Chapter-3 Abraha

7/30/2019 Chapter-3 Abraha

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Introduction

An economic system consists of the structure and processes that a country uses to allocate its

resources and conduct its commercial activities. Just as no nation is either completely

individualist or collectivist in cultural orientation, no economic system reflects a completely

individual or group orientation. The economies of all nations display a blend of individual

and group values.

1. Free market

1.1 Definition: A free market economy is an economy in which the allocation for resources is

determined only by their supply and the demand for them. This is mainly a theoretical

concept as every country, even capitalist ones, places some restrictions on the ownership and

exchange of commodities (``free market``, n.d.).

In a market economy, the majority of a nations land, factories, and othereconomic resources

are privately owned, either by individuals or businesses.

Price mechanism determines two forces:

Supply: The quantity of a good or service that producers are willing to provide at a

specific selling price.

Demand: The quantity of a good or service that buyers are willing to purchase at a

specific selling price.

1.2 Origins of the Market Economy

Market economics is rooted in the belief that individual concerns should be placed above

group concerns. The group benefits when individuals receive incentives and rewards to act in

certain ways.

Laissez-Faire Economics, loosely translated from French as allow them to do.Individualism fosters democracy as well as a market economy (``free market``, n.d.).

1.3 Features of a Market Economy

Free choice: gives individuals access to purchase options.

Free enterprise: gives companies the ability to decide which goods and services to

produce and markets in which to compete.


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Price flexibility: allows most prices to rise and fall to reflect the forces of supply and

demand

Free Market is a free, cooperative and peaceful process.

In a Free Market, individuals are free to choose their own work. In a Free Market, individuals are free to be investors.

In a Free Market, individuals are free to be entrepreneurs.

In a Free Market, individuals are free to create capital formation (the process of

bringing together capital from savers and investors to invest in new businesses,

products and services).

In a Free Market, individuals are free to earn profits.

In a Free Market, individuals are free to compete (to create faster, better and cheaperproducts and services).

In a Free Market, individuals are free to buy, earn, use and sell private property

(without excessive government regulations).

In a Free Market, individuals are free to set prices (including wages and salaries the

prices paid for labor services).

Business under free market are free to generate profit, to invest their capitals on the

investment that they think profitable, and they are free to fix prices based on the market

condition. But this does not mean, there is no rule that regulates the activities of the business.

Businesses are obliged to respect rules and regulations such as externalism, collision and

unnecessary price agreements (``free market``, n.d.).

2. Mixed economy

Definition; Mixed economy is an economic system in which land, factories, and other

economic resources are more equally split between private and government ownership. The

government controls the economic sectors considered important to national security and long-

term stability. Generous welfare systems support the unemployed and provide health care.

On the other hand ,mixed economy is an economic system in which both the state and private

sector direct the economy, reflecting characteristics of both market economies and planned

economies. Most mixed economies can be described as market economies with strong
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regulatory oversight, in addition to having a variety of government-sponsored aspects

(``mixed economy``, n.d.).

.

2.1 Origins of the Mixed Economy

Proponents say a successful economic system must be efficient and innovative, but

should protect society. The goal is to achieve low unemployment, low poverty,

steady economic growth, and an equitable distribution of wealth through effective

policies.

Many mixed economies are trying to modernize for national competitiveness (e.g.,

labour/government pact in Netherlands) (``mixed economy``, n.d.).

2.2 Features of Mixed Economy

Private and public sector exist side by side. Thus, economic activities are carried out

by individuals as well as the government.

Private and public sectors are required to function in a properly coordinated manner.

A part from national security, government engages itself in those activities that the

private enterprises consider as unprofitable or beyond this reach. All basic and heavy industries and other strategic sector of an economy e.g., banking,

transport, energy etc. are controlled by the government. Agriculture, consumer goods

and other industries trade are left for the private sector.

From this we can conclude, business has freedom to participate in the economy freely on the

area that are specified .what makes different in mixed economy from free market ,the

economy is not controlled privately .Government has the right to participate in the economy

.therefore private business under mixed economy system compute with governmental owned

.and the vice versa is true. The economy is not left freely to the private. Government has

again the role to participate and own resources in the economy actively. Under this system,

business does not have price restriction (``mixed economy``, n.d.).

3. Command economy

Definition: is an economic system in which a nations land, factories, and other economic

resources are owned by the government, which plans nearly all economic activity or a
http://en.wikipedia.org/wiki/Regulationhttp://en.wikipedia.org/wiki/Regulation


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system where the government, rather than the free market, determines what goods should be

produced, how much should be produced and the price at which the goods will be offered for

sale (``command economy``, n.d.).

3.1 Origins of the centrally planned economy

Central planning is rooted in the idea that group welfare is more important than

individual well-being. It strives to achieve economic and social equality.

Karl Marx popularized central planning in the nineteenth century, arguing that the

economy must be overthrown and replaced with an equitable communist system.

By the 1970s, central planning was the economic law in Eastern Europe, Asia,

Africa, and Latin America(``command economy``, n.d.).

3.2 Features of command Economy

Consumers' demand is predictable or controllable.

Supply and production is set by the state.

Prices are sated by the state.

Under, command economy every resources are owned by government. As a result of this,businesses are restricted to participate in the economy. If they are allowed it is with price and

capital ceiling(``command economy``, n.d.).

