by principle.  That, in itself, is very admirable but in a country as materially poor as Ethiopia (with recurring droughts and famines), some positions should be based on economics.  Likewise, most Ethiopian politicians invoke economics solely to score political points.  If the average citizen had a cent for every time a politician said, “our number one enemy is poverty and backwardness” with no real prescriptions, the country may indeed overcome its famine epidemic.  It is with the hope of trying to guide the discussion to economics that I put forth this paper.

I have re-written this paper several times.  After much debate, I have stripped it off of its academic feel, i.e., no footnotes, theories or rigid structure.  My target audience is economic policy planners in Ethiopia – in government, in the opposition political parties and hopefully in private companies and lobbying entities.  I have tried to make this as direct and readable as possible for those concerned to initiate research and discussion among their staff.  As such, I have grouped my suggestions into straightforward, ten-point, action-oriented recommendations.

Ten Recommendations

1.             Abolish “Agricultural-Led” Development Policy

2.             Institute Geographically-Based Centers of Excellence

3.             Privatize Land

4.             Terminate Government Ownership of Businesses

5.             Secure Sovereign Sea Access

6.             Reduce (and Eventually Bar) Conditional Aid

7.             Enforce Law and Order by Any Means Necessary

8.             Eliminate Corruption but Do Not Aim for Purity

9.             Free Trade & Open Economy to Foreign Investment (with National Security Controls)

10.         Invest in Practical Education and Control Population Growth

Recommendation #1:

Abolish “Agricultural-Led” Development Policy

Over the years, the Ethiopian people have been molded to think of the government as their patron and their provider.  During the times of the monarchy, the emperor was the de facto father of the nation.  The DERG blatantly put “our collective government first and individuals second”.  The current government also manifests the mindset that “the population at-large is of lesser intellect and must be protected from itself.”  Nowhere is this more evident than its land policy.  The main reason for not privatizing land is that “these [less knowledgeable] peasants will sell their land to an elite few and flood the cities…We [smart government officials] know this and are avoiding this disaster preemptively.”  I mention this solely as an example to highlight a warped mentality and not to discuss land policy in detail.  (See Recommendation #3 for land policy discussion.)  As difficult as it is for government officials to accept, they are simple bureaucrats no better than the average citizen that someone who assumed power violently (consistent with the history of the country) has appointed to a certain position.  They do not know what works for society any more than other members of society.  Given this, their role should be to facilitate and govern with as little negative interference as possible.

This now brings us to the current “Agricultural-Led” economic development policy.  Eighty to ninety percent of Ethiopians are engaged in subsistence farming.  The Ethiopian peasant has been farming the highlands for over three thousand years.  What do government officials have to teach these farmers?  Which arrogant government official is going to go to a farmer and tell him that he will improve his yield if he utilizes fertilizer?  Don’t you think these farmers know that?  What do you think they talk about during their lifetime?  Or is the government official going to shed light on the fact that the crops need water?  Irrigation is not a new concept.  Farmers have been doing it for a long, long time.  It is sheer poverty and government laws that prevent access.  Or is the government going to lead these farmers by explaining to them the importance of cash crops, commerce, crop rotation, multiple harvests, soil erosion and employment diversification?  The reality is that if these farmers were literate (and not struggling for their daily lives), they would publish volumes of studies on agriculture.  All the government can do to help this sector of the Ethiopian economy is to (1) facilitate the distribution of fertilizer, (2) ease irrigation policies, (3) build better infrastructure to facilitate agri-commerce and (4) protect farmers from unfair competition.  Thus, the government’s role in this sector can be best summarized as facilitation, maintenance and protection of basic individual rights.  This can hardly be called a national development policy.

If the government wants to lead the development of Ethiopia, it should do so by (1) encouraging the development of new economic segments [example: basic manufacturing and/or specialized manufacturing such as light vehicle or light-ship manufacturing – similar to China’s current development policy], (2) initiating public development projects [example: major road projects such as a “Route 1:Zalenbessa-Moyale” highway and a “Route 2: Assossa-Harrar” highway – similar to the U.S.’s development policy under President Eisenhower in the 1950’s], (3) creating new markets/synergies [example: federation with Djibouti and/or Somaliland always maintaining the principle of 1-person, 1-vote – similar to Europe’s strategy with the EU], (4) instituting innovative, pro-economic growth programs [example: controlling population growth – similar to China and India in the last three decades] and (5) undertaking large infrastructure projects that the private sector is unable to pursue [example: building a dam on the Blue Nile River – similar to Egypt].  These are radical steps in new directions that will result in high-single digit or possibly double-digit economic growth rates – and they could be described as “X-led Development Policy”.

