Professional Documents
Culture Documents
9780198739890
9780198739890
standing of the policy process, which comes from the author’s long experience in
policy-making at the highest levels. This unusual combination has resulted in a frame-
work for empirical analysis that is not only fully appreciative of structural dynamics
and inter-sectoral linkages but also keenly aware of practical challenges of policy
implementation in terms of administrative capabilities, interest group politics, and
institutional constraints. A unique, pathbreaking book.’
Ha-Joon Chang, Reader in Economics, University of Cambridge
‘Ethiopia is a development miracle in the making, which will provide the inspiration,
confidence, and experiences for other African countries, like the Japanese miracle in
post WWII to East Asian countries. Dr Arkebe Oqubay’s Made in Africa: Industrial Policy
in Ethiopia is a brilliant book. It provides first-hand insights with academic rigor about
how Ethiopia kick started dynamic structural transformation and achieved double-digit
growth in the past decade. Anyone concerned about the development in Africa and
other poor countries in the world would be wise to read the book.’
Justin Yifu Lin, Professor, Peking University and Former Chief
Economist, World Bank
‘Solid transformation of the Ethiopian economy will generate its own industry of
success attribution, but few will dispute that this book spells out succinctly and beauti-
fully what is changing. There is no special secret as Arkebe rightly demonstrates:
industrial policy is about a reform-minded government having a drive to make it
happen; but also having the right cocktail of policies that generate the incentives in
every front to make success possible. From agro-processing to light industrial produc-
tion, from textiles to infrastructure servicing, Ethiopia has become a good case study for
other countries to emulate. Be it through regulatory and macro incentives, be it
through energy-centered investment, it demonstrates the need for coherence and
eagerness to learn from other realities, particularly from Asia. A must read for the
many Africans engaged in structural transformation.’
Carlos Lopes, UN Undersecretary and UNECA Executive Secretary
‘Active and responsive industrial policy, trial-and-error attitude, and great attention to
sectoral details proposed in this book are essentially East Asian. As a scholar and policy
maker, Dr Arkebe has revealed to us what is going on in the mind-set of Ethiopian
leaders, and why the country is growing fast and absorbing a large amount of light
manufacturing investment from abroad.’
Kenichi Ohno, Professor, National Graduate Institute
for Policy Studies, Tokyo
‘Arkebe Oqubay is the ultimate insider, yet he offers an admirably detached and
balanced assessment of the ups and downs of Ethiopia’s industrial policies. His view
of industrial policy is a sophisticated one. Successful intervention requires the right
political and institutional framework. It demands a deep understanding of market
opportunities, of supply-side problems and linkages across activities, and an apprecia-
tion of what government can and cannot do. And it depends, most crucially, on the
government’s capacity to implement the appropriate measures. This book will be
essential reading for all those concerned with the process of industrialisation in devel-
oping countries.’
John Sutton, Sir John Hicks Professor of Economics,
London School of Economics
‘Made in Africa is a case study of Ethiopia, but far more than a case study. It uses Ethiopia
as the centre of a thoughtful and wide-ranging discussion of the literature on the
developmental state, industrial policy, and industrialization-at-large, and celebrates
the contributions of the more “heterodox” economists such as Hirschman, Rodrik,
Amsden, Reinert, and those at the United Nations Conference on Trade and Develop-
ment (UNCTAD). It is a model of its kind for economists and political scientists working
on development issues around the world. What is more, it is beautifully written!’
Robert H. Wade, Professor of Political Economy, Department of
International Development, London School of Economics
and Political Science, and winner of the Leontief Prize in Economics
Made in Africa
About this book
Made in Africa presents the findings of original field research into the
design, practice, and varied outcomes of industrial policy in different
sectors in Ethiopia. The book explores how and why the outcomes of
industrial policy are shaped by particular factors in different industries.
The findings are discussed against the backdrop of ‘industrial policy’,
which has recently found renewed favour among economists and inter-
national organizations, and of the history of thought about and practice
in industrialization. It argues that an effective industrial policy requires a
more interventionist state than most development economists would
accept, including those recently claiming to champion a ‘new industrial
policy’. It also examines industrial structures and associated global value
chains to demonstrate the challenges faced by African firms in inter-
national markets. The book seeks to learn from the failures and successes
in the cement, leather and leather products, and floriculture sectors, all of
them functioning under the umbrella of a single industrial strategy. More-
over, it argues that success lies in the interactions among policy, specific
industrial structures, and institutions. Specifically, this book argues that a
successful policy should maximize linkage effects, but will flounder in the
absence of a clear understanding of the political economy of each sector.
Arkebe Oqubay
1
3
Great Clarendon Street, Oxford, OX2 6DP,
United Kingdom
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# Arkebe Oqubay 2015
The moral rights of the author have been asserted
First published 2015
First published in paperback 2016
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a retrieval system, or transmitted, in any form or by any means, for commercial purposes,
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This is an open access publication, available online and distributed under the terms of a
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Published in the United States of America by Oxford University Press
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Links to third party websites are provided by Oxford in good faith and
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Contents
Bibliography 297
Index 327
Preface to the paperback edition
ix
Preface
When I spoke previously at the Africa Summit about some of the bright spots and
progress that we're seeing in Africa, I think there is no better example than
what has been happening in Ethiopia—one of the fastest-growing economies in
the world. We have seen enormous progress in a country that once had great
difficulty feeding itself. It’s now not only leading the pack in terms of agricultural
production in the region, but will soon be an exporter potentially not just of agricul-
ture, but also power because of the development that’s been taking place there.
President Barack Obama, New York (25 September 2014)1
1
Source: <http://translations.state.gov/st/english/texttrans/2014/09/20140925308885.html>
Preface
xi
Made in Africa
xii
Acknowledgements
The book would not have been possible without the support of many
organizations and individuals. First and foremost, I would like to thank
Professor Christopher Cramer of the School of Oriental and African Stu-
dies (SOAS), University of London, for his remarkable intellectual gui-
dance and encouragement throughout the process of researching and
writing the book. I am also indebted to Dr Abaraham Tekeste (MOFED)
for his encouragement and valuable comments on the drafts. I must thank
Professor John Sender, Dr Deborah Johnston, and Dr Carlos Oya at SOAS
for their comments on core chapters. I am grateful to the Centre of African
Studies (CAS) at SOAS for a postgraduate fieldwork award, and to the
Chevening Foundation for its financial support, as well as to Angelica
Baschiera of CAS for her administrative support. I would also like to
thank Ambassador Greg Dorey, his predecessor Ambassador Norman
Ling, Chris Allan, and Barbara Wickham.
In Ethiopia, I am highly indebted to the Office of the Ethiopian Prime
Minister for allowing me to take sabbatical leave to work on this book. I
am also indebted to the officials of the Ethiopian Ministry of Industry for
their full support and for providing me with a work station during my field
study. I must also thank all representatives of the firms, organizations, and
government agencies for their valuable time and for their readiness to be
interviewed, their participation in the survey, and their provision of data.
I thank my research assistants, in particular Eyoual Tamrat, Aregawi Geb-
remedhin, and Tadesse Gurmu, whose dedication and competence has
contributed to the quality of the research. Getnet, Hiwot, Simon, and
other enumerators participated in the field study. The encouragement
and support of Professor Graeme Salaman, Dr Axumite G. Egziabher
(UN-HABITAT), Dr Hailemichael Abera (ECSU), and Dr Haileselassie G.
Selassie (University of Amsterdam) is greatly appreciated.
Made in Africa
xiv
Foreword
xvi
Foreword
xvii
Made in Africa
xviii
List of Figures
xxi
List of Abbreviations
xxiii
Made in Africa
xxiv
List of Abbreviations
xxv
1
1
See UNECA-AU 2014.
Made in Africa
2
The average GDP growth rate for eleven years (2003–14) was 11 per cent, while the annual
average growth rates for agriculture, industry, and service sectors were 9 per cent, 13.8 per cent, and
12.2 per cent respectively. The average annual growth rate of industry has increased to 20 per cent
during the four years (2011–2014) of Growth and Transformation Plan (MOFED 2014).
3
The average life expectancy for sub-Saharan Africa was fifty and fifty-six years for years 1992
and 2012 respectively. See World Development Indicators updated on 30 January 2015, and
UN-DESA (2013) <http://data.worldbank.org/region/sub-saharan-africa>
4
Speech of the Prime Minister on 23 March 2014, press release from the Prime Minister’s Office.
5
Ethiopian Revenue and Customs Authority (ERCA 2012a) and the National Export
Coordinating Committee (NECC 2012).
2
Introduction to Industrial Policy in Ethiopia
execution of a successful industrial policy. Not far along the main road to
Addis Ababa, there are a number of new and established tanneries owned by
foreign and Ethiopian investors. Closer to Addis Ababa, the eye-catching
first industrial park built by a Chinese developer, the Eastern Industrial
Zone, dominates a landscape that includes many other warehouses, shops,
and factories. All these lie along a road that at the turn of the millennium
ran through almost entirely undeveloped country. Within twenty-four
months, this industrial zone will have close to 50,000 employees. The
world’s largest manufacturer of women’s shoes, the Huajian Group, started
production in January 2012 and currently employs 3,500 people. In the
near future, Huajian will build a special zone for footwear production that
will employ more than 30,000.6 Unilever, a leading European manufac-
turer, is also establishing a factory in this industrial zone.
In the capital, near the ring road, the largest Turkish textile and garment
plant employing 8,000 workers is expanding. Many Turkish companies
are relocating to Ethiopia, and see the country as the best destination for
their investment. According to a representative of the Turkish Federation
of Industrial Associations, ‘the Ethiopian government not only invites
investment, but also provides full support to the firms’.7 Pittards, a firm
from the United Kingdom (UK), established its first glove factory in Ethi-
opia in January 2012 and exports gloves to Wells Lamont in the United
States of America (US), part of Warren Buffett’s holding company, and to
Japan. In two years, Pittards has expanded production to three factories.
According to its young Ethiopian general manager, worker skills and
productivity are catching up to international industry standards. In dis-
cussing the major obstacles, she highlighted logistics and cumbersome
customs procedures, shortage of foreign exchange, acute insufficiency in
local financing for expansion, power interruptions, and the supply chain.
A globally experienced Korean industrialist also recently pinpointed cus-
toms procedures and the slow turnaround at the port of Djibouti as the
single most important constraints on doing business in Ethiopia. While
many industrialists voice these complaints, most are optimistic these
issues will soon be addressed. Many acknowledge the government’s efforts
6
<http://www.chinadailyasia.com/business/2014-01/27/content_15115269.html>; See also
‘Ethiopia becomes China’s China in Global Search for Cheap Labour’ <http://www.bloomberg.
com/news/2014-07-22/ethiopia-becomes-china-s-china-in-search-for-cheap-labor.html>
7
Meeting at Prime Minister’s Office in April 2014.
3
Made in Africa
in supporting industry, but some warn that the constraints are choking
manufacturing.
There are also dramatic changes in infrastructure under way—in power
generation, railways, and roads. The Renaissance Dam, the biggest hydro-
power project in Africa (and the thirteenth or fourteenth largest in the
world) and comparable to the Hoover Dam in the US, is being built with
finances entirely mobilized from local sources. It is a reflection of and
contributor to strong transformative economic growth under tight macro-
economic constraints and a symbol of the government’s recognition of the
political imperative of transformation. It is also a rallying point for a form
of ‘nationalism from above’ (Anderson 1991) in the context of federalism
and an ongoing ‘national’ issue (Markakis 2011). As the late Ethiopian
Prime Minister Meles Zenawi announced, ‘No matter how poor we are, in
the Ethiopian tradition of resolve, the Ethiopian people will pay any
sacrifice.’ He continued: ‘I have no doubt they will, with one voice, say:
“Build the Dam!”’ This is just one example of how growth and transform-
ation as a shared national project have been crafted into a ‘rhetorical
commonplace’ ( Jackson 2006), helping to shape and justify policy and
resource allocations. Moreover, Ethiopia began construction of the largest
electric railway network in Africa in 2010. In May 2014, a new toll-based
six-lane Addis Ababa–Adama expressway was opened to relieve the intense
pressure on the old road to the port at Djibouti.
As already noted, the country has become a destination for investment
from Europe and emerging economies, not only China and Turkey, but
also India. Deborah Brautigam, writing in The Guardian (30 December
2011), summed up differing international perceptions of Ethiopia as
follows: ‘To the Chinese, Ethiopia, with a fast growing economy and
90 million consumers, looks like good business; . . . to the West, Ethiopia
typically conjures up images of drought and starving children; we want
to save Ethiopia.’ Brautigam adds that while ‘China sees Ethiopia as a
land of business opportunities . . . the African country remains in charge
of any deals.’ Ethiopia’s rapid economic growth and poverty reduction
has attracted attention from friends, sceptics, and staunch critics. For
instance, a critique by The Economist Intelligence Unit (2012) gives a
careful picture of Ethiopia’s development path: despite the lack of com-
mercially exploitable hydrocarbons reserves found elsewhere on the con-
tinent, Ethiopia has achieved export-driven economic growth rates that are
the envy of other African countries. It adds, ‘The economic results of this
4
Introduction to Industrial Policy in Ethiopia
8
<http://country.eiu.com/article.aspx?articleid=659462850&Country=Ethiopia&topic=
Economy>.
9
Discussions with Chinese Ambassador in March 2014.
10
For instance, <http://www.imf.org/external/pubs/ft/scr/2012/cr12287.pdf>; <http://www.
bloomberg.com/news/2013-10-18/imf-says-ethiopian-economic-growth-may-slow-without-policy-
shift.html>.
5
Made in Africa
6
Introduction to Industrial Policy in Ethiopia
7
Made in Africa
There are three main considerations in setting out the following meth-
odological framework. First, studies on industrial policymaking in
sub-Saharan Africa are scant, making it an under-researched topic. This
8
Introduction to Industrial Policy in Ethiopia
9
Made in Africa
investigates causal factors and their relationships, but does not pretend to
weigh with mathematical precision the relative contribution of specific
factors. In view of the limitations of existing data and studies, the study
has relied on extensive original data sources and adopted a more compre-
hensive data-collection system. A census using a qualitative and quanti-
tative questionnaire was conducted in 150 firms, with a 90 per cent
response rate. This complemented in-depth and qualitative interviews
involving 200 firms, intermediate institutions, government agencies,
and policymakers. Site observations of more than fifty factories in differ-
ing industries yielded unique insights. A review of some 1,000 primary
documents was undertaken, including previously inaccessible docu-
ments. Secondary sources were also extensively consulted. The field
study involved 1,300 person days, making this the first in-depth study
of industrialization and industrial policy in Ethiopia (beyond several
rapidly conducted consultancy reports). Appropriate analytical tools
have been carefully utilized, generating better understanding and new
findings. These are discussed throughout the remaining chapters. The
author hopes this project will encourage scholars to undertake more
extensive studies. Much of this evidence would have been more difficult,
even impossible, for ‘outsiders’ to assemble.
The main argument in the book is first, that industrial policy (despite
claims to the contrary) can work and indeed thrive even in low-income
countries such as Ethiopia. Nonetheless, the book cautions that industrial
policymaking is a work in progress in many such countries, and demon-
strates the colossal challenge of catching up and industrialization in
twenty-first-century Africa. Second, the book argues that the state in
developing countries can and must play an activist and developmental
role beyond being merely a ‘facilitating’ actor; that is, being little more
than a servant of comparative advantage. Policy independence is an
important ingredient. As Mazzucato (2013a: 5–6) highlighted:
When not taking a leading role, the State becomes a poor imitator of private sector
behaviours, rather than a real alternative. It is a key partner of the private sector—
and often a more daring one, willing to take the risks that business won’t. . . . The
State cannot and should not bow down easily to interest groups who approach it
10
Introduction to Industrial Policy in Ethiopia
to seek handouts, rents and unnecessary privileges like tax cuts. It should seek
instead for those interest groups to work dynamically with it in its search for
growth and technological change.
Third, the book argues that the outcome of industrial policy is typically
uneven in different sectors. Overall, what matters for the evolution
and effectiveness of industrial policy is the way three factors interact—
industrial structure, linkage dynamics, and, broadly, politics/political
economy. Fourth, firms from low-income countries face huge challenges
in competing in a globalized economy, and more effective industrial
policies and instruments that facilitate growth and structural transform-
ation need to be designed and executed.
Based on rigorous and original research in Ethiopia into cement, an
import-substitution industry; leather, an export-oriented light industry;
and floriculture, the book reviews the constraints on, as well as lessons for,
Africa’s industrialization and industrial policymaking. The book focuses
on the design and implementation of industrial policy in Ethiopia, and on
how and why policy outcomes are shaped by different factors in different
industries. In view of the renewed interest in industrial policy in Africa
and internationally, the book will be a valuable addition to ongoing
discussion of the ‘African renaissance’, and provide arguments and evi-
dence for the possibilities of industrial policy in Africa.
The book is organized into eight chapters. Following this introductory
chapter, the second chapter, ‘Climbing without Ladders: Industrial Policy
and Development’, presents a literature review outlining the theoretical
framework (structuralist tradition, catch up, political economy), empirical
evidence, and the sub-Saharan African context. This chapter also outlines
the influence of industrial policy. Such policy has always been a bone of
ideological contention, and currently dominant viewpoints are strongly
averse to industrial policy in developing countries, and have been better
at identifying its failures than its evident successes. The third chapter,
‘Setting the Scene: Ethiopia’s Industrial Policies and Performance’, intro-
duces the main policies and policy instruments developed in Ethiopia in
recent years relevant to the selected case studies. This is done both to
clarify the context of policymaking in different sectors and to identify
national-level patterns in policymaking institutions.
The next three chapters provide sector-specific analyses. Thus, Chapter 4,
‘Cementing Development? Uneven Development in an Import-
Substitution Industry’, explores the cement industry as one of three case
11
Made in Africa
12
Introduction to Industrial Policy in Ethiopia
1.6 Conclusion
Few books have been written on the political economy of industrial policy
in Africa, even fewer by Africans. This book provides a unique perspective
on why policy outcomes have been uneven in different industries, a major
challenge to policymakers. It also provides new data and perspectives on
the industrial structure of different sectors and firms. Finally, the study is
unique and comprehensive in covering the macro- (national policy-
making process), meso- (industrial policies in different sectors, institu-
tions, and in-depth industrial structure), and micro-levels. The author,
as both researcher and a senior policymaker, reflects on the challenges and
lessons of policymaking.
The book is a necessary corrective to the over-aggregated and typically
superficial hyperbole on an African economic renaissance. Beyond the
restrictive policy guidance by international financial institutions and
bilateral donors, and beyond the more recent flag-waving for industrial
policy, it is important that the scope and content of industrial policy are
informed by empirical evidence and careful, pragmatic analysis. This book
shows that low-income developing countries should not simply follow
‘comparative advantage’, as some would prefer. But equally it shows just
11
This is associated to the broader notion of ‘policy space’ that refers to the ‘various tensions
between national policy autonomy, policy effectiveness and international economic integration’
UNCTAD (2014: vii). Globalization, market internationalization, and legal agreements (multilateral,
regional, and bilateral) create obligations that undermine the scope of national policy.
13
Made in Africa
14
2
2.1 Introduction
All advanced capitalist nations have used industrial policies and state
interventions to establish their first mover status, to consolidate their
advantages, or to force the pace in catching up on those ahead of them.
Industrial policies have been the rule rather than the exception. The UK
and the US are typical examples of the frontrunners of the nineteenth and
twentieth centuries, with the US having played a successful catch up game
itself. For instance, the eighteenth US president, Ulysses Grant (1868–76),
once pointed out:
For centuries, England has relied on protection, has carried it to extremes and has
obtained satisfactory results from it. There is no doubt that it is to this system that
it owes its present strength. After two centuries, England has found it convenient
to adopt free trade because it thinks that protection can no longer offer it any-
thing. Very well then, gentlemen, my knowledge of our country leads me to
believe that within 200 years, when America has gotten out of protecting all that
it can offer, it too will adopt free trade (cited in Frank 1967: 164).
16
Climbing without Ladders: Industrial Policy and Development
17
Made in Africa
18
Climbing without Ladders: Industrial Policy and Development
19
Made in Africa
The first law is that there exists a strong causal relation between the growth of
manufacturing output and the growth of GDP. The second law states that there exists
a strong positive causal relation between the growth of manufacturing output and the
growth in productivity in manufacturing as a result of static and dynamic returns to
scale. This is also known as Verdoorn’s law. The third law states that there exists a
strong positive causal relation between the rates at which the manufacturing sector
expands and the growth of productivity outside the manufacturing sector because of
diminishing returns in agriculture and many petty service activities which supply
labour to the industrial sector. [My emphasis]
20
Climbing without Ladders: Industrial Policy and Development
These insights, rooted in economic history, also caution against the pre-
tence that African economies could become advanced capitalist societies
without having to pass through a phase of (environmentally often dam-
aging) industrialization. That argument, that industrialization is no
longer fundamental to economic development, is also a product of the
misinterpretation of experiences in countries such as Singapore, India,
and Switzerland. Singapore and Switzerland, in fact, have very high value
added manufacturing compared to almost all other countries. And India’s
much vaunted services-based growth reflects a swing from a trade deficit
in services in the early 2000s to a very modest service trade surplus.
Further, a huge amount of service sector activity and employment pro-
vides services to manufacturing. There is really no convincing evidence
that a low-income country can generate sustained rises in living standards
without manufacturing. That is why many regard the fall in the share of
manufacturing in developing countries, including in Africa, in recent
years as ‘premature deindustrialization’. This is what Rodrik (2011) refers
to as ‘growth-reducing structural change’.
21
Made in Africa
1
For a critique of the empirical record on the disadvantage in the terms of trade for primary
commodities vis-à-vis manufactured goods and on the effects this notion has on policymakers and
advisers in Africa, see Sender and Smith (1986).
22
Climbing without Ladders: Industrial Policy and Development
23
Made in Africa
24
Climbing without Ladders: Industrial Policy and Development
25
Made in Africa
It takes a long time until the labourers are experienced in the different workman-
ship and accustomed to it; and until the necessary number for every business is at
all times to be had . . . In the old manufacturing countries, we observe quite the
contrary . . . The old country, as long as it preserves its freedom, its vigour, its
political power, will, in a free intercourse, ever keep down a rising manufacturing
power. . . . A new country is moreover, the less able to contend against the manu-
facturing power of the old country, the more the interior market of this old
26
Climbing without Ladders: Industrial Policy and Development
List contends that ‘even if there were not capital and skill enough in
the country, they could be drawn from abroad by political measures’. He
pointed out that Britain rose to become the leading industrial power by
adhering to three mechanisms: ‘First, to prefer constantly the importation
of productive power to that of commodities; second to maintain and
carefully protect the development of productive power; third, to import
only raw materials and agricultural products, and to export only manu-
factured articles’ (List 1856: 297). In response to the assertion that protec-
tionism stifles domestic competition and consumer interests, Hamilton
argued that once the protected infant industry is able to establish itself,
more manufacturers will participate in domestic industry, weakening
monopoly and pushing down prices.
The high cost of acquiring new skills and the hesitation by industrialists
in the face of perceived risk makes state promotion of infant industry an
absolute necessity. The novelty of the industry and the need to build a
national industry are the rationale for this support. Both Hamilton and
List provide insights into the design of industrial policy. Hamilton
emphasizes the importance of understanding the successful instruments
countries can use. List distinguishes between inducements and restric-
tions, between targeted and general instruments, technological transfer,
and the importance of a more refined tax system. He contends that
the selection of industries should be based on their contribution to the
nation’s economic and defence interests, and on technological consider-
ations (and even specifies five criteria). Moreover, he recommends the
alternating, and sometimes combined use of protection and promotion,
and a package for each industry, including incentives for importing
locally unavailable raw materials (duty-free privileges) and a bounty for
local production of raw materials. The foreseen implementation problems
and need for prevention of potential abuse are also stressed.
In his Report on Manufacturers (5 December 1791), Hamilton further
advocated the importance of inducing foreign capital and investments,
foreign technology, and foreign experts and skilled labour to US manu-
facturing industry. He called for the establishment of a planning board,
and the allocation of funds for advancement of technology, rewarding
invention, inducing specialists, and importing foreign technologies. This
27
Made in Africa
was justified on the grounds that ‘in countries where there is great private
wealth, much may be effected by voluntary contributions of patriotic
individuals; but in a community situated like the United States, the public
purse must supply the deficiency of private resources. In what can it be so
useful, as in promoting and improving the efforts of industry?’ (Hamilton
1934: 276).
List stresses that protecting infant industry ‘can be operative for good
only so far as it is supported by the progressive civilization and free
institutions of a nation, we learn from the decay of Venice, Spain and
Portugal, from the relapse of France . . . and history of England’ ([1841]
2005: 132). List links policy effectiveness to ‘progressive civilization’,
which is similar to the widespread political commitment to growth that
Hirschman, among others, was interested in (though arguably also fore-
shadowing the ‘preconditions’ approach favoured by proponents of the
more recent ‘good governance agenda’). He also argues that the same
policy may be effective in one institutional context but less so in another.
In this, he anticipates the arguments of more recent industrial policy
advocates and analysts, as well as economic historians like Peter Hall
(1987).
Both Hamilton and List argue that infant industry cannot be developed
without strong state leadership, maintaining that state intervention
emanates from the unqualified sovereign power of the government
based on the constitution (Hamilton 1934; List 1841). In his letter to
George Washington, Hamilton (1934) notes that:
List emphasized that the source of state intervention lay in the state’s
sovereign power and stressed that government ‘has not only the right, but
also it is its duty, to promote everything which may increase the wealth
and power of the nation, if this object cannot be effected by individuals’
(Earle 1986: 247; Austin 2009: 81). US industrial policy was based on
Hamilton’s principles and this policy was evident until the 1950s.
Goodrich (1965: vii) confirms that the American government took
28
Climbing without Ladders: Industrial Policy and Development
Ms Mazzucato says that the most successful entrepreneurial state can be found in
the most unlikely place: the United States. Americans have traditionally been
divided between Jeffersonians (who think he governs best who governs least)
and Hamiltonians (who favour active government). The secret to the country’s
success lies, she thinks, in talking like Jeffersonians but acting like Hamiltonians.
For more than a century, when the British economy was on its way to maturity as
the workshop of the world, its governments were not particularly liberal or
wedded ideologically to laissez-faire . . . the Hanoverian governments . . . poured
millions into strategic objectives which we can see (with hindsight) formed pre-
conditions for the market economy and night-watchman state of Victorian
England.
