Cross-cutting Issues and Organizational Arrangements for Industrialization∗

In the Context of Broadening the Policy Scope in Ethiopia

Izumi Ohno (GRIPS)
Kenichi Ohno (GRIPS)

September 9, 2009

The policy scope of Ethiopia is expanding. In the last few years the Government of Ethiopia has studied thepossibility and desirability of broadening the policy scope for industrialization, and it is now ready to put
this idea into practice. The policy change will be incorporated in PASDEP 2011-2015, which is the national
five-year development plan currently under preparation. The broadening of policy scope is also
recommended by a number of foreign experts1.
Ethiopia’s vision for industrialization is Agricultural Development Led Industrialization (ADLI). ADLI has
been concretized in a series of documents such as An Economic Development Strategy for Ethiopia (1994),
Rural Development Policies, Strategies and Instruments (2001), Industrial Development Strategy (2002),
Sustainable Development and Poverty Reduction Program (SDPRP) 2002/03-2004/05, and A Plan for
Accelerated and Sustained Development to End Poverty (PASDEP) 2005/06-2009/10. ADLI is anindustrialization strategy in which agriculture plays a key role in preparing various conditions forfull-fledged industrialization through the provision of industrial materials, consumption goods (mainlyfood), demand for industrial goods, labor supply, and foreign exchange. The transformation of small
subsistence farming into commercial agriculture is at the center of this strategy.
ADLI shifted from the formulation stage to serious implementation around 2002-2003. In the last several
years, the Government of Ethiopia has concentrated limited human and financial resources on a small
number of export-oriented priority industries. These industries, such as leather and leather products, textile
and garment, food processing, and floriculture, were given generous incentives and high policy attention.
Among these, floriculture, which was not included in the original list of priority industries, has recorded thefastest growth in output and export, followed by leather and leather products—albeit from very low bases.
Meanwhile, the results of the other two priority industries were less spectacular. The Government has also∗This paper was prepared for the bilateral policy dialogue scheduled in early September 2009 between Ethiopia and Japan. It
is based on the information from official documents, a series of discussions and exchange of letters with Ethiopian leadersand high officials, and studies by the GRIPS Development Forum. All responsibility for the content shall be borne by the two
authors.
1
Joseph Stiglitz (Columbia University), Dani Rodrik (Harvard University), and Justin Linn (World Bank chief economist)
are said to have advised in this way. Among them, Rodrik’s note for Ethiopia calls for the following revisions: (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 policy instruments; (v) giving incentives andsubsidies to “pioneers” only and not emulators; and (vi) enhancement of lines of communication and coordination with theprivate sector (Rodrik, 2008). For more on ADLI and the policy shift, see K. Ohno (2009b).

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actively mobilized donor assistance for these industries in the drafting of master plans, strengthening
industrial human skills, leveling up of technology, establishing research and training centers, marketing andbusiness matching, enhancing business associations, and so on. Important tools of industrial policy, such as
benchmarking, business process re-engineering (BPR), pilot projects and subsequent dissemination, andpublic-private partnership, have been learned and implemented. More recently, kaizen has been added tothe policy toolkit.
In all fairness, it can be said that Ethiopia in the last several years has made good progress in earlyindustrialization and can now take up the next round of challenges. Admittedly, past performance has notbeen perfect and a number of unresolved issues remain. For example, the expected emergence ofcompetitive local firms has been slow and inter-ministerial coordination is far from effective. But theGovernment feels that enough has been learned about the tools, roadmaps and pitfalls of industrialization
so that policy space can be enlarged as it formulates the development strategy for the next five years. Morespecifically, Ethiopia from now on will support not just selected export-oriented industries but also otherindustries that mainly supply domestic markets such as steel, cement, glass, metal processing, chemicals,
and pharmaceuticals. In other words, parallel promotion of exports and import substitution is about tobegin.
The GRIPS policy dialogue team strongly supports the expansion of policy scope of Ethiopia accompanied
by enhanced policy capability. This is in line with Dynamic Capacity Development, the idea we put
forward in another paper that internal capabilities should be selectively and strategically built up to attainconcrete industrial objectives rather than generally and randomly (Ohno and Ohno, 2008). It should beemphasized that causality between policy capability and policy scope is mutual. Ethiopia can expand its
policy space because its policy capability has improved but setting new policy goals in turn will require afurther upgrading of policy capability.
It is in this context that the authors wish to raise some cross-cutting issues and discuss organizationalarrangements in industrialization for the review of the Ethiopian authorities. Broader policy space opens up
greater opportunities but it also increases the risks of miscalculation, political capture, wasted resources,
and macroeconomic instability. Policy makers should be fully aware of these risks in advance and takeproper precautions in charting the new policy course. We will conduct this policy dialogue primarily fromthe perspective of high performing East Asia where pro-active industrial policy is widely accepted andpracticed. This does not mean, however, that East Asian good practices are always relevant in Ethiopia. The
validity of each argument from East Asia must be carefully examined, with modifications if necessary,
before applying to the Ethiopian soil.
In the formulation of industrialization strategy, the largest difference between Ethiopia and high performing
East Asia—especially Southeast Asian economies—is the existence in the latter of large inflows of2

manufacturing FDI which generate strong demand for quality, skills, logistics, institutions, infrastructureservices, and the like, in the national economy which determines the kind of policy needed for further
industrialization. But such demand for local capability by FDI firms is largely absent in Ethiopia. Exportorientation does expose local industries to global competition, but export alone does not produce suchstrong and broad pressure for local excellence.
Below we present a number of cross-cutting issues and organizational arrangements as a checklist to
stimulate discussion among policy makers. When concrete ideas and cases are offered, they are meant to bereferences and initial suggestions rather than final recommendations. Our discussion covers the existing
export-oriented priority industries as well as the proposed import substitution industries which are locatedin or near the urban center. Rural industrialization, a topic of great importance in ADLI, is beyond the scopeof the present paper.

Part I. Cross-cutting Issues
In this part, we address six issues that may become important as Ethiopia’s policy capability is raised andits policy scope is enlarged. Each issue contains a few sub-issues which are summarized in a box.

1. Policy framework and structure
1-a. Ethiopia has an industrial vision but strategy, action plan, and review remain incomplete.
1-b. The industrial chapter of the next PASDEP, and the five-year industrial implementation plan to beprepared by MOTI, should state clearly the direction of industrialization strategy in the next five years.
1-c. All three levels of industrial policy (general, responsive, pro-active) should be strengthened.
Industrialization strategy should have the layered structure that runs from general to specific and fromlong-term to short-term. These layers are normally called vision, strategy, and action plan. The vision is along-term goal often expressed in a slogan such as “becoming an industrialized country by 2020” or“attaining middle income by 2025.” The strategy, also called the master plan or the roadmap, is a documentthat typically covers the next three to five years and contains policy principles, priority sectors, time tables,
policy instruments, and so on, to give details on the road to achieve the vision. The action plan is a list or amatrix of concrete actions that must be taken typically within one to three years with clear designation ofaction content, performance criteria, deadlines, and responsible organizations. Furthermore, a review
mechanism (“monitoring and evaluation”) must be installed to ensure implementation and facilitate
necessary adjustments. Review may take various forms including commissioned reports by external experts,
a high-level government committee, and formal or informal internal review by the ministry in charge.

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In Ethiopia, ADLI sets the fundamental direction and the Industrial Development Strategy (2002) states key
principles such as private sector initiative, export orientation, strong state guidance, and so forth, andspecifies priority sectors. Together, ADLI and IDS stipulate the basics of industrialization strategy that canremain valid for a long time beyond the five-year cycle of PASDEP. These correspond to the “vision” andpart of the “strategy” mentioned above. Meanwhile, industrial master plans have been compiled for thepriority industries. Quality and structure of these master plans differ greatly—partly because they reflectdistinct characteristics of each sector but mostly because they were commissioned to different donors withdifferent methodologies. For action plan and review, the monthly Export Steering Committee and MOTI’s
regular contacts with the business community (business associations and individual enterprises) are theinstruments for monitoring implementation, identifying problems and coming up with solutions.
ADLI and IDS are comprehensive and flexible enough to accommodate most policy shifts and therefore
can continue to guide industrialization for a decade or two to come. What is required additionally is thestatement of policy elaborations and adjustments which become necessary every few to several years, suchas the proposed introduction of import substitution, due to changing circumstances and rising policy
capability. Instead of drafting an overall industrial master plan separately, we suggest that the industrial
chapter of the next PASDEP and the five-year industrial implementation plan, which will be prepared by
MOTI after the approval of the next PASDEP, should serve this purpose. To do this, the content of both
documents must coincide, with the one being the executive summary of the other, and must be based on thediscussion and agreement of all main stakeholders in advance. This means that such stakeholder meetings
should be held frequently between now and the completion of the five-year implementation plan. The
industrial chapter of the current PASDEP, as it is written, is not strategic enough to set the medium-term
policy direction.
Over time, the master plans of priority industries should be drafted (if missing) or revised (if they alreadyexist) by imposing minimum common orientation and minimum common structure that reflect the overall
direction of ADLI, IDS and PASDEP but allowing sufficient room for the unique features of each sector2.
Given the limited human and financial resource and donor support, the number of master plans should be
relatively small and perhaps should not exceed ten. They should be drafted for the existing export-oriented
industries as well as the proposed import substitution industries.
To strengthen action plans and review, the current works by the Export Steering Committee and MOTI’s
regular interaction with priority industries should be supplemented by the compilation of standard action
plan matrices for each priority industry which contain actions, sub-actions, performance criteria, deadlinesand designation of responsible organizations. These matrices may be attached to the sectoral master plan or2

The existing master plans for leather and leather products (assisted by UNIDO) and textile and garment (assisted by China),
for example, have very different style and structure. It is suggested that the Government should be involved more deeply in
the initial design of industrial master plans so the minimum level of conformity is ensured. At the same time, requiring all
master plans to have the same chapter structure, as practiced in Vietnam, is going too far in imposing uniformity.