In any democracy, when a political party runs for office, it embraces a certain ideology and it bases its campaign on that ideology.  But once that party wins office, it becomes exposed to new ideas and new information and changes its policy accordingly.  Of course, we all know that the EPRDF/TPLF was not elected to office in 1991, but it did run/recruit with a “pro-farmer, pro-peasant, pro-agriculture” ideology.  As such, the organization may be feeling a sense of loyalty to its constituency.  It is rumored to have “a romantic attachment to the peasantry especially those from Northern Ethiopia.”  But the fact remains that the organization is now exposed to more information, more ideas and must shift its policy accordingly.  It is in the long-term interest of its constituency if it starts to shift its development priorities to those mentioned in the preceding paragraph.

The agricultural sector is already a dominant sector of the Ethiopian economy.  To reiterate, the Ethiopian government has little to add to improve this sector – certainly not at the “national policy” level.  As such, the government should drop its “Agricultural-Led” development policy.  Instead, it should simultaneously start meaningfully leading development in other sectors and exploring discontinuous growth opportunities by thinking out-of-the box.

Recommendation #2:

Institute Geographically-Based Centers of Excellence

Most of the individuals who will read this paper probably grew up or spent a great deal of time in Addis Ababa, Ethiopia.  They may, consciously or subconsciously, associate the Ethiopian economy with Addis Ababa’s well being.  That is wrong.  The evolution of Addis Ababa as the political, commercial and cultural capital of Ethiopia has simultaneously weakened the rest of the country and made the city itself unmanageable.  The evolution of Addis Ababa is indeed a colossal economic mistake.  It is easy to see how the politics of the country in the late 19^th /early 20^th century drove this decision (the creation of Addis Ababa).  Politics was prioritized over economics.

A well-crafted, national development policy would have encouraged the creation of geographically-advantaged political capitals and centers of culture.  In the all-important sphere of economic development, a rational government policy would have encouraged the rise of geographically-advantaged agricultural and industrial centers in various parts of the country.  It is worth mentioning that I do not believe that current government policy is geared in this direction either.  Once again, politics is being prioritized over economics as the current Ethiopian government tries to create “mini-Addis Ababa’s” all over Ethiopia.  From an economic development point of view, this is equally disastrous as the mistake made over a hundred years ago.

The table below compares the concept of “geographically-based centers of excellence” for the United States and Ethiopia.  The data points for the United States are actual; those for Ethiopia are examples.  Rather than being pre-occupied with a specific region, city or locale, the reader should understand this recommendation as a general support for the rise of specialized centers.  I have no doubt that this table can be modified and refined further.  While pinning down specific cities or locales can be debatable, regional allocation should not be.  For instance, a quick overview of the Ethiopian landscape demonstrates that the South Western part of the country is the most fertile.  As such, agriculture and associated agri-business should be housed there.  Northern Ethiopia (especially the North Eastern part) is agriculturally less productive yet heavily settled.  As such, it is screaming to be a manufacturing or finance hub.

Table 1: Geographically-Based Centers of Excellence

The main economic theories that support such a rise of specialized centers are the concepts of “Economies of Scale” and “Network Externalities”.  It would be far cheaper to process and package foodstuff in one particular locale in South Western Ethiopia and ferry it around the country rather than operating in a decentralized manner.  Companies concentrated in this locale can easily share (share defined to mean easily interchange in a free market) agricultural equipment, experienced labor and seasoned managers.  The benefits will also include a concentrated availability of specialized agricultural suppliers and transporters.  Of course, this example is much more evident if one considers a manufacturing hub in North Eastern Ethiopia.

Additional benefits of such specialized centers will include the full utilization of Ethiopian resources (specifically the land), the rise of an ever-efficient transportation sector and broader participation by all members of the society.  Such an advocacy for government encouragement for the rise of specialized centers should not be interpreted as advocacy of government interference in free market.  The government should only utilize incentives (tax and other similar incentives) in encouraging the rise of these specialized centers.  Not a single company should be forcibly relocated.  Additionally, the government should use its goodwill with the business community to achieve its goals.  As examples, the Ethiopian government should consult with the government of Brazil on the latter’s relocation of its capital city to the center of the country.  China, as well as numerous other nations, has embarked on such endeavors.

It should also be understood that an advocacy for centers of excellence does not equate to local (usually of one ethnic group) control of that specific industry.  Investors from all parts of the country should be able to invest in any of the companies located in these centers of excellence; qualified managers from all parts of the country should be able to find jobs in any one of those companies; and laborers should be employed regardless of ethnicity.  This is an especially important consideration when taking into account the welfare of Ethiopians where the agri-business is to be centered.  A sensitive issue in Ethiopia is that no region wants to be relegated to farming when other areas of the country are developing in the areas of culture, finance and manufacturing.  The government should pay special attention to make sure that Ethiopians from the soon-to-be breadbasket of the country are getting an equal share of development in other sectors as investors, managers and laborers.  But this issue should not stand in the way of the overall recommendation – regions should be developed according to their strengths and needs.

