The Righteous Pretenders, India and Ethiopia: Parallels in State Led Economies

School of Graduate Studies Department of Public Administration and Policy

College of Management, Information and Economic Sciences Addis Ababa University

Costantinos Berhutesfa Costantinos, PhD

Comparative Public Policy PhD Lecture Seminar Series

On 24 July 1991, India’s PM Manmohan Singh, then Minister of Finance, told the Indian parliament that, the room for manoeuvre, to live on borrowed money or time,

does not exist anymore. He baldly stated that no power on earth can stop an idea whose time has come. He succeeded in passing a reformist budget liberalising the economy and

opened India to foreign investment, reducing tariffs and easing the system of licenses…

Summary

India’s economy driven by deregulation, educated human capital has almost quadrupled in size. India’s GDP rose by 43% between 2007 and 2012. De-regulation allowed a latent commercialism, suppressed during the ‘license Raj’ days, to prosper. The lost decades had resulted in a flight of human capital to developed economies. Beginning in the 1990s, there was a steady flow back of these skills, augmented by overseas education and experience, into the Indian economy. On the other hand, while the Ethiopian GDP is growing remarkably well, it faces the usual panoply of challenges endemic in developing countries with too few instruments and too few resources, while also grappling with the perennial problem of managing development, namely sequencing of policy reforms, all subject to the political constraints of containing the disruptive impacts of policy reforms to acceptable levels; a particularly important problem for Ethiopia given the very narrow margins for manoeuvre imposed by fiscal and external deficits, subsistence levels of household income for much of the population and a complex federal weave in its social fabric. Getting the priorities right and managing change are thus particularly vital issues for public management that Ethiopia can learn from India.

0%10%20%30%40%

Seminars

Lectures

Journal review

Team work

Time share of activities

Learning strategy: The teaching and learning technique will augur on the understanding of complexity, uncertainty, and

triangulation. Hence, the learning strategy will focus on getting the learner to understand the discourse and glean out the options that fit in to the various realities governance will be referred too in the course of the learner’s professional life after the university years. The strategy will hence augur on: seminars, lectures and guest lecturers; role plays and group breakout and team work and distribution of tasks

Assessment indicators: indicators of achievement in this regard are

The degree of insight of the learner on basic definition and components of public policy the extent to which the learner articulates public policy, ability to advance thoughts on public policy, governance and its impact on human devel-opment, human security and environmental resource management for a state’s sustainable future, oral presentations of exercises, seminar degree of participation in articulating concepts, processes and outcomes and tests of learning...

Evaluation, Characterisation and Organisation: These are complex human awareness and response reflectors and hence the

valuation mechanism can be as challenging as the learning systems! COGNITIVE: Knowledge, Comprehension, Application, Analysis, Synthesis… AFFECTIVE: Receiving, Responding, Valuing… PSYCHO-MOTOR: Perception, Set, Guided Response, Mechanism, Complex overt

Response, and Adaptation The following matrix will (ideally) be used to determine the scale of achievement of the

learner on the DOMAINS and CATEGORIES of learning NOTE: These are complex human awareness and response reflectors and hence the valuation mechanism can be as challenging as the learning systems!

Student self-assessment indicators Scale % DOMAINS CATEGORIES 25 50 75 100

COGNITIVE }Knowledge

Comprehension Application

Analysis Synthesis

Evaluation

AFFECTIVE }Receiving

Responding Valuing

Organisation

Characterisation

PSYCHO-MOTOR }

Perception Set

Guided Response Mechanism

Complex overt Response Adaptation

Organisation

Overall average score

1 | The Great Pretenders – BTC 2012

1. Introduction The Ethiopian government has developed the Growth and Transformation Plan (GTP), which is

to succeed the previous Plan for Accelerated and Sustained Development to End Poverty (PASDEP). The new plan is ambitious: it assumes real growth of GDP of a minimum of 11 percent per annum over the period 2010/11 to 2014/15, with a “best case” target of doubling the size of the Ethiopian economy over that period, which would require annual GDP growth of 14.9 percent. By comparison, the IMF in its Spring 2010 World Economic Outlook estimates Ethiopia’s real growth in GDP over the period 2006-2010 at 10.3 percent and projects a growth rate for the period 2011-2015 of 7.6 percent1, only half the ambitious target rate.

Trade and foreign direct investment (FDI) figure in the new plan but less reliance is placed on FDI inflows than in the past and as much emphasis appears to be placed on import substitution as on export expansion to reduce the trade deficit. As in the previous plan, agricultural production is the main basis for economic development, with a projected doubling of basic agricultural output over the plan period to meet domestic food requirements, to provide the raw material for industrial development. The sectoral focus of the plan is on sectors that are labour intensive, use agricultural products as inputs, help achieve technology transfer and are either export oriented with significant export potential or import-substituting.

Economic development is easier said than done. Persuasive affidavit to this effect is provided by the millions of Ethiopians under food aid and safety nets, despite an economy that is booming. This is a striking fact, given that there are functioning models to emulate, a consensus concerning the characteristics of economies that have successfully developed and decades of experience with a wide range of policy prescriptions. Ethiopia’s strategy for sustaining the rapid and broad-based growth path hinges on the following pillars: sustaining economic and agriculture growth, expansion of industry and infrastructure development, enhancing quality of social development, building capacity and deepen good governance and promote women and youth empowerment. Nonetheless, the crisis of the welfare state has led to questions about the institutional role and character of the state; where reforms in public administration and management have been driven more by external pressures. Hence, to emulate the success stories of India, a major paradigm shift in the management of the economy and society is a necessary condition and the citizens at large. The issue is what can Ethiopia learn from India?

On 24 July 1991, India’s Prime Minister Manmohan Singh, then Minister of Finance, told the Indian parliament that, the room for manoeuvre, to live on borrowed money or time, does not exist anymore. He baldly stated that no power on earth could stop an idea whose time has come. He succeeded in passing a reformist budget liberalising the economy and opened India to foreign investment, reducing tariffs and easing the system of licenses… Within the next decade, the idea of India as a “major economic power in the world” seemed within reach. India’s economy has almost quadrupled in size, growing at an average rate of about 7% per annum and over 9% from 2005 to 2007. India’s GDP rose by 43% between 2007 and 2012. The key drivers of growth included (Satyajit Das, 2012:2)

A large population which created substantial domestic market and high savings rates; An educated, English speaking workforce which was under employed; De-regulation ignited a latent commercialism, long suppressed by ‘License Raj’ days,. Reversing human capital flight and a steady flow back of these skills, augmented by

overseas education and experience, into the Indian economy. (Ibid) The article outlines the challenges and opportunities for Ethiopia to be able to emulate the

path taken by India to achieve higher economic transformation rates and the necessary policies and strategies that would limit the role of the state in the economy.

