Chapter 5

Democratic Developmentalism andAgricultural Development Led
Industrialization∗

This chapter reviews the two guiding principles of Democratic Developmentalism(DD) and Agricultural Development Led Industrialization (ADLI) which Ethiopia,
one of the poorest countries in Africa, has embraced to advance its development
under strong state leadership.

DD is a political regime conceived recently in

Ethiopia to execute development policies.

Meanwhile, ADLI defines the policy

orientation which was formulated in the early 1990s and subsequently elaborated instages and put into serious implementation from the early 2000s.

DD and ADLI

constitute a complementary set of governing principles that inform the politics andeconomic development of Ethiopia.1
Both principles are in the early stages of implementation, and it is therefore too
early for comprehensive evaluation. Nevertheless, they contain many points ofinterest for latecomer countries trying to establish a development-oriented regime in
the international environment of the 21st century.

∗

1

This chapter was prepared by the GRIPS Development Forum (GDF) for the first round of policy
dialogue between Ethiopia and Japan in June 2009, and was later revised in response to informationand comments received from the participants of the policy dialogue, especially Prime Minister Meles
Zenawi. We would like to thank them for their valuable inputs. The views expressed in thischapter belong solely to the individual researchers of the GDF and neither to the Ethiopian nor theJapanese government.
The basic literature on Ethiopia’s DD is a series of statements and unpublished documents by Prime
Minister Meles Zenawi from around 2006. Meanwhile, general research on DD, not confined to the
Ethiopian context, is found in Edigheji (2005) and Robinson and White (1998). For ADLI, the key
literature includes the internal documents of the Ethiopian government discussed in the text: An
Economic Development Strategy for Ethiopia (1994), Rural Development Policies, Strategies andInstruments of the Government of the FDRE (2001), Ethiopian Industrial Development Strategy(2002), and A Plan for Accelerated and Sustained Development to End Poverty (PASDEP)
2005/06-2009/10 (MOFED of Ethiopia, 2005).

107

CHAPTER 5

5-1. Steps toward a developmental state
5-1-1. Initial formulation
The Ethiopian attempt to build a developmental state in the current form dates backto the early 1990s when an interim regime of the Ethiopian People’s Revolutionary
Democratic Front (EPRDF) was established by ousting the previous socialist
dictatorship by military force.

The EPRDF was an association of ethnic politicalgroups led by the Tigray People’s Liberation Front (TPLF), which spearheaded theanti-government fight from 1975 onward (Ishihara, 2001).

With the coming of theInterim Government in July 1991, Ethiopia abandoned economic planning andadopted a market-oriented economic system.
was on the verge of collapse.

The national economy at that time

The radical shift in policy orientation was necessary

because of the failure of the previous socialist government to realize economic
growth and improve living standards; the need to secure finance and cooperationfrom donors and international financial institutions; and pressing economic issues intransition from civil war to peace.

This policy shift opened the door for the private

sector to play an important role as opposed to the previous hostile environment that
kept the private sector and market forces at bay and in a very rudimentary state.
During the transition period from 1991 to 1995, important policies were adopted andincorporated into key policy documents.

The policy thrust of the Interim

Government was proclaimed in Economic Policy for the Transitional Period in 1992,
which contained a shift toward market orientation, removal of most restrictions on
private sector activities, and liberalization and reforms in sectoral, investment, andpublic enterprise laws.

Meanwhile, the Interim Government retained somefeatures of the previous regime such as the state ownership of land and development
centered on agriculture and rural areas.

The idea of ADLI took concrete shape as

an overarching economic strategy between 1992 and 1994, and An Economic
Development Strategy for Ethiopia in February 1994 highlighted the concept of
ADLI to define its strategic direction.

On the political front, the Charter of theInterim Government in July 1991 upheld peace and democracy as guiding principles
and introduced federalism based on ethnic autonomy.

The Communist Military

Junta (Derg) of the previous regime was replaced by a multi-party political system.
108

Democratic Developmentalism and Agricultural Development Led Industrialization

These changes were incorporated in the new constitution, which established theFederal Democratic Republic of Ethiopia in August 1995.

Additionally, the firstphase of the structural adjustment program of the international financial institutions
was also put in place during the transition period.
The main motivation behind ADLI has been the recognition that Ethiopia is anagrarian society in which the bulk of the population (84% in the 2007 census)
resides in rural areas earning a livelihood from land.

Agriculture has long

dominated the economy in terms of output, employment, and export earnings.

The

government emphasizes that economic development and structural transformation
should be initiated through robust agricultural growth, and that peasant farmers andpastoralists should be the main agents of agricultural transformation and economic
growth.

It is argued that labor and land are the main—and abundant—factors of

production in Ethiopia and that their effective use should generate rapid andsustainable development.

These arguments were clearly stated in An Economic

Development Strategy for Ethiopia of 1994, mentioned above.
Initially, the ADLI strategy targeted smallholder farms, especially crop producers,
so as to achieve rapid growth in agricultural production, raise income for rural
households, attain national food self-sufficiency, and produce surpluses which could
be marketed to the urban or industrial sectors.

More specifically, the government

introduced measures to provide smallholder farmers with technology and better
farming practices, improved seeds, fertilizers, irrigation, rural roads, and marketing
services.

A rise in agricultural output was expected to stimulate industrial

production by providing food and industrial materials, thus establishing a link
between the rural and urban sectors.

The industrial sector, in turn, could produce

input to agriculture such as fertilizers and farming tools and equipment as well as
consumer goods for rural households.

Such dynamic linkage, which we will callCore ADLI (see below), was intended to ignite the first stage of industrialization
until the economy moved into a higher level of development.

5-1-2. Implementation and early results
The early 2000s saw the initiation of serious implementation of ADLI as well as the109

CHAPTER 5

creation of a political model that justified state-led development in the Ethiopian
context.2

These developments were made possible by the fact that the Ethiopian

government was finally able to squarely tackle developmental problems around thattime, thanks to the (provisional) solution of the conflict with Eritrea as well as thepassage of more than ten years after the establishment of the new leadership.
Beginning in 1995, the concept of ADLI was incorporated in the first and the second
national development plans, which were published only in Amharic.

Thefollowing development plan, the Sustainable Development and Poverty Reduction
Program (SDPRP) 2002/03–2004/05, which further concretized the ADLI strategy,
was prepared in both Amharic and English and took the form of a poverty reduction
strategy paper in order to inform and solicit the cooperation of the international
community.

SDPRP promoted agricultural development and poverty reduction inrural areas by: (i) strengthening agricultural extension services; (ii) training
extension agents in technical and vocational education and training (TVET) andtraining farmers in Farmers Training Centers; (iii) water harvesting and irrigation;(iv) improved marketing opportunities; (v) restructuring peasant cooperatives; and(vi) supporting micro-finance institutions.
However, policymakers gradually came to realize the limitations of SDPRP during its
early implementation. By the time the next national development plan, A Plan for
Accelerated and Sustained Development to End Poverty (PASDEP) 2005/06–2009/10,
was prepared, there was sufficient recognition of the problems associated with anagricultural development strategy exclusively targeted to smallholder agriculture inrural areas.

The productivity of the agricultural sector did not show significant

improvement, and output remained volatile due to heavy dependency on the amountand timing of rainfall. In the 2002/03 season, the output of the crop sub-sector
contracted by 16.5% following a decline of 3.7% in 2001/02. It was only in 2003/04
that growth in the agricultural sector in general and the crop sub-sector in particular2

For the creation of a suitable political model, a series of statements and documents by Prime Minister
Meles were noteworthy. Among these, particularly important were “Speech by HE Meles Zenawi”
at the First Meeting of the Africa Task Force of the Initiative for Policy Dialogue organized by J.
Stiglitz (Columbia University) at Manchester University in August 2006; and the Prime Minister’s
preliminary draft on “African Development: Dead Ends and New Beginnings” in 2008.

110

Democratic Developmentalism and Agricultural Development Led Industrialization

started to recover significantly. From a long-term perspective, however, the laborproductivity of agriculture has been on a declining trend (World Bank, 2007).
Although agriculture has shown strong performance in recent years thanks tofavorable weather, this did not herald a significant structural change such as crop
diversification or productivity improvement.
PASDEP

2005/06–2009/10

madeimportantadjustments

to

SDPRP

2002/03–2004/05 by broadening the policy scope from smallholder agriculture toother sectors, especially the industry sector and the urban sector.