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produced separately from the master plan3. Moreover, there should be a formal mechanism to regularly
review and adjust the implementation of these action plan matrices. For this reason, the action plan and thereview mechanism should be created simultaneously as inseparable and mutually dependent policy tools.
Possible enhancement of Ethiopian industrial policy structure is summarized in Figure 1.

Figure 1. Possible Enhancement of Industrial Policy Structure

Industrialization strategy should properly address three aspects. The first is the establishment of a stable,transparent and business-friendly environment for domestic and foreign investors (i.e., cutting red tapes andleveling the playing field). The second is ensuring quick response to the requirements of the business
community. Whenever there is a need or a problem, the government should act promptly to supply what isneeded or remove what is impeding business activities. Ethiopia has already made significant progress inthese two areas by implementing business process re-engineering (BPR) aggressively in every ministry andagency. However, these aspects are still basic and passive. The third aspect of industrialization strategy is
the creation of dynamic comparative advantage in which pro-active policy makers generate new industrial
strengths and guide investors towards new activities under close coordination with private partners (PPP)
but without necessarily waiting for their move. Such pro-active anticipation and creation of dynamic
comparative advantage is commonly practiced in East Asia but may remain controversial among Western
donors. The disagreement arises from the fundamentally different views about the role of government
vis-à-vis the market in economic development. We believe that pro-activeness is essential for theeffectiveness of industrialization strategy, but it requires deeper knowledge and higher policy capability
than the other two. The industrialization strategy of Ethiopia, consisting of the MOTI’s industrial
implementation plan and sectoral master plans, should enhance all these aspects, especially the last.

2. Past review and future evaluation

3
The standard action matrix format can be seen in the automotive industry action matrices of Thailand and the Triangle of
Hope action plan matrices of Zambia (for improving investment climate). The former are incorporated in the automotive
master plan while the latter are produced as a separate document submitted to the Government at regular intervals.

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2-a. There should be an ex post review of export industry promotion.
2-b. There should be ex ante analyses of proposed import substitution industrialization.
As Ethiopia expands its policy scope from a few export-oriented industries to the inclusion of importsubstitution industries, there is a need to review the past and evaluate the future as soon as practicallypossible in formulating industrial policy orientation for 2011-2015. Review here is different from thereviewing mechanism of action plans mentioned above.
In the last several years, Ethiopia targeted its human and financial resources to the promotion of a small
number of export-oriented priority industries. Promotion tools included cheap land, preference in taxes andimport duties, bank loans, foreign exchange allocation, research and testing facilities, training programs,
close consultation with businesses, quick trouble-shooting, and concentrated use of ODA for these purposes.
The result of this generous policy package should be assessed before Ethiopia takes the next bold step inindustrialization strategy. It is essential to document what has been offered to promote these industries andwhat progress has been made in industrial performance. It is also necessary to numerically compare theexplicit and implicit costs of promotion relative to the direct and indirect benefits that accrued to thenational economy. Although precise determination of these costs and benefits may be difficult, best
estimates should be produced with available information and data. Studies should be conducted for leather
and leather products, textile and garment, and floriculture. For food processing, one or two concrete farm
products may be selected for this purpose.
At the same time, there should be preliminary studies of import substitution industries which will bepromoted during the next PASDEP cycle. For each industry, there should be assessment of domestic
situation, global and regional trends, Ethiopia’s potentials, hurdles and pitfalls to be overcome, and possible
strategic orientation for promoting the industry.
We propose these studies, which should be completed within a few to several months, to help deepen
industrial policy debate in Ethiopia and draft the industrial chapter of the next PASDEP. They should also
be used as preliminary inputs to the subsequent drafting or revision of sectoral master plans and thefeasibility studies to be conducted for import substitution industries (see next section). Since thepreparation of master plans and feasibility studies will take time, these studies should be used to start policy
debate as soon as possible.
Both of these studies—past review and future evaluation—should ideally be commissioned to independentand neutral Ethiopian researchers outside the Government. For each industry, a medium-sized report should
be submitted to the Government and should also be circulated openly and widely. These reports may be
published in one collected volume. The reports should be neither too theoretical nor too narrative. They
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should be sufficiently analytical and contain concrete numbers and estimates.
MOTI should cooperate with the drafting process of these studies by supplying data and information, but itshould not take the lead in determining the content. First, MOTI is too occupied with existing workload.
Second, the self-assessment of industrial policies by MOTI is not nearly as convincing as the assessment ofrespectable outsiders. Third, evaluation of industrial policies by Ethiopian researchers at universities andresearch institutes, rather than government officials or foreign experts, will contribute to the strengtheningof local research capability and the building of constructive relationship between the Government and theAcademia (as we see in Tanzania, for example). The Ethiopian Government needs to foster its ties withlocal academics to strengthen its own capacity to design and implement industrialization strategies in the
future. Assistance by donors and foreign experts may be sought if necessary, but again they should not
dominate the outcome of the report.

3. Time dimension of industrial promotion
3-1. Industrial promotion must always be temporary with pre-announced graduation schedule.
3-2. Time-bound support measures should be available to all producers, whether pioneers or copycats.
3-3. A long-term liberalization roadmap should be prepared in anticipation of WTO accession.
Industrialization strategy must balance the requirement of international integration with the requirement oflocal industry promotion. Policy makers must give proper weights to liberalization and integration vis-à-vis
the amount and duration of support to local firms so that the policy package as a whole generates strong
incentive for producers to work hard rather than shut down their factories or resort to political lobbying.
Opening the country without regards to domestic private capability is suicidal. Protecting local industries
without the prospect of graduation is equally disastrous. Striking the balance between international
competition pressure and local industry promotion is a delicate matter whose concrete solution must be
discovered for each industry in each country.
Another fact about industrialization strategy is its temporary nature. Industrial promotion can never bepermanent—if it is it means that the policy has failed. Priority industries may receive generous assistancefor a time but not forever. The typical duration of intensive promotion is several years but it may be shorteror longer depending on the case. Promotion must end when it becomes clear that the industry has
succeeded in gaining international competitiveness or that it has failed—in either case additional supportcannot be justified. Ideally, the duration of industrial promotion should be pre-announced and strategicallylinked to the internationally committed liberalization schedule of that industry. Promotion must be
terminated when the time comes regardless of success or failure of that industry. As Prof. Rodrik remarks,
the Government must accept the fact that mistakes are unavoidable in industrial policy and that not all
supported industries can be winners (see footnote 1).
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Previously, Japan and Korea adopted the infant industry promotion strategy in which temporary tariff
protection shielded domestic firms until they gained international competitiveness. In the world of the early
21st century, however, latecomer countries are no longer allowed to use heavy protection to promote
domestic industries. This does not mean that industrial promotion is no longer possible, but it does meanthat promotion must take a different form. There exist a large number of measures for strengthening
industrial capability without violating any international commitments—such as education and training,technology transfer, public-private partnership, SME promotion, development finance, efficient logistics
and distribution, industrial estates, FDI marketing, and reliable power and transport. None of the policy
measures we discuss violates WTO or any other international rules.
In Ethiopia a few export-oriented industries have enjoyed incentives and subsidies in the last several years.
In addition, MOTI has worked very closely with industry associations and individual firms in the priority
industries to assess business strategies, report monthly exports, mobilize donors’ assistance, conduct
benchmarking, trouble-shoot problems, and so on. Young officials in the Textile and Leather Development
Center of MOTI, who routinely visit member firms in these sectors, seem to know the ins-and-outs ofstrategies and problems of individual firms. In the early stage of industrialization such intensive public
support and guidance is laudable. But at some point, perhaps relatively soon, private firms must graduate
from this heavy dose of guidance and assistance and make their own business decisions at their own costand risk. Technical and financial aid from the Government and donors should be reduced in appropriate
steps. The (revised) master plans of these industries should have a chapter to discuss such graduation.
One related issue raised by Prof. Rodrik is how to allocate industrial support measures among producers.
He argues that incentives and subsidies should be given only to “pioneers” who start “new activities” (inthe context of Ethiopia) but not emulators who follow pioneers without taking risks themselves.
The key developmental question that a prospective investor needs to be asked before granting him
incentives is not whether his project is export-oriented, but whether it is new to the Ethiopian
economy—either a product not previously produced in Ethiopia or a significant technologicalupgrading of an existing product... It is the pioneer firms that bear the cost of discovery—can aparticular activity operate profitably in Ethiopian conditions?—and of putting Ethiopia on the
global radar screen of investors. So it is they who need the subsidy, and not the followers who
simply emulate the success—if success is what they experienced—of the pioneers. Crudely put, the(rhetorical) question is whether the 91st firm investing in flowers still needs a tax break. (Rodrik,
2008, pp.6-7)
While this argument may have some theoretical merit, we do not think it is practical or fair. In reality it isadministratively impossible to determine who is pioneering and who is not. Mere order does not tell us theamount of new value created or new risks taken, because the tenth investor may well be crucial rather than
the first. If support is given only to the first x investors, this will spawn distorted incentive to go first and8exclude others regardless of whether the first movers have proper managerial and technical capability. Sucha race for initial privilege is called license hunting and encourages rent seeking and cartelization. The
Ethiopian Government does not have the capacity to rank firms according to the amount of value created,and even if it did it should not waste its precious time and human resource for such ranking.
Industrial promotion measures must be available to all producers that satisfy the announced criteria
defining eligible activities whether they are the first investor or the 91st. As argued above, support
measures must be time-bound and phased out after a number of pre-specified years. But while thesemeasures last, all eligible producers should be able to access them. In fact, this is the only administratively
manageable and politically acceptable way of conducting industrial promotion in a low-income developing
country. If further selection is desired, support may be linked to some readily recognizable performance
criteria (such as output or export volume) so that competition among producers may be engendered.
However, this type of industrial policy is a fairly advanced one and should not be attempted by agovernment without high capability, transparency, sufficient toolkit, and strong trust and constructive
cooperation with the business community.
In the medium to long run, there should be an overall industrial master plan (in addition to those forindividual sectors) with mutually consistent industrial promotion schedule and international integration
schedule. The timing of WTO entry must also be an integral part of this roadmap. Negotiations for WTO
accession are very complex and time consuming. Moreover, large existing members of WTO tend to
impose unreasonable opening conditions which they themselves do not abide by on small new members. As
a result, most negotiating governments become too pre-occupied with document preparation, legal
adjustments, diplomatic battle, and the like, and forget about building linkage between industrialization
strategy and integration strategy. But this is a big mistake. Trade liberalization with a deadline is achallenge as well as an opportunity for industrial promotion. To effectively cope with this challenge andopportunity and make WTO accession meaningful for national development, there must be a clear roadmap
for industrial promotion in advance.
The literature on the order of economic liberalization informs us that there is a proper sequence ofliberalization that must be followed to avoid macroeconomic crisis. Liberalization must start with domestic
markets such as local goods, services and labor. Then it must be followed by the liberalization of domestic
finance. Capital-account liberalization must come at the end when all domestic markets are liberated andfunction reasonably well (McKinnon, 1993). Another important lesson from the developing world is that
resilience of the real-sector economy such as growth potential, structural diversity and regional integration
can greatly enhance the capacity of the national economy to withstand global shocks under integration.
Ethiopia’s liberalization schedule must have a proper macroeconomic sequence and must be synchronizedwith the progress of its industrialization strategy.

