home-grown economic reform recap

Our country is in a period of a huge shift in the political and social sphere and the economy is no different.  The government is engaged in transforming the Ethiopian economy with an initiative to make the Ethiopian economy one of the leading in Africa.  With this in mind, it has launched a home-grown economic reform agenda that sets the country’s economic vision for the upcoming years, identifying priority sectors and leveraging on the economic growth of the past decade.  This reform aims to shift the leading role of economy from the government to the private sector.

On November 7, 2019, AWiB organized an informative session to understand how these reforms affect local businesses, what opportunities and challenges the reform will bring into the private sector, and how businesses can be prepared for these upcoming changes.  Three guests—one from an institution that was part of the policy-making process and another that took part in consultations—were invited to discuss these issues and further clarify what this policy reform means to the private sector.

The three speakers were Dr., Eyob Tekalign Tolina, the state minister of Ethiopia’s Ministry of Finance.  Previously, he was minister in charge of Ethiopia’s National Planning Commission.  Eyob has spent over 18 years leading Ethiopia’s economic and social development.

The second speaker was Ms. Hanna Arayaselassie, a deputy commissioner at the Ethiopian Investment Commision (EIC).  She is responsible for overseeing investment facilitation and regulation in industrial parks.  Hanna is also a member of the EIC executive management team in charge of developing and executing key strategic decisions of the commission.

The third speaker was Ato Endalkachew Sime Degaga, a former secretary-general of the Ethiopian Chamber of Commerce and Sectoral Associations (ECCSA).  Endalkachew is an economist, private sector specialist and business development expert with extensive experience in multiple sectors for the last couple of decades.  Prior to the ECCSA, he served as secretary general of the National Textile Association, ETGAMA, and on steering committees and boards at the national level.

Last but not least Ato Yebegashet (Abega) Alemayehu joined the session as a guest moderator.  Yebegashet is founder and managing director of Abega Management PLC, media and management consulting company that provides professional services in media production, business management, financial management, and public relations work.  Among other media engagement, Abega Management produces a weekly business TV show, “Nuro Ina Business” (“Life/Living and Business”) on Ethiopian Broadcasting Corporation (EBC). The program provides in-depth analysis of some of the most important business, investment, finance, and social issues in Ethiopia.

The evening directly moved into an engaging and hot discussion of “unpacking the home-grown economic Reform” from different perspectives after a brief opening remark by AWiB 2019 President Sewit Haileselassie and our moderator welcoming our guest speakers on stage.

Dr. Eyob gave a brief assessment of the economic reform agenda in general terms.  He acknowledged the significant achievements that were made in the past couple of years, specifically infrastructure development, developments in the health sector, increased life expectancy, double-digit growth among many others.  Despite all these positive achievements, he mentioned the macroeconomic imbalance challenges that manifested in the economy in different ways including in fiscal deficit (revenue US Expenditure imbalance), increased debt, currency shortage, unequal distribution of wealth, lack of inclusivity and many more. The new home-grown economic reform agenda, as Eyob puts it, understands these achievements and challenges and adopts an economic strategy that will build up on the previous successes while addressing the macro-economic imbalance.

The economic reform mainly focuses on rebalancing the role of the government and the private sector.  In the past decades, the economy was driven by the government, characterized by intensive public spending and investment.  With the new reform, the government is looking forward to the private sector to take the lead in gearing the economy and achieve sustainable growth.  Eyob mentioned that the government has identified multiple focus areas and sectors it can support the private sectors through.  Some of these important areas include ease of doing business, financing availability, privatizing big government institutes, and creating opportunities for startups through outsourcing and sub-contracting, etc.  Overall, Eyob concluded the economic reform aims at making Ethiopia a startup nation, tapping many of the untapped investment opportunities.

Ms. Hanna Arayaselassie was the second to take the stage. She looked at the economic reform from the private sector investment perspective.  The reform acknowledges the importance of the private sector to the overall growth of the economy, hence works to enhance the role it has in the economy.  One of the major initiatives the government has taken in the reform agenda with regard to the investment area is to revise the investment law.  In the revision, the government identifies additional sectors that were not included and were not given enough priority and resources.  It also looks deeply into incentive allocation that is aligned with performance, curbing misuse of resources.  The revision also focuses on investment administration addressing the gaps between federal and regional effort coordination.  It gives regional offices an opportunity to determine region-based opportunities and challenges to enhance better performance.  Hanna elaborated that the reform emphasizes changing the practices in government institutions and regulatory bodies, creating ease for doing business.