In what may becalled Enhanced ADLI, strong emphasis was placed on growth acceleration, which
was to be attained through commercialization of agriculture and private sector
development (PASDEP, Eng. p.46).
In the first three years of the PASDEP implementation period of 2005/06–2009/10,
good performance was recorded in agricultural and industrial production as well as
export.

Subsequently, however, the Ethiopian economy experienced a slowdown

accompanied by inflation, balance-of-payments pressure, and a severe shortage of
foreign exchange.

Several causes are cited for this boom-and-bust cycle such as

expansionary fiscal and monetary policies, an excessive inflow of foreign funds(including aid) relative to economic size, unfavorable weather, speculation andhoarding, and international events such as commodity inflation and the global
financial crisis.
Performance of real sectors, such as agriculture and industry, is dependent on anumber of factors including long-term trends in productivity and economic structure
as well as short-term and largely external shocks in international economy andpolitics.

The three-year boom starting around 2005 and the less spectacular resultsin the later years seem to have been affected more by short-term events rather thanlong-term trends produced by policy effort and private dynamism (chapter 8).
Signs of significant structural change are not yet visible.

In recent years theindustry’s share of GDP has hovered around 13–14% and Ethiopian export
continues to be dominated by unprocessed commodities (Table 5-1).

Althoughleather products and cut flowers have shown remarkable export growth, they still
occupy a small part of total export without a notable breakthrough in
111

CHAPTER 5

competitiveness or productivity (Table 5-2).
Table 5-1. Basic Data
Real GDP growth (%)
Nominal GDP (million Birr)
Nominal GDP (million USD)
Per capita GDP (USD)
Sectoral share of GDP (%) 1/
Agriculture
Industry
Services
External relations (% of GDP)
ExportImportTrade balance (export - import)
Total trade (export + import)
FDI (approval, million Birr)(approval, % of GDP)
Population (million)
Population in rural area (%)
Population in poverty (%)
Birr/USD (annual average)

1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08
5.2
6.1
8.3
1.5
-2.2
13.6
11.8
10.8
11.1
11.3
58,789 66,648 68,027 66,557 73,432 86,661 106,473 131,641 171,834 245,585
7,828
8,188
9,167
7,794
8,559 10,042 12.306 15,164 19,539 27,939
129
131
127
118
126
143
171
205
257
357
51.2
12.4
37.2

49.8
12.4
38.7

50.9
12.1
38.0

49.1
12.9
38.6

44.9
14.0
41.7

47.0
14.0
39.7

47.4
13.6
39.7

47.1
13.4
40.4

46.3
13.3
41.4

44.6
13.1
43.4

11.6
24.0
-12.4
35.6
1,080
1.8
60.8
85.5
7.51

12.0
23.9
-11.9
35.9
1,627
2.4
62.9
85.3
41.9
8.14

12.0
23.7
-11.7
35.7
2,923
4.3
64.4
85.1
8.33

12.6
26.6
-14.0
39.2
1,474
2.2
66.3
84.9
8.54

13.3
27.4
-14.1
40.7
3,369
4.6
68.2
84.7
8.58

14.9
31.6
-16.7
46.5
7,205
8.3
70.1
84.4
8.63

15.1
35.5
-20.4
50.6
15,405
14.5
72.1
84.2
38.7
8.65

13.8
36.5
-22.7
50.3
19,980
15.2
74.1
84.0
8.68

12.7
32.1
-19.4
44.8
46,949
27.3
76.1
83.8
8.79

11.8
26.9
-15.1
38.7
92,249
37.6
78.2
82.9
8.79

Sources: Ministry of Finance and Economic Development, National Bank of Ethiopia, and Ethiopian Investment Agency.
1/ Numbers do not add up to 100% due to estimate errors of intermediary margins of financial institutions(service sector).

Table 5-2. Export Performance of Targeted Industrial Products(In million USD)
Total export
Leather and leather products
Semi-finished leather
Finished leather
Leather shoes
Agro products
Textile and garment
Cut flowers(Memorandum items)
Sum of above four (% of total export)
Sum of above four (% of GDP)

2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
597
819
1008
1185
1481
1450
43
67
75
89
101
76
42
56
58
49
67
…
3
8
27
12
…
0.8
0.8
2
6
10
…
20
34
36
43
52
48
9
7
11
13
15
14
12
21
63
111
130
…
14.1%
0.8%

15.8%
1.0%

18.4%
1.2%

21.6%
1.3%

20.1%
1.1%

…
…

Source: Ministry of Trade and Industry.

5-2. Democratic Developmentalism
5-2-1. Democracy in a poor country
By adopting DD and ADLI, Ethiopia intends to radically transform the state
management paradigm, politically and economically, from the system in which rent
seeking is the dominant behavioral pattern to the system in which value creation iscentral.

This reflects Ethiopian leaders’ deep disappointment with the previous
112

Democratic Developmentalism and Agricultural Development Led Industrialization

ruling paradigms: the paradigm of a predatory state, which was the root cause ofrent seeking in Africa, as well as the neo-liberal paradigm that was introduced fromoutside in the 1980s and 90s with the purpose of eradicating such rent seeking but,
according to Ethiopian leaders, failed miserably.

Based on the rejection of bothparadigms, an alternative development paradigm is proposed.

The remainder ofthis chapter will describe and assess DD and ADLI as the models of political regime
and policy principle for development.

Our intention is not to offer acomprehensive review of the current developmental situation of Ethiopia, of which
DD and ADLI constitute only one, albeit very important, component.3

It should

also be noted that DD and ADLI go beyond theory or thought experiments to serve
as pragmatic and action-oriented principles for establishing legitimacy and guiding
policy formulation and implementation of the Ethiopian government.

In particular,

ADLI provides a set of ideas that govern concrete policies such as five-year
development plans and industrial master plans as well as Ethiopia’s relationshipwith donors and foreign businesses.
DD can be defined as a political regime in which a developmental party remains in
power for a long time by consecutively winning multi-party elections and underwhich policies that punish rent seeking and encourage productive investment are
implemented with strong state guidance.

This should be construed as a model

which Ethiopia is trying to attain rather than an already-established andwell-functioning political regime.
The transformation of development strategy must begin with politics because, in therecognition of Ethiopian leaders, the developmental failure of Africa comes not only
from the technical shortcomings of economic policy but also, more fundamentally,
from political factors such as the lack of leaders, political will, and a regime that can
resist private profiteering and promote national development.

For this reason, apolitical regime consistent with national development must be installed before the3

To review the political and economic situations of Ethiopia more comprehensively, the analyticalscope should be enlarged to include the concept of Revolutionary Democracy, ethnic balance,
federalism, opposition parties and anti-government groups, NGOs and CSOs, the Diaspora, foreign
relations, international organizations, and donors (including emerging donors such as China, India,
and Turkey).

113

CHAPTER 5

formulation of concrete policy measures.

The developmental state must prepare

conditions for mobilizing available resources to create institutions, policies, andincentive systems to stimulate domestic value creation.

Moreover, this endeavor

must be undertaken under the rules of democracy rather than dictatorship.
The DD model aims to build a political regime unique to Ethiopia.

DD is different

from East Asia’s Authoritarian Developmentalism (AD) which postponed
democracy for the sake of development (section 5-2-4) or the Western style “goodgovernance” that requires an early adoption of advanced governing principles inlatecomer countries.

The kind of democracy that can be adopted in a poor country

is not an ideal type equipped with full conditions and features.

Democracy is not

an all-or-nothing choice; it comes with variations that reflect the history andstructure of each society.

The development of democracy must be supported by thecreation of appropriate mindsets and institutions, which take time to be installed,
just as a market economy must be supported by an array of suitable mindsets andinstitutions.

In this sense, DD is a variation of democracy which is realistic,

manageable, and consistent with the developmental goals of a poor country thatfaces many constraints and problems.

The core element of this democracy is theelection-based transition mechanism with the existence of opposition parties.

But

even this limited aspect of democracy is subject to many challenges which prevent
its smooth operation (section 5-2-2).
Why should a country in an early stage of development adopt democracy instead of
authoritarianism? One reason is the inherent and universal values of democracy
itself such as freedom, human rights, empowerment, and participation.

Another

reason, from the perspective of the ruling authority, would be to use democratic
procedure to secure legitimacy, maintain national unity, and gain popular support fordevelopmental policies.