Two centuries after these initial debates, and after the so-called Asian
miracle, the debate between orthodox and heterodox scholars continues.
A recent exchange between Ha-Joon Chang and Justin Lin on industrial
policy typifies the state of the argument in the early twenty-first century.
The two development economists differ on the role of the state and
whether industrial policy should be based on comparative advantage-
following (CAF) or comparative advantage-defying (CAD) principles (Lin
and Chang 2009; Lin 2009). Justin Lin, while arguing for a CAF and
‘facilitating’ state, cautions against efforts to promote new comparative
advantages, competitive edges, and the constant upgrading of industries.
His emphasis is adamantly on ‘a facilitating state—a state that facilitates
the private sector’s ability to exploit the country’s areas of comparative
advantage . . . the key is to make use of the country’s current comparative
advantage—not in the factors of production that it may have some day,
29
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but in the factors of production that it has now’ (Lin and Chang 2009: 2).
In contrast, Chang argues that nations should focus on creating and
developing their comparative advantages as well as exploiting existing
comparative advantage, and he argues for a much more interventionist or
activist state. Despite the appeal of this approach—based especially on
economic history—Chang arguably fails to address how developing coun-
tries can effectively deploy most of their available productive forces in
the development of a few high-tech industries, given technological
backwardness.
Another contribution on the theoretical niceties of comparative advan-
tage and their practical implications for policy comes from Ajit Singh. He
(2011: 13) argues that reliance on existing comparative advantage is
insufficient and that ‘rather than close integration with the world econ-
omy, developing countries should seek strategic integration that enables
them to integrate up to the point where it is in their interests to do so. This
was the strategy followed by the East Asian Miracle countries.’ Singh
(2011: 13) highlights four areas in which trade openness is beneficial:
‘relatively specialized resources’, ‘diffusion of knowledge’, ‘sufficient com-
petitive pressure’, and in accelerating a Schumpeterian ‘process of creative
destruction’. This echoes, while going somewhat beyond, Pasinetti’s
(1981: 259) argument that ‘the primary source of international gains is
international learning (not international trade), where firms in one coun-
try are challenged by lower priced products from abroad. They will either
learn how to cut down costs or close down. Some of them, at best, may
learn and survive.’ Rather than having to choose between mutually exclu-
sive positions (CAF versus CAD), it may be possible to pick up on Singh’s
more pragmatic and eclectic approach. Such an approach is neatly cap-
tured in Schwartz’s (2010) analysis, theoretically informed and based on
economic history, and introduced above. He argues that many industrial-
izing countries have relied on a combination of relying on Ricardian (CAF)
practices at an early stage of development and gradually shifting towards
Kaldorian (more CAD) strategies (Schwartz 2010). This approach is
embedded in dynamic comparative advantage, which is driven by policy
to catch up, based on the belief that endowments are endogenous and
can be altered (Lall 2005; Johnson 1984). Competitive edge was created
by getting involved in new activities (learning by doing), and by continu-
ously adjusting policies to develop new and higher level productive
activities that lead to economic transformation (Rodrik 2011; Hirschman
30
Climbing without Ladders: Industrial Policy and Development
1958; Amsden and Chu 2003). This approach also builds on the belief
that technological development is the key determinant of successful
industrialization.
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32
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33
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2
As opposed to the Second (ongoing) American Empire’s motto, ‘do it our way’.
34
Climbing without Ladders: Industrial Policy and Development
35
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3
According to the futility thesis, progressive proposals for social change may be accepted as
highly desirable but dismissed as impossible. The perversity thesis suggests that similarly agreeable
proposals should not be attempted, because they will probably lead to perverse, disagreeable
outcomes.
36
Climbing without Ladders: Industrial Policy and Development
4
See also Selwyn (2012) on relationship with labour.
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38
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39
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40
Climbing without Ladders: Industrial Policy and Development
41
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For most successful late industrializers, ISI has preceded exports, and has
continued to grow along with the export industry (Amsden 2009; Lall
2000a; Rodrik 1997; Rodrik 2012).5 Imports and import substitution are
also inseparable, and imports can play a creative role by signalling demand
for domestic manufacturing. Imports are also conduits for technological
development, as domestic producers may improve the quality of their
products to match imported goods. There is a need to strengthen indirect
exporters, as these serve as a conduit for exports and domestic production.
Nevertheless, it is important to distinguish the strategic importance of
export-oriented industry. The industrialization process has to be eventu-
ally oriented towards competition in the international market. Exports
will increase the dynamism of ISI by augmenting demand and economies
of scale and furnishing the foreign currency requirements of domestic
industry. Exports play a key role in tackling market-size limits, improving
balance-of-payments, setting high product and productivity standards,
and ensuring a sustainable source of capital formation. Exports are the
only source of autonomous demand (Thirlwall 2002), and play a key
role in disciplining domestic industry and speeding technological devel-
opment (Lall 2000a). But it has also been recognized that domestic
industrialists are often not enthusiastic about embracing international
competition, while overvalued exchange rates are often also favourable
to domestic ISI industrialists, but can impose structural limitations on
the prospects for outward-looking industry (Hirschman 1968; Thirlwall
2002).
Hobday (1995) and Schmitz argue that latecomer firms face two critical
challenges: being dislocated from major export markets (marketing gap)
and from sources of technology (technological gap). According to Schmitz
(2007: 420), ‘most developing country firms face the problem of being
latecomers: they have to make a rapid transition from patterns of demand
and competition typical of a domestic economy, to global standards of
competitiveness.’ Schmitz (2007: 419) presents this dilemma taxonomic-
ally and emphasizes that the key task is combining challenges to firms
(setting targets, exposing them to foreign competition in order to have
access to support) and supporting firms (access to subsidies, technological
5
Rodrik (2012: 169) highlights that ‘ . . . the overall record of ISI was in fact rather impressive.
Brazil, Mexico, Turkey, and scores of other developing nations in Latin America, the Middle East,
and Africa experienced faster rates of economic growth under ISI than at any other time in their
economic history. . . . Industrialization drove this performance’.
42
Climbing without Ladders: Industrial Policy and Development
43
Made in Africa
reduced corporate income tax rate, loss carry forwards, tax holidays, investment
allowances, investment tax credits, reduced taxes on dividends and interest paid
abroad, preferential treatment of long term capital gains, deductions for qualifying
expenses, zero or reduced tariffs, employment-based deductions, tax credits for
value additions, tax reductions/credits for foreign hard currency earnings.
ROLE OF ISI
Many scholars agree that import-substitution is a key transmission belt for
promoting industrial development and acquiring foreign technology.
One of the main policy issues is how to induce ISI firms to export, and
so to become competitive. As noted by Hirschman (1968: 25), ‘many
industries . . . started out producing for the home market and eventually
spilled over into foreign market; . . . prior, successful acceptance of a manu-
factured commodity in the home market has even been considered to be a
prerequisite for successful exporting.’ The possibility of successful export-
ing also depends on the nature of the economic actors, a ‘cohesive, vocal,
and highly influential national bourgeoisie’ being more effective than
44
Climbing without Ladders: Industrial Policy and Development
during the prenatal stage, the opposite of the infant industry treatment is called
for if the confinement is to be accelerated. In fact, if it is desired to prepare the
ground for the creation of a particular industry, then it might be advisable to restrict
other imports so as to channel import demand artificially toward the commodity
whose eventual domestic production is to be fostered’ (Hirschman 1958: 124).
45
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Development is essentially the record of how one thing leads to another, and the
linkages are the record of how one thing leads to another from a specific point of
view. These on-going activities, because of their characteristics, push or, more
modestly, invite some operators to take up new activities . . . Entrepreneurial deci-
sion making in both the private and public sectors is not uniquely determined by
the pull of incomes and demand, but is responsive to special push factors, such as
the linkages emanating from the product side. . . . the linkage effects of a given
46
Climbing without Ladders: Industrial Policy and Development
products line [are defined] as investment-generating forces that are set in motion,
through input-output relations, when productive facilities that supply inputs to
that line or utilized its outputs are inadequate or non-existent. Backward linkages
lead to new investment in input supplying facilities, and forward linkages to
investment in output-using facilities.
The idea of linkages is clearly related to but not identical with other
concepts. Input–output relationships are at the heart of backward and
forward linkages, but Hirschman himself was wary of efforts to limit the
analytical significance of linkages by reducing it entirely to input–output
table measurements, not least because many linkage dynamics are not
easily quantified. Linkages have something in common also with the
more recently developed idea of supply chains in economic development
(and globalization). Whereas supply chains also involve input–output
relationships, supply chain analysis tends to emphasize the vertical inte-
gration of such chains and, in some iterations, the power relations reach-
ing down through them. Linkages do not always unfold through such
explicitly managed chains and can be more spontaneous (and more elu-
sive). Further, while linkages may involve, for example, taking up oppor-
tunities for processing domestically available primary commodities or for
minerals beneficiation, they are not restricted to this or to a given supply
chain. They may operate within or across sectors, opening up the scope of
both vertical and horizontal effects.
An example might be the South African firm Bell Equipment. This began
in the 1950s, producing equipment for timber and sugarcane cutting, in
what was a backward linkage effect from the sugar and forestry sectors. But
Bell’s experience allowed it to develop the capability, first, and later the
ability to identify other possibilities, notably the production of large earth-
moving equipment (articulated dump trucks) for the global mining sector.
Others, meanwhile, have identified a range of backward, forward, and ‘side’
linkages deriving from the Finnish timber and forestry industry (see, for
instance, Jourdan et al. 2012). These include the development of special-
ized chemical and biological inputs, machinery and equipment, and spe-
cialized services (backward linkages); the production of wood pulp, wood
products, including furniture, and construction materials, round wood,
and paper and cardboard, including 25 per cent of the world’s supply of
art paper (forward linkages); and the development of process automation,
logistics and marketing, energy production, and environmental industries
(‘side’ linkages). The concept can expand in different directions, and may
47
Made in Africa
include fiscal linkages (even the World Bank and International Monetary
Fund now advocate greater mobilization of fiscal linkages from resource
rents in low-income countries) and spatial linkages where, for example,
agriculture can hitch a ride on transport links developed primarily to serve
mining or energy mega-projects.
Hirschman (1967: 5) emphasizes that ‘some projects and technologies
have a special vocation for inducing certain types of learning, attitude
change, and institutional reform (and not others).’ Stimulating linkages
that involve manufacturing may be especially important. This is both
because of the special characteristics of manufacturing in the larger
growth process (see above) and because, as has often been argued, there
are more linkages associated with manufacturing than with, for example,
agriculture. This raises a fundamental point about linkages, which is that
they do not necessarily unfold automatically in the cumulative causation
process envisaged by Hirschman. Rather, linkages typically depend on
policy. This can be the macroeconomic policy environment: for example,
the compulsion of a potential linkage may be outweighed, for an entre-
preneur, by either inflationary uncertainty or foreign exchange shortages
or rationing. But there are other more direct ways in which policy matters
to unlocking linkage effects. Fiscal linkages from a mining project may be
virtually non-existent or significant, depending on the details of contracts
between states and mining companies. Local content stipulations in con-
tracts can increase the scope for backward linkages; just as insisting on an
obligatory payroll expenditure on research and development can stimulate
linkages. Both Chile and Norway have implemented policies on backward
linkages from the natural resource sector. By contrast, the demise of the
mining research agency COMRO in South Africa shows how policy can
undermine or weaken the scope of linkage effects in an economy (for
instance, see Jourdan et al. 2012). Even in countries with mineral resources,
as in countries without such endowments, steel is often imported at high
cost to nascent manufacturing. The costs and scale requirements of a steel
industry can undermine the development of a linkage to production. But
some countries have reacted to this challenge by establishing state-owned
enterprises to produce low-cost steel for the emerging manufacturing sector
(including POSCO in Korea, the Japan Iron and Steel Company, CSC in
Taiwan, Bao Steel in China, and Rautaruuki in Finland).
An issue complementary to linkages is latitude for failure, another
possible source of signalling available to policymakers. Competition is
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Climbing without Ladders: Industrial Policy and Development
one ‘disciplining’ mechanism that can help narrow the latitude for failure,
although it is rarely close to ‘perfect’ and may be best thought of in terms
of optimal rivalry and competition (e.g., among chaebol in Korea) rather
than maximal competition. Competition is neither the only nor neces-
sarily the most effective means of promoting learning, adaptation, or
productivity. Clearly, the discipline of export competition can narrow
the latitude for poor performance in many industries. In the absence of
export discipline, policies should promote the intensity of competition
and domestic rivalry. Narrow latitude can impel performance, a compul-
sion to deliver, and put pressure on firms and state institutions. According
to Porter (1998, 2008), two central concerns underlie the choice of com-
petitive advantage. The first is the industry in which the firm competes,
and the second is its position in the industry. An industry is a group of
competing firms producing similar products or services.
The dynamic potential of linkage effects may also not be released because
of lock-in or path dependency. According to Mahoney (2000: 507), path
dependency ‘characterizes specifically those historical sequences in which
contingent events set into motion institutional patterns or event chains
that have deterministic properties’. Path dependency is a formidable
problem because of the deliberate actions of actors to maintain the status
quo and to protect their narrow group interests, because of ‘cognitive
blindness’, and because of simple inertia among firms, stakeholders, and
government agencies. Again, this serves to emphasize the significance of
designing policy that encourages linkage effects rather than waiting for
them to unfold automatically.
A final point about a linkage approach and its policy significance is that
there can also be employment linkages between different activities.
Expanded flower production in a country like Ethiopia (see below,
Chapter 5) not only generates direct employment but can stimulate add-
itional employment: indirectly, through, for example, the creation of
cardboard packaging plants, logistical services, and cold storage and air
freight facilities; and at another remove, through induced demand for
labour in the services springing up (bars, hotels, construction, motorized
rickshaw transport, etc.). More broadly, indirect employment linkages are
a function of productive linkages: induced employment effects are exter-
nal effects of investment in manufacturing other than these linkages—
they are effectively a result of Keynesian multiplier effects (Lavopa
and Szirmai 2012). In line with the arguments developed above,
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50
Climbing without Ladders: Industrial Policy and Development
Africa 43 22 11 34 28 27 10 45
Asia 49 14 10 36 14 33 22 53
Developing 37 22 12 42 16 31 15 53
countries
Advanced 16 40 29 45 2 27 16 71
economies
Note: Gross value added as percentage of GDP at current prices, regional average.
Source: Szirmai, Naudé, and Alcorta (2013), Table 1.2, pp. 11–12.
51
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52
Climbing without Ladders: Industrial Policy and Development
6
Unless specified, the currency is in US$ throughout the book.
53
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7
Human Security Research Group.
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55
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56
Climbing without Ladders: Industrial Policy and Development
the long-term prospects for the development and deepening of the manufacturing
sector in SSA, in general, and for the seven case-study countries, in particular, will
be critically determined by the nature of the policy environment, the incentive
system in which manufacturing enterprises operate, and by policies and stimuli
targeted specifically at firms within the manufacturing sector (Riddell 1990: 51).
The theoretical and conceptual constructs used in this book are summar-
ized as follows. First, mainstream economic theories emphasize that
there is no case for active industrial policies and that free markets and
trade are superior to interventionism in terms of economic growth. At
best, the ‘new development economics’ (Fine 2006) builds on neoclassical
foundations to argue that ‘market failures’ are fairly widespread and do
justify limited corrective state intervention, typically to be tailored to
‘state capacity’. From this perspective, even where there is a case for
industrial policies (because of market failures or ‘imperfections’), there
are still grounds for extreme suspicion of state intervention on the basis
of rent seeking and political economy considerations. As Mazzucato
(2013a: 21) put it: ‘Economists willing to admit the State has an important
role have often argued so using a specific framework called “market fail-
ure”. From this perspective the fact that markets are “imperfect” is seen as
the exception, which means that the State has a role to play—but not a very
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Climbing without Ladders: Industrial Policy and Development
59
3
the Italian fascist surrender at Gondar, on 27 November 1941, marked the end of
the British East African Campaign. Five days later the British military authorities
made their first detailed proposals for dismantling of Italian Assets in Ethiopia . . .
Ethiopia at the end of the Italian occupation struck them as better equipped than
several long established, but little developed, British colonies or dependencies
from which they concluded that the country had been highly, and artificially,
industrialised.1
1
This episode is also recalled in Michela Wrong’s (2005) I Didn’t Do It For You: How the world used
and abused a small African nation.
Setting the Scene: Ethiopia’s Industrial Policies and Performance
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2
For instance, see CSO and MCIT (1969).
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Setting the Scene: Ethiopia’s Industrial Policies and Performance
of army boots. Garment and food processing factories had also to service
the Derg’s 600,000 soldiers. Armament factories were also established,
with loans and technical assistance from Eastern Europe and
North Korea. ISI was low technology and focused on light industry, as
were state-owned enterprises. The policy had an anti-export bias, which
also inhibited private sector involvement. Private sector investment,
such as it was, was limited to small enterprises such as grain mills.
Moreover, labour and population mobility was tightly restricted.
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Setting the Scene: Ethiopia’s Industrial Policies and Performance
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The Ethiopian manufacturing sector has two distinct features. First, there
is a low level of industrialization in terms of the sector’s share in GDP,
export earnings, industrial intensity, and competitiveness. Second, the
industrial structure is dominated by small firms and resource-based indus-
tries (in particular the food industry), and concentrated around the capital
city. These features are explored below.
3
The estimated dollar–ETB exchange rate was about ETB 10 in 2006, ETB 16 in 2011, and ETB 18
in 2012.
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Setting the Scene: Ethiopia’s Industrial Policies and Performance
60
50
40
30
20
10
0
2002 2006 2009 2012
Agriculture Industry Service
20
18
16
14
12
10
8
6
4
2
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
average GDP growth rate during the same period. Recent estimates
show that growth of the manufacturing industry has started to accelerate,
growing by 13 per cent between 2011 and 2014. This rate of growth is,
however, still insufficient to generate the necessary shifts in the structure
of the economy, in view of the considerable shares of the agricultural and
service sectors (see Figure 3.2).
Second, the share of manufactured goods in Ethiopia’s export earnings
in recent years has been very low (below 10 per cent), and was based on
low technology goods such as leather and leather goods, textiles, and
other agro-industry products (see Table 3.1). The export earnings share
67
Table 3.1. Share of manufactured goods in Ethiopia’s export earnings (in $ millions)
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
of textiles, leather and leather goods, and agroindustry was 51, 40, and 8
per cent respectively in 2011 (ERCA 2012a). This highlights the profound
structural problems facing the economy. In SSA countries, the share of
manufactured exports in export earnings has decreased in recent years
(UNCTAD-UNIDO 2011).
Third, Ethiopia’s manufacturing value added (MVA) per capita was only
$9 in 2010, in contrast to Egypt’s $177 or Mauritius’s $522. In UNCTAD/
UNIDO typology (based on five groups, namely forerunners, achievers,
catching up, falling behind, and infant stage, that is, below $20 MVA per
capita), Ethiopia is in the infant stage of manufacturing. A more compre-
hensive measure of industrial competitiveness is the Competitive Indus-
trial Performance (CIP) Index (UNCTAD-UNIDO 2011; Lall 1996, 1999).
While Ethiopia is considered one of the lowest on the index, it has shown
some improvement in ranking in recent years, from 118th in 2005 to
111th in 2009.
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70
Setting the Scene: Ethiopia’s Industrial Policies and Performance
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72
Setting the Scene: Ethiopia’s Industrial Policies and Performance
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74
Setting the Scene: Ethiopia’s Industrial Policies and Performance
which lies at the core of public policies. As already noted, the govern-
ment’s medium-term vision is to become a middle-income economy by
2020–25. These public commitments and policy statements may be noth-
ing more than that, and many governments make rhetorical commit-
ments that do not correspond to reality. What is more important is
whether the rhetoric is matched by the behaviour of developmental states
and translated into meaningful interventions in investment, resource
allocation, policy implementation, and outcomes such as rates of growth
of key indicators and structural change. The government has been directly
and aggressively investing in infrastructure development and human
resource development towards this end. For instance, its interventions
to increase electricity generation capacity, expand railways and roads
(over 90,000 kilometres of roads, including universal access to rural
roads), and create capacity to train half a million university students
amply demonstrate its developmental orientation (MOFED 2010).
Ethiopia has sustained double-digit economic growth, in particular
between 2003 and 2013, without relying on a resource boom (such as oil
or minerals).4 It is recognized as having one of the ten fastest growing
non-oil economies. The government has reduced the country’s famine
vulnerability and improved its capacity to feed its growing population
(UN-DESA 2007; CSA 2013). The number of people living below the
poverty line has declined by half. Enrolment in primary schools has
increased from below 20 per cent in the early 1990s to about 95.3 per
cent in 2013. In 2012, the total student population in all levels exceeds
30 million.
The government has emphasized the essential role of an activist state in
the process of catching up, a role further necessitated by the strong
determination and vision to develop Ethiopia. This developmental orien-
tation is home-grown and based on specific conditions in Ethiopia,
although emulating forerunners has also played a role (for instance,
Germany’s technical and vocational education and training [TVET] and
university system, Japan’s Kaizen production system, China’s industrial
parks). Ethiopia’s rich history of independence and civilization and its
mimetic interest in finding East Asian role models have served as sources
of inspiration.
4
See also CSA Statistical abstracts including (CSA 2001, 2002, 2007, 2008, 2010, and 2011b),
CSO (1983), and CSO (1987).
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76
Setting the Scene: Ethiopia’s Industrial Policies and Performance
EMBEDDED AUTONOMY
Another developmental characteristic is the embedded autonomy of
the state. Embeddedness comes with acceptance and, hence, legitimacy.
Autonomy is also about avoiding capture by specific interests and main-
taining policy independence. Ocampo et al. (2009: 155) suggest that the
‘the nature of the partnership [between state and private sector] will vary
from country to country, depending on the characteristics of both the
private sector agents and the state’ and the purpose should be ‘mutual
learning’. The government and the political party leadership in Ethiopia
have been careful to maintain autonomy and distance from the private
sector, although this has been uneven among sectors. Such distance
obviously limits mutual learning and achieving in an environment of
high rent seeking by both civil servants and the private sector, and
requires political commitment and skillful management. The distance
here may have hindered the institutionalized interaction between state
and productive private sector identified by Buur et al. (2012) as critical to
productive expansion, though this has changed in some Ethiopian sec-
tors, as later chapters show.
During the liberation struggle and post-1991 period, the rural popula-
tion continued to offer political support, guaranteeing the legitimacy of
the ruling party. However, as the economy diversifies and new and power-
ful social actors with a vested interest in the economy emerge, state
autonomy becomes ever more critical. In a country where rent seeking is
widespread, the state and the private sector are disposed to be locked into
a state of mutual suspicion and mistrust. This lack of trust has been an
obstacle to a durable state–business relationship. In this context, main-
taining the balance between state autonomy and developing trust
remains challenging. Structural factors such as intense foreign exchange
constraints have combined with political history to add urgency—and
hostility—to these fraught relationships in some cases. In one respect,
this also shows the inability of government policy to shape private sector
behaviour (though later chapters show how state–business relationships
have sometimes evolved in more productive ways).
POLICY INDEPENDENCE
In addition, the government withstood pressures from IFIs and their
shareholders and has kept important parts of the economy under state
ownership. This includes the power company (EEPCO), telecom (Ethio
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Telecom), the railway company, and banks. These SOEs were used to
advance broader developmental objectives and industrial policies. The
political wrangling between the Ethiopian government and the IFIs is
documented by Stiglitz (2002: 32),
When I arrived in 1997, Meles was engaged in a heated dispute with the IMF, and
the Fund had suspended its lending program . . . Ethiopia resisted the IMF’s
demand that it “open” its banking system, for good reason. The Ethiopian bank-
ing system was seemingly quite efficient . . . The IMF was unhappy, simply because
it believed interest rates should be freely determined by international market
forces, whether those markets were or were not competitive.
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Setting the Scene: Ethiopia’s Industrial Policies and Performance
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which are acted upon by ministries (see Figure 3.3). The Constitution also
stipulates the need for public participation in policymaking processes.
Regional governments (states) and local administrations play important
roles in implementing industrial policies by, for instance, providing land
to businesses and promoting MSEs (FDRE 2012). This entails increased
institutional complexity and calls for more effective coordination among
government hierarchies in order to implement an effective industrial
policy. By contrast, Korea, Taiwan, and China have centralized unitary
systems, which have helped them in pursuing industrial policy. The
challenge for the Ethiopian government is to ensure that the policies
and goals set at the federal level are implemented with the same convic-
tion locally and regionally.
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Setting the Scene: Ethiopia’s Industrial Policies and Performance
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84
Setting the Scene: Ethiopia’s Industrial Policies and Performance
than expected and was not completed until very recently. In 2012, two-
thirds of DBE loans were channelled to the manufacturing sector, while
23 per cent went to agriculture. The major beneficiaries in manufacturing
were textiles (30 per cent), and non-metallic industries, primarily cement
(20 per cent). Industrial crops and floriculture were the key loan benefi-
ciaries in agriculture. In terms of concentration, 83 per cent of loans were
disbursed to fifty industrial projects in textiles, cement, and sugar (DBE
2012b). Thus, DBE is serving the government’s industrial policy by pro-
moting industrial and agricultural development.
Despite the recent operational changes, DBE has been constrained in
supporting rapid industrialization in a number of ways. First, DBE’s role is
restricted by its limited capital base and by its ‘single borrower limit’.
Second, bureaucratic inefficiencies and rigid application of standards
have undermined DBE’s role in effectively supporting industrial policy.
This has arisen from the difficulty of balancing transparency and effi-
ciency. Many firms in the leather, floriculture, and cement sectors com-
plained about delays in processing loans and the lack of efficiency and
flexibility in procedures. By contrast, the government and DBE’s board,
wishing to ensure accountability and transparency, strictly follow proced-
ure. Third, DBE faces information asymmetry problems, that is, insuffi-
cient knowledge of industries and difficulty in approving borrowers based
on their past record. Finally, the bank’s limited institutional and human
resource capacity has also undermined its effectiveness.
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Made in Africa
the profitable import and domestic trade towards financing exports, agri-
culture, and manufacturing. Consequently, CBE’s lending to manufactur-
ing and agriculture increased to 25 and 23 per cent respectively after 2002.