4. Ethiopian economy system, policies and strategy

The Ethiopian economy system is free market oriented system. But there is an argument that

system is mixed rather than free market system for the reason of government has major

control over resources.

4.1 Rural and Agricultural Development Policies and Strategies

4.1.1. The Basic Directions of Agricultural Development

Rural development cannot be confined only to agricultural development. Nevertheless, in the

Ethiopian context there is no question that the two are closely linked. Indeed, it is the

development of the agricultural sector that will provide the basis for rural development.

Hence, our rural development effort will give priority to the implementation of appropriate


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strategies for agricultural development. In view of this, it is useful, at this juncture, to discuss

the basic principles that govern agricultural development policy in Ethiopia (Ministry of

finance, 2003).

4.1.2 The Labor-intensive Strategy

A basic premise of our strategy, is that accelerated and sustained growth can be brought about

in Ethiopia not through capital-intensive but through labor-intensive production methods.

This is even more so for the agricultural sector than any other sector of the national economy.

But what is envisaged? Clearly, it is not that agriculture employ superfluous labor, backward

technologies and traditional agricultural practices. Neither is it to employ more labor than

optimum, per land plot. Rather, it is envisaged to use a heightened productive capacity of the

agricultural labor force to the fullest extent possible. When we say that we should apply

labor-intensive methods, we expect to promote advanced technology and farming methods

that are, nevertheless, not labor-displacing in nature. Such a strategy would include educating

and training the agricultural labor force to build up skills and enhance labor initiative. Some

agricultural development can be brought about through the extensive use of technology by a

few people. This strategy necessarily concentrates on agricultural methods that use land and

capital extensively but employ limited manpower (i.e. large-scale farming). On the other

hand, it is also possible to promote agricultural development (with significantly increased

yields fund a focus on high-value produce) by employing an agricultural labor force that is

provided some training and information; and, using non-substitutable machinery. Our main

agricultural development strategy will be the latter more labor-intensive method. Both

strategies are capable of yielding sustained results in terms of increasing agricultural

productivity and promoting technological growth. But they focus on very different aspects of

production and thus develop in very different directions. One strategy focuses on developing

the agricultural skills and work initiative of farmers. The other is based on deploying labor

displacing, sophisticated machinery. By adopting a labor-intensive strategy, we place

emphasis on the former (Ministry of finance, 2003).

The labor-intensive strategy is well placed to promote quality as well as quantity of

agricultural production, as its reliance on labor will allow close monitoring of agricultural

processes. A focus on high value crops that require close management and care is therefore

possible. Conversely, the extensive and more capital-intensive production methods focus on

agricultural products that are produced on a large scale and do not require such close follow-

up. As in the case of the labor-intensive strategy, this approach emphasizes increasing output


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and productivity, and developing the land through irrigation, application of chemical inputs,

diversifying production, etc. but using limited manpower and producing output that is mostly

of low value. In sum, the labor-intensive agricultural development strategy we follow does

not envisage employing backward technology and excess labor. Rather, it is a strategy by

which only the required amount of labor will be employed on each plot of land. It is a

strategy, which enables the development of the agricultural labor force so that it may more

readily utilize improved agricultural technologies and methods. Relatedly, it will enable the

significant development of labor intensive technologies in agriculture and large increments in

output as such technologies are applied. It is a strategy, which enables the agricultural labor

force to reach higher levels of education and training. It is a strategy, which utilizes irrigation,

promotes the production of high-value agricultural products and promotes production

techniques that maximize yield per unit of land. In short, it is a matter of pursuing a

productivity and technological growth path, which is based on skilled agricultural labor. As

a basic principle, our agricultural strategies and policies shall keep to this development path

(Ministry of finance, 2003).

4.1.3. Proper Utilization of Agricultural Land

Access and use of agricultural land is one of the most important development issues in

Ethiopia. Indeed, ensuring agricultural development and sustained high rates of growth

depends on the appropriate use of land. A fundamental aspect of the proper use of land is to

guarantee the availability of land to people who seek to make a living out of farming.

Another aspect is its sustainable use; i.e., taking care not to deplete our natural resource base.

This is critical to a viable agricultural sector and to increasing and even maintaining

agricultural productivity. Finally, within the constraints of ensuring broad access to land and

its sustainable utilization, land should be used to the maximum extent possible and all year

round, through irrigation, multi-cropping and the diversified production per unit of land, etc.

Agricultural output is thereby also maximized. (Ministry of finance, 2003),

Identifying what land should be used for what type of activity and utilizing land accordingly

is a key issue in the proper use of land in general. Moreover, ensuring a proper land to

population balance is also an important consideration. It is well known that in our country

there are regions when there are large populations but limited land and vice versa. Our land

use strategy will necessarily take all these factors into account. In short, the issue of using our

land in a manner that will maximize its contribution to overall development, that promotes


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sustainability of the natural resource base, and that ensures broad access is the path that will

guide our agricultural strategies and policies. We strongly believe that an agricultural

development strategy that lies outside this principle will, far from accelerating agricultural

development, weaken and arrest it altogether (Ministry of finance, 2003).