1 The growth rates for 2006-2010 and the projection for 2011-2015 are based on the IMF World Economic

Outlook, April 2010, estimates for Ethiopian GDP at constant prices in national currency.


2. Statement of the Problem

Countless studies have mesmerised the world in defining Ethiopia’s challenges of development… Since the second half of the 1950s, the Imperial regime has attempted to guide the development of the country through a serious of consecutive five years development plans. Accordingly, the regime has drafted and implemented three successive five-year plans between 1957 and 1974 (Eshetu, 2004:38). The forth five-year plan was under preparation on the eve of the 1974 revolution. In these plans, private sector development has been given due emphasis through the development of infrastructure and the manufacturing sector (Admit, 2009:241).

Admit (2009:242), Solomon (2001:4), Eshetu, (2004:100-102) and Getahun (2004:4) underpin the fact that the military government that supplanted the Imperial regime destroyed the fledgling market driven economy owing to the adoption of the socialist system by the military regime that took power in 1974. Since the declaration of socialism as a guiding ideology, the National Democratic Revolution Program of April 1976, the Six Annual Development Campaign Plans (1979-1984), the Ten Year Perspective Plan (TYPP) (1984-1993) by the military junta was a total failure.

Despite its ardent adherence to the Marxist ideology, the Dergue had shown a considerable interest to liberalize the national economy during its final years, especially following the fall of the Berlin wall and the collapse of the Communist system in Eastern Europe (Solomon, 2001:4). Frustrated by state failure to undertake development, the Dergue introduced a new period in Ethiopian political and economic history with the proclamation recognized the role of private sector development and stated that private sector could compete with public sector in all the economic sectors (Solomon, 2001:5).

In the post Derg period, Ethiopia has conducted several economic reforms (Hamouda et.al., 2006:4). Solomon (2001:5) noted that when TGE took power, the economic policies were largely based on the preceding policy that focused on deregulation of banned territory and prices control. In the 1990s, the country began with a clear vision of reversing the socio-economic crisis of the 1980s and rapidly transforming the economy. In 1992/93, the government began its first series of economic reform programmes that aimed at reorienting the economy from command to market economy, rationalizing the role of the state and creating legal, institutional and policy environment to enhance private sector investment (Hamouda et.al. 2006:4).

Hence, privatization of public ownership was clearly pronounced, sectoral policies were designed, proclamations were pumped and implementing line organizations like EPA and were put in place to operate (Solomon, 2001:5). Adjustment policies focused on liberalization of prices and markets, removal of subsidies, reduction of tariffs, and current account convertibility. These were buttressed with fiscal and monetary policy discipline. The favourable policy environment created by the economic reform, coupled with macroeconomic stability, invigorated the domestic private sector, which was suppressed during the Derg period (Hamouda et.al, 2006:4).

The knowledge gaps on Ethiopia’s development challenges and opportunities this paper are the ideological leanings of the state in Ethiopia (‘revolutionary democracy’, ‘democratic developmental state’…) and the complete state dominance of the production, marketing and infrastructure development sector. This is similar to that of India’s first Prime Minister Jawaharlal Nehru who administered the economy by a Central Planning Commission, through a series of five-year plans, modelled on a similar process used in the Soviet system. Major businesses were State-owned and operated. Private firms required official licenses, their operations being strictly controlled by the regulatory regime, rather than free-market demand. 3. Objective:

The objective of the study is to glean best practices from India’s rapid development and recommend development trajectories to really transform the economy of this ancient nation and livelihood security of Ethiopians


4. Research question:

The principal research question is will Ethiopia emulate the policies that undergird the rapid economic development India has achieved in a span of less than a decade. What has two-decades of state dominated economic development yielded in Ethiopia? What should be the ideal role of the state if it is to emulate the Indian and Chinese ‘success’ story? 5. Methodology:

Research endeavours like this one, which would inform policies for private sector development, needs to address a variety of issues and employ a mixture of approaches. However, due to resource limitation, the researcher has used desk study to address the stated objectives. The study is mainly aimed to collect data on the role of private sector in Ethiopia. Hence, considering temporal value, a mix of cross-sectional and longitudinal (time series) survey methods were used to assess the performance, constraints, challenges, opportunities, policy environment, trend and prospects of private sector development. The researcher has made use of secondary sources to collect data for the study.

Secondary data were collected from relevant documents such as books, articles, magazines, newspapers, statistical reports and above all from documentary records of national accounts statistics of Ethiopia. A significant step in a comparative research like this one is to determine the unit of analysis that used to assess the role of the private sector. Therefore, the analytical framework for this study is designed to be carried out to compare how far regimes have created business-enabling environment for private sectors’ development based on the neoclassical and neo-structuralist approaches. Initially, the data mining, cleaning and verification process was conducted to increase validity and reliability of data collected from diverse secondary sources via various means of triangulation.

Analysis of data was conducted to show important relationships of variables on the role of the private sector in the three regimes. To this end, mixes of qualitative and quantitative data analysis methods were used. Content analysis and simple descriptive statistics (ratios, averages and percentages) are used to analyze and describe the data. 6. Africa: poor people in a rich continent!

6.1. Analytical Challenges and Nuances

Current discussions and analyses of transition to developmental states and democracy in Africa generally are marked by several limitations. The limitations relate to

a tendency to narrow democratic thought and practice to the terms and categories of immediate, not very well considered, political and social action, a naïve realism, as it were;

ambiguity as to whether society is the agent or object of change; an exclusive concern in certain institutional perspectives on state sustainability with

generic attributes and characteristics of political formations and consequent neglect of analysis in terms of specific strategies and performances of parties and

finally, inadequate treatment of the relations between global and indigenous dimensions of state sustainability;

The notion of naïve realism is invoked here to point to undeniable conceptual shortcomings in current perspectives on developmental reform. These shortcomings can be seen as outcomes of more or less conscious attempts of indigenous states and their international backers to get their hands quickly on "urgent" or "practical" matters of state sustainability of politics without worrying much about "abstract" theory. One manifestation of naïve realism is the pre-emotive "socialisation" of ideas and practices. A process, which often spawns an attendant rhetorical over-simplification of difficult concepts, this socialisation is disabling as a method of both grasping ideas and rules in all their openness and complexity, and making the ideas tractable to


transparent sustainable institutional practice. Another manifestation of the naïve realist approach to transitions to democracy is the simple equation of partisan or state elaboration of ideology with the production of ideas, values and goals in civil society. Here, attention and thought are diverted from the critical destination between, on the one hand, a system of abstract categories as a construct of an explicit rationalisation, a formal conceptualisation and design, and, broad and diverse domains of ideology and purposefulness in the plenitude of social experience, on the other. One is discouraged to acknowledge the distance & tension between these two spheres.