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4. Import substitution
4-1. Import substitution must avoid the risks of policy misjudgment and political capture.
4-2. Technical details are key to the success of import substitution. A high-quality feasibility study (F/S) or
master plan should be prepared for each import substitution industry to be promoted.
As Ethiopia embarks on import substitution, we would like to draw the attention of Ethiopian authorities to
its well-known risks. All arguments in the previous section regarding the temporary nature of promotion
apply to import substitution. In addition, even greater precaution must be taken because import substitution
is a more risky policy area than export promotion.
Import substitution is more risky than export promotion because the Ethiopian Government can regulatedomestic markets more easily than global markets. It can restrict entry, use subsidies and taxes that affectprices and profits, and introduce standards for quality, safety, environment, and so on, that also influencebusiness outcome. While exporters can hardly lobby for larger overseas markets or higher commodity
prices, producers that sell domestically can often ask the government to do something about their plight. To
the extent that the government has policy instruments to directly affect domestic markets, importsubstitution is more subject to policy misjudgment and political capture than export promotion. And this isprecisely why neoclassical economists dislike import substitution. Although import substitution may be a
beautiful idea theoretically, they contend that it cannot be implemented effectively because (i) the
government does not know the right industries to promote; and (ii) the policy will surely be captured bypolitical interest groups. Anne Krueger, the former World Bank chief economist and the champion of tradeliberalization, states:
The problem with the [infant industry] argument, as a basis for policy, is that it fails to provide any
guidance as to how to distinguish between an infant that will grow up and a would-be producer
seeking protection because it is privately profitable… The infant industry argument also is an
excellent example of a theory that is nonoperational because criteria for bureaucrats to identify
cases have not been put forward (Krueger, 1997, p.12)
No matter how careful economists are, special interests always will seize their research results insupporting their own objectives. And, no matter how sophisticated and careful research findings are,there always will be politicians formulating, and non-economists administering, policies. (ibid,
p.19)
Today the neoclassical ideology is no longer dominant as before and few would support Krueger’s extreme
pessimism over the capacity and intention of the government. Furthermore, as mentioned above, industrial
promotion in our age is conducted with an array of WTO-consistent policy instruments rather than hightariffs and non-tariff barriers. Even so, the risks highlighted by Krueger are real and should not be ignored.
Where we should differ from Krueger is the policy conclusion. We know that both market and government
are imperfect. The fact that bureaucrats may not know the selection criteria and policy may be hijacked by10

rent seekers should not lead us to entirely abandon import substitution. We should proceed with utmost careto avoid these obvious risks. Policy capability is not given but can be improved over time.
Policy misjudgment must be minimized by sufficient learning in advance and readiness to give up failed
support in actual implementation. Ethiopia should study the nitty-gritty of each targeted import substitution
industry to reduce expectable risks and wastes prior to the approval of concrete projects or promotion
measures. A good feasibility study (F/S) should be conducted and a good master plan should be prepared byexperienced experts for each targeted import substitution industry. Political capture must be prevented bystrong leadership that punishes rent seeking and encourages value creation. Democratic developmentalism(DD), the political regime adopted by the Ethiopian Government for national development, aims toinstitutionalize precisely such a policy orientation. As long as this policy direction is firmly in place,
Ethiopian economic policy is less likely to be captured into endless protection of inefficient industries.
Take the steel industry, for example. It is widely known that promoting the steel industry in latecomer
countries is not an easy task (Kawabata, 2007). The steel industry consists of a wide range of activities
from the cottage industry of long bar rolling with primitive technology to integrated steel mills withgigantic scale and frontline technology. Production is broadly divided into long steel and flat steel, eachwith many upstream and downstream processes. Each process in turn can be performed by various
technologies and equipments with certain merits and demerits. The market is subdivided into high quality,
medium quality and low quality products, each requiring different investments and technologies. The
quality of raw materials (iron ore, cokes, scrap metal, etc.) largely determines the quality of output, whiletransport and logistics determine cost competitiveness. The demand size relative to efficient equipment
capacity, the state of competition, and world business cycles are crucial determinants of profitability.
Reduction of operational waste and down-time also contributes greatly to high yield and low cost.
Environmental concern must be addressed as a matter of high priority. The role of government differs fromone process to another, and should diminish over time as private firms grow and become competitive.
In such a complex industry, financial outcome depends crucially on the right choice of details—technology,
production capacity, equipment type, input procurement, mill location, forward and backward linkage,factory management, training, targeted markets and customers, timing of investment, taxes and tariffs,
finance, and so on. In Vietnam, for example, the nation’s first modern flat cold rolling mill in Phu My could
not supply to FDI customers such as Sanyo, Honda and Yamaha because it did not have the right equipment
for surface treatment and marketing was insufficient to meet customer needs. Hoa Phat, a local private
business group, purchased a cheap electrical furnace from China to produce billets (intermediate input forsteel bars and wire rods) but it later found out that the furnace capacity was too small for efficient operationand cost reduction. An enormous amount of money can be wasted and bankruptcies can soar if thesetechnical details are not set right.

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Before Ethiopia begins to promote the steel industry, the current status of the domestic steel market should
be grasped with respect to material flows (input-output relations among processes), quality and technology,
market segmentation, transport and logistics, operational efficiency, and so on. The compilation of amaterial flow chart, as shown in Figure 2 for Vietnam, is the very first step for this purpose. In manylatecomer countries experiencing construction booms, demand for construction steel (bars, wire rods,
galvanized flat steel) is very strong while domestic supply is limited. While a few rolling mills may
spontaneously emerge, the import bill for billets and finished construction steel surges. In the early stage,
the steel industry should develop from long steel to flat steel, from downstream to upstream, and from low
quality to medium quality. Another lesson from East Asia is the importance of steel market intermediaries,
such as “coil centers” for flat steel and steel bar processors for long steel, in creating an efficient supply
chain of the industry.

Figure 2. Material Flows of the Vietnamese Iron and Steel Industry, 2005

Source: Kawabata (2007), p.9.

The government should not invest directly in production facilities but manage markets and private investors(both local and FDI) to minimize inappropriate investments, cope with external shocks, and stabilize themarket as much as possible (the global steel market is inherently unstable so it is impossible to eliminate all
shocks and fluctuations). The history of the steel industry shows that private investments cannot always be
regarded as efficient or environment-friendly. Many mistakes can be made in large and indivisible
investments in steel. Oftentimes, too many investments are made with too small size and unwanted
technology to overcrowd the market and damage environment. The government must acquire sufficient12capability to monitor and regulate private investments in the early stage of steel development.
The above is just a sketch of some of the problems in steel industry promotion. Full details must be given ina thick F/S report or a master plan prepared by experienced steel experts. The same can also be said for any
import substitution industry other than steel. If a full F/S or a master plan takes too much time, apreliminary study should be organized as a starter as suggested in Section 2 above4.

5. Industrial clusters and corridors
5-1. There are many definitions of industrial clusters and corridors. Applicability of each to Ethiopia should
be carefully examined.
5-2. The idea that related projects and programs should be implemented collectively in certain geographicalareas is useful in building agro food parks and other industrial zones.
The concept of industrial cluster, as practiced in policy formulation, can be classified into several different
approaches:(i) Innovation through interaction between top-level researchers and businesses—proximity of hightech firms and top-level research institutes or universities, under an effective local leader, is
expected to generate new products or even a new industry. Michael Porter’s cluster approach andthe industrial cluster initiative of Japan’s Ministry of Trade, Economy and Industry (METI) belong
to this category. Commercialization of advanced technology is anticipated. Silicon Valley in
California and Zhongguancun in Beijing are typical examples.
(ii) Agglomeration of related firms for effective inter-industry linkage—producers with input-output
relations, such as buyers-sellers and assemblers-part suppliers, gather to enjoy efficient trading,information sharing, and sharing of input and output markets. Kuchiki (2007)’s “flow chart
approach” is an attempt by policy makers to establish an industrial park, provide local capability
and infrastructure services, and invite an anchor firm and a multitude of suppliers. To succeed, thisapproach must be accompanied by incentives, training, FDI marketing, FDI-local firm linkage,technology transfer, and so on.
(iii) Concentration of small producers belonging to the same industry—this kind of clusters,
consisting of small and family enterprises, often emerge spontaneously in both urban and rural areas.
Trade villages specializing in shoe making, ceramic production, etc. are such examples. According
to Sonobe and Otsuka (2006), these clusters typically evolve in three stages: initiation, quantitative
expansion, and productivity breakthrough.
(iv) A broad definition of industry which includes supporting industries and supporting services—inthe cluster-based industrial development strategy in Malaysia’s Industrial Master Plan 1996-2005
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MOTI created the master plans (the “strategic plan” and the “business plan”) for chemicals (mainly soap and detergent) andpharmaceuticals in 2007. Strategic studies and documents also exist for cement and paper and pulp. Drafting was done by
Ethiopian experts with occasional help from the German ECBP program. Our team is in the process of obtaining andevaluating these documents.