4.1.4 A Foot on the Ground

If anybody who wants to walk fast attempts to move both legs at the same time, he/she may

succeed in jumping but will not sustain a rapid pace for forward motion, as there is no basis

to propel the person forward. One moves rapidly only by lifting each foot in succession with

one foot always placed firmly on the ground and providing the necessary force for moving

ahead. Our vision for agricultural development is similar. We will have a rapid and

continuous forward movement only by keeping 'one foot on the ground'. Let us clarify this

further by citing one relevant example. The present agricultural labor force is largely illiterate

and uses traditional technology handed down to it from past generations. If we look down

upon this resource and attempt to employ a strategy that uses highly skilled labor and

sophisticated technology we will have no labor force to work with and end up with no

strategy at all. Yet, we can make significant improvements in our productivity by working

with the existing, largely uneducated, agricultural labor force helping it to reach higher levels

of productivity. This is our 'foot on the ground1 providing the necessary impetus for moving

rapidly ahead. Similarly, rather than relying exclusively on outside technologies, we will

draw on the useful agricultural experiences and practices in the country and improve on them

as necessary. Hence, it is necessary to record and pass on to the next generation practical

experiences and indigenous knowledge, and to make effective use of this knowledge in our

development efforts. Our strategies for agricultural development will seek to draw

opportunities for growth inherent within the available manpower and technology (Ministry of

finance, 2003).

However, this alone will not guarantee accelerated and sustained agricultural growth. While

we do believe that there is considerable growth that can result from optimizing the use of a

fairly abatable labor force and indigenous technology, this impetus will eventually be

exhausted. Before this occurs, we must be prepared to do all that is possible to create new

productive capacity. We expect to utilize the existing productive capacity to the maximum

extent possible, but in doing so we will also look for means to ensure that whatever growth

results from this is sustained beyond present capacities. We must work continuously to


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develop an educated and skilled agricultural labpr force and to put in place new technologies

so that new productive capacity will be brought in as the old is phased out. Thus, our strategy

for agricultural development must accomplish two tasks at the same time. First, we must

explore and put to good use all existing resources so that we reap the maximum growth

possible from the available productive capacity. We firmly believe that if we do not build on

existing productive capacity, and move to consider new sources of growth without first doing

this, we would retard our growth. Concomitantly, we must take all necessary action to transit

to a higher level of productivity using a more educated labor force and more sophisticated

technology. We will stand ready for the next productivity leap before the growth horizon of

the existing productive capacity is exhausted. We can, in this way, ensure accelerated and

viable agricultural growth with one foot on the ground and the other rising in the air for the

next step forward. Together with the principles of promoting labor-intensive methods of

production and proper use of land and natural resources, this is a basic principle guiding our

agricultural development strategies and policies (Ministry of finance, 2003).

4.1.5. Taking Different Agro-Ecological Zones into Account

Ethiopia is characterized by the existence of many agro-ecological zones, which differ in

terms of rainfall, soil types, altitude and the like. A very broad categorization finds (i) the

eastern and to some extent the southern arid lands where the main livelihood is cattle herding,

(ii) the western lowlands where there are large uncultivated lands and a small population, and

(iii) the highlands which are ideal for farming but where farm land is limited and rapidly

being eroded and where population density is high. It is not difficult to see that the

agricultural activities carried out in the different agro-ecological zones are greatly varied.

Clearly, any agricultural development strategy that does not take such differences into

account cannot be realistic. In fact growth will be arrested (hardly accelerated or even

sustained at current levels) if we develop similar strategies for all agroecological zones.

Given the variability of agricultural potential, our objectives for agricultural development can

be attained only if we identify the development opportunities existing in the various agro-

ecological zones and specify and implement strategies that will enable us to take advantage of

such opportunities. Another basic principle guiding our agricultural policies and strategies is

therefore that all efforts will be based on detailed development plans for each agro-ecological

region so as to bring about the maximum possible growth in each region and thereby


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accelerate and sustain the country's overall agricultural development (Ministry of finance,

2003).

4.1.6 An Integrated Development Path

Every development effort requires coordinated and integrated management pf different tasks.

Likewise, support to agricultural development in Ethiopia requires the coordinated

management of very many activities. First, when we consider agricultural development in

isolation, we observe that it embraces a large number of different products and activities.

Exploring these tasks in detail, identifying the linkages among them and understanding the

opportunity for key linkages and the gains from such linkages all make a significant

contribution to making the resulting growth rapid and sustained over time. Therefore, our

agricultural development efforts will follow a development path that seeks to promote

integrated activities. (Ministry of finance, 2003).

Integration is required not only among the activities and products in agriculture. Agricultural

development is closely linked to social development sectors such as education and health and

infrastructural projects such as road construction. One cannot register rapid and accelerated

growth without the other. In addition, agricultural development is closely inter-connected

with sectors such as trade, finance and industry. An effective development strategy requires

an understanding of favorable conditions, which one creates for the other anddesigning

interventions that will promote such conditions. Using the integrated approach also means

identifying developments and tasks that will nullify each other. Our development strategies

must determine when such developments need to take place simultaneously or when one

needs to cede to the other; and, ensure that this is carried through. Our agricultural

development effort is placed in the context of a development strategy that is integrated in this

manner. Ensuring integrated development is therefore also a guiding principle for our

agricultural policies and strategies. The above sub-sections identify the basic directions for

our agricultural development efforts. This, of course, is no substitute for the task of

formulating detailed strategies and policies. What it can do, at most, is provide the orientation

for such strategies and policies. Cognizant of this, we now turn to a discussion of detailed

policies and strategies related to agricultural and rural development in connection with each

of the five principles elaborated above (Ministry of finance, 2003).