Its lending to domestic trade declined to 10 per cent, while the import–
export trade accounted for 30 per cent of lending in 2011. Its share of
export financing increased from mere 17 per cent in 2008 to more than 80
per cent in 2012, reaching $1 billion. While CBE has furnished working
capital to manufacturers, as well as providing an international banking
service, in practice the bank discriminates against manufacturing, as it
does not recognize machinery as collateral, but favours buildings instead.
CBE has also provided long-term loans of more than ETB 15 billion for
the government-sponsored housing programme, and more than ETB 3
billion for capacity building in the construction industry (MUDC 2013).
Coordination between CBE and DBE has been strengthened, thereby
apparently augmenting the implementation of industrial policy. It
seems that CBE has, in part, played the role of a development bank.
According to its president, a major constraint for the bank is inadequate
institutional capacity in terms of sectoral knowledge and experience.
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Setting the Scene: Ethiopia’s Industrial Policies and Performance
INVESTMENT INCENTIVES
To create an incentive structure, incentives must be designed, granted,
and implemented, and there must be follow-up on compliance (UNCTAD
2000: 23). Incentives that included exemption from customs duty on
capital goods and related spare parts, and a two to five-year tax holiday
on profits were provided. The latter may be extended for two years for
investments in remote regions and for exporters who export more than 50
per cent of their output. Investors are also entitled to ‘carry forward losses’
and to use a preferred depreciation system, accelerated or straight-line.
The incentives were uniform in that they applied to most sectors, rather
than just some. The domestic private sector was quick to respond by
investing in many areas, including manufacturing. However, the incen-
tives and institutional supports were insufficient to direct the private
sector into priority manufacturing areas, into value addition, and into
technologically advanced activities.
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20
18
16
14
12
10
8
6
4
2
0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
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weighted average rate decreased from 79.1 to 17.5 per cent in the same
period. Import bans were used in exceptional cases, notably cement; and
were used to discourage the export of raw materials, for instance, raw
hides and skins in 2012 (MOFED 2013b). Nevertheless, Ethiopia’s tariffs
in 2012 were still higher than those in many SSA countries. Ethiopia, as a
WTO applicant, is expected to further reduce its tariffs.
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5
In Private Island: Why Britain Now Belongs to Someone Else, James Meek (2014) reveals how
privatization was carried out assiduously across many sectors in UK without bringing about
economic dynamism. Rodrik (2012, 151) highlights that ‘privatization would have been the
conventional route, but it was ruled out by the Chinese Communist Party’s ideology’, and
China’s economic miracle after the 1980s is hard to deny.
6
For instance, see BBC (1 September 2003) ‘Ethiopia hits out at IMF’; AFP (31 August 2003)
‘Ethiopia rejects proposal to privatize loss-making state firms’; <https://brian.carnell.com/articles/
2003/ethiopia-and-the-international-monetary-fund-at-loggerheads-over-privatization/> ‘Ethiopia
and the IMF at Loggerheads Over Privatization’.
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Profile of buyers
7
See also World Bank (2012b).
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Setting the Scene: Ethiopia’s Industrial Policies and Performance
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generally issues were discussed until consensus was reached. Partly thanks
to NECC’s leadership, exports grew on average by about 22 per cent per
annum between 2006 and 2012. During the same period, merchandise
export earnings more than tripled from US$1 billion to US$3.2 billion.
The NECC has continued to function effectively since the death of its
founding chair, Prime Minister Meles Zenawi, who is recognized as the
architect of the country’s industrial development strategy (EPRDF 2013b).
The Korean parallel is the National Export Promotion Meeting estab-
lished in 1961 and chaired by the Korean president, General Park, which
met on a monthly basis. It had 172 members, including thirty-six cabinet
ministers and state ministers, fifty presidential and ministerial staff, fifty
representatives of firms and industrial associations, eight bank represen-
tatives, and nine representatives of universities and research institutions.
Its name later changed to National Trade Promotion Meeting. Its sole aim
was export promotion, and to this end monthly targets were set and
decisions, characterized by pragmatism and flexibility, and were made
on the spot (Rhee et al. 2010). Rhee et al. attribute its effectiveness to
the capable and effective bureaucracy, which provided current and
dependable information; the alliance between the state and industry;
and the obsession and single-minded focus on exports as prime driver of
the economic growth. Through the meetings, government intentions
were conveyed to firms and industries, incentives were negotiated, and
information relevant to government decisions was received. Overall, the
meetings served as a vehicle for the national export promotion campaign
and to unify the export sector. Because of an almost fanatical export
discipline that linked export growth to the nation’s survival, exports
increased from $60 million in 1961 to $22 billion in 1982. This process
was assisted by a ‘reciprocal control mechanism’, which combined oper-
ationalized targets, accountability and sanctions, and performance stand-
ards (Chang 1994; Amsden 1989; Studwell 2013).
Despite the Ethiopian NECC’s important role in expanding export
earnings, its achievements fall far short of the targets. Several factors
have contributed to this. First, NECC has had a narrow composition. For
instance, important government institutions, such as CBE, DBE, EAL, and
institutes responsible for key export industries were not included. Their
participation might have improved the decisions, coordination, and
implementation. Industrialists and their industrial associations were also
not represented on NECC. Had they been, the committee would have
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Setting the Scene: Ethiopia’s Industrial Policies and Performance
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be closely tied to analytical capability, a key area in which there has been
too little development in recent years. These issues are explored further in
subsequent chapters.
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104
4
4.1 Introduction
There has been a dramatic transformation in the use and especially pro-
duction of cement in Ethiopia over the past hundred years or so. Imported
Portland cement was used during the construction of the Ethio-Djibouti
railway between 1904 and 1917. The Italians, during the invasion of 1938,
built the Diredawa Cement Factory, with a yearly capacity of 30,000 tons.
In the mid-1960s, the Ethiopian government built two cement plants at
Massawa (in Eritrea) and Addis Ababa, with a combined annual output of
150,000 tons. Two production lines (with an installed capacity of 600,000
tons of clinker per annum) were built at Mugher between 1984 and 1991.
All state-owned factories were managed by Mugher Cement Enterprise
from the mid-1980s.
After a long period of sluggish development prior to the 1990s, the
Ethiopian cement industry recorded impressive growth between 2000
and 2012. Installed capacity in the industry rose from 800,000 tons in
1999 to 10 million tons in 2012 (MOI 2012b; MOI 2013). The average
annual growth rate for cement production was more than twice that of
Africa or the globe during this period. By the end of 2012, the number of
firms had increased from a single SOE to sixteen firms. New firms
upgraded their technologies and exploited economies of scale. The
cement industry has undergone major changes throughout this period,
and it appears that Ethiopia is likely to become one of the top three
Made in Africa
cement producers in Africa. With the existing growth forecast and 300 kg
per capita consumption per annum, domestic demand could reach 36
million tons in 2020. Average global cement consumption per capita
was 390 kg in 2012 (MOI 2012b). In sharp contrast to the overall African
cement industry, where multinationals dominate, domestically owned
firms are the leading players in Ethiopia.
Government industrial policies have shaped the cement industry’s
development through direct and indirect interventions. Direct support
including subsidized long-term investment loans, investment promotion
incentives, and access to the mining resources required as inputs. On the
demand side, the government’s large-scale housing and infrastructure
development programmes, combined with the expansion of private sector
construction, has led to a building boom since 2005 (MOFED 2012b). This
became the prime driver of growth in the cement industry. Nevertheless,
the process was also fraught with difficulties. The government did not
make timely interventions in the face of new challenges, and lacked a
realistic long-term strategy for the industry. Consequently, it failed to pre-
vent and contain cyclical crises in the industry. The country faced critical
shortages and was compelled to import cement between 2006 and 2011,
while in 2012 firms had excess capacity and surplus production. The indus-
try also suffered from lack of competitiveness and low productivity. More-
over, domestic technological capability remained at a relatively low level.
Different methodological tools—including surveys, interviews, site
visits, and document reviews—have been used to provide the evidence
and insights and enable further exploration of these issues in this chapter.
Where appropriate, the experiences of other countries (such as China,
India, and Korea) with established cement industries have been drawn
upon. The quantitative and qualitative survey was a quasi-census of all
sixteen firms in the cement industry. In addition, qualitative and in-depth
interviews with forty individuals in twenty-eight establishments were
undertaken. Site visits to twelve cement factories provided additional
insights. A review of hundreds of documents was conducted, including
primary and secondary sources. In addition, detailed historical and cur-
rent data from the two major cement factories (which produced 100 per
cent of Ethiopian output until 2007) were consulted. Where possible, this
chapter uses data updated to mid-2013, thereby enabling a better grasp of
ongoing trends within the industry. The International Standard Industrial
Classification (ISIC) and US Geological Survey (USGS) definitions have
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7000000
6000000
5000000
4000000
3000000
2000000
1000000
0
80 9
82 1
84 3
86 5
88 7
90 9
92 1
94 3
96 5
98 7
00 9
02 1
04 3
06 5
08 7
10 9
12 1
3
19 /7
19 /8
19 /8
19 /8
19 /8
19 /8
19 /9
19 /9
19 /9
19 /9
20 /9
20 /0
20 /0
20 /0
20 /0
20 /0
20 /1
/1
78
19
International comparison
World 4.5 2006–2010 3,700
China 10.7 1998–2010 2,150 1st Globally
African comparison
Africa: total 4.5 2006–2010 140
South Africa 1.8 2006–2010 13 1st SSA
Nigeria 14.2 2006–2010 35 5.4 2nd SSA
Ethiopia 12.4 2006–2010 12.2 4.2 3rd SSA
Kenya 10.8 2006–2011 4.1 4th SSA
Source: Own computation from USGS (2010a, 2010b, 2011a, 2011b) and CSA (2012)
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6,000
5,000
Employees
4,000
3,000
2,000
1,000
0
94 4
95 5
96 6
97 7
98 8
99 9
00 0
01 1
02 2
03 3
04 4
05 5
06 6
07 7
08 8
09 9
10 0
1
19 /9
19 /9
19 /9
19 /9
19 /9
19 /9
20 /0
20 /0
20 /0
20 /0
20 /0
20 /0
20 /0
20 /0
20 /0
20 /0
20 /1
/1
93
19
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Table 4.2. Annual growth rate of cement industry, 2006–11 (in per cent)
Table 4.3. Personnel composition and profile in cement and leather/leather goods sectors
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Table 4.7. Economies of scale and capital intensity in the Ethiopian cement industry
1st generation (Massawa, 1960s Small scale; Rotary kilns: 100 Below ETB 10 million
Diredawa, Addis Ababa tons per day (TPD); Annual
cement plants) capacity: 30,000–150,000
tons
2nd generation (Mugher- 1980s Large scale; Rotary kilns: 2 X Below ETB 300 million
Line 1 and Line 2) 1,000 TPD Annual capacity:
850,000 tons
3rd generation (Messebo) 2000 Large scale; Rotary kilns: 2000 ETB 1,200 million
TPD Annual capacity: 850,000
tons
4th generation (Mugher, 2010 Large scale; Rotary kilns: 3,000 $120–351 million
Messebo, National, Derba TPD; 5,000 TPD Annual
and Dangote) capacity: 1.4 million tons
each; 2.5 million tons each
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Threat of new Cement industry has high entry and exit a) High entry barrier was overcome;
entrants: barriers due to economies of scale and high Number of players increased to
capital requirements. The government sixteen, primarily FDI and domestic
policy included: private sector;
a) Long-term loans made available for b) Significant increase in total
capital investment; production capacity;
b) Providing investment incentives to c) Technology and equipment
mitigate risks and induce new players; modernized, with increased kiln
capacity;
c) Mining resources close to the market d) The gate for newcomers has now
made available to firms; been closed as FDI participation is
restricted and finance is temporarily
unavailable.
d) Foreign currency allocated on e) Mugher continued to be an active
preferential basis; industrial player with 20 per cent
e) Government involvement directly market share (currently has an
through SOE and quasi-public enterprises; installed capacity of 2.3 million tons);
f) FDI barred since the end of 2013; f) The privatization of Diredawa
opportunity for loans for new entrants cement factory induced new private
narrowed. investment of 1.4 million tons.
Bargaining a) Government was the biggest buyer a) Construction boom acted as key
power of (above 50 per cent or two-thirds share driver of the cement industry until
buyers between 2005 and 2013); 2011;
b) Demand failed to cope with the
supply and excess capacity;
b) Shortage (2006–2011) and buyers c) Buyer’s bargaining position
bargaining position was weak. Hence, high increased; cement price decreased
price and delay; and availability improved;
c) Import of cement during shortages; d) Seasonality, market uncertainty,
product perishability push the
industry to improve
d) Regulation of market during shortages e) Government’s action to stimulate
(allocation, price, etc.) demand (domestic and export)
required;
Threat of Alternative inputs (steel etc.) not extensively a) Insignificant impact in reducing
substitute available; demand;
products a) Government introduced the use of agro b) Limited scope for substituting
stone (substitute) in government projects, concrete in the long-term.
with modest success.
Bargaining Transport and energy are key supplies. a) Supply of inputs at subsidized
power of Government: rate;1
suppliers a) supplies heavy-fuel oil, coal, pet coke, b) Affected by the firms’ technological
and electricity to all firms; choices (kiln types and capacity,
distance from sources);2
b) Transport cost increased and shortage c) Transportation cost affected by
increased firms’ margins. Government distance from main market and fleet
imported 1,200 trucks for cement transport, availability;
and allowed firms to own transport fleet; d) Backward and forward integration
opportunities are observed.
(continued )
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Notes: 1 Mugher, Messebo, and Derba have their own packing factory and sell packaging material to others. Messebo
uses the permanent transport fleet of a sister company. Derba has imported 700 heavy trucks. National Cement was
importing trucks. Currently, there is a shortage of freight transporters and often reliability is a problem. This, and the
existence of incentives (duty-free import of vehicles for own transport service), have influenced the decision by cement
factories to operate their own transport fleets.
2
HFO and coal are imported by government, and the administrative costs are absorbed. Private petroleum distributors
barely add to their profit margins. Although official data are not available, the subsidy is estimated to exceed 10 per cent.
3
In terms of kiln type, rotary kilns consume less energy than VSKs; bigger capacity kilns consume less energy than smaller
kilns; factories with coal conversion technology benefited by using coal (cheaper than HFO) to power the kiln. Thus, the
supply has a varied effect on firms, depending on their technology choices and scale of production.
Source: Own summary (based on collected data and analysis)
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construction industry grew by about 13 per cent per annum between 2004
and 2011, exceeding the annual GDP growth rate of nearly 11 per cent. Its
share of the economy expanded from 4.2 per cent in 2000 to 5.8 per cent
in 2011. The building sub-sector has multiple socioeconomic impacts.
First, it employs hundreds of thousands of unskilled and skilled workers,
thereby helping reduce urban unemployment (World Bank 2009c).
According to a CSA survey on construction in 2008–09, there were 1,384
construction firms (Grade 1–6), which employed 252,977 people at peak
times and 171,965 during the slack season. In addition, the producers
of construction materials employed 86,279 persons. This figure may be much
higher since not all smaller firms are registered. According to MOFED
(2012a), the Integrated Housing Development Programme (IHDP) and
urban road construction programme employed 193,000 and 373,800
workers respectively in 2011. Second, it supports and accelerates industri-
alization through cheaper and timely construction of factories. Third, it
contributes to the economical expansion of social infrastructure. Fourth, it
stimulates the manufacture of building materials. Fifth, it contributes to
wealth creation, housing and property development, and promotes savings
and the development of the financial sector. The construction industry can
also play a significant role in generating foreign exchange.
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127
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(Simon 2011; EPRDF 2013c). It was a milestone for the ruling party,
prompting it to come up with comprehensive urban economic, social,
and governance packages (MWUD 2007). Youth frustration at the lack of
employment was critical, making the housing programme and the devel-
opment of micro/small enterprises central to urban development pro-
grammes. Government interventions to develop the construction
industry and improve cement transportation were both policy- and polit-
ics-induced. These linkages were not fostered sooner, since the direct
effect of the transportation bottleneck was not felt. Transport shortages
were a critical obstacle to the politically important housing programme.
This underscored the linkage dynamics and compelled federal and
regional government agencies to act collectively to improve coordination.
Private sector collaboration and participation was also key to the success
of the programme (in construction, building material manufacturing, and
transportation). In a way, this demonstrates a propensity for ‘anti-fragility’
(Taleb 2012) in Ethiopian policymaking, that is, the ability to resolve
conflicts and policy contradictions, sometimes pre-empting them before
a crisis emerges. This anti-fragility had significant effects in developing
the cement industry.
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3,000 1,395
Energy Consumption in GWH
1,236
2,500 1,105 1,108
970
921
2,000
793
688 716 601
1,500 636 577 545 467
547 518 532 542 469 427
1,000 388
274 256 270 263 332 315 365
500 795
660
501 494 560 642
406
- 273 262 262 279 304 373 350
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
In addition to inputs such as coal, heavy fuel oil (HFO), and pet coke,
the uninterrupted supply of electricity is a necessary condition for cement
manufacture. In Ethiopia, electricity generation increased from 370 MW
in 1992 to more than 2,179 MW in 2011 (Figure 4.3). With the comple-
tion of fourteen ongoing projects, generation capacity will increase nearly
fivefold to 10,000 MW (EEPCO 2012). Ethiopia’s electricity tariffs are
cheaper than those in many African countries, including Mauritius (by
35 per cent), Kenya (37 per cent), and Uganda (66 per cent). Ethiopia also
has huge hydropower capacity, one of the cheapest and cleanest sources
of energy. This power could be exported to neighbouring countries, con-
tributing to regional economic integration.
4.4.5 Summary
The observations above on the development of linkages underscore a
number of points on the role of policy. First, incentives seem to have
had an effect on investment, particularly duty-free importation, tax holi-
days, repatriation of generated profits in foreign exchange, and provision
of land and quarries, etc. It is highly unlikely investments would have
been forthcoming without these incentives. Yet they were not sufficient
on their own. Market demand had also to expand to trigger investment in
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Mugher and Messebo to guide the industry, and its role as a major con-
sumer of cement gives it some advantages in influencing the industry. Yet,
the industry clearly requires new policies and institutions.
This sector shows that in an age of privatization, the Ethiopian govern-
ment has not simply held on to some SOEs but actively sought to use
them as key tools in industrial strategy. Governments play a central role
by developing innovative institutions that overcome market barriers and
mobilize and concentrate capital investment. The main role of institu-
tions in latecomer states is as ‘functional substitutes’ to mobilize resources
and to deploy them to capital-intensive projects. Reflecting this develop-
mental approach is the government’s decision not to privatize but expand
Mugher Cement between 2006 and 2011 with an investment outlay of
$150 million, thereby tripling the company’s capacity to 2.3 million tons
and ensuring it a 20 per cent market share in Ethiopia. Moreover, the
Council of Ministers has agreed to restructure Mugher into a much bigger
conglomerate, the Ethiopian Chemical Corporation, which would prod-
uce building materials, fertilizers, and chemical products. Messebo
Cement was EFFORT’s first industrial project and EFFORT has also
expanded Messebo’s capacity to 2.3 million tons. This strategy is fully in
line with government policy, and its investment focused on the northern
region of Tigray. Again, this affirms government’s interest in maintaining
its presence and playing a direct role in the industry.
Moreover, fundamental to the growth of the cement industry was the
growth of the construction industry. The latter, in turn, was shaped by
government policy. Current demand constraints could put the industry in
a precarious position. Broader policies that stimulate domestic demand
through the expansion of construction and (more modest) promotion of
exports, are necessary for the sustained growth of the cement industry.
Policies that foster productivity improvements in line with global bench-
marks are also critical. In addition, we are witnessing the growing import-
ance of large corporations, which are playing a role as national champions
in the development of the industry. The Ethiopian manufacturing sector
is dominated by small and medium enterprises, and historically large
corporations have played an insignificant role. In view of increased eco-
nomic globalization, economies of scale, and the ‘global business revolu-
tion’ (Nolan 2003, 2012), developing countries (including Ethiopia) also
need larger corporate entities.
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given (at a very low rate) during this period (MOM 2012). Government
royalties per cubic metre of limestone, clay, gypsum, and pumice are ETB
4.29, ETB 4.01, ETB 7.50, and ETB 12.48 respectively (Mugher 2013). The
major input into OPC is limestone and pumice.
Fourth, the government is the sole provider of electricity, and this
energy-intensive industry has enjoyed tariffs that are among the lowest
in SSA and other developing countries. The tariff was $0.043 per kilowatt
hour (KWH) in 2008, compared to $0.02–0.46 in SSA, and $0.05–0.1
in other developing countries (UNCTAD-UNIDO 2011; Mugher 2013;
EEPCO 2012). The recent tariff is $0.039 per KWH, and Ethiopia entirely
relies on renewable energy, in particular hydropower.
Investment promotion has attracted more than 100 investors into the
sector, especially after 2003 (Table 4.10). Only 2 per cent of the invest-
ment was registered before 2002, while the investment flow became
significant after the construction boom and cement shortage became
evident. By July 2012, the number of investors involved in actual imple-
mentation and operational phases exceeded twenty. Twelve of these were
mini-cement plants (with less than half a million tons annual production
capacity and using VSK), while the remainder were medium and large
cement factories.
The incentives have eased the financial burden on investors and
improved their profitability by reducing investment costs. This was a
significant advantage, since cement factories have to operate at reduced
capacity for the first few years of production. Nonetheless, expansion of
the domestic market was the prime reason for investing in the sector. In
addition to political stability, the growth of the domestic cement market
was the most important factor in the increased investment after 2002.
Prior to that date, the domestic market was weak and investment in the
industry was low. By 2012, according to the CEO of Pretoria Portland,
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1
<http://www.cemnet.com/News/story/150263/south-africa-s-ppc-invests-in-ethiopian-cement-
firm.html>.
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Table 4.11. Industrial sub-sector loans above 1 per cent of total portfolio (in ETB)
Manufacturing sub-sectors No. of Total portfolio Total portfolio % share from total
loans including excluding loan portfolio with
comm. bal. comm. bal. comm. bal.
Note: Commitment balance means loans approved but not disbursed fully or partly. Such balance is always there for
projects under implementation.
Source: DBE (2012b), loan portfolio concentration report, 31 December 2011
135
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FOREIGN EXCHANGE
The major devaluation in June 2010 of the ETB had a negative effect on
cement production. This was due to its coincidence with project imple-
mentation, and the heavy dependence on imported heavy machinery.
The cost increase amounted to some 20–25 per cent. Firms state that it
disrupted their cash flows, increased investment costs, and forced renego-
tiation of loans. This is a typical dilemma in industrial policy, where
governments choose a specific policy critical to the survival and growth
of one industry, but which has the opposite effect on another.
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INTERMEDIARY INSTITUTIONS
There was and is no association of cement manufacturers. Dialogue
between government and manufacturers was not institutionally sup-
ported, and infrequent and informal consultations were the norm. This
is puzzling, given the role of industrial associations in many countries.
Seemingly, however, this did not significantly constrain the growth of the
sector for many reasons. First, the SOE had a monopoly until 2000, and
until 2005 there were only two firms, both closely affiliated with govern-
ment. Therefore, they enjoyed direct and indirect access to policymakers
and government agencies. It also seems government tolerated the firms,
and collected rent on their monopolistic position. This policy was driven
by the government’s interest in expanding the sector and minimizing
DBE’s risk (cement manufacturers had to repay loans acquired before
2000 and new loans for expansion). The companies’ profit margins
exceeded 20 per cent throughout the period. The large size and influence
of the major players (private and public) seems to have facilitated their
direct access to policymakers and government agencies after 2005.
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141
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≤15 5 31.25
16–30 6 37.50
>30 5 31.25
Total 16 100.00
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In tons In ETB
Note: Lost revenue is based on ex-factory. 2012 involves only nine months.
Source: Mugher Cement Enterprise records (2012). Figures are rounded.
disruptions range from 60 to 400 working days. Table 4.14 shows that
revenues lost by a cement SOE to power shortages were significant.
The National Committee on Import Substitution, Construction, and
Employment Creation decided that cement factories must shift to pet
coke and gradually to coal. The decision focused on the use of imported
coal and an ultimate shift to domestic coal. This policy was driven by
foreign currency savings rather than full appreciation of linkage dynam-
ics. A comprehensive policy package could have led to the development of
a strong coal mining industry. Before this policy decision was made, a
study was conducted by experts from EPC, which was to import coal and
pet coke (replacing the HFO imports), MOM, MOI, and cement firms. This
effort by government to make a study and engage stakeholders was posi-
tive, but it also shows that policymaking was ad hoc. But which agency is
responsible for energy provision and efficiency and can champion them?
Most survey respondents agree that energy is the biggest component of
their costs and support coal conversion. However, they are concerned the
change was initiated without sufficient preparation.
Factories that had bought new plants prior to this decision (including
the SOE), were not advised to procure coal conversion technology. This
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PRICE CONTROL
Price control was enforced to stabilize the price of cement. For instance,
the SOE had to get government approval for any price increases during the
period 1992–2005. After 2005, MoTI introduced a price control mechan-
ism for Messebo and Mugher factories during the period of shortage. More
than twenty price increments were approved between 2005 and 2010. The
price control did not focus on the small cement plants, whose market
share was only 10 per cent. Price controls helped to contain costs on
government projects, but did nurture rent-seeking in various forms.
Cement traders exploited the shortages and benefited through specula-
tion. Various administrative measures were taken, but had limited results.
The two cement factories used every loophole to gain an unfair advantage
from these practices. One cement factory sold in retail outlets at a higher
price through its sister company. Cement was also resold at higher prices,
resulting in two parallel markets. Various forms of leakage were widely
reported (MWUD 2009). Price control was lifted in 2011, when produc-
tion exceeded demand.
PRODUCT ALLOCATION
Allocation of cement products was prioritized: the first priority was the
housing development programme; second were the infrastructure pro-
grammes; and third private sector firms, in particular major manufactur-
ers. Allocation was also necessary to optimize transport costs: allocations
were based on proximity. MWUD, which coordinated all housing and
building projects (2006–10), made allocation decisions. Allocations gave
rise to contention and controversy, as supply and demand never matched.
While this policy helped direct critical input to priority public and private
construction projects, it prompted rent-seeking activities too. For
example, some contractors and businesses that received priority alloca-
tions resold the cement at higher prices (MWUD 2009). This is one of the
commonest rent seeking practices, whereby people collect rent from their
permits without paying a penny,2 and is a good example of the economic
behaviour identified in Kornai’s (1980) work on shortage economies (see
also Lindbeck 2007).