13

(IMP2), an industrial cluster is defined to be “an agglomeration of inter-linked or related activities
comprising industries, suppliers, critical supporting business services, requisite infrastructure andinstitutions” (IMP2, p.23). This is a functional agglomeration which may not be necessarily locatedin one small geographical space.
(v) An industrial estate—sometimes the term industrial cluster is used synonymously with anindustrial estate (an industrial park, a special economic zone, an export processing zone, etc), a
delineated area with rental plots and necessary infrastructure which is developed and operated by a
private or state-owned management company5.
The related concept of industrial corridor also has different meanings:(vi) Building international transport infrastructure—this typically involves the construction of aroad which usually connects hinterland and landlocked countries with a sea port. Development
programs and private investments may follow the construction of such a road, but not always.
(vii) Asian Industrial Corridor Initiative—the Japanese METI is launching an initiative to create
new cross-border industrial regions in Southeast Asia and India by consciously combining transport
infrastructure with other policy components such as public-private partnership, efficient logistics,
human resource development, electronic trading, speedy customs clearance, etc. in comprehensive
regional development planning.
(viii) Food processing industry zones—in Ethiopia, the term growth corridor is used as an idea tolink agro-ecological potentials with infrastructure and markets, including the building of several
industrial zones specializing in food processing in rural areas or near local cities.
Since industrial clusters and corridors have many definitions, the user of these terms should be careful not
to mix different meanings. Some of them are useful for Ethiopia’s industrial development but not others. (i)and (vii) are too advanced for Ethiopia’s reality. (ii) can serve as a reference in building industrial zones toreceive FDI firms, but perhaps in a smaller scale than in East Asia. (iii) is useful in formulating SME policy.
(vi) gives another entirely different perspective on development along a transport corridor such as the
Djibouti-Addis Ababa highway.
In Ethiopia, the establishment of integrated agro food parks, proposed in the food processing master plan
draft, may take advantage of some of these concepts selectively. The idea that regional development must
integrate all related programs by different ministries and donors into an organic whole is a sound one.
Policy coordination required for this initiative should be provided jointly by MOTI and MOARD.
The concept(s) of industrial clusters and industrial corridors most useful for Ethiopia’s development
strategy should be identified, modified (if necessary), and integrated into the next PASDEP. Industrial
estates for local investors and those aimed at inviting FDI generally require different conditions. While both5
In Vietnam, the term cum cong nghiep, which translates as industrial cluster, means a small industrial park withoutboundary fences. This terminology is creating confusion when Vietnamese officials and researchers discuss industrial
cluster-based development strategies.

14

may commonly require good administration, land preparation, access road, power, water, and reliable labor
supply, local investors may need more managerial, technical and financial support while harnessing FDI
dynamism may require strategic FDI marketing, an appropriate incentive package, quick and low-costaccess to global markets, and so on. Specific requirements also differ from one industry to another and evenfrom one FDI firm to another. A development strategy should be drafted with these different requirements
in mind.

6. SME promotion
6-1. SME promotion should clarify targeted firms and activities.
6-2. SME promotion policy with clear targets and based on relevant international experiences should becreated and strengthened as the key component of industrialization strategy.
SME promotion is a very popular industrial policy tool around the world but its content and results differ
greatly across countries. Most countries produce little result because they fail to identify proper goals andlack concrete knowledge of how to conduct effective promotion. Ethiopia’s SME policy also remains
underdeveloped. Its goal must be re-defined with clarity and concreteness and its policy instruments andmechanism must be strengthened by learning selectively from successful countries.
The objectives of SME policy can be broadly divided into the generation of income and job opportunities
for the general population (poverty reduction) and the selective support of excellent SMEs to become
creators of internal value and competitors in global markets (competitiveness). Both of these objectives areimportant and may be pursued in parallel, but the goals, strategies and instruments they require are
significantly different and should not be mixed.
In Japan where both large enterprises and SMEs are historically well developed, the purpose of SME policyin the post WW2 period shifted gradually from the protection of SMEs against exploitation by large parent
firms to the encouragement of innovation by SMEs as a source of global competitiveness. Japanese policy
instruments and mechanisms are highly complex, combining multiple channels for PPP, participatory
policy making (“deliberation councils”), technical assistance, financial support, repeated consultation, andso on. Probably this model is too difficult for most developing countries to adopt initially.
In Malaysia and Thailand, where the economy is highly industrialized but dominated by FDI firms inelectronics, automobile and other machinery industries, the main policy goal is to increase internal value
and replace foreigners with local managers, engineers and designers. SME promotion is at the core of thisstrategy, together with R&D, education, technology transfer, national brand creation, etc. The Small andMedium Industries Development Corporation (SMIDEC), the lead agency for SME promotion in Malaysia,
has a large number of grant and loan programs for SMEs that implement concrete and verifiable activities
15

to improve productivity and expand business. Although different from the Japanese approach andinstitutionally much simpler, we consider the Malaysian programs as one of the best SME policy packagesin the world. They are clearly aimed at boosting international competitiveness and not poverty reduction.

Table 1. Malaysia’s SME Support Programs(Small and Medium Industries Development Corporation)

Eligibility

GrantsSoft loans
Selection
Monitoring
Industrial
Linkage
Program

Enterprises with more than 60% local capital, with annual sales lessthan RM25m, employees less than 150.
Provided for industrial linkage, business planning, product and process
improvement, logistic services, overseas marketing, obtaining quality
certification, improved packaging, design, labeling, halal products, etc.
Provided for factory relocation, ICT, etc.
“Concept papers” submitted by enterprises are evaluated by SMIDEC
within 14 days and benefits disbursed within 20 working days.
Proposed actions are monitored after 3, 6 and 12 months, and benefits
may be withdrawn if they are not implemented.
Database of 18,000 companies; annual matchmaking events with theparticipation of over 250 local suppliers and MNCs; pioneer status with
100% tax exemption for five years and other tax privileges.

Source: K. Ohno, ed. (2006), Industrial Policy Formulation in Thailand, Malaysia and Japan, Vietnam
Development Forum, Publishing House of Social Labor, Hanoi. Also see www.smidec.gov.my/index.jsp.

In a poor agricultural country where industrial development remains primitive and FDI absorption islimited, SME promotion covers virtually the entire industrialization strategy because almost all producers
are micro or small. The term SME promotion may be too broad and ambiguous for such a country. Goals,
targeted firms, and policy instruments for such promotion must be realistic and relevant to the local
situation, and must be quite different from those in more advanced countries.
Ethiopia’s SME policy needs to target both poverty reduction and international competitiveness. These two
directions are in principle separable, and should be drafted and implemented as different strategies. The
first package, which should be available to all eligible enterprises in urban or rural areas, must provide
general support such as elementary management, technology, accounting, information, marketing, etc. The
second package should be designed more strategically and offered conditionally only to those enterprisesthat demonstrate willingness and potential to excel, with an appropriate monitoring mechanism. It isnecessary to re-define and re-classify SME promotion into separate policy components whose
responsibilities should be assigned to different organizations (ministries and agencies). For each, legal andpolicy frameworks, executing and supporting organizations, industrial human resource development,
management and technology assistance, finance, and enterprise matching and marketing should beclarified.

16

At present, FeMSEDA’s workshop programs are mainly directed at nationwide poverty reduction while theworks conducted at the Textile and Leather Development Center, the Leather and Leather ProductsTechnology Institute (LLPTI), and the Textile and Apparel Institute (TAI), with donor assistance, aredirected at producing excellence.

Part II.

Organizational Arrangements

Part II gives concrete examples of organizational arrangements and related policy instruments in selected
countries in East Asia—Japan, South Korea, Malaysia and Thailand. Different countries adopted different
organizational solutions to facilitate industrial policy making. The type of leadership and its effective
alliance with the technocrat team were crucial determinants of each country’s organizational arrangements.
Special attention will be paid to the two closely related issues of inter-ministerial coordination andstakeholder involvement. We will also examine how these countries executed high-priority programs. Whilethese examples may not be transferred directly to Ethiopia because of different backgrounds, it is hopedthat they will provide concrete suggestions about organizational arrangements from which Ethiopia canselectively adopt.

1. Leadership and the technocrat team
One of the key ingredients of the “East Asian Miracle” was alliance between the leader and the technocrat
team (Campos and Root 1996, Ohno and Shimamura 2007). In all of the countries examined here, thoughwith varying degrees of success, there were (i) a visionary leadership which led long-term national
development, (ii) a team of competent economic technocrats responsible for economic policy making andimplementation, and (iii) institutionalization of inter-ministerial coordination and government-business
partnership. Central coordination mechanisms were created in the government machinery for formulating,
implementing and monitoring development policies (Kondo 2005).
It is also important to note that high-performing economies in East Asia did not possess strong institutionalbases at the beginning of their rapid development. Capability and institutions were strengthened during(and not before) their high growth periods. East Asian experiences confirm that state-building is a dynamic
process in which the government has to build up industrial policy capability through focused hands-on
efforts in the process of industrialization.
There were significant country variations in leadership type, functions of the technocrat team, andapproaches to the sharing of development and industrial visions. Table 2 summarizes these differencesamong Japan, South Korea, Malaysia, and Thailand in their respective high growth periods.

