The government once again disclosed the draft of its macroeconomic
plans and growth projections, dubbed Growth and
Transformation Plan, for the coming five years, to
start implementation in 2010/11.
In line with its image of the country as a “developmental state,” the
government’s plan seems to have been developed with
a heavy state hand where the targets are as
ambitious as they could ever get. The grandiosity of
the plan is perplexing, necessitating critical
appraisal on the realism of the planned targets.
The plan envisages, among other things, a minimum gross domestic
product (GDP) growth rate of 11pc, doubling
agricultural output, fulfillment of all the
millennium development goals (MDGs) by 2015, massive
infrastructural development, and significant growth
in textile exports.
The question is, are these targets achievable?
The track record of this administration in realising its target of the
previous five years, set under the Plan for
Accelerated and Sustained Development to End Poverty
(PASDEP), which came to a close this year, applies.
The conclusion is that the administration failed in achieving its
targets significantly as the actual gains were way
below their targets. The cereal yield target for
2009/10 was 34.8 quintals per hectare while the
actual yield was only 16.8, an achievement rate of
48pc, less than half of the target. The same is true
for revenues from taxes, public expenditure, export
revenues, gross domestic savings, and inflation
targets.
It is important to note that forecast errors (missed targets) are not
anomalies in the forecasting world. However, the
systematic nature of forecast errors, where the
targets are always above the actual, indicate some
fundamental flaws in the forecasting framework and
the related assumptions.
The systematic forecast errors may be due to three factors: The targets
are not realistic; the government does not have the
capacity to execute its plans; and the combination
of the two. Given the government’s dismal track
record in achieving its planned targets, and unless
the fundamental sources of the errors are addressed,
the targets in the new plan will remain farfetched
promises.
Realistic forecasts are mostly the result of empirical macroeconomic
models that are estimated based on reasonably
accurate data to fairly characterise the structure,
interaction, and institutional details of an
economy. Forecasts from such models are augmented by
expert opinions to account for factors that are not
captured in the macroeconomic model.
Realistic forecasts require the necessary tools – macroeconomic model,
reasonably accurate data, and qualified experts
capable of operating them. Unfortunately, the
Ministry of Finance and Economic Development (MoFED),
responsible for drafting the plan, does not seem to
have qualified experts nor the necessary tools to
produce realistic forecasts. It is thus highly
probable, if not certain, that the forecasted
targets are quite unrealistic.
The accuracy of the existing data on different economic variables, such
as agricultural productivity, is questionable. The
long quotation below from Dercon, Hill and Zeitin’s
study, “In Search of a Strategy: Rethinking
Agriculture-led Growth in Ethiopia,” published in
2009, illustrates the data problem very well:
“The figures on recent agricultural performance are impressive:
doubling of cereal output in the last 10 years, 44pc
more land cultivated with cereals, and 40pc higher
yield in the same period,” write the analysts. “The
last five years [saw] 12pc more cereal production
per year, yield growth of six per cent per year, and
area growth of five per cent per year. The same data
sources show no evidence of intensification of
agriculture: no increase in fertiliser use per
farmer or per hectare, no significantly more
irrigation, and expanding but still relatively small
areas under extension programmes.”
“Ethiopian yields have grown faster than recorded elsewhere, even
compared to the green revolution in India, China, or
Vietnam,” they said. “If the data are correct, this
is the fastest green revolution in history, and its
mechanisms should be analysed. If any of the data,
such as the area expansion data, are not correct,
this has huge implications for policy, as it would
suggest that food production is considerably lower
than reported.”
Poor data quality is a common feature in most of the developing world.
A recent study by Morten Jerven showed that, in the
case of Africa, “estimates of an annual growth rate
of three per cent may be consistent with a reality
between zero and six per cent growth” due to the
poor quality of data.
This has serious adverse implications for the reliability of any
economic plan as it is based on an inaccurate
assessment of the initial conditions and facts.
Assuming that the forecasts are based on the appropriate estimated
model using accurate data and are therefore as
realistic as possible, the appropriate question
would be whether the government has the capacity to
execute its plans.
The plan is in line with the government’s “developmental state”
ideology. It is widely documented in the literature
that skilled manpower and efficient government
bureaucracy are the main components for the success
of a developmental state agenda. The case of Japan
is a very illustrative example.
The success of the Japanese developmental model is mainly due to their
attraction of the best and the brightest minds to
the civil service; being a civil servant is
prestigious and also pays higher than most of the
alternatives. The highly skilled and well
compensated civil servants led to the creation and
maintenance of efficient government bureaucracy that
facilitates the effective implementation of the
developmental state agenda.
In contrast, Ethiopia’s civil service is neither a place of excellence
and prestige, nor does it pay a competitive salary.
Rather than attracting the best and the brightest,
it attracts largely the mediocre.
The current civil service incentive structure is a perfect recipe to
build inefficient government bureaucracy and breed
corrupt civil servants. The developmental state
agenda would exacerbate this situation further as
more public money is to be exposed to corruption
following the financing of huge public investment
projects. The overall evidence indicates the lack of
efficient bureaucracy in Ethiopia, which in turn
implies the government’s lack of capacity to
implement its plan.
The targets are unrealistic and the government has limited
implementation capacity, a scenario that most
reasonably characterises the Ethiopian case. Under
such conditions, a plan is no more than a well
crafted wish list. “Dreaming while wide awake”
describes this plan quite well.
Implementing such a plan would have dire consequences as it may result
in many macroeconomic imbalances that could cause
runaway inflation, rising public debt, and high
future taxes. This is a déjà vu scenario as it is
similar to what happened during the PASDEP period in
which the country faced runaway inflation that led
to the restriction of credit to the private sector
and its undesirable impact on investment and
employment.
Going along with the implementation of this unrealistic plan under
conditions where the government’s bureaucratic
capacity is limited, would simply be repeating the
mistakes that led to the economic malaise in the
PASDEP period while wishing everything to work out
as desired. As the saying goes, “We are locked into
a cycle of repeating the same thing over and over
again, expecting different results.” This is
commonly known as the definition of insanity.
It is not too late to address these hurdles and come up with a sound
plan. However, it requires the government to retool
its planning machinery, reassess the accuracy of
data at hand, and strengthen its implementation
capacity in terms of the efficiency of its
bureaucracy.
An optimist would hope that these issues are addressed during the
consultative meetings with the public and donors. It
is also hoped that the government would deal with
the fundamental flaws of the plan in good faith, for
failing to do so would result in dire consequences
that Ethiopian society cannot afford to bear.