Additionally, it must be noted that no country at present,

regardless of its development stage, can be admitted as a valid member of theinternational community and receive aid and cooperation unless it embraces ademocratic form of government.

This is an international environment sharply

different from the one which, for instance, Taiwan or Korea faced during the Cold
War era.

114

Democratic Developmentalism and Agricultural Development Led Industrialization

5-2-2. Instability of developing country politics
In developing countries, politics is often characterized by radicalism and instability
even if democracy is formally in place. Based on extensive qualitative research, Prof.
Paul Collier of Oxford University concludes that democracy has not yet produced
accountable and legitimate governments and has rather increased political violence inmany developing countries, especially in the societies of the “Bottom Billion” (Collier,2009).

This occurs because governing rules are yet to be institutionalized andauthority has not been firmly established and accepted. If there is no consensus
regarding how democratic procedure should be applied in practice, the incumbent
government can exercise much discretion in such matters as election, human rights,
budgetary allocation, and relationship with the parliament.

Equally, oppositiongroups can easily criticize and challenge any action by the government. Such a
confrontational situation is fairly common in developing countries.
On the basis of extensive qualitative research, Paul Collier, Professor at the Oxford
University and the author of The Bottom Billion, argues that in many developing
countries (especially in the societies of the bottom billion), democracy has not yet
produced accountable and legitimate governments and has rather increased politicalviolence.
As a result, politics becomes violent.

This may partly reflect a serious schism insocial structure associated with ethnicity, religion, region, income gaps, orurban-rural disparity.

Nevertheless, political instability often goes far beyond whatthese social problems can explain.

Potential areas of agreement are rejected,

conflicts become entrenched, and policies swing from one extreme to the other.
Vendetta politics is repeated as former leaders are prosecuted and their policies arereversed by incoming governments.

Each time the government and those who

oppose it exchange emotional volleys, radicalism is amplified.
Under such circumstances, elections may not go smoothly or peacefully.

Those inpower rarely intend to lose the next election and mobilize all political and economicmeans, many of which are not permitted in advanced democracies, to ensure afavorable outcome.

Meanwhile, the announced victory of the ruling party, whether
115

CHAPTER 5

by a landslide or a slim margin, is routinely challenged by the opposition.

Theelection itself becomes a complicated political game, and victory in it can hardly
confer full legitimacy.

If the angered opposition resorts to violence and thegovernment responds in kind, an election may even further destabilize politics.

In

Ethiopia, the events following the 2005 national election showed that the country
was not free from the risks associated with developing country politics.

In the2010 national election, however, the ruling party won a landslide victory andregained urban votes without major violence.
To reduce such instability, it is necessary to install a mechanism to find areas ofpossible agreement in concrete policy issues between the government and the(moderate) opposition.

Even if the two parties totally disagree on some issues,

there may be other issues on which they can come to partial or full agreement.

In

Ethiopia, meaningful discussion may be held on such topics as the upgrading ofagricultural or industrial strategy, training of human resources, and macroeconomic
analysis.4

Establishment of a public-private forum to debate these issues would

greatly reduce the emotional tension and policy gaps between the two parties, andmay help to avoid extreme policy swings even when governments change.
dialogue and policy stability are mutually reinforcing.

Such

The success of policy

dialogue depends on the existence of constructive attitudes on both sides, but policy
dialogue can also serve as the means to foster such attitudes.
Under DD, a legal procedure for political transition through election is installed,
while the ruling party is often determined to stay in power for a long time.
be argued that these requirements are in conflict with each other.

It mayIf the possibilityof power change is a real one, it is highly unthinkable that one party willconsistently win elections for a number of decades.

Every time a new government

comes into power, previous policies will be cancelled or at least greatly modified,and long-term consistency of development policies will be lost.

By contrast, if DD

has a hidden mechanism which effectively prevents the opposition from winning,
there is no real political competition and the opposition and anti-government groups
4

On the other hand, debate over land policy or liberalization of the financial and telecom sectors may
be too difficult to launch between the government and the opposition in the present circumstances of
Ethiopia.

116

Democratic Developmentalism and Agricultural Development Led Industrialization

will certainly cry foul.

This is a real challenge that must be clearly recognized andeventually overcome for DD to work as an effective regime to accelerate national
development.

The existence of this challenge does not discredit the notion of DD

but it requires the Ethiopian government to stay in power by successful execution ofdevelopment policies successfully rather than through income re-distribution orpolitical suppression.
EPRDF, the developmental party of Ethiopia, hopes to stay in power to implement
development policies continuously and consistently. It wants to stay in power by
persuading the people of the need to launch a new developmental paradigm and byachieving initial successes in its implementation. This is expected to foster adomestic political coalition supportive of developmentalism and to allow thegovernment to execute more development policies.
victory in coming elections.

This virtuous circle will ensure

In this scenario, the main political base of the rulingparty is the smallholder farmers that account for 80% of the population (section
5-2-4).

Small entrepreneurs in urban areas are also considered to be part of the

support base although their number is not large at this moment.

This is a politicalregime called “dominant party democracy” led by EPRDF or, alternatively,“dominant coalition democracy” if political coalition between the government andsmallholder farmers is emphasized.
In a sense, the dominant party democracy aspired to by the Ethiopian government isakin to the Japanese political regime under the dominance of the Liberal Democratic
Party (LDP) from 1955 to 2009.

Equipped with highly developed democratic

institutions and continuously winning elections, the LDP stayed in power alone orby forming coalitions with other parties for more than half a century (except for ashort interruption).

Its power base was also rural. However, Ethiopian DD has one

crucial difference from the LDP regime in Japan: the LDP miserably failed to
improve the productivity of agriculture and managed to stay in power bytransferring income from industry to agriculture and from urban to rural residents
through subsidies, protectionism, and allocation of public works.

Japan, with highincome and advanced industries, may have the luxury of pampering farmers but
Ethiopia cannot follow such a model.

The combined DD and ADLI will neversucceed unless there is a significant breakthrough in agricultural productivity.
117

This

CHAPTER 5

is a very important point to which we will return (section 5-2-4).

5-2-3. Government as an agent of systemic change
According to Comparative Institutional Analysis, which studies the diversity anddynamics of institution, it is not easy to transform a “system” (a collection of
institutions) which has been installed and already solidified (Aoki, 1995a; Aoki,
2001).

Different types of inertia work to defend the existing system such as

institutional complementarity (mutual dependence of institutions in which removalof only one institution hardly changes the system), strategic complementarity(strong incentive for individuals to follow existing rules and play the existing game),and path dependency (difficulty of deviating from the system which was chosen firstand subsequently solidified). At the same time, there are also patterns in which
systemic transformation can occur even under such inertia (Figure 5-1).
Figure 5-1. Patterns of Systemic Transformation
Collective mutation

Foreign pressure

PolicyPolicy and foreign pressure

The first is collective mutation.

This occurs when a sufficiently large number ofpeople change their behavior spontaneously without external guidance or directives.
In the context of developing countries, this may happen when a resistancemovement arises against suppression or deprivation or, conversely, when a sustained
rise in income and living standard changes the values and wants of the majority ofthe population.

The second is policy launched by the government.
118

The

Democratic Developmentalism and Agricultural Development Led Industrialization

government is one of the insiders of a society but can become a dynamic actor (asdeus ex machina, a god who appears out of context to solve confusion in an ancient
Greek play) to force a change on other members of the society.
pressure.

The third is foreign

For better or worse, foreigners and foreign organizations are not boundby domestic rules and can become an agent for systemic change in that society.
Finally, there is a possibility of effective cooperation between the government andforeign pressure.

This does not mean that the government and foreigners arealways on good terms.

But when the government as a leader initiates a clear

direction for change and the foreigner as a follower supports it, the probability ofsystemic transformation will rise significantly.
Using this framework, what the Ethiopian government is trying to do can beinterpreted as using policies as a primary driver to install developmentalism (i.e., toreplace rent seeking with value creation) and additionally soliciting foreign
investors, bilateral donors and international organizations to enhance this effort.
This endeavor must achieve the two tasks of destroying selfish motives, patronage,
zero-sum games, and dependency culture associated with the old system on the one
hand, and building institutions, human resources, technology and incentive structure
to support the new system on the other.

Both will require enormous social energy

to surmount political resistance.
The most critical element of state-led systemic transformation is leadership.

This

includes both the quality and capability of the top leader as well as theappropriateness of the visions and principles that guide national transformation.
The importance of leadership can hardly be overstated.