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4.2 Industry Development Strategy of Ethiopia

The Industry Development Strategy of the country has put in place the principles that

primarily focus on the promotion of agricultural-led industrialization, exportled development,

and expansion of labour intensive industries. These principles are inter-dependent and inter-linked one with another. The strategy has also set the other principles that clearly stated the

pivotal contribution of the private sector, the leader ship role of the government, and the

integrated and coordinated participation of the public at large in nurturing the strategy. This

strategy refers to those industries which are primarily involved in the production of

manufactured goods. It is also tried to include other industrial classified sectors in the

document other than the manufacturing industries (Industry development strategy, 2002),

4.2.1 Fundamental Principles of the Strategy

1. Considering the Private Sector as an Engine of the Industrial Development Strategy

Ethiopia has now followed the path of the free market economy system, in that it is inevitable

that the private sector would gradually become the propeller of the growth of the economy.

Thus the strategy should be bole to create conducive environments that help encourage the

private sector to play its active role in this regard. Nowadays, many countries of the world are

inter-linked and inter-connected in the areas of trade and investment.Therefore, our private

entrepreneurs must be competitive in their products and services bother in price and quality

as well as in timely supply of goods and services in order to maximize and to benefit much

from the global market. It must be under stood that however the Ethiopian private investors.

Compete with their foreign counterparts who possess latest technology, huge capital

resources and advanced managerial skills with the problem of lock of trained and skilled

manpower, and shortage of capital resources coupled with low level of technological

advancement. This could make the competition stiff to our investors. The other problem is

that some others want to prosper and benefit improperly, instead of involving themselves in

the production of goods and services that would be competitive in the world market and

generate additional resources for further development. Thus, to reverse the prevailing

situation a proper mechanism should be devised to gradually put an end the means of

becoming as a rent seeker. Once the developmental force which has great devotion and

commitment to involve in the development endeavor has been created all round support has

to be rendered in order to encourage the efforts of this developmental force to penetrate into

the global market. In this regard, the industrial development strategy should, thus, consider


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the private sector, an engine of growth, as one of its fundamental principles(Industry

development strategy, 2002).

2. Implementing Agricultural Development Led Industrialization Principle

Since Ethiopia is an agrarian country the building up of industrialized Ethiopia can be

realized only through the implementation of agricultural and rural centered economic and

industrial development strategy. It must be underlined that the implementation of agricultural

developmentled industrialization would at the same time mean that fostering the expansion of

the growth of industry side by side to the agricultural development Thus, it is true that the

general economic development of the country as well as the pace of the growth of the

industrial sector is determined by the development of the agricultural sector. Fast industry

development can only be secured when the industrial sector could reach at the stage of

producing various agricultural inputs and consumer goods, and be able to supply agricultural

products with added value. If the agricultural developmentled industrialization strategy can

be successfully practiced, the developmental strategy would be gradually transformed-in to

industrial-led development strategy (Industry development strategy, 2002),

3. Implement Export-led industrialization principle since

The foreign market plays a crucial role in securing dependable market for valve added

agricultural products, the pace and the direction of the growth of the industrial sector is also

determined by successful implementation of this achievements. On this connection, to

encourage the investors competitiveness in the world market, available information with

regard to the type of products, price, and timely supply of products in the required area

should be availed to them. The industrial competitive capacity would be achieved only when

it is possible to promote strong export oriented industry and be able to transform to and

implement this industrial competitiveness in other industrial sectors too. In fact, in

competitiveness the presence of skilled managerial personnel, active involvement of the

workers and other factors could be taken in to consideration.The development of industrial

sector also plays an important role fertile ground to the promotion and development of many

other industries. For instance, the development of a sound based leather shoes export industry

at the same time help to faster the promotion of other leather and leather products industries

and this in turn play on important role in the expansion of livestock resources, and the

establishment of qualitative and standardized modern abattoirs (Industry development

strategy, 2002).

4. Focusing on the expansion of labour intensive industry direction.


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Abundant and hard working labour force are the basis of the competitiveness of our

companies. Our industries may lave the opportunity of becoming competitive by utilizing this

abundant and hard working force. Unless this abundant and hand working force is promoted

into productive citizens, the presence of abundant labour force alone could not be served as a

means of reaching to the desired good. For instance, textile and garment industries by nature

are labour extensive and capital intensive sectors in which Ethiopia can have comparative

advantages in the world market. Realizing the importance of textile of government sector, all

under developed counties of the world including China and India with 1.2 billion and 1

billion population respectively, pay a grater than to achieve a successful resent in this sector.

Therefore, conducting a strong manpower development is essential to be competitive in the

global labour market. (Industry development strategy, 2002).

5. Implementing effective domestic-foreign investment partnership method

It is known that foreign investors mostly have huge capital and strong world market net work

coverage. Thus in Ethiopia where there is scarcity of investment capital and market access,

the inflow of foreign investment to the country, has an important contribution in the

promotion of the Industrial Development Strategy by wavy of transferring advanced

technology, acquiring modern management system, activating the investment capital and

helping to successfully penetrate into the global market. On the other hand, it must be known

that foreign investment has disadvantages in connection with profit and dividend repatriation

after the foreign based company is commencing its operational activities. Besides since there

will be weak worldwide market network as well as modern management skill and know low,

the country may face the problems in developing productivity and ensuring sustainable

competitiveness at the initial few years. The industrial development strategy therefore takes

in to consideration both the advantages and disadvantages of foreign investments.It is only

possible to attract foreign investors by creating conducive environment that encourages the

production of competitive goods both in quality and price, and gives guarantee to the

protection of private property. This protection of the private property should therefore, be

assured by way of stabilizing and guaranteeing the private property against nationalization

and expropriation, and creating efficient and transparent judiciary and civil service system.