2
In Amharic,
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IMPORT PERMITS
When demand outstripped domestic production, the government
decided to import cement for the first time. The cement industry had
always been protected by an import ban rather than an import tariff.
Government first gave an import licence to a single corporation, which
seemed to have the institutional capacity, finance, and foreign exchange
and had close ties with the ruling party. To the embarrassment of the
government, this initiative ended in fiasco when the corporation failed to
import on time. Then, under a new directive, import licences were issued
to those engaged in trade and construction on a franco-valuta basis.3
Franco-valuta can have an indirect impact on the foreign currency market.
In the face of increased black market activity, a normal process of opening
a letter of credit replaced the franco-valuta arrangement. Even this strata-
gem proved ineffective, given the difficulty of controlling the importers’
source of foreign exchange, and was abandoned.
DIRECT IMPORTS
The government, persuaded by increased requests for import licences,
finally made the political decision to directly import cement through
MWUD. Sufficient foreign currency was allocated on a priority basis.
MWUD set up a logistics project office to implement this scheme. Later,
the project office became an important mechanism for capacity building
among transporters and construction firms. All the government agencies
involved, including MOFED, MoTI, the Ethiopian Revenue and Customs
Authority (ERCA), Ethiopian Standards and Quality Authority (ESQA),
Ethiopian Shipping Lines (ESL), and CBE enhanced their coordination
efforts under the ministry. Contact with the international cement trade
following the decision to import was an eye-opener for government and
the domestic construction industry. Sourcing cement from Pakistan
proved the best procurement strategy. For instance, the Karachi free on
board (FOB) price of Pakistani cement was $53 per ton, and landed cost at
Djibouti $80 in 2010. The cement price in Ethiopia had surpassed ETB
3,000 ($200 based on 2010 exchange rates), although this figure had
dropped to $100–120 in 2013. This price disparity between imported
and domestic cement does raise questions about the decision to back
3
Franco-valuta means using one’s own foreign exchange to import cement, as opposed to the
ordinary practice of using official foreign currency.
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Uneven Development in an Import-Substitution Industry
this sector, given the large volume of scarce resources allocated to it. But
the dynamics are more important and complex, and the price is gradually
dropping. For the first time, government was also able to gain experience
in handling and shipping a perishable commodity. The coal-use norm in
Pakistan appears to add to the pressure on government to adopt this
technique. Imports were allocated primarily to government projects, and
were sold through the government wholesale agency, MEWIT. The agency
was not known for its high performance, but played its designated role
thanks to close supervision by MWUD. The transport shortage was solved
by importing more than 1,200 heavy trucks, which were allocated to
transport operators under an open bid system.
In 2011, government and cement manufacturers were again taken by
surprise by the excess capacity, accentuated by the fact that all major
factories commenced production at the same time. Government was not
prepared to give guidance through export promotion or by stimulating
the domestic market. Its immediate response was to ban new investments,
suspend investment loans, and slow ongoing projects in the early stages of
construction. The decision was an immediate reaction based on nervous-
ness, rather than on comprehensive understanding of market conditions.
This experience shows that industrial policy in Ethiopia is a work in
progress. What has been unique in Ethiopia is the willingness of govern-
ment to change course when things go wrong without having to incur
additional transaction costs.
4.7 Conclusions
This chapter has shown, first, that the cement industry has responded to
rapid growth in the construction industry. Despite some mismatches with
demand, the Ethiopian cement industry has now grown such that Ethi-
opia has become the third largest cement producer in SSA. This is mainly
attributable to public policy (incentives, credit, housing and infrastructure
development, etc.). The tensions/trade-offs are noteworthy, in particular
between foreign exchange constraints and the allocation of scarce
resources to promote an important industry, as well as the mixed results
of policy.
Second, shifts in the industrial structure are marked by an ownership
pattern that is dominated by domestic public and quasi-public enterprises,
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and is different from the patterns in other SSA countries. Domestic firms
still play an important part, although the role of FDI has increased. This
pattern is partly the result of deliberate policy choice.
Third, the incentives yielded different outcomes, some more effective
than others. Incentives alone are not sufficient, but when the key factor—
demand—reached or exceeded a certain level, the incentives triggered
investment in cement to such an extent that the government had to
abandon them. Indirect policies in housing and infrastructure develop-
ment played crucial roles in the expansion of domestic demand and,
consequently, the cement industry.
Fourth, there have been no deliberate, comprehensive policies to
develop the technological capabilities of the industry and individual
firms. Such efforts as there were, were fragmented, short-lived, and inef-
fective. Moreover, the failure of policies to enhance domestic competition
and expose firms to exporting appears to have contributed to the low
competitiveness and productivity of the Ethiopian cement industry.
Nonetheless, the cement industry has performed as a binding agent,
albeit flawed, of economic development and transformation in multiple
ways. The evidence suggests that the industry has been a partial transform-
ational player in economic development. This industry has the potential
to positively influence the development of heavy industry. The organiza-
tional capabilities of emerging large corporations have the potential to
make them national champions. Government policies were the key
drivers of the transformation of the cement industry, and its expansion
was not based on factor endowments.
The research has clarified how very mixed the cement industry’s experi-
ence has been: it has been hugely important, experienced some notable
successes, and signalled the importance of the state. It has demonstrated
synergies among industrial and other public policies, the interplay
between economic and political factors, the dynamics of policymaking,
and the significance of the narrow latitude for poor performance. While
the success of government policies is evident, there have also been fail-
ures, and hence fragility, which have slowed sustained growth. Adaptabil-
ity and learning were inherent, once again showing the anti-fragility of
Ethiopian policymaking.
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5
Floriculture tells a story similar to that of the cement industry, but adds to it
in ways that help reveal both the achievements and reasons for the
unevenness of industrial policy outcomes in Ethiopia. The economic suc-
cess of this sector has attracted international interest and debate
(The Economist, 7 February 2008 and 8 April 2009; Reuters, 2 March 2009;
Mano and Aya 2011; Gebreeyesus and Iizuka 2010; Rodrik 2008b). Flori-
culture resembles manufacturing more than traditional agriculture
(UNCTAD-UNIDO 2011). It emerged in 2004 and has since shown sus-
tained growth. Virtually the entire output of the sector in Ethiopia is
destined for export markets, markets characterized by intense inter-
national competition. Europe is the major outlet, with the Netherlands
the main hub and destination. Flowers imported into the European Union
(EU) must meet technical requirements, including MPS (environmental
sustainability certification for floriculture) and Global GAP, which focuses
on good agricultural practices. Product variety, quality, consistency, and
vase time are important considerations. Floriculture production is mainly
clustered around Addis Ababa because of better infrastructure and logistics.
FDI has played a key role in this sector, facilitating the spread of techno-
logical know-how and penetration into international markets.
Since 2004, floriculture has generated close to $1billion in export earn-
ings, making Ethiopia a major global player in the sector (EHDA 2012a;
UNCTAD-UNIDO 2011). Moreover, it has created direct employment for
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Beyond Bloom and Bust? Development and Challenges in Floriculture
151
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The most important indicators of growth in the floriculture sector are its
export performance, employment patterns, and productivity trends. In
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Beyond Bloom and Bust? Development and Challenges in Floriculture
particular, the sector’s significance for Ethiopia lies in its easing of balance
of payments constraints, and its potential to create job opportunities for a
large, unskilled and semi-skilled labour force in conditions of widespread
unemployment in rural and small towns. Where data are available, per-
formance is compared to performance in other countries and other sectors.
EXPORT GROWTH
Floriculture was almost nonexistent in Ethiopia before 2004. Immediately
after its establishment, exports grew rapidly (Figure 5.1). Cut flower
exports increased from three tons in 2003–04 to more than 50,000 tons
in 2011–12, with export earnings rising from $0.32 million to about $200
million. The average annual growth rate was an astronomical 400 per
cent, which was unmatched in the country’s history. For instance, the
annual average growth of the overall exports sector in the same period
was 22.6 per cent, and earnings from manufactured exports were less than
16 per cent. The horticultural sector is broadly divided into floriculture
250
200
150
100
50
–50
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
/99 /00 /01 /02 /03 /04 /05 /06 /07 /08 /09 /10 /11 /12
Non-floriculture 3.73 4.17 4.2 5.59 6.73 7.54 14.57 12.73 16.16 13.66 11.91 31.73 31.5 44.69
Floriculture 0.2 0.13 0.3 0.15 0.04 0.32 7.72 21.97 63.61 111.8 130.7 170.2 175.3 197
Horticulture 3.93 4.3 4.5 5.74 6.77 7.86 22.29 34.7 79.77 125.4 142.6 201.9 206.8 241.7
Figure 5.1. Export value of floriculture and horticulture, 1999–2012 (in $ million)
Source: Unpublished data from ERCA Planning Department, October 2012
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Year In value ($ millions) Volume (millions kg) Comparators: growth rate of value (%)
and food horticulture, comprising vegetables, herbs, and fruit. During this
period, the growth of non-floriculture horticultural exports was less than
33 per cent. Within the horticultural sector, floriculture dominates, with
an 83 per cent share of total horticultural export earnings.
Within a decade, cut flowers became one of the top five export products,
accounting for more than 6 per cent of merchandise export earnings.
Between 2004 and 2012, the industry has earned close to $1 billion
(Table 5.1). Sometimes it is argued that its contribution to net foreign
exchange earnings was minimal, as the industry consumes huge amounts
of foreign exchange. This is a valid statement, but account needs to be
taken of the contingent role played by the sector in increased import
substitution through the local production of inputs, and in air transport.
The latter exceeds half the total cost, as flowers are high-value and low-
volume products that rely heavily on efficient airfreight services. With the
increased dominance of the state-owned EAL, and increased import sub-
stitution of inputs, the concerns about net foreign exchange earnings
appear to be unfounded. In other words, floriculture has become an
increasingly important contributor to Ethiopia’s tight balance of pay-
ments. It is, therefore, macroeconomically significant.
EXPORT DIVERSIFICATION
Export diversification is an important feature of sustainable growth
and structural change, especially if it is dominated by high-value goods,
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Beyond Bloom and Bust? Development and Challenges in Floriculture
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45,000
40,000
Number of employees
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
2007/08 2008/09 2009/10 2010/11 2011/12
Number of employees 25,816 34,720 36,568 36,400 40,387
SOCIAL DIMENSION
The above employment creation shows the sector’s strong contribution to
poverty-reduction. This is consistent with findings by Cramer, Sender,
Johnston, and Oya (forthcoming) that floriculture has a positive effect
on poverty reduction and direct and indirect employment. It also contrib-
utes to social equity by employing predominantly female workers, who
account for more than 75 per cent of the workforce. More than 95 per cent
of employees were between the ages of eighteen and twenty-nine, and
according to forty-one of the responding firms (89 per cent of respond-
ents), more than 90 per cent of employees were recruited from the region
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Beyond Bloom and Bust? Development and Challenges in Floriculture
in which the farms are located. Both these factors add to the sector’s social
and political significance.
Most workers (76 per cent) were permanent, only 14 per cent were on
contract, and 9 per cent were temporary. On most farms workers are union-
ized. Above 93 per cent are production workers with only 7 per cent engaged
in administrative and support activities, indicating the pressure for produc-
tion efficiency. Most of the workers are semi-skilled and unskilled, with only
1.5 per cent professional staff (of whom only one-tenth were technologists)
and below 2 per cent technicians. This highlights the lesser technological
depth compared to manufacturing, such as in the cement industry.
The labour issue has become a serious challenge to the industry, and for
government intervention. Recently, many of the farms (especially those
around Addis Ababa) have faced major problems in retaining experienced
workers. Indeed, this is an issue of wider concern, which has been given
frequent attention in the media, including a series of TV programmes.
Meetings on the issue during 2013 were addressed by the prime minister.
Many garment factories around Addis Ababa and employment agencies
are targeting employees in the floriculture industry. The farms have been
easy and attractive targets for recruitment, since the farm workers are
judged to have better skills and a better work ethic.
This continues to be a major problem. For instance, between June 2012
and May 2013, more than 1,350 workers (mostly with three years of experi-
ence) left five firms, mostly for the Middle East. Of these, 74 per cent were
from Sher-Ethiopia (in Ziway and Koka), 8.3 per cent from Redfox Ethiopia,
7.4 per cent from Ethiopia Cutting Plc., and 10.9 per cent from Lafto Rose,
ET Highland, and Dugda. Sher-Ethiopia lost 1,000 workers in five months
(EHDA 2013). On average, the five cut-flower farms worst affected lost 272
workers per month. Consequently, many farms were working below cap-
acity, and it usually takes five to six months to train staff to a minimum level
of output. This challenge required a comprehensive response by govern-
ment and the industry association, although by mid-2013 they had been
unable to reverse this trend. Thus on 17 April of that year, the former EHPEA
chair reported ‘the shortage of women workers continued to be a serious
constraint on ET Highland Flora and all other flower farms’ (Oqubay 2012),
a finding confirmed by other observers.1
1
In late 2013, many Ethiopian migrants returned from Saudi Arabia because of ‘permit’-related
charges.
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While it may be true that employees in floriculture are targeted for their
skill and discipline, it also may be that young women are using such
employment as a stepping stone. They seek work on the farms to save
some money (to pay employment agents, transport, and associated costs),
get to know Addis and its periphery, network with experienced migrants,
reach out to employment agents, and finally leave for factories and the
Gulf. This is natural in any labour market, and floriculture employers have
to adapt. This leads to a second point. Given high urban unemployment
and huge rural underemployment, this turnover may not be entirely
undesirable, in line with Lewis’s theory of the unlimited supply of excess
labour. However, even though basic employment in the greenhouses is
not highly skilled, there are frictions and costs associated with this turn-
over, and employers in some areas (for example, near Bisheftu, east of
Addis Ababa) claim that the labour market is tightening. From one per-
spective, this illustrates the strong positive externalities of the floriculture
industry. If other employers have a preference for women with flower
sector experience, floriculture employers are effectively subsidizing the
development of a capitalist labour force that is available to other employ-
ers. From another, it raises a policy challenge as the industry matures and
faces stiffer competition and higher labour costs. While government can
help to create the right conditions, the onus is on the industry itself to
develop a dynamic comparative advantage if it wishes to remain competi-
tive. Such a predicament is not unique to floriculture: all industrial sectors
go through a similar process of change, adaptation, and in the worst case,
decline. Firms that innovate survive, those that don’t die out unceremo-
niously—such is the nature of capitalist development.
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Beyond Bloom and Bust? Development and Challenges in Floriculture
Source: The 2006 data are adopted from Melese and Helmsing (as adopted from GDS 2006). Data represent running
costs and exclude set-up costs. The 2012 data are based on EHPEA’s data on average performing firms in Kenya and
Ethiopia.
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Beyond Bloom and Bust? Development and Challenges in Floriculture
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162
Beyond Bloom and Bust? Development and Challenges in Floriculture
Year Total production Africa South America North America Asia Middle Value in
value value value value value East value Europe
AIR TRANSPORT
Most cut flowers have a high value–weight ratio, and are very perishable.
Flowers are consumed throughout the year, and must respond to varying
consumer requirements through time. Thus, the industry depends on air
transport and cold-chain logistics throughout the value chain. Air trans-
port fees account for more than half the total cost of the product (EHDA
2012b, 2011b), and combined with marketing account for up to 75 per
cent of total costs. Frequency and timeliness of flights and other logistical
arrangements are of utmost importance in meeting orders on time and
ensuring that flowers arrive fresh to maximize vase time. The strategic
importance and role of EAL becomes clear from this perspective (see
Section 5.4 below).
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PRICE-DRIVEN COMPETITION
International trade patterns for flowers are significantly affected by their
perishability and by air transport services. Income levels and the state of
the global economy affect consumption and price patterns. The 2008
recession slowed the growth of the international trade, and prices
declined by 5–10 per cent from 2002 to 2012. Big-headed roses, especially
from Ecuador and the Netherlands, are the priciest, and small-headed
roses the cheapest. Big-headed roses from Kenya and Ethiopia are in the
medium price range, with those from Uganda, Tanzania, and Zimbabwe at
the lower end. Hybridization and breed development are significant fac-
tors in improving prices, productivity, and market share. Dutch breeders
are the leaders in the field, and usually earn up to 2 per cent in royalty fees
for a limited number of years.
COMPETITIVE INTENSITY
The major competitors in the European and American rose markets were
Colombia, Ecuador, Kenya, Ethiopia, Israel, Uganda, Tanzania, and Zim-
babwe. Major flower-growing countries in the developed world were
downsizing under the pressure of high labour costs, increased energy
costs, and land scarcity. Floriculture has also been downsized in Zimbabwe
due to political factors and lack of price competitiveness. Uganda and
Tanzania are facing major competitive challenges because of higher pro-
duction costs. Kenyan floriculture is vibrant and has nearly fifty years of
experience behind it. Kenya’s flower farms cover 3,000 ha., while Ecua-
dor’s covered 6,000 ha. in 2012. By contrast, Ethiopian floriculture is only
a decade old and has grown rapidly to make the country the fifth largest
exporter in the world and the second largest exporter in Africa (Table 5.5).
This only came about through an active industrial policy. However, the
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Beyond Bloom and Bust? Development and Challenges in Floriculture
growth of the industry has begun to slow in 2012 and 2013, suggesting
the need for new policies.
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5.3.4 Summary
It is clear that the particular features and structure of the floriculture sector
have analytical and policy significance. First, floriculture is highly com-
petitive and exclusively export-oriented, which has compelled firms to
make maximum efforts to survive and thrive. This has served as a positive
pressure to complement government policies. Second, the management-
intensiveness of the business, product perishability, production uncertainties,
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Beyond Bloom and Bust? Development and Challenges in Floriculture
This section discusses the new industries and spin-off enterprises aligned
with the floriculture sector: packaging, air cargo, and new growth corridors.
Linkage effects, even apparently obvious ones, do not always manifest
themselves. It therefore makes sense to think of linkage potential and to
pay attention to factors that advance or even compel such investment
decisions. In other words, linkages are not always automatic. Unlike the
cement sector, where the major cost is energy, floriculture’s major costs are
air transport, fertilizer and chemicals, packaging, and labour (Table 5.6).
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Beyond Bloom and Bust? Development and Challenges in Floriculture
169
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materials, due to the underdeveloped state of the pulp and paper industry.
It is often argued (for instance Khan, 2011) that ex ante incentives and
intermediate assets are inefficient because they can be swallowed up and
still not perform, but that ex post incentives are much more effective.
Although this may often be true, the packaging experience suggests that
ex ante incentives can be effective. What is important is putting in place
appropriate and easily implementable control mechanisms. Administer-
ing ex ante incentives can, however, be tricky and may fail to induce the
necessary action by economic actors. One example is the duty drawback
scheme in the flower and leather sectors, which became impossible to
implement and consequently failed to motivate firms.
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Beyond Bloom and Bust? Development and Challenges in Floriculture
Table 5.7. Perishable lift capacity on freighter flights, 2009–12 (in kg)
STRATEGIC RESPONSE
EAL’s experience in this regard is a classic example of how a government
can use a public enterprise to support industrial policy and industrial
development (Amsden 1989; Chang and Singh 1997). The strategic
importance of perishable cargo has been incorporated into EAL’s strategy
as set out in its Vision 2025. EAL’s freight capacity increased fivefold from
37,000 tons in 2003 to 181,000 tons in 2012, and the airline plans to
increase its annual cargo capacity to 710,000 tons by 2025 (EAL 2012).
Fleet size will increase to ten Boeing 777 and seven 757 freighters at a cost
of about $2 billion. A new provisional cold storage facility was built at Bole
international airport’s cargo terminal in 2013 to meet the demands of
floriculture firms and address the cold storage bottleneck. Similar cold
storage facilities were built by government in Mekelle, Bahirdar, and
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172
Beyond Bloom and Bust? Development and Challenges in Floriculture
Year Developed land (ha.) Employees Export volume (in 000s ton) Export
(in million $)
broader linkage concept, a new activity could also be defined as one that
yields the same product as before but is carried on in a new place [emphasis
added]’. The evidence suggests that while new activities have been
induced in the horticulture sector, regional diversification was limited.
Recently, non-floriculture (vegetables, fruits, herbs) has rapidly expanded,
engaging thirty-two firms. In 2012, it generated more than $53 million in
export earnings, and employed 133,000 people on 12,552 ha. of land
(Table 5.9).
Close to 90 per cent of non-floriculture farms are concentrated around
Addis Ababa and in central Ethiopia, where the flower farms are clustered.
Three factors have contributed to the growth of this sector. First, floricul-
ture firms have diversified into other horticulture activities, as is evident
from the fact that half of the thirty-two horticultural firms were originally
engaged in flower farming. Second, the linkage has mainly been generated
by the flower sector due to its externalities and spill-over effects (techno-
logical diffusion, management skills, technical staff ), as both sectors
require similar expertise. Despite additional incentives provided by
regional governments (for instance, by providing land freely, which has
attracted fifteen firms), only four firms are operating in Amhara and Tigray.
This starkly demonstrates the fact that policy instruments can be less
effective in countering economic agglomeration and is in line with the
observations on Ethiopia’s cut flower industry by Mano and Suzuki (2011).
Third, institutional arrangements have positively induced these linkage
effects. For instance, the lead government agency EHDA, the sectoral
association EHPEA, and the NECC have focused on the whole horticulture
sector (not just floriculture). The presence of linkage dynamics from
the floriculture industry seems real. It is also noteworthy that the non-
floriculture sector has a greater employment-creation potential than the
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flower sector. It also has much larger potential in the domestic market.
Moreover, it appears to have much greater potential linkages with small-
holder farming (for instance, through outgrower schemes). Due to wider
latitude for poor performance, the participation of domestically owned
firms is much higher (43 per cent in contrast to 25 per cent in flowers).
In conclusion, although floriculture may be weaker than leather and
leather products in terms of backward linkages, its linkage dynamics have
been exploited and promoted through more effective policies. In the next
chapter, a direct comparative analysis between floriculture and leather is
developed.
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Period Number Share from total (%) Average firms per year
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Table 5.11. DBE loan performance in floriculture (in million ETB), 2007–11
Amount
Number of firms 40
Total approved loans 1,167
Average loan size 29
Maximum loan size 149
Minimum loan size 6
Good performing loans 981
Outstanding loans 199
Arrears 243
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Beyond Bloom and Bust? Development and Challenges in Floriculture
179
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loans from DBE, as the bank’s rigid procedures would not allow this. One
of the firms whose proposal was dismissed had a successful track record in
the industry in Ecuador. There have been renewed efforts by DBE to
address these shortcomings.
2
Interview with DBE president in May 2012.
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Beyond Bloom and Bust? Development and Challenges in Floriculture
181
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two-thirds of firms believed that the services provided by ESL and the
Ethiopian Electric Power Corporation (EEPCO) were poor. Clearly, there is
significant room for improvement.
5.5.5 Summary
Above all, a growth perspective, appropriate policies, the political com-
mitment to execute, and learning capability appear to be the key factors in
exploiting comparative advantage to develop a competitive new industry.
However, the key findings are threefold. First, the outcomes were a prod-
uct of endowments, institutions, enterprise, experiment, and learning:
they were produced by policy, but also by politics. Industrial policy
involved multiple instruments, which were coherent and compatible
with the country’s broader development strategy. This policy and related
instruments were constantly improved, and created a conducive and
supportive environment for the industry. These policy instruments were
also assisted by ‘push factors’ (for instance, Dutch government policy to
encourage Dutch companies to invest in Ethiopia and support them).
Second, implementation of policy was often inadequate as a result of
lack of capacity and coordination gaps among government agencies. In
addition, a lack of long-term vision and its translation into plans has
become an impediment to sustained growth of the industry. Actors in
the sector appeared complacent about the achievements to date and
future prospects.
Third, adequate reciprocal control mechanisms were not put in place.
This deficiency did not lead to unintended results in terms of performance
or rent seeking, as it was offset by the narrow latitude for poor perform-
ance in a dynamic market. The role of credit policy and public develop-
ment banks in industrial development needs to be underlined.
Fourth, mistakes were made (for instance, leading to some bankruptcies)
in policy execution. However, the evidence suggests there have been net
positive gains and that any sector-wide cost–benefit analysis needs to take
account of dynamic and often unpredictable features rather than applying
a rigid, narrow, and static perspective. It should be emphasized that the
benefits of the development of a competitive flower industry outweigh
the costs, since overall the policy helped generate new industries with
multiple long-term benefits.
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Beyond Bloom and Bust? Development and Challenges in Floriculture
Finally, this story shows that even with such costs, active industrial
policies are significantly better than laissez-faire policies, which had hith-
erto failed to induce the development of the industry. Government has
gradually learned lessons and shown the ability to cope (as in the manage-
ment of bankrupt firms) in managing rents and disciplining industrialists.
The research shows that the outcomes of industrial policies depend not
only on policy content, but also on the complementarity and coherence
of industrial policy instruments. More importantly, the outcome depends
on effective institutions, coordination, and collective learning by govern-
ment and economic actors.
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1989, 2001). Second, open dialogue between government and the indus-
trial association was also effective, although it was not supported by a
systematic institutional structure, such as Japan’s deliberation forums (see
Johnson 1982).
More than 70 per cent of the firms surveyed are convinced that EHDA
works closely with economic actors in the sector. Nevertheless, only 53
per cent believe that EHDA has played a significant role in developing the
sector, hinting at higher expectations of EHDA, or at least highlighting
the difficulty for those involved of neatly distinguishing the factors that
influence outcomes. Moreover, 57 per cent of firms believe EHDA focuses
more on regulating than on supporting firms. In addition, about a quarter
of firms state that EHDA lacks appropriate knowledge of the industry. In
sum, EHDA needs to improve its institutional capacity and shift towards
providing effective support to floriculture, especially in the industry’s next
stage.
NECC
NECC made floriculture one of its top priorities from 2004 to 2011. Its
coordinating role was impressive, particularly before EHDA’s establish-
ment. Once EHDA was in place, it became part of NECC, providing a
platform for identifying and discussing constraints and securing govern-
ment agency support. Since 2004, NECC has discussed 365 issues during
eighty meetings. Among the four categories of issues, the least discussed
are linkage effects (18 per cent), followed by logistics and market issues
(23 per cent), and firms and capacity building (27 per cent), while the
incentive package was the most discussed issue (32 per cent). Among the
single issues, the most discussed are investment and export incentives,
land and infrastructure, industrial financing, capacity building, and the
cold chain logistics system. Although this breakdown hints at priorities
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Beyond Bloom and Bust? Development and Challenges in Floriculture
and the comprehensiveness of the issues, it does not give relative weight-
ing to the topics.