Even in the highperforming economies of East Asia, the value creation system was not in place when
they entered the period of high growth.

Before 1960, South Korea was a basket

case with rampant corruption, administrative inefficiency, and high dependency on
US aid for survival (World Bank, 1993).

Similarly, in 1959, the World Bank reporton Thailand lamented the absence of public investment management and the severe
shortage of trained or experienced bureaucrats (World Bank, 1959).

Thesesituations were turned around by President Park Chung-hee (in power 1961–79) inSouth Korea and the governments of Prime Minister Sarit (in power 1958–63) andPrime Minister Prem (in power 1980–88) in Thailand. Similar systemic breaks
119CHAPTER 5

occurred when strong and economically literate leaders emerged in Taiwan(President Chiang Kai-shek), Singapore (Prime Minister Lee Kuan Yew) and
Malaysia (Prime Minister Dr. Mahathir).
The Ethiopian leaders explain the failure of the neo-liberal paradigm as follows.
The neo-liberal paradigm failed to uproot the rent seeking system because it denied
the role of government as a dynamic agent of systemic change.

The naïve view of“market is good, government is bad,” which preached a minimalist government,
could not create an agent powerful enough to launch a systemic change in a
latecomer developing country.

The policy package consisting of liberalization,

privatization, decentralization, and international integration generated a horde of
new domestic and foreign rent seekers such as non governmental organizations(NGOs), voluntary organizations, mining companies, foreign firms, and ODA
contractors and consultants who rallied for budgets and subsidies without producing
a systemic change.

The idea of “Trickle Up Democracy,” which was intended toeradicate rent seekers by giving power to people and local communities, did not
succeed in installing developmentalism in Africa.
Many studies confirm that economic liberalism does not necessarily generate
development in low-income countries. Ishikawa (1990) presented evidence from
China on the failure of liberalization policies to produce production incentives in an
economy with underdeveloped markets; Nishimura (1994) and Aoki (1995b) showedthat rapid privatization in Russia created new gigantic rents and their seekers; Khan
(2008) argued that capability to direct rents to productive purposes such as investment
and technology absorption, rather than to eliminate rents, was needed in a country thatlacked market supporting institutions; and Ohno (2009) contended that Washington
Consensus policies could take a country to middle income but climbing further would
require a combination of more proactive policies and private dynamism.
In Ethiopia, a strong state is guiding the other members of society for development.
A government led by a strong leader is giving incentives (carrots) and disincentives(sticks) to economic actors such as farmers, workers, merchants, entrepreneurs, andforeign investors to adopt behavioral patterns based on value creation rather thanrent seeking.

Donor assistance must also align closely with the development120

Democratic Developmentalism and Agricultural Development Led Industrialization

strategy of the Ethiopian government in order to be accepted.

Even with small

farmers who are the main partners in political coalition, the government offers
top-down directives and incentives for productivity improvement rather thanresponding to their voices in a bottom-up fashion.

In this sense, the role of small

farmers in political coalition remains a passive one.
The strategy of combining carrots and sticks is most clearly seen in the leather andleather product industry.

The goal of this industry set by the Ethiopian governmentis to supply finished leather or finished leather products for export and domestic
sales by acquiring management and technology capabilities to process what hashitherto been sold as raw or semi-finished leather.

As sticks, a ban on raw material

export and a high tax on semi-finished leather have been introduced.

As carrots, alarge number of supporting measures have been offered to the industry including (i)establishment of the Leather and Leather Product Technology Institute (LLPTI) to
provide training, quality tests, and some production processes; (ii) donor assistance,
foreign advisors, and twinning with a foreign institution for strengthening LLPTI;(iii) preference in finance and foreign currency allocation; (iv) business matching
between domestic shoe producers and European firms; and (v) monthly
government-business meetings to monitor the industry and solve its problems.
What will guarantee that DD will not repeat the same mistake as the neo-liberalparadigm—that it will not become a new playground for rent seekers? Experiencesof other developing countries show that there is no magic formula to ensure that astrong state will generate long-term growth.

On the contrary, it could easily fallpray to patronage and collusion among politicians, bureaucrats, and businesses.
Although institutions and pressures for policing rent seekers should be built, thiswill take a long time in a country in the early stage of development.

At present,

Ethiopia is led by a strong and intelligent leader who is determined to avoid such
political capture.

This is a source of strength for the moment but may become asource of weakness when the time for power transition arrives.

5-2-4. Political and economic potential of small farmers
It is natural that a developmental party intending to win an election every five years
121CHAPTER 5

would choose small farmers, which occupy 80% of the Ethiopian population, as its
support base.

In addition, small and medium size entrepreneurs in the urban areas

are also counted as its future support base, although their number is still small.
Generally speaking, poor farmers are characterized by conservatism, low levels of
education and knowledge, and submissiveness to authority.

Although disgruntled

farmers may resort to uprising and violence, it was rich farmers, village leaders, or
landlords equipped with education, judgment, and material wealth who became
constructive political partners in the early days of democracy in developing
countries—as observed in Meiji Japan in the late 19th century.

Even if small

farmers are elevated to the position of principal political partners, it is difficult tomobilize them on a national scale unless they are given orders from above—as seenin Mao Tse-tung’s mass mobilization of Chinese peasants for the Great Leap
Forward in the late 1950s.

In the early years of development, small farmers areoften passive followers rather than mature and independent partners of national
politics.

This is a point which is entirely different from the validity of autonomy,

participation, empowerment, and other grass-roots activities in rural communities.
The question therefore is what incentive small farmers have for accepting such a
position.
The minimum condition for small farmers to accept the government’s lead is theperception that the latter will not suppress them or drive them into despair.

A

better incentive is the receipt of official aid for the improvement of their livelihood
such as famine relief, food aid, and education and health services.

Better still, they

will more willingly follow if the government provides productive assistance such astechnology, fertilizer, seeds, irrigation, and finance.

It will be ideal if farmers raise

productivity and income thanks to such productive assistance and becomecommercial producers.
In Ethiopia, at least some of the above conditions are satisfied because aconsiderable number of rural assistance programs are already in place.

Anationwide food aid program with a large amount of donor assistance has been
established to improve food security.

122

Expenditure on agriculture and rural

Democratic Developmentalism and Agricultural Development Led Industrialization

development is relatively high in Ethiopia.5

Productive support has also been

consistently prioritized towards the agricultural sector in national development planssuch as SDPRP 2002/03–2004/05 and PASDEP 2005/06–2009/10.
Besides these programs, agricultural extension services have been greatly
strengthened in the last several years (Tables 5-3 and 5-4).

Ethiopia has completed

the process of assigning three agricultural extension workers in charge of
agricultural technology, livestock management, and resource utilization respectively,
and establishing a Farmers Training Center, in every village (kebele) of the country.
Additionally, two female health workers are being stationed in every village.
Nationwide extension services such as the ones Ethiopia has built are still rare in
Africa.

The next challenge for Ethiopia is to fully utilize this network to improve

the agricultural productivity and livelihood of rural residents.
Table 5-3. Numbers of Farmers Training Centers and Agricultural
Extension Workers
Established or trained in each year
2004/05 2005/06 2006/07 2007/08 2008/09 2009/10
Farmers Training Centers
Agricultural extension workers

9,368

1,500
13,8992,200
13,3832,000
15,095

1,782
9,404

Cumulative as ofJan. 2010

…
636

9,265
61,785

Source: Agricultural Extension Department, Ministry of Agriculture and Rural Development.
Note: As of January 2010 the number of trained agricultural extension workers exceeded the official target of 60,000.
However, the number of actually allocated extension workers was less than those trained (Table 2-4). The
number of operational Farmers Training Centers as of January 2010 was 6,543.

Table 5-4. Numbers of Extension Workers and Service Delivery Stations(Allocated or Established)
2002/03
Agricultural extension workers
Health Centers
Heath Posts
Health Workers
Primary schools
Primary school teachers

451
1,432

2003/04

2004/05

2005/06

2006/07

2007/08

9,434

23,35934,44649,435

…

519
2,899

600
4,211
2,737

635
5,955
8,901

690
9,914
17,653826
11,446
24,571

10,394
105,788

11,780121,077

19,412203,040

20,660225,319

23,235
253,586

Sources: Education Management Information System; Health Management Information System; Ministry of Financeand Economic Development, Annual Performance Review, various issues; Ministry of Health, Health Sector
Development Plan-III Annual Performance Review, June 2008; and Agricultural Extension Department, Ministryof Agriculture and Rural Development.
5

According to the World Bank (2008) estimate, the ratio of agriculture-related expenditure to total
government expenditure in Ethiopia is 6.7%, which is higher than the corresponding ratios in
Mozambique (2.2%), Kenya (2.0%), Tanzania (2.1%), Vietnam (6.0%), Indonesia (0.2%), andPakistan (1.2%).