Thus the private sector is said to be an engine of the industrial development strategy, when a

fertile ground that boost the capacity of the industrial development strategy could be

formulated by making the private sector to be the prime moved of the strategy and wide

participation of foreign investors in partnership with the domestic ones.(Industry



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.6. Implementing the direction where, the government will play a leading managerial role.

The government should not intervene in the investment areas where the private sector can

successfully involve. Thus the government of Ethiopia has to limit itself in the identification

of problems to be posed in connection with market failure and find ways of solving the

constraints based on its execution and financial capacity and appropriate experiences gained

from those countries which successfully complemented industrial development. In its short

intervention, the government is to play a role in designing a system that help fill market

failure gap and in its long plan, it should involve in face-lifting the mechanisms that

encourage the private entrepreneurs to file the market failure gap by itself. In short, the role

of the government in the industrial development would focus on the formulation of favorable

condition for private sector development and involve in the activities where the private sector

is unable to participate(Industry development strategy, 2002).

7. Implementing the principle that encourage the active participation of the public.

As the experiences of those countries that have secured rapid economic Development shown,

the government or the private investor could not separately register a desired sustainable

economic development. It is with a concerted and active participation of the government, the

private sector and the public that a swift industrial development has been achieved in these

countries. The rapid development of Korea and Malaysia can be cited as an example of this

fact (Industry development strategy, 2002).

a) Government-private sector forum

In the case of our country, one of the priority among the decisive political requirements to be

fulfilled the government has to make free its reliance from the private entrepreneurs. It would

be very difficult to the government to property execute its leading managerial role if its

existence is lingering to the private entrappers in many ways. For example, if the government

needs to get a financial resource to be abstained from the private entrepreneurs to win a vote

of an election, it could not be considered as private entrepreneurs free government. In our

country where 85 percent of voters are peasant population, the political and financial support

of the private entrepreneurs in this regard will result in vain. In the same way, the efforts

being made by the government alone could not bear productive outcomes. Thus the

establishment of public private dialogue form is an important device in the promotion and

trengthening of government private sector close cooperation to work together for one and the

same goals. Sectoral level dialogue forums that embrace those investors involved in the

investment areas of textile andgarment, leather and leather products, agro-processing,

construction,export etc. are to be also formed (Industry development strategy, 2002).


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b) Peasants and industrialists IntegrationAs it is clearly stated in the industrial development

strategy, a firmintegration between the peasants and the industrialists is another

mostimportant element in achieving sustainable industrial development in thecountry. 85 per

cent of our population is peasants. Thus the achievementof successful industrial development

is unthinkable with out activeparticipation of this large segment of the society. The peasants

and theindustrialists are therefore the prime actors in the implementation ofAgricultural

Development Led Industrialization (ADLI) sharing interlinked and common basic benefits.

Thus the government should playactive role towards the creation of an important mechanism

that speed upthe development of common attribute and attitude both in the minds of the

peasants and the industrialists (Industry development strategy, 2002).

c) Employer- Employee RelationThe Prevalence of smooth employer - employee relation is

indeed an otherkey element in the acceleration of the economic development of thecountry It

is impossible to accomplish rapid industrial development ifgrievance exists in the day to day

work relation between the employer andthe employees. It must be under stood that the lives

of the societyincluding the employer and the employees could not be improved unlessthe

country could be able to promote globally competitive industrialsector.Realizing the fact that

the collection of additional income can be generatedwith the active involvement of the

employees, the employers becomeliveliness to proportionately share the profit with there

employees. Likewise, the employees must understand the reality that the employees

haveinvested a large amount of financial resources to get profit. Thus bothsides could likely

develop common understanding that facilitates theirfairly distribution of profit on negotiation

basis Finally, the government would have to play its firm managerial role to strengthen the

concertedparticipation of the private sector, the employers, the employees, civicsocieties and

the public at large in the industrial development of the country (Industry development

strategy, 2002).

4.2.2. Creating favorable condition for industrial development

developmental entrepreneurs In order to enable the developmental entrepreneurs to serve as

an engine ofthe industrial development, a better enabling environment for thedevelopment of

the private sector have to be facilitated by way of creating macro economic stability,

modernizing the financial system, creatingdependable physical infrastructure services,

developing effective humanresource and creating efficient civil service and judiciary system

thatsupports development (Industry development strategy, 2002).

a) Creating stable macro-economic stability:


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The government should have to create stable macro economic by gettingrid of rent-seeking

trend to promote and strengthen efforts of thedevelopmental entrepreneurs.To help the

developmental entrepreneurs to work and be directed inmeaningful plan and involve in

investment in the long run, the creation ofstable and foreseeable economic environment is

necessitated. Howeverhealthy economic growth has a decisive role to play in the promotion

ofmacro economic stability, the policies formulated by the governmentcould also be

conducive to support the accomplishment of this objective.To this effect, the creation of

modernized financial system suitable fordevelopment is a compulsory instrument (Industry


b) Creation of modern financial system:

Modernized and conducive financial system helps to create favorablecondition to the

flourishment of developmental entrepreneurs by way ofdeveloping efficient trade transaction

payment system, which in turnfoster the mobilization of savings for investment. This

financialeconomic sector includes bank, insurance and other financial institutions.Banks

could play a major role in the collection and transfer of financialresources for investments. In

this regard, domestic private investors havebeen encouraged to largely involve in this sector

and at the same time thenational Bank of Ethiopia is strengthened in order to strongly

monitor thenormal circulation of money in the national economy. However, theparticipation

of foreign banks at this stage of the country is not found tobe viable in many ways. In fact it

is possible to utilize the expertises offoreign companies to build up the capacity of the

national banks. In viewof their importance of nurturing development, a system that supports

theestablishment and effective use of leasing capital, venture capital, sharemarkets insurance

and pension institutions, and rural financial institutionin development has to be implemented.

And a mechanism that envisagethe right direction how to invest the finance collected from

these smallenterprises in a long tern investment has to be implemented (Industry development

strategy, 2002).

C) Infrastructure:

It is well known that the development of infrastructures such as road androad transport,

railway and railway transport, telecommunication, electricpower and water supply service are

among the major important tractorsthat expedite the development of industry and private

invetors (Industry development strategy, 2002).

1. Road and road transport service:The government of Ethiopia has been implementing a road

building policyto improve the road facility in the country through the construction of

newroads and upgrading the standard of the existing ones. Since the efforts arebeing made in


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this connection requires high foreign expenditure, the roadconstruction activity is by large

carried out with foreign loans and support.However the government has allocated a road fund

in order to minimize thefinancial scarcity of road construction, it is not possible to

registermeaningful results. The strategy that is designed to construct rural feederroads with

the participation of the rural community, too, could not beeffectively implemented. Exerting

an effort to increase the foreign loans andsupports, strengthening the road fund utilization and

constructing ruralfeeder roads with the active participation of community are, therefore, the

possible alternative solutions of alleviating this problem.Besides the managerial and

organizational system of the Ethiopian RoadAuthority is improved, and made to leave off its

involvement in theconstruction work to curtain the road conducive environment has to

befacilitated to encourage and develop the capacity of private constructioncompanies and to

support them to work jointly with foreign companies toacquire adequate experience in their

fields of activities (Industry development strategy, 2002).

2. Electric power supply:The expansion of the electric power supply has a paramount

contribution inthe development of industrial sector. To this effect, the strategy which is atthe

pipeline to build additional hydro and geo-thermal power generation hasto be continued in its

consolidate manner. As a result, both domestic andforeign private investors are highly

encouraged to invest in power generationarea. But the distribution activity will remain in the

hands of the governmentdue to the presence of wide power supply failure gap. In addition an

appropriate mechanism, which activates the generation of electric powerusing diesel

generator, sunlight and wind power has to be mapped out.Besides, the management capacity

of the Ethiopian Electric powerCorporation has to be also backed up with foreign expertise.

(Industry development strategy, 2002).

3. Railway transport:Railway transport is one of the important infrastructure facilities that are

needed in to the achievement of effective industrial development. Theexpansion of the

railway line has, therefore, a major contribution in thepromotion of the growth of the country

by way of connecting Ethiopia withmain parts and major transport corridors. Since the

country is unable tostretch out internal railway lines reaching it to the foreign ports

throughwhich the country imports and exports its trading goods, the current strategyof the

government in the upgrading of the existing condition of its railwaytransport is focusing on

modernizing its management system and encouragingthe construction of railway lines by

domestic and foreign investors on a longtern concession (Industry development strategy,

2002).


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4 Air transport service could play a meaningful role in the industrialdevelopment process of

the country. In order to maximize its contribution,the construction of new domestic air fields

and the upgrading of the existingones have to be carried out side by side to the efforts being

made to enablethe airline to be competitive withits foreign counter air lines (Industry


5. Industrial Zone:Industrial Zones have to be made readily available in major cities and

townsof the country with all the required infrastructure facilities such as road,electric power,

telecommunication and water supply in order to speed up theallocation of plots of land for

investment (Industry development strategy, 2002).

6. Manpower development:The effective development of disciplined and hard working labor

force has animportant role to play in ensuring efficient industrial development sector. Tothis

effect, an appropriate educational curriculum of professional and vocationalsystem has been

started. In addition to this, the promotion of on the job trainingand apprenticeship has to be

firmly undertaken. Further make the trainingsystem should include ethical values, be able to

meet the labour forcerequirement of the investors and consider the accountability of

managers (Industry development strategy, 2002).