Statements such as the “constitution must be a creation of the citizenry...” and “... the law should come from the populace rather than palace”; suggest the form of a putative attribution of authorial agency in the making of a democratic constitution to an organisationally underdeveloped, democratically inexperienced and largely a civil society. Still another expression of naïve realism in existing perspectives is the common assumption that the proliferation of social institutions, mainly indigenous non-state actors and institutions is, in and of itself, an index of state sustainability and political, social, and economic reform. The assumption seems plausible. After all, what is more obvious in projects of democratic development than the goal of increasing the number of NGOs and other social institutions that will build stronger civil societies that will create favourable conditions for the growth of democracy in the continent? Nevertheless, the assumption is open to question.

In sum, naïve realism within existing perspectives and projects of political, social, and economic reform in Africa emphasises the immediacies of institutional and political activity to the neglect of the constitutive and regulative concepts and norms that define structure and validate democratic institutions and practices. It attempts to establish a direct relation to social experience, largely bypassing the intangible, yet no less significant, terrain of critical political thought. Its immediate turn to the practical tasks of inducing people to participate in ostensibly activities such as elections, the full meaning of which is often beyond the grasp of the participants, tends to become a substitute for the making of transparent rules of political engagement.

When it is not dissolved into the immediate reality of political, often partisan, or ethnocentric activity, democracy in Africa is likely to be represented as "pure" principle that needs only proper "application.” Practitioners and analysts of state sustainability in the continent tend to pass over the particular nature of democracy in fragmentary presence in much of Africa quickly, "adjusting" it against an ideal-general conception of what it might be. On the implicit, theoretically complacent assumption that formalistic, rhetorical modes of circulation of ideas and values in Africa nearly exhaust their articulation there, one often rushes to matters of "implementation.” Consequently, the philosophical and practical entrenchment of democratic system and process in Africa receive scant attention. The fundamental issues of how concepts, standards and practices of democratic rule could be generated and sustained under historically hectic conditions, and the manner in which they are likely to gain systemic integrity and autonomy as well as broad social currency are inadequately addressed. This relative inattention leads analysts and practitioners to make internal observations and assessments in terms of the democratic or undemocratic performances of African polities without raising the question of setting up or securing polities as democratic systems in the first place.2

Democracy must actually exist, take definite shape and structure, and become a working process, before particular criticisms, claims, and demands can be based on it. Insofar as existing perspectives on political reform neglect to pose the problem of articulation of democracy as a relatively autonomous mode of analysis; state sustainability would consist of a set

2 For example, in the face of the fact that past constitutions had never actually been effectively established,

especially as democratic structures, they are criticised for failing "to protect the rights of the citizenry. This is like attempting to assess failure to make a move in a game by reference to a set of rules, which had never been in force.


of activities in which universal, mainly Western, concepts and standards of governance are neatly applied to, as distinct from produced or re-produced in African contexts and conditions.

Even at the level of application alone, it is largely overlooked that international models may enter societies in Africa through a proliferation of mechanisms that hinder the growth of open and effective process thus retarding the evolution of self-governing systems experience and capacity. Whether democracy in Africa is defined in terms of individual freedom or collective rights, state policy or citizen action, private value or public norm, the upshot of the relative negligence to inconveniences of articulation of open systems and processes in themselves itself make democracy at once the most concrete of idea systems. Within current projects of political reform, democracy is either conventionalised or sterilised on terrain of theory and often vacuously formalised on the ground of practice. It enters African politics and society in relatively abstract and plain form, yet is expected to land itself to immediate and vital African polity's socio-political experience.

It suggests itself, seems within reach only to elude, and appears readily practicable only to resist realisation.

The effectiveness of political conditionality is a function of the dependence of a recipient state on foreign aid’. State compliance with donor conditions varies with the type of policy reform. Compliance is "high for measures that can be implemented by a small number of officials and low for reforms requiring extensive institutional change.” The imposition of political conditions on aid disbursements is alone insufficient to effect developmental transitions, i.e. in the absence of organised domestic constituencies for political change within the state and within civil society. Intervention by donors disrupts transitions to the extent that it is perceived as partisan. They can contribute most to neutral arbitration services like support for election administration and election observing.

Multilateral, bilateral, and non-state external agencies have, in recent years, taken a large number of initiatives aimed directly or indirectly at helping Africa "democratise" its way out of economic chaos and political instability. In doing so, they rely on a wide variety of programmes, institutional mechanisms and policies. Indeed, growing external involvement in African projects of democratisation and economic recovery has resulted in increasingly challenging problems of conceptualising and understanding the role and function of international agencies. The growth of foreign interventions seems in marked contrast to the limited thought and effort exerted by democratizers of African polity to put the interventions in coherent theoretical or strategic perspective.

The following questions could be posed in this regard: What is the overall rationality of the great traffic of international programmes and projects of democratisation and development in Africa, the proliferating activities that seem to show little regard for economy of coordination. How far and in what ways do various international agencies, programmes, mechanisms, forms of knowledge and technical assistance feed on one another in helping set the boundaries of developmental state reform in Africa? The important issues that these questions suggest are not sufficiently addressed, or even raised, in much of the current discussion of political transitions. Insofar as the activities of external agencies in Africa are not understood and engaged in, their democratic (and developmental) impact may diminish with their proliferation. This can mean little more than a weakly coordinated multiplication of programmes and projects which have immediately recognisable or measurable effects in limited areas, but which seem to suspend rather than serve the ultimate goals of eliminating state fragility of African political systems.

The strategic co-ordination of diverse international activities supportive of democratic transition (and development) in Africa can become a challenge both for the international agencies involved and for the States. African states and societies undoubtedly depend on international assistance in their projects of reform. Such assistance is vital for the projects in many areas and at many levels. Yet, it must be recognised that external support creates problems


as well as opportunities for eliminating state fragility on Africa. In confronting the imperatives of political change, nothing is more challenging for polities than the strategic co-ordination of diverse global and local elements, relations and activities within themselves, nor has anything greater potential for enabling them achieve successful transitions to democracy. This leads us to some fundamental issues of distinction of terms and definition of concepts that are required to arrive at a common understanding of the problems.

6.2. Developmentalism: the new problematic theory of modernity

Africa appears to have moved from a period of state formation and conflict between States, to a situation of state disintegration, internal conflict and the emergence of unorthodox fundamentalist and ethno-nationalist regimes. Even the nature of war appears to have changed. That is, ideologically orientated wars of liberation have given way to conflicts, which are now more defined in terms of the struggle for material survival. Ethnic structured resource wars, violent war lordism, parallel economies and fundamentalist regimes have appeared in their stead. It is a theory, which habitually traces and variously recommends the transition from the traditional or anarchic to the modern and the rational in its projects -- desired conditions, which can be achieved through technical solutions. It is a theory, which, with the exception of developmental studies and economics, is being widely challenged across the spectrum of the physical and social sciences. Developmentalism can be argued to provide a further legitimisation of the process of accommodation with protracted crisis, famine and complex emergencies. This is happening in an historic period, which beggars the endeavour.

