This week’s visit to the Korean Republic by Ethiopian PM Abiy Ahmed can be seen as part and parcel of his search for potential development partners that can be co-opted in Ethiopia’s efforts to bring about faster economic growth, job creation and a reliable source of investment and technology transfer.
The PM’s visit can also be seen against the background of his recent plan to privatize some of the country’s successful economic entities. This is believed to help embark the country on the path of robust growth that would promote job creation as his key development agenda in this Ethiopia fiscal year.
The south Korean visit can therefore be regarded as the latest step in a string of visits that are certain to follow soon, in pursuit of his economic vision. His talks with CEOs of south Korea’s giant corporations indicate developments in that direction. Taiwan, Singapore and even Thailand and Indonesia might be on his next leg in his determined effort to re-energize the economy and help him realize his ambitious projects.
Officially known as the Republic of Korea, South Korea is a country in northeastern Asia that occupies the southern portion of the Korea Peninsula. It was established in 1948 following the post-World War II partitioning of the country which followed a communist economic system and the south which became a successful capitalist country.
After the Korean War of 1950- 1953, South Korea rose from devastation to become one of the world’s largest economies in the 1990s. What is often described as the Korean economic miracle started in the 1960s and it took only some 60 years for the country to rise from famine and economic ruin to perform an economic miracle few countries in the world have already achieved.
However, this does not at all mean that the sixty years of Korea’s economic development was a very easy time. Politically, south Korea witnessed periods of authoritarian military rule followed by popular protests led by students and workers and the final establishment of democracy after the political upheavals of the 1980s. Since then, south Korea has undergone complete economic transformations, with the rise of huge global conglomerates such as Daewoo Electronics, Samsung, LG and others.
There is an interesting parallel between the history and economic development of the Korean Republic and Ethiopia. Both countries have witnessed the ravages of war, invasion and domestic political crises.
Both countries have long been agricultural economies while they started industrialization late in its their economic development. Both countries have gone through military rule followed by the struggle for democracy that bore fruit in south Korea while Ethiopia is still struggling to establish a genuine system of democratic rule.
Last but not least, Ethiopia and south Korea have fought together under the United Nations mandate to defend the political and economic independence of Korea. When the Republic of Korea became an independent country, Ethiopia was a stable monarchy with a bright economic future ahead of it. Unfortunately, things went wrong for Ethiopia while south Korea has left behind its history of poverty and become one of the leading economic powers in the world.
There is also a striking resemblance between the countries as far as the economic trajectories they followed in the last forty or fifty years. Both south Korea and Ethiopia started their development from an agricultural base.
This was the case in Korea because of the economic imbalance that was created after the partition of the country whereby the northern part took most of the industrial resources while the south remained basically agricultural. Foreign assistance, mainly in the form of massive financial investment and technology transfer from the United States helped the country take off and embark on a huge industrialization process.
This process was achieved in two phases. The first phase consisted of focusing on the development of light manufacturing industries producing goods for export while the second phase consisted of developing huge conglomerates known as chaebols in Korean.
Under Emperor Haile Sellassie’s rule, Ethiopia too had started an import-substitution industrial growth model that could have laid the basis for heavy industry. Unfortunately, this development strategy could not be achieved for different reasons and the country missed the second phase of export-led industrial development.
South Korea started with the creation of small-scale industries basically followed by an export-led strategy that paid huge dividends. According to information on the subject, “the government of South Korea gave priority to the development of manufacturing, which was driven by export-led growth. In the span of a generation, South Korea grew from one of the world’s poorest countries to one of its most promising industrial powers.”
Even then, the industrialization process in south Korea had its own challenges as it was based on government intervention in the creation of huge industrial conglomerates that collapsed at one point following massive domestic borrowing and indebtedness. Then the government quickly changed track to rectify the situation. According to information from Encarta Encyclopedia reference book, “Since the late 1980s, the government has allowed market forces to determine economic development.
Previously, the government had exerted strong influence through a series of five-year economic plans, which had promoted industrialization. To achieve the goals of these plans, the government directly intervened in the economy by offering strong incentives to businesses, regulating foreign exchange, and implementing highly centralized fiscal policies.”
To some extent, this rather looks like the present economic situation in Ethiopia where large industrial companies in the energy and manufacturing sectors have witnessed structural crisis following heavy borrowing from domestic banks and grand corruption that led to massive waste of resources. The lessons too are similar: state control or intervention in the key economic sectors is bound sooner or later to create a mess that cannot be easily cleared and that, in the final analysis, the private sector or private investment is the path of success.
Nowadays Ethiopia is struggling to come out of state-controlled or state-dominated growth and embark on a full-fledged market regulated economy. The road ahead is bound to be tough and that is why foreign help in the form of trade, investment and technology transfer is needed. As south Korea achieved development thanks to US and foreign assistance, it is now its turn to help countries like Ethiopia do the same in a different global economic context. This is also the hope PM Abiy’s visit is expected to promote.
While the challenges of economic development in both countries might be similar at some point, there are also differences in policy approaches. The south Korean government quickly reacted and moved to rectify its policy mistakes back in the 1960s and 1970s, while Ethiopia wasted precious time implementing the so-called state-dominated economic development model until it led to the present crisis. The south Korea government was more pragmatic and visionary while Ethiopia remained fixated on obsolete ideas of development more or less in the last fifty years.
Since south Korea rectified its policy mistakes in time it has now achieved an economic growth level that puts it among the highest developed countries in the world. According to recent data on south Korean economy, the country is the one of the leading economic powers in the world and its per capita income ranks among the highest in the world.
It appears that Ethiopia has just found the right track on the journey to secure long-term economic development. The journey might be long and complicated; but with partners like the Republic of Korea, the pains of economic growth might be alleviated and the objectives reached in a relatively short time.
The signing of cooperation agreements between the two governments and representatives of the private sectors of the two countries is another guarantee for success. There are lots of lessons to be learnt from south Korea. Ethiopia is expected to avoid the copy-paste approach to economic policy. It may not perform the economic miracle south Korea’s has produced in a different context.
The first and vital one might be the need to find Ethiopia’s unique model of economic development while external assistance would be useful only if the country has found its own home-grown recipe for success. Cooperation with the Republic of Korea is certainly one such instrument that, if properly utilized, can help achieve Ethiopia’s dream of coming out of poverty and attaining an all-inclusive middle-income status in the not distant future.
The Ethiopian Herald Sunday Edition 1 September 2019
BY MULUGETA GUDETA