7. Information and fax collection system: The presence of appropriate agricultural

information and tax collection strategydevelopment and the expansion of suitable

infrastructure facilities. Theirs it isimportant to design on agricultural information system

could enable thepromotion of the private entrepreneurs and putting an end the way to become

arent-seeker. The current tax payment system also encourages the taxpayers tobe responsible

to pay their taxes on time.To successfully attain this lefty objective, the formulation of

efficient, effective,responsive and accountable judiciary and administrative system that

supportsproductive development is mandatory. Beside, the building up of democraticrule in

which peace and the rule of law are entertained could be taken, as partand parcel of this

development process and above all it must be considered as aprerequisite development


4.2.3 Directly support genuine investors

To expedite our development in accordance with the direction put in place aconcerted effort

has to be made towards supporting strengthening of genuinedevelopers, and by doing so

compel the rent seeker to involve in the developmentcomp. It is also necessary to support the

promotion of small, medium and largescaleindustry operations and encourage the most of

trained manpower to join theindustry sector. Accordingly, some of the industry sub-sectors

that are given topprimary in the development effort of the Government are out lined below.


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1. Textile and Garment Industry:ince cotton is the basic in put for the textile and garment

industry thesub sector has a direct link age with the agricultural sector. As a react ofthis, the

sub-sector flute us the basic principles of the industriesdevelopment strategy. The sub-sector

helps to maximize capital saving,labour intensive usage and value added on agricultural

products. Thesub-sector also gives chance to compete in the export market. Since thesub-

sector produces yarns and fabrics the basic input of which is cotton,it is also possible to

produce fabrics with manmade yanks. Further moreit is again possible to establish chemical

industries whose products wouldbe used as inputs by the textile industries. To expand and

enhance thedevelopment of the textile and garment sub-sector, it is important andnecessary to

let the promoters and the operations in the cotton, textile andgarment sub-sector, and the

institutions that would give various supportto the sub-sector in manpower training and

research work incorporationand integrated manner.In addition to this, by identifying and

studying problems and constraintscounterfoils by the sub-sector solutions have to be devised.

It is alsoimportant to prepare development plan and introduce a system that wouldenable the

layers in the sub-sector to know their part and to let them playtheir role accordingly. More

over, to bring about fast growth there is aneed to establish consultative thrum the members of

which would theactors in the sub-sector. The forum gives special attention to thedevelopment

of the sector and also examines plan set for thedevelopment of the sector and oversee its

implementation.The problem that is being exited in the textile and garment

industriespertaining skilled manpower and management inhibits the industries frombeing

competitive both in price and quality neither in the domestic nor inthe foreign markets. To

ameliorate these problems there is, thus, a needto involve foreign companies in the

management of the industriesthrough contract management arrangements. This would enable

theindustries benefit the industries from their rich experiences. In order toimprove the

productivity of the workforce, there is also a need to undertake vocational and technical

training.Furthermore, to ease the management and the productivity problems ofthe public

textile and garment enterprises, and there by to make themlay active role in the sub-sector,

there is a need to privatize them or torun them either through joint venture on contract

managementarrangements.Foreign partners which are coming to the country through the

abovearrangements, as they would bring with them technology, market andmanagement skill

and know how they should be supported and berendered priority in credit services that would

help fur there investment.In the attempt to produce export standards products the quality and

standards Authority of Ethiopia should render services to the industriesthat would enable

them to produce export standard products. Toencourage the industries in their export credit


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service, efficient marketingand information systems and exemption from export taxes have to

be inplace.The investors in the sub-sector should improve their competitiveness andtake

advantage the market opportunities that are made available theEuropean Union and the

United States to access their markets quota andtax free.In the process of realizing this

opportunity, a concerted effort should bemade to attract foreign investors through the

diplomatic missions, andhere Wally through the creation of contusive business environment


2. Meat, Leather and Leather Products Industry:With regard to this industry sub-sector, there

is also a need to establish aconsultative forum comprising the actors in the sub-sector.

Through thisforum a study should be under taken that will identity problems andconstraints,

which hampered the development of the sub-sector. Basedon the results of the study a

development plan has to be mapped out thatwould lead to the solutions of the problems and

that would indicate theroles very actor would play in the sub-sector. To get the plan realized

allthe concerned artic should work together and in common. Some of themajor actors in the

sub-sector are pastor lists investors, shouter houses,turneries, Leather and Leather goods

producing factories, the EthiopianLivestock marketing Authority and Leather and Leather

goodstechnology Institute. The successful marketing of live cattle and meatrequires

improvement in the health of the chattels and establishment ofmodern shouter houses with

the necessary standard and number in theother hand to produce leather and Leather goods

with the required qualityboth for domestic and foreign markets, an effort should be made

towardsIndustryimproving the existing tanneries to enable them produce at full capacityand

expanding the existing ones and establishing additional newfactories. Further more promote

shouter house services in the cities andtowns and also create enabling situation to improve the

productivity ofthe work force operating in the sector by arranging various

trainingprogrammes in the Leather and Leather products technology institute.As the Leather

Producing enterprises of our country do not have their onbrands they are not able to compete

with foreign companies which havedominated the market through their contracted agencies

by way of price,quality control and rendering other support Services. To resolve thisproblem,

there is a need to support our enterprises in their effort to meetthe requirements of these big

companies. And by all means attract andencourage these companies to buy our products. This

entries to under study and mahout a long term plan with which to act (Industry development

strategy, 2002).

3. Agro Processing Industries:The agro processing industries produce both for domestic and

foreignmarkets. They are capital intensive and the major raw material for theseindustries are


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vegetables and traits and airmen by products. For thesector to fastly and sustainable grow and

develop, the agriculturalproducts should mark an increasing growth both in quantity and kind.