17

Table 2. Alliance between Leadership and Technocrat Team in East Asia
Leadership
Type

Technocrat
Teams

Development &Industrial Vision
Formulation

Japan
Organizational(late 50s- leadership
70s)

MOF, EPA, MITI
(super-ministry
for industrial
policy)Economic and physicalplans for vision
sharing; industryspecific policies

S. Korea Strong personal(60s-70s) leadership

EPB (superministry)

5-year plans and plans
for targeted industries

Malaysia Strong personal(80s-90s) leadership

Prime Minister’s
Dept. esp., EPU(super-ministry)

Vision 2020, 5-yearplans; and Industrial
Master Plans (IMP)Thailand(80s)

Core macroeconomic
agencies (nosuper-ministry)

5-year plans; noindustry-wide plan(except after financial
crisis)Organizational
leadership

South Korea and Malaysia had strong personal leadership. President Park Chung-hee of South Korea (inpower 1961-79) and Prime Minister Mahathir bin Mohamad of Malaysia (in power 1981-2003) werecharismatic leaders. They imposed national goals, exercised strong control, and became the driving force ofnational development and institutional building. The Economic Planning Board (EPB) of South Korea andthe Prime Minister’s Department (the Economic Planning Unit (EPU) in particular) of Malaysia functioned
as super-ministries to centrally coordinate the formulation, implementation and monitoring of vision
documents and development plans. These super-ministries were technocratic arms to realize leaders’visions.
By contrast, organizational leadership was salient in Japan and Thailand. There was no charismatic leader
who ruled for a long time and there was no single super-ministry in either country. A number of key
economic ministries and agencies worked closely together to formulate the vision in collaboration with
political leaders, which was concretized into various plans and policy measures. In Japan, economic
technocrats and businesses shared the idea of industrial catch-up based on economic nationalism. While anumber of economic ministries participated in policy making, the Ministry of International Trade andIndustry (MITI) played the lead role in coordinating and supporting private sector activities. In Thailand,
linkage between macroeconomic agencies and real-sector line ministries was relatively weak, preventing
the formulation of effective industrialization strategies. However, close coordination among coremacroeconomic agencies provided a stable economic environment conducive for promoting private-sector
led growth6.
Regardless of such variations in leadership, the governments of successful East Asian economies
6

Organizational leadership refers to “mission-driven control” by powerful groups or organizations, in contrast to“goal-oriented control” by a charismatic figure (Kondo 2005). In Thailand, the Thaksin administration (2001-06) introduceda charismatic top-down approach based on new public management, but this short period was generally considered an
exceptional case in the political history of Thailand.

18

institutionalized government-business interactions for information sharing and policy coordination (Weiss
1998, Weiss and Hobson 1995, Kondo 2005). This created large flows of high-quality information between
the government and businesses and enabled effective management of policy networks, which together
contributed to the building of mutual confidence, credible commitments, and predictability between the
public and private sector. Moreover, the nature and intensity of government-business coordination has
evolved over time as the private sector improved its capability (see section 3 for Korea’s HCI drive).

2. Mechanisms for inter-ministerial coordination and stakeholder involvement
Industrial development has multi-sectoral dimensions, involving not only industrialization strategy in the
narrow sense but also agriculture (inputs and markets), infrastructure, skill development, science andtechnology, environment, and so forth. Moreover, unlike the social or infrastructure sector, the industry
sector is not public-expenditure intensive. Since private agents are the main counterpart of industrial
strategy making, consideration must be given to not only budget allocation but also providing incentives
and the regulatory framework conducive to business activities7. For these reasons, effective industrial
policy formulation and implementation requires: (i) inter-agency coordination mechanisms; (ii)constructive and continuous contacts with businesses; and (iii) mechanisms to frequently review andflexibly adjust policy implementation.
Not all East Asian governments had industry-wide policies or overall industrial master plans. Regardless ofthe existence of such documents, the governments of successful economies all devised centralizedmechanisms for inter-ministerial coordination and instruments for government-business partnership forindustrial policymaking and implementation. They included deliberation councils, steering committees at
the national or sectoral level, working groups, special task forces, government-business forums, andindustry-specific or function-specific institutes. The following accounts give concrete examples oforganizational arrangements and instruments adopted by selected East Asian countries.

2-1. Japan: MITI and the use of deliberation councils in a bottom-up approach
Japanese economic ministries in the late 1950s to the 1970s included the Economic Planning Agency (EPA)
under the Prime Minister’s Office, the Ministry of Finance (MOF), and the Ministry of International Tradeand Industry (MITI, currently the Ministry of Economy, Trade and Industry) which collectively assumed
the primary role in formulating medium- and long-term national visions and economic plans. In addition,
the EPA and, subsequently, the Land Agency (established in 1974) under the Prime Minister’s Office
formulated spatial plans which included corridors, industrial zones, and land and regional development
7

This applies to the productive sector in general, including agriculture. Based on similar analogies, Mick Foster, proponent
for Sector-Wide Approach (SWAp) and new aid modalities such as budget support, pool fund, and so on, recognizes thedifficulty in introducing agricultural SWAp in Sub-Saharan Africa compared with SWAp in the health and education sectors(Foster, et. al. 2001).

19

plans. Responsible ministries or agencies organized deliberation councils whose members consisted ofrepresentatives from other ministry officials, business leaders, experts and academicians. In Japan,
deliberation councils functioned as the key instrument for vision making, policy consultation andcoordination, and information sharing within and outside the government.
Based on a shared vision and shared policy directions, MITI assumed full responsibility in industrial policy
formulation and implementation. According to Okimoto (1989), MITI was the de facto super-ministry forindustrial policy. Compared to the more fragmented industrial policy making mechanism in the UnitedStates, MITI was distinctive in: (i) having very broad jurisdiction over many industrial and functional
sectors from small and medium enterprises (SME) to basic industries such as petroleum and steel,international trade, and even environmental protection; and (ii) having both vertical (industry-based) andhorizontal (functional or cross-industrial) bureaus (Figure 3).

Figure 3. Japan: The Structure of the Ministry of International Trade and Industry

MITI
Minister

Source: Adapted from D. Okimoto (1989)
Figure 3.2 p.117

Attached Organizations
and External Bureaus

Main Bureau

Politically appointed VM
Administrative VM
Deputy VMs
Special assistants

Minister’s Secretariat(incl. Research & Statistics)
Int’l Trade Policy Bureau
Int’l Trade Admin. Bureau
Industrial Policy Bureau
Industrial Location &Environment Protection Bureau
Basic Industries Bureau
Machinery & Information Industries
BureauConsumer Goods Industries Bureau

Deliberation Councils
Industrial Structure
Export Insurance
TextilePetroleum
Electrical Works.........

Agency of National Resources＆Energy
Patient Office
SME Enterprise Agency
Agency of Industrial Science& Technology
Trade & Investment Training
Other(*) Industrial Structure Council:
influential in the 60s (18 special
committees): industrial pollution,
int’l economy, consumer economy,
heavy industry, chemical industry, etc.

Int’l Trade Transaction
Industrial Location & Water
Product Safety & Household Goods Quality Indication
Aircraft & Machinery Industry
Traditional Crafts Industry...................

Deliberation councils were extensively used by MITI as a policy making instrument. Deliberation councils
were managed by a secretariat staffed by MITI officials. With members from private businesses,
deliberation councils provided a forum in which the government and businesses met and discussed policy
issues and business trends, promoting consensus-building (World Bank 1993). Moreover, the structure ofdeliberation councils reflected both vertical and horizontal bureaus within MITI, which contributed toenhancing MITI’s capacity to aggregate diverse interests (Okimoto 1989). Among deliberation councils, theIndustrial Structure Council, established in 1964, was most influential as it managed the industrial policy in20

its entirety by the participation of representatives from the public and private sectors (Johnson 1986). The
Industrial Structure Council drafted a vision for industrial policies for each decade. It published the visionof Heavy and Chemical Industry (HCI) in the 1960s, knowledge-intensive industries in the 1970s,
creativity and knowledge-based industries in the 1980s, and better quality of life in the 1990s (Kawakita
1991). It also discussed measures to support pioneer industries and ensure the transition of sunset
industries.
Japan’s policymaking process was characterized by the bottom-up approach, in which policy formulation
started with MITI’s junior officials gathering and analyzing data and information and conducting intensive
hearings from various stakeholders, especially the business community (Figure 4). Collected information
served as the basic input to subsequent discussions at the subcommittee and the deliberation council which
respectively drafted and finalized policy recommendations. Throughout the process, deputy division
directors (officials in the mid-thirties) were at the center of communication flows both inside MITI andbetween MITI and the private sector, and thus had a considerable voice in determining the policy direction(Okimoto 1989).

Figure 4. Japan: MITI’s Deliberation Council and Policy Formulation (late 1950s-early 1970s)
Conduct survey;
compile data

MITI junior staff
study group(Prepare draft)

MITI Research group(subcommittee)(Feedback)

Hearing:
Learned individuals
Interested parties
Overseas employees
Local representatives
Others
Outside lecturers(Briefings, subcommittees’ reports)

Deliberation council(Report)Public relations:Publications
Explanatory meetings
Lectures
Others

Source: Ono (1992)

2-2. South Korea: the super-ministry and the top-down approach
During the 1960s and the 70s, President Park Chung-hee exercised strong personal leadership. This was a
top-down approach to economic policy making, implementation and monitoring (Figure 5). The Economic
Planning Board (EPB), created in 1961, was designated as the super-ministry integrating development

21

planning, budget control, aid management, overall policy coordination, and monitoring8. Headed by the
Deputy Prime Minister who chaired the Economic Minister’s Council and directly reporting to the
President, EPB was above other ministries and agencies. Policy research institutes also played an importantrole in producing analyses on long-term issues with specialized knowledge and expertise. Among them, theKorean Development Institute (KDI), established in 1971, assisted EPB in formulating medium- andlong-term economic policies9.