In understanding this situation, the theory of modernisation has little to offer. Rather than societal convergence, what appears to be underway is co-evolutionary development process. Systemic crisis has increasingly forced non-bloc areas to seek unconventional forms of economic and political survival. The actual response to this situation appears more as a movement in the opposite direction of the development continuum. Development is being restructured effectively, as aid as the gap between bloc and non-bloc regions widens. In terms of practical action, current developmental ideas, while still implicitly resting on notions of societal convergence, no longer contain a sense of economic progress. The large-scale private sector driven infrastructural programmes of the 1950s and 1960s have been replaced by ethnically fragmented projects; changing the emphasis toward softer and cheaper new development rhetoric of capacity building…

6.2.1. Political Openness:

How could the African transition and other developmental projects in Africa pursue their goals consistently in varying contexts, but do so without resorting to a self - defeating, overly scripted and stage- managed political "play"? How could African democratic transitions combine immediately programmed intentionality with a more open, process - based purposefulness? In presenting conceptual analysis to help answer these involved questions, we may wish to start by defining, and distinguishing between, the following terms. One can draw a conceptual distinction between political openness and democracy.

Political openness would relate in part to various conditions or developments in state and civil society, only some of which may be necessary for or comparable with eliminating state fragility; such as decline or liberalisation of authoritarian regimes and/or ideologies resulting in increased opportunities for political competition and popular participation. Democratisation refers to an entire distinctive form of political thought, discourse and practice, which underlies popularly elected and controlled government. Political openness may or may not lead to full-fledged democratisation, but the two are better understood as overlapping, possibly mutually supportive, processes rather than self - contained transition phases.

Thus, in the absence of a widely open political space in which opposition parties of various ideological persuasions are allowed to exist legally and to compete freely and peacefully for state power, democratic elections cannot be held. Nor can formal constitution- satisfying efforts led by incumbent regimes and their intellectual supporters attain broad and deep legitimacy as developmental activities. Political openness and


democratic transition are possibly, not necessarily mutually supportive because a project of democratisation managed by a governing elite may also narrow the political playing field below the level where the opposition can freely operate, restricting the dimensions and elements of a broadly enabling transition process by its transition strategy. (Costantinos, BT., 1996:234-237)

6.2.2. Process and Strategy:

Governing elite backed by foreign states and international agencies may lead political transitions in their countries by deploying particular strategies and organisational mechanisms. Yet, they often identify their particular transition goals, policies and programmes with entire transition processes. One often finds also strategy undifferentiated from process in studies of eliminating state fragility in Africa. As against this must be maintained than any analysis (of international support) of political reforms in Africa that takes the problems and potential of democratic change in the continent seriously must distinguish between strategic and processual dimensions of the change.

6.3. Policies leading to failure, decay, and disintegration of the state

The attempt that had been initiated by states across Africa in response to the elements of the Washington Consensus envisaged bringing about a total reversal in the mode of socio-economic management from a centrally planned economy to that of a free-market economy. Nevertheless, so far, entrepreneurial sector participation in investment has not been as significant as expected.

6.3.1. Undefined core business of the state: This signifies the absence of a defined core business of the public sector and streamlined

state apparatus to focus on the core business of a functional state;

commercial activities having little or no public goods content and outsourcing these to the entrepreneurial sector can provide at lower cost;

planning budgeting and accounting system of the core business of the states that did not reflect priorities of citizen in the use of tax money which may change over time; and

need clear definition of what are the basic services and public goods society agrees that the state should provide, such as basic health and education, law and order, basic infrastructure, external relations, and regulatory functions;

in addition it is the non-streamlining of central government, lacking sharper focus on and decentralisation of essential services through clear mission statements, reducing overlaps and considering merger of complementary departments; minimising number of different departments needed to be involved in decision making to lower tiers of the state;

6.3.2. Lack of institutional capacity for policy development and co-ordination: The lack of institutional capacity for policy development and co-ordination, competent

economic management, efficient public services and sound infrastructure in Africa is another arena frustrating the international community.

Business confidence is affected by the level of competence in state economic management, the efficiency of the public service bureaucracy, the attitudes of influential public figures towards private enterprise, and the quality of public infrastructure and services. Specific measures to stimulate, develop, and promote entrepreneurship must rest on a firm foundation of sound economic management, efficient public services, positive attitudes towards business and reliable infrastructure. In regard specifically to investment, promotion by sending missions abroad or advertising internationally, such expensive efforts might best be undertaken when the ingredients for a satisfactory business climate at home are already in place.

Moreover, an investment promotion agency and other public service agencies must first establish a ‘service function’ to assist entrepreneurs who are already doing business locally (The Economist, 1982). The Indian experience has shown that there are often profound


contradictions among the range of policy measures on business promotion and development. (Satyajit Das, 2012:3) Finance, trade and labour policies are areas of particular concern. In this regard, there is simply no alternative to the establishment of sound institutional capacity in state for policy development, sensitivity analysis (to project the likely effect of particular measures), policy coordination and attention to the details of implementation. Policy objectives must be clearly defined and specific measures made consistent with overall priorities and objectives of national economic management. Experience has further shown that the prevision of incentives and other forms of assistance to entrepreneurs operating at different levels must be subject to periodic review and continuation made conditional upon performance advance criteria.

6.3.3. Lack of Privatising and commercialising activities: Commercial orientation in units which provide or could provide commercially value services

to the entrepreneurial sector - full or partial privatisation of units providing services that would be more efficiently provided in a competitive, multi-channel environment, force account activities, etc, did not happen. Contracting out services such as catering, cleaning laundry, maintenance of land and buildings, etc. which can be purchased more cheaply or with better quality from the entrepreneurial sector. Entrepreneurial sector involvement in provision of major infrastructure and concession arrangements - broadcasting, telecommunications, roads and bridges, power etc. This also entails lack of state corporate plans and performance management: State corporate plans were not well designed to provide the basis for restructuring the ministries around identified ‘core activities’ and for planning the restructuring process. Existing Corporate Plans needed strengthening in several respects with a unifying frame within which plans are devised. States tend to justify existing activities rather than undertake in depth re-evaluation of core mission; such re-evaluation should lead to proposals for dropping or downsizing activities;

There is little or no outsourcing, commercialisation redeploying resources to high priority activities, little or no evaluation of the state‘s comparative advantage vis-à-vis other providers of services; need to contain clear restructuring plans and timetables, with resource implications. In addition fiscal management review rarely takes place that would have enabled to deal with consequences of persistent high deficits and achieving a sustainable fiscal situation, restoring revenues, rationalising expenditure, managing assets, liabilities and overspending by ministries when revenues have declined faster than anticipated and parastatal losses.

