Ethiopia’
Ethiopia’s Industrialization Drive
under theGrowth and Transformation Plan
2010/112010/11-2014/15

Kenichi Ohno
GRIPSMay 2011

Purpose
Discuss and assess GTP in its early stage ofimplementation in 2011.
 Our main focus – industrial sector.
 Perspective of international comparison of policy
methods – comparator countries include Singapore,Taiwan, Korea, Malaysia and Thailand.
 Summarize our previous HLF discussions from June2009 to present.
Ethiopia’sGeneral Policy Orientation
Strong policy ownership—visions and strategies arehomemade, not externally imposed.
 Strong state guides the private sector away fromrent seeking and toward productive investment andtechnology acquisition.
 Internalizing skills and technology is top priority—
training, technology transfer and maximum local
procurement are required of industrial projects.
 Expansion of policy scope as policy learning
proceeds—from simple incentives for a few export
products to broader support for more sectors withmore policy tools.
General Features of GTP
Continuity and evolution—GTP is built on Ethiopia’s
past policy ideas and experiences including ADLI,
Industrial Development Strategy, SDPRP, PASDEP,Democratic Developmentalism, etc.
 Strong resolve of government to implement GTP isvisible. GTP will not remain a paper document.
 With expanded policy scope and tools, GTP takes
up the challenge of bringing national development toa higher and more difficult stage (including industry’s
key role in the economy).
General Features (cont.)
Consultative drafting under MoFED with significant
revisions from first to final draft.
 Visions, objectives and strategic pillars are clearlystated (ch.2). The document is relatively lean withvarious parts reasonably well connected.
 While MDGs, social issues and governance remain
important, strong emphasis is placed on creation ofconcrete sources of growth with policy support.
 Numerical targets are set for chosen sectors (chs.58, Policy Matrix) for monitoring and evaluation.
Risks Associated withImplementation
Three implementation risks are cited in ch.9:
1. Low implementation capacity—systems, administrative, human resources
2. Finance—low national saving and unpredictability ofexternal financing
3. Global market fluctuations
I would like to add three more:
4. Target rigidity
5. Problems with policy procedure and organization
6. Lack of dynamic response from the private sector

GTP’s Visions, Objectives and Strategic Pillars
Ethiopia’svision toguide GTP“To become a country where democratic rule, good-governance and social
justice reign, upon the involvement and free will of its peoples, and once
extricating itself from poverty to reach the level of a middle-income economy
as of 2020-2023.”

Vision on
economicsector“Building an economy which has a modern and productive agricultural sector
with enhanced technology and an industrial sector that plays a leading role in
the economy, sustaining economic development and securing social justiceand increasing per capita income of the citizens so as to reach the level of
those in middle-income countries.”

Objectives

1. Maintain at least 11% growth and attain MDGs
2. Education and health services for achieving social sector MDGs.
3. Nation building through a stable democratic and developmental state
4. Stable macroeconomic framework

Strategicpillars

1. Rapid and equitable economic growth
2. Maintaining agriculture as major source of economic growth
3. Creating conditions for the industry to play key role in the economy
4. Infrastructure development
5. Social development
6. Capacity building and good governance
7. Gender and youth

GTP’s Chapters and Policy Matrix
Volume I – Main Text
Foreword, introduction, plan preparation and approval process (5)Ch.1 Achievements and challenges under PASDEP (18)Ch.2 Basis, objectives and strategic pillars (7)Ch.3 Macroeconomic framework (10)Ch.4 Financing (7)Ch.5 Economic sectors development plan (39)Ch.6 Social sector development plan (10)Ch.7 Capacity building and good governance (15)Ch.8 Cross-cutting sectors (gender, youth, labor, culture, environment, etc. 12)
Ch.9 Opportunities, risks and challenges in implementation (2)Ch.10 Monitoring and evaluation (4)Volume II – Policy Matrix
Text (3)
Policy matrix (35)(Note: Numbers in parentheses indicate the number of pages in the English edition.)