123

CHAPTER 5

The most fundamental question is whether and how smallholder subsistence farmers,
who are the dominant majority as well as the chosen coalition partner of thedevelopmental state, can be commercialized and improve productivity and income.
As noted above, political support of small farmers can be secured with a perceptionthat the government is a positive—or at least not negative—factor in their livelihood.
But the grand objective of DD and ADLI is to transform the national economic
principle from a zero-sum game to a sustained increase of GDP. If the productivityof agriculture does not improve, the state will eventually face fiscal crisis and aid
dependency.

If developmentalism results only in the buying of rural votes throughredistribution of benefits, it must be considered a failure.

What is needed is adetailed strategy and a realistic roadmap for commercialization of agriculture basedon improved productivity.

To meet this challenge, Ethiopia needs more selectivity

and concreteness in its agricultural and rural development strategy.
In Central Highlands where the majority of the Ethiopians reside, small farmers arescattered across vast mountainous terrains with difficult road access.
what they produce with little external sale or purchase.
drinking water, and hygiene is severely limited.
the whims of rainfall.

They live on

The supply of electricity,

Agriculture basically depends on

The use of fertilizer is inadequate, and the arable plot of

each family is very small and frequently further subdivided under populationpressure.

Eastern Tigray, Eastern Amhara, and Eastern Oromia are particularly

vulnerable to drought due to unstable rainfall and soil erosion.

Land division has

gone to extremes in some parts of Southern Region such as Gurage and Wolayita.
Pastoralists lead nomadic lives in the sparsely populated dry areas in Eastern andSoutheastern Ethiopia, especially Somali and Afar Regions.

In recent years, theEthiopian government has made much progress in preparing necessary conditions
for agricultural and rural development, including establishment of nationwide
extension services mentioned above.

Nonetheless, a productivity breakthroughfrom these unfavorable initial conditions is a task that requires long andconcentrated effort.6
6

After the severe drought of 2003/04, the Ethiopian government introduced the Productive Safety-net
Program targeted to the most vulnerable areas and actively mobilized international aid amounting toabout USD300 million annually. However, the number of farmers who have graduated from thisprogram is limited. As of 2009, 7.57 million rural residents were in need of continued support from124

Democratic Developmentalism and Agricultural Development Led Industrialization

According to the sample surveys conducted by the Central Statistical Agency,
agricultural production has shown an upward trend and land productivity of major
crops is also rising (Tables 5-5 and 5-6).

This seems inconsistent with thepessimism expressed in the foregoing paragraph, but there are a few catches.

First,

the periods covered in Tables 5-5 and 5-6 were marked by relatively good weather
and an increase in fertilizer use, which cannot be sustained indefinitely in the future.
Second, more seriously, Ethiopian agricultural data are unreliable and do not reflect
real trends.7

This is caused partly by inadequate statistical technique and shortageof personnel and partly by the incentive to overstate output relative to targets whenlocal officials report the results.

For this reason, it must be concluded that recent

agricultural performance is unknown and no basic data on which policy discussion
can proceed exists in Ethiopia.
Table 5-5. Agricultural Production

Cereals
Edible oil
PulsesVegetables
Root crops
FruitsCoffee2003/04

2004/05

2005/06

2006/07

2007/08

2008/09

90,062
3,129
10,373
3,879
16,0552,495
1,262

100,308
5,264
13,496
4,320
16,152
2,634
1,562

116,242
4,866
12,712
4,502
13,375
4,283
1,716

128,798
4,971
15,786
3,451
14,0954,600
2,415

137,170
6,169
17,8274,720
15,3094,621
2,734

144,964
6,557
19,646
5,989
12,136
3,513
2,602

Average growth
per year
10.0%
15.9%
13.6%
9.1%
-5.4%
7.1%
15.6%

Source: Ethiopia Central Statistical Agency, agricultural sample surveys.

Table 5-6. Land Productivity of Major Crops(Quintal/ha)

Barley
Maize
Teff
Wheat
SesameBroad beans

2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
11.7
12.1
2.7
13.3
13.8
15.5
18.6
17.2
21.9
22.3
21.2
22.2
8.4
9.5
9.7
10.1
11.7
12.2
14.7
15.6
15.2
16.7
16.3
17.5
6.7
8.5
7.3
7.1
10.1
7.8
11.2
1.9
11.2
12.6
13.2
12.9

Source: Ethiopia Central Statistical Agency, agricultural sample surveys.

7

this program (World Bank, 2009).
Dercon, et.al. (2009), as well as many donors, stress the need to check data reliability on
agricultural production and land productivity.

125CHAPTER 5

The problem faced by small farmers is not only a supply-side problem ofagricultural production but also a demand-side problem of finding markets.

Inaddition, they face a quality-of-life problem that requires poverty reduction andempowerment.

The policy package for small farmers must therefore have a broad

perspective and pursue multiple objectives.

In addition to the existing PASDEPand five-year agricultural development strategy containing a large list of supply-sidetargets and measures, proper re-organization of targets and measures in agriculturaland rural strategy, including demand-side and livelihood issues, is in order.
On the demand side, the current strategy of commercializing smallholder agriculture
targets export markets.

For such products as coffee, leather products, and cut

flowers, this seems a reasonable direction. However, marketing should be flexible
enough to reflect different potentials of individual products and localities.

For

some agro products, penetrating a global (or even urban) market, which demands
high quality and hygiene standards, stable supply in large quantity, and on-time
delivery, may be too difficult initially.

The policy menu should be broadened toinclude “closer” markets such as (i) expansion and diversification of agro andlivestock products for nearby cities, towns, and villages; (ii) promotion of tourism;(iii) creation of local specialty products; (iv) the “one-village-one-product”
approach; and (v) establishment of michi-no-eki (roadside stores to sell local
products and serve local food).

The newly created agricultural extension service

network should be used fully to implement these options.
As for quality-of-life improvement, many programs are being carried out withgovernment budget and donor support to realize the Millennium Development Goals(MDGs).

However, the rural life improvement movement, which emphasizes

improvement of concrete mundane activities at the grass-roots level and combines
both top-down and bottom-up approaches, should also be considered.

Mizuno(2008) warns that the mainstream strategy for rural development underestimates theimportance of multi-faceted improvements of rural life aspects such as meals,
clothing, housing, hygiene, and social relations.

Rural development from a very

low level must embrace production, marketing, and quality-of-life aspects
simultaneously.

Mizuno cites the experience of Japan immediately after WW2 as

126

Democratic Developmentalism and Agricultural Development Led Industrialization

one of the most successful cases of a rural life improvement movement.8

Similarmovements have also been implemented in many other Asian countries including
Korea, India, Indonesia, Thailand, and Vietnam with different scales and degrees ofsuccess (Cruz, 2002).

5-2-5. A comparison with East Asian Authoritarian
Developmentalism (AD)How does DD of Ethiopia compare with the AD which was popular in East Asia inthe late 20th century? Let us first note that developmental regimes in East Asia havebeen quite diverse.

The typical AD regimes were Taiwan and South Korea in the

past.

China after Deng Xiaoping, Singapore, and Malaysia can also be regarded asAD.

On the other hand, Indonesia under Suharto and the Philippines under Marcos

failed to solve structural problems in politics or economics (or both) to be counted
as AD despite certain initial achievements in income and growth.

Thailand, which

has attained middle income despite frequent political and economic crises, is locatedbetween these two groups.

Vietnam has sustained high growth under one-party

rule since the early 1990s, but its policy formulation capability remains low. Besides
these, East Asia also contains very poor countries such as Laos and Cambodia, andnon-developmental dictatorships such as Myanmar and North Korea.

Therefore,

AD to be analyzed here for the purpose of comparison with DD is an ideal typewhich is most closely represented by Taiwan and South Korea before their transition
to democracy.