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associations that actively lobby for the industry and market and techno-
logical development. Kenya, for instance, has a developed horticulture
industry of about 300 firms. The Horticulture Crops Development Author-
ity, established in the 1970s, has a headquarters and twenty-four
branches. The Ethiopian counterpart is EHDA, which has no branch
offices. Kenya’s Product Health Inspection Service (KPHIS) provides a
high standard of phytosanitary service with laboratories at Nairobi air-
port. Kenya also has an industrial association (Fresh Produce Exporters
Association of Kenya [FPEAK]) for the sector, established in the 1970s and
comprising 121 members, of whom forty-nine are in floriculture. In the
Netherlands, floriculture firms have a strong association as well as world-
renowned auction facilities. The Ecuadorian industry association also
plays an active role in market development.
Survey results indicate that nearly 91 per cent of the firms in the sector
belong to EHPEA, a much higher percentage than for other Ethiopian
industrial associations. As regards EHPEA, 90 per cent of firms think it
plays an important role in knowledge transfer and training, and almost
three-quarters agree that it lobbies government and promotes investment.
This is positive, especially in relation to the other industrial associations in
Ethiopia. About 80 per cent of firms agree that the Dutch embassy plays a
positive role in sector development.
As regards unions, almost all workers are unionized. Unions negotiate
with employers about salary and working conditions, although they are
weakened by the constant influx of labour. Labour–employer relation-
ships differ from firm to firm.
5.6.3 Policymaking
Three government directives in 2011–12 are selected to demonstrate the
policymaking process and divergent political views and interests. These
are NBE’s new export directive, the new cargo directive, and new pack-
aging standards. Together, these examples highlight the complexity and
tensions underlying simplistic ideas regarding ‘political will’. Unless pol-
icymaking is transparent and participatory, mutual suspicion between
government and private sector will be reinforced. The ‘political will’ to
act weakens where transparency and participation in decision-making
threatens the interests of powerful groups benefiting from the status-
quo. Lack of ‘political will’ and state capture are two sides of the same coin.
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Beyond Bloom and Bust? Development and Challenges in Floriculture
187
Made in Africa
majority (54 per cent) acknowledge this requirement helped reduce dam-
age to perishable goods. The firms also recommended that more manu-
facturers become involved in packaging to reduce prices, and insisted that
obligatory requirements be lifted.
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Beyond Bloom and Bust? Development and Challenges in Floriculture
189
Made in Africa
(Table 5.14). This positive outcome was attributed to the joint efforts of
both government and industry.
This author’s survey (Oqubay 2012) results show that there has been
progress in cool chain management and bush management, while
productivity (the highest was only 6.3 kg/square metre, with fifteen
persons per ha.) lags. The availability of horticulture professionals has
improved over time, with many of them replacing expatriates from
Kenya and India. Research and development into seed varieties or farm
practices, and the expansion of propagation facilities, appear to be at
rudimentary levels, and an appropriate policy response appears to be
lacking. Various standards and certifications have been introduced in the
industry and most firms are participating and increasingly complying.
This project has benefited from the support of the Dutch embassy,
which has sponsored the use of experts. Such standards include MPS-A,
MPS-SQ, Global Gap Certification, Codes of Good Practice, and Inte-
grated Pesticide Management (IPM). However, there are differences in
the levels firms have been able to achieve. For instance, fourteen firms
were gaining bronze MPS certification, while three had already achieved
silver certification.
Another major concern is the decreasing role of domestically owned
firms. Due to the potential benefits, their share should be expanded, and
supports should enable this. Reversing the current trend requires a stra-
tegic response. In addition, domestic firms still use intermediaries rather
than dealing with their final customers and focus on low-value varietals.
The key challenges of involving new and the right type of domestic entrant
and of speeding up learning and catching up remain. Moreover, the size of
the sector could be increased to strengthen its international competitive-
ness and fully exploit its potential for employment generation.
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Beyond Bloom and Bust? Development and Challenges in Floriculture
5.7 Conclusion
191
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Beyond Bloom and Bust? Development and Challenges in Floriculture
193
Made in Africa
When not taking a leading role, the State becomes a poor imitator of private sector
behaviours, rather than a real alternative. It is a key partner of the private sector—
and often a more daring one, willing to take the risks that business won’t. . . . The
State cannot and should not bow down easily to interest groups who approach it
to seek handouts, rents and unnecessary privileges like tax cuts. It should seek
instead for those interest groups to work dynamically with it in its search for
growth and technological change. (2013a: 5–6)
194
6
The Ethiopian leather and leather products industry has existed since the
1920s and dominated the country’s limited manufactured exports until
the 1990s. Almost all firms in this sector were originally owned by for-
eigners, mainly Armenians. The first shoe factory, Darmar, was founded in
1927, and the first tannery (Asco) was established in 1925. Growth has
historically been slow, and lower-end products dominated the product
mix. Export earnings amounted to merely tens of millions of dollars, with
close to 95 per cent of such earnings coming from semi-finished hides and
skins, and the balance from finished leather and leather products (ERCA
2012a). In 2011, Africa’s export earnings from this sector accounted for
about 1 per cent of global export value, and Ethiopia’s share of Africa’s export
earnings was less than 1 per cent. Ethiopia’s share of African footwear pro-
duction was less than 0.3 per cent in 2011 (FAO 2011). The African export
market is entirely dominated by Tunisia (61 per cent) and Morocco (37.5 per
cent). In terms of exports of semi-finished and finished leather, Ethiopia stood
second to Nigeria (40 per cent), and was followed by Kenya (17 per cent).
The main puzzle is that even with prolonged manufacturing experience
and plentiful livestock resources, performance in Ethiopia has been per-
sistently poor. This sector suffered from inertia and path dependency that
arguably acted as a brake on policy changes. Evidence also suggests that
obvious linkage effects from the rich endowment of primary input mater-
ials are far from automatic.
Made in Africa
196
Curing an Underperformer? Leather and Leather Products
institutions, and the role played by various interest groups and their
relations with the state, can open a new avenue of analysis. In addition,
Hirschman’s linkage approach (1958, 1981, and 1992) offers a sensible
conceptual framework for understanding linkage dynamics in terms of
potential, and converting this potential into material outcomes. Guided
by this perspective, this study uses extensive primary and secondary data.
The analysis is based on disaggregation of the industry into subsectors,
namely the tanning sub-industry or the manufacture of leather, and the
leather products sub-industry, comprising the manufacture of footwear,
gloves, jackets, belts, and other accessories. As with the other sectors in
this study, the key research tools were a quasi-census survey covering the
whole industry (the fifty-seven respondents represented almost 90 per
cent of firms in the sector); qualitative and in-depth interviews (seventy-
five interviews); site visits and observations in factories (mainly tanneries
and leather products); and document reviews. The industry classification
is based on the International Standards of Industrial Classification, Revi-
sion 4 (hereafter ISIC). The statistical data of CSA, FAO, International
Trade Centre (ITC),1 and UN COMTRADE have been used for historical
and comparative purposes.2
The research yielded the following main insights. First, by comparison
with floriculture or cement, the industry’s growth in terms of output,
exports, and employment has been sluggish. Thanks mainly to inappro-
priate policies, the sector has underperformed badly. Industrial policy in
the leather and leather goods sector has long been unable to improve
performance or to fully exploit linkage potential and insertion into the
GVC. However, matters have started to change very recently.
Second, one of the main reasons for underperformance is the lack of
effective policy response to the challenges of raw material supply. This
industry is material-intensive, so a reliable supply of low-cost and good-
quality raw materials is the key determinant of its growth. Input analysis
reveals that material costs amount to more than 70 per cent of production
costs. Despite the comparative advantage suggested by abundant herds
and flocks, the sector experienced shortages, rising prices, and low-quality
inputs (hides and skins for tanneries, finished leather for leather
1
For example ITC (2012).
2
CSA list of firms involved in 2012 survey of manufacturing was referred to investigate active
firms.
197
Made in Africa
products). For instance, prices more than tripled between 2009 and 2011,
and quality deteriorated from 1991 to 2012 (FAO 2009; LIDI 2012d; ELIA
2012). The principal failure here has been the lack of a consistent and
effective policy that works for the large number of scattered rural produ-
cers. This is despite of a political commitment to small producers and the
high priority afforded the industry in the GTP.
Third, interests within the industry have been contradictory, contribut-
ing to the disappointing performance. At least until recently, tannery
owners dominated the industry but have shown little interest in techno-
logical upgrading of the sector. This has been compounded by an inad-
equate policy response (for instance, in supporting value addition and
introducing a multi-modal transport system) and inappropriate institu-
tions (notably, the absence of institutions for inputs). This failure to invest
in industrial upgrading has meant the sector has fallen prey to a buyer-
driven GVC (Schmitz 2004). This situation may not preclude local initia-
tives to accelerate upgrading, but does present policy challenges.
Fourth, as shown below, recent developments have begun to yield more
investment, better quality, and more exports of higher-end products. In
the 1990s, the shoe sub-industry was on the verge of extinction in the face
of stiff competition, in particular from China. However, it has been able to
survive and improve its market share in the domestic market. Neverthe-
less, the evidence is still too thin to give rise to unbridled optimism
about this sub-industry, since there are still contradictory interests (for
instance, around path dependency and the low value trap) that are poorly
managed by the state, and the fundamental input supply problem
remains unresolved.
198
Curing an Underperformer? Leather and Leather Products
180,000.00
160,000.00
140,000.00
(000 Sq. ft.)
120,000.00
100,000.00
80,000.00
60,000.00
40,000.00
20,000.00
0.00
92 2
93 3
94 4
95 5
96 6
97 7
98 8
99 9
00 0
01 1
02 2
03 3
04 4
05 5
06 6
07 7
08 8
09 9
10 0
1
19 /9
19 /9
19 /9
19 /9
19 /9
19 /9
19 /9
19 /9
20 /0
20 /0
20 /0
20 /0
20 /0
20 /0
20 /0
20 /0
20 /0
20 /0
20 /1
/1
91
19
199
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200
Curing an Underperformer? Leather and Leather Products
250
200
Millions $
150
100
50
0
2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12
Planned 105.45 103.87 116.69 143.4 193.02 199.69 180.41 206
Performed 66.15 75.33 89.59 101.3 75.52 56.51 104.33 110.85
Figure 6.2. Export target and performance of leather sector (in million $)
Source: Own computation based on unpublished LIDI data, December 2012
150
130
110
Million $
90
70
50
30
10
–10
199 199 200 200 200 200 200 200 200 200 200 200 201 201
8/9 9/0 0/0 1/0 2/0 3/0 4/0 5/0 6/0 7/0 8/0 9/1 0/1 1/1
9 0 1 2 3 4 5 6 7 8 9 0 1 2
Semi-finished leather 27.76 31.14 75.24 61.22 71.51 60.09 53.02 65.29 76.73 79.69 59.16 40.78 72.93 49.57
Finished leather 3.34 3.55 3.17 0 0 0 2.36 7.65 6.27 12 8.62 9.44 21.36 49.58
Leather products 0.07 0.06 0.11 0.05 1 0.2 1.39 1.94 6.59 7.52 7.56 6.32 9.51 10.78
Total export earnings 31.17 34.75 78.52 61.28 72.52 60.28 56.76 74.88 89.59 99.21 75.34 56.54 103.8 109.9
Figure 6.3. Share of semi-finished and finished leather (based on export earnings),
1999–2012
Source: Own computation based on unpublished data from ERCA, October 2012
201
Made in Africa
2012g). However, not all tanneries could upgrade their product mix, so
the increase in total earnings was unevenly spread.
Comparison with other developing countries in this regard is instruct-
ive, and Vietnam is an appropriate comparator for many reasons. It has
the same population size as Ethiopia and made the transition from a
centrally planned economy after 1986. Vietnam, which was never on
the global leather and footwear map, has since recorded impressive
growth to become one of the top five leather and footwear exporters in
the world. In 2000, its leather and footwear exports exceeded $1 billion,
and by 2007 they surpassed $4 billion. They have recently topped $10
billion. Between 2007 and 2011, shoe exports increased by 164 per cent
and bag exports by 2,005 per cent (LEFASO 2012). The industry contrib-
utes 10 per cent of total export earnings, and leather products are the
sixth most important export commodity. The sector employs more than
650,000 workers, about 10 per cent of national employment. Major trade
partners are the EU (accounting for 48 per cent) and US (30 per cent), and
the country also exports to East Europe, Brazil, and China.
EXPORT DESTINATIONS
Ethiopia’s exports of leather and leather products are concentrated on a
few destinations. The top ten destinations in 2011 were Italy (32 per cent),
China (22 per cent), India (14 per cent), Hong Kong (12 per cent), UK (10
per cent), Indonesia (2 per cent), Germany (2 per cent), Turkey, Romania,
and Thailand (ERCA 2012a). Nonetheless, changes are happening. In
2009, Western European countries absorbed more than 55 per cent of
the total exports in the sector, while Asia’s share was below 37 per cent. By
2011, these shares stood at 43 per cent and 51 per cent respectively. This
increased trade between Asia and Ethiopia seems to be caused by increased
Chinese and Indian investment in the sector. While Italy, a traditional
trading partner, is still the single largest buyer (one-third of Ethiopian
exports), the shares of China, India, and the UK have shown some
increase. Although diversification has its own benefits, existing evidence
is insufficient to show advantages in terms of price or technological or
skills development.
INDUSTRY CONCENTRATION
In the exports of crust and finished leather, the top five exporters,
accounting for 56 per cent of the total, were Ethiopian Tannery
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Curing an Underperformer? Leather and Leather Products
COMPETITIVE EDGE
Poor quality also contributed significantly to weak export performance.
The industry is incapable of timely exports of good quality products at
competitive prices. Customer orientation and competitive spirit were
below the desired level. Respondents cited the poor quality of raw mater-
ials and lack of skilled personnel as the main causes for this. Lack of cost
competitiveness was primarily due to shortages and the high prices of raw
hides and skins. As Table 6.1 starkly shows, material inputs account for
about 85 per cent of production costs in both leather and leather products.
Hides and skins or finished leather accounted for 66–70 per cent of
production costs. This finding on inputs as binding constraints is in line
with the World Bank’s study (Dinh et al. 2012) and Cramer’s (1999d)
observations. By 2014, the crisis in the raw material sector for leather
remained fundamentally unresolved.
Local raw materials and semi-processed inputs 60.6 66.4 44.8 70.6
Imported raw materials and semi-processed inputs 24.5 26.9 31.6 16.2
Utilities, transportation, and logistics 11.2 4.2 3.2 3.3
Labour and related service 3.7 2.5 20.3 9.9
Total 100 100 100 100
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204
Curing an Underperformer? Leather and Leather Products
14
Production amount per person
12
10
( Pairs/day)
8
6
4
2
0
19 /79
19 /81
19 /83
19 /85
19 /87
19 /89
19 /91
19 /93
19 /95
19 /97
20 /99
20 /01
20 /03
20 /05
20 /07
20 /09
1
/1
78
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
19
160
Production per person
140
(Sq.Ft) per day
120
100
80
60
40
20
0
2004/05
1976/77
1978/79
1980/81
1982/83
1984/85
1986/87
1988/89
1990/91
1992/93
1994/95
1996/97
1998/99
2000/01
2002/03
2006/07
2008/09
2010/11
Vietnam and India, 3.3–3.5 pairs in South Africa, and according to recent
observation by India’s Footwear Design and Development Institute
(FDDI), 3–3.5 pairs in Ethiopia (FDDI 2012).
Tanneries appear to perform better, but labour productivity has been
highly erratic (Figure 6.5). The production per person was 77.85 square
feet per day in 1993, 61.32 square feet in 2002, and 63.64 square feet in
2011. At times, however, labour productivity has doubled, as in 2001 and
2009.
205
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CAPACITY UTILIZATION
Another indicator of efficiency and productivity is utilization of installed
capacity. There can be biases in this indicator if it is not measured prop-
erly. Survey results show that the sector suffers from low capacity utiliza-
tion. According to the survey for this study, more than two-thirds of firms
operated below 60 per cent of capacity (Table 6.2). The main reported
causes for this were raw materials shortages, delays in input supply,
market or demand problems, lack of working capital, and lack of skilled
workers.
The tannery sub-industry, which is more capital intensive, has very low
capacity utilization: only 67 per cent for soaking and 57 per cent for
finishing. Moreover, the ratio of finishing to soaking capacity for sheep
and goatskins was 68 per cent (Table 6.3).
In sum, it is clear that the overall leather sector has a long way to go to
meet the GTP’s target output of $500 million by 2015. Employment has
remained below 20,000, insignificant in comparison with the 650,000
employed in this sector in Vietnam. China’s five million workers in the
sector underscore the employment scope of this sector.
<20 6 13.0
20–40 12 26.1
41–60 12 26.1
61–80 12 26.1
>80 4 8.7
Total 46 100
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Curing an Underperformer? Leather and Leather Products
This analysis of the structure of the leather and leather products industry
of Ethiopia is based primarily on the quasi-census conducted by the
author (Oqubay 2012). The results highlight the dominance of small
and medium firms, the low entry and exit barriers, and the wide latitude
for performance.
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Made in Africa
clusters in the leather products industry. Although there have been recent
efforts in Ethiopia to encourage cluster development, this is at an early stage
and requires further study.
SIZE OF FIRMS
According to CSA survey data (2012b), the average size of manufacturing
firms in 2010 was eighty-one persons, while 149 persons were employed
per firm in the leather and leather products industry. This trend appears to
be associated with the firms’ origins as SOEs, which were larger than
privately owned enterprises. Some of the new FDI-owned firms are, how-
ever, much bigger than the privatized SOEs. For instance, Huajian had
1,200 workers in 2012. Moreover, Vietnamese factories on average employ
four times as many workers as their Ethiopian counterparts (GIZ 2009;
LEFASO 2004, 2012). One of the largest footwear manufacturers in
Vietnam (owned by the Taiwanese Chin Luh Group, which is the major
manufacturer for Nike) employs 24,000 workers and manufactures 20
million pairs of shoes per annum. While the subcontract production
system is not present in Ethiopia, 70 per cent of firms in Vietnam operate
on this basis.
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Curing an Underperformer? Leather and Leather Products
209
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210
Curing an Underperformer? Leather and Leather Products
211
Made in Africa
products industry, and production in the meat and dairy industries (FAO
2008; OECD 1976).3 In terms of global footwear production, China is the
leader, dwarfing all countries with 42 per cent of world production and
employing five million workers (FAO 2011). The Chinese footwear sub-
industry is the biggest employer in the world (China Leather Industry
Association 2012). Vietnam, Brazil, and India follow far behind in global
exports of footwear. While Italy leads in higher-end products, China,
India, and Brazil are focused on the lower end.4
The main source of hides and skins for China, Europe, and the Far
East has been the US. The US exports some 750,000 tons of bovine hides
and skins per year, while China is the biggest importer of bovine hides and
skins (FAO 2013). Brazil’s annual domestic consumption of hides
and skins stood at 12 million in 2011. Brazil has 213 million head of cattle
(14 per cent share of the world’s cattle population), an increase of 23 per
cent in ten years. This remarkable growth is attributed to Brazilian policy
and the Brazilian leather promotion agency’s initiatives to improve sus-
tainability, quality, innovation, and creativity.
6.3.4 Summary
In reviewing the Ethiopian leather and leather products sector, certain
features stand out. First, small and medium, mostly family-owned, firms
dominate both sub-sectors. Economies of scale and scope are low, as are
entry and exit barriers. Because the sector is not demand-constrained,
there is the opportunity to engage more firms. The firms’ limitations
suggest the need for increased support from government agencies; mar-
keting, research, and development institutions; and industrial associ-
ations. Learning from Brazilian and Vietnamese experience may be
important. Second, as a labour-intensive industry, labour productivity
plays a central role, implying a need to focus on developing production
capability. The dominance of high productivity and low cost countries
3
The global leather market showed sustained growth between 1981 and 2006, from $13 to $60
billion, but was slowed by the 2008 global economic crisis (FAO 2008). Of the total sales, the hides
and skins segment, tanning, and leather footwear accounted for 12, 30, and 58 per cent
respectively in 2007 (FAO 2008).
4
Brazil has one of the fastest growing leather goods sectors in terms of exports and production.
Brazil’s export earnings increased from $700 million in 2000 to more than $2.2 billion (352,222
tons) in 2011. This shows that this is not a ‘demand constrained’ sector, but one in which new
competitors have expanded to take larger slices of the global market.
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Curing an Underperformer? Leather and Leather Products
(such as China, Vietnam, and India) and the increased buyers’ bargaining
position in the GVC pose formidable challenges for entrants like Ethiopia.
Industrial clusters, which have played important roles in Italy, China, and
Brazil, could do the same in Ethiopia.
Third, the latitude for poor performance is wide, implying that policy
effectiveness is hampered by the lack of inherent pressure in the produc-
tion process. Firms prefer to sell on the domestic market rather than in the
more competitive export market. Moreover, the small size and limited
capital base of the domestic firms limits the scope of specialization, and
the firms view diversifying to other business as a better option to mitigate
their business risks. This implies, arguably, the need for innovative pol-
icymaking and institutional arrangements. Relatively, the leather prod-
ucts sub-industry exerts greater pressure of export discipline.
Fourth, just as energy is critical to cement, and air transport to floricul-
ture, the input supply issue is a binding constraint on this industry. This is
due to the material intensity of the product. In view of the factor endow-
ments of Ethiopia, which also became a key factor in attracting invest-
ment, the key policy challenge will be addressing this binding constraint.
With these premises, the following sections review the policy and insti-
tutional responses of the government.
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5
The decision was also partly influenced by the Derg’s need to produce boots for its soldiers
under extreme balance of payments constraints.
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Curing an Underperformer? Leather and Leather Products
215
Made in Africa
Some of the constraints in this sector could have been tackled through
appropriate policies, institutions, and organization. This did not happen
for several reasons. First, other than the broad definition of the strategy,
no comprehensive roadmap was developed to chart how the sector could
upgrade its position in the GVC. GVC analysis focuses on the ‘dynamics
of inter-linkages within the productive sector, especially the way in which
firms and countries are globally integrated . . . ’ It also examines ‘the
full range of activities which are required to bring a product or service
from conception, through the different phases of production (involving a
combination of physical transformation and the input of various
producer services), delivery to final consumers, and final disposal after
use’ (Kaplinsky and Morris 2000: 4). Most of the policy decisions have not
been informed by an integrated approach and knowledge of the industry.
For instance, data on the local or global outlook of the industry are not
available to MOI. Most of the reports submitted to the NECC focused on
export performance and urgent constraints rather than underlying struc-
tures. Nor was the design of a multimodal transport system informed by
appreciation of the features of the global market in leather and related
products. The policy decision to upgrade products, though important and
long overdue, was not supported by coherent long-term plans.
Second, pressure from powerful lobbies (in particular tanneries) weak-
ened policy coherence and consistency. Some policies appeared incom-
patible, for instance, those promoting live animal exports versus those
promoting the meat processing industry. In addition, some decisions were
not followed through and firm accountability and monitoring was lack-
ing. For instance, the import of raw materials and semi-processed leather
was raised as far back as 2004, but was never seriously addressed. This was
mainly due to pressure from existing tanneries happy with the status quo,
and policymakers who did not insulate themselves from this pressure.
Even the upgrading of products was only implemented much later (in
October 2012).
Third, the institutional setting did not effectively support the sector.
There was no strong institution working on the input side, and there has
been a failure to coordinate trade facilitation and logistics. This is critical
to an industry needing to import accessories and components, and to
export under tight delivery and cost schedules. Research and vocational
training institutions have weak links to the industry. The lead institution
for the sector was strengthened only after 2010. Overall, this lack of
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Curing an Underperformer? Leather and Leather Products
institutions has further solidified the inertia. This situation stands in stark
contrast to Brazil, where research and development support is effective
(see Di John, forthcoming).
Further evidence of inertia includes the inability to diversify the product
range, in part because sub-contracting is almost nonexistent. For instance,
Ethiopian footwear firms have focused on men’s shoes, while foreign-
owned firms produce women’s shoes, for which there is a bigger and
more rapidly changing market. Government has put insufficient effort
into designing policy instruments and institutions to lead firms towards
higher productivity and industrial upgrading. Rather, a perceived easy
way out has been taken in the form of misguided and detrimental efforts
to continue protection and restrict FDI, as well as the weak interest in
exporting and industrial upgrading and lack of inter-firm linkages and
specialization (see Section 6.4.2 for details). Porter (1998: 598) points to
the wider significance of problems such as these by emphasizing that ‘the
most serious mistake is to support policies that will undermine true com-
petitive advantage, reduce the impetus to improve and innovate, and
create an attitude of dependence on government’.
In other countries, (for instance, the Sinos Valley footwear cluster in
Brazil and central eastern Italian footwear clusters) industrial associations,
firms, and local and national governments have played an active role in
industrial upgrading. The Sinos Valley cluster employs 153,400 people
in 1,821 firms (tanneries and footwear and leather article manufacturers).
It exported 100 million pairs of shoes worth approximately $900 million
in 1991. The dynamism of this cluster arose in response to international
competition and increased costs. Cooperative and collective action was
the key to this success (see Schmitz 1995a, 1995b, 1998; IDS 1997).
217
Made in Africa
shortage and poor quality of raw materials. These are obviously inter-
related issues. In terms of constraints on export performance, close to
40 per cent stated that the delays, high prices, and poor quality of raw
materials were the major constraint. In response to the question on the
main cause of lack of competitiveness in terms of price and timely deliv-
ery, the firms pointed to the prices and inadequate supplies of raw mater-
ials as a prime reason. Most of the firms also identified these factors as the
major cause of the lack of competitiveness in terms of quality. According
to recent ELIA data, less than 20 per cent of skins and hides qualified as
Grades 1–3, while Grade 4–6 account for above 80 per cent (MOI 2012a;
ELIA 2012). This is consistent with the findings of other studies (see
USAID 2008; Dinh et al. 2012; Global Development Solutions 2011).