Figure 5. South Korea: Development Vision and Government-Business Partnership (1960s-70s)
President(Blue House)Economic
SecretariatsState Council

Five-year plan

KDI
- Policy analyses

Chaired by Deputy PM

Economic Minister’sCouncil

EPB
Deputy PM- Development planning- Public investment planning- Budget- Monitoring- Aid management

Govt.-BusinessMeetings:- Export promotion- Economic briefs- HCI drive, etc.







MCI

Business FinanceDirect presidential
control overeconomic policies
EPB as superministry
Research institute(KDI, etc.),
providing analysis
for MLT economic
policies
Govt.-business:very close &cooperative
relations
Performancebased rewards &penalties

Ministries/Agencies

From the mid 1960s to the early 1980s, a very close and cooperative relationship existed between thegovernment and private businesses. Meetings were held frequently and regularly between leaders of bothgroups. The Monthly Export Promotion Meeting was particularly important in coordinating the export
drive. It was presided over by President Park and attended by selected business association leaders,
governors of financial institutions, major export enterprises, and economic ministries. In the meeting,President Park would first be given briefings on the achievement of export targets from every businessreceiving subsidized policy loans. Second, members discussed problems of specific industries. Third,
business members expressed their views on export market trends, and examined the drafts of regulations
8
EPB combined several strategic functions previously entrusted to different ministries. These included: (i) development
planning which was originally with the Ministry of Reconstruction working with USAID in the aftermath of the Korean War;(ii) budget formulation; (iii) collection and evaluation of census and other statistics which was originally assumed by the
Ministry of Internal Affairs; and (iv) jurisdiction over the inflow of foreign capital and technology (Kim and Leipziger 1993).
9
Stimulated by KDI’s success, other ministries also established institutes under their jurisdictions. These included the
Korean Education Development Institute (KEDI) in 1972 by the Ministry of Education, the Korean Rural Economics
Institute (KREI) in 1978 by the Ministry of Agriculture and Fishery, and the Korean Institute for Human Settlement (KIHS)
in 1978 by the Ministry of Construction. By 1992, there were at least 10 policy research institutes in the Korean government(Kim and Leipziger 1993).

22

and policies. Fourth, based on the opinions of the business community, President Park ordered relevant
departments of the ministries to adopt remedial measures. In subsequent meetings, ministries were obliged
to report on their actions and industry performance (World Bank 1993, Cheng et. al 1996, Kondo 2005).
To prepare for these meetings, the Ministry of Commerce and Industry (MCI) collected information fromindividual exporters on a monthly, weekly, and sometimes even daily basis. It also monitored and analyzed
market conditions. Moreover, lower-level meetings among middle managers in private industries,
middle-level officials in the government, and experts and academicians supplemented the Monthly Export
Promotion Meetings. These meetings took place in the form of industrial discussion groups, divided intoeither functional or sectoral groups depending on the issue (Campos and Root 1996).
President Park also organized the Monthly Economic Briefing. Like the Monthly Export Promotion
Meeting, the briefing was attended by the President, EPB, business leaders, and representatives of financial
institutions. While the Monthly Export Promotion Meeting focused on devising countermeasures toeliminate impediments to export growth, the Briefing paid more attention to analyzing and monitoring
economic performance regarding exports (Kondo 2005).

2-3. Malaysia: A super-ministry and multi-layered, inter-ministerial coordination
Since independence in 1957, the successive Prime Ministers in Malaysia have generally exercised strong
leadership, and technocrats have served as the support arm to realize the leader’s vision. The organizations
responsible for policymaking were mainly in the Prime Minister’s Department such as the Economic
Planning Unit (EPU), the Implementation and Coordination Unit (ICU), and the Public Service Department(PSD), in addition to the Ministry of Finance (MOF). Especially EPU functioned as the super-ministry,taking a lead in the formulation of long- and medium-term plans and reviews, public investment planningand development budget, as well as aid management.
Malaysia established a multi-layered, inter-ministerial coordination mechanism for each of the planningand implementation functions. The National Planning Council (NPC) was placed at the highest level ofdecision-making with regard to socio-economic matters. Chaired by the Prime Minister and comprising of
key economic ministers, NPC served virtually as the economic committee of the Cabinet. Below NPC was
the National Development Planning Committee (NPDC), a working level planning committee chaired by
the Chief Secretary to the Government and consisting of the heads of all ministries. EPU acted as thesecretariat, and a similar planning setup existed at the state and district levels. The National Action Council(NAC), chaired by the Prime Minister, had the highest authority over the overall implementation andcoordination of development strategies. It met regularly with selected government agencies for intensive
review of progress and problems of development strategies. ICU served as the secretariat. A similar
institutional setup was copied at the state and district levels.
23

During the period 1971-1985, Bumiputra or the New Economic Policy (NEP) was the overriding policy
framework in Malaysia10. Government-business relationship became somewhat antagonistic because NEP
favored the ethnic Malay and the government also established a number of state-owned enterprises. A
major breakthrough in industrial policy was made in 1981 when Prime Minister Mahathir took office.
Mahathir renovated economic policies and institutional arrangements for strategic government-business
relationship. He launched the Look East Policy in 1981 which urged Malaysians to learn from the Japaneseand Korean experiences in economic development, the Vision of Malaysia Incorporated in 1983, and Vision2020 with pro-business orientation in 1991. The Ministry of International Trade and Industry (MITI) of
Malaysia formulated the first Industrial Master Plan (IMP1, 1986-95), which laid the foundation for
manufacturing to become the leading sector of the economy.
To realize Vision 2020, the second Industrial Master Plan (IMP2, 1996-2005) aimed at improving thecompetitiveness of manufacturing by broadening and raising its activities along the value chain curve. Its
two key thrusts were “manufacturing plus plus” and “cluster-based industrial development” (Ohno 2006).
The background paper was prepared by a researcher at the Malaysian Institute of Economic Research(MIER). In preparation for IMP2, Importantly, IMP2 paid greater attention than IMP1 to theinstitutionalization of policy coordination mechanisms and established the following three-layered bodies(Figure 6):(i) The Industrial Coordination Council (ICC), aimed at monitoring the progress of IMP2 andexamining problems raised by the subordinate committees. It was chaired by the Minister of theInternational Trade and Industry and included eight officials from MITI, EPU, MOF, Central Bank,
related economic ministries (at the level of permanent secretary), 15 business representatives(Chamber of Commerce, Federations of Malaysian Manufacturers, major industrial associations).
(ii) The Industrial Policy and Incentive Committee (IPIC), aimed at examining investment promotion
policies. IPIC members were limited to economic technocrats (officials from eight ministries andagencies).
(iii) The Public-Private Cluster Working Group (CWG) and the Strategic Thrust and Initiative Task
Force (STITF). The members consisted of both government officials and business representatives.
As subordinate groups to IPIC, the former discussed the promotion of 18 targeted sectors in IMP2,
while the latter examined policy measures to build up international competitiveness and prepare
for economic globalization (Torii 2000, Kondo 2005).

10

The NEP (or Bumiputra policy) was an affirmative action plan aimed at poverty problems and imbalances among ethnic
groups in favor of indigenous Malay. It was formulated in 1971 in response to the 1969 ethnic riot.

24

Figure 6. Malaysia: Mechanisms for Industrial Policy Coordination (1991- )NPC

PM’s Dept.

PM NAC
Deputy PM

EPU(planning)

ICU(monitoring)

Vision 2020
Malaysia Plan (Five-Year DP)

Central
Bank
IMP2

MOF

MITI

Chaired by MITI Minister,
Govt & business.

Industry Coordination
Council (ICC)
Budgetdialogue

Political Parties

Govt. only (8 ministries/agencies)

Industry Policy and Incentive
Committee (IPIC)

Malay
society

Chinesesociety

Indiansociety

Annualdialogue

Govt.& businessIndustry Cluster Working
Groups (18 CWGs)

IndustrygroupsIndividual
firmsChambers of Commerce

Source: Adapted from Takashi Torii, “Mahathir’s Developmentalism and Implementation Mechanism:
Malaysia Incorporated Policy and BCIC,” ch.4, Higashi (2000), pp. 166, Figure 2.

Source: Adapted from Torii (2000), pp. 166, Figure 2.

Another important instrument to realize Vision 2020 was the Vision of Malaysia Incorporated, which
regarded government-business relationship as a firm-type organization. Although announced in the early
1980s, its institutionalization began only in 1991 when Vision 2020 was launched. Similar to IMP2, the
Vision of Malaysia Incorporated established multi-layered bodies.
At the highest policy level, the Malaysian Business Council (MBC) was established in 1991 to shareproblems and information on industrial development among political, government and business leaders.
Modeled on Korea’s Monthly Export Promotion Meeting, MBC was chaired by the Prime Minister andmanaged by the Prime Minister’s Department. The members included 10 key ministers and 10 officials, 55
business representatives, and some representatives from labor. MBC facilitated direct communication
among big businesses, labor, and the Prime Minister. At the working level, the Malaysia Incorporated
Officials’ Committee was established in 1993. The Committee was chaired by the Chief Cabinet Secretaryof the Prime Minister’s Department, and the members included government officials, business associations,and business leaders. This was modeled after Japan’s government-business relations.
Furthermore, all government branches and federal states were requested to establish government-businesscouncils and annual forums. Although the frequency of their organization varied among agencies, thewell-known examples included the annual budget dialogue organized by MOF to seek business opinions
25

prior to budget formulation, and the annual trade industrial dialogue organized by MITI, which had started
even before 1991.

