from an Experiment in Ethiopia: An Economic Review of Arkabe Ogubay’s
Asayehgn Desta, Sarlo Distinguished Professor of
specter haunts Africa today. Those who subscribe to the Afro-pessimism school of thought argue that while African
economies were ill-prepared to face the “free trade imperialism” of
the 1850s, today’s Africa is even less equipped to survive in the new
global economic order (Kofi and Desta 2008). Based on this line of
thinking, for instance, Prunier (2016)
attributes Africa’s lack of development due to lack of genuine
citizenry. As he puts it, those in power attempt to enrich themselves at
the expense of the people, and they continue the practice of the European
colonialists, turning the people into subjects. Furthermore, Prunier notes
that the lack of industrialization in Africa has deprived its youth of a
better future and left it in a constant state of poverty and unemployment
(The African Blog, July 23, 2016).
The Afro-Optimists, on the other
hand, argue that though the Africans were bitter in the past, Africa’s
future is bright because the old elite is gone.
Knowing what it wants and being unafraid to express it, Africa’s
youth finds optimism from within. “African countries and people have the
opportunity to have the future they want. They are not trapped in
history” (The African Blog, July 23, 2016).
industrialize Africa, the African Development Bank has recently identified
the following development priorities for the 21st century: 1)
Industrialize Africa, 2) Light up and power Africa, 3) Feed Africa, 4)
Integrate Africa, and 5) improve the quality of the life for the people of
November 20, 2017).
In his forward to the book, Industrialize Africa: Strategies, Policies, Institutions, and Financing
(Nov. 2017), President of the African Development Bank Group, Akinwumi
Adesina, advocates that “Africa, must quit being at the bottom of the
global value chains; instead, Africa needs to move rapidly industrialize,
with value addition to every everything that it produces and work for
itself and its people, instead of exporting wealth to others”
(Industrialize Africa, 2017).
In his introductory remarks to Industrialize Africa…, Stiglitz argues that, in order to go
through the industrialization process, Africans must pay attention to
structural transformation that could galvanize Africa’s move toward 1) a
green economy, 2) a learning society, 3) an innovation economy, 4)
industrialization using labor-intensive manufacturing, 5) the development
of building clusters and special economic zones, and 6) the development of
industrial parks that could encourage innovation, and 7) a cleaner and
In his article, “Ethiopia’s
Lessons from An Experiment.” (Industrialize
Africa…, 121-141), Dr. Arkebe Ogubay,
Minister and Special advisor to the Prime Minister of Ethiopia,
explains that while structural drivers for longer-term economic
development have been inadequately designed, the African lions are on the
rise. Ogubay succinctly rests his argument by noting that Ethiopia has
been achieving rapid economic growth over the past two decades; however,
due to the lack of effective industrial policies and state activism,
Africa has made inadequate structural transformation.
Going one step further, Ogubay
argues that, as the drivers of economic and social development, changes in
social structural involve the movement of people and outputs across
sectors and within specific industries, and therefore a shift from lower
to higher productivity economic activities. More specifically, Ogubay
believes that Africa can sustain growth and structural changes when driven
by manufacturing, a rapid expansion of exports, and substantial changes in
the composition of those exports (p. 122).
Underlying this conceptual
framework, Ogubay’s case study sought primarily to review the practice
of industry policy and to point out the uneven outcomes in Ethiopia by
specifically investigating the following industrial sectors:
1) capital-intensive, import-substitution, such as the cement
industry, 2) labor-intensive and export-oriented sector, such as leather
and leather product, and 3) high productivity modern agriculture, such as
the floriculture or horticulture sector.
