For long, the incumbent’s position has been for the state to have a vital role in promoting economic growth. Though the private sector is given a lot of room, the state opted into playing a key role in the economy than leaving everything to be decided by the market. The state-interventionist policies, particularly infrastructural development, have then resulted in successive economic growth and reduction in poverty for more than a decade now. Obviously, the private sector is expected to play a decisive role by supporting the growing economy.
Even though the ruling party kept on saying that it has been giving due supports to the private sector, the investors said that the government had not been providing enough support, as the government claims to have given. In fact, the business persons have been repeatedly complaining about the matter. Atlaw Alemu(Ph.D.), an Economic Expert from Addis Ababa University on his part said as far as the business persons are concerned, they, themselves should find ways to survive in the business, rather than a craving for support from the government.
However, the support from the government is still necessary for the private sectors to flourish. He opined out that the private sector has a greater contribution to the country’s economic development than the government ones, whose intervention is only limited to basic areas such as infrastructural development.
According to him, although the private sectors are expedient in creating more jobs and catering services, the challenges they have been going through have constrained the effort to bring the expected result. One of the challenges is, sometimes, the support offered to them gets abused. As a result, the sectors are not showing any progress and the business people limit themselves in the area that contributes less to the economy. Other factors related to licensing, income tax, poor service provision among others are hurdles that are discouraging the sectors not to contribute, as expected, especially, prolonged bureaucracy is discouraging the private sector not to participate actively in the economy.
The manufacturing sector, for instance, is surrounded with many challenges, as a result, most of the business persons are limited themselves in wholesaling career than producing a certain product with the capacity they have, Dr. Atlaw said. The work procedure over the past years was inflicted investors to move illegally, encourage them to focus on temporary works and dishearten them to conduct business computation.
Though there are some who strive to discharge their responsibility properly, the then politics was not helping them to contribute their share for the national economy. In other words, the government should support producers instead of involved in the production of some sort of goods. Countries that created millionaires are effective because they are facilitating conditions for the private sector. On the other hand, the government has not allowed the participation of well-experienced professionals in order to identify the root causes by conducting various researches.
“On my part, I had conducted research and provided advice for the government to focus on the industry sector,” he says adding that the study shows that the agriculture sector will grow if inputs produce locally and supply to the market. “The private sector will have a significant role if the incumbent should refrain itself from unfair loan provision, ethnic-based economic activities, and strengthen infrastructural developments, improve the bureaucratic system and ensure good governance, Dr. Atlaw said. Blue Moon Youth Incubator Chief Executive Manager Dr. Eleni Zewde noted that looking into certain problems; an investor should work for the benefit of himself and the country too.
The other issue is, because society has not a belief in investors, it labeled them as they are working for their benefit alone. Even though they brought wealth by working hard, no-one believes the business people. Due to greater supervision and control, the investors are working with greater anxiety, she said. Such a harmful outlook made an investor work in terrible situations. Let alone working for his country, the trouble makes an investor run out of the business.
The right supervision identifies the investors who create wealth through working hard than those who maintain business affiliated themselves with corrupted government officials. As to the explanation of Dr. Eleni, the government by itself should not create wealth and builds the country alone. Private businesses should be involved in development sectors starting from establishing small enterprises to large scale industries.
An investor should be treated equally with that of engineers, doctors. Respect and support are still yet to happen. The government working by its own and things that encourage investors have not been observed. They are going ups and downs to earn loan from banks. Those who already engaged are working to sustain in the business, rather than aspiring further progress.
Unless the attitude of the people towards business is not changed and offer proper service to business persons, expecting good results will be merely a wish, she noted. Practically, it is the responsibility of the state to invest in infrastructural development(because of the huge cost of investment and long term returns), but what makes the Ethiopian case different is that it has been the priority of the government and its public sector-led development strategy.
This strategy, with its focus on heavy investment in infrastructure, has underpinned the country’s rapid economic growth, according to the African Development Bank Group, country strategic paper 2016-2020. On the other hand, recognizing the enormous development achievements the state-led model brought about, some prominent international financial institutions have been advocating for ‘a bigger push’ to increase the private sector’s role in the economy, if the growth is to sustain. The World Bank and the International Monetary Fund have repeatedly recommended the government to go for a policy change to expand the private sector thereby meeting the goal of becoming a middle-income economy by 2020.
They urged the government to shift its public sector-led growth strategy to a private investment-led model for the growth to sustain. Now, the domestic private sector seems to be in the nick of time to play a decisive role in realizing the industrialization and middle-income ambition within a decade. In fact, with the exception of resource-rich countries, no country has achieved middle-income status without diversifying its economic basis from agriculture to industry and service sectors. Yet, critical questions can be raised on the current state of the private sector in Ethiopia, about its readiness, ability, potential, and capacity to engage in industry and to adding value.
Though capital accumulation is a major problem, paradoxically enough, it is how the private sector accumulates capital and reinvests it that poses a major constraint to engage in industry. While developmental and productive private sector that plays fairly and envisions long term returns than greedy short term profit is essential, Ethiopia’s private sector in most cases tends to go for the latter, both as a means to accumulate capital and as a rationale to make the investment.
The GTP II document stated that the distribution of domestic private investment across sectors during GTP I show that “well above 50 percent of domestic private investment projects that commenced production and service delivery (both in terms of invested capital and number of projects) are engaged in the service sectors. This indicates domestic private investment has been lopsided more towards the service sectors such as renting of machinery, real estate, trade, and other service sub-sectors.”
Further, “the concentration of domestic private investment in the service sectors appears to be mainly driven by short – term profit maximization through taking advantage of market failures and government incentive schemes rather than through enhancing their productivity, quality, and competitiveness. This stands against the country’s long-run development and transformation agenda,” the GTP II document noted. On the other hand, the government was pushing for the privatization program that saw the transferring of state-owned garment and textile as well as beverage industries to the private sector.
The investment code was also revised to encourage further private sector investment. The private sector role is not only essential for the growth of industry and service sectors. It is expected to play a key role in transforming agriculture itself. Private investment in the agriculture sector has been low. The contribution of investors who receive land to engage in commercial farming has been low, both in terms of production, productivity, and technology transfer.
According to the Agricultural Transformation Agency, private sector investment in agribusiness helps to form demand markets for smallholder farmers. Enhanced capacity at private organizations – such as rural micro and small scale enterprises, cooperatives, agribusinesses, and value addition partners – will be crucial to the growth of industries that create the demand for agricultural raw materials produced by smallholder farmers. As the public sector and investment have significantly been high, Ethiopia has also a huge opportunity to improve participation of the private sector in infrastructural development such as roads, railway, energy, telecommunications, and transport, to mention a few, through effective Public-Private Partnership.
Herald February 28/2019
BY GIRMACHEW GASHAW
