Nuggets of Ethiopian industrial development

I’ve been in Ethiopia nine days now, pushing along our study of factory labor and attending an International Growth Centre workshop on industrial policy.

Nine days and I’ve managed to write nothing about Ethiopia at all. I blame survey madness, information overload, and cable TV in my hotel room. (I’m one of those obnoxious people who don’t have a set at home.)

So, after a blogging slump, I give you miscellaneous and unsatisfying bits, musings and opinions.

  1. You’re mayor of a large and growing industrial town. You have investors who want to build plants or commercial farms. You have national funds to build an airport. All will benefit generations of your citizens. But where do you put the firms and airport? You have to buy out or push out farmers, who don’t know another way of life. Land elsewhere is scarce. You can pay them generously, but five years from now a good number will have lost the cash, and then you have a political problem. You could give the farmers bonds, but you’d better inflation-protect them. Now you need a liquid financial market. You think to yourself: man, enclosing the commons is a bitch in the era of human rights.
  2. If people aren’t used to drinking juice, and you happen to open a juice factory, it turns out it is very, very hard to get them to drink juice. You lie in wait, half hoping Coke will decide to blast open the market with a marketing barrage. You feel vaguely guilty.
  3. Large manufacturers grow from being medium or small manufacturers, right? Not necessarily. In Ethiopia, half the large firms were started by traders: import-export firms. Why? Managerial know-how. Access to finance. An understanding of foreign markets. And international sales channels. Precisely three Ethiopian manufacturers have gone from small to large.
  4. You know how to run a business, and have a pile of cash. The firm down the street is mismanaged and cash poor. Why not buy an ownership stake, get it profitable, and sell the now valuable shares to other local investors?Then use the cash to do the same thing four more times? Sounds great. Now I just need accountants to do the audits, I-bankers to do the due diligence, lawyers to write up the contracts. A whole class of financial professionals who… basically don’t exist. Crud.
  5. Ethiopia is fertile and well-farmed. Food processing and agribusiness ought to be a growth sector, right? So strives the national economic strategy. Unfortunately the coast is far away and transport costs alone exceed the international price of most food products. Plus the coasts are controlled by your enemy, a failed state, and a greedy mini-state eager to charge you through the nose. Time to focus on high value-add products?
  6. In a year, the average small firm is more likely to shrink than grow. Productivity and value added tend to double every time you jump up the scale from micro to small, small to medium, medium to large. Maybe small is no longer beautiful?
  7. Too many economists dismiss industrial policy as ‘picking winners’. This strikes me as either intellectually lazy or ideological (or both). If we think of government policy like a technology, shouldn’t we be thinking of experimentation, innovation, and advancement?

If I had a bibliography, it would include Stefan Dercon, John Sutton, John Page and Mans Soderbom.

5 thoughts on “Nuggets of Ethiopian industrial development

  1. Sounds like you are looking for…
    Cluster-Based Industrial Development
    An East Asian Model
    Tetsushi Sonobe and Keijiro Otsuka
    Palgrave Macmillan, October 2006

  2. Out of curiosity, what/who are the three manufacturers who transitioned from small to large?

  3. Chris,
    I personally agree with you but I would like to hear how you would respond to Daron Acemoglu’s arguments against industrial policy- he ripped into Dani Rodrik at a panel conference at the World Bank about 2 years back, his argument broadly being (from what I remember) that the politics of industrial policy are so tenuous that it almost inevitably leads to government failures (i.e corrupt transfer of resources) that are more distortionary than the market failures they are trying to address. His collaborator James Robinson had an interesting paper on the politics of industial policy last year – what I don’t think Sutton, Page or Dercon deal with this directly- would such a bibliography look like?
    http://www.people.fas.harvard.edu/~jrobins/researchpapers/unpublishedpapers/jr_wb_industry_policy%20-%20Robinson.pdf