Guns n’ Roses

The Political Economy of High Speed Development in Ethiopia

Christopher Cramer (SOAS, University of London)

All eyes on Addis

• What makes Ethiopia different?

• The pursuit of legitimacy through development

• The political economy of being in a rush

• Crisis in a ‘democratic developmental state’?

ETHIOPIAN EXCEPTIONALISM

It ought not to work

• Not only landlocked but became morelandlocked

• ‘Bad neighbourhood’/political marketplace

• Lack of ‘settler institutions’ history aka non-colonial Africa

• Unfinished national/imperial project (Markakis’s two frontiers)

• ‘Policy syndromes’

And yet

• Sustained rapid growth: 2004-14 per capita real GDP growth of 8.3 per cent/year (higher than past; higher than low-income or regional average same period)

• Despite El Niño related drought, 2015/16 still one of the highest growth rates in the world

• Not mineral dependent

• Relative stability

• Striking poverty reduction

• Visible transformation: driving the Balance of Payments Highway

Growth & major events

Poverty Reduction

Why this exceptionalism matters

• The challenge to tired orthodoxies– ‘the negative growth effects of heterodox macro

policies were quantitatively less important than the positive growth drivers they helped to achieve’ (Moller and Whacker, World Development 2017)

– ‘Does he get it?’

• The consequences of failure

LEGITIMACY THROUGH DEVELOPMENT?

The pursuit of ‘catching up’

Threats and commitments

• Context: state formation and nation building: unfinished imperial project and the highland/lowland drama

• Strategy: From war to the ‘democratic developmental state’

• Strategy: Controlling rent seeking and resisting the ‘political marketplace’

• Tactics: Exploiting geo-strategic significance• Tactics: GERD, road building, ethnic federalism

and the trade-off between inclusivity and resource concentration

Balance of payments constrained growth

THE POLITICAL ECONOMY OF HIGH SPEED DEVELOPMENT

IP on speed

• Time is central to development and ‘catching up’; development as acceleration

• That much is obvious but the pressure of time on politics/economics is often overlooked

• The politics of speed – being in a hurry for purposes of survival – may play a role like ‘over optimism’ in Hirschman’s principle of the hiding hand

• Or the principle of the throttling hand?

And Ethiopia is in a hurryGTPII goals

• To be a middle income country by 2025

• To sustain annual real GDP growth of 11 per cent

• To increase jobs created by medium & large enterprises from 380,000 (2014/15) to 750,000 by 2019/20

1. Politics, housing, cement

• The 2005 elections => change of direction

– Urban housing investment

– State support for national cement industry

– Linkages cement-construction-suppliers

• ‘Too modern, too radical’?

Lower middle income condominiums

2. Dammed if you do, damned if you don’t

Electoral politics, legitimacy and hydro-power

– 55 % federal budget on infrastructure

– Power outtages and industry

– Political commitment to Grand Ethiopian Renaissance Dam: rhetoric of speed – narrow margin for failure

– Financing creativity, including diaspora bonds

Hydro-diplomacy

3. Floriculture: blooming sector and the seeds of trouble

– Associated with Meles; rhetoric of speed– Time pressure critical to success; forex pressure

– Learning by lending; lack of reciprocal control mechanism?

– Compensation, property rights, and securing the conditions of private sector investment (the guns); but also

– A clash of times? Why does learning seem to lag in some areas? (Oromia conflict)

– Ignoring the industrialization of freshness

Easy/Difficult

4. Electoral politics/legitimacy and linkages

Time a factor in which version of China-Africa prevails?

• Is Africa nothing but the latest Chinese SEZ, a kind of overseas Shenzhen?

OR

• China going out: pioneer of African capitalism?

5. H&M and PVH in Hawassa(largest industrial park in Africa)

Hirschman vs. Stiglitz?

• Stiglitz – competencies should determine reach of policy

• Can ambition/speed + role model drive policy and raise competencies?

CRISIS IN THE DEVELOPMENTAL STATE, 2016-?

Challenging the Addis Master Plan

‘Addis Ababa has run out of space’ (Felix Heisel , Karlsruhe Institute of Technology)

Attacking agribusiness

Why?

• The national question

• Creeping political marketplace

• Rising expectations

• Food price inflation

• Rhetoric of land grabs and lack of compensation

• Gender, labour markets and violence

DECLINING CONSUMPTION OF THE BOTTOM 15 % OF HOUSEHOLDS

(consumption growth for the remaining households averaged only 1.2%)

Average Annual Growth of Consumption: Poor and Other Households

How long does it take for wages to adapt to price spikes?

• In urban and small-town Ethiopia (for casual labourers) adjustments take a very long time:

“there is neither descriptive nor econometric evidence that wages substantially adjust to higher food prices, except in the long run” (Heady et al, 2012)

• In coffee growing areas in 2010-11, no evidence that rural wage workers can bargain to maintain real wages when food prices spike (FTEPR)

Significance?

Kalecki would suggest that wage goods inflation in Ethiopia will impose limits on the growth of investment in infrastructure and manufacturing industry

Kalecki would also be concerned by the political implications of long periods of decline in the standards of living of the poor/wage workers

conclusions

• Perhaps the most interesting experiment in development policy in Sub-Saharan Africa

• But it is in the balance (and in the imbalance!)

• And it matters because growth shrinkage (rate and frequency) is more important in the long run than the high growth rates the EPRDF is obsessed with