8

Under the direction of the US occupation forces, the Japanese Ministry of Agriculture launched the“Life Improvement and Dissemination Movement” in 1948. Many local governments also
introduced similar programs with great enthusiasm. This movement, though originally started witha top-down structure, encouraged grass-roots activities with strong participation at the village level.
Life improvement dissemination staff consisting of rural women were organized. They took thelead in improving cooking, nutrition and meals; clothing, bedding and footwear; cleaning, washing,water carrying, and other domestic chores; child raising and training; wedding, funeral and otherceremonies; public morals; and elimination of superstition and feudal habits. Regular meetings
were held with the participation of all village households where issues were debated and consensus
was formed. Government officials and village staff jointly solved problems arising from complex
social relations in rural communities such as the increase of absenteeism during planting andharvesting seasons, the feudal concept of family, and the lack of cooperation from husbands andmothers-in-law (Mizuno, 2008; Ikeno, 2008).

127

CHAPTER 5

With these caveats in mind, let us enumerate the outstanding features of East Asian
AD: (i) emergence of the regime in response to a domestic or regional crisis(communist threat was the most common external crisis in East Asia); (ii) strong
leadership exercised by one charismatic leader; (iii) an elite technocrat groupcarrying out the leader’s vision; (iv) prioritization of developmental ideology (i.e.,
postponement of political reform); (v) legitimacy through economic performance
rather than democratic procedure; (vi) continuation of the same regime for two to
three decades and social transformation that it generates (Watanabe, 1995; Ohno and
Sakurai, 1997; Banno and Ohno, 2010).

The AD regime has the following sharp

differences from the DD model which Ethiopia aspires to adopt (Figures 5-2 and
5-3).
Figure 5-2. Democratic Developmentalism of Ethiopia

128

Democratic Developmentalism and Agricultural Development Led Industrialization

Figure 5-3. Dynamic Transition of East Asian Authoritarian
Developmentalism

First, East Asian AD is a proven model that has been adopted in many countries
with remarkable achievements in income generation and structural transformation inat least some of them.

In this sense, the validity of AD is indisputable undercertain historical circumstances.

By contrast, Ethiopian DD remains a plan to be

fully implemented in the future.

Its advocates ought to convince the skeptics of thefeasibility of DD in the social context of latecomer developing countries in generaland in Ethiopia in particular.
Second, East Asian developmental states from the outset formed political coalitions
with domestic capitalists—large businesses, conglomerates, banks, and so on—who
were the executers of industrialization while effectively refusing to adopt themulti-party system with free elections.

By contrast, the DD model of Ethiopia

adopts the latter as one of the key ingredients at the starting point.

The legitimacyof AD depended solely on its economic performance whereas that of DD will
depend on both economic performance and democratic procedure.

This is a vital

difference between the two.
Third, dynamic social transformation was observed in East Asian high performing
economies.

AD achieved economic results over time which transformed the social

structure, mindsets, and demands of the people.

This social change accompanied arise of a middle mass who demanded democratization.
eventually toppled the AD regime.

Their increasing pressureThis pattern has already run its course in129

CHAPTER 5

Taiwan and South Korea while it is in progress in a number of other countries in
East Asia.

Watanabe (1995) calls this a “successful dissolution” of theauthoritarian regime through the very success of its development.

Meanwhile,what dynamic course the DD regime will trace if it is successfully implemented
remains uncertain.
Ethiopia.

It will probably take long for a strong middle class to emerge in

A government document states that Rural Democracy will eventuallytransform itself into Urban Democracy, but its concrete content or mechanism isunclear.

5-3. Agricultural Development Led Industrialization
5-3-1. Core ADLIADLI is defined as a development strategy which aims to achieve initialindustrialization through robust agricultural growth and close linkage between
domestic agriculture and domestic industry.

This strategy was formulated in theearly 1990s and has been implemented in stages, especially from the early 2000s, in
Ethiopia.

ADLI is considered to be an evolving strategy subject to pragmatic

experimentation and adjustments rather than an immutable principle.

The

revisions made from SDPRP 2002/03–2004/05 to PASDEP 2005/06–2009/10(section 5-1-2) as well as the currently proposed expansion of policy space,discussed below, reflect the evolving nature of ADLI that enables it to respond tochanging circumstances, evaluation of past policies, and rising policy capability of
the Ethiopian government.
An early exposition of ADLI was given in An Economic Development Strategy for
Ethiopia in 1994 as follows.
The long term objective of development in Ethiopia is structuraltransformation of the economy in which the relative weight of agriculture,industry and service changes significantly towards the latter two.
Especially, the objective is to raise appreciably the share of the industrial
sector in the economy both in output and employment.
130This structural

Democratic Developmentalism and Agricultural Development Led Industrializationtransformation is envisaged to occur with a high growth of agriculture
which is superseded by growth of industry and services.
In essence the development strategy revolves around productivity
improvement of smallholder agriculture and industrialization based on
utilization of domestic raw materials with labor-intensive technology.
The strategy is akin to what is known in economic literature as
agricultural-development-led industrialization (ADLI), framed into the
Ethiopian context.

It visualizes export-led growth which feeds into aninterdependent agricultural and industrial development.

Exports, be it

agricultural and mineral, initiates growth thereby creating space for aprocess of an interdependent agricultural and industrial development (orADLI), which increasingly becomes a self-generating process ofdevelopment.

Here the strategy has two layers; an outer crust ofexport-led growth and an inner core of ADLI…
The strategy of ADLI in Ethiopia focuses primarily on agriculturaldevelopment.

This is to be attained through improvement of productivity

in smallholdings and expansion of large-scale farms, particularly in thelowlands.

The contribution of agriculture to economic development isconceived in two ways.

On one side, agriculture will supply

commodities for exports, domestic food market and industrial output, andon the other side, it will expand the market for domestic manufacture.

At

present, the importance of agriculture lies as a source of supply rather thandemand.

As industrialization picks up pace, over the long term thesignificance of agriculture as a source of demand will also rise.

(FDRE,

1994, pp.8–9)
If ADLI is interpreted narrowly and strictly as a strategy to achieve earlyindustrialization through direct material interaction between domestic agriculture
and domestic industry as the main engine of growth with exports providing initial
markets (with the implication that agricultural or industrial development without
such interaction receives less attention), the situation can be depicted as in Figure5-4. Let us call this domestic input-output dependency Core ADLI.
131

In thisCHAPTER 5

interdependence, highlighted industrial sectors are agro processing (including
leather products), which uses domestic agricultural inputs, as well as sectors that
produce goods for rural communities such as agricultural tools and machinery,
chemical fertilizers and pesticides, construction materials, and basic consumer
goods such as processed food and beverages, clothes, and simple household goods
demanded by the rural population.
Figure 5-4. Linkages in Core ADLIThe Industrial Development Strategy (2002) additionally lists the following
conditions under which industrialization must proceed: (i) the leading role of theprivate sector; (ii) parallel development of agriculture and industry through mutual
dependence (i.e., Core ADLI); (iii) export orientation; (iv) focus on labor-intensive
industries; (v) proper roles of local and foreign direct investment (FDI) enterprises;(vi) strong state guidance; and (vii) mobilization of all social relations such as
government-capitalists, capitalists-small farmers, and labor-management.

The

requirements of export orientation and labor-intensiveness should be underscored.
Moreover, the second condition (Core ADLI) can be re-interpreted as therequirement for the maximum use of domestic resources.

These three conditions

are the main requirements for industry in establishing bi-sectoral interdependence.
As noted above, this linkage is not a permanent one but something that can evolve
into a new pattern in which industry will take the main lead once the initial stage ofindustrialization is realized.

The Industrial Development Strategy clearly statesthat “[w]hen we say that we follow agriculture development led industrialization
this does not mean that it will be so forever... if agricultural development led
132

Democratic Developmentalism and Agricultural Development Led Industrializationindustrialization strategy is successfully applied it will be changed to industry led
development strategy” (Eng. p.8).
The question concerning Core ADLI is whether this strategy is powerful enough tosignificantly propel early industrialization in Ethiopia.

We do have historicalexamples in which agriculture grew relatively strongly prior to the period offull-scale industrialization and provided resources for industrialization throughtaxation and foreign exchange earnings (for example, silk and tea exports in late
19th century Japan, rice and sugar production in Taiwan up to the 1960s, and therice export tax of Thailand up to the 1980s).

There are also cases in which robust

agro and fishery exports ameliorated the immiserization of rural communities often
associated with globalization (for example, fish and shrimp exports of Southeast
Asia).

Agro and fishery products may even become leading exports (for example,

Chilean wine and salmon).

