Tackling limited diversification and decreasing exports in Ethiopia

Guest blog by Yilma Nati Tefsu

This is a blog series written by the alumni of the Leading Economic Growth Executive Education Program at the Harvard Kennedy School. 65 Participants successfully completed this 10-week online course in May 2021. These are their learning journey stories.

I want to start my answer to the final week of this amazing course by saying something different, something that has nothing to do with the question above but a reflection of the many positives I have gotten from this course and the great people I have met along the way. This course has not only taught me the means and tools to tackle my growth challenge but also has introduced me to as a set of like-minded and brilliant people who are seeking change and growth in their own little worlds, whatever shape that may take. Now that we have gotten that out of the way, let me dive into the questions.

Week 1 and Week 2 were a time for me where I struggled with what I know to be key challenges in my country and what the complex and critical challenges are in terms of knowhow/technology and approaches needed to solve the problem. Using this mindset, I narrowed down on were three issues I felt needed to be addressed. These challenges were limited export diversification, constrained Institutional capacity for implementation, and emerging macroeconomic imbalances.

While all three challenges were critical in both the context and how they can be solved using the PDIA approach as a way forward, I also felt that looking at the rock song chart of Professor Ricardo and the Atlas of Economic Complexity Outlook for my country, that limited diversification and decreasing exports (need to identify new sources of growth) was the growth challenge that I needed to focus on.

Once I had gotten this clarity, what week 3 gave me was a better sense of what specific issues that I needed to address within my growth challenge. Week 3 was also critical in helping me understand how to easily deconstruct my challenge by utilizing the fishbone diagram to display and identify entry points for immediate policy action. This meant that I had to not only think critically about my growth challenge and its different elements but also employ the 3 A’s to clearly look at what authority, acceptance, and ability I had to influence positive change in my growth problem. After employing this exercise, the growth challenge I landed on was ‘limited diversification and decreasing exports (with a focus on agricultural exports)’ and the 3 possible entry points for my growth challenge were lack of strong export promotion and market intelligence, poor development management and promotion of agro-industrial parks, and weak coordination and accountably of government organs.

In week 4 the key lesson that resonated with me was the concept of high bandwidth organizations. This concept was clearly exemplified by the case studies of CINDE and the Albania Fason BBT, which I found very relatable to how I could help shape similar high bandwidth organizations in the context of my own country. Given that I had now narrowed down on the development of Agro-processing industry as a source of export growth for my growth challenges, the CINDE and Albania cases helped me reflect on the challenges faced.

The development of the Agro-processing industry in Ethiopia is highly dependent on the success of Integrated Agro Industrial Parks which have been under construction for the past few years. Government has made various attempts to coordinate the development of these parks and ensure investment and increased exports. Yet the organization of these coordination structures is not reflective of a high bandwidth organization.

With this in mind, week 5 made me look at the previous reforms and helped me categorize challenges into binding constraints. This meant that I had to look at the Agro-processing sector and the development of the Agro parks in my country and see what was critical and binding in addressing my growth challenge seen in past reforms and future actions. This helped me narrow down to three topics:

  1. Weak government coordination:  a streamlined action plan needs to be developed and there needs to be a properly functional convening platform between the federal and regional level of government to foster commitment and targeted solutions to address challenges in developing the IAIPs.
  2. Supply chain development: there needs to be a detailed analysis and implementation of existing product level assessments, development of the supply chain and production capacity of areas across the parks, and implementation of proper extension services to ensure quality and supply of products. The Ministry of Agriculture needs to work closely with the regional agriculture bureaus and the Ministry of Trade and Industry to achieve this task.
  3. Investment Promotion: focus needs to be placed by both the Ethiopian Investment Commission and the regional investment bureaus on developing a tailor-made strategy for promoting the Agro-processing industry. With focus also being placed on supporting local manufacturing base. The investment promotion activity does not specifically show the opportunities in the sector but focuses on the holistic advantages of investing in manufacturing in Ethiopia.

Week 6 helped me address my growth challenge in a more detailed manner by looking at the issue more rigorously and looking at the actors that can help me bring about the desired change.

My reflection on my growth challenge in week 6 was as follows.

Agro-industry is a key component in the agriculture sector considered to be a link between agriculture and industry. From this sub industry, the food and beverages manufacturing industry is a key value chain the government is focused on. In 2016/17, about 30% of the value added by manufacturing industries to the national account was contributed by FBPI. So, to aid this progress, the government has developed an Integrated Agricultural Industrial Park (IAIPs) strategy that aims to develop multiple IAIPs, each linked to an Agro-industrial Growth Corridor. For the first phase of implementation, 4 IAIPs are being developed in the four major regions of Ethiopia. Furthermore, multiple Rural Transformation Centers are also envisaged to provide linkages to producers and facilitate raw material supply to the above IAIPs. These parks have tremendous potential to aid the structural transformation of the economy. Nonetheless, they currently suffer from a plethora of challenges. To mention but a few, weak coordination and accountability across key government stakeholders; weak and unclear linkage of IAIP and RTC and the agricultural supply chain; and limited service provision.

One of the unique opportunities that I have been presented within addressing this challenge is that there is already a government structure in place to address these critical challenges. To this, a steering committee was established at the Prime Ministers Office in January 2020.

Following the go-ahead provided by the steering committee, a suggested governance structure has gone into implementation. Two technical committees within a Federal IAIP Programme Steering Committee have been established: namely, the Investment and Supply Chain Technical Committee and the Safety and Quality Technical Committee. Each of the committees hosts various government agencies tasked with addressing the challenges mentioned above. However, the critical bottleneck in operationalizing these structures is that these similar mechanisms are not being strengthened (or not in place) at the regional level. For example, when looking at investment promotion, while there is some work currently being undertaken at the federal level, targeted investment promotion activities are not being duplicated at the regional investment bureaus.

Given the learning from the previous weeks, weeks 7 and 8 helped me identify the main authorizers for my growth challenge, how to convene teams (from learnings from Sri Lanka), and use the external/internal best practices that I needed to look to address my growth challenge.

Week 9 introduced what I feel is the most critical issue for this course that being ‘the sense of us.’ In the case of my growth challenge, this can manifest in two instances. One is how we view our internal sense of us, and the second is how we try to include a broader sense of us.

For the first point, the Agro-processing industry development is primarily based in 4 regions in Ethiopia, each autonomous from the other and each region administering large industry parks being built in each area. The challenge for developing a sense of us in this regard is that each region is going about the development and administration of the parks in their own secluded lens. This creates a problem of integration and not recognizing the comparative advantage each has to offer. The second broader sense of us that needs to be developed is the integration of the local industry and the international one in the sense that there needs to be a focus on the development of an Integrated value chain (for both inputs and industry).

In summary, the key learning for me from this amazing course is that growth challenges are complex and need to be understood with clarity and time. Thus, we need to build awareness and systems to bring about the desired growth (the sense of us) and look for growth that is smart, not just convenient.

To learn more about Leading Economic Growth (LEG) watch the faculty video, and visit the course website.

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