Substitution or Inward Looking: The Cement Industry
Ogubay observes, as the demand for cement increased in Ethiopia due to a
substantial growth in government-sponsored infrastructure and integrated
housing programs, the supply by the single state-owned enterprise (SOE)
could not meet the demand. To substitute the imports of cement at a higher
price, the Ethiopian government focused on an import-substitution, or
inward-looking, cement manufacturing strategy to stimulate new domestic
To encourage the growth of cement
factories, the Ethiopian government offered factory land and other
domestic raw materials (quarries, such as limestone, gypsum etc.),
rendered electricity supply below market prices, and also provided
“three-year, zero-income tax incentives to public enterprise to invest
on the production of cement. Thereby,
Ethiopia’s installed cement producing capacity increased from 3 million
to 15 million tons between 2005 and 2016, “making Ethiopia one of the
top three producers in sub-Saharan Africa” (p. 124).
However, since the newly established
cement factories in Ethiopia more recently were capital intensive, the
cement industry employed less than 15,000 workers. Not
only did the price of cement in the market decline, the cement industry
created substantial backward and forward linkages, wiping out small
domestic industries in the country. In addition, Ogubay asserts that,
unlike in South Korea and China, the Ethiopian cement industry could not
serve as a basis for developing technological capabilities due to lack of “…effective
policy instruments to encourage domestic manufacturing of equipment, local
content, and local capabilities” (p. 125).
Since Ogubay has told his readers
previously that the big, state-financed cement industries contributed to
‘crowding effects” of small cement companies by lowering the prices of
cement, he appears to contradict himself when he claims, “an activist
state can, through effective industrial policies, transform an industry
that is strategic to industrial catch-up” (p. 125).
Promoting through Leather and Floriculture Sectors
constant reminders of the limits of employment, output, export, and value
addition in the leather and leather product industry, Ethiopia’s
industrial policy has depended for centuries on the export of leather and
leather products to earn foreign exchange. Because many believe the
leather industry has very strong backward linkage with agriculture, its
forward linkage potential is weak and requires effective state-industry
relationships. For example, between 1992 and 2015, “growth of
manufactured outputs in the leather sector was sluggish and showed erratic
fluctuation” (p. 127) because the government followed policy instruments
unsupported by reciprocal control policy mechanisms (such as incentives
for example given to floriculture (p. 129).
Possibly learning from the leather
industry, the Ethiopian government began restructuring its industrial
policy, thereby providing incentives, such as affordable land lease
(primarily within a 200-km radius of Addis Ababa) at a reasonable rate and
providing subsidized loans (to more than 40 firms) for foreign direct
investors to start investing in floriculture (horticulture) venture. Thanks
to Ethiopia’s natural endowments, its competitive labor costs, its
geographic location, climate, water, attitudes, and soil, the floriculture
investment in Ethiopia flourished.
Not only has the floriculture
recently contributed to diversifying Ethiopia’s export, but it has also
become an important contributor to Ethiopia’s balance of payment. As a
result, Ethiopia has emerged globally as one of the top five cut-flower
players (p.126). In terms of its forward linkage, export of flowers to
foreign countries has enabled Ethiopian Airlines to increase its cargo
capacity, and to expand its cool chain storage (p.128).
Despite these positive achievements,
Ougbay laments that the government industrial policy missed a golden
opportunity when it failed to provide more land for expansion to these
types of enterprises and for the export of non-floriculture exports
(herbs, vegetables, fruits) that had huge export potential (p. 128).
So, what have we learned from the
Ogubay’s case analysis?
on the three sectors (Cement, Leather and leather product, and
floriculture or horticulture) Ougbay analyzed, we can learn that, despite
being under a single industrialization strategy, the growth performance
and policy outcomes in the three-selected case studies were uneven.
As a combination of capital
deepening big corporations, the import-substitution cement industry
contributed to lowering the domestic prices of cement. Its high growth
rate contributed to a significant savings on foreign exchange for
Ethiopia. The backward and forward linkage of the cement industry was also
very strong. However, the cement industry significantly contributed to the
crowding out and eventually wiping out of minor cement domestic industries
that could not compete with the monopolistic companies.
The export-oriented leather industry
demonstrated a complementarily between manufacturing and agriculture.
