VZCZCXRO8976
RR RUEHROV
DE RUEHDS #2159/01 1920907
ZNR UUUUU ZZH
R 110907Z JUL 07
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 6936
INFO RUCNIAD/IGAD COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0043
UNCLAS SECTION 01 OF 02 ADDIS ABABA 002159
SIPDIS
SIPDIS
DEPARTMENT FOR AF/E AND AF/EPS
LONDON, PARIS, ROME FOR AFRICA WATCHER
E.O. 12958: N/A
TAGS: ECON ETRD EINV EAGR ET
SUBJECT: ETHIOPIA: PRIME MINISTER MELES COMMENTS ON PRIVATE-SECTOR
LED ECONOMIC GROWTH
ADDIS ABAB 00002159 001.2 OF 002
1. SUMMARY: A two-day conference organized by the World Bank,
donors, and the Ministry of Trade and Industry underscored the GOE's
commitment to accelerate private sector and export-led economic
growth. Following the conference, Prime Minister Meles met for two
hours with selected conference participants to discuss
recommendations and the findings of the World Bank's 2006 Ethiopian
Investment Climate Survey. END SUMMARY.
2. On June 27 and 28, the Ministry of Trade and Industry, the World
Bank, and the Donor Assistance Group on Private Sector Development
and Trade, organized a conference on private sector-led growth in
Ethiopia, drawing approximately 150 participants from the private
sector, government, donor groups, NGOs, embassies, civil society and
the Ethiopian Diaspora. USAID provided key input in helping to
shape the conference agenda, and in formulating and presenting
recommendations for consideration by the Prime Minister and other
senior government officials. USTR Director for African Affairs
William Jackson was a conference speaker.
3. Sufian Ahmed, Minister of Finance and Economic Development,
underscored the GOE's commitment to stimulating private-sector
economic growth, asserting that the GOE continued to implement
reforms focused on reducing the cost of doing business and enhancing
the confidence of the private sector. He also noted the challenges
to the private sector, including low labor productivity and limited
capacity to compete.
4. Ishac Diwan, Country Director of the World Bank for Ethiopia and
Sudan, noted that industry could be an important component of
promoting economic growth and reducing urban unemployment, and that
export development could help close the balance of payments gap. He
expressed optimism that Ethiopia was realizing the vision of
private-sector growth, noting that several sectors were beginning to
show signs of dynamism, and that 26 state-owned enterprises had been
privatized over the last year. Ethiopia was on its way to a fourth
consecutive year of rapid economic growth. Diwan said the GOE's
industrial development strategy needed updating to reflect recent
dynamism in the economy. Additionally, he noted the importance of
using the Diaspora's talents to support Ethiopia?s development.
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RESULTS OF THE WORLD BANK INVESTMENT CLIMATE
STUDY AND CHALLENGES TO COMPETITIVENESS
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5. World Bank officials noted that a comparison of Investment
Climate Studies from 2002 and 2006 indicated significant
improvements in many investment climate variables (i.e., access to
land and finance, tax rates and tax administration), but also showed
that significant constraints remain, especially perceived unfair
competition. Labor productivity remains low, and industries are not
sufficiently clustered to achieve market competitiveness. Further,
the study indicates that progress is uneven and that state-owned
enterprises face a more favorable investment climate.
6. Following the presentation of the study results, Minister of
Industry Tadesse Haile discussed the basic principles of the GOE's
industrial development strategy, including: recognition of the
private sector as an engine of economic development; linkages with
agricultural development led-industrialization (ADLI); export-led
industrialization; focus on labor-intensive technologies; the role
of domestic and foreign investments; the role of Government in
spearheading investments; and public-private partnership. The
strategy identifies priority sectors for exports, including textiles
and garments, meat and meat products, agro-processing, leather and
leather products, and metal. Currently, industry accounts for 13.5
percent of GDP, which falls short of ultimate goals. Minister
Tadesse said the role of government was crucial in improving the
investment climate and tax administration, ensuring efficient
allocation of resources, and stimulating private sector development
by improving infrastructure. As evidence of the policy's impact, he
cited 26 percent annual growth in total exports. Ethiopia had begun
to export finished leather products, flower exports had increased to
USD 8 million monthly, and there was diversification into new
exports. Challenges included lack of intra-industry linkages, lack
of capital and skill or knowledge, and low institutional capacity.
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PRIME MINISTER DISCUSSES GOVERNMENT?S ROLE
------------------------------------------
7. At the conclusion of the conference, Prime Minister Meles Zenawi
met with selected participants to discuss the findings of the
report. The PM stressed several points:
-- the Government would actively address any bottlenecks hindering
private sector export-led economic growth;
ADDIS ABAB 00002159 002.2 OF 002
-- the GOE's current strategy calls for focusing on a few
sub-sectors, demonstrating their potential to be globally
competitive, and then taking steps to scale up successes;
-- the cluster development approach should be pursued to achieve
trade competitiveness (the floriculture and leather sectors were
cited as examples);
-- while the financial sector should be reformed if needed to
improve financial services for the private sector, the Government
was not convinced of the need for complete liberalization; and
-- a one-stop shop should be established to provide information to
the Diaspora on investment opportunities, processes, and available
assistance.
8. While the Prime Minister was open to many of the findings of the
World Bank report, he expressed reluctance to move forward with some
key reforms. For example, he stated that bilateral agreements such
as AGOA with the U.S., and EBA with the European Union, may obviate
the need for World Trade Organization accession in the short term.
He also noted additional challenges to Ethiopia's development,
including foreign exchange shortages, and capacity constraints in
human resources, infrastructure, and systems.
9. COMMENT: The consultation by the Prime Minister with the private
sector and international donors underscored the GOE?s renewed
commitment to accelerate private sector and export-led economic
growth. Although the GOE expressed concerns about advancing too
rapidly on some issues (i.e., full liberalization of the financial
sector, land tenure reform, deeper telecommunications reform, and
WTO accession), the conference highlighted the Government's
willingness to engage in constructive dialogue with the private
sector and other development partners, and to take measures to
enhance the overall investment climate, including increasing
government funding for infrastructure development, technology
generation and transfer, and capacity building. END COMMENT.
YAMAMOTO