Transcript Slide 1

The Structure of the Ethiopian
Economy - A SAM-based Analysis
Alemayehu Seyoum Taffesse
African Centre for Economic and Historical Studies
Outline
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A brief description of the 1999/2000 Ethiopian
SAM;
Some aspects of economic structure derived from
the 1999/2000 SAM; and
A diagnostic analysis of constraints to growth
focusing on private investment
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Based on the SAM, and
Information underlying the SAM.
Economic Structure
Key elements of economic structure:
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the types and location of economic activity and the associated
technological and behavioural relations.
– sectoral shares in output and factor use
– spatial distribution - rural vs. urban,
– input-output coefficients,
– openness to trade,
– saving and investment rates, and
– expenditure patterns.
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the types of economic agents/organisations and institutions
– elements of ownership patterns - the extent of public
ownership; and
– behaviourally distinguishable groups - households, firms,
government
The 1999/2000 Ethiopian SAM
• SAM good framework for studying economic structure – summary of transactions
• The 1999/2000 Ethiopian SAM has forty accounts (40x40 matrix);
Activities
• Fifteen activities - classification of activities reflects differences in type, location,
scale, and ownership;
Five agricultural
• peasant farming (highland), peasant farming (lowland), peasant livestock production,
private commercial farming, and public commercial farming,
Seven industrial activities
• - cottage/handicraft and small scale industry; large/medium scale agro-manufacturing
(public); large/medium scale agro-manufacturing (private), large/medium scale other
manufacturing (public); large/medium scale other manufacturing (private); other
industry (public), and other industry (private)
Two service activities
• services (public) and services (private), and
Food-for-work activity
The 1999/2000 Ethiopian SAM
Eight commodity groupings
• food crops,
• traditional agricultural exportables (livestock and livestock
products, coffee, oilseeds, and chat),
• non-traditional agricultural exportables (tea, pulses, flowers,
and fruits and vegetables),
• other agricultural products (forest products and fisheries),
• agro-manufacturing products (processed food and beverages,
textiles, leather and leather products, wood products),
• other industrial products (chemical products, non-metallic
mineral products, metal products, electricity and water,
construction, and mining and quarrying),
• public goods (education, health, public administration, and other
related services), and
• other services (trading services, transport and communications,
banking and insurance).
The 1999/2000 Ethiopian SAM
Factors of production - family labour, wage labour, capital, and land.
Domestic institutions.
• Eight domestic institutions
• three types of households - farm households, wage workers, and
entrepreneurs,
• three types of enterprises - peasant farms, private firms, and public
firms,
• a food-for-work project, and
• the government.
Saving and investment
• Two capital accounts - government, other institutions combined.
Transactions costs
• marketing and transportation costs (or marketing margins) associated
with commodity flows.
The 1999/2000 Ethiopian SAM
Mainly built using survey data
Unique features
• Peasant agriculture disaggregated into highland
peasant farming and lowland peasant farming
• Peasant livestock production separately treated
• ‘Food-for-work’ activity is introduced to capture the
potentially significant role that food aid plays via such
programs.
• Activities are partitioned into privately owned and
publicly owned segments.
Some structure
size of the economy, sectoral shares,
industrial sector, large/medium manfacturing
Size of the Economy
GDP at current
market prices
(million US$)
1999/2000 SAM
8772
GDP per capita at
current market
prices
(US$)
138
National Accounts
6326
99
Sectoral Shares
• suggest that the industrial sector plays a greater and the
services sector a lesser role in the Ethiopian than implied by
the national accounts;
• Has implications for policy
Share in GDP
National Accounts
(%)
Share in GDP
1999/2000 SAM
(%)
Agriculture
43.6
48.4
Industry
10.7
21.0
Services
45.7
30.1
Industrial Sector
Structure
Share in industrial value-added
(%)
Cottage/handicraft and small-scale industry
11.55
Large/