Other developments are similarly discouraging. Corruption, which Meles used as a rationale for strict government oversight of the economy, remains rampant. According to the World Bank’s Worldwide Governance Indicators, Ethiopia scored in the 38th percentile for control of corruption in 2004, a dramatic improvement over 1996, when Ethiopia made it no further than the eighth percentile. By 2009, however, the country had regressed to the 26th percentile and did not return to its 2004 high until 2013. Patronage and rent-seeking, the main forms of corruption in Ethiopia, are particularly disruptive, because they undermine the credibility of government technocrats who have been given considerable discretion in planning and administering the developmental-state strategy.

Corruption is especially problematic in manufacturing, where members and supporters of the ruling-party-dominated government have been granted protection from domestic and foreign competition. A key goal of the five-year Growth and Transformation Plan adopted in 2010 was to expand the share of manufacturing in GDP from 13 percent to 19 percent. Instead, the sector’s share actually contracted in the decade following the adoption of the developmental-state model.

In comparison, after 10 years of high growth and reforms under a developmental-state strategy, the share of manufacturing was 33 percent in Taiwan (1977), 24 percent in South Korea (1979), 21 percent in Thailand (1979) and 18 percent in Vietnam (2009). Rent-seeking in Ethiopia’s manufacturing sector has become so pervasive and its effects so corrosive that the government recently set up special industrial zones in areas well removed from the capital in an effort to breathe a little competition into the sector.

Thanks to the underperformance of manufacturing, the government has been unable to leverage the sector’s role in the economy. Consequently, little progress has been made in efforts to diversify exports, with the share of manufacturing exports virtually unchanged in the 10 years the developmental state has been in place.

Meanwhile, the share of exports in GDP has been halved during the developmental-state period, to just 7 percent. At the same time, imports have increased to 15 percent from 9 percent. Accordingly, the current-account deficit rose sharply during the decade of the developmental state. And that deficit must be financed with a combination foreign capital and remittances from Ethiopian expatriates. Equally troubling from the perspective of Ethiopia’s state-driven development model, government revenues as a percentage of GDP fell by almost a point across the decade, limiting the government’s ability to finance projects directly.

The growth of manufacturing and the planned shift toward export-oriented activities are also impeded by the low quality of Ethiopia’s infrastructure. According to World Bank metrics, it is improving, but slowly: the Bank’s Logistics Performance Index score rose to 2.17 from 1.88 (5 is the highest) from 2007 to 2014, implying that Ethiopia’s infrastructure is still inferior to that of other countries in the region and in Ethiopia’s income group.

One reason is that much of Ethiopia’s economy, including telecommunications, banking and insurance, power, transport and most tourism, remains off-limits to foreign investors. The government has resisted advice to liberalize these sectors. And it will most likely continue to do so as long as members of the ruling party’s old guard hold important positions in economic management. With infrastructure creation dependent on funding from modest (and stagnant) government revenues, it is unlikely that Ethiopia’s transport, power and communications will improve sufficiently to make the country’s exports competitive anytime soon.

On top of corruption and deficiencies in infrastructure, Ethiopia’s manufacturing sector suffers from a critical lack of entrepreneurial activity. While the East Asian tigers were initially handicapped by similar deficiencies, the problem was addressed through programs that both encouraged entrepreneurs and provided financial support to allow them to take on more risk.

To be sure, East Asia could look to traditions of entrepreneurship, while Ethiopia can’t. But the government apparently isn’t helping. Ethiopia ranks 134th among 142 countries (1 being best) on the Opportunity and Entrepreneurship measure of the 2014 Legatum Prosperity Index. South Africa and Botswana, African states that have employed more democratic variants of the development-state strategy, rank 44th and 72nd, respectively.

While Ethiopia has plainly made real progress in quality of life as measured by the U.N.’s Human Development Index, it still ranks a miserable 173rd — a reflection of just how deep its socioeconomic problems run.

What Next?

On the one hand, Ethiopia’s growth strategy has produced a decade-long surge that would have been highly unlikely had development been left to free-market forces alone. On the other, problems now looming in agriculture will likely plague the government and economy for years to come. As the controversy surrounding agricultural-development-led industrialization illustrates, there is a basic incompatibility between centralized control of the economy and Ethiopia’s federal system of government.

Another key issue involves the source of Ethiopia’s recent decade of ebullient growth. In much of Africa and Latin America, growth during this period was largely driven by the boom in commodity prices. Since this was not the case in Ethiopia, defenders of the country’s economic polices argue that the credit should go to the developmental state model.

They ignore, however, that there is a rich history of rapid early-stage autarkic growth financed and commanded by authoritarian governments. Think of the Soviet Union and China, which seemed to be the economic wonders of the world for the first few decades after World War II. In both of these cases, it turned out that the delay in switching to market-driven systems slowed the maturation of the economy.

The more immediate problem is Ethiopia’s dependence on government investment, which is now the third highest in the world (measured as a portion of GDP). Government revenues, the primary source of funds for investment, are lagging. Clearly, Addis Ababa cannot keep up its pace of expenditures without either borrowing from the domestic banking system (at the risk of inflation) or incurring a large external debt (at the risk of higher interest costs and damage to the country’s credit rating). And without rapidly growing investment, the phenomenal growth of the past 10 years is likely unsustainable.

A little perspective is needed here. The Ethiopian economy was a wreck when Meles embarked on his most-excellent adventure in authoritarian developmentalism. And, in spite of a decade of rapid growth, it’s still suffering, even by the modest standards of East Africa. Measured in terms of purchasing power, per capita income is just $1,500. Moreover, while Ethiopia has plainly made real progress in the quality of life as measured by the UN’s Human Development Index, it still ranks a miserable 173rd in the world on the index – a reflection of just how deep its socioeconomic problems run. For example, one baby in 20 still dies in infancy, and less than half the population can read.

Will Ethiopia’s government, founded on developmental capitalism and now committed to it by reason of both ideology and the interests of its ruling class, be able to change paths before it is overwhelmed by ethnic division? It seems improbable. But, then, in 2005, nobody expected Ethiopia to become the economic darling of the New Africa.

main topic: Africa 
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