Agriculture can also serve as an income andemployment buffer at times of economic crisis (for example, Japan immediately
after WW2, and absorption of laid-off workers caused by state-owned enterprise(SOE) privatization in Vietnam in the early 1990s).
Despite all this, a historical example in which an industry using domestic materials
as its main input has expanded dramatically to become the industrial pillar of thatnation and contributed greatly to structural transformation is difficult to find.
Agricultural development and industrial development are usually more distinct andseparable than envisaged in Core ADLI.

Japanese industrialization was not basedon silk and tea, and neither the Taiwanese electronics industry nor the Thai
automotive industry relied heavily on the domestic supply of rice.
In Ethiopia, the implementation of Core ADLI is most clearly seen in the leather andleather product industry in which domestic animal hides and skins are procured bytanneries and manufacturers to produce finished leather or final products such asleather jackets and shoes for domestic sales and export. However, even withsignificant expansion in recent years, this industry still remains small.

In 2008/09,

the export value of leather and leather products was USD76 million amounting to
5.2% of total export or 0.2% of GDP (Table 5-2).

Whether this industry will growrobustly to lead broader Ethiopian industrialization is an open question.
133

CHAPTER 5

5-3-2. Enhanced ADLI and policy learning
Although the early formulation of ADLI emphasized the direct linkage between
domestic agriculture and industry, the current thinking of Ethiopian leaders is nolonger confined to the framework of Core ADLI.

While continuing to attach

importance to Core ADLI, other strategic options and relations are also explored topromote industrialization.

The first clear step in this direction was seen in

PASDEP 2005/06–2009/10 in which growth acceleration through commercializationof agriculture and private sector development were highlighted.

Policy targets inthis Enhanced ADLI were not limited to smallholder farmers in rural areas.
Large-scale commercial agriculture 9 (including flower farms), urban micro andsmall producers, medium and large manufacturers, and foreign-invested firms allcame within the purview of Ethiopian industrial policy.

Politically, expansion ofpolicy scope to encompass urban producers can be understood as the government’s
response to include them in the democratic developmental state in the aftermath of
disturbances following the national election in 2005, which revealed the lack ofsupport of urban dwellers for the ruling party.
The current scope of Ethiopian industrial policy is sufficiently flexible that allpolicy options for industrial development, including those not compatible with Core
ADLI, are freely studied and implemented.

For instance, the agricultural sector

can offer surplus labor, agricultural or land taxes, cheap food (wage goods), andforeign exchange and export earnings for the promotion of industrialization.

Theurban industrial sector in turn can transfer resources and technology throughproduction support, food and service delivery, agricultural protection, or public
investment (Figure 5-5).

These transfers may be made directly as well as throughfiscal and financial mechanisms.

Furthermore, industrialization measuresunrelated to agriculture, such as production of steel, cement, and other construction
materials, FDI attraction, and establishment of industrial estates, have also beenpromoted.10910

An Economic Development Strategy for Ethiopia discussed policies for large-scale commercial
agriculture separately from policies for small farms (FDRE, 1994). However, concrete policies forthe former were not activated until the early 2000s.
In the previous version of this paper, the GRIPS team recommended the broadening of policy scope

134

Democratic Developmentalism and Agricultural Development Led Industrialization

Although the policy scope was thus broadened and became more flexible, at least
conceptually and in theory, the Ethiopian government could not immediately
introduce a large number of additional measures to carry out all available policy
options.

Due to the lack of policy capability and experience, industrial measures

had to be introduced in steps and through trial-and-error. In practice, during theperiod of PASDEP 2005/06-2009/10, what the Ethiopian government did mainly
was to select a few export-oriented sectors and provided them with generous policy
attention and financial incentives.

The Industrial Development Strategy (2002)

chose meat, leather, and leather products; agro processing; and textile and garment
as three export-oriented priority sectors (in addition to the promotion of construction
and micro and small enterprises).

Later, floriculture (large-scale production of cutrose for export), an industry which emerged autonomously from the private sector,
was added to the list.
Figure 5-5. Resource Transfers between Agriculture and Industry(Other than Linkages in Core ADLI)

Note: These transfers may be carried out directly, through fiscal mechanisms, or through thefinancial sector.

beyond Core ADLI. However, Prime Minister Meles assured us that the Ethiopian policy scope wasalready much wider and that all possible contributions of agriculture to industrialization were being
considered. He also remarked that the interpretation of ADLI as input-output relations between thetwo domestic sectors only was a caricature of this strategy which was in reality broader and more
dynamic.

135

CHAPTER 5

For promoting these priority sectors, the government has adopted a number ofpolicy tools, measures, and organizational arrangements through self-learning,
dispatch of students abroad, consultation with foreign experts, and technical andfinancial assistance of donors.

They included compilation of policy documents;

the monthly export steering committee chaired by the prime minister; productivity
enhancing tools such as benchmarking, business process re-engineering, and kaizen;
establishment of centers and institutes for priority sectors; creation of new scienceand engineering universities and TVET institutions; installation of federal and local
public-private dialogue mechanisms; public administration reform; building of key
power and transport infrastructure; and strategic mobilization of ODA and FDI forthese purposes. Some of the policy innovations were learned from East Asia,
especially South Korea and Taiwan.

Thus, the last several years was a period ofvigorous policy learning and experimentation by the Ethiopian government (detailsof these efforts are discussed in chapter 8).
One remaining question, perhaps a rhetorical one, is regarding the significance of
ADLI when its policy scope is enlarged this much.

The current policy scope is nodifferent from that of any developing country in Africa or elsewhere.

What is themeaning of ADLI, a concept which is supposed to guide the unique developmental
path of Ethiopia? One possibility is that ADLI is a statement of political assurance
that the interests of farmers and rural communities will never be sacrificed orforgotten no matter what industrial strategy may be adopted by the government.
This may be similar to the use of the slogan of the “Socialist Market Economy” by
the Chinese government, in which capitalism and globalization are embraced
economically while communist power monopoly and effort to improve thelivelihood of workers are firmly maintained politically.

5-3-3. Further expansion of policy scope and measures
At present, the expansion of industrial policy scope and measures is entering a newstage beyond what was envisaged in Enhanced ADLI.

Specifically, there is an

emerging interest in promoting import substitution industries such as construction
materials (steel, cement, and so on), metal processing and engineering, andchemicals and pharmaceuticals in addition to a selected number of export-oriented
136

Democratic Developmentalism and Agricultural Development Led Industrialization

sectors in the past.

This policy shift is clearly observable in discussions within thegovernment as well as among development partners.

The Ethiopian government

regards this as a “shift in emphasis within the same fundamental policy” whereassome call this a directional change in development policy.

At this moment,

however, this movement points only to a general direction without concrete
principles, roadmaps, or action plans.

Specifying these will be the task in theimplementation period of PASDEP II.
One high official of the Ethiopian government stated that the introduction of importsubstitution policy had been discussed within the government for about two years.
Others say that this change was advocated by Prof. Joseph Stiglitz of Columbia
University who regularly advised Prime Minister Meles, Prof.

Dani Rodrik of

Harvard University who visited Ethiopia at the invitation of the World Bank, and Dr.
Justin Lin, the chief economist of the World Bank.

Some speculate that this policy

shift was forced by the need to reduce imports to ameliorate the foreign exchange
shortage that Ethiopia has been facing since 2008.

Thus, there may have been

multiple causes that jointly pushed the industry policy towards the inclusion ofimport substitution.

What is important about this broadening of policy scope,

however, is the fact that it is proposed on the basis of policy learning andexperimentation of the Ethiopian government in the last several years. It is alsointeresting to note that import substitution, whose validity used to be summarily
discredited by the Washington institutions, is now strongly recommended toEthiopia by the World Bank and American economists.11
In the note prepared for the Ethiopian government, Rodrik (2008) argues that, while
Ethiopia’s “first-generation” industrial policies had achieved some success,especially in flower export, there is a need to move towards “second-generation”

11

The World Bank Executive Board approved the Protection of Basic Services (PBS) II, a budget
support type program, for Ethiopia in May 2009 with the condition that the implementation of“directional change” mentioned above be implemented and monitored properly. The PBS I(2006–08), the precursor to this program, was initiated by re-organizing existing general budget
support. PBS II will strengthen the delivery of basic services of local governments through budget
support in the three year period of 2009–11. The International Development Association (IDA) will
provide a total of USD540 million (USD309.78 million of grants and USD230.22 million of loans)and 12 other donors will supplement it with an additional USD737 million.

