Ethiopia’s Tale of Two Economic Models: The Viability of Growth without a Port (Red-Sea)
“Reminder to our politicians: Learn from recent history”
Introduction
Ethiopia, a landlocked country in the Horn of Africa, has always fascinated economists and policymakers. It registered double-digit economic growth for several years under former Prime Minister Meles Zenawi, despite lacking significant natural resources and direct access to a seaport.
However, under Prime Minister Abiy Ahmed’s Prosperity Party, the nation seems to be diverting its focus towards the necessity of having a port for economic growth. This shift raises the question: is a port truly indispensable for Ethiopia’s development, or can effective economic models render this traditional requirement moot?
The Zenawi Model: A Legacy of Innovation
Under the leadership of Meles Zenawi, Ethiopia proved that being a landlocked nation need not be a barrier to achieving robust economic growth. His strategic focus extended beyond traditional sectors, encompassing not only agriculture, light manufacturing, and services but also pioneering the development of industrial parks and agro-processing initiatives. These forward-thinking measures were bolstered by astute public investments in infrastructure, education, and healthcare.
Additionally, the effective utilization of international aid and remittances from the Ethiopian diaspora played a significant role in sustaining this multifaceted growth. Zenawi’s comprehensive economic model served as a paradigm for how landlocked countries can overcome geographical limitations, demonstrating that the absence of a port can be rendered nearly inconsequential when there’s a well-rounded and resilient economic strategy in place.
Key Strengths of Zenawi’s Model
Diversification
In the realm of economic development, diversification acts as a safeguard against the volatility inherent in global markets. Meles Zenawi’s administration in Ethiopia understood this principle well, adopting a diversified approach that spanned multiple sectors of the economy. This multi-pronged strategy not only spread the risks but also allowed the nation to capitalize on various growth opportunities.
Agricultural Diversification
While agriculture was the backbone of Ethiopia’s economy, the government under Zenawi didn’t simply rely on traditional forms of farming. They promoted high-value crops alongside staples, invested in modern agricultural techniques, and integrated agro-processing initiatives. This ensured that the agricultural sector was robust enough to withstand market shocks like plummeting commodity prices or reduced demand for specific crops.
Expansion into Light Manufacturing and Services
Beyond agriculture, Zenawi’s economic model pushed for growth in light manufacturing industries such as textiles and leather goods. Industrial parks became pivotal in this expansion, offering tax incentives and infrastructure support to attract both local and international players. This diversification into manufacturing created jobs, increased exports, and brought in valuable foreign exchange.
The services sector, particularly tourism, IT, and financial services, was another area where Ethiopia sought diversification. By doing so, the country could leverage its human capital and generate income streams that were less susceptible to the kinds of shocks that commodity-based economies often face.
Agro-Processing Initiatives: Bridging Agriculture and Industry
One of the most innovative aspects of Zenawi’s diversification strategy was the emphasis on agro-processing. By adding value to raw agricultural products, Ethiopia could climb up the value chain and reduce its exposure to price volatility in commodity markets. Agro-processing also created synergies between the agricultural and industrial sectors, making the overall economic structure more resilient.
Public and Social Investments: Education and Healthcare
The Zenawi administration also understood that a well-rounded economy needs more than just strong industries; it requires a healthy and educated workforce. Investments in education and healthcare thus became part of the diversification strategy, ensuring long-term sustainability and providing the human capital necessary for a diversified economy to thrive.
Strategic Partnerships: Ethiopia leveraged international partnerships to bolster its growth, without becoming excessively reliant on any single ally.
Constraints of the Prosperity Party Model: The Pursuit of Red Sea Access and Associated Risks
The economic vision under Ethiopia’s Prosperity Party, led by Prime Minister Abiy Ahmed, marks a departure from the multifaceted, resilient model crafted during Meles Zenawi’s tenure. One of the most significant shifts is the increased emphasis on gaining access to the Red Sea, even preparing for the possibility of conflict with Eritrea to achieve this end. While the desire for a port may have some economic rationale, it comes with several risks and constraints:
Dependency on Regional Politics
Prioritizing access to a seaport necessarily entangles Ethiopia in the geopolitics of the Horn of Africa. Any conflict with Eritrea, or reliance on other neighboring countries for port facilities, makes Ethiopia vulnerable to regional instability. Such a dependency could be particularly risky given the volatile political landscape of the region, jeopardizing not just port access but also broader economic and political stability.
Financial and Logistical Risks
Securing a port, whether through conflict, lease, or diplomatic arrangements, would be a monumental financial undertaking. In the context of military conflict, there would be the direct costs of warfare, which could balloon unpredictably. Even peaceful means would involve considerable investment in port facilities, infrastructure, and possibly also in financial compensation to the host country. This could lead to an unsustainable increase in foreign debt, pressurizing the country’s finances.
Loss of Strategic Focus
The Prosperity Party’s focus on acquiring a seaport risks diverting critical resources from sectors that have been engines of growth under Zenawi’s diversified model. This includes agriculture, light manufacturing, and services, as well as innovative initiatives like industrial parks and agro-processing units. By channeling attention and resources primarily toward gaining port access, the Prosperity Party may be inadvertently weakening other vital sectors that offer more sustainable paths to economic growth.
The Perils of a Military Approach
The consideration of conflict as a means to gain Red Sea access introduces a host of additional risks, including loss of life, humanitarian crises, and the potential for international sanctions. Moreover, a militarized approach could lead to long-term regional instability, affecting not just Ethiopia but also its neighbors. This could disrupt existing trade routes and partnerships, undermining the very economic growth that the port is supposed to bolster.
While the economic allure of a dedicated seaport is understandable, the associated risks make it a strategy that should be approached with extreme caution. Zenawi’s model demonstrated that landlocked Ethiopia could achieve robust growth by leveraging its strengths in a diversified, multi-sectoral approach. As the Prosperity Party evaluates its strategic focus, a thorough understanding of the potential pitfalls and limitations of their current trajectory could offer valuable insights. By comparing this with the proven resilience of Zenawi’s diversified economic model, the Prosperity Party may find alternative pathways for sustainable development that do not hinge on the risky pursuit of maritime access.
Potential for Growth Without a Port
The Zenawi era showed that having an effective and well-rounded economic model could offset the limitations of being landlocked. Through strategic internal and foreign policies, Ethiopia can:
1. Strengthen Regional Trade: Leveraging its position in the Horn of Africa to enhance trade with neighboring countries can reduce the dependency on global maritime routes.
2. Invest in Air Cargo: Airports could serve as alternative gateways for international trade.
3. Focus on Technology and Services: Investing in sectors that aren’t heavily reliant on port access could open new avenues for growth.
4. Innovative Logistics: Efficient road and rail networks to existing ports in neighboring countries could partly compensate for the lack of a national port.
Conclusion
Ethiopia’s economic journey under Meles Zenawi proved that limitations like being landlocked could be overcome with a comprehensive, diversified strategy. The current emphasis on the necessity of a port, while valuable for long-term strategic reasons, should not overshadow the potential for growth through other avenues. If Zenawi’s model teaches us anything, it’s that effective governance and economic strategies can indeed render geographical limitations less significant.
The Prosperity Party’s stance seems to underplay the proven potential for Ethiopia to sustain high growth rates without direct access to a port. As the nation contemplates its future, perhaps it might find value in revisiting the lessons from its own recent past, embodied in the Zenawi model, to chart a way forward that is both innovative and grounded in its unique strengths.