The rise of “mini-Addis Ababa’s” and the attempt to make each region as self-sufficient as possible flies in the face of economies of scale and network externalities.  Economic policies that go against the grain of nature are bound to fail.  (They will succeed only if significant levels of one-time and ongoing investments are outlaid.)  Rational economic policy demands that the government encourage the rise of specialized centers.

Recommendation #3:

Privatize Land

Land policy has gotten a lot of attention lately; the pros and cons of privatization are being debated intensely.  This is indeed a welcome development.  As such, it is probably not worthwhile to spend too much time repeating information that is widely available.  As stated earlier, the main reason not privatizing land is the belief that peasants will sell their land to an elite few and flood the cities.  This is indeed an arrogant position to take by those who hold it.  No person is a lower form of life than another and in need of constant government protection.  In fact, too much of this protection usually equates to some form of incarceration.  One must also never discount the enormous amount of power shifted to government bureaucrats when land belongs to the state.  These bureaucrats, usually members of the ruling party (which consistent with the history of Ethiopia came to power with brute force), are susceptible to political manipulation and outright corruption/bribery.

Let me by pass a lot of economic theory and just assert that members of a society (at the national level) basically have four fundamentals assets – Land, Water, Air and Freedom (of people to work and trade).  As long as there is a strong government to insure and protect these assets, the nation will create wealth for its members.  Of course, there are various cuts on this thinking.  This is the main reason for U.S. victory in World War II and its dominance there after.  The United States is a big land mass (with several river systems and sea ports) not encumbered by political divisions; it is a very open and free society.  Despite what may come across from watching CNN consistently, the U.S. government’s role is minimal.  It has been so effective protecting and insuring the four fundamental assets over the years that it has created ever-greater standards of living for its citizens.  When the economy hits a downturn, such as the 2001-2004 recession, it is the housing market (land) that held up the economy.  The U.S. remains the envy of the world and the place that most of the world population would immigrate to if given a choice.  And that is largely due to the “freedom” (to work and trade) aspect.  The Ethiopian government and all those in the opposition must understand and internalize the underlining reasons of national wealth generation.  

Ethiopian citizens need to feel secure; they have to feel a sense of ownership of their existence.  Too much government over the years has resulted in a cynical, nonchalant, “leave it to chance” attitude.  Given the lack of wide availability of financial instruments (aside from cash), land is the main measure of wealth in the country.  Privatization of land will empower the population.  This in turn will instill the necessary levels of confidence to learn, invest and improve oneself.

The 1970’s outcry “land to the tiller” was wrong.  It has a noble goal but it is detached from the reality we live in.  That policy (and it is being continued in many forms) is the reason for the poor state of agriculture in the country.  Land belongs to those who will pay for it and then develop/maintain it or farm/nurture it.  It equally belongs to those who will labor and find tenants for it or those who will leverage it and invest in other industries.  It certainly does not belong to the state.  The government should return the land to its rightful owners (i.e., the Ethiopian people) and devise innovative land policies that encourage the full utilization of this important asset.  (For instance, encouraging development/farming by aggressively collecting taxes from idle property and maybe even going as far as having a special “idle land tax”.)  The government should not choose the easier path and simply sit on all of the land in the name of the people.

From a planning point of view, one of the benefits of a country as big as Ethiopia is that a policy could be tried out in one area before it is considered for the entire nation.  Perhaps land could be completely privatized in one of the smaller regions such as Gambella, Beneshangul-Gumuz, Afar or Tigray.  Theories could be tested and lessons can be learned.  This is one good way of experimenting in policy planning.

Land is indeed wealth.  The emotional attachment people place on it and its resulting effect on the national economy cannot be underestimated.  (Highly recommend Pearl S. Buck’s pseudo-fictional “The Good Earth” or at least the last paragraph of the book.)  And one should not regard “emotional attachment” and “confidence” as a flimsy words unassociated with economics.  On the contrary, see how Western planners and governments religiously follow their respective country’s Consumer Confidence Index.  The Ethiopian government, much like its predecessors, must not politicize the issue of land privatization and try to score political points.  It must privatize land to accelerate economic growth

Recommendation #4:

Terminate Government Ownership of Businesses

The Ethiopian government at times looks like a mismanaged conglomerate.  It is in every business imaginable including foodstuff production, beverage bottling, textile/garment production, leather tanning, engineering services, financial services, coffee marketing, public transportation, freight transportation, construction, horticulture, pharmaceutical production, consumer goods production and marketing, hotel services, tourism services and mining – to name a few!  (My personal favorite is Addis Candy Factory.)  Measured by any business performance metric – revenue generation, cost efficiency (maintenance and reduction), profitability, return on equity, etc. – these businesses grossly under perform when compared to their peers.  There are volumes of data that prove without a doubt that the private sector is more efficient in allocating and handling society’s resources.  Quite simply, government officials (while employed by the government or actively engaged in politics) do not make good business people.  The entire globe is coming to this conclusion and Ethiopia is far behind.