6.3.4. Economic sustainability requirements are not met: Debt to GDP Ratio did not progressively decline.

This could have been achieved by running primary surplus of at least 1 percent of GDP, borrowing less domestically to allow real interest rates to fall, increasing foreign financing of deficit and reducing drought vulnerability, selling public assets to retire debt. Other vulnerabilities are non-restoration of public revenues, non-rationalising public expenditure, need to define core functions and improve efficiency of service delivery so as to operate within available revenues is not observed, lack of the review the role of lending institutions. Aside from a tendency to withhold credit from informal sector entrepreneurs and other small-scale business, there is evidence to suggest that such financial institutions generate an anti-equity bias. That is to say as a source of investment capital, development finance institutions typically lend to sole proprietorships or partnerships.

In the absence of (or where there are only fledgling) stock markets and merchant banks able to mobilise equity capital, this pattern or lending perpetuates itself. Thus, joint stock companies and equity markets have been slow to develop in countries and formal sector entrepreneurs are denied both the flexibility of tapping this source of finance as well as the discipline of working under pressure from stock or capital markets. Hence, the unintended consequences of development finance institutions’ operations for both small business access to credit and institutional development in the corporate sector need careful appraisal.


Dearth of information systems on micro-economic behaviour: Inconsistencies in this important area of credit policy and practice are one indication that the

overall framework of government-business relations in contemporary, Africa has fallen short of effective or strategic direction. Evidence of insufficient knowledge and information in state about the business sector is another indication. The main areas of weakness include inadequate institutional mechanisms for consultation and consensus-building between planners and policy-makers in state and different sections and levels of the business community; short-comings in state information systems on micro-economic behaviour including market networks or linkages between firms, and the specific requirements of technology transfer and adaptation. 3Any state seeking to provide strategic direction on the promotion of entrepreneurship within the overall framework of development priorities and objectives must first collect better information about the scale and nature of existing businesses operating at all levels including linkages (or lack of them) between firms and the range of problems or difficulties that are being experienced.

Lack of measures to promote informal sector micro-entrepreneurship: Among the factors limiting the growth and ‘graduation’ of informal sector micro-enterprises to better-endowed establishments, include limited and segmented markets cumbersome management and production methods and inadequate or inappropriate institutional and public policy support. It will become evident in the discussion, which follows that market networks, the state, and non-the statal organisations can play key roles in overcoming these constraints and promoting informal sector entrepreneurship. Over the long-term of course, micro-enterprises can grow through inter-generational expansion - i.e. the case where the business gradually grows as it is passed on from one generation of family ownership to another.

The skewed role of market networks: In the short-term, experience has shown that micro-entrepreneurs can overcome the limitations of market size and other constraints through linkages with formal sector businesses. Over and above this, experience has also shown that such market networks or linkages are often more effective mechanisms for the transfer of know-how and assistance than networked composed of the state departments and non-the statal organisations. The latter sometimes lack competitive pressures, the exigency of profit, and specialised knowledge to provide inputs that are most relevant to the needs of micro-entrepreneurs. (Marsden, K., 1990:21-22)

Lack of enterprise-level support systems: Entrepreneurs everywhere need advice, information, and various kinds of services in setting up their businesses and in dealing with problems that arise in the normal course of operations. Experience has shown that while technical and advisory services can be provided through market networks (via private consulting companies banks and financial houses) or through the tertiary sector (via Chambers of Commerce, management professional organisations, universities, collages…), state intervention is also required to establish a general framework for business development as part of the planning and policy-making process. Government should systematically appraise existing policies and measures on enterprise-level support systems to make them relevant to the needs of entrepreneurs. Five such constraints were earlier identified. These are as follows: complexity of investment design for large project; the potential difficulty of excess capacity arising from too ambitious original investment design or operating difficulties; weaknesses in technology adaptation and assimilation in small and intermediate-scale ventures; and problems of managing

3 This stands in sharp contrast with East Asian experience where planning and policy-making is done by on-

going dialogue between the state and different groups of economic actors. This entailed regular exchange of information on specific needs and requirements including the critical area of technology transfer and development; a coherent and coordinated approach between different state agencies in their dealings with the business community; flexibility in response to changing circumstances; attention to detail in the implementation of objectives that have been agreed upon; and emphasis on achieving high levels of performance;

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This gain is in both private corporations (share in GDP increasing from 23.5 per cent to 25.1 per cent between 2004-05 and 2008-09), and the informal sector (share increasing from 56.6 per cent to 59.1% in the same period). However, the private sector share in GDP was 36.2% in 2004-05. It has risen marginally to 36.7 per cent in 2008-09, excluding informal agriculture. This shows that the non-agriculture informal sector share has actually fallen from 12.7% to 11.6% in this period Researchers like Kolli (2010:25) confirmed that the rapid rise in the share of private sector is evidently due to faster growth in the GDP of the private sector as compared to that of the public sector. Kolli, asserts that this achievement in nominal terms and price differentials among the sectors’ outputs can hide the actual position in real terms.

At constant prices, the share of the private sector in the GDP of Ethiopia is 80.1% in 2008-09, lower than its share of 84.8% in nominal prices (Annex II). In this regard, Kolli (2010:27) argued that such variation indicates that inflation (or the price deflator) is much higher in the private sector as compared to that in the public sector, which obviously is due to higher inflation in agriculture. From the total private sector share of 80.1% (2008-09), private corporations account for 27.3% (aligned with 25.1% at current prices), the NPISHs account for 0.6% and the informal sector accounts for the balance of 52.2% (aligned with 59.1% at current prices), showing again that the bulk of the private sector constitutes the informal sector, mainly agriculture. Within this informal sector, agriculture accounts for 40% and all other informal activities outside agriculture account for a mere 12.2 per cent. Thus, excluding informal agriculture, the private sector share in GDP in 2008-09 is 40.1 per cent (aligned with 36.7% at current prices). It is exciting to note that the share of the private sector in GDP in 2008-09 (excluding agriculture) is higher at constant prices than at current prices, clearly showing a lower inflation rate in the non-agriculture private sector and much higher inflation in agriculture sector.