Inorder to realize the aspired growth and development in the sector adevelopment plan that

would integrate the industry and the agricultureshould be in place. The agro- processing

industries by processing the cereals that are widelyproduced in the country could produce

corn oil, methane, starch and cornflax with competitive price and quality for both and foreign

markets.Since these predicts are dominantly controlled by big companies in theinternational

market, there is a need to create a situation in which thedomestic investors could work

incorporation with these foreigncompanies and necessary supports be given to them. To reap

the benefitfrom the sector the domestic and foreign investors should be supportedand

encouraged so that they could go in to investment.The other item that is given special focus

in the Agro-industry sector is toselling of processed which has an add value. The raw coffer

which ourcourtly exports to the developed countries accounts only 8% of what theconsumers

in the developed nations pay for the coffee they drink. And itis this small amount export

income that the Ethiopian coffee tamers andtraders share among themselves. The remaining

balance (92%) is sharedamong the other groups who sold the coffee by processing and adding

value to it is therefore, our country to benefit much from of processedcoffee, there is a need

to encourage attracts foreign companies to jointlywork with the domestic investors (Industry


4. Construction Industry:The construction industry is capital intensive as well as labor

intensivesector. It is also the basis for the development of other economic sectors.As a result

of this the sector is one of the industry groups that is given toppriority by the government.

To enhance the development of the sector there is a need to establishconsultative forum

where the actors in the sector would be members.There is also a need to identity the problems

encountered by the sectorand there by prepare a plan that would be implemented commonly

by allmembers of the forum.In order to alleviate the financial problem the construction

companiesface with regard to purchase of machineries and shortage of workingcapital, a

system should be devised in consultation with the financial and put in place. Further more a

study should be conducted as howforeign investors involve in the promotion of the

construction industry.On the basis of the results of the study design and implement a plan that

attar of foreign in vectors in to the country. The effort that would beexerted to develop the

sector should and ought to be integrated with theover all government development plan.The

Ethiopian youth trained in the various construction fields should beassisted to be organized in

small construction companies and encouragedto participial in construction projects. To


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further strengthen them theyneed both technical and supervisory support either from

government orthe big companies operating in the construction field. It is also important to

organize companies from which talented leaders could emerge. It isagain necessary to help

the establishment of capital goods leasingcompanies that would give teasing services to these

small constrictioncompanies.Small construction companies that are to be established and

strengthen asdescribed above could under take development works both in the ruralareas and

small towns. To ease the shortage of residence houses in thevarious towns and to enable

people to constrict houses of their ownthrough saving practices, a concerted effort should be

made to supportand encourage the establishment of mortgage companies some of the major

problem that inhibit the development of the construction industriesare shortage of finance and

trained manpower, the non-existence ofsufficient certification system, and that support

industries which produceinputs and accessories could not grow side by side with the

constructionindustries. To resolve these problems government should provide bank credits,

establish and expand technical and vocational training centerscreate a situation in which

imported inputs could be substituted bycompetitive domestic products both in price and

quality(Industry development strategy, 2002).

5. Strengthen Micro and Small Companies:As Micro and Small Companies are the

playground for the emergence ofentrepreneurs and as they have the potential to create large

employmentopportunity, they need to be given special attention and support forgrowth and

development. Those Agencies established both at the Federaland Regional Level, and the

municipalities at various cities and towns areexpected to play a role in promoting and

strengthening these companies.he core issue in the promotion of the micro and small

companies is theestablishment of consultative forum in which the operators in the

sectorwould be members and which coordinates the efforts of the actors in thesector. Add to

this, there is again a need to prepare a plan and implementIndustry that would help solve the

problems these companies are faced with. Asmany of the operators in the sector are not

trained, the management ispoor and the productivity is low as a result there is shortage

ofproduction. To remedy there problems based a training program shouldbe designed and

implemented. The other problem the sector isencountered with is shortage of seed capital. To

resolve this problemthere is a need to use various financial sources such as traditional saving

mortgaging residence houses, //, and assistances related to governmentdevelopment programs

the Government could particularly strengthenthese micro and small companies through

allowing them to participate indevelopment works and also through buying their products.

With regardto easing the financial problem of the companies, the government canassist them


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through the provision of land and shades to work on andthrough encouraging the

establishment of Capital Goods Leasingcompanies. They could also be assisted through

subcontractarrangements that would be made between middle and big companies.Trade fairs

could be also another area by which the micro and smallcompanies could be assisted and

supported (Industry development strategy, 2002).

6. Prepare the necessary ground to ascertain sustainable industrialdevelopment:In the effort to

ascertain sustainable industrial development finance andinfrastructure are basic inputs that

need to be available. In the strategypriority is given to the labour intensive industries and the

promotion anddevelopment of these industries is expected to be in line with theeconomic

strategy of the country ADLI. In the second phase of theimplementation of the strategy a

concerted effort will be made topromote capital-intensive industries. During this time

knowledge andexperience in industrial development will be further enriched. And theeffort to

make available trained and skilled manpower both atmanagement and operational Level will

also be further strengthenedThe skill in quality control will again be improved. For the

industries tobe strengthened and to support each other there is a need to buildcapacity in

information communication Technology (ICT) and in Bio-Technology. The development of

bio-technology has a major impact onthe enhancement of our economic development. The

development ofcapacity in bio-technology contributes to the development of the agro-

Industry sector, to strengthen agricultural research and to use and handleproperly genetic

resources of the country (Industry development strategy, 2002).


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