There seem to be two main reasons/drivers for the current state domination of the Ethiopian business scene.  The first reason is the legacy of communism/socialism.  Faced with two stark choices in the twentieth century, the generous, benign and holistic African culture (coupled with a heavy dose of religious influence in Ethiopia) incorrectly concluded that socialism was closer to its nature.  Little did the average person know that socialism equates with inefficiency, dictatorship and rigidity of the mind.  But we all learn with time.  Looking at the history of Ethiopia, it is the competitive nature and the ever-present will to disagree that has produced the best leaders.  A socialist mindset may be forced on the population but will unlikely succeed in solving the country’s enormous economic problems.  The second driver for the current state domination of the Ethiopian business scene is the lack of creativity on behalf of government officials.  Most government officials would not know what to do with themselves if they don’t actively involve themselves in other peoples’ businesses.  A great facilitator (i.e. government’s involvement in the business scene) should be to fade into the background and let the participants engage in the topics; the facilitator should insert herself only if a problem has arisen and then she should quickly pull herself out.  This is understandably difficult for the officials who have to give up power.  The irony is that they must do so in order to create the vibrant private sector that will employ them eventually.

Government leaders must acknowledge the above two (and possibly many other reasons) as to why they have so many unproductive businesses under their control.  They must also acknowledge the points made in the first paragraph of this section and internalize the lessons the world has learnt.  Then, they must take the logical next step and sell of the government’s interest in most (eighty to ninety percent) state businesses back to the Ethiopian people.  The government should only own businesses that the private sector will not touch, such as a dam (hydroelectric generation/irrigation business) on the Blue Nile River.  Such a project would be too controversial and entail too great a risk – including possible Egyptian aerial bombardment – for a private entity.

But the termination of government ownership of businesses does not end there.  The government must proceed to contract out as much government work as possible – ranging from government payroll service to postal delivery to cleaning of military bases.  Large chunks of government work, even in the defense (armed forces) sector, can be outsourced and conducted more efficiently by private contractors. 

So, what is the role of government?  Related to the business scene, the government should first develop expertise in accounting, tax collection, fraud investigation, criminal prosecution, criminal detainment, global asset search/seizure and policy awareness campaign conduction.  Moreover, the government must take great pain to develop its domestic and foreign intelligence assets.  In short, the government’s primary strength should be gathering intelligence and enforcing the law (both overtly and covertly) so as to protect the economic well being of its citizens.  Secondly, the government should encourage the rise of “Corporate Ethiopia”.  Two notable groups that come to mind are MIDROC and EFFORT.  They should be applauded and supported.  Another large entity (completely independent of MIDROC and EFFORT), with ownership/control of Ethiopian Airlines, should emerge.  Yet another group (completely independent of MIDROC, EFFORT and the entity controlling Ethiopian Airlines) should be allowed to purchase Ethiopian Telecom and grow from that base.  The rise of such large entities in private hands will simultaneously ensure a wise resource allocation for society and allow the government to focus on its primary responsibility of enforcing the law.  (Note: Some may point out the risk of inefficient resource allocation in such large firms.  If these large entities are truly private, market forces will quickly correct any mismanagement of resources.)

Hopefully, the case has been made for the termination of all government interest (including share holding) in business.  Whether small, medium or large entities dominate the business scene is a point of debate; the culture of the nation and the talent of the management at these companies, among other factors, will determine the outcome.  However, the need for a complete termination of government ownership of businesses should not be debatable.  Economic growth and lives depend on it.

Recommendation #5:

Secure Sovereign Sea Access

An informed reader will not question Ethiopia’s need for sea access for the country’s well being.  Instead, she will be fixated on the word “sovereign” in an economic-inclined paper.  For sure, the foremost reason for Ethiopia to secure sovereign sea access is for its national security interests.  But we will leave that for the political analysts to discuss.

Secondly, even acknowledging Eritrea as an independent state, there is overwhelming legal evidence to suggest that the entire leg of Eritrea (the sixty kilometer territory in Eastern Ethiopia) belongs to Ethiopia.  That stretch of land is evidently an “unnatural evolution” of Eritrea.  It is clearly a man-made corridor intended to land lock Ethiopia.  Colonialism, unbalanced treaties and racism simply add clarity to the picture.  Putting aside the close and intertwined history of Ethiopia and Eritrea and just focusing on the last ten years (since Eritrea’s independence), one observes a series of treaties and understandings (some overt, some covert; some explicit and some implied), an invasion, a war, a ceasefire, a discarded border ruling, a follow-up intelligence/proxy war, etc.  At best, there is a legal dilemma/confusion.

