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The Private Sector and Poverty Reduction
[ TOC ] [ Summary ]
Summary

[The workshop, which was conducted in Amharic, was chaired by Dr. Zewdie Shibire, Dean of the Faculty of Business and Economics, Addis Ababa University].

Ato Teshome Kebede, General Manager of the Genuine Leather Company, contributed a paper on "Value Creation and Poverty Reduction". Unfortunately, he was unable to attend in person because of illness and his paper was presented on his behalf by Ato Berhane Mewa, President of Addis Ababa Chamber of Commerce. The second paper, on "Smallscale Enterprise, the Informal Sector and Poverty Reduction" was delivered by Wzo. Mullu Solomon, Deputy Manager of Almeta Impex Company. Ato Hailemeskel Abebe, Deputy General Secretary of Addis Ababa Chamber of Commerce, presented the third paper on "The Private Sector and Poverty Reduction".
 
Ato Teshome's paper emphasized that poverty reduction can only be achieved through the creation of more value (or wealth) and more employment. This, the paper argued, calls for increased production of goods and services, and greater efficiency of production. Only if the means of production are privately owned will it be possible to forge an efficient economy and improve productivity. It will be the private sector and private sector investment, the paper emphasized, which will play a critical role in economic development. Since poverty reduction is dependent on the creation of more value and more productive assets, it will be Industry, as opposed to Agriculture, that will have a greater role in achieving both objectives. The paper was optimistic that poverty can be reduced and eventually eliminated if there is a sound economic policy that encourages productivity and growth. The paper was critical of ADLI, the government's policy of rural-centered development, which, it argued, cannot serve as an effective strategy for poverty reduction. Among the reasons put forth were: a) agricultural production is based on millions of peasant cultivators whose farm plots are too small to sustain increased surplus production or increased productivity; b) there is increasing fragmentation of land and increasing loss of soil through erosion; c) Ethiopian smallholders are in no position to adopt advanced technology. The author was disappointed that the country does not have a viable national industrial policy. At the very least, his paper argued, such a policy should give Industry as much weight as Agriculture.
 
Wzo. Mullu, who spoke next, briefly reviewed the poverty situation in the country. Ethiopia, she said, was the poorest country in the world whatever criteria were employed to measure poverty. The effort to reduce poverty was thus a worthy endeavor in which the government and the private sector should form a partnership. Poverty reduction however was a process and not an end; it involves continual change and improvements. Wzo. Mullu argued that small-scale enterprises and the informal sector are neglected but important components of the larger economy. They have considerable potential both in terms of economic growth and employment generation. Even under the difficult conditions existing at present, small-scale enterprises and the informal sector provide employment and livelihood opportunities to a large number of people in rural and urban areas of the country. The speaker noted that the country's industrial and business establishment is dominated by small to medium enterprises and that large-scale enterprises are few in number and less significant in terms of employment and as sources of income. With greater encouragement and a nurturing policy environment, small enterprises and the informal sector can play an important role in poverty reduction. Support to the two sectors in the form of training, financial and credit services, appropriate technology, and land could help improve their chances for growth and greater job creation. She pointed out that large numbers of women engage in these sectors however the women are particularly disadvantaged due to gender bias.
 
Wzo Mullu made a number of critical comments on the government's Interim Poverty Reduction Strategy Paper (IPRSP). First, she said, the document does not clearly show a willingness to involve the private sector in the poverty reduction program. Second, she was critical of ADLI on the grounds that it does not give sufficient importance to the industrial and urban sector of the economy but focuses primarily on agriculture and the rural sector. Productivity improvement, she pointed out, is sought solely in terms of land productivity. ADLI says very little about the important role the private sector can play in economic development. Thirdly, the issue of land tenure was not clearly dealt with, and it was her opinion that a sound land policy has considerable contribution to make to economic growth and poverty reduction. Wzo. Mullu concluded her presentation by stressing that government and the private sector should be partners in development and should support each other in the common endeavor to reduce poverty.
 
The third speaker was Ato Hailemeskel from Addis Ababa Chamber of Commerce. He started out by making two important points. One was that poverty reduction will be achieved only through economic growth, and the other that the private sector will have to play a central role if sustained economic growth is to be achieved. It was his opinion that the government's economy development policy fails to give the private sector the importance it deserves. He then went on to discuss briefly the nature of poverty in Ethiopia. He characterized poverty as the lack of basic necessities and of a minimum income. The causes of poverty he believed were unemployment, population pressure, low productivity, and lack of skills. Poverty reduction can be achieved by reducing the number of unemployed and improving income earning opportunities. For the private sector to play an important role in poverty reduction, the following conditions were, he said, essential: freedom of movement; secure conditions of investment; ownership rights and rights of commerce; a competitive and free market environment; and economic activity based on profit-making. More investment from the private sector means more jobs and more revenue for the government. The former thus can play the lead role in employment creation while the latter will be responsible for providing essential services such as education and health.
 
Ato Hailemeskel then turned his attention to the government's IPRSP, which he found deficient in several respects. It was his opinion that a rural-centered development policy will not succeed in reducing rural poverty much less urban poverty. He believed ADLI has a lot of weaknesses, one of which was that it relegates the industrial sector to a subordinate status. Smallholder agriculture cannot be the engine of growth because it is based on tiny farm plots and productivity is, at best, not growing at the rate required to boost improvements in the broader economy. Even if successes in improving production are achieved, the sector is constrained by the limitations of the local market which is the only market accessible to peasant agriculture. The second deficiency of the IPRSP, which he discussed in some detail, had to do with the issue of trade liberalization and globalization regarding which the Paper should have made a clear statement. Ato Hailemeskel's argument was that since local industry was underdeveloped and employed backward technology, it cannot compete with global industry. Hence, there should be a transition period until the competitive ability of local industry becomes adequate. This, he said, means that the government has to take measures to protect local industry through the transition period. The speaker concluded his presentation by insisting that the private sector should have a role in all aspects of the poverty reduction program including monitoring and evaluation. He informed his listeners that Addis Ababa Chamber of Commerce is planning an extensive program of PRSP participation by the business community.
 
The main points emphasized by all three papers were the following:
 
i) no program of poverty reduction will succeed without the active involvement of the private sector, but this has not been given recognition in the government's Interim Poverty Reduction Strategy Paper (IPRSP);
ii) poverty reduction can only be achieved through sustained economic growth and job creation, both of which require greater private sector investment;
iii) employment creation as a poverty reduction measure has not been given serious attention in the IPRSP;
iv) for the private sector to play a constructive role there must be an enabling policy environment which should, in particular, promote the rule of law, put in place an efficient administration, do away with corruption in public service, and increase investment in basic infrastructure;
v) ADLI, which gives priority to the rural sector, and which assigns the industrial sector only a minor role, is misguided and will not attain its stated objectives.
 
All three speakers underlined the importance of broad-based consultation with the private sector on matters having to do with economic development and policy but such consultation, they said, has not being encouraged by the government to date. 
 
What follows is the full text of the papers in Amharic.