The share of the public sector increased from 18.5 per cent in 2004-05 to 19.9% in 2008-09, which is the reverse of the picture that emerged when it is calculated the share in nominal terms. Against this, the private sector’s share declined from 81.5 percent in 2004-05 to 80.1% (2008-09), again a reversal of the trend in nominal terms. However, if the informal agriculture is excluded from the private sector, the share of the private sector in GDP in real terms increased from 36.2% (2004-05) to 40.1%, a rise of almost 4% points in a period of 5 years. In real terms, the share of informal agriculture came down from 45.3% to 40.0% between 2004-05 and 2008-09, most of this share going to other private sector activities. Overall, the share in GDP of the informal sector fell to 52.2 per cent in 2008-09 from 57.4 per cent in 2004-05. Within this, the share of non-agricultural activities remained comparatively constant at around 12%. In annex II, indicates that the share of public corporations in GDP was stagnant over the 5-year period at about 8.6%. While private corporations increased their share of GDP by 3.9% points from 23.4% to 27.3%, bringing out the fact that growth rates of GDP were much higher in private corporations than in public corporations.

Kolli (2010:29) indicated that private sector GDP in Ethiopia grew at an average of 10.8 per cent between 2004-05 and 2008-09, lower than the average growth rate of 13.2 per cent in the public sector and the overall growth rate of 11.1 per cent. Kolli also noted that this lower growth in the private sector is due to lower growth in the informal sector and especially in the agriculture sector. A comprehensive analysis of private sector growth (2004-2009) based on data compiled from kolli (2010:30) shows that private corporations showed an impressive average growth of 15.6%, higher than the growth rates of 8.6% in the informal sector, 11.6% amongst public corporations and 14.5% in general government. Thus, this data obviously demonstrates that private corporations have been the primary engines of growth in Ethiopia since 2004. On a deterrent note, nevertheless, lower growth of 7.5% was witnessed in 2008-09 in private corporations against the significant growth rate of 20.9% in general government, which could perhaps be due to a rise in government spending on salaries and wages and an expansion of government activities in social sectors. The year 2008/09 would always be remembered as the


year of global financial and economic crisis. Hence, under such critical circumstances, growth of private sector in Ethiopia by 9.0% is a significant achievement (Kolli, 2010:29).

Based on the inflation as measured through GDP Implicit Price Deflators (IPD) data, an analysis of the IPD,i shows that against the average overall inflation rate of 20.8% during 2004-05 to 2008-09, inflation in the private sector is 22.9% and in public sector, it is far lower at 11.6%. Within the private sector, inflation in private corporations is somewhat lower at 18.3%, while in the informal sector, it is at a high 25.3%. Within the public sector, inflation in the output of general government is 10.7% while that of public corporations is 12.9%. Inflation was particularly high in private corporations in the year 2008-09 (at 32.2%), among the major institutional sectors. Inflation has also been quite high in the informal sector at 18.6% in 2007, 44.3% in 2008 and 24.5% 2009(Ibid). Kolli (2010:29) noted that the reasons for the differences in shares of public, private corporations and the informal sector between current and constant prices 2004-05 and 2008-09, are mainly due to higher average annual inflation in the informal agriculture activity, at 27.4% during this period. If the informal agriculture is excluded from the private sector, annual average inflation falls by 4.7% percentage points to 18.2% in the same period.

6.4.2. The role of private sector in investment in Ethiopia (1992-2012)

The role of private sector on the Ethiopian economy can be accessed based on its impact on investment. Accordingly, time series data from EIA’s database for the last 20 years (1992-2012) has been used to analyze the share domestic, foreign and public investments in terms of status, job creation and capital outlay. During the period 1992-2012, 41,823 domestic private projects are under pre-implantation while 2,380 and 4,531 domestic private projects are under implementation and operation respectively. Compared to domestic private projects, foreign private projects are small in number under the pre implementation and operation stages while it has exhibited better performance under the implementation stage. In this regard, 4,531 FDI projects were under pre- implantation (against 41,823 domestic private projects), 4,079 FDI projects were under implementation (against 2,380 domestic private projects) and 1,377 FDI projects were under operation (against 4,531 domestic private projects) (see table 3.6).

Domestic projects under the phase of pre implementation have shown an increasing trend since the year 2000 reaching its pick in 2008 but with a gradual decrease in the subsequent years. Similarly, domestic private projects under implementation have shown better performance in the same year (2008). In terms of operation, better performance has been achieved in the years 2006 and 2004 with 584 and 482 domestic private projects that went operational respectively (figure 3.18). The gradual decrease in number of domestic private projects in all phases is attributed to the financial crises that hit the world economy.

FDI projects under the phase of pre implementation have shown an increasing trend since the year 2003 reaching its pick in 2010 (with 1,088 projects) but with a gradual decrease in the subsequent years. FDI projects under implementation have shown better performance in the years 2009 and 2008 with 148 and 143 FDI projects respectively. FDI projects under operation have shown increasing trend since 2003 reaching its peak in 2008 (209 projects) but with gradual decrease in the subsequent years. In general, both domestic and foreign private investments have shown a dramatic increase since 2005 reaching its peak in 2008/09 but with sharp decrease in 2010, 2011 and 2012 owing to the financial crises, Arab spring and instability of oil prices.

6.4.3. The impact of endowment and party owned business on the private sector:

Birhanu (2011:39) identified the phenomenon of party-owned business much like military-controlled businesses as an integral part of the drive for a total state capture by a vanguard party of key state and societal institutions in weak market economies. At the extreme ends of economic and political governance, the party-owned business can be sighted as a market-defying institutionalization of a market-facilitating strategy of shared growth. The parasitic rent-seeking interpretation is that the party-owned business is an ingeniously disguised mechanism for


funnelling public assets and for creating and redistributing economic rent in resource-poor, post-conflict societies where the state is the biggest economic prize (Birhanu, 2011:40). Despite the form of a federal state structure and a multiparty system, post-1991 Ethiopia remains in reality a centralized one-party state that has established its business empire (Ibid:41). Hence, this has allowed foundations that are controlled by political parties to own enterprises that compete with the private sector (Genet, 2010:2). Birhanu (2011:43) identified four large umbrella endowments in Ethiopia today that constitute the heart of the EPRDF complex of companies that also includes for-profit entities owned or co-owned by allied regional elites and politically connected associations—aptly called Para-NGOs.ii Hence, the existence of overstretched, mushrooming, uncontrolled and privileged endowment business organizations would gradually narrow competition, expand oligopolies, breed cartels and culminate the private sector at its bud. 7. Lessons learned from India and China

Satyajit Das (2012:1) writing for The Daily Reckoning Australia, asserts that without urgent changes, India may never be able to live up to its promise, remaining always the Great Pretender. In Part 1 - “India Shining”, the author underpins that in the aftermath of the global financial crisis, optimists hoped that the BRICs (Brazil, Russia, India, China) would drive the global economic engine. But China’s economic growth has slowed to its lowest rate in three years. Brazil’s economic growth has fallen from around 7.5% to under 3%. Russia’s economy is heavily dependent on oil and energy prices. India's economy also has stalled.