A comparative study on livestock development in Botswana and Ethiopia
indicates that Ethiopia’s cattle productivity is among the lowest in the
world, and that the supply chain is dominated by ‘numerous intermedi-
aries and actors’, a situation that increases transaction costs (UNECA
2012).
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Curing an Underperformer? Leather and Leather Products
166 per cent. The quasi-census shows that over the same period, other
input prices were fairly stable, although some showed less dramatic
increases.
According to the CSA survey of livestock, Ethiopia had more than 52
million cattle (almost half of all livestock), 24.2 million sheep, and 22.6
million goats (CSA 2012a). Livestock is concentrated in the most populous
regions of Oromia, Amhara, and Southern Nations, Nationalities, and
Peoples’ Region (SNNPR). There have been fundamental problems in
livestock development. For instance, the level of commercialization (sur-
plus to subsistence sold) ranges from 12 per cent for cattle to 25 per cent
for sheep and 18 per cent for goats, and 10 per cent overall. The most
extensive use of cattle was for draught, and in the case of sheep and goats,
breeding. Livestock contributes up to 45 per cent of Ethiopia’s agricultural
GDP (25 per cent according to MOFED estimates) (Behnke 2010: 7). In
low-income countries, livestock has broader social significance than as a
financial asset or food source, and represents the basis of livelihood and
cultural identity (Economist at Large 2011).
The number of slaughtered animals has been very low, and insufficient
to supply tanneries. The off-take rate for Ethiopian livestock was also low,
40 per cent for sheep, 27 per cent for goats, and 14 per cent for cattle
(MOA 2012). According to the CSA Agricultural Sample Survey, 61 per
cent of skins and 48 per cent of hides were not marketed but used within
producer households (2012a). Moreover, due to traditional animal hus-
bandry practices, the estimated reproductive rate is 37 per cent (which
means 28 million sheep produce only 9 million lambs), one of the lowest
in the world. At the other end of the spectrum are New Zealand, Australia,
and the UK, with a reproductive rate of 150 per cent. Improving the
agricultural extension system and providing a stronger incentive package
is essential, but not sufficient. This has to be supported by other interven-
tions, such as specialized infrastructure development.
Further, the quality of raw hides and skins has deteriorated in the last
twenty years. Although Ethiopian highland sheepskins (from so-called
Abyssinian sheep) are of good quality, this quality is undermined by
traditional slaughter methods and poor handling of raw hides and skins
during collection. According to ELIA, in the 1980s and early 1990s 50 per
cent of tanneries received Grades 1–3, a result of the compulsory dipping
of animals, as opposed to 20 per cent in 2012. Studies show that the major
reason for the defects is ectoparasites, also colloquially known as ‘cockle’
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or ‘Ekek’ (USAID 2008; MOA 2012; ELIA 2012). This widespread infest-
ation, which can be controlled through appropriate veterinary services,
damages skins and undermines the effects of improved rearing practices.
These findings are consistent with interview responses by Ministry of
Agriculture officials, tanneries, and leather products firms. Although trace-
ability is difficult because of the inter-regional movement of animals and
skins, sheepskins from Gojjam and Gondar are held to be of better quality
and sell at a premium, while poor quality skins from Wollo sell at a lower
price.
Poor livestock health, estimated to cost more than $2 billion per year in
SSA in the 1980s, is a major constraint and requires government to take an
active lead (de Haan and Umali 1994). Unfortunately, veterinary services
and agricultural extension services in Ethiopia are poor and neglected
(Embassy of Japan 2008; USAID 2008; UNIDO 2005), a situation that
has been highlighted in various Ethiopian government documents (CSA
2012a; MOA 2012; MOI 2012a, MOFED 2010; see also Little et al. 2010
and Mahmoud 2010). Studies and pilot projects have been conducted by
various organizations, including USAID and Pittards, which show that the
technology is available to improve skin quality by up to 80 per cent, and
that reproductive performance can be immensely improved.
The introduction and expansion of ranches should be explored as
a complementary policy with medium-term relevance for the meat-
processing industry and supply of raw hides and skins. There is limited
experience of ranches in Africa, although they are common in Latin
America. The type of ranches is related to political factors.6 This policy
option was, however, not considered in the development of the livestock
sector in Ethiopia, possibly to avoid the risks that smallholder farmers
might face by becoming more dependent on livestock.
Currently, the livestock sector is viewed as supplementary to crop pro-
duction by smallholder farmers, rather than as a sustainable source of
livelihood (which also contributes to structural transformation and indus-
trialization). The necessary interventions, from livestock development to
the leather products industry, require a coherent and integrated approach
and high priority in terms of resource allocation. Evidence suggests that
6
See Mwangi (2007) on the political factors that transformed property rights and the ranch
system.
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Curing an Underperformer? Leather and Leather Products
20
18
Export values in US$ million
16
14
12
10
8
6
4
2
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Live animals
Meat and meat products
Leather and leather products
Figure 6.6. Export comparisons: live animals, leather, and meat processing, 1998–2011
Source: Own computation based on ERCA (2012a)
221
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222
Curing an Underperformer? Leather and Leather Products
223
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22
21
20
19
18
17
Export value (in million US$)
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
1
11
11
11
11
12
12
12
12
12
12
01
01
01
01
01
01
01
20
20
20
20
20
20
20
20
20
20
2
,2
,2
,2
,2
,2
,2
ly,
.,
.,
.,
.,
.,
r.,
ly,
.,
.,
.,
ay
g.
n.
b.
ne
g.
ov
ar
ov
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ct
ec
pt
ct
Ap
Ju
Ju
Ja
Au
Fe
Au
M
M
Ju
O
O
Se
Se
N
N
Crust Leather shoes
Finished leather Leather garment and goods
Glove
Figure 6.7. Monthly exports of leather sector ($ million), July 2011–November 2012
Source: Own computation based on LIDI data, 20 December 2012
thirty-first meeting, it was also decided to tax tanneries that did not start
producing finished leather.
The final decision to ban crust exports was made in August 2011, with
December 2011 given as the cut-off date. When firms realized this decision
was irrevocable, they maximized their crust exports between September and
November 2011, temporarily increasing export revenues (Figure 6.7). On
the other hand, prices of raw hides and skins had been increasing rapidly
even before, but now skyrocketed. After January 2012, however, finished
leather exports dropped for many months, reflecting the industry’s lack of
readiness to make such exports. Many of the preparations were incomplete,
and a comprehensive package was not yet in place. Many in the industry
also resisted the change. In short, although the policy was important, its
implementation resulted in resource wastage and havoc.
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226
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Curing an Underperformer? Leather and Leather Products
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230
Curing an Underperformer? Leather and Leather Products
231
Made in Africa
garments (46 per cent share), non-metallic minerals (35 per cent), and
food processing and chemicals (close to 15 per cent). With a share of 4.3
per cent of the total loans to manufacturing, less than half a billion ETB
went to leather and leather products (Table 6.8). The average size of loans
to firms in this sector was ETB 22 million, while the average for the
manufacturing sector was ETB 35 million. The limited share and loan
size for leather and leather products was partly a function of the lower
investment requirements, but does also raise the important question of
whether the sector got what it required to fulfil its export and employ-
ment creation potential.
Eighty-eight per cent of firms in the sector indicated that inadequate
credit facilities posed major challenges, and pointed to the gap between
working capital requirements and available industrial financing. Work-
ing capital plays an important role in this sector, as firms are usually
forced to carry a large inventory. This is due to the high material inten-
sity of the sector, inefficient trade and logistical infrastructures, and
inefficient management within firms. The period for holding stock and
inventory is double that of the overall manufacturing sector (CSA
2012c). The leather and leather products sector’s poor performance
may have discouraged banks from extending loans to the sector. For
instance, in an interview with the author in 2012 (Oqubay 2012), a
senior CBE official, it was indicated that the bank was unwilling to
provide working capital because the firms would not repay within the
stipulated twelve months. Thus, financing policy seems to have been
ineffective in promoting this sector. The leather and leather products
industry was also unable to benefit from the export credit guarantee
scheme (Table 6.9).
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Problems Percentage
6.5.4 Summary
In sum, first, the policy instruments were only partly successful and were
not comparable in scale to the support provided to the cement or floricul-
ture sectors. Second, many of these instruments suffered from design
deficiencies, insufficient implementation capacity, as well as coordination
problems. Third, the firms in this sector played a largely passive and
insignificant role in the process, an issue with deeper implications.
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Curing an Underperformer? Leather and Leather Products
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236
Curing an Underperformer? Leather and Leather Products
poor, while 60 per cent regard coordination among federal, regional, and
local administrations in the same light.
A review of firms’ requests to LIDI highlights the coordination chal-
lenge. A review of 316 letters (LIDI 2012e, 2012f) showed that 40 per cent
of those from foreign-owned firms related to permit requests for expatri-
ates from the labour affairs office. Delegating authority to provide these
permits to LIDI on behalf of the labour office would have eased this
problem. Domestically owned firms’ most frequent requests (37 per
cent) related to sending sample shoes or raw skins overseas, which should
not have required such permission to begin with. Again, a simple directive
would have solved this problem. This also shows how administrative
hurdles that should never have arisen in the first place can overwhelm
an agency, weakening its focus on key aspects of the industrial policies to
promote the development of the sector.
The data also show that these problems became more frequent over
time (eight in 2010, fifty-five in 2011, eighty-eight in 2012). Usually two to
four weeks are lost because of such administrative bottlenecks, significantly
delaying delivery times and increasing costs. This conclusion is also supported
by the author’s survey results (Oqubay 2012): the majority of firms indicated
that they spend significant management time on government-related issues,
and even more than firms in floriculture and cement (Table 6.12).
This shows the failure of such government agencies as MOI and LIDI in
providing coordinated and effective support. During interviews, most
firms regarded LIDI and the ministry as ‘toothless lions’. This in turn
shows the limitations of NECC in guiding the parties and enforcing
decisions. It also confirms that logistics and trade facilitation, as well as
government bureaucratic procedures, continued to be critical constraints.
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≤15 19 35 19 34 5 31 43 34
16–30 22 41 23 41 6 38 51 41
>30 13 24 14 25 5 31 32 25
Total 54 100 56 100 16 100 126 100
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Curing an Underperformer? Leather and Leather Products
Excellent 1 2 – – – – – – 4 9 2 5
Satisfactory 25 58 17 39 4 10 9 22 23 52 11 29
Poor 17 40 27 61 36 90 32 78 17 39 25 66
Total 43 100 44 100 40 100 41 100 44 100 38 100
per cent of firms admitted that the association’s members do not play an
active role. Furthermore, the association does not include recent entrants
into the industry, including foreign-owned firms. In addition, hides and
skins suppliers are not part of ELIA or any other association, which further
compounds the challenges. All of this indicates that government has
failed to address important institutional aspects of the sector.
6.7 Conclusions
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240
7
Failing Better
1
For a discussion of ‘adaptive capacity’ in decision-making in ‘mega-projects’, see Giezen et al.
(2014).
Made in Africa
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Failing Better: Political Economy and Industrial Policy in Ethiopia
dominance of the ruling party since 1992. These factors are believed to
have been favourable to the growth of all three sectors, and for the first
time in its history, the country has witnessed a decade of rapid economic
growth. What has not thus far been explained is why, within this broader
context, there has been such marked variation in performance.
This chapter provides a comparative overview of the three sectors before
outlining such explanations as have been put forward. These are more or
less standard explanations—that outcomes must be a function of com-
parative advantage; are a product of neopatrimonialism; or are a product
of a ‘discovery process’. While not without some value, none of these
explanations is sufficiently convincing empirically or logically. Instead,
the chapter goes on to argue that the Ethiopian experience of policy and
performance is better understood in light of Albert Hirschman’s insights
into ‘linkages’ and the unevenness of developmental processes. From this
perspective, bottlenecks and constraints can be creative. As Samuel
Beckett put it in Worstward Ho: ‘Ever tried. Ever failed. No matter. Try
again. Fail again. Fail better.’2
2
And indeed as the 2013 Australian Open tennis champion Stanislaw Wawrinka had tattooed
on his forearm.
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r
t
t
re
re
re
he
he
he
en
en
en
tu
tu
tu
at
at
at
m
m
ul
ul
ul
Le
Le
Le
Ce
Ce
Ce
ic
ic
ic
or
or
or
Fl
Fl
Fl
Figure 7.1. Comparative performance in three sectors (2003–12)
Source: Summarized from previous chapters (all in per cent)
after the late 1990s. It is also evident that growth in post-1991 Ethiopia
was much faster than in pre-1991 Ethiopia. Learning by doing is as much a
feature of policymaking as of a firm’s management and production tech-
niques. Arguably, a key feature of the overall policymaking context (and
its effectiveness) was the combination of relative political stability/con-
tinuity and a sharp political shock. On one hand, political stability and
continuity since 1991 created an environment conducive to learning by
doing, similar to that allowed by industrial protection. On the other, the
2005 elections produced a ‘shock’. The unexpected political challenge in
2005 acted almost as a ‘hiding hand’ by prompting a renewed develop-
mental imperative and refreshing the coherence of policy commitments.
The significance of policy learning by doing or an evolving adaptive
capacity (Giezen et al. 2014) is not commonly emphasized in the literature
on the political economy of industrial policy in Africa. But in another
respect, the Ethiopian evidence does confirm the findings of Whitfield
(2011) and Buur et al. (2012), who argue that political continuity and
coalition stability matter greatly for the outcomes of productive strategies.
Whitfield (2011), for example, argues that support for Ghana’s potentially
strong horticultural export sector was undermined by the incentive struc-
ture built into the political settlement after the advent of democracy.
Effectively, elites were not compelled to support new productive sectors,
however great their long-term potential: on one hand, emerging horticul-
tural producers were not strong enough to represent a threat; on the other,
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Failing Better: Political Economy and Industrial Policy in Ethiopia
245
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3
Rodriguez and Rodrik (2001:338).
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Failing Better: Political Economy and Industrial Policy in Ethiopia
247
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4
On Ricardian and Kaldorian strategies, see Chapter 2, Section 2.3.2.
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Failing Better: Political Economy and Industrial Policy in Ethiopia
many African countries had the vision and capacity to secure high eco-
nomic growth, for instance, during ‘the golden period of Africa from
1960 to 1980’ (Soludo et al. 2004). Even after the 1980s, Mauritius and
Botswana succeeded in sustaining growth, and since 2000 a dozen coun-
tries, including Ethiopia, have achieved high economic growth.
Second, it is a static, simplistic view that ignores how economic and
political forces are in constant motion, and the complexity of policy-
making. According to Ottaway (2003), neopatrimonialism is ‘an
ill-defined code word for the political ills that afflict the continent’, and
for Clapham (1996: 820) ‘. . . explanation in terms of culture should be
regarded as deeply offensive’. Mkandawire further refutes the notion in
conceptual and analytical terms.
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5
Musacchio and Lazzarini (2014b: 16) highlight ‘. . . thanks to SOEs Brazil developed large
sectors that initially were not funded by the private sector alone, such as steel, airplane
manufacturing, telephony, national oil, gas, petrochemicals, mining, and an integrated electric
grid . . . Most applied innovation efforts were also essentially executed by state agencies (such as
Embrapa in agriculture) as well as large SOEs such as Petrobras and Embraer.’
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Failing Better: Political Economy and Industrial Policy in Ethiopia
6
<https://www.sss.ias.edu/files/pdfs/Rodrik/Research/An_African_growth_miracle.pdf> ‘An
African Growth Miracle?’, Institute for Advanced Study, Princeton, April 2014 (p. 2).
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256
Failing Better: Political Economy and Industrial Policy in Ethiopia
turn developed its own logic of opportunity and linkage to other investors
and to other related activities like packaging and logistics.
A second aspect of linkage effects is that the direction and dynamism of
the linkages may change gradually. At the initial stage, the prime linkage
for the leather sector may have been the forward linkage from livestock,
that is, raw hides and skins, to tanning and leather manufacture. The
push from this linkage became too weak, and the linkage feedback loop
shifted in the opposite direction from the leather sector back to the
development of raw skins and hides production, in short, a backward
linkage. But this linkage in turn only (and for a long time very slowly and
fitfully) unfolded because of the identification of the sector’s potential by
successive governments (supported by a string of external consultancy
reports).
The third aspect is that exploitation of potential linkage effects depends
not only on policy design and execution, but also on politics. Arguably,
one of the key lessons of this study is that almost all linkage effects
required government policy to be effectively exploited, and the outcome
mirrored the quality and effectiveness of the adopted policy and institu-
tional response. It is noteworthy that some policy responses depended on
the state’s posture on addressing the issue. The linkage to air transport and
cargo logistics in floriculture, the linkages to the energy sector, and those
from the construction industry to cement, and the critical financing of
the expansion of all three sectors by the state-owned development bank,
were possible because of the decision-making of the state (in the form of
political imperatives and cohesion, policy design, and institutional set-
tings) at that particular time.
In some cases, such as the development of a packaging industry initially
to service floriculture, the key was the emergence of new entrepreneurs
induced to invest by the rapid growth of flower exports, but even they
were supported by government policies. Yet in the cement industry,
manufacturers directly diversified into a backward linkage to the manu-
facture of cement bags (economies of scope). In the leather sector, the
response to linkage possibilities was left to smallholder livestock owners,
but without fundamental structural and social transformation they were
not in a position to take advantage of the opportunities created by an
emerging leather sector. Developing a dependable input industry based
on many and scattered producers is perhaps more difficult than support-
ing a few modern manufacturers.
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7
The demonstration effect of this commitment should not be underestimated. Arguably, it
helped reveal fresh opportunities in other sectors and hence to build momentum for FDI flows into
Ethiopian manufacturing. In this sense, there may be a form of global intersectoral linkage, where
the obstacles and pressure points include multinational firms’ challenges in finding reliable
manufacturing and assembly suppliers.
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Failing Better: Political Economy and Industrial Policy in Ethiopia
c) The analysis of the leather and leather products sector clearly showed
that linkage effects are not always automatic or as compelling as
they would appear to be. The growth of the sector depended on a
sustainable supply of cheap and good-quality hides and skins,
something that would appear possible given the huge livestock
numbers in Ethiopia. The strategy in this sector was built on com-
parative advantage (cheap labour and livestock resources), and this
sector was singled out for promotion in the overall development
strategy, i.e. Agricultural development-led industrialization (ADLI)
and Industrial Development Strategy of Ethiopia (IDSE). Neverthe-
less, livestock resources are scattered across the country and agricul-
tural transformation is required to meet the growing demand and
requirements of the leather and related products sector. Considering
that livestock herds are dispersed among a large population of often
very low-income smallholder farmers, it may be a long time before
livestock production and husbandry is fully commercialized and
transformed. Traditional agriculture has diminishing returns, but
the feedback loop from leather manufacturing was too weak to
exert the necessary pressure on traditional farming. The govern-
ment’s capacity to mobilize its own resources (directly through
the state-owned enterprises) in shaping this linkage was too limited,
which is surprising in light of the country’s ADLI strategy. Hirsch-
man, in The Strategy of Economic Development (1958), refers to back-
wardness in agriculture by quoting Gerschenkron’s hypothesis
that ‘the more backward it is, the more the state intervention is
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Made in Africa
8
Here there is a direct parallel between Hirschman’s idea of linkages and his (1967) idea, in
Development Projects Observed, of the principle of the ‘hiding hand’, whereby underestimation of
the costs and difficulties of a large project are necessary for the project to be begun at all, but then,
once these problems arise, they often provoke creative problem-solving adaptations.
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Failing Better: Political Economy and Industrial Policy in Ethiopia
and technology. Part of the problem lay in DBE’s lack of appropriate and
effective mechanisms either to choose between borrowers or to monitor
or discipline them. But it seems that there was at least partial learning
here: the development bank started imposing more ex ante discipline by,
for instance, forcing borrowers to put up cash rather than just a fence
around the land. Monitoring was also strengthened (involving joint
action with EHDA, the lead government agency in floriculture) and meas-
ures included transferring assets and loans to a third party. This indicates
that there has been adaptation, but only partially. One concludes that a
reciprocal control principle and monitoring/disciplining have not been
fully developed.
Another such example is the interactions between the EHPEA, EAL, the
government, and the massive Dutch-owned flower farm. Here, too, gov-
ernment adapted. At first, government subsidized rent for no good rea-
son or purpose, allowing the firm to monopolize forwarding of output to
the airport for other flower producers in Ziway. However, there have
been changes since then, including direct service provision to all growers
by EAL. Here, the question arises: to what extent and how is business
decision-making and ‘soft’ technology or knowledge of running a capit-
alist enterprise developing among Ethiopian producers? And how is it
spreading (if it is spreading) from Ethiopians who play a lead role to
others, and from foreign investors (such as the relatively small French-
owned Gallica or Sher-Ethiopia) to Ethiopian owners? In addition, how
does government influence this ‘soft’ technology transfer? Evidence
suggests that farm productivity has improved and the gap with Kenya
is narrowing, while changes in terms of product and market develop-
ment and technological advancement are insignificant. This requires
further research.
Against this backdrop, it is possible to suggest that part of the explan-
ation for the failure in the leather and leather products industry was that
government policy lacked adequate appreciation of, or responsiveness, to
the scope for and challenges to stimulating linkages, despite the many
studies conducted (for instance, UNIDO, Japanese, and Cramer). The
challenge of profoundly transforming agriculture (the time needed,
scale, and politics of intervention) was beyond the scope of the policy
response. This can also be associated with the view that agriculture, unlike
manufacturing, has fewer linkage effects. The challenge was compounded
by the institutional inertia of, in particular, the Ministry of Agriculture
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Failing Better: Political Economy and Industrial Policy in Ethiopia
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sectors within a country, so too will the degree of ‘state autonomy’ vary
across sectors and over time.
Finally, the industrial structure of the cement industry permitted and
called for the government’s direct role through state-owned enterprises.
This has allowed the sector to benefit from the critical role played by
the state. This was not the case with the other two sectors, which were
more favourable to small and medium, family-owned firms. The role given
to and played by state-owned enterprises in Ethiopia has been driven by the
belief that they are essential to industrialization, which requires an activist
role by the state. The neoclassical view emphasizes that markets would
function efficiently and that state intervention is bad. For instance, accord-
ing to World Bank (2013), ‘Private sector-led activities appear to be con-
strained by the policy choices favouring public investment’. This view rejects
the state’s role in direct economic activities through large state-owned enter-
prises (World Bank 1995; Shirley 1997) and holds that the state should
confine itself to protecting private property rights and reducing transaction
costs (North 1990). Consequently, privatization of state-owned enterprises
has been included as a key component of the Washington Consensus
(Williamson 2008) and its successors. The neoclassical view fails to see that
markets are neither always superior to states, nor immune themselves from
politics (Stein 2006; Chang 2006). Bureaucratic decision-making in state-
owned enterprises is wrongly blamed, although bureaucracy is a feature of all
large firms, private or state-owned (Chang and Singh 1997; Chandler 2004).
State-owned enterprises are founded with multiple aims, for instance,
economic transformation or catch up (Amsden 1989; Chang 1994). There
are also no grounds for assuming that state-owned enterprise performance
is weak because of the size of the enterprise or state ownership (Chang
and Singh 1997; Jalilian and Weiss 1997). Indeed, the research does not
support the argument that privately owned firms are more efficient
than comparable state-owned enterprises (Mühlenkamp 2013). There is
certainly huge variation in the performance of state-owned enterprises,
which is still poorly understood (Musacchio and Lazzarini 2014a, 2014b),
but so is there variation among private firms. The differences between
large private and large state-owned enterprises often evaporate on
close inspection: ‘Large, successful firms—regardless of ownership—
exhibit substantial similarities in areas commonly thought to dis-
tinguish SOEs from POEs: market dominance, receipt of state subsidies,
proximity to state power, and execution of the state’s policy objectives’
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Failing Better: Political Economy and Industrial Policy in Ethiopia
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domestic rivalry not only creates advantages but also helps to avoid some dis-
advantages . . . The stock of knowledge and skill in the national industry accumu-
lates as firms imitate each other and as personnel move among firms. Domestic
rivalry not only creates pressures to innovate, but also to find ways that upgrade
the competitive advantages of firms. Toughened by domestic rivalry, the domestic
firms are equipped to succeed abroad.
Where really open and fair competition is unlikely, other devices need to
be instituted by the state, such as reciprocal control mechanisms or other
disciplining measures.
The role of the domestic market in building national capabilities also
suggests that there should be no dichotomy between export-led industri-
alization and import substitution: the value of exporting does not pre-
clude nurturing production for the domestic market. This is opposite to
the view associated with the approach that undermines import substitu-
tion, hindering integration between both strategies to maximize their
complementarities. In the three Ethiopian sectors, export discipline and
competitive pressure seem to have played a critical role, especially in
flower production. Lack of intense competition in the domestic market
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Failing Better: Political Economy and Industrial Policy in Ethiopia
for leather and leather products, and the weakening of export discipline
are major factors in the sector’s disappointing growth. The disparity
between the success of state-owned EAL (unlike many other state-owned
airlines), which has had to compete in the international aviation industry,
and the disappointing performance of the state-owned Ethiopian Ship-
ping Lines, which has enjoyed a monopoly and unjustified rents, is a
typical example of the critical role of competition in industrial perform-
ance and competitiveness. Competition is not a magic ingredient, as it
may not breed success (as witness the failed airlines around the world).
Though it is rarely ‘perfect’ and is neither the only nor always the most
effective means of promoting learning, adaptation, or productivity, com-
petition is, nonetheless, one ‘disciplining’ mechanism that narrows the
latitude for failure.
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Domestic rivalry within the leather and leather products industry con-
tinues to be low, allowing firms to operate in a comfort zone while
undermining the incentive to improve competitiveness and export
orientation. In contrast, competition in the cement industry has latterly
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implemented swiftly and in concert had better effects than those imple-
mented piecemeal. The support provided to the flower sector was swift,
coordinated, and concentrated, and had a clear impact. Loans were pro-
vided in high density without fundamental mistakes being made. Mis-
takes were indeed made, but the cost was much lower than the benefits. In
cement, support in accessing mineral deposits and energy supplies (elec-
tricity, heavy fuel oil, coal), and the design of regulations were directly
related to the requirements of the industry. It became easier to identify the
progress and drawbacks of sector-specific instruments. In floriculture,
the critical requirements were serviced land (with transportation and
energy access and proximity to the airport), availability of air transport,
cold storage facilities, and packaging options. Support has been focused
on these issues, enabling the sector to grow. In the leather and leather
products industry, sector-specific interventions were not evident until
2010, when benchmarking and upgrading value addition were intro-
duced. It is clear that sector-specific instruments deserve greater focus
and are more challenging. Policy decisions related to leather were
sometimes inconsistent (for instance, the export of live animals and
import of inputs), which further undermined policy effectiveness. Some
of the decisions were not taken at an early stage, as was evident in
floriculture.
