 Homegrown Economic Reforms in Ethiopia (HGER): A Review of Progress and ProspectsWorking Papers from HAL Abstract: Executive Summary •Ethiopia has experienced rapid economic growth over the past decade and a half, leading to impressive poverty reductions and improvements in social indicators. However, the country's state-driven economic growth has also created macroeconomic imbalances and vulnerabilities, suggesting that the public investment-driven economic growth model has its own limitations. •In addition to macroeconomic imbalances, the country has experienced multiple shocks, most notably political instability, the pandemic, and most recently a full-blown war that has drastically slowed economic growth. For example, in its World Economic Outlook published in October, the IMF found that the Ethiopian economy was on track to grow just 2% in 2021; and due to the conflict in the country, which is characterized by unusually high levels of uncertainty and volatility, Ethiopia has not been included in the IMF's 2022-2026 growth projections. •In 2019, the HGER reform plan was launched to address the macroeconomic, structural, and sectoral challenges facing the Ethiopian economy. In the short to medium term, the reform measures combined aim to help Ethiopia address its chronic macroeconomic and business environment challenges; and create a private sector-driven economy with greater competition, productivity, and new sectors. •In terms of scope of implementation, while some of the reform measures are incremental-efficiency-enhancing (or quick wins), others are more drastic in nature. Our review finds that while reforms of the former type have been largely implemented, reforms of the latter type have not made good progress. HGER reforms that focus on opening up the economy have not been implemented. For example, while quick-win reforms such as reducing (or phasing out) direct (central bank) financing of government spending have been achieved, HGER's more profound reforms that are aimed to sustainably address the foreign exchange shortages and overvaluation by moving to a more flexible exchange rate regime has not materialized. As a result, the country's foreign exchange shortage remains chronic and persistent. Real depreciation is unlikely to be achieved without transitioning to a more flexible exchange rate regime. Ethiopia continues to strictly manage its foreign exchange regime through its central bank authorities. The lack of a flexible (or market clearing) forex exchange regime negatively impacts the country's external competitiveness, leading to stagnant and less diversified exports (total export not more than US$3 billion and more than 80% from a few agricultural exports). •On the other hand, the HGER's reform on state-owned enterprises (SOEs) has a two-pronged approach: strengthening corporate governance and privatization. The establishment of SOE supervisory agency and prudent requirements on their debt levels and cost-recovery tariffs (in the case of energy, for example) helped in strengthening SOEs' corporate governance. The second component and less successful has been the privatization of SOEs in the telecom, energy, sugar, logistics, and aviation sectors. The sole privatization process that has shown some progress was the partial privatization of the state-owned Ethio-Telecom. The auction process to sell 40% of the state-owned Ethio-Telecom Company was launched, but suddenly the government recently (in March 2022) announced its postponement. Hence, most SOEs including Ethio-Telecom, the Ethiopian Shipping Lines and Logistics Services Company (logistics sector), the Ethiopian Electric Utility Company (power sector), the Ethiopian Sugar Corporation (sugar sector), the Ethiopian Airlines (aviation sector), and many other SOEs remain in the hands of the government. •The HGER plan is not limited to privatization, but also envisaged market liberalization in the state-controlled sectors of logistics, power, finance, and telecom. However, market liberalization has taken place only in the telecom sector. In May 2021, a foreign telecom operator was licensed to operate along with the state-owned Ethio-Telecom Company in the Ethiopian telecom market. This marked the end of Ethiopia's public monopoly in the telecom market. Similar market liberalizations have not taken place in the other much-anticipated sectors of logistics, finance, power, and Aviation. •While crosscutting challenges such as the COVID-19 pandemic and the conflict have affected the implementation of the HGER plan across most reforms, our review also finds that coordination issues, technical capacity, opposition voices, and the government's legacy of retaining control of key sectors have impacted the implementation of the HGER plan in one way or another. Keywords: Ethiopia; Macroeconomics and monetary economics; Macroeconomic reforms; Homegrown; Monetary (search for similar items in EconPapers) Published in Policy Studies Institute. 2022 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-04985841 Access Statistics for this paper More papers in Working Papers from HAL |
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