In his presentation, Ato Endalkachew requested the audience to pause and ask ourselves what the reform means to us, the private sector, and how we are preparing ourselves to the competition that is growing as the economy opens up.  He also asked who would be leading the reform and the initiative.  For Endlakachew, the reform agenda brings the private sector to a leading role to gear the economy, make it sustainable, and puts a responsibility to the private sector to pick up the growth the public sector has been delivering so far in the economy.  He also suggests the private sector take ownership of the reform and come up with new ideas to assure the reform is successful.  Endlakachew added the business community needs to get to know the reform better so as to use the opportunities.

A very engaging and intriguing Q&A session followed the presentations.  Many questions were brought forward from the audience.  Moderator Yebagashet brought a concern of many business owners: the issue of Inflation and currency.  He asked how the government intends to achieve the reform with the existing currency and inflation challenge.  The other question Yebgashet brought up was the issue of inclusivity.  He asked if the reform have a specific policy or strategy to support women flourish in the business sector as the private business sector has mainly been dominated by men, women having limited access to finance and face multiple discriminations.

Eyob cited different strategies and actions the government is implementing to address inflation and currency shortage.  The government is working, in the long term, to shift the economy from demand-driven to supply driven by enhancing productivity.  He also mentioned the government is working on building home trade regions and reducing cost build up by providing efficient logistics and infrastructure.  With these and other measures, Eyob hopes to see a well-controlled inflation.  As for the foreign currency issue, he is very sure that it will not be a defining feature of the Ethiopian economy once the reform is fully in place.  The government has identified many sectors that could be a good source of foreign currency such as the tourism sector, ICT, etc.  The government is continuously working on increasing the confidence of the diaspora by giving sustainable and reliable business opportunities, increasing the exchange inflow, he said.  Eyob mentioned the government is also working subsequently on exchange management in line with the source for the proper allocation of the currency.

On inclusivity and women’s businesses, Hanna said it is very important for organizations like AWiB to lead discussions and give input so it is properly addressed.  For instance, on access to finance there is room for improvement and she would like to hear input from more women.

The Q&A session continued with questions, suggestions and concerns brought forward from the audience.  Some of the questions included:

  1. As the economy opens up, it is obvious that the competition is going to be immense and the capacity of foreign investors will be bigger. In this regard, is there a certain strategy the government is adopting to protect local investors and is a minimum cap requirement applied?
  2. In relation to the currency issue, further elaboration was requested on how the government is planning to move the informal flow of currency from the diaspora into the formal channel.
  3. In the privatization of the big government companies, an audience member wanted to know if there is a certain percentage allocated to Ethiopian nationals in order to avoid complete ownership of these institutes by foreign investors.
  4. Is there an effort to organize the private sector by the chamber or other government bodies so businesses could have an organized effort in terms of lobbying with the government to get their voices heard?
  5. Each speaker was asked to share a specific item that stood out for them from the agenda.
  6. Is the current political, legal framework including the bureaucratic situation is suitable for implementation of the reform?
  7. It is mostly presumable that EIC mainly provide incentives to foreign investors. The audience asked if there are incentives that are specific to local businesses that support the growth of local private sectors.
  8. The audience asked if the speakers have specific advice they would like to share on what local business owners can do to be prepared for the challenges and competition that comes as Ethiopia opens up.
  9. Further elaboration was requested if EIC has specific incentives for Ethiopian diaspora who would like to move and invest in Ethiopia—in particular women investors.
  10. Climate change is one of the many concerns that are very much endangering our globe and Ethiopia is no different. Hence, the audience asked if the reform has put climate change as part of the economic reform agenda.

Before the floor was opened for a second round of questions, the speakers gave answers and comments to the questions above.

Hanna informed the audience the minimum requirement of 200,000 USD will still be applicable for foreigners who would like to invest in Ethiopia.  This requirement applies to Ethiopian diasporas/returnees as well.  The government will still be carefully selecting the sectors that will be opened for foreign investors to protect local businesses from unfair competition.  She further elaborated that the incentives EIC adopts are not particular only to foreign investors, and local investors are equally supported by EIC.  For Hanna, the most exciting part of the home-grown economic reform is the new investment law.  She believes applied carefully, the law could serve as a game changer in the Ethiopian economy.

Eyob believes building the confidence of the diaspora community by providing macro financial stability and attractive business opportunities is the key to move the informal flow of foreign currency to the formal flow.  The privatization of the big government institution, in Eyob’s point of view, will not be an issue.  For him, the privatization of the big government institutions brings opportunities for small-scale investors through outsourcing and sub-contracting as the big institutions can’t do it all by themselves.  In this regard, there was a concern brought from a young student that pointed out if big, foreign institutions take complete ownership, these institutions will have enough in-house resources and skills that they won’t hire local employees.  In the response, it was assured that the employment by foreign companies is regulated by Ethiopian labor office and foreign investors can only hire if the skill set is not available in the country.  This is also only for a certain amount of time—until they build the capacity of local labor.