So, what is Ethiopia to do amidst the legal confusion?  Quite simply, it must act in its economic interest.  The overwhelming level of poverty (for instance, the average Ethiopian makes U.S. $100/year; seven to thirteen million Ethiopians were threatened with famine last year) certainly demands that it do so.  Ethiopia has sufficient legal cover to return this piece of territory.  One can think of several economic arguments that support sovereign sea access: for instance…

§         Loss of Market Confidence/Goodwill:  One of the biggest mistakes of the current economic policy (most evident in land locking Ethiopia) is the neglect of the “goodwill” of Ethiopia.  Goodwill is not an imaginary asset; it is as real as hard currency.  Its presence is observed in the overage of market value over book value in many companies listed on exchanges all over the world.  The “U.S.A.” takes the top prize in this version of the brand wars.  The U.S.A. is the ultimate choice of investors around the globe because come what may, it is the one institution that you can count on to be there every morning (for a long time to come).  There is very little doubt that the “Ethiopia” brand has been eroded.  (Despite the small levels of economic progress, famine and poverty are still abundant.  The only thing different now is that the country is land locked.)  Any apparent improvement in goodwill by constant support from the West is most likely artificial and will be short lived.  Better yet, why can’t Ethiopia enjoy the same with its sea access intact?

§         Loss of Key, Port-Related Industries:  A key plan of previous Ethiopian administrations – clearly unrealized – was to develop vibrant shipbuilding and fishing industries in the Afar seacoast.  If realized, this would contribute to the national economy in terms of job creation and economic diversification.  This is an obvious loss.

§         Foreign Political Risk Exposure:  The Ethiopian economy, and the exporting sector in particular, is now exposed to the political risk in Eritrea, Djibouti, Sudan and Somalia. As if the Ethiopian economy does not have enough obstacles, it has to depend on the well functioning of these states.  American importers of Ethiopian goods will have to depend on safe passage of their product through the streets of Somalia, where bodies of their soldiers were dragged about ten years ago.  Or they have to await safe passage of their goods through Eritrea, where the President of that country has publicly accused the CIA of trying to overthrow him.  Or they have to look to Sudan, where they lodged cruise missiles as late as 1998.  Perhaps if Ethiopia were a wealthier nation that can absorb all this, it would be acceptable.  Unfortunately, Ethiopia is a very poor country and desperately needs a needle-drop quite neighborhood to compete globally.  The Ethiopian government must secure safe passage of commerce to and from the farm/ship and factory/ship.

§        Retardation of the Manufacturing Sector:  The manufacturing sector in Ethiopia, meager at less than ten percent of the economy, is suffering (there was a recent government release to this effect) and will continue to suffer.  This sector is already weak by global standards and is unable to compete as is.  On top of that, it will face the following obstacles.

Ø      Double Taxation – In the process of importing goods or exporting goods, Ethiopian manufacturers will be taxed by the federal, province and local governments of Ethiopia/Eritrea, Ethiopia/Somalia, Ethiopia/Djibouti and Ethiopia/Sudan.  This may not occur in the first few years as “free trade agreements” are celebrated for political purposes.  But the taxes – in the form of VAT tax, port fees, handling fees, inspection fees, gate fees, toll fees – will eventually follow.  It is the nature of all governments to tax and those in East Africa are no exception.  This will greatly disadvantage Ethiopian manufacturing companies.

Ø      Double Bureaucracy – While this point may be similar to the one above, I think all who have tried to work in the region will appreciate it being called out as a separate point.  The red tape and the associated corruption (bribery) are now multiplied by two for Ethiopian manufacturing companies.  In this region where government officials are so poorly compensated, the effect of this “corruption squared” cannot be underestimated.

Ø      Susceptible Trade Secrets – Trade secrets of Ethiopian manufacturers – part designs, manufacturing techniques, supplier contacts and customer lists to name a few – will be compromised more so in a land locked Ethiopia.  Ethiopian manufacturers stand to lose in these “economic wars”.

 The above are just a few examples.  One could go on and on.  The enormous strain on the manufacturing sector, coupled with the government’s focus of “agricultural-led development”, paints a picture of an Ethiopia relegated to agriculture.  Ethiopia seems to be positioned as a source of raw materials and cheap labor; this is not in the best interest of Ethiopia.

While focused on the manufacturing sector, it is worth noting that the former province of Eritrea (with only five percent of Ethiopia’s population) was reputed to manufacture as much as thirty percent of Ethiopian goods.  That arrangement made sense so long as Eritrea was a part of Ethiopia – meaning Ethiopians could own, manage and work in companies based in Eritrea and vice-versa.  Since Eritrea is much less agriculturally productive than Ethiopia, that arrangement was a win-win for both countries.  The independence of Eritrea in 1993, while tragic on some levels, could be an enormous boost to Ethiopian manufacturers if it is managed right.  Domestic manufacturing companies could replace the now-foreign Eritrean manufacturers.  Per the discussion earlier, these new companies could be concentrated in the new Ethiopian manufacturing hub (See Recommendation #2).