2-4. Thailand: National and sectoral steering committees for Industrial Restructuring Plan
Unlike the three countries mentioned above, the Thai government traditionally had no industrial sector
planning and no industrial targeting strategy (Christiensen et. al 1993). Policies were most effective inmaintaining macroeconomic stability which was conducive to trade, investment, and private sector growth.
No single super-ministry existed, and until the late 1990s the core macroeconomic agencies—the National
Economic and Social Development Board (NESDB), the Bureau of the Budget (BOB), the Fiscal Policy
Office (FPO), and the Bank of Thailand (BOT)—collectively exercised strong power and shared
responsibilities for economic policymaking.
The Asian financial crisis which erupted in July 1997 prompted the Thai government to conduct acomprehensive industry review. Pressed by the circumstance, the government quickly formulated theIndustrial Restructuring Plan (IRP) for enhancing industrial competitiveness with due attention to social
conditions. IRP consisted of the Master Plan, the Strategic Plan and the Action Plan for industrial
restructuring, and included as its objectives upgrading of labor skills in target industries, supporting small
and medium enterprises, relocating high pollution industries, and promoting clean technology. The Ministryof Industry (MOI) was the leading ministry which organized the involvement of various stakeholders suchas the public sector, businesses, and academicians. Although IRP was formulated and implemented in theframeworks of structural adjustment loans of the World Bank and the Asian Development Bank, the Thaigovernment took full initiative on the content of the Master Plan, the Strategic Plan and the Action Plan.
The process of IRP formulation involved the following steps (Figure 7).11 First, MOI reviewed industrial
research from several sources, such as the Thailand Development and Research Institute (TDRI) and theChulalongkorn University, and drafted the guidelines for industrial restructuring in consultation with theagencies concerned. The Cabinet approved the guidelines, and the National Industrial Development
Committee was established in September 1997 to supervise and manage the formulation of IRP. The
Committee was chaired by the Deputy Prime Minister and managed by MOI with the participation ofrelated ministries, businesses, and academicians. In January 1998, the Industrial Restructuring Master Plan
was approved by the Cabinet.
The National Industrial Development Committee appointed a subcommittee to prepare the Strategic Plan
and the Action Plan for Industrial Restructuring. The subcommittee was chaired by the Deputy Minister of

11

Based on the Industrial Restructuring Plan (1998-2002), the National Industrial Development Committee, unofficialtranslation by Vibool Chandrangsu as contribution of DEG and the Regional Advisory Service Project.

26

MOI. The Director General of the Office of Industrial Economics and the representative from the Industrial
Promotion Department acted as secretariat and prepared these plans in consultation with the public andprivate sectors, investment promotion agencies, and academicians. Workshops were held for this purpose.
The Strategic Plan, approved by the Cabinet in March 1998, provided a framework for the restructuring of
13 industrial sectors. Guided by this framework, the Action Plan was drafted and approved by the National
Industrial Development Committee in June 1998, and subsequently by the Cabinet.

Figure 7. Thailand: Formulation and Implementation of IRP (after 1997)
Prime Minister
CabinetGovt.-business consultation body,established in the early 80s.

Economic Cabinet
Meeting

JPPCC

NESDB
Financial Sector
ReformChaired by Deputy PM

SocialInfrastructure

Industrial
Restructuring
National Industrial
Development Committee

Chaired by Deputy Minister, MOI Sub-committee on National

Industrial Restructuring

OthersExamine & discuss basic
policy & direction
Examine & discuss detailed
measures & actions

Operated jointly by public ＆ private
Institutes
sectors
Textile, Food, Automobile, Iron & Steel, SME,
Productivity, Mgt. System Certificate, etc.

Information sharing;Specific MP formulation, etc.

Line Ministries

Thai EXIM Bank
IFCT
SICGC

Federation of Thai Industries
Industry Associations
Chamber of Commerce

Commercial
Banks

Source: Shigeki Higashi “Industry: Business and Government in a Changing Economic Structure”
ch.3, Suehiro & Higashi (2000), p.166. Figure 3 a

Source: Adapted from Higashi (2000), p.166, Figure 3

Furthermore, ten specialized “institutes” were established to design concrete promotional measures fortargeted industries and themes and to cope with problems in the implementation process of IRP. They wereoperated jointly by the public and private sectors, having their own staff and boards. They acted as a hub of
information sharing and consultation between government and businesses, and in some cases formulatedindustry-specific master plans (e.g., Thai Automobile Master Plan 2002-06). Some institutes originatedfrom the Industry Promotion Department of MOI while others were transformed from different existing
agencies or established by donor assistance.
Table 3 shows these ten specialized institutes. They included six industry-specific institutes (textile, food,automobile, electrical and electronics, cane and sugar research, iron and steel) and four thematic institutes(productivity, TVET, management and certificate, SME development).

27

Table 3. Thailand: Institutes Created as Part of IRP (as of Oct. 1999)
Name

Start-up Date

Organizations

Thailand Productivity InstituteJune 1995

Originated from MOI industry promotion
dept. 20 Board members, 161 staff.

Thai-German InstituteNov. 1995

Financial cooperation from KfW, GDC.
Technical training (CNC, CAM/CAD, etc.), 12
Board members, 79 staff, 5 German experts.

Thailand Textile InstituteJune 1997

Based on MOI industry promotion dept. andindustry association. 20 Board members, 27
staff.

National Food Institute (NFI)

Oct. 1996

Based on MOI industry promotion dept. andindustry association. 20 Board members, 27
staff.

Management Systems
Certification Institute (MSCI)March 1999

Originated from Thai Industrial Standard
Institute (TISI). 14 Board members, 55 staff.

Thailand Automotive Institute(TAI)

April 1999

Supporting industry development. 20 Board
members, 28 staff

Electrical & Electronics Institute(EEI)

Feb. 1999

Supporting industry development. 29 Board
members, 28 staff.

Foundation for Cane & Sugar
Research Institute

April 1999

Originated from Cane & Sugar ResearchInstitute. 13 Board members.

Institute for SME Development

June 1999

Modeled on Japan’s SME Univ. Operated by
Thammasat Univ. in cooperation with 8 local
universities. 21 Board members.

The Iron & Steel Institute ofThailandDec. 1998

Aimed at joint marketing promotion of four
steel companies (oversupply)(cabinet approval)

Source: Higashi (2000)

3. Mechanisms for executing high priority programs
Successful East Asian economies organized special task forces and national committees to plan, implement
and monitor high-priority programs. As the examples below show, these task forces and committees wereclosely supervised by top leaders, and their decisions were often accorded with cabinet-level authority.
Secretariat teams were established in relevant ministries and agencies and given the strong authority to
manage the entire process and make necessary inter-agency coordination and stakeholder consultation. In
many cases, the process combined both top-down and bottom-up approaches, which facilitated thegathering of high-quality information, “fast-track” decision-making, and rapid problem-solving.

3-1. South Korea: Special task forces for Export Drive and HCI drive
As mentioned before, in South Korea, the Export Drive was one of the highest national priorities under thePark administration. The President-chaired Monthly Export Promotion Meetings were held in which the
Ministry of Commerce and Industry (MCI) served as the secretariat. The meetings monitored export
performance, identified bottlenecks and discussed concrete measures to promote exports. A notable point
was that the President imposed rigid performance standards on subsidized businesses under a strict
monitoring mechanism. The government and businesses assumed mutual responsibilities. On the one hand,ministries were ordered by the President to take measures and report the results at the next meeting. On theother, businesses were rewarded and penalized according to their export performance; good performing
28

companies were not only given financial and fiscal incentives but also awarded medals12. As explained
above, this top-down approach was complemented by a range of bottom-up activities coordinated by MCI
with the involvement of businesses, concerned ministries and academicians at the operational level.
The Heavy and Chemical Industry (HCI) Drive was another high-priority program during the period of
1973-79. Under the promotional laws, six strategic industries were targeted including industrial machinery,
shipbuilding, electronics, steel, and petrochemicals. The Third Five-Year Plan (1972-76) set specific targetsof physical quantities of steel, ships, automobiles, and so on, to be produced by 1980.
To implement this program, the HCI Promotion Committee was established in 1973. Chaired by the
President himself, the Committee was given the highest authority equal to the State Council. At theworking level, a special task force, called the HCI Planning Team, was established with the membership of
high-level economic technocrats from the Economic Secretariat of the Blue House, the Economic Planning
Board (EPB), and MCI. Because the HCI Planning Team was headed by the Presidential Secretary of
Economic Affairs of the Blue House, the HCI program was entirely under the direct control of the President(Hong 1997). Massive government support, including import protection, tax incentives, and mostimportantly, preferential access to the credit of the National Investment Fund, was provided to strategic
industries.
It must be admitted that the HCI Drive provoked controversy. This was partly because the decision-making
was highly centralized at the Blue House and MCI, bypassing the more orthodox mechanism led by EPB. It
was also because its large financial and fiscal mobilization forced EPB to make a difficult decision ofbalancing micro investment planning with macroeconomic management.
The nature of industrial policy making changed significantly under President Chun Doo-hwan (in power
1980-88). A typical example was his semiconductor related policies. In contrast to the promotion effort up
until the 1970s, the government focused on formulating guidelines of the industries and refrained from
actively pushing policy targets. In addition, most of these policies were demanded by the private sector
rather than initiated by the government. When the Basic Plan for the Promotion of the Electronics Industry
was prepared, MCI formed a working group with sixteen members including the head of MCI’s Electricand Electronics Industry Bureau (secretariat), related ministries, private companies, the Korean Institute ofElectronics Technology, and the Electronics Industry Association of Korea (Hong 1997).

3-2. Thailand: Cabinet-level and national committees for Eastern Seaboard Development
The 1980s was the time when Thailand made a leap forward in development by adopting export-oriented

12

In the Confucian culture, public recognition by the President has special meaning with high prestige.

