Ethiopia’s trade fears justifiable, but unjust to the poor

Last week, Ethiopia’s new prime minister, Hailemariam Desalegn, made his first state visit to neighbouring Kenya, with which it maintains cordial, but largely security-related, bilateral ties.

Indeed Kenya is one of the few countries that Addis Ababa, famously jittery to foreigners on its soil, allows free entry with a visa not required.

However that is as far as the welcome extends, with a clutch of trade restrictions imposed on its southern neighbour, although in fairness most other countries are also affected.

As a result, commerce volumes between the two countries remain well below potential, with unverifiable figures quantifying Kenyan exports to Ethiopia at about $60 million, compared to $940 million to Uganda.

Hailemariam’s predecessor Meles Zenawi had been in Kenya months before his sudden death in August, to inaugurate a multi-billion dollar infrastructure project that would further open up trade between the two countries.

The new premier’s visit was thus in part designed to reassure Kenya of Ethiopia’s continued support, the change of guard at the top notwithstanding.

But Hailemariam also signed an agreement with President Mwai Kibaki that accords Kenyan firms special status, in essence allowing them to circumvent the considerable restrictions arrayed before foreign companies that seek to invest in Ethiopia.

But like all agreements—even this one that was months in the making - the devil is in the details.

Ethiopia sought to channel Kenyan investment appetite into manufacturing, hospitality and agriculture, which on the surface makes sense due to their ability to employ millions of Ethiopians and redistribute national wealth more equitably.

Protectionist leanings

But it was the sectors that were left out - financial services and telecommunications - that economists argue have the potential to create more of that national cake in the first place.

Ethiopia, for historical reasons (its Marxist past), does not allow foreign firms to invest in these areas. But in a period where many African countries have been carrying out a raft of regulations as captured by regular 'Doing Business' indicators, Ethiopia lags behind on too many.

The obstacles continue to exist mainly for political reasons. The state-owned telephone monopoly is extremely lucrative and also a useful tool of control, while the financial services sector is shallow in part because Addis Ababa prefers to choose who to fund, mainly groups with the right political connections.

The outcome has been regrettable: Ethiopia remains one of the African countries with the lowest mobile phone penetration, while its companies remain uncompetitive as they cannot raise the capital to change their structure. (This latter concern also contributes to the official protectionist leanings).

Three in every four Ethiopians—almost 60 million—struggle to eke out a living every day. Ethiopia is one of the few stable African countries not expected to reach middle income status by 2025, despite its high sustained growth figures.

But with available data such as that showing that a ten per cent increase in connectivity in sub-Saharan Africa gives a 1.4 per cent bump in GDP, the country’s leaders would do well to consider allowing competition into this sector.

It is also widely known that the private sector creates jobs faster—and more efficiently—than government.

Opening up these areas would in theory create more jobs and strengthen national growth than the current model does, resulting in a win-win solution that appeals to both reformers and anti-reformers alike.

For Hailemariam, whose technocratic credentials suggest he is more reformist-minded than the reconstructed Marxist he succeeded - this is a carrot that he could offer the conservative cabal that rules the country.

Twitter: @ShrewdAfrican

Can Kiir deliver on his promise of peace and stability in South Sudan?

Read Story:Can Kiir deliver on his promise of peace and stability in South Sudan?