From an economic perspective, secession from Ethiopia does not make sense even from Eritrea’s point of view.  So, why did it happen?  There are two main reasons.  First, the Eritrean leadership correctly figured that aid per capita would be much higher in an independent Eritrea than under a unified Ethiopia.  As long as an independent Eritrea can make enough noise and is presented to the rest of the world as an equal to Ethiopia (such as news mentions of “stalemate situation between Eritrea and Ethiopia” or a “draw from the 1998-2000 Ethio-Eritrean war”, etc.), it will get foreign aid almost as much as Ethiopia.  This has in fact proven to be right.  By any measure, aid per capita is much higher for the independent Eritrea.  Secondly, economic planners in Eritrea (with the support of the investment community in and outside of Eritrea) must have concluded that Ethiopia was too large, too diverse, too complex and “too sovereign” to develop.  The thinking goes further to conclude that a smaller, less-diverse country can be better managed and could emerge as a manufacturing and financial center for the region.  The former reason for Eritrea’s secession is none of Ethiopia’s business; it is an Eritrean choice.  However, the latter reason is very much Ethiopia’s concern.  Political maneuvering (i.e., secession) for economic purposes – must be neutralized.  To this end, Ethiopia must take great pain to distinguish the “Made in Ethiopia” and the “Made in Eritrea” brands; it must overtly and covertly prevent undue profits from reaching unworthy investors.  If this is not properly managed, the desire of every region (woreda, kebele, etc.) holding a critical asset to secede and seek a thwarted treaty with Ethiopia will be enormous.

Ethiopia cannot accept to be relegated to be an agricultural society so long as Eritrea, Djibouti and Somalia are independent entities.  The economically rational decision would of course be to federate the entire lot – always respectful of the principle of 1-person, 1-vote and the principle of free flow of capital, labor and management.  (This would of course be nothing other than a Greater Ethiopia since well over the majority of the people of the Horn live in Ethiopia.)  Unfortunately, this is far from reality at the present time.  And thus, Ethiopia must look after its interests by securing its Afar/Red Sea coast. 

A side point in all of this is the status of small villages like Badme.  The loss of these places (again putting principles and politics aside) will have a noticeable effect on the Ethiopian economy.  It will further erode Ethiopia’s confidence, credibility and goodwill.  But no one should lose sight of the bigger picture – Ethiopia’s need to restore its sovereign sea access, which is infinitely more important to the Ethiopian economy.  “Badme” is being used as a distraction by too many parties.

It is not an accident that there are such few countries in the world today that do not have sovereign sea access; this is an issue of tremendous importance to national economies.  The loss of Ethiopia’s sovereign sea access remains one of the most perplexing events in modern history.  It was an economically irrational decision undertaken by the Ethiopian government; it must be reversed.

Recommendation #6:

Reduce (and Eventually Bar) Conditional Aid

Given that two thirds of the Ethiopian government’s annual budget somehow traces itself to aid from other countries, this is perhaps the most controversial recommendation.  The sudden elimination of such a large proportion of the budget would certainly result in a breakdown of the society (or at least the government) and that is not the recommendation here.  Rather, the idea is a gradual phasing out of this aid from its current levels.

This gradual phasing should occur regardless of the circumstances in the future.  Perhaps it is the “regardless” aspect that makes this recommendation controversial.  This recommendation has its roots both in economic theory and the observation of one aspect of the rise of the TPLF/EPRDF.  Let’s start with the economic theory.  Whether it’s a joke or not, one Ethiopian farmer is quoted saying, “When we are hungry, we pray for rain in Canada”.  [Referring to the fact that Canada provides a lot of food aid.]  The continuous flow of food aid, while good in the short term, is destroying the will of the farmer to aggressively produce and market his good.  The above quote is a manifestation of this problem.  Those who farm and sell their produce must get market prices – not the price ceilings (or floors in some cases) that the government bureaucrats set.  The loss of that one, once-confident and motivated but now demoralized, farmer (due to the fact that grain prices are now well below what he had intended to get) will be a far greater loss to the economy than the two or three individuals who will be temporarily fed during this season.  That farmer, while incurring losses this year and with depreciated assets, is far less likely to try hard again since he does not know when the market will be flooded again.  The destruction of ‘real’ domestic grain, fertilizer and other such commodity markets should be a real concern to planners.  (This problem is compounded significantly by the state ownership of land – See Recommendation #3.)

Secondly, it has been rumored that the senior leadership of TPLF withheld aid from their constituency during critical times in the 1980’s and profiteered from the aid in order to achieve their larger goal of assuming state power.  Greed was not their motivation.  Hardly.  They correctly figured that more lives would be saved in the long run if they assumed state power, run the country right, made fundamental changes by building appropriate infrastructure and generally invested in the community.  Again, sans proper cost/benefit analysis of each decision, it is impossible to judge the success of such a policy.  But I think most would agree that this policy feels right.  It is time to repeat this success in the larger Ethiopian context.  It is time to swallow the bitter pill and make the necessary infrastructure changes.