In the 30 years following independence, India achieved a modest rate of economic growth of 3-4% per annum and incomes improved by 1-2% each year. India’s poor economic performance was driven by half-baked socialist policies of its leaders. India’s first Prime Minister Jawaharlal Nehru admired the Soviet Union, becoming one of the few followers of its ultimately unsuccessful economic policies. The economy was administered by a central Planning Commission, through a series of 5 year plans, modelled on a similar process used in the Soviet system. Major businesses were State-owned and operated. Private firms required official licenses, their operations being strictly controlled by the regulatory regime, rather than free-market demand.

The principal policy was import substitution and a reliance on internal markets for development. India’s currency, the rupee, was inconvertible. A system of high tariffs and import licensing restricted foreign imports. This was the era of the “License Raj”, a reference to the elaborate licenses, regulations and stultifying red tape required to operate businesses. Under the terms of a license, the government regulated all aspects of operations, including production levels, prices, investment policy and financing. The government restricted businesses from laying off workers or closing factories. By the early 1990s, the country was in dire straits. On 24 July 1991, Manmohan Singh, the current Prime Minister and then Minister of Finance, told the Indian parliament that, “the room for manoeuvre, to live on borrowed money or time, does not exist anymore.” Mr. Singh succeeded in passing a reformist budget and opened the door to foreign investment in certain industries, reducing tariffs and easing the system of licenses, ending his speech to parliament quoting Victor Hugo: “No power on earth can stop an idea whose time has come.”

India’s economy has almost quadrupled in size, growing at an average rate of about 7% per annum and over 9% from 2005 to 2007 – Chinese rates of growth. De-regulation allowed a latent commercialism, suppressed during the ‘license Raj’ days, to prosper. The lost decades had resulted in a flight of human capital to developed economies. Beginning in the 1990s, there was a steady flow back of these skills, augmented by overseas education and experience, into the Indian economy. India’s GDP rose by 43% between 2007 and 2012, slightly less that China which increased by 56% but much faster than developed economies, which grew only 2%. (Satyajit Das, 2012:2) In a report titled India: Better Off Than Most Others, Macquarie Capital argued that India’s

traditional weaknesses Low exports, a predominantly state-owned financial system lightly integrated to foreign markets, sluggish

export growth because of bureaucracy and the large domestic agricultural sector producing only for domestic consumption- were now strengths underpinning growth. India now had nearly 7% of the world’s 1,000 or so


billionaires, despite its GDP being only 2% of world GDP. The wealth of Indian billionaires is more than 20% of the GDP, about the same as Russia but higher than China where it was less than 3% (Ibid). Foreign commentators see India's growth as being driven by tens or hundreds of millions of

individual entrepreneurs, rather than the State as in China. They praise India's export of services rather than cheap manufactured products. Foreigners also admire India's business innovation, mostly notably the "frugal innovators" that have introduced cheap "nano" mini cars and inexpensive tablet computers. The reality is more nuanced. India continues to be dominated by state-owned business and the large oligarchic firms, which existed prior to economic liberalisation. Studies have found the economy continues to be dominated by an oligopoly of incumbents, which have maintained or increased their positions.

India's exports are diversified—both geographically and in terms of the products, it sells. Nevertheless, export oriented firms are affected by the economic weaknesses in their major trading partners. With few exceptions, they have not moved up the value chain, continuing to provide the new economy version of cheap manual labour. Innovation remains weak relative to international market leaders. Export oriented firms face challenges from rising labour costs, because of the shortage of skilled workers. In some areas, cost pressures are forcing these firms to relocate overseas, reversing one of the trends that underpinned growth. Both international and domestic businesses are restricted by India's infrastructure weaknesses. Cost structures are increased by the need by businesses to invest in power generators, workforce training and even transport and housing infrastructure for their workers. Domestic firms also continue to face inconsistent and frequently dysfunctional government regulation and competition. The airline industry provides a case in point.iii

India’s growth is not without problems. Petty corruption by poorly paid local officials has been common in India for decades. The real problem is a deep-seated and endemic corruption on a large scale, highlighted by scandals surrounding the issue of telecommunication licenses and sale of coal assets.iv The unauthorised biography of Dhirubhai Ambani, founder of the Reliance Empire, now split between his sons, euphemistically notes his skill at managing the environment.

India's economic challenges are compounded by internal and external insecurity. In the title of his 1990 book A Million Mutinies, writer V.S. Naipaul pithily captured India's internal political disputes. Today, about a third to a half of India is affected by the Naxalites, a violent Maoist insurgency that has been active for over the 50 years. More peaceful separatist movements abound in many parts of India, with ethnically distinct groups seeking their own separate State. Over the last 30 years, many Indian states have been sub-divided to accommodate these movements at great national expense. The threat of religious conflict between Hindus and Muslims is ever present. Successive governments of every political persuasion have failed to undertake meaningful reforms, necessary to foster growth, employment and development. Reform of tax laws - including the introduction of a direct sales tax correcting cumbersome differences between individual states - have not been completed. Changes to mining and mineral development regulations to allow proper, environmentally-controlled exploitation of India's mineral wealth have not been made. (Ibid) In Ethiopia, low interest rates and a realistic exchange rate, continuing trade reforms and privatization of state-owned companies, less state intervention, a deregulated labour market and a streamlined tax system have helped to create a more conducive environment for private sector development gradually. An investment code was issued in 1992, creating space for private investment through a number of incentives. Despite those efforts, private investment growth rates in Ethiopia have remained low. ECA’s report (2004:16) reveals that some investors have complained through the Chamber of Commerce about unfair competition from party-affiliated companies and the high costs, short payment periods, and lengthy bureaucratic procedures involved in acquiring land. In addition, the current mode of the decentralized administration system poses several problems on private sector development as it constrains the free flow of


goods, services, capital and people among different regions. There have been several reports of private investors being unable to operate freely in some regional states. (Ibid).