However, the leather industry indicated a weak coordination among
government offices. Most of
the institutes’ efforts addressed short-term goals. The internally
fragmented leather and leather products path dependency (low value
addition and fixed mindset), undermined collective learning and did not
contribute to backward and forward linkages.
In the case of the export-oriented
floriculture or horticulture industry, Ogubay saw a golden fit between
government and industry. Because they trusted and learned from each other,
the domestic floriculture firms viewed the horticulture FDI firms as
sources of technology and market capability. As a student of neo-classical
economics who favors the activities of multinational organizations, Ogubay
shows that the horticulture industry contributed to backward and forward
linkage. Meanwhile, the industry’s production output, export earnings,
and employment creation remain substantial (pp. 133 & 138).
Despite rapid economic growth in
Ethiopia, Ogubay maintains that Ethiopia’s structural transformation has
been inadequate. Rapid growth was not tantamount to a shift in the share
of manufacturing in employment, and output, export, and agriculture
continued to employ three-quarters of the population, accounting for 37
percent of GDP (pp. 134-35). Thus,
Ogubay stresses that, like Taiwan, China, and South Korea, Ethiopia must
follow the role of the state in development. During this stage, the
Ethiopian government must play a pivotal role to establish trust,
structural transformation, and industry policy in the three-industrial
case studies. In short, Ogubay insists that Ethiopia needs to set a
coherent vision and develop strategies to effectively mobilize its society
Ogubay notes that recently, the
Ethiopian government has recognized that undertaking structural
transformation is the path to sustainable growth. Because of this
challenge, Ethiopia has profoundly shaped the development of a ten-year
plan. Ethiopia’s Vision 2025, which aims to make Ethiopia “the leading
manufacturing hub in Africa” puts greater emphasis on expanding
manufacturing output and large-scale growth in industrial employment”
Though not strongly stressed in this
article, as the guru of Industrial Parks (established in the Ethiopian
cities of Hawassa, Kombolcha, and Mekelle) Ogubay’s trajectory implies
that Ethiopia must learn first-hand from China, South Korea, and Singapore
to establish eco-friendly industrial parks. Through innovation, the
industrial parks could enhance Ethiopia’s exports, transfer technology,
generate employment, and achieve middle-income status by 2025 (Desta,
2017). Using several hallmarks of scientific research methods (purpose,
rigor, replicability, objectivity, etc.), a brief analysis of Ogubay’s
case study follows.
introductory section of the case studies is exciting and inventive. The
introduction provides well-documented studies to its readers; however,
Ogubay should avoid using the lofty and possibly “experiment” in his
title. By contrast, a simpler title like, “Ethiopia’s
Industrial Policy: Lessons from three Case studies” could draw attention
and trigger curiosity. In
short, after reading the introduction, readers could predict the content
of the report.
Ogubay clearly articulates the
purposes of his study. His
statements of the study’s purpose are specific, measurable, achievable,
and relevant to the content of the article; however, adding some research
problems would have added clarity to the introductory portion of the
study. Therefore, I suggest that Ogubay add a research problem(s) to the
end of the introduction and enlighten his readers by stating his rationale
for choosing the three industries for his case study.
The review of the literature is
rigorous. Ogubay has cited more than enough documents related to classical
and neo-classical economic or conventional studies. However, at the end of
his literature review, Ogubay could have helped readers by mapping out the
theoretical framework pertinent to the study. In short, Ogubay needs to
incorporate the operational definition of both the dependent, independent,
and moderating variables given in Appendix 1. Then, he could have stated
his analytical model to show that Policy Outcomes are a function of
industrial structure, linkage dynamics, political economy, and policy
instruments. Had Ogubay included indicators related to environmental
effects, the value of the outputs (production output, export earnings,
employment creation, total economic output) would have changed
substantially, and it would have provided a road map to replicate the
As mentioned above, the study’s
most glaring limitation is that Ogubay’s analysis is based on
conventional (neoclassical) economic analysis. In other words, he bases
his analysis on 1) market prices being good indicators of scarcity, the
market system being effective, and information being conveyed swiftly; 2)
resources having high rates of substitution, and 3) technological
development saving us from scarcity of resources (see for example, Desta,
1999). In short, I am amazed
to notice that Ogubay never cared to incorporate the theoretical framework
or “promoting Sustainable Industrial Policy” initiated by Stiglitz as
stated in the introductory portion of the book. Also, since the
Environmental Policy for the Federal Democratic Republic of Ethiopia were
approved by the Council of Ministers in April 1997, I see no reason why
Ogubay never cared to include the theoretical framework of sustainable
development that includes economic, social, and environmental analysis
(see Desta, 1999).