The recommendation here is to make a fundamental policy change and institute a year-over-year reduction in the following figures – (1) volume of aid, (2) dollar value of aid, (3) percentage of government budget supported by foreign aid, (4) aid value per capita, etc.  Goals should be public.  Moreover, a constitutional amendment should be passed placing a limit on some of these numbers.  A similar debate in the United States is the discussion surrounding the U.S. budget deficit.  There have been some radical proposals to pass constitutional amendments to prevent the government from overspending.  Ethiopia should consider similar proposals.  Likewise, aid acceptance should be slowly phased out.  Ethiopian politicians and government officials must be able to phantom a world (perhaps fifty years down the road) where they can prepare a budget without income from aid sources.  They should at least lay the foundations to such a path.

Another point of discussion is the topic of Politically-Motivated Aid (PMA).  This has destructive effect on the Ethiopian economy for very obvious reasons.  The motivation of such forms of aid is not the need of the recipient but rather the (sometimes indirect) need of the donor.  For instance, a great deal of the aid that comes to Ethiopia from the West is food aid as opposed to hard currency aid that flows to other parts of the world.  Is this simply surplus dumping?  Is it subsidy for Western farmers?  Such aid is most likely to come at unneeded times and likely to undermine the local economy.  Even more intrusive, consider the recent announcement for aid increase (tripling of aid) from the United Kingdom to Ethiopia.  Although not explicitly spelled out, this increase was tied to Ethiopia’s willingness to accept the Hague border ruling.  Is this how much Ethiopia’s sovereign sea access is worth?  Not even.  This is what is called “buying things on the cheap”.  So what is the Ethiopian government to do with respect to PMA?  Nothing.  It is obviously not in a position to do anything at the present time.  However, concerned Ethiopians should establish an Aid Monitoring Institute, an Ethiopia-based private think tank, whose sole responsibility would be to rate/grade foreign aid to the country.  Such an institute, devoid of government and politics, would be ideal to look at such factors as (1) political motivation of donor country/entity, (2) economic motivation of donor country/entity, (3) form of aid, (4) average grade of past aid from donor country/entity (5) conditions tied to the aid, (6) timing of aid, etc.  These factors (and these are only few) can then be weighed and scored.  And thus, the Aid Monitoring Institute could follow up each aid announcement and grade it on a scale from “A to F” or from “0 to 10”.  The Ethiopian government should not object to the establishment of such an institution.

Ending dependency is a difficult undertaking; hence, the “circle of poverty”.  But internal discipline based on a gradual, phasing out of aid, coupled with gentle pressure on donors not to manipulate situations, will result in a healthy Ethiopian economy.  Such a policy, in conjunction with the other recommendations included in this paper, will indeed result in an Ethiopian economy tied to the world economy via trade routes in lieu of the status quo.

Recommendation #7:

Enforce Law and Order by Any Means Necessary

Geneticists, archeologists and historians all agree that the region today known as Ethiopia is the most likely origin of mankind.  Economically speaking, this means that the region has been settled and farmed for a very long time.  The area has also been hard hit with draught and famine.  In other words, the region has enough natural obstacles and all must be done to minimize man-made threats to development.  Indeed, as mentioned earlier, one of the key requirements for economic development in Ethiopia is a “pin-drop” quiet environment.  Investors – be it small commercial farmers, industrialists, small business owners or service providers – need to feel secure to conduct their business.  They should only be exposed to risk that they willingly, knowingly and calculatingly take.

With the above as background, we proceed to ask what the government should do to ensure that law and order prevail in the country.  It is also worth mentioning that the following recommendations are not specific to the current government; they equally apply to subsequent governments.

The first priority should be the elimination of armed insurgency in the country.  There is nothing more discouraging and unsettling to the investment community than to imagine that a whole new government (with a smack, brand new philosophy, system and bureaucracy) is coming.  The business class, which operates in the hostile environment, will withhold its investment for very obvious reasons.  Additionally, armed opposition groups tend to have satellite offices abroad and their mere presence (let alone if they release results of successful operations against the government) will frighten the foreign investment community.  Ethiopia in general, but the government in particular, should welcome investors (both foreign and domestic) with open hands, red carpets and wide smiles – and not news of armed insurgency.  Understanding of the root causes of rebel activity, making compromises and resolving issues at hand peacefully in a manner that is fair to all stakeholders is the preferred method.  Specifically, increasing the standard of living and the level of democracy/freedom will reduce the attraction to armed insurgency.  However, if all peaceful means are exhausted and force is indeed required, it should be massive and decisive.  The glory of “rebellion” must come to an end in Ethiopia.  Equally important, the government must also discredit false reports emanating from armed insurgents with hard facts in a timely manner.  It must prosecute the sources and disseminators of false news.  In this public relations fight, the government must focus its attention on foreign investors because these investors are less likely to be knowledgeable about situations in the country and less likely to distinguish between real and fake news.  (Domestic investors are situated a little better in assessing this risk.)  Regardless, the Ethiopian government should take all necessary steps (both carrots and sticks) to eradicate armed insurgency (and the semblance of armed insurgency) as soon as possible. 