High-level political commitment was crucial in developing the floricul-
ture sector. The same was true of the cement industry, as there was strong
political pressure on government to support the construction sector. The
state was able to exert strong pressure and make bold decisions to meet
requirements. In the leather sector, despite its priority in government
policy, this was not the case. The measures were too fragmented and
incoherent, producing minimal synergy. Industrial loans (investment
and working capital) were not easily available in sufficient amounts.
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Failing Better: Political Economy and Industrial Policy in Ethiopia
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Made in Africa
EHPEA has played an active role throughout the history of the floriculture
industry. Communication with the highest level of policymakers and
government agencies was open, facilitating the timely resolution of prob-
lems and improving coordination. In the cement industry, the absence of
intermediary institutions did not hamper communication, due to the
large size of the firms. This does not necessarily imply that this will be
the case in the future though. In the leather and leather products industry,
ELIA, which mainly represented tannery interests, was weak and passive
with respect to influencing policymaking, and members lacked a common
vision. Moreover, economic actors in the input supply chain were not
organized into any association.
7.6 Conclusions
276
Failing Better: Political Economy and Industrial Policy in Ethiopia
industry were the key determinants of the pace and scope of policy
outcomes. Second, the varying scope for linkage effects in different sec-
tors, and the appropriateness of policies in promoting creative linkage
effects, were crucial factors, with path dependence and low-value traps
acting as impediments in one sector. An additional point is that past
sectoral experience proved to be more of a constraint than a boost to
industrial prospects: the main example here is the largely stagnant and
mainly export-oriented leather and leather products sector, where a form
of path dependence thwarted policy objectives and interventions.
Third, the disparity in political commitment to, compatibility between,
and consistency of policy instruments and institutions was significant.
Political factors (for instance, the post-2005 election period and urban
development programmes, such as housing and infrastructure) played an
important role in promoting the cement industry. Political pressure from
scattered producers in leather inputs and processing played an equally
important, but opposite role. The quality of policy decisions and institu-
tional capacity varied among the sectors. The particular tensions and
trade-offs that arise in policymaking across individual sectors, ministries,
and organizations are also very relevant. Overall, what matters for the
evolution and effectiveness of industrial policy is the way these three
factors—industrial structure, linkage dynamics, and (broadly) politics—
interact.
Finally, the contribution of this research, and perhaps its most original
policy implication, is that it has unequivocally shown the importance for
policymakers of understanding and engaging with the interaction of indus-
trial structure, linkage potential, and politics/political economy. The interrela-
tional dynamics among these variables have significant implications for
policy design and implementation; and for the type of selective interven-
tion chosen to promote industrialization, as well as for how to guide the
design of reciprocal control mechanisms and assess their viability. It is
often pointed out that selectivity is critical to industrial policy: this
research provides a way of guiding thinking regarding that selectivity.
277
8
This chapter ties together the book’s findings and arguments on industrial
policy and performance across three sectors in Ethiopia and highlights
future research areas. After summarizing the previous chapters and focus-
ing on policy learning and lessons for Africa and other developing econ-
omies, the chapter concludes with a discussion of Africa’s catch up and
activist industrial policy in light of the theoretical perspectives and empir-
ical findings presented in the book. This final section reinforces the link to
the basic premise of the book—that industrial policy should be the vehicle
for catching up and structural transformation. As has often been noted in
earlier chapters, this is a departure from the more ‘market-friendly’ inter-
ventions favoured by conventional economists, including those who
have rediscovered industrial policy in recent years.
8.1 Summary
8.1.1 Main findings and theoretical implications
This book has examined industrial policymaking in Ethiopia between
1991 and 2013, and has sought to shed light on why outcomes have
been uneven across industries, despite a common foundation in industrial
development strategy and industrial policy. This puzzle has received little
attention in existing literature, since most studies generalize at the
national and international levels, and not at the level of cross-sectoral
comparison. Above all, the research for this book supports the argument
Lessons from Industrial Policy in Twenty-First-Century Africa
that industrial policies can work and indeed thrive in a low-income Afri-
can country such as Ethiopia, and that the state can play an activist
developmental role, with policy independence an important factor. The
pretentions, lapses, setbacks, and failures of the ‘developmental state’, far
from indicating its uselessness, should be viewed, the book argues, as part
and parcel of the real-world process of accelerating structural change and
development. Industrial policymaking in Ethiopia is a work in progress,
and the examples discussed in the book illustrate the colossal challenge of
catching up and industrializing in twenty-first-century Africa.
In Chapter 2, the cardinal concepts of industrial policy, structural trans-
formation, catch up, the developmental state, and linkage effects are
examined, and the African context is briefly laid out. In addition, debates
on industrial policy and development are presented, and the economic
structure in developing countries (especially SSA countries) and historical
growth trends are outlined. Industrial policy has always been the subject
of ideological contention, and the dominant perspectives are strongly
averse to such policy in developing countries and have been better at
accounting for its failures than its evident successes. This book has
deployed structuralist and political economy perspectives (more pluralist
than the ‘mono-economics’ prevailing in the discipline since the late
1970s) to investigate the rationale for and recent experiences with indus-
trial policy in Ethiopia.
Ethiopia is a low-income, landlocked economy in a ‘bad neighbour-
hood’, and has the second largest population in Africa, and yet it is also
one of the few developing countries to record rapid economic growth in
the early twenty-first century. Chapter 3 maps out the history and foun-
dations of policymaking in Ethiopia, including the industrial development
strategy of the current government and the associated institutional frame-
work, information that is not available elsewhere in the literature. The
policy instruments include industrial financing, investment and export
promotion, trade protection, the state as direct economic actor/industrial
player, and privatization. The chapter sets out the roles of the overall export
coordinating institution and specific institutions designed to develop pri-
ority sectors, intermediary institutions (such as industrial associations), and
investment administration institutions. This descriptive analysis highlights
government adaptations of international experience and practice, particu-
larly in East Asian countries. Industrial policy instruments relating to spe-
cific sectors are further discussed in subsequent chapters.
279
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280
Lessons from Industrial Policy in Twenty-First-Century Africa
development, but do not just bloom automatically under the warm sun
of comparative advantage. State commitment to develop the sector and
its use of policy instruments was exceptionally clear and coherent.
Collective learning was also impressive, with the industry ‘picking the
state’ and the state ‘picking the firms’. Floriculture also benefited from
the narrow latitude for poor performance and export discipline. The
chapter also shows how policies that helped bring about successful
take-off became insufficient as the industry matured and confronted
new challenges, which call for new policy responses. The chapter dem-
onstrates an ongoing ‘learning by making policy’, in spite of these new
challenges.
Chapter 6 focused on the underperformance of the leather and leather
goods industry and the reasons for the disappointing outcomes. The ‘joint
production’ of outcomes in this case involved policy design, the structure
of the industry, and, very much, the sector’s political economy. What the
chapter clearly shows is that factor endowment arguments are grossly
inadequate explanations for the failings in this sector. In contrast to
cement and floriculture, the performance of the sector has been disap-
pointing and characterized by erratic and sluggish growth. Industrial
policy has been unable to reverse this poor performance, or to fully exploit
potential linkage effects and insertion into the GVC. The main puzzle is
that there has been prolonged manufacturing experience in the sector and
there is a plentiful endowment of livestock. Yet the policies failed to
generate the required behaviour and export discipline among firms. The
main economic interests in the sector have been fragmented and often
conflicting. Tanneries have dominated, while the leather products indus-
try (which is integrated into GVCs) has failed to exert much influence.
This demonstrates how linkage effects are not necessarily automatic, and
how the policy instruments and institutions also lacked the dynamism to
promote them. Policy also failed to address strategic input problems,
while trade and logistical constraints further weakened the sector’s com-
petitiveness. Dependence on small-scale livestock husbandry is also part
of the explanation, as is the wide latitude for poor performance in the
sector. The sector has experienced path dependence that has perpetuated
a low-value trap. Despite these failings, recent policy on value addition
and new entrants is helping to break the logjam in the sector. Moreover,
there is recent evidence of more investment, better quality, and increased
exports of higher-end products.
281
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282
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283
Made in Africa
1
Policy space refers to the ‘various tensions between national policy autonomy, policy
effectiveness and international economic integration’ UNCTAD (2014: vii). Globalization,
market internationalization, and legal agreements (multilateral, regional, and bilateral) create
obligations that undermine the scope of national policy.
284
Lessons from Industrial Policy in Twenty-First-Century Africa
2
While much evidence has been presented in previous chapters, additional evidence of possible
value to researchers and policymakers may be provided by the author. Much of this evidence would
have been more difficult, even impossible, for ‘outsiders’ to assemble.
285
Made in Africa
latitude for performance, hiding hand, and linkage effects) to steer and
enhance policy learning.
286
Lessons from Industrial Policy in Twenty-First-Century Africa
3
Indeed, it may even be driven by something akin to the ‘mimetic envy’ that is at the core of
Girard’s work (see, for example, Girard 1977).
287
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Despite the efforts made, the rudimentary application, and the mixed
results of reciprocity in Ethiopia, the government needs to continue
experimenting with and mastering reciprocity.
In addition, many scholars highlight the importance of role models for
late developers. Amsden particularly showed their relevance for learning,
based on the economic histories of Argentina, Chile, and the Philippines
in contrast with the experiences of Korea and Indonesia. Amsden (n.d.)
argues that:
A problem in Argentina and Chile was the absence of any hands-on role model to
guide them. . . . [T]hey could emulate nothing regional. Nor did . . . multinational
investment from Europe or the US, offer much guidance. . . . Overall, the Philip-
pines . . . had good students but no teacher to guide it when an opportunity
presented itself . . . Off-setting the costs of emulation, role models provide hands-
on knowledge to emulators. . . . Korea and Taiwan . . . used many of the same
agents, policies, institutions and tactics [as Japan] to build their own heavy indus-
tries. . . . Africa’s disappointing economic performance in the presence of rich raw
materials may be attributed to . . . a continuity in foreign ownership of mines and
plantations, and the absence of a concrete role model to emulate other than
abstract theory.
Applying these approaches requires trial and error (rather than the
quasi-scientific notion of experiment in the randomized controlled trial
literature) and learning by doing. It also requires adaptive capacity in
decision-making (Giezen et al. 2014). If learning by doing is important
in manufacturing, it is even more so in policymaking, where it depends on
a pragmatic approach, curiosity in learning, and the boldness (including
political commitment) to experiment and make mistakes. There will be no
learning without mistakes, and the aim should be to improve the pace of
learning and to narrow the scope for and of mistakes. Ethiopian patterns
of policymaking show attempts at experimenting on mini and grand
scales, often with mixed outcomes. Learning by doing is probably a
289
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291
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292
Lessons from Industrial Policy in Twenty-First-Century Africa
4
Indeed, in mid-2014 the International Comparison Project and IMF growth projections
suggested the Chinese economy would outgrow the US economy sooner than earlier forecasts
(for instance, see Huffington Post (2014)).
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Made in Africa
The real scarcity in underdeveloped countries is not the resources themselves but
the ability to bring them into play . . . If the economy is to be kept moving ahead,
the task of development policy is to maintain tensions, disproportions, and dis-
equilibria . . . The investment that is induced by complementarity effects may help
to bring about a real transformation of an underdeveloped economy . . . [O]ne
disequilibrium calls forth a development move which in turn leads to a similar
disequilibrium and so on ad infinitum . . . Once economic progress in the pioneer
countries is a visible reality, the strength of the desire to imitate and follow suit, to
catch up obviously becomes an important determinant of what will happen
among non-pioneers.
Such a possibility gives hope to latecomers from Africa, and can provide
opportunities for neighbours as well as being a source of motivation and
experience.
294
Lessons from Industrial Policy in Twenty-First-Century Africa
can neither bring structural change to the economy nor achieve catch up.5
Ultimately, it is a Kaldorian strategy (which partly ignores factor disad-
vantages or advantages, focuses on manufacturing exports, and is invest-
ment-driven) that can address the challenges of catch up in terms of
investment concentration, learning, and innovation.
As discussed in Chapter 2, Kaldor’s growth laws emphasize manufactur-
ing as an engine of growth, the strategic role of exports, and the funda-
mental importance of the balance of payments (Thirlwall 2002). But
history repeatedly demonstrates that realizing the benefits of these ‘laws’
and managing the structural balance of payments constraint on low-
income countries can only be achieved by an activist or developmental
state. The biggest advantage of latecomers is Gerschenkron’s ‘relative
degree of backwardness’ vis-à-vis industrial forerunners. According to
Gerschenkron, ‘a point will be reached at which the advantages implied
in rapid economic development will more than offset those obstacles to
economic progress, which are inherent in the state of economic back-
wardness’ (Gerschenkron 1955: 13; Hirschman 1958: 8). In contrast to
neoclassical thinking, he emphatically stressed that the degree of state
intervention increases with the relative degree of backwardness between
latecomer and forerunner. The experience of the Asian forerunners is a
great example for many African countries, and has gradually inspired
many African policymakers, not least in Ethiopia.
The above discussion reinforces the argument that active industrial
policies and an activist state go hand in hand, and that an active industrial
policy must essentially focus on manufacturing and exports (because of
the dynamics of increasing returns, learning by doing, spill-over, and
linkages). It is also worth mentioning that cheap labour is no guarantee
of sustained economic growth, while sustaining productivity in line with
international competition is. Continuously upgrading the technological
basis of industries and diversifying into new activities and industries is the
essence of an active industrial policy. This is what climbing the ladder
means.
5
The availability of cheap labour is repeatedly raised, while the centrality of labour productivity
is ignored in most debates. For instance, Japan has been able to sustain labour productivity,
matching increased labour costs for almost fifty years. In contrast, evidence suggests that in
many countries (such as Vietnam) labour costs have exceeded productivity growth, resulting in
the relocation of some factories to other countries with cheap labour. So, the only guarantee of
sustained competitiveness is a focus on productivity growth.
295
Made in Africa
Ajit Singh tells how Nicholas Kaldor taught him three things. ‘First, the only way
for a country to develop is to industrialise; second, the only way for a country to
industrialise is to protect itself; and third, anyone who says otherwise is being
dishonest! The developed economies do preach double standards.’ They preach
free trade for developing countries, yet protect their own markets.
296
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available at <www.nbe.gov.et>
NECC (2010) Study on Export Sector Development, Leadership, and Coordination.
Unpublished draft. National Export Coordinating Committee, Prime Minister’s
Office, Addis Ababa, Ethiopia.
NECC (2012) Minutes of meetings (Number 1–92) of the National Export Coordinating
Council, 2004–12. Addis Ababa, Ethiopia.
Oqubay, Arkebe (2012) Quasi-census (Number 1–150), site observations (Number
1–50), and interviews (Number 1–200) with selected firms in cement, floriculture,
leather and leather products sectors, and related stakeholders. Unpublished. Addis
Ababa, Ethiopia.
PPESA (2012) Privatization performance and reports. Unpublished.
Royal Netherlands Embassy (2012) Surveys of on Dutch Flower Firms in Ethiopia
2010–12. Unpublished, Addis Ababa, Ethiopia.
325
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Introductory Note
References such as ‘178–9’ indicate (not necessarily continuous) discussion of a topic
across a range of pages. Wherever possible in the case of topics with many references,
these have either been divided into sub-topics or only the most significant discussions of
the topic are listed. Because the entire work is about ‘Ethiopia’, the use of this term (and
certain others which occur constantly throughout the book) as an entry point has been
restricted. Information will be found under the corresponding detailed topics.
328
Index
329
Index
Clapham, Christopher 73–4, 242, 249, 251 competitive advantage 24, 49, 167, 175,
clay 132–3 207, 217, 258
clusters, industrial 207, 213 competitive edge 29–30, 122, 196, 203
co-financing 85, 134–5 competitive forces/pressures 23, 112,
coal 112, 121–2, 129, 138–9, 141–4, 274 121–2, 163, 210, 268, 271–3
imported 143–4 competitive intensity 162, 164–5
coal conversion technology 122, 139 competitive structure 119–20
coherence 183, 244–5, 248, 271 competitiveness 17, 137, 139, 218, 238,
cold chain logistics 163, 184, 191, 258 240, 281–2
cold storage facilities 170–1, 274 cost 170, 203, 210
collateral-free loans 127 global 8, 52, 164
collective learning 103, 150, 152, 183, international 65, 190
192–3, 265, 281 complementarities 101, 183, 222, 268
Collier, Paul 15, 245 complexity 9, 82, 186, 251
Colombia 162, 164 compulsion 33, 48–9, 94
command economy 62–3, 76, 208, 214, concentration ratio 123
243, 262 conflicts 61, 84, 128, 222, 254
Commercial Bank of Ethiopia, see CBE conflicts of interests 84, 254
commodities 22, 25, 27, 45–6, 50, conglomerates 71–2, 119, 131
147, 233 constitutional framework 81–2
primary 19, 22, 24, 32, 47, 50, 52 constraints 7, 9, 11, 139, 216, 273, 275
commodity prices 51, 54 balance of payments 19, 22, 45, 153,
comparative advantage 24–6, 29–30, 187, 214, 295
150–1, 177, 243, 245–9, 280–1 binding 24, 142, 203, 213, 217,
dynamic 30, 158 226, 258
static 151, 248 capacity 126, 275
comparative advantage-defying (CAD) foreign exchange 77, 107, 147
29–30 input 235, 262
comparative advantage-following (CAF) institutional 79–80, 90
29–30 key 52, 217, 240, 246, 259
comparative analysis 174, 243–5 major 65, 86, 99, 103, 218, 220, 227
comparative performance 241–5 political 40, 52, 196, 255, 270
in three sectors 244 construction
comparators 154, 159, 246 boom 121, 126, 133, 258, 280
compatibility 31, 221, 273, 277, 282 construction-cement linkage 123–4
competition 42, 48–9, 215, 262–3, 265, industry/sector 109, 124, 126–8,
268–9, 272 130–2, 146–7, 254, 256–8
domestic 27, 148, 226 consultants 126–7, 228
foreign 42–3 consumers 4, 70, 113–14, 131, 216
intense/stiff 89, 198, 227, 268, 293 consumption 108, 112–13, 125, 129,
international 8, 149, 159, 167, 170, 132, 164, 169
211, 217 contractors 93, 126–7, 145
policy 71, 272 control mechanisms, reciprocal 39–41,
price-driven 164 180, 182, 251, 255, 268, 271–2
330
Index
331
Index
disciplining 39–40, 42, 49, 180, 183, 269 economic actors 31, 44, 183–5, 192, 264,
discovery process 150–1, 177, 243, 275–6, 282
252–4, 256, 280 economic agglomeration 90, 173
distribution 31, 116–18, 167–8 Economic Commission for Latin America
diversification 19, 41, 51, 153, 173, 202 and Caribbean (ECLAC) 22
export 154–5, 191 economic growth 19–20, 24, 51, 55, 57,
diversity 39, 54, 74, 241, 250, 256, 293 100, 103
management of 73–4 rapid 4, 8, 243, 276, 279
Djibouti 3–4, 105, 128, 146, 207, 228 economic history 21, 30, 42, 103, 289,
document reviews 106, 152, 197 292, 296
domestic competition 27, 148, 226 economic policies 16, 31–2, 78, 151, 251
domestic firms 118, 160, 162, 188–92, economic renaissance, African 13
263, 265, 267–8 economic transformation 5–8, 19, 22,
domestic market 43–5, 133, 137, 230–1, 30, 35, 56–8, 71
268, 271–2, 283–4 economies of scale and scope 209, 212
domestic private sector 83, 89, 91, 95, cement industry 115–17
97–8, 118, 121 floriculture 165–6
domestic production 42, 45, 94, 169 economists 16, 18, 21, 53, 57, 278, 285
domestic rivalry 49, 120, 268, 272 Ecuador 162, 164, 175, 180, 183,
domestically owned firms 70, 160, 162, 185, 191
188–90, 192, 209, 237–8 EEPCO (Ethiopian Electricity Power
Doner, Richard 25, 36, 259 Corporation) 77, 129, 133,
donor community 249–50 141, 182
Dutch embassy 179, 181, 183, 186, 190, effective industrial policies 11, 41,
264–5 81–2, 260
duty-drawbacks 93, 177, 229 effectiveness 85, 89, 100, 102, 270,
duty-free privileges 27, 90–1, 176 273, 277
dynamic comparative advantage 30, 158 policy 13, 28, 79, 152, 264,
dynamic growth 22, 250 273–4, 284
dynamics 58, 147–8, 280, 282, 284, EFFORT (Endowment for the
288, 295 Rehabilitation of Tigray) 71, 116,
of industrial structure 151, 280 118, 131, 233
internal 151, 292 EHDA (Ethiopian Horticulture
linkage 11, 13, 47, 128, 143, Development Agency) 149–50,
173–4, 277 152, 156–7, 168–70, 181, 183–4,
dynamism 42, 72, 76, 210, 217, 256–7, 186–7
281–2 EHPEA (Ethiopian Horticulture Producers
and Exporters Association) 171,
EAL (Ethiopian Airlines) 87, 168, 170–2, 175, 181, 183–4, 186, 192, 255
188, 191–2, 228, 261 EIA (Ethiopian Investment Authority)
East Asia 33, 38–9, 57, 64–5, 288, 290, 89–90
292–3 EIB (European Investment Bank) 87, 136
ECLAC (Economic Commission for Latin EIGs (endowment investment groups) 71
America and Caribbean) 22 elections 74, 102, 127, 244, 259
332
Index
electricity 70, 110, 121, 129, 133, 142, 227 EPC (Ethiopian Petroleum Corporation)
generation 75, 80, 129 141, 143
supplies 111, 142, 181 EPRDF (Ethiopian Peoples’ Revolutionary
