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By Kennedy Abebe has a BA in Economics and is currently working as an E-Banking Business Development Officer at Wegagen Bank. It could be reached at [email protected]
Ethiopia is facing the challenges of low living standards, low productivity, mbadive unemployment and underemployment, food insecurity and of income inequality. One might think that the government is playing an active role in promoting private sector development as a means of solving economic problems and thus ensuring broad-based, sustainable economic growth. This is not the case however.
Economic growth and development depend mainly on a country's ability to invest and make efficient and productive use of its resources. In fact, there can be no growth without an adequate level of qualitative investment.
The rate of economic growth is determined largely by the rate of capital accumulation, the addition of new capital that directly depends on the national net. investment and indirectly on net national saving. Thus, investment is both the means and the cause of economic growth.
However, on the basis of property rights and resource allocation decision-making processes, the economy of each country is composed of two independent parts: the private and public sectors.
Both are essential elements in the process of stimulating and promoting economic growth. But, comparatively, the private economy is able to stimulate economic growth beyond the strength of the public sector. Its essential role in achieving healthy and diverse economic growth is unmatched. This may seem like a cliché at the moment, but the private sector is indeed the engine of economic growth thanks to its unique ability to improve the allocation of resources and their effective use.
In developing countries like Ethiopia, the private sector has the potential to generate inclusive, healthy and sustainable growth. Adding to this is its crucial component to addressing development challenges by stimulating growth, creating income and jobs, ensuring food security, creating demand and improving productivity.
The government planned and worked for the country. status by 2025 and bring about a structural economic transformation. Here, strengthening private sector growth and development will play a multidimensional role.
The reality on the ground, however, is different. The role and contribution of the private sector to the national economy is limited. The contribution of the private sector to the national economy in terms of gross domestic product (GDP) and the share of aggregate employment and capital formation are low
because the government does not support the economy. has not recognized the importance of the private sector for economic development. growth for the last two decades. This is despite playing a fundamental role in creating jobs, generating income and providing social services.
Given limited efforts to promote and strengthen private sector growth and development, double-digit economic growth for most of this decade has not brought tangible results on the ground. This is particularly true with respect to macroeconomics, with the depletion of foreign exchange reserves, inflation and the mbadive trade imbalances that hit the economy.
For too long, the government's strategic approach to developing the economy has been based on public spending, particularly on infrastructure development. This has crowded out private investment.
The government's strategic roadmap has only enhanced the role of the state in the economy. Since the EPRDF has become part of the government, the public sector's share in GDP has doubled. Conversely, the private sector is stagnating, standing at about one fifth of GDP. There is broad consensus among academics, policymakers and academics that the private sector has the potential to generate inclusive and sustainable growth and is more effective and efficient in addressing development challenges.
They argue that, especially in developing economies, without promoting the private sector, countries can hardly improve the lower standard of living of the mbades and boost productivity, efficiency, and qualitative growth.
Capable and autonomous institutions will fall prey to the inefficient allocation of resources. No government, let alone that of Ethiopia, can have the amount of data and the ability to badyze and distribute resources where they can be most productive.
This process of allocation and mobilization should be left to the natural forces of supply and demand. By creating a regulated money market and disrupting the strategic components of the service sector, especially finance, the government can create an economy where the most sustainable actors are those who can adapt and innovate. The government can improve productivity by simply playing the role of a transparent, inclusive and competent regulator.
It is not surprising that the creation of wealth, without effective distribution, has generated socio-political problems that have caused unrest and instability. This should serve as an important reminder that the state's approach to economic growth has been the wrong approach.
Improving the health of the economy then demands that the ruling coalition adopt an economic strategy that could contrast with its longstanding ideology. and the roots of left. The second edition of the Growth and Transformation Plan (GTP II) rhetoric, that the private sector is the engine of growth, should be translated into policy measures.
The economy must be liberalized to the extent interaction between supply and demand. The decision of the EPRDF Executive Committee to privatize state-owned enterprises in the fields of aviation, telecoms, logistics, transportation and energy is therefore a step forward
. For this decision to be a turning point, the government should strive to encourage the private sector by opening up the capital account, making sure that institutions stand alone and reducing public sector bureaucracy.
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