Ethiopia’s transition to liberalism is fairly recent, having started in the 1990s. And the country’s launch of the process to join the WTO in 2003 is fully in line with this trend.
While the previous government was willing to negotiate on trading goods, it was very reluctant to open up the services sector to privatisation and foreign investment. This stalled the negotiations. The current administration is more enthusiastic about implementing a more liberal economic policy.
Ethiopia was the fastest-growing economy in 2017 according to the World Bank, yet its debt has been rising sharply, from more than 47% of GDP in 2014 to 61% in 2018. “We have borrowed significantly for infrastructure projects that have really not achieved the expected results,” Ethiopia’s finance minister Eyob Tekalign told parliament in 2019.
The development model implemented by former prime minister Meles Zenawi was supposed to pay for the debt through export revenue. It is a difficult plan to implement in a continuing period of political turmoil. It was in this context that Prime Minister Abiy Ahmed came to power in 2018.
Under constant pressure from the World Bank and the IMF, the Abiy administration has adopted radical reforms to move to a market economy. Included in the new policy is the privatisation of key sectors such as telecoms with Ethio Telecom, air transport with Ethiopian Airlines, banking and logistics. These reforms have enabled it to resume negotiations with the WTO.
By adhering to a system of binding rules and thus guaranteeing reform, Ethiopia wishes to encourage foreign investment. At the local level, the government says that WTO membership will provide the private sector with better market access.
“We want to be rule-makers, not rule-takers,” said Geremew Ayalew, minister counsellor at Ethiopia’s permanent mission in Geneva recently. “Ninety-eight percent of world trade is between WTO members. If we claim our economy is compatible, we have to prove it.”
As a reminder, in 2018, Ethiopia’s exports totalled $2.4bn, with the United States ($372m), China ($329m) and Saudi Arabia ($186m) as its main destination markets. As for the goods exported, they include coffee ($836m), oilseeds ($363m) and cut flowers ($232m).
Imports amounted to $8.3bn. They were mostly for the acquisition of airplanes, helicopters and/or spacecraft ($659m), gas turbines ($418m) and packaged medicines ($320m). The imports were sourced largely from China ($2.5bn), France ($722m) and India ($713m).
Rise of the technocrats
“Accession to the WTO alone will not increase exports,” warns Henok Asmelash, a lecturer at Birmingham Law School. “The issue is not lack of market access but supply side constraints”. In other words, if production and exports do not go hand in hand, preferential market access would be a worthless asset.
The Ethiopian finance ministry also mentioned its intention to work on productive sectors such as mining, tourism, manufacturing and agriculture.
According to the academic, the “merger between technocrats and power” plays an important role in pushing the country towards WTO membership. “The new administration is composed of people who were previously involved in the [accession] process but not in the decision-making,” he explains.
This is the case of Mamo Mihretu, the prime minister’s political adviser and chief trade negotiator, who before that was the government’s technical assistant to the World Bank. The same goes for Eyob Tekalign with his long career in private equity, as well as for Geremew Ayalew, who worked for 35 years in the ministry of trade – of which 25 of them were working in WTO-related areas.
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But the process is not smooth. “The beneficiaries of the previous command economy system have shown resistance,” Alexander Demissie, managing director of Africa Rising, a policy research and market analysis institute, said.
Sometimes with good reason. “Opening the market now could lead to a loss of power, because we are not yet competitive,” said the researcher, who suggests that Ethiopia should first strengthen its market by using its current preferential agreements like the African Growth and Opportunities Act and the Common Market of Eastern and South Africa before becoming a full member of the WTO.
WTO: an existential crisis
Ethiopia is in the third phase of the WTO accession process, where the terms of accession will be drafted. “A fifth meeting of the working group will be scheduled for the last quarter of this year,” Geremew Ayalew said.
By “unilaterally accelerating the pace of liberalisation, Ethiopia hopes to show its goodwill to the WTO,” Henok Asmelash said. Led by Mamo Mihretu, “the negotiating team is not fixed. Depending on the topic, members from the ministry of finance, the central bank, customs and revenue authorities participated. Ethiopia will not accept higher commitments than those made by previous LDCs to accede to the WTO,” Geremew Ayalew said.
However, in the midst of the Covid-19 pandemic and the increasingly hostile attitude of the United States, the WTO is in need of reform. That is a recommendation that had also been made by the WTO’s outgoing director-general, Roberto Azevêdo.
According to Henok Asmelash, “the accession of LDCs is no longer at the centre of the WTO’s discourse”. Given these developments, better regional market integration could be an asset for Ethiopia through the African Continental Free Trade Area, which was ratified in 2019.
Protecting key sectors while opening up the market remains a balancing act. While the accession process is progressing, the continuation of reforms also depends heavily on Ethiopia’s political developments, in particular, whether Prime Minister Abiy wins in the upcoming elections.
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