ELI, see export-led industrialization Democratic Front) 61, 72–3, 95,
ELIA (Ethiopian Leather Industry 100, 128, 242
Association) 198, 215, 218–20, equitable development structure 6
223, 238–40, 262, 276 equitable growth 73–4, 90, 272
elites 36, 53, 244, 246 ERCA (Ethiopian Revenue and Customs
embedded autonomy 35, 76–7 Authority) 2, 91, 93–4, 146, 153–4,
embeddedness 35, 72, 77, 101 184, 200–2
emerging economies 4, 113, 230, 293 Eritrea 61, 105
empirical evidence 9, 11, 13, 22, 246, ESA (Ethiopian Standards Agency) 169
250, 276 ESL (Ethiopian Shipping Lines) 96, 146,
employees 2–3, 109–10, 156–8, 163, 211 182, 228
employers 158, 167, 186 Ethiopia, see Introductory Note and detailed
employment 69, 109, 127–8, 156, 158, entries
168–9, 243–4 Ethiopian Airlines, see EAL
creation 104, 130, 141, 143, 155–6, Ethiopian Electricity Power Corporation,
173, 198 see EEPCO
direct 49, 149 Ethiopian Horticulture Development
generation 44, 74, 79, 110, 190–1, Agency, see EHDA
272, 283 Ethiopian Horticulture Producers and
floriculture 155–8 Exporters Association, see EHPEA
leather and leather products Ethiopian Investment Authority (EIA) 89–90
industry 204 Ethiopian Leather Industry Association,
indirect 156 see ELIA
linkages 49, 288 Ethiopian Peoples’ Revolutionary
emulation 8, 75, 287, 289–90 Democratic Front, see EPRDF
Endowment for the Rehabilitation of Ethiopian Petroleum Corporation (EPC)
Tigray, see EFFORT 141, 143
endowment funds 250–2, 272 Ethiopian Revenue and Customs
regional 70, 98, 116, 233 Authority, see ERCA
endowment investment groups, see EIGs Ethiopian Shipping Lines, see ESL
endowments 30, 70–1, 150, 175, 182, Ethiopian Standards Agency (ESA) 169
247, 251 Ethiopian Tannery 202, 233
factor 52, 148, 151, 196, 213, 245–7, ethnic federalism 16, 288
280–1 European Investment Bank, see EIB
history-determined 24 European Union (EU) 149, 202
natural 150–1, 175, 196, 239, Evans, Peter 33–5, 101, 160, 264
249, 280 evidence
energy 112, 116, 121–2, 128–9, 142–3, empirical 9, 11, 13, 22, 246, 250, 276
167, 176 historical 250
costs 112, 142, 144, 164 excess capacity 106, 111, 121, 123,
efficiency 111–12, 142 144, 147
333
Index
exchange rates 92, 146 failure 198, 242, 246–7, 258–9, 267–8,
policy 177, 229, 271, 273 279, 290–1
executive directives 81–2, 90 latitude for 48–9, 117, 268–9
export ban 201, 224–5 market 16, 18, 29, 57, 59, 95, 252
export competitiveness 177, 217 family-owned firms 167, 215, 266
export coordination 99, 234 FAO 195–8, 211–12, 214
export directives 187 farms 157–9, 161–2, 165–6, 170, 174,
export discipline 49, 94, 100, 152, 268–9, 180–1, 188–9
271–2, 281 smallholder 74, 83, 156, 174, 220
export diversification 154–5, 191 state-owned 174–5, 181, 255
export earnings 66, 153, 155, 173, 195, FDI (foreign direct investment) 63–4,
200–2, 283 88–9, 167, 175–6, 188–9, 208–9,
export-led industrialization 31, 40–3, 264–5
91–2, 94, 268 attracting and managing 43–4
export markets 42, 149, 195, 213, 227, floriculture 188–9
256, 267–8 federal government 70, 81, 128, 275
export performance 92, 94, 152–3, 200, Federal Investment Agency, see FIA
203, 216, 218 federalism 4, 63–4, 73–4, 103, 270,
export promotion 88, 91–5, 100, 174, 272, 284
176–8, 229–30, 271 ethnic 16, 288
export sector 55, 93, 99–100, 107, 175, FIA (Federal Investment Agency) 88–91,
180, 184 93, 141, 176
export targets 39–40, 201, 273 finance 4, 26, 32, 86–9, 97, 226, 234
setting and monitoring 94 financial crises 162, 252
export values 153, 164, 195, 221, 224 financial institutions
export volumes 65, 164, 173, 200 foreign 83
exporter rankings 164 international 9, 13, 56, 71, 73,
exporters 22, 89, 93–4, 114, 187, 77–8, 87
228–9, 234 financing 54, 87, 128, 174, 178, 293
exports 21–2, 41–2, 99–101, 153–5, industrial, see industrial financing
197–200, 212–14, 229–30 long-term 84, 130, 134–5
industrial 32, 50, 64, 88 mortgage 83
manufactured 50, 56, 69, 153, 195, Fine, Ben 38, 57, 96
200, 295 finished leather, exports 214, 224, 226
external economies 136 five-year development plans 80–1
externalities 117, 158, 173, 188 FloraHolland 162–3
floriculture 11–12, 149–94, 208, 242–4,
facilitating state 29 254–8, 274–6, 280–1
factor endowments 52, 148, 151, 196, air cargo challenges 170–2
213, 245–7, 280–1 air cargo directive 188
factories 3, 111–12, 114, 116–17, air transport 163
119–20, 143–4, 169 coordination drawbacks 185
packaging 117, 122, 152 development of strong domestically
shoe 62, 195, 207 owned firms 189–90
334
Index
economies of scale and scope 165–6 flower sector 167, 169, 173–4, 256, 258,
effective institutional coordination and 265, 273–5; see also floriculture
policy coherence 184–6 food industry 66, 69, 135
emerging challenges 188–91 footwear 204–5, 209, 212, 214, 217,
employment generation 155–8 236, 238
export destination and price patterns 155 production 3, 209, 213
export diversification 154–5 foreclosure 178–9
export growth 153–5 foreign banks 56, 82, 87, 286
export promotion and devaluation foreign competition 42–3
177–8 foreign direct investment, see FDI
and FDI 188–9 foreign exchange 3, 61, 125, 129–30,
firm ownership and corporate 134, 146, 154–5
structure 160–2 and cement industry 136
firms 88, 169, 171–3, 177–8, constraints 77, 107, 147
185–6, 251 earnings 130, 154, 191, 255
growth stage challenges 191 foreign currency retention 93–4
high growth 152–9 foreign investment, see FDI
horticulture and new growth corridors foreign investors 18, 132, 134, 248–9,
172–4 255, 261, 264
industrial financing 178–80 foreign markets 27, 44, 122
industrial structure 160–6 foreign(-owned) firms 119, 160–2, 189,
intermediary institutions and 192, 209, 215, 251
industry–government dialogue forerunners 23–4, 26, 59, 69, 295
185–6 forward linkages 20, 46–7, 56, 109, 169,
investment promotion 176–7 191, 256–7
linkages and industrial development fragility 38, 74, 79, 83, 87, 127, 241
167–74 France 23, 28, 32, 81, 163, 249
major markets and destinations 163 franco-valuta basis 146
market and competitive intensity 162–5 free trade 15, 25–6, 58–9, 246, 287, 296
narrow latitude for poor freedom 26, 73, 286–7
performance 166 frontrunners 15
packaging standards 187–8 fundamentalism, market 18, 55, 255
policymaking 186–8
price-driven competition 164 garments 5, 63, 79–80, 102, 166,
provision of affordable land, 232–3, 236
infrastructure, and logistics 181–2 GDP (gross domestic product) 1, 50–1,
rise 174–83 53, 62, 64–7, 70, 80
social dimension 156–8 Gereffi, Gray 196, 209–10, 222
specialized institutional support 183–4 Germany 23, 32, 75, 155, 163,
technological characteristics 165–6 225, 227
value chain 165 Gerschenkron, Alexander 23–4, 34, 38,
value-chain spin-offs 167–74 259, 288, 295
flower farms 2, 152, 157, 161–2, 164, gestation periods 107, 118
166, 173–4 global cement industry 113–15, 137
335
Index
global markets 114, 155, 200, 211–12, GVC (global value chain) 196–8, 210,
216, 223, 264 213–14, 216, 222, 281, 283
global value chain, see GVC gypsum 132–3
globalization 13, 47, 131, 210, 284, 293
goals 34–5, 270, 296 Habesha 119, 135–6
developmental 74, 76 Hall, Peter 31–2, 34
Goodrich, Carter 26, 28, 32 Hamilton, Alexander 26–8, 116
governance 28, 64, 73, 249, 255, 265, 273 heavy fuel oil, see HFO
government 72–3, 78, 103, 105, 128, Helmsing, A.H. 150, 159, 161, 177
131, 177 herbs 150, 154–5, 173
agencies 140, 146, 152, 182, 184–5, HFO (heavy fuel oil) 122, 129, 141–2,
187, 275–6 144, 274
federal 70, 81, 128, 275 hides and skins 195, 197, 201, 203, 212,
guidance 123, 139 217–20, 222–4
institutions 99–100, 185, 235–6 exports 213–14
interventions 40, 122, 127–8, 157, prices 218
177, 189, 253 supply 210, 222
offices 93, 99, 103, 141, 181, 187, 228 hiding hand 244, 290
policy 85, 87, 120–2, 131–2, 148, 151, Hirschman, Albert 23–5, 30–2, 34, 41–8,
207–8 169, 171–2, 290–1
support 158, 174, 177, 192, 238 historical evidence 250
Grabel, Ilene 83 history 36, 39, 59–60, 103–4, 287–8,
greenhouses 158, 165–6, 174, 179 292–3, 295
gross domestic product, see GDP economic 21, 30, 42, 103, 289, 292, 296
growth 6–8, 11–12, 19–22, 130–1, 150–5, long 60, 74, 95, 240
210–12, 247–8 Hobday, Mike 36, 42
drivers of 5, 12, 106 Holland, see Netherlands
dynamic 22, 250 horticulture 17, 102, 153, 156, 191
equitable 73–4 and new growth corridors 172–4
perspective 24–5, 182 see also floriculture
productivity 8, 20, 31, 158, 295 housing 107, 124, 145, 147–8, 258, 277
rapid 6, 8, 19, 22–3, 61, 63–5, 257–8 development 124–6, 145, 259
sluggish/slow 12, 101, 196, 200, programme 84, 86, 124–8, 291
239–40, 281 public 124–5
stage 191, 254, 269 human capital 23, 54
sustained 7, 12, 22, 131, 148–9, human resource development 64–5,
182, 212 75–6, 79, 95
Growth and Transformation Plan, see GTP human resources 85, 189–90, 192, 199;
growth laws 19–20, 295 see also labour
growth rates 66–7, 75, 105, 108, 110,
113, 153–5 IDF (Industrial Development Fund) 86,
annual 2, 66, 105, 108, 110, 113, 153–4 135
GTP (Growth and Transformation Plan) IDSE (Industrial Development Strategy of
61, 64, 80–1, 132, 134, 189, 198 Ethiopia) 79–80, 132, 259
336
Index
IFC (International Finance Corporation) strategy 64, 79–80, 84, 100, 155,
87, 136, 227 278–9, 284
IFIs (International Financial Industrial Development Fund, see IDF
Institutions) 9, 13, 56, 71, 73, Industrial Development Strategy of
77–8, 87 Ethiopia, see IDSE
IHDP (Integrated Housing Development industrial exports 32, 50, 64, 88
Programme) 124–5 industrial financing 85, 87, 184, 229, 279
IMF (International Monetary Fund) 5, cement 134–6
78, 82, 96 floriculture 178–80
import permits 126, 146 leather and leather products industry
import substitution 40, 42, 44–5, 141, 231–3
143, 154, 268–9 policies and instruments 82–7
import-substitution industrialization, supplementary financing instruments
see ISI 86–7
import-substitution industries 11–12, industrial parks/zones 3, 75, 88, 91, 119,
101, 105–48, 283 227, 284
import swallowing 45 industrial performance 9, 247, 269
imported inputs 168, 177, 225 industrial players 95, 121, 136
imports 42, 45, 107, 142, 146–7, 168–9, 227 industrial policy 1, 3, 5, 7, 9, 11, 249–52
cement 125–6 active 7, 43, 57–8, 164, 183, 247, 294–5
direct 126, 144, 146–7 appropriate 61, 167, 245
cement 146–7 catch-up perspectives 22–5
incentives 40–1, 43–4, 88–9, 91, 132–3, cement 132–40
147–8, 270–2 and development 15–59, 279
investment 89–90, 130, 132, 169, 177, effective 11, 41, 81–2, 260
271, 273 evolution and effectiveness of 11,
packages 184, 191, 219 277, 282
structures 76, 89, 103, 244, 254, 267 instruments 53, 56, 79, 183, 279
tax 44 limits as process of discovery 252–6
income tax 44, 132 outcomes 31, 149, 269, 276
independence 50, 53, 60, 73, 75, 245, and performance 60–104
286–7 political economy approach 31–3
policy 10, 13, 77, 245, 255, 279, 285–7 political economy perspectives and
India 21, 88, 106, 112–13, 159–60, 202, dimensions 31–50
212–13 post-1991 63–6
inducements 24, 26–7, 254 reasons for failure in African context 50–7
industrial actors 70–2, 223 structuralist perspectives 19–22
industrial associations 100, 122–3, 140, industrial policymaking 8, 10–11, 13, 16,
183–4, 186, 238, 264–5 52, 55, 278–9
industrial clusters 207, 213 background 55–7
industrial concentration 202–3 cement 140–7
industrial development 7, 9, 20, 22–3, industrial structure 11–13, 69–70, 120–1,
62–3, 78–9, 103 160, 193, 263–4, 277
patterns in Ethiopia 66–72 cement industry 113–23
337
Index
338
Index
339
Index
latecomers 23–4, 34, 42, 44, 131, 159, inputs as key constraint on
294–5 productivity and export
Latin America 32–3, 39–40, 42, 45, 51, competitiveness 217–18
215, 220 labour productivity trends 204–5
latitude latitude for poor performance 209–11
for failure 48–9, 117, 268–9 logistics and trade facilitation 226–8
narrow 115, 117, 148, 152, 165–6, 170, output growth 199–200
280–1 ownership and corporate structure
for performance 31, 264, 267–9, 276, 208–9
282, 286, 290–1 path dependence 262–3
political 291 and low value trap 213–17
Lavopa, Alejandro 49–50 policy instruments 229–34
Lazzarini, Sergio 252, 266–7 political economy of value-addition
LDCs (least developed countries) 22, 60, and industrial upgrading 222–6
83 privatization 233–4
lead agencies 102, 144, 152, 175, 183, sector performance and policy
235 outcomes 198–206
learning 39–40, 158–9, 244, 260, 282, semi-finished leather 201, 213–14,
286–91, 294–6 223, 262–3
collective 103, 150, 152, 183, 192–3, specialized institutions 234–9
265, 281 technical capacity and staff
by doing 159, 244, 260, 282, 285, composition 211
287–90, 295–6 Leather Industry Development Institute,
policy 241, 243–4, 270, 278, 284–6, see LIDI
290, 296 leather products 195–7, 201–3, 209–11,
least developed countries, see LDCs 213–15, 217–19, 225, 229–33
leather and leather products industry 11–12, exports 200–1, 209
109–10, 195–240, 242–4, 246–8, garments 204, 224, 236
259–62, 271–7 shoes, see shoes
backward linkages 217–22 sub-industry 197, 203–4, 211, 213,
capacity utilization 206 218, 263, 268
competitive edge 203 LEFASO 202, 208–9
economic and technological legitimacy 37–8, 58, 61, 77, 103, 249
characteristics 209–11 lessons 11, 13, 62, 242, 254, 270, 278–96
employment generation 204 liberalization 18, 56, 92, 94, 204, 214,
export destinations 202 262
export promotion schemes 229–31 LIDI (Leather Industry Development
export volume and earnings 200–2 Institute) 102, 198, 200–1, 226,
firm size 208 235–7, 275
geographical concentration 207–8 life expectancy 2
global market structure 211–12 light industry 6, 63, 209, 246–8, 253
industrial financing 231–3 light manufacturing 52, 294
industrial structure 207–9 light touch 248
industry concentration 202–3 limestone 117, 132–3
340
Index
Lin, Justin 29–30, 150, 177, 246 low-income countries 5, 10–11, 21–2, 48,
linkage approach 46, 49, 197, 256 115, 291–2, 295
to policy making 256–63 low productivity 51, 65, 106
linkage dynamics 11, 13, 47, 128, 143, low value trap 198, 213, 215
173–4, 277
linkage effects 12, 48–9, 167–8, 191, 254, macroeconomic policies 55, 92, 258
256–9, 279–81 Mahoney, James 49, 213
creative 277, 282 mainstream economic thinking 6, 23
potential 239, 257, 281 mainstream perspectives 253
as prime conceptual framework 45–50 management time 142, 237–8
linkages 46–9, 107, 109, 256–7, 259–61, manufactured exports 50, 56, 69, 153,
282–4, 293 195, 200, 295
backward 46–8, 144, 168, 174, 210, manufactured goods 19, 22, 67, 155
256–8, 263 manufacturing 19–21, 26, 48–50, 56–8,
as coping mechanisms and policy 64–6, 69–70, 84–6
learning 260–2 manufacturing sector 19–20, 56–7, 66–7,
employment 49, 288 84–5, 91, 101–2, 231–2
failures and successes in facilitating manufacturing value added, see MVA
linkage mechanisms 258–60 Markakis, John 4, 74
floriculture 167–74 market control 18
forward 20, 46–7, 56, 109, 169, 191, market demand 70, 111, 116, 129
256–7 market development 183, 186, 236,
neither homogenous nor automatic 238–9, 261, 275
256–7 market economy 29, 63, 242–3
potential 48, 174 market failures 16, 18, 29, 57, 59, 95, 252
List, Friedrich 25–8, 99 market fundamentalism 18, 55, 255
live animals 221, 235, 274 market protection 40, 43, 271
livestock 12, 196, 210, 219–20, 233, market share 120, 123, 145, 164, 198
257, 281 market structure 160, 211–12
development 218–20, 240, 275 marketing 43, 47, 116–17, 159, 179,
loans 84–7, 135–6, 178–80, 232–3, 251, 210, 212
255, 290 markets 17–18, 20–1, 56–7, 120–3, 144,
collateral-free 127 162–4, 166–7
external 86–7 auction 163, 179
long-term 83–4, 86, 121, 134, 271 export 42, 149, 195, 213, 227, 256,
secured 119, 161 267–8
soft 160, 177 foreign 27, 44, 122
subsidized 106, 260, 271 global 114, 155, 200, 211–12, 216, 264
logistics 181, 184, 214, 216, 226–7, labour 32, 158
234, 237 local 209, 214–15
cold chain 163, 184, 191, 258 parallel 92, 145
long-term financing 84, 130, 134–5 perfect 246
long-term loans 83–4, 86, 121, material intensity 213, 218, 232
134, 271 Mauritius 51, 53, 69, 129, 251
341
Index
Mazzucato, Mariana 10, 15, 29, 57, 193 nascent private sector 253
MCE, see Mugher Cement Enterprise National Bank of Ethiopia, see NBE
Meiji dynasty (Japan) 29 national capabilities 268
Meisel, Nicolas 34 National Cement 117–18, 122, 135, 137–8
Mekelle 171 National Export Coordination
Melese, Ayelech Tiruwha 150, 159, Committee, see NECC
161, 177 national policy autonomy 13, 284
meso-policy 13 natural endowments 150–1, 175, 196,
Messebo 111–12, 114, 116–20, 122–3, 239, 249, 280
131, 137–8, 265 natural resources 23–4, 48, 231, 245, 247
methodology 8–10 Naudé, Wim 50–1
micro-policy 13 NBE (National Bank of Ethiopia) 83–4,
Milhaupt, Curtis 252, 267 87, 92–3, 180, 186–7
mini-cement plants 117–18, 122, 133, NECC (National Export Coordination
138–9, 144 Committee) 2, 99–102, 141, 173,
mining resources 106, 121, 132 175, 183–4, 234–5
Ministry of Finance and Economic neoclassical economics 16, 18, 58, 247, 266
Development, see MOFED neoliberalism 18, 73, 255
Ministry of Industry, see MOI neopatrimonialism 9, 249–52
Ministry of Mines, see MOM Netherlands 149–50, 160–2, 164–5, 175,
Ministry of Works and Urban 177, 183, 185–6
Development, see MWUD embassy 179, 181, 183, 186, 190, 264–5
Mkandawire, Thandika 9, 35–6, 250–1 new entrants 120–1, 160, 239, 267, 281
MOFED (Ministry of Finance and new industries 56, 58, 151–2, 167–8,
Economic Development) 61, 172, 174, 182–3
63–7, 81, 84, 86, 89, 94–5 newly industrializing countries (NICs)
MOI (Ministry of Industry) 84, 93, 102, 20, 36
105–6, 141, 143–4, 220–1 NICs (newly industrializing countries)
as focal agency 102 20, 36
Mojo 207 Nigeria 1, 108, 114, 123, 195, 293
MOM (Ministry of Mines) 132–3, 141, 143 Nolan, Peter 95, 131, 210, 284
momentum 46, 256, 258, 265 North, Douglass 266
monopolies 119, 140, 215, 228, 269
Mozambique 52, 55, 97, 245, 249, 271 Ocampo, J.A. 7, 16–17, 19, 21, 39–41,
Mugher Cement Enterprise (MCE) 105, 58–9, 91–2
111–12, 117–23, 131, 133–5, OECD 17, 211–12
137–8, 143–4 off-take rate 219
multimodal transport 198, 216, 227, 274 one-stop services 89–90
multinationals 12, 106, 114–15, 265 openness, trade 18, 30
Musacchio, Aldo 252, 266–7 organizational capacity 43, 215, 249
MVA (manufacturing value added) 50, organizational competence, insufficient
69, 142 275–6
MWUD (Ministry of Works and Urban orthodoxy 15–16, 18
Development) 125–8, 141, 145–7 Ottaway, Marina 63, 251
342
Index
output, growth 107, 199, 243 standards 31, 40, 58, 100, 263–4,
overgrazing 221–2 267, 271
owner-managers 161, 208 perishability 118, 121, 164–6, 178,
owners 165, 185, 188, 210, 215, 233, 235 180, 267
ownership 7, 118, 124, 134, 185, 192, 266 Philippines 1, 289
Oya, Carlos 54, 56, 156 phytosanitary requirements 58, 166
picking winners 18
pacing devices 46, 256, 260 PINE 1
packaging 117, 167–8, 188–9, 257 Pittards 3, 203, 220, 233, 265
factories 117, 122, 152 Plan for Accelerated and Sustained
industry 168–70, 257–8 Development to End Poverty,
materials 122, 168 see PASDEP
packaging standards 186–7 planned economy 202, 214
Padayachee, Vishnu 9, 56, 250 Polanyi, Karl 34
Page, John 50, 69 policies, economic 16, 31–2, 78, 151, 251
Pakistan 114, 123, 142, 146–7 policy capabilities 9, 16, 31, 56, 58,
Palma, Gabriel J. 56, 83 240, 245
Pankhurst, Richard 60 policy effectiveness 13, 28, 79, 152, 264,
parallel markets 92, 145 273–4, 284
parties 71, 76, 80, 247, 250–1, 261, 270 policy independence 10, 13, 77–8, 245,
ruling 72–4, 77, 79–80, 127–8, 146, 255, 279, 285–7
288, 290 policy-induced industrial expansion 107
PASDEP (Plan for Accelerated and policy institutions 11, 282, 284
Sustained Development to End policy instruments 11–12, 138, 140,
Poverty) 80–1, 125, 132 229–30, 270, 277, 281–2
Pasinetti, Luigi 7–8, 30 compatibility and cohesiveness 273–4
path dependence 49, 213–17, 240, 262–3, industrial 53, 56, 79, 183, 279
275, 277, 281–3 unevenness 270–6
leather and leather products industry policy intervention 26, 121–2, 152, 167,
213–17, 262–3 191, 258
patrimonialism 150, 280 policy learning 241, 243–4, 270, 278,
patronage 116, 249–50, 252, 255 284–6, 290, 296
Peres, Wilson 18 policy outcomes 11, 13, 149, 155,
perfect markets 246 269–70, 276–7, 282
performance 11–12, 39–42, 199–201, policy responses 140, 142, 144, 240, 242,
241–3, 250–2, 276, 281–3 257, 281–3
comparative 241, 244 quality and appropriateness 274–5
export 92, 94, 152–3, 200, 203, 216, 218 policy space 13, 284, 296
industrial 9, 247, 269 policymakers 6, 13, 140, 269–70, 276–7,
and industrial policy 60–104 283–5, 290
poor 148, 165–6, 196, 198, 209–10, policymaking 11–13, 140, 240–2, 276–7,
213, 280–1 279–80, 286–7, 289–91
sectoral 107, 192–3, 198, 239, 243, cement 140–7
245, 282 and economic actors 264–7
343
Index
344
Index
345
Index
346
Index
structuralist perspectives 18–19, 130, 196 tax holidays 44, 89, 129, 132, 176
Studwell, Joe 40, 91, 100, 137 tax incentives 44
sub-contracting 126, 217 taxation 11, 38, 43–4, 65, 93, 194, 223
sub-Saharan Africa, see SSA Taylor, Lance 7, 92
subsidies 39–40, 42, 84, 122, 172, 255 technological capabilities 19, 21, 40–1,
double 177 103, 106, 137–9, 264
subsidized loans 106, 260, 271 technological characteristics 115, 117,
subsistence agriculture 293 160, 165, 207, 209, 264
successes 148, 150–1, 192–3, 242, technological depth 157
279–80, 282, 293 technological development 17, 19, 31,
sugar 47, 53, 70, 72, 80, 85, 97 41–3, 52, 186, 192
supply capacity 101, 132 technological supply 41, 139
supply chains 3, 47, 218 technological upgrading 38
support 42–3, 94, 130, 236, 244–5, technology transfers 261, 265
251–2, 274 soft 177
direct 106–7 Tekeste, Abraham 62, 66, 69, 92–3
effective 184, 237 tensions 13, 32, 254, 270, 280, 284, 294
institutional 183, 210 institutional 89, 275
technical 127, 169 textiles 67, 69, 71, 79–80, 85, 102, 231–3
support industries 166, 168–9 TGE (Transitional Government of
support staff 110, 236 Ethiopia) 63
surplus production 106 Thailand 114, 202
surveys 143–4, 177, 179, 186–8, 190, Thirlwall, Anthony 7, 19–22, 42, 91, 130,
206, 219 295–6
Sustainable Development and Poverty threats 36, 73, 79, 87, 120–1, 241, 244
Reduction Program, see SDPRP external 242, 259
sustainable growth 154, 183 internal 25, 74
sustained growth 7, 12, 22, 131, 148–9, Tigray 71, 116, 131, 173, 207, 233
182, 212 TPLF 73
Sutton, John 160 trade facilitation 93, 176, 226–7, 234, 237
Switzerland 21 trade-offs 107, 277, 280
Szirmai, Adam 49–51 trade openness 18, 30
trade protection 91–5, 279
Taiwan 33, 37, 40, 44, 81–2, 289–90, 292 traditional agriculture 21, 149, 259
Taleb, Nicolas 79, 128, 241 trainable labour 158, 175
tanneries 214, 219, 226, 233–4, 262–3 transaction costs 147, 218, 266
state-owned 234, 262 transfers 37, 39, 44, 91, 188, 236, 239
tanning sub-industry 197, 203–5, transformation 4–5, 7, 20–1, 35, 37, 148,
210–12, 215, 257, 263, 268 253–4
Tanzania 55, 151, 164 transformative institutions 296
Tareke, Gebru 242 transition 14, 59, 63, 201–2, 208,
targets, export 39–40, 94, 201, 273 243, 262
tariffs 133, 146 Transitional Government of Ethiopia
diminishing role of import tariffs 94–5 (TGE) 63
347
Index
transport 120–1, 158–9, 172, 227, 252 industrial 198, 217, 222
costs 121, 145 urban development 64, 124, 128, 141, 277
fleets 121–2 US Geological Survey, see USGS
multimodal 198, 216, 227, 274 USGS (US Geological Survey) 106, 108,
shortages 128, 147 113–14
Tregenna, Fiona 19–20, 52–3, 56–7
Turkey 3–4, 42, 88, 113–14, 128, 202 value addition 44, 89, 198, 214, 222–3,
turnkey approach 137–8 225, 242
value chain 12, 43, 163, 165–6, 168,
UCBP (University Capacity Building 222, 246
Programme) 127 comparator 223
Uganda 129, 164 vase time 149, 165–6
Ujamaa 55 VAT 90, 93, 177
UN COMTRADE 114, 162, 197 vegetables 150, 154–5, 173
UN-DESA 2, 75, 108 veterinary services 210, 220
UN Economic Commission for Africa, Vietnam 108, 113, 142, 202–3, 205–9,
see UNECA 212–14, 238
UNCTAD (United Nations Conference on voucher systems 93, 177, 229
Trade and Development) 6, 13, 19, VSK (Vertical Shift Kiln) technology 112,
39, 43–4, 83, 284 116, 122, 133
underperformance 12, 195–240, 281
UNECA (UN Economic Commission for Wade, Robert 18, 33–4, 37, 65, 91, 179
Africa) 1, 6, 218, 223 Warren-Rodriguez, Alex 52, 56
unemployment 124, 153, 155, 158 wars 25, 32–3, 45, 55, 61, 63, 103
uneven development 105, 107, 109, 111, wartime intellectual formation 73–4
113, 115, 117 Washington Consensus 9, 43, 52, 266
unevenness 23, 149, 243, 270, 282 Whitfield 32, 244, 253
UNIDO (United Nations Industrial will, political 152, 186, 193, 259
Development Organization’s) 6, Williamson, John 266
151, 210, 220, 225, 235, 261 Woo-Cumings, Meredith 33
unit costs 110, 112, 116 workers 2–3, 69, 156–9, 202, 206, 208,
United Nations 6, 62, 108, 124 211–12
United Nations Conference on Trade and working capital 83, 86–7, 93, 206, 214,
Development, see UNCTAD 217, 232
United Nations Industrial Development World Bank 51, 88, 112, 115, 226, 246, 266
Organization, see UNIDO
United States 3–4, 14–15, 23, 25–6, 28–9, Young, Allyn 20
249–50, 252
University Capacity Building Programme Zaibatsu 33
(UCBP) 127 Zenawi, Meles 35, 96
upgrading 41, 53, 198, 214, 216, Zewde, Bahru 62
222–4, 283 Zheng, Wentong 252, 267
chain 222 Zimbabwe 164, 175
constant 17, 22, 29 Ziway 2, 157, 165, 174, 261
348