For Eyob, the exciting part of the economic reform is the digital economic reform that emphasizes development of the ICT sector and involves the young generation setting the economy as a start up economy.  He also pointed that upgrading the institutional framework is one of the issues that are part of the economic reform agenda.  By improving the institutional framework the government hopes to tackle the bureaucratic problems, build good governance and eventually make doing business easy.

The speakers suggest organizing the private sector and giving the private sector a leading role will need a continuous effort as it has a very detailed dynamic since there are multiple stake holders involved.  Identifying the role of each of these parties (i.e., the government, developmental parties), the private sector needs a careful assessment.  Specifically, organizing the private sector will be a challenge because of the mind-set of those in the private sector.  Private businesses are reluctant to work in groups and prefer working solely. Furthermore, it was mentioned that Ethiopia lacks experience in the associative working framework, which puts an additional challenge to organize businesses.  Therefore, we would need to work on this and other issues subsequently to help businesses come and work together.  Endalkahew is excited to see the reform successfully capacitate the local private sector.

The discussion went further with another round of questions and suggestions from the audience.  The current peace and security issue of the country was raised as a concern by many audience members, which they suggest needs immediate attention from the government as it will have a long, negative impact on businesses.  In this regard, Eyob assured the audience that the government is working hard on bringing peace and stability into the country and asked us not to panic over the challenges—as there will be more—as we move forward as a nation.

In addition to the issue of security the audience brought up again the currency shortage issue.  Even though, the government is intensively working on the shortage of currency an audience member requested that a clear projection be provided to the business community on the availability and timing so that investors could have confidence and plan accordingly.

Multiple suggestions and comments were also given on the reform agenda.  One proposal was that the even though the economic reform emphasizes being a home-grown economic reform, it shouldn’t be all in context of Ethiopia as we are part of the global business.  By focusing mostly on what works for Ethiopia there is fear we might miss out on the dynamics and knowledge we could absorb from foreign investors.  Eyob replied to this specific concern that the concept of home-grown economy helps us understand our challenges in our term but not limit our growth and policies to local contexts only.  It in fact aims to put Ethiopia as a leading economy in Africa, hence requiring us to work on regional and global level.

The other concern from the audience was that the government is taking too many initiatives in a short span of time including the job creation policy that has been recently launched.  The audience wanted to know how each of these policies and reforms are linked to each other or if they are multiple/separate efforts.  Eyob responded that the economic reform is something the government has taken a long time to assess and refine so as not to bring a half-cooked reform.  In this regard the government is able to deliver a comprehensive reform in a coordinated manner that each policy, action and efforts are interlinked.

Most in the audience agreed that they were not aware of the reform before they came to this event.  While some have heard of it briefly, there were many who heard about it for the first time.  So it was suggested that the government needs to prepare a platform to create awareness among the private sector and other key stakeholders that have a direct or an indirect role to play in the reform.

Aside from the comments, multiple questions were raised.  Additional questions included:

  1. If the reform has a particular plan to support businesses that have social and environmental impacts as so far these businesses have not been recognized in Ethiopia. In a particular case, AWiB President Sewit Hailesealssie was able to identify and get an investment opportunity to 18 women-led businesses that are socially and environmentally applauded through invest 2 impact competition. She asked how the government will be supporting these and similar businesses grow and flourish.
  2. Businesses usually lack accountability to each other in the usual business practice in our country. It was asked if the government has considered a new way for businesses to be held accountable to each other as the laws and regulations currently in place are not tight or enforced properly.
  3. The issue of access to energy was one of the concerns of businesses as they invest in Ethiopia and a potential bottleneck for the reform to achieve its goals. The audiences asked what the government plan is in this regard.
  4. It is understood the economic reform agenda aims to put the private sector in the driver’s seat. The audience wanted clarification of what this means for the government.  Mainly, what would be the role of the government?

Hanna said that EIC so far doesn’t have a specific means to support social enterprises, yet it is looking into it to make it part of EIC supported sectors.  As for energy, Hanna elaborated that in addition to the mainstream energy sources, the government is working on encouraging private energy providers by offering government subsidies.  The government is also working on other off-grade solutions to curb the energy shortage issue for both short and long term.

Hanna responded on the role of the government that so far it has been very much involved in leading the economy and with the reform it would like to pass on the leading role to the private sector, taking the role of regulator.

As a closing remark, Endlakachew shared his gratitude to AWiB for organizing such an intriguing event.  He suggested that as the questions, comments and concerns from the audience were remarkable, they need to be compiled, documented and presented to the particular government bodies that are involved in the reform to make further assessments and adopt the suggestions.  He closed his remarks by calling upon each of us that the reform could only be a success without a collective action of the government and the private sector.

The evening came to an end after a short update of AWiB’s upcoming events by our President-Elect for 2020, Felekech Biratu.

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