sustainability is a 21st Century agenda, Ogubay should have
paid more attention to environmental sustainability his model to analyze
the three case studies. For Example, as Ogubay suggests, cement is often
used for building materials in Ethiopia. Moreover, Ogubay states that
establishing big cement factories in Ethiopia has enabled it to save
foreign exchanges. However, I am not sure why Ogubay fails to tell his
readers that the cement industry in Ethiopia produces many emissions
(dust, carbon dioxide CO2, nitrogen oxides (NOx) and Sulphur dioxide
(SO2), odor and nose (World Bank Group, 1998).
Also, we know that the production of
leather products can harm the environment. As Desta, Tesay, Berhe, and
Geregiher systematically reveal (2017), the leather industry in Tigrai,
contributes to pollution, such as tannery dust, effluents, and sediments.
It further induces negative externalities on the environment, workers in
the tanneries, and the population that live downstream.
Finally, Ogubay should know by now
that the Floriculture (horticulture) industry uses intensive
resources, such as land, water, labor, and inputs, such as fertilizers and
pesticides. The use of such resources in a concentrated space and time has
the potential to harm the
local environment. Moreover, Ogubay
explored how the transport of
horticulture produced for export, particularly by air transport, can
damage the global environment(Winwright, Jordan, Day, 2014).
I would like to salute Ogubay for
his case study. When I picked the book titled Industrialize
Africa… and more particularly, when I read Ogubay’s article,
“Ethiopia: Lessons from an Experiment,” I learned that Ethiopia’s
incredible economic growth for the last fifteen years was rather based on
incoherent governmental industry policies. Development
does not mean just growth; it includes structural transformation or
changes in the structure of the economy; therefore, if Ethiopia wishes to
continue its economic growth, it must develop solid industrial policies
that will promote sustainable and democratic development.” More
specifically, As Stiglitz states, Ethiopia need to move “towards a green
economy, a learning society, and an innovation economy” (2017). In
today’s world, it is no longer possible to design industries or plans
for countries without mapping out the effects of the environment on
development. Therefore, Ogubay’s analysis would be more innovative if it
included the environmental impact of industrialization in Ethiopia’s.
Africa Development Bank
Group (Nov. 2017). Industrialize
Africa: Strategies, Policies, Institutions, and Financing. Available
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Desta, A and Hadush
Berhe. (2017). “Manufacturing
of Eco-friendly Textiles: A Case Analysis of an Industrial Park in Makelle,
A, Tesay, T. Berhe, H,. Geregiher, A. “ Analysis
of Kaizen Implementation in Northern Ethiopia’s Manufacturing Industries”
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2016). “Afro-Pessimism Versus Afro-Optimism” The
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afro-optimism/ , accessed 12/7/2017.
Kofi, T. and Desta, A.
(2008). The Saga of African
Underdevelopment: A Viable Approach for Africa’s Sustainable Development
in the 21st Century. Trenton, NJ: African World Press.
Wainwright, et al
(2014). “Environmental Impact of Production Horticulture.
Horticulture: Plants for
People and Places. Volume 1, Pp. 503-522.
World Bank Group (July
1998). “Cement Manufacturing: Pollution Prevention and Abatement” Handbook.
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