The second priority should be to eliminate politicized student movements.  This issue is of main concern to the domestic business community and less so for the international business community.  In fact, most foreign investors will see it as a sign of democratic governance when they see student protests.  (But not when forty-one of them are shot dead as was the case a few years ago or when there are mass expulsions of students of a specific ethnic group.)  However, the focus of the government should be the domestic business community with respect to controlling this risk.  A little historical perspective is in order here.  Based on past experience, the domestic business community (which includes small commercial farmers who will only get snippets of news from Addis Ababa and other capital cities) associates student protests with a revolution.  The government must counter this perception.  It must start with the source/manifestation of the problem – the students.  It must explain to the students the existence of this false grandeur and brilliance attached to revolutionary students in Ethiopia.  It must tell these students that it would be acceptable if farmers or teachers or shopkeepers protest but not students.  They (students) are admittedly (by their presence in the lecture halls) the least knowledgeable members of society; they are there to learn.  The government must further demonstrate to the students (and facts are plenty for those tasked with collecting them) that their disturbances impact the economy negatively – and it is always the poor that suffer the most.  The government must ask these students how they are going to find the time to develop policies to run a complex country of seventy million people in between “Math I” and “World History”.  Of course, a government minister does not barge into the university and lecture these lessons.  Rather, these lessons must be constructively designed and inserted into the last years of high school curriculum and into the freshman level curriculum at the universities.  (These courses should be required for high school graduation and for proceeding past freshman year at the university.)  How many of us have changed our minds since our schooling days?  Is anyone really ready to recommend national policies at such a tender and impressionable age?  The answer is a simple “No!”

The third priority for the government is to neutralize a largely Ethiopian-born, foreign-based individuals and groups who are hell bent on destabilizing ANY government in Ethiopia.  These are the same groups and individuals, who for some unknown reason (possibly to themselves as well), are intent on wrecking havoc on the Ethiopian people and the Ethiopian economy.  They opposed the monarchy, the DERG, the EPRDF and no doubt that they will oppose the next government.  (It is important to note that there are a lot of legitimate opposition members who are opposed to the current government.  Their right to free speech is not completely guaranteed in Ethiopia and they have moved operations elsewhere.  These honorable men and women should not be confused with others who just want to tear things down aimlessly.)  Legitimate and dignified opposition notes things going well in the country and principally opposes wrong policies – and never is in the business of manufacturing news or ideology for the purpose of destruction.  As stated in the beginning, I do not want to venture into politics.  But when analyzing the Ethiopian economy, a critical observer would not miss the negative effect of some individuals and groups who operate outside of Ethiopia.  Every time they lobby for the blockade of aid and every time they disseminate false information related to the stability of the country, they shave off points from economic growth.  The Ethiopian government must aggressively counter this hindrance to the country’s economy.  For those who are legitimately (and constructively) opposing it, the government must negotiate and compromise.  For those who are seeking to cause destruction and mayhem, it must label them “terrorists” (just like the West does) and lodge formal complaints with the countries where these individuals and groups are based.  In some cases, the Ethiopian government can sue some individuals and groups (the legal entities) in the court system of their host countries.  Prior to this, the government must determine (1) the cost the Ethiopian economy is incurring due to the illegal and immoral activities of these groups, (2) the cost of undertaking such a legal strategy, (3) the strength of its case and (4) the likelihood of victory.  Then, it should be a straightforward economic decision.  The economic cost of these anti-Ethiopia individuals and groups must not be underestimated.

Last but certainly not least, the Ethiopian government must acknowledge the negative impact of two unfriendly neighborly governments – that of Eritrea and Somalia – on the Ethiopian economy.  Ethiopia has gone to war against both these countries in the recent past.  Both these governments have an almost-open war with the Ethiopian economy.  Somali factional leaders, even when in Addis Ababa as guests of the government, have made clear intention that they have territorial interests in Ethiopia.  The Ethiopian government has publicly blamed the Eritrean government for instigating (and covertly supporting) mass murders and disturbances in Gambella and Southern Ethiopia.  It is no doubt that the Ethiopian government sees these neighboring governments as hostile.  The question is what is the Ethiopian government doing about it.  Its Somali policy cannot be admired as it has not contributed to a united, peaceful neighbor that would prove to be a valuable trading partner.&n