Tuesday, 22 September 2015

Procedural inefficiency-Growth Head Wind that should be Eliminated So Fast from Ethiopia

Taken from Rise, readiness for invetment in sustainable energy for all report of the WB
There is a very good reason to identify blocks to progress on the individual and enterprise levels let alone on the scale of a nation’s economy as it gives the chance to put aside them in time. Ethiopia’s determination to achieve its growth and transformation plan of the past five years (2010/2011-2015/2016) was remarkable. It puts most of the targets in to the pipeline but with significant slippage in terms of time which I do believe procedural efficiency problem is to take the blame more than anything else. The next five years’ GTP which has a special focus on manufacturing is expected to be put in to action soon after exhaustive public consultations and deliberations. Taking the time in to an opportunity, I would like to highlight the effects of procedural inefficiency on the economy based on personal experience and findings and suggestions of development partners and industry experts in a bid to bring the shortcomings in to the public’s attention for everyone to act on them.
Structural Transformation through Manufacturing:
Looking deep in to Ethiopia and its economic activities being undertaken, the level of excitement and opportunities for business and investment are so promising and growing. The diversity and scale of investments has been slowly growing quite for a while and is expected to continue even with a faster pace at least in the coming few years. The government’s strong push of the economy towards industrialization mainly through manufacturing to achieve the long awaited structural transformation in the economy is intended to become a new normal. With GTP II (2015/2016-2020/2021) and vision 2025, a five year program and a ten year perspective plan respectively, Ethiopia shows its commitment not only to be a manufacturing power house but also to build a climate resilient green economy.

Industrial Parks, IPs:

Acknowledging the investment and business challenges and noting other countries experiences, Ethiopia aspired to establish industrial parks, IPs, in its Growth and transformation plan although the initiatives themselves have been partly the victim of the same causes or constraints. Special economic zones or industrial parks are expensive undertakings and involves careful and skilled planning, design and management. Hence, they are applied only when the investment constraints could not be addressed through country wide reforms, sector wide incentives and or universal approaches. The rational for the development of special economic zones or industrial parks in Ethiopia is, therefore, not only to address the market failures related to land access, infrastructure, logistics costs, and the high costs of doing business but also recognizing that the systematic investment climate reforms in multiple areas will take time and are politically challenging to implement.

Zemedeneh Negatu, MP of Ernst and Young in Ethiopia, in his interview with the Ethiopia reporter when asked why the manufacturing sector could not deliver on its production and export target in GTP I, his opinion was that “the ramp up phase did take longer exacerbated by the then low level of competitiveness of Ethiopia to the global market”.

When the Chinese introduced the special economic zones and industrial parks to their economies in the 1980s, they were in a more challenging circumstances than Ethiopia is today but their level of commitment and thorough coordination of all involved helped them achieve what they intended for and remained examples of success. Ethiopia has so much to learn from the Chinese experience mainly to address the issue of procedural inefficiency and realize its dream.

Comparative advantages for investment:

Every business strategist dissects and analyzed the market to find out what comparative advantage his business has to position his company better than others and take control of a significant share of the market value. For a strategist, what Ethiopia has now as a comparative advantage to attract investment in to its territory is significantly many. Cheap and easily trainable labor, larger market size with growing middle class, numerous but selective investment incentives, are just only a few of the drivers of investment in to the country virtually from all corners of the continents. If the skills and productivity concerns are attended in a short span of time, indeed Ethiopia will be a manufacturing power house in a matter of few years. Mr. Olivier Poujade, GM of the East Africa Gate, in his recent article on LinkedIn questions whether Ethiopia could be the Next Manufacturing Power House and taking the ongoing trend in to consideration, Ethiopia's answer, I guess, would be, yes of course, provided all the challenges are addressed in a coordinated manner and in time.

Changing mindset:

One of the most astonishing achievements the nation has made over the past few years is the change of the mindset that Ethiopia has become a place for business. An investment thrown in to Ethiopia is now believed to be money well spent. It starts there. What follows then is how much of a return could be made out of the investments, and the calculation has already been started and people and businesses are joining the market.  It should then been supported by speed and agility to maintain the statuesque if not excel in the overall business environment.

Keeping promises or Investor after care:

Apart from attracting investors and businesses in to the country, Ethiopia needs to provide special considerations to the existing businesses as well. The overall business environment should be live enough promoting consultations and consequent reforms. If Ethiopia does not treat existing businesses the way they should be and in a way they take advantage of the benefits they considered prior to their investment decisions, it will be a bad bet. People and businesses alike trusted their neighbors most than media outlets or any other sources of information and if the nation doesn't get this right, it will not turn out right. All the investment incentives promised should be maintained for businesses to flourish, and send the right signal across boundaries.

 Emerging literatures suggestions:

All emerging literatures and survey results have been strongly suggesting that Ethiopia should work on the impediments to its economic growth to fully realize the benefits from its economic activities;
The recent World Bank Report dubbed the 4th Ethiopia economic update, overcoming constraints in the manufacturing sector also highlights some of the shortcomings to the nation’s economic growth particularly to the development of industrial parks, IPs. According to this same report, "the manufacturing sector has grown an average of 10.9 percent in the last decade- about the same rate of expansion as real GDP; nonetheless, inefficient government bureaucracy, foreign currency regulations, access to finance, corruption and inadequate supply of infrastructure have been noticeable head winds and requires an immediate action”. We arguably could agree on that finance is a challenge but operational inefficiencies and business entry barriers have been the real monsters to the economy in general and disproportionately to the small and medium sized enterprises which are thought to be the engine of growth. “Recognizing documents exchanged electronically in relation to e-commerce, e- signatures, and e-payments, for example, could transform the speed of operational communications in the nation” according the World Bank.

Specific to the power and energy sector challenges, Rise, readiness for investment in sustainable energy, another pilot project of the World Bank, explores extensively the improvements and reforms which should be made comparative to successful countries. Out of the four categories of planning, policies and regulations, pricing and subsidies, and procedural efficiency in the three pillars of the report of energy access, renewable energy and energy efficiency, the worst weakness of Ethiopia is registered in the procedural efficiency in all the three pillars. In contrast, Ethiopia is better off in the planning category highlighting the gap in the implementation or execution, indirectly referring to the procedural efficiency problems. This specific power and energy investment indicator report is most likely a reflection of the general economic activity in the country.

Project delays, for example, may not be peculiar to Ethiopia but there are many ways to deliver them relatively on a shorter time and low cost. Some of the infrastructures being built, unless delivered in the planned time table, may soon be outdated given the pace of technological innovations around the world. As Mckinsey's findings have suggested, over optimism and over complexity, poor execution, low productivity, weakness in organizational design and capabilities etc. are the main reasons projects go bad. I think the case very much applies to Ethiopia as well. Moreover, citizen's expectation for transparent, accessible and responsive services from the government is increasing day by day, and so implementing a” citizen-centric approach to delivering those services should be at the heart of government agencies. A kind of pressure testing mechanism to the systems and operations of agencies could help them learn if they are delivering as promised.

What then:

Now, the findings/shortcomings in relation to procedural efficiency have been made clear, thanks to technology and development partners. Reviewing systems that are blocking progress and eliminating them as they happen should be the priority of every executing organ every day. Implementing initiatives and learning along the way strategy is not normally a bad idea but it requires being proactive to form proper balance. Time matters and efficiency does to shape Ethiopia’s path to 2025 as planned!