BY MENGESHA AMARE
If the public sectors in collaboration with private ones in a given country can fuel investment and entrepreneurship targeting at creating more jobs and increasing income of the poor, it is possible to deduce that vigorous and sustained economic growth is hit.
Having this concept in mind, The Ethiopian Herald talked to Musa Abdella, an economic expert graduated from Dilla University in economics, to have a piece of information about the close association of investment and economic growth thereby coming up with real change in the country.
He said that developing countries like Ethiopia are expected to embark on macroeconomic stability, improve the functioning of market-regulating institutions and strengthen procedures for contract enforcement and dispute settlement. They have also to improve the coherence of their policies in a range or areas such as trade, tax, competition and investment promotion, which can potentially affect the volume of investment and its development impact.
In so doing, they will be capable of generating the revenues they need to expand access to health, education and infrastructure services to help improve production and productivity.
The problem here, however, is in Ethiopia investment rates are too low; productivity gains are insufficient; incentives for innovation are inadequate; returns on investment are not sufficiently predictable; and not enough secure, safe though activities are undertaken to come up with creating adequately paid jobs in the formal economy.
The country has to work much more to address the market failures and structural impediments that are holding back productive investment (both domestic and foreign), and to do it better, for longer periods and in a more strategic way, he underlined. The country in turn has to help foster an investment climate that enables the private sector to flourish and fulfill its role as the main engine of growth.
He said, “Yes, mobilizing private investment, both foreign and domestic, is recognized as a priority area for development and real change. But reaping the maximum benefits of investment is not automatic as policies matter. Here, a key challenge is how to frame investment policies in a way that supports and reinforces economic development.”
As to him, Ethiopia, in collaboration with development partners of course, has to create luring policy environments needed to unleash the full benefits from investment, in terms of economic growth, poverty reduction and sustainable development. Though it has been relentlessly working on the area, a lot remains to be done, indeed!
Government’s commitment to bring about real change in terms of economic, social and even political aspects, as they are highly intertwined, is badly required, he said adding that officials’ development assistance to mobilize private investment would unequivocally strengthen implementation capacities and best practices among investors, be they are public or private ones.
According to Musa, human resource development is a prerequisite needed to identify and to seize investment opportunities, yet Ethiopia has so far underinvested in human resource development, but has to do in the future.
He said sound infrastructure development policies are used to ensure wise use of resources and help come up with the most promising projects via addressing bottlenecks limiting private investment.
No doubt he stated that effective financial sector policies facilitate enterprises and entrepreneurs to realize their investment ideas within a stable environment. Besides, regulatory quality and public sector integrity are two dimensions of public governance that critically matter for the confidence and decisions of all investors and for reaping the development benefits out of investment. The government of Ethiopia has obviously had the right to safeguard national security and other public interests as it has legitimate concerns and capacity to do so, he opined.
The government should also be more strategic, and its interventions need to be harmonized and guided by more systematic learning of lessons focusing on helping to lower the costs of investment, reduce risks, improve competition and develop human and institutional capacities. It is also duty bound to give high priority to economic infrastructure investment and financial market development, as these are key areas for promoting investment across the nation.
He said, “The government should also pay greater attention to the determinants of domestic investment, both formal and informal thereby strengthening the capacities of local firms to respond to new investment opportunities and to expand business relationships with foreign investors.”
According to Musa, enhancing the contribution of investment to pro-poor growth reducing barriers to formalization, promoting environmental sustainability, expanding access to knowledge and technology and unleashing the economic potential in rural areas need to be given special attention as they are viable avenues towards growth and prosperity.
Seeking out reliable, representative and accountable domestic partners who can drive reform programs’ wheel well and help catalyze change and using market-based approaches to supporting firms are also among the best ways to be entertained, he highlighted.
He further elucidated that evaluating the cumulative impact of interventions on promoting investment and share examples of successful and unsuccessful practices is quite significant as reforming the investment climate requires political will, drive and leadership to take on the national entrenched interests and inertia.
As to him, the very point that needs to be well hammered here is working on the range of subjects relevant for mobilizing investment should be run in a well-coordinated fashion. The public sector partners in Ethiopia need to be encouraged to engage more with the private sector, such as through public private partnerships since mobilizing investment for sustainable development and economic growth has to be a priority for Ethiopia.
At the national level, he stated integrating investment policy into development strategy, incorporating sustainable development objectives in investment policy and ensuring investment policy relevance and effectiveness need to be strengthened.
He also said that investment adds to the stock of capital, and the quantity of capital available to an economy is a crucial determinant of its productivity. It has thus contributed a lot to economic growth and job creation.
He said, “Development happens through structural transformation, which shifts the balance of economic activity away from agriculture and towards manufacturing and service sectors, in the process creating increasing numbers of better jobs becomes possible.”
The road investments will primarily benefit the border locations that gain the most in terms of market access. As some regional states, in some parts of them, do not benefit out of road investments, they have to receive infrastructure investments with a view to fostering trade facilitation and safely transporting products to and fro, he explained.
“In the long run, good public policies that encourage permanent increase in private investment rates lead to increase in sustainable economic growth, development and welfare,” he said. As to him, private investment being typically allocated more efficiently than public investment has been the best strategy for public investment to be complementary for greater returns.
The affiliation between sustainable growth and public investment, considered as one of the key factors, is a topic of interest in the context of sustainable development strategies. Private investment also drives the business cycle when it is well synchronized and run in a coordinated manner, he added.
In a nutshell, it is necessary to prioritize public investment in those sectors capable of stimulating sustainable economic growth and attracting private investment like renewable energy, telecommunications and the likes. Institutional quality is also a key element on which public investment depends and leads to economic growth.
It is also important to consider that any increase in public investment must be assessed by government decision-makers in light of criteria of efficiency, financing, and associated costs, especially in the eyes of economic and social benefits for society like creating more jobs for a number of citizenry.
The Ethiopian Herald February 16/2023