29industrialization. Prior to this, in the late 1970s the government faced serious balance of payments
problems triggered by the oil crises, and the strengthening of industrial competitiveness became an urgent
goal for the country. Prime Minister Prem Tinsulanonda (in power 1980-88) took the lead in pushingpriority policy agenda and instituted mechanisms for addressing three national priorities: (i) Eastern
Seaboard Development; (ii) government-business consultation; and (iii) rural development. All of thesewere highlighted in the Fifth National Economic and Social Development Plan (1982-86).
For each of the three priority programs, Prime Minister Prem established a national committee under hischairmanship and entrusted the technocrat teams of the National Economic and Social Development Board(NESDB) to plan, coordinate and monitor respective programs. Below, we will examine how thesecommittees were organized and functioned for the two of the national priority programs, (i) and (ii), above.
As Thailand’s first forward-looking strategic initiative for an economic take-off, the Eastern Seaboard
Development (ESD) program was a flagship regional development program receiving the highest priority
in the Fifth and Sixth Development Plans13. Located 80 to 200km southeast of Bangkok (the Thai capital),
the ESD program had an unprecedented scale with numerous project components in infrastructuredevelopment including deep seaports, roads, railways, power and communication, etc; industrial zones;
urban development; water resources; and environmental management14. It aimed to strengthen international
competitiveness by building industrial zones and generate employment outside Bangkok to mitigate
concentration.
In late 1980, Prime Minister Prem established special coordination and decision-making mechanisms
exclusively for the program. These included: (i) the Eastern Seaboard Development Committee (ESDC), acabinet-level national committee chaired by the Prime Minister and managed by the Secretary General of
NESDB; (ii) sub-committees chaired by the ministers of government organizations in charge; and (iii) the
Office of the Eastern Seaboard Development Committee (OESD) within NESDB to act as the secretariat.
OESD was headed by the Deputy Secretary General of NESDB.
These mechanisms combined top-down (policy issues) and bottom-up (technical issues) approaches andfacilitated both vertical and horizontal coordination. The presence of a cabinet-level committee enabledquick decision-making on priority policy issues (de facto “fast track” processes) and strategic use of donor
assistance. OESB coordinated the Budget Bureau, the Department of Technical and Economic Cooperation(DTEC), and the Fiscal Policy Office (responsible for loan aid) to work on the details of the budget and aid
resource mobilization. In this way, the ESB program was treated as a special program outside the routine
13

The Fifth Development Plan had one entire chapter dedicated to the ESD program.
The basic plan for ESD was formulated with the funding of the World Bank. Japan provided wide-ranging assistanceincluding both technical cooperation (master plans, feasibility studies, etc.) and financial cooperation. Regarding the latter,during the period of 1982-1993, Japan financed 16 major infrastructure projects amounting to a total loan commitment of 179
billion yen (via 27 loan agreements). The total public investment for ESB-related infrastructure was estimated at around
US$1.5 billion, which was largely funded by Japanese ODA loans.
1430

policy making channels. The mechanisms also incorporated multi-layered check and balance functions. TheNESDB secretariat acted as an influential liaison office to plan and implement the program. Highly
motivated and competent technocrats were recruited, many of them being seconded from related ministries
and agencies, for this task (Ohno and Shimamura 2007). Figure 6 describes the overall decision-making
structure for the ESD program.

Figure 8. Thailand: Coordination and Decision-making for Eastern Seaboard Development
Cabinet
ProposeEastern Seaboard Development Committee (ESDC)
Chair: Prime Minister (later, Deputy PM)
Secretary: Secretary General of the National Economic and Social
Development Board (NESDB)
Propose・Approve・Control・Direct
・Supervise

Secretariat

Appoint

Sub-committees
Chair: Minister of government agency in charge

BudgetBureau of the
Budget (BOB)

Technical Assistance
Department of Technicaland Economic Cooperation(DTEC)

Loan

Office of the Eastern Seaboard
Development
Committee(OESD) within the NESDBFiscal Policy
Office (FPO)
・Coordinate
・Oversee・AdviseGovernment agencies (central, regional, local) and State enterprises

Source: Masumi Shimamura -- drawn upon provisions from the Regulations of the Office of the Prime Minister Governing
the Eastern Seaboard Development (1985) and information provided by NESDB, TICA, BOB, FPO, PDMO and MOI to the
GRIPS team

The National Joint Public and Private Consultative Committee (JPPCC) was the first formal mechanism for
public and private sector collaboration in Thailand. Designating the private sector as the engine of growth,Prime Minister Prem established JPPCC in 1981. Like ESDC, it was chaired by Prime Minister Prem andthe Secretary General of NESDB served as the committee secretary. Other members were deputy prime
ministers, ministers and deputy ministers of economic ministries, the Governor of the Bank of Thailand,
and the Secretary General of the Board of Investment. The private sector was represented by the Thai
Chamber of Commerce, the Federation of Thai Industries, and the Thai Bankers Association.
JPPCC differed from the government-business forums in Japan and Korea examined above. Only mattersof general interest were discussed, typically, problems that plagued the majority (if not all) of large firms.
Nevertheless, because these forums were open to the press, they put pressure on the Prime Minister to
respond to the reform proposals put forward by the business community. Through JPPCC, information on
the impact of regulations, tax measures, and trade policy on the performance of individual firms as well as
the national economy was quickly communicated to officials, helping the government to respond to the
problems. Big businesses were incorporated into the policymaking process, especially in the making of31

trade policy (Campos and Root 1996).

4. Implications for Ethiopia
Over the last five years, the Ethiopian government has made impressive achievements in building
mechanisms for implementing the Industrial Development Strategy (IDS).
First, the government organized the Monthly Export Steering Committee, chaired by the Prime Ministerand managed by MOTI, with the participation of related ministries and agencies, to review export
performance and discuss measures to be taken for export promotion.
Second, MOTI regularly organizes sectoral forums with businesses and meets industrial associations (forexample, textile and garment, leather and leather products, agro-processing, horticulture) to discuss export
targets of respective industrial sectors.
Third, MOTI has built its structure around “priority” industry departments, based on the strategic vision of
IDS, and established industry-specific “Development Centers” to act as a hub of formulating andimplementing sectoral master plans, monitoring business performance, supporting problem-solving, andpreparing reports to the Monthly Export Steering Committee. Furthermore, sector-specific technology andtraining institutes, especially the Leather and Leather Products Technology Institute (LLPTI) and the
Textile and Apparel Institute (TAI), have been established to provide technical advice to firms bymobilizing donor support.
Fourth, Ethiopia has devised instruments to gather information on the problems faced by the private sector.
These include dialogues between government and chambers of commerce at both national and local levels;
the Private Sector Development (PSD) Hub, located in the Addis Ababa Chamber of Commerce, which
conducts research and analyses for private sector development; and the PSD Sector/Technical Working
Group which facilitates government-donor aid coordination.
These are laudable achievements in a relatively short period. Nevertheless, as Ethiopia hopes to move up to
the next stage of industrial development, continuous efforts are required to build additional policy
capability. For this purpose, based on the experiences of East Asia, the Ethiopian Government may consider
strengthening the following organizational aspects:(i) A mechanism for constantly reviewing and adjusting industry-wide policy. This is particularly
important as there are ongoing discussions on the possible expansion of policy scope of IDS or32

moving to the “second-generation” of industrial policy15. Such a mechanism would also be usefulin coping with unexpected shocks, such as a global financial crisis or an acute foreign exchange
shortage.
(ii) A mechanism for involving various stakeholders—not only businesses as has already been done,
but also research institutes, experts and academicians. East Asian economies have actively
mobilized the knowledge and expertise from experts and researchers outside the government andinvolved them in the policymaking process through deliberation councils, national and sector
committees, institutes, and other informal discussion meetings. As suggested in Part I, Ethiopian
experts and researchers may be mobilized for the evaluation of past and future industrial
promotion measures, whose results should serve as analytical inputs to the industry chapter of thenext PASDEP (see (iv) below).
(iii) A mechanism for addressing cross-cutting or functional issues, in addition to industry-specificissues. Now that MOTI has made progress in building capacity to respond to industry-specificissues, it may also wish to consider how to address cross-cutting issues—for example, quality andsafety standards, international trade policy, and industrial location—and make effictive links
between these perspectives and industry-specific support. This will become important when theplanned kaizen program, focusing on selected piolot companies with JICA’s technical cooperation,
comes to a scaling-up stage to involve a larger number of firms. Cross-cutting perspectives would
also be useful for ensuring methodological uniformity on sectoral master plans.
(iv) A mechanism for strengthening inter-ministerial coordination, especially among MOTI, MOFED,and MOARD. As noted in Part I, collaboration between MOTI and MOFED is crucial as MOTI
prepares the industry chapter of the next PASDEP and, subsequently, the five-year industrial
implementation plan. Moreover, since incentive measures have fiscal and financial implications forboth export industry promotion and proposed import substitution, MOFED should be involved in
the discussion on the possible expansion of industrial policy scope. Furthermore, to promote ADLI,
it is vital that MOTI and MOARD work jointly to concretize several concepts related to theagro-industry sector such as “integrated agro food parks” and “growth corridors.” Moreover,ministries and agencies charged with infrastructure development and regional governments should
also be involved when necessary. All these can be achieved by strengthening inter-ministerial
coordination mechanisms centered around MOTI.
To achieve these organizational goals, it is important to consider how GRIPS-JICA industrial policy
dialogue with the Ethiopian authorities may be used for the building of industrial policy capability
15

World Bank (2009), Project Appraisal Document for Ethiopia: Protection of Basic Services Program Phase II Project,
Annex 10: Macroeconomic Assessment and Monitoring Arrangements, p.150.

33

mentioned in (i)-(iv) above. This is related to the question of how the policy-level forum and the working-level forum (Policy Dialogue Steering Committee) of the bilateral policy dialogue can contribute to thepromotion of industrial policy coordination and stakeholder interaction which include both businesses andresearchers.
Additionally, it is also useful to consider the following possibilities: (i) whether MOTI’s Development
Centers can in the future assume the role of managing government-business partnership in respective
industrial sectors; (ii) whether to establish functional centers similar to Malaysia’s STITF and Thailand’s“Institutes”; and (iii) how the experience of inter-ministerial coordination under the Engineering Capacity
Building Program should be used to improve the design of an inter-ministerial coordination mechanism.

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