The Industry Section of GTP(Section 5.2)
PASDEP 2005/06-2009/10—while real GDP growth
was 11% per annum, industry grew only 10%
against targets of 11-18%. Industry’s share in GDP
stagnated around 13%.
 Three targeted exports (leather, garment, agroprocessing) did grow, but still small at $115m (3.8%of total export) in 2009/10.
 According to GTP, industry should play a key role inthe economy. Industrial growth should accelerateover time with average annual growth of 20.0%21.3%. GDP share at end point should be 23.7%16.9% (base case & high case).
The Industry Section:
Four Strategic Directionsa) Micro and small enterprises (MSEs) development
This is expected to create jobs in urban areas and increase rural-urban and urban-to-urban
functional and economic linkages.
b) Medium and large industries development, which includes
1. Textile and garment
2. Leather and leather products
3. Sugar and sugar related industries
4. Cement
5. Metal and engineering
6. Chemical
7. Pharmaceutical
8. Agro-processingc) Industrial zone development (for medium and large manufacturing industries)d) Public enterprises management and privatization

The Industry Section:
Six Objectives
MSE development
 Full utilization of industrial capacity
 Use of domestic raw materials and job creation (formedium and large industries) Increase in private sector investment
 Employment generation, import substitution andforeign exchange earnings
 Local production of machinery and spare partsMajor Targets (Selected)
Sub-sector
TextileLeather
Sugar
CementSteel & engineering
Fertilizer (urea)
Pharmaceutical
Agro-processing

Unit
Export earning in$ million
Export earning in$ million
Production in
million tons
Production in
million tons
Gross value-addedin million birr
Production in
million tons
Domestic market
share
Export earning in$ million

Base year
2009/10Target for2014/15

Multiples

21.8

1,000

45.9 times

75.73

496.9

6.6 times

0.314

2.25

7.2 times

2.727

10 times

6101.416.9 times-300-

15%50%

-

35.2

300

8.5 timesMajor Targets (cont.)
Sub-sector
Industry zones
Public enterprises
MSEs - job creation
MSEs - training of trainers
MSEs - training ofoperators
MSEs - manufacturing land
MSEs - shades
MSEs - buildings

Base year
2009/10Target for
2014/15

Multiples

-

164-

2.26

5.32

2.4 times

-

2,970

-

-

10,000-

Number of trainees-

3,000-

HectareNumberNumber-15,00021,591819-

Unit
Number offactories in zones
Gross value-addedin million birr
Employment inthousand
Number of trainees

Note: a complete list of annual targets are contained in the Policy Matrix (vol.II) of the GTP.

1. Issues Discussed in Our Policy
Dialogue Not Explicitly Reflected
Shift from quantity to quality-based targets andcompetition—GTP targets are mainly quantities.
Productivity, skills & technology are not featured instrategic direction, objective or major targets.
 Productivity tools such as kaizen (& benchmarking,twinning) are not mentioned in GTP. Meanwhile,
TVET system and industrial zones are highlighted.
 Gap between GTP text and Ethiopia’s strong belief
and action in skills, technology and productivity.
 Difficult to see how and where kaizen
institutionalization can be aligned with GTP.
(Cont.)

Metal & engineering discussions are not reflected.
- Metal—strengthen downstream, move upstream
subsequently; re-examine feasibility of Bikilal ore- Identify substitutable metal products, esp. in power sector- Capability building in basic elemental technology usingkaizen- Questions remain about steel demand projection andtargeted import substitution ratios by sector

Is this due to uniform way of GTP’s compilation
across sectors with emphasis on numericalmonitoring? Is quality an issue at lower level?
 We hope points we raised will be taken up explicitly
in implementation processes and documents.
2. Growth Targets
Real GDP growth of 11.2% (base) or 14.9% (high) Industrial growth of 20.0% (base) or 21.3% (high) Sub-sector growth (from 2009/10 to 2015/16)- Textile export 46 times- Leather export 6.6 times- Sugar production 7.2 times- Cement production 10 times, etc.
 Causes of past growth performance is unknown:(policy quality) + (private effort) + (external factors)
 Productive sector—no linear relation between input(investment) and output (sales); much depends on
quality, design, cost, marketing and global trends.
Numerical Sub-sector Targets
GTP is a plan document that incorporates visions,strategies and action plans in one. Sectoral and subsectoral targets are specified for ministries toimplement (annual targets in Policy Matrix).
 Merit—easy to allocate works and monitor progress at
ministerial and directorate levels.
 Demerit—rigid pre-set targets may bind policy
implementers (too high, too detailed, not adjustable…)
- Seeing trees but not forest; achieving numbers but
missing productivity and competitiveness.
- Worry, blame and buck-passing over unmet targets.
- Underachievement may be due to unrealistic targets,
negative shocks or weak private response to policy.

