REFORM IN CHIEF :Ethiopia’s new prime minister wants peace and privatisation
Abiy Ahmed has made an impressive start
THE speed of events caught Ethiopians off guard. When Abiy Ahmed took office as prime minister on April 2nd he did so as the head of a deeply divided ruling coalition. The inexperienced 42-year-old, who came from the Oromo wing of the ethnically based coalition, was viewed with deep suspicion by many of his establishment colleagues. He was taking charge of a country under a state of emergency after more than three years of anti-government protests and ethnic unrest. Few expected him to achieve much soon.
The past few weeks have pleasantly surprised. After an inaugural address in which he called for unity and apologised for the government’s killing of protesters, the former army officer toured the country to muster support. At mass rallies and town-hall meetings he adopted a strikingly different tone from that of his two most recent predecessors. Hailemariam Desalegn, who resigned in February, was timid and aloof. Meles Zenawi, who ruled as a strongman from 1995 to 2012, was stern and cerebral. Mr Abiy, by contrast, presents himself as a friend of the country’s young protesters. “We want to work hand-in-hand with you,” he told cheering crowds in Oromia, the centre of unrest.
Exiled opponents have been invited home. Representatives of dissident media outlets based abroad have been encouraged to set up shop in Addis Ababa, the capital. Terrorism charges against dozens of activists have been dropped, including against a British citizen, Andargachew Tsige, who had been on death row.
Mr Abiy says he plans to amend the constitution and introduce term limits for his position. On June 2nd his cabinet said the state of emergency would be lifted two months earlier than planned. Then, on June 5th, the politburo of the ruling coalition, the Ethiopian People’s Revolutionary Democratic Front (EPRDF), said it would at last implement a peace agreement, signed in 2000, that would hand over disputed territories to Eritrea and put a formal end to the war the two countries fought (and Ethiopia won) from 1998 to 2000. That could pave the way for reconciliation and, perhaps, give Ethiopia renewed access to Eritrea’s ports.
Busy, busy Abiy
Until this week Mr Abiy appeared to be paying less attention to Ethiopia’s troubled economy. His few remarks suggested that he planned to leave untouched the state-led development model pursued by the EPRDF since it came to power in 1991. At a meeting with business leaders in April he said that the government would preserve its monopoly in key sectors such as infrastructure, banking and telecoms. Few regarded him as an economic liberal.
So the news that the EPRDF would in fact liberalise swathes of the economy to boost growth and exports came as another shock. The plan, according to a statement released on June 5th, would see the government opening state-owned telecoms, electricity and logistics, as well as the highly profitable national airline, to foreign investors for the first time. It would also allow full or partial privatisation of railways, sugar factories, industrial parks, hotels and some manufacturing firms.
Recent economic indicators seem to have jolted the government into action. A vast programme of public investment propelled annual GDP growth to around 10% for most of the past decade, albeit from a low base. But the IMF reckons that growth will slow by more than two percentage points this year (to a still respectable 8.5%). Public debt, most of which is in foreign currency, has hit almost 60% of GDP. There has been a spate of defaults on Chinese loans in recent weeks, and local contractors complain the government is not meeting its obligations. Earlier this year the IMF raised Ethiopia’s risk of debt distress to “high” because of the possibility that it will not earn enough foreign currency to pay its debts.
Export revenues have barely budged for five years. In some important industries that the government is trying to promote, such as garments and leather goods, they have even declined. As a result, Ethiopia’s foreign reserves are thought to cover just over a month’s worth of imports. Businesses say the shortage of foreign exchange is the worst in recent memory; many have waited more than a year to receive their allocation from state-owned banks. Pharmacies are running low on basic medicines such as antibiotics. Solomon Mulugeta, general manager of the metal manufacturers’ association, says factories are lying idle for want of raw materials. Inflation is running at nearly 15% a year.
The planned sell-offs should ease some of the hard-currency strains. The announcement also sends an important signal to foreign investors that the government is now serious about economic reform. But Getachew Teklemariam, a consultant and former government adviser, argues that simply selling minority stakes in public monopolies is insufficient. “It’s only the ownership structure which will change,” he says. “The rules of the game are the same.” Others fret that hasty privatisations might be marred by corruption.
The question is whether Mr Abiy has a vision for the economy beyond the part-sale of public enterprises. Ethiopia still has no stockmarket. The banking industry, which will remain off-limits to foreigners, is overdue a shake-up, for instance by allowing management contracts with foreign banks. The foreign-exchange regime, which allocates currency to industries the government wants to support, is riddled with graft. Businesses are hobbled by red tape. Conglomerates owned by the army and party dominate much of the economy.
Market reforms, as well as a new approach to peace with Eritrea, had been under discussion within the ruling coalition for many months before Mr Abiy took office. But he has brought an urgency to decision-making that had been lacking ever since the death of Meles six years ago. “These are pretty much the decisions of the politburo taken five months ago,” says one Ethiopian analyst. “The difference is the pace of change.”
This article appeared in the Middle East and Africa section of the print edition under the headline "Reformer-in-chief"
SOURCE : THE ECONOMIST