137

CHAPTER 5

industrial policies aiming at both home and export markets.

The existing industrial

policy of Ethiopia consists of a short list of priority sectors which receive a variety
of incentives.

According to Rodrik, this narrow approach to industrialization has

two limits:
One is that many potentially successful sectors are almost certainly not on
the list.

There are potentially hundreds of different products in which

Ethiopia can be competitive; yet it is hard to think of all of them ex ante.
The most successful sector to date, floriculture, is a case in point.

This isa sector that was brought to the government’s attention—and made thepriority list—only after private entrepreneurs had done the initial
discovery and had come to the government for assistance.

It is easy to

imagine that there are many such industries that government policy fails totarget simply because they are not in its list.

At present, there is no

mechanism in place to actively solicit “new” investment projects that may
lie outside the priority list.
Second, the assistance needed by investors may be highly specific to theneeds of the project in a way that makes it impossible to specify ex ante.
Cheap land and holidays on profits taxes may suit some investors justfine; but others may have different needs.

One firm may need relief on

payroll taxes, another from tariffs on inputs, and a third may want therelaxation of some regulation or legislation. In at least one instance, theprime minister has helped a large pioneer investor by agreeing to change aregulation (on qualification for DBE [Development Bank of Ethiopia]
loans).

But problems such as these are common at all levels, and it isunrealistic to expect that the PM himself can attend to them all.

There iscurrently no mechanism in place to respond to such needs systematically.
(Rodrik, 2008, pp.5–6)
For these reasons, Rodrik proposes the following six revisions to Ethiopian
industrialization strategy: (i) broadening policy scope to include more sectors; (ii)supporting “new” activities for Ethiopia rather than exports; (iii) recognition that
mistakes are both unavoidable and necessary; (iv) broadening the list of policy138

Democratic Developmentalism and Agricultural Development Led Industrialization

instruments; (v) giving incentives and subsidies to “pioneers” only and not
emulators; and (vi) enhancement of lines of communication and coordination withthe private sector.

He also adds that success depends on the change in mindset inwhich industrial policy is regarded as a process of collaboration andproblem-solving with the private sector rather than increasing the number of
incentives or the volume of exports.
Most of Prof. Rodrik’s recommendations are appropriate and supportable. 12
However, it is important to recognize the fact that the proper timing of policy
expansion depends critically on the amount of policy learning.

The proposed shift

from the “first-generation” to “second-generation” industrial policies was hardly
possible around 2003 when the Ethiopian government had just begun to promoteindustries with limited policy capability.

At that time, selecting only a few

export-oriented sectors and using simple measures such as cheap land, tax holidays,
and preferential finance was reasonable because the government did not havesufficient knowledge or resources to conduct full-fledged industrial policies. By now,
many policy tools and insights have been acquired
experimentation and donor support.

through hands-on

Some initial achievements have also been

made in the export of fresh flowers and leather products.

With these records,

Ethiopia is now set to go to the next stage of industrial promotion.

5-4. Concluding remarks
While the Ethiopian pursuit of DD and ADLI is in the early stage of implementationand their details may not be directly applicable to other countries, there are some
general points of interest for all latecomer countries to observe.

Three remarks are

in order.
First, the Ethiopian effort at industrial policy innovation can be understood as an
adaptation of political and economic regimes to the international reality of the early
12

The GRIPS policy dialogue team does not agree with the idea that only pioneer firms should be
provided with incentives and subsidies and not emulators (recommendation (v)) on the grounds thatsuch selectivity is both impractical and unfair. See chapter 6 (section 6-3) for more discussion.

139

CHAPTER 5

21st century.

For developing countries, the basic menu for development policy ismostly the same.

Any country must promote education and training, skills andtechnology, domestic enterprises and industries, agriculture and rural development,
and power and transport infrastructure.

It must also build institutions, laws andregulations, and monetary and fiscal mechanisms that enable these policies.

Inaddition, revenues from natural resources must be properly managed and invested,and problems associated with growth such as inequality, urbanization, traffic
congestion, and the environment must be dealt with. On the other hand, theinternational environment surrounding developing countries changes over time.
The collapse of the Soviet Union in 1991 brought a particularly large shift inexternal conditions.

During the Cold War era, a developing country belonging to

one of the two ideological camps could receive a large amount of economic andmilitary aid without intervention in the management of domestic politics or
economy.

But today, all countries are required to embrace democracy, markets,and globalization.

Without doing so, financial cooperation or full membership in

the international community is not granted.
The Ethiopian development regime of DD and ADLI is different from theauthoritarian developmentalism of South Korea or Taiwan in the 1960s or the
FDI-led industrialization of Southeast Asia in the 1980s and 90s.

This difference

comes mainly from the different international environment in which development
must be pursued and not from different policy goals that Ethiopia has set for itself.
The broad goals of development remain the same across ages and countries, but
Ethiopia has to adjust to the reality of the 21st century so that it can secure arespectable position in the world and sufficient cooperation from donors andinternational organizations.

The combination of DD and ADLI is innovative in thesense that it is a proactive attempt to ignite development with the rejection of the
Washington Consensus and without counting on a large inflow of manufacturing
FDI as in Southeast Asia.

As a poor, landlocked, and resource-less country,

Ethiopia’s initial conditions are unfavorable.

But policy innovation and learning

initiated by Ethiopia—and its outcome—may offer important inspiration for othercountries in Africa.
Second, the success of DD and ADLI critically depends on the concrete steps that140

Democratic Developmentalism and Agricultural Development Led Industrialization

Ethiopia will take in attaining the common policy goals mentioned above.

Amongthese, the two real-sector goals of productivity breakthrough and commercializationof smallholder farmers, on the one hand, and emergence of a strong and broad
manufacturing base not confined to a few export sectors, on the other, are crucial.
The adjustment of political and economic forms to changing global reality alone is
not sufficient to achieve the substance of development, especially a vibrant andcompetitive private sector.

For this, pragmatic policy effort featuring speed,

flexibility, and attention to detail must be maintained for years.
Two factors are required for real-sector promotion.

One is decisive and effective

leadership, which Ethiopia seems to possess at the moment.

However, adevelopmental state heavily dependent on one top leader will become vulnerable atthe time of power transition.

Good policies and policy processes should beinstitutionalized as much as possible to diminish this problem.

The second

requirement is the accumulation of practical knowledge by the ministries andagencies in charge of industrial policy formulation. Proactive industrial policy calls
for far greater knowledge than either laissez-faire or socialist planning.

To interact

successfully with the private sector, officials must share with producers andinvestors up-to-date information on the industries in question.

They must also bewell informed about the pros and cons of concrete measures adopted in othercountries.

Effective channels of public-private dialogue must be established andconcrete international cases must be studied with zeal, with the help of foreign
experts if necessary.
Third, policy learning and expansion of policy scope are dynamically linked in
Ethiopia.

This is a highly laudable feature which we call dynamic capacity

development (Ohno and Ohno, 2008).

In a typical developing country, problems

are many while policy capability is limited.

This makes it difficult to decide whereto start development efforts, and in which sequence and at what speed various
policies should be introduced.

International financial institutions used to demand along list of difficult policy actions to be implemented before a short-term rescue
package was released.

Meanwhile, some experts argued against trying any of theso-called “industrial policies” because the risks of policy mistakes and political
capture were too great.

However, neither type of advice proved to be very141

CHAPTER 5

constructive in breaking the poverty trap.
In recognition of limited policy capability in developing countries, the World Bank’s
1997 World Development Report proposed a two-part strategy that called forconstant effort to be made to improve policy capability while increasingly difficult
policies were to be adopted over time to match the acquired policy capability.
Ethiopia is practicing exactly what this World Bank report proposed.

The only

difference is that the World Bank emphasized general improvements in “rules andrestraints,” “competitive pressure,” and “voice and participation,” while Ethiopia
prefers to improve its policy capability through problem-solving on such concrete
matters as export promotion of leather products and proper selection ofimport-substitution sub-sectors for promotion.

This approach is closer to the

dynamic capacity development frequently seen in East Asia.
With the understanding and endorsement of the Ethiopian strategy that policy scopeshould be expanded gradually in line with policy learning, the GRIPS Development
Forum hopes to provide specific, practical, and concrete information to support theplanned policy expansion through the ongoing three channels of policy dialogue:
Prime Minister, concerned Ministers and State Ministers, and operational levels.

142