Ethiopia’s Farms and Finance

He argued, “To support this developmental state, they are going to have to find more resources domestically,” he argues.  Just like China, South Korea and Japan before it, finance is the steering wheel for Ethiopia’s developmental state.  Ethiopia engages in what Shane Shepherd of Research Affiliates calls financial repression.

It is “a set of policies that keep real interest rates low or negative and regulate a captive audience into investing in government debt, resulting in cheap funding,” he says.  Hence the Ethiopian government’s policy that caps interest rates and another that requires private sector banks to spend 27 percent of their loans on government bonds that go towards building the Grand Ethiopian Renaissance Dam.

Alongside getting cheap funding for infrastructure, the government argues that the private sector leaves financing gaps and is unable or unwilling to invest in manufacturing.  “Look at Ethiopian private banks; all their loans go to services and trade,” Premier Hailemariam says.   He also said, “They are not giving long-term loans to industry and infrastructure. So you have to have policy banks which can give low interest rates and support industrial production.”

Young spenders

Anecdotally, it might be working.  Addis Alemayehu, a managing partner at advertising agency 251 Communications, is starting up a company to take advantage of two things: incentives for companies in the manufacturing sector and the huge young population that is starting to have some discretionary spending power.

Addis said, “There are more university students here than the population of Djibouti. Imagine all these people buying soap for the first time.”  But he says finance is still a problem: “You could have a purchase order from God himself, you still wouldn’t get the finance.”

Privately, officials accept they need to do more to create national champions that will become globally competitive.  At the 2 April presentation of the GTP at the United Nations Economic Commission for Africa office in Addis, the International Monetary Fund, World Bank and various diplomats stood up for private sector interests, with no representatives from either the private sector or the Ethiopian Chamber of Commerce in attendance.  This told its own story.

Others say the emergence of private sector companies will take place quickly.  Helen Hai, who launched the Chinese shoe company Huajian’s factory in 2012, recalls: “When the first South Korean textile factories opened in Bangladesh, Daewoo trained up 200 workers.  After two to three years, half of those had left to set up small manufacturing facilities.”

Source: The Africa Report