Issue No. 199

Death of the developmental state

Ethiopia’s economy is in flux. Beset by instability, persistently high inflation, and the vast costs of rebuilding regions ravaged by armed conflict, the country faces a steep uphill climb to regain the heady economic growth of a decade ago. Estimates for rebuilding Tigray are in the tens of billions of USD, and this rebuilding is yet to begin in earnest. And the Federal Government of Ethiopia (FGE) is attempting to liberalise and diversify its economy, opening up to foreign investment and competition for the first time. 

Prime Minister Abiy Ahmed’s economic vision radically differs from that of his immediate predecessors. The ‘developmental state’ was at the heart of former Ethiopian Prime Minister Meles Zenawi’s grand vision for Ethiopia. Inspired by the Southeast Asian ‘Tigers’ of Singapore, South Korea, and Taiwan, Meles hoped to emulate the state-stimulated growth that transformed these economies within a single generation. The concept of the developmental state rejected the Bretton Woods free market, which Meles believed would sustain economic oppression in Africa. 

Like the Asian Tigers, Ethiopia made extraordinary economic progress between 2008 and 2019, averaging 9.8% GDP growth per year. Ethiopia’s growth was the highest in Sub-Saharan Africa, trailing only Angola’s petro-stimulated economy. Social development blossomed alongside rapid growth in Ethiopia. Between 2000 and 2021, the country’s value in the Human Development Index rose by 73.4%, life expectancy increased by over 14 years, and expected years in school grew by 5.3 years. Particularly dramatic was the fall in people living below the international poverty line; this dropped from 69% in 1995 to 27% in 2015. Tangible improvements were made to people’s lives through significant investments in education, healthcare, and infrastructure, organised through central command.

Today, many of these improvements have collapsed. Poverty has swept across the country, particularly in war-torn regions. Persistently high inflation has hurt incomes and quality of life. Urban centres have seen a steep rise in poverty in recent years, including Addis Ababa, where poverty reduction had previously proven very successful. In Tigray, a recent United Nations Development Programme (UNDP) analysis estimated that people living in poverty rose from 27% in 2016 to 45% in 2022. The report noted that the true number is likely far higher. 

The origins of the Tigray People’s Liberation Front (TPLF), and by extension, the formerly ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF), were a Marxist-Leninist understanding of revolutionary democracy. The TPLF explicitly framed itself as rooted in the peasantry of rural Ethiopia, epitomised by the phrase ‘land to the tiller.’ Its economic policy and the developmental state were geared towards modernising and improving the country’s agricultural sector in the first decade of its rule. Expanding fertiliser use, cash for farmers, and use of diversified seeds supported the modernisation of Ethiopia’s agricultural sector.

Persistent food insecurity, however, has continued to undermine the country’s stability and economic progress. In 2021, 64.9% of those at work in Ethiopia were employed in the agricultural sector, yet millions of Ethiopians remain dependent on humanitarian aid. 

Structural transformation of the economy never happened, with the majority of companies still ‘micro’ in scale. The UNDP report highlighted the public investment-driven model as “unsustainable,” arguing that it straddled Ethiopia with “serious debt problems.” Prime Minister Abiy’s government now hopes that opening sectors from banking to telecommunications will shift the country away from its dependence on agriculture. 

The EPRDF preferred economic transformation to opening political space. The TPLF maintained a grip on Ethiopian politics until Meles’ death in 2012, when it began to increasingly disintegrate. The aspirations of ethno-federalism enshrined in the 1995 Constitution could not be matched by the economic reality of the regions. Meles Zenawi once stated, ‘We will cease to exist as a nation unless we grow fast and share our growth.’ 

But Ethiopia’s rapid economic growth was not in fact equally shared. Current instability in parts of the Amhara region is partly due to unequal distribution of resources and investment across the country. Many Amhara coming of age in the 2000s have felt aggrieved by the narratives of their dominance in contrast with the underdevelopment of their region. The cost of ongoing conflict and instability in Amhara already stands at ETB 2.5 billion, with over 3,000 jobs lost, according to estimates from the Amhara Industry and Investment Bureau. 

Investment in development, along with kick-starting Ethiopia’s now-stagnant economy, might go some way towards stabilising the country in the long term. The UNDP report further highlighted a “real danger… that the preoccupation with immediate threats” will “turn attention away from medium to longer term issues.” This is not to say that the federal government should simply ignore the crises consuming several regions. Rather there is a risk that attention solely on the immediate will allow authorities to ignore the root causes of instability. If done well opening Ethiopia's economy could stimulate growth and development alongside state investment. 

Since the Pretoria agreement of November 2022, Ethiopia is gradually coming in from the proverbial cold in terms of international financing. The World Bank recently announced hundreds of millions in USD of soft loans and credit, and the International Monetary Fund (IMF) is negotiating with Addis over new support. This funding has to be carefully spent. Prioritising economic inclusion across regions and empowering young people should make up the backbone of Ethiopia’s revitalised development. Growing Ethiopia’s industries, alongside its healthcare, education, and infrastructure, need not be a contradiction.

By the Ethiopian Cable team