The African economic outlook described Ethiopia’s private sector, as it is predominantly small scale, informal and service-oriented. Thus, the public sector dominates most economic activities, except for smallholder agriculture in rural Ethiopia. The country performed poorly in a number of the World Bank’s global Ease of Doing Business indicators, its ranking in 2010 and in 2011, being 103rd and 104th out of 183 countries respectively are discouraging. So far, the financial sector in Ethiopia has been too weak to support the private sector. For instance, stringent collateral requirements for access to credit are usually the major impediment. Thus, ensuring access to credit to targeted private sector operators based on performance, productivity and government close monitoring could be important. (AEO, 2011:12). 8. Conclusion

It has been acknowledged that, if the entrepreneurial sector, in a competitive free market environment, has to be a major force to tackle socio-economic problems and improve the standard of living of the people, Governments have to continue efforts to create an enabling environment. This entails reduced bureaucratic bottlenecks, rules and regulations, which are responsive to the needs of the sector. Specially, issues of credit accessibility, investment promotion, national and regional guidelines for entrepreneurial sector participation, land lease holding, participation of foreign capital in banking and insurance business, the labour law, and the tax system would require reconsideration. The private sector has the potential to change global economy extraordinarily via transforming resources into valuable products and services. It is a valid instrument to ameliorate socio-economic perils: unemployment, poverty, underdevelopment, illiteracy and malnutrition. Therefore, it is unquestionable that nurturing an efficient private sector in Ethiopia is of critical importance in the quest to deliver sustainable economic growth, raise living standards and increase per capita income. References Admit Zerihun (2009). Industrial policy and industrial development in Ethiopia (pp. 241-281). In

Taye Assefa (editor). Digest of Ethiopian policies, strategies, and programs. Printed at Eclips. Addis Ababa, Ethiopia.

AEO African Economic Outlook, (2011). Ethiopia 2011. Accessed on April 1, 2012 and available at www.africaneconomicoutlook.org

Birhanu N. (1999). The Ethiopian Economy. Performance and Evaluation EEA. Produced and distributed by EEA. Ethiopia, Addis Ababa. Addis Ababa, Ethiopia. Accessed on March 23, 2012 and available at www.eeaecon.org

ECA (2004). Governance profile of Ethiopia. Measuring and monitoring progresses towards good governance in Africa Addis Ababa, Ethiopia. Accessed on March 12, 2012 and available at http://www.uneca.org

Eshetu Chole (2004). Under development in Ethiopia. OSSREA, Color steps and print: United Printers Addis Ababa, Ethiopia

Genet Mersha, (2010). Increased role of party-owned enterprises in businesses & the economy: several serious concerns. Tata McGraw publishing company limited, New Delhi, India.

Hamouda et.al. (2006). Assessing the Consequences of the Economic Partnership Agreement on the Ethiopian Economy. African Trade Policy Centre (ATPC). Published and distributed by UNDP. Addis Ababa, Ethiopia.

Kolli R. (2010). A Study on the Determination of the Share of the Private Sector in Ethiopian Gross Domestic Product. Addis Ababa Chamber of Commerce and Sectoral Associations. Addis Ababa, Ethiopia.

Marsden, K. (1990) “African Entrepreneurs: pioneers in development” Washington DC, IFC technical paper. 9

Solomon Deneke (2001). Private sector development in Ethiopia. Addis Ababa, Ethiopia. March 11, 2012 and available at www.eeaecon.org

The Economist, (1982) :Entrepreneurial now” p. 50


Satyajit Das for The Daily Reckoning Australia, Part I: India Shining, part II: A Sea of Troubles, part III: Political Atrophy, without urgent changes, India may never be able to live up to its promise, remaining always the Great Pretender, http://www.dailyreckoning.com.au/the-great-pretender-indias-economic-past-future-part-3/2012/05/30/, accessed June 2, 2011

i obtained by dividing the estimate at current price by the estimate at constant price *100, these

are broadly of Paasche type, as they use current volumes as weights ii The largest endowment is owned by the biggest of the four members of the ruling coalition.

EFFORT, established in 1995 is owned by the TPLF. It is by far the largest in terms of assets, number of subsidiaries, sectoral coverage and supra-regional orientation. Genet (2010:5) indicated that the junior partners of the ruling coalition also own for-profit companies of lesser importance, again overseen by holding companies registered as endowments. They are Endeavour (Tiret) of ANDM, Amhara; Tumsa Endowment of OPDO, Oromiya and Wondo Group controlled by SEPDM, SNNPR. (Birhanu, 2011:40). Birhanu asserts that the establishment of holding companies to oversee party-owned enterprises is a contravention of the 1960 Commercial Code on charitable trusts. In actual circumstances, the Code prohibits donors having control over a registered charity and all the proceeds must be channelled to designated purposes or beneficiaries. Furthermore, the party owned businesses clearly violates the 1993 proclamation that prohibits registered political parties from owning for-profit enterprises precisely because they violate the principle of a level playing field to ensure meaningful political competition and as it stifles the development of the private sector. EFFORT is engaged in industrial, agricultural and service industries: Guna Trading House, Mesebo Cement Factory, textiles and garmenting (Almeda Factory), livestock and leather (Sheba Tannery); and mining and exploration (Meskerem, Ezana) for base metals and industrial minerals. EFFORT has also a strong hold in the service sector including transport (Trans-Ethiopia and Selam Bus Co.), engineering, construction, and consultancy (Mesfin Engineering, Sur Construction, Addis Consultancy and Addis Engineering); and the financial sector (Wegagen Bank and Africa Insurance). Wegagen Bank is the only “private” Ethiopian bank listed among Africa’s top 100 banks in terms of assets, loans and deposits (Birhanu, 2011:44). The horizon of EFFORT and its sister endowments have also spread to microfinance institutions, where nearly 90% of the gross loan portfolio is accounted for by the biggest five which are para-NGOs of the ruling coalition: Amharam, Dedebit and Oromia Credit and Savings Institution, Omo Microfinance, and Addis Savings and Credit Institution. EFFORT companies, which employ a strategy of high leveraging, are also reported to owe billions of birr to the state banks. Some critics even go so far as to suggest that EFFORT would not survive without state protection

iii The weaknesses of Air India, the government owned nation carrier, allowed a number of private carriers to prosper — Jet Airways, Kingfisher, Spice Jet etc. In recent years, however, government recapitalised Air India, competing vigorously to regain lost market share, causing the private airlines to stumble.

iv A 9-month investigation by the auditor and Central Bureau of Investigation found that the Ministry of Communications and Information Technology sold licences for the use of spectrum for mobile telephony bandwidth at below market prices to telecoms companies in 2008. The report found that 85 of the 122 licenses were granted to companies that "suppressed facts, disclosed incomplete information and submitted fictitious documents". The sale cost the Indian government and citizens lost revenues of around US$39 billion. More recently, a draft report by the auditor accused the government of selling coal assets to major Indian industrial corporations at below market prices, resulting in a loss of (up to) $210 billion in lost revenues. There are even accusations of manipulation of the auction of licenses in the new Indian Premier league, a T20 cricket competition. Commentators now compare some Indian businessmen to 19th-century American robber-barons. They have secured rich natural resources, especially land and minerals. They have ensured a favourable regulatory framework and restricted competition, especially foreign competition, where possible.

The Righteous Pretenders, India and Ethiopia: Parallels in State Led Economies

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