Caution with Targets
Numerical targets are common in plan documents,
but their scope and levels must be chosen properly.
 Targets should be indicative, not state orders thatmust be attained by any means. Flexibility andadjustments are needed.
 Plan documents should set key sectoral targets only.
Initiative should be given to ministries and agencies
to decide sub-sectoral details in close consultation
with producers (cf. Malaysia, Thailand).
 At high income level, countries do away with plan
documents (cf. Japan, Korea, Taiwan, Singapore).
3. Issues in Policy Capability
In Ethiopia, policy making procedure and organization
are still on the way to development. This seriously
affects implementability.
1. Speed over quality – proper steps and knowledge
are missing in making policies.
2. Policies are drafted by a few key persons without
systematic prior consultation with businesses andrelevant ministries. Receiving comments on alreadydrafted documents is not enough (cf. consensus
building in Taiwan, Singapore, Thailand…)

Policy Capability (cont.)
3. MOI should be given central authority and capability(staffing, budget, etc.) to lead and coordinate industryrelated issues (trade, MSEs, productivity, etc.) Splitting
such functions across many ministries is not advisable.
Parallel mechanisms and forced competition amongthem may cause delay and scattered knowledge (cf.
central policy authority in Taiwan, Malaysia, Thailand…)
4.MOI’s internal organization may be re-examined.
- Planning function should be concentrated in one
directorate (cf. IDB/Taiwan’s MoEA; SPD/Malaysia’sMITI; DIP/Thai MOI).
- Avoid internal functional overlaps between directorates
and institutes.

Standard Policy Making Procedure
Top leader
1. Vision

2. Consensus
building process

3. Documentation
process

Brainstorming

Studies& surveys

Set broadgoals &direction

Drafting
workFinalize& approve(May beoutsourced)

Stakeholder
consultation

Ministries＆agencies

Comments& revisions

4. Participation

4. Participation

Regions &localities

Academics &consultants

Businesses& bus. assoc.

5. The entire process must be managed and coordinated by a lead ministry or agency.

Institutionalization of Kaizen
We regard kaizen as the principal tool for raisingproductivity and attaining GTP’s industrial targets. It
will be upgraded from project to movement.
 MOI is designated as the lead ministry for kaizen.
 Kaizen Pilot Project (phase 1) is completed.
 Ethiopian Kaizen Institute (EKI) will be established
as core organization. JICA is assisting its design.
 Remaining issues:(i) kaizen’s role and status in GTP(ii) concrete coordination mechanism with related
policies and programs (MSE strategy, TVET system,
urban extension service, etc.) is under discussion
Ethiopia: MSE Policy Organization
Source: Drawn by K. Ohno
based on interviews withpolicy makers.

Mr. Arkebe

Prime Minister(Advisor to PM
on MSE issues)

Council of Ministers
Ministry of Urban Dev.
& Construction
FeMSEDA(To be restructured& expanded)

Lead ministryPolicy coordination

TVET(MoE)

City & Town
Offices (800)

Micro credit(NBE)

Technical &HR support

One-stop service
for MSE matters,clusters, etc.

CreditMalaysia: National SME Dev. Council
National SME Development Council

14 OtherMinistries
MITI’s key departments
Strategic Planning

Est. 2004,
chaired by PM

Ministry of Int’l Trade and Industry(MITI, lead ministry for SMEs)
Implementing agencies under MITI
-SME Corp. Malaysia (lead agency for SMEs
and secretariat to National SME Dev. Council)

Entrepreneurship
Development
Sectoral Policy &Industrial Service
Investment Policy &Trade Facilitation
Services Sector
Development-Malaysian Ind. Dev. Authority (investment)-Malaysia Productivity Corp (research,training, consultation)-SME Bank (finance)-Malaysian Ind. Dev. Finance (finance)-MATRADE (trade)
Private sector partners
Service & training providers (privateconsultants & companies)Ethiopia: “Tatakidai” Proposal for NCC
Prime Minister
Direct, give mandate

Plan

National Competitiveness Council

Commission
studies, reports

Chaired by PM
Secretariat: PM OfficeMembers: concerned ministers,
business leaders, experts

Support, report, draft

Working groups for specific issues or sectors

MSEs

KaizenClusters

TVET

Eng. Educ.

Secretariat:
MoUDC

Secretariat:
MOI

Secretariat:
MOI

Secretariat:
MOE

Secretariat:
MOE

Ministries,businesses,academics

Ministries,businesses,academics

Ministries,
businesses,
academics

Ministries,businesses,
academics

Ministries,
businesses,
academics

Ministries and agencies

Implement

Note: This is a preliminary idea of K. Ohno to initiate discussion; listed issues and ministries
are suggestions only; everything is subject to addition, deletion or change.

4. Private Sector Mindset andLack of Dynamism
To level up skills and technology, good policy andstrong private response are both needed.
 Is the local private sector dynamic enough to respondstrongly to GTP? There may be less-than-expectedindustrial performance due to weak private response.
 PM Meles’ questions in our policy dialogue:- Why do my people invest in urban properties instead ofbuilding factories?
- How did East Asian governments steer private sector awayfrom speculation and rent seeking and toward investment inmanufacturing and technology?
- How did Japan and Korea absorb technology so quickly fromforeign-assisted industrial projects?

Malay DilemmaMalaysia feels that its indigenous Malay people areless economically dynamic than Chinese or Indian
immigrants (Mahathir: 1970). The problem continues
to persist even after four decades of affirmative
actions toward Malay.
 Despite reasonable policy quality, Malaysia istrapped in middle income. In 2010, PM Najiblaunched New Economic Model to energize local
SMEs toward value creation and innovation.
National Movement for
Mindset Change
Apart from improving industrial policy, additional
policy to energize private actors is needed.
 East Asian examples:- Japan’s quality and productivity (kaizen)
movement (1950s-)- Korea’s Saemaul Movement (1970s-)- Singapore’s Productivity Movement (1980s-)
 In Ethiopia, kaizen institutionalization holds the key.
 Capability to create a policy package suitable for
Ethiopia should be strengthened.
 Experiences of other countries should be studied toextract key success factors.
Factors for Successful
Productivity Movement
National movement is not just a few projects; it is a comprehensive
drive with strong passion and deep commitment, involving everyone
from top to bottom and taking a decade or more to accomplish.






Strong personal commitment of top leader
Establishment of core organization(s) responsible for
productivity improvement
Massive campaign (for mindset change)
Supporting institutions and mechanisms at central and locallevels
Authorized and standardized training programs and materials
for those concerned
Developing private sector capability, esp. fostering private,productivity management consultants

Country-Specific Factors

Drivers of Quality and Productivity Movement

Degree of private sector dynamism

Political drive is absolutely necessary, but economic incentives are
crucial to sustain the movement
Examples: domestically-driven (e.g., export drive of resource-poor
countries), externally-driven (e.g., FDI demanding local companies
for high-quality production capability)
Private sector capability in initiating, scaling-up, and sustaining themovement
Absorptive capacity of new technologies, incl. educational andtraining levels of general workforce

Level of technologies (depend on stages of development)

Basics (5S, QC Circles, etc.)
R&D, technological innovation

Overview of Quality and Productivity
Movement (1): Factors for Success
LeadershipCore organization(s)JapanSingaporeBurkinaFaso

Botswana

○
○

○
○

△

△
△

(private)(public)△/×(publicprivate)

Overviewof Productivity Movement (1): Factors for Success
Supportinginstitutions○○△(central and local levels)○△(nationalmovement)(nationalmovement)(partial)

Training programs andmaterials

○

○

△

Fostering private sector
capability○(productivity mgt. consultant)△(fragmented)○

Massive campaign(public)△△(not updated)○××

Overview of Quality and Productivity
Movement (2): Country-Specific Factors
JapanSingapore

Burkina Faso

Botswana

Drivers ofproductivity
movementStrongDomestic
Need forexport drive(resourcepoor country

StrongDomestic +ExternalPerceived poorwork ethics
Need for FDI
attraction(resourcepoor country)

Moderate
Domestic +External
Need toenhancesupply-side
responseduring SAP

Moderate
DomesticPerceived
poor work ethics
Need foreconomic
diversification(resourcerich country)

Degree ofprivatesectordynamism

StrongPrivate
sector-led
national
movement

ModerateGovt.-lednational
movement

WeakGovt.initiatedmovement

WeakGovt.-initiatedmovement

External
supportUS & Europe

WB/Japan

Singapore

SAP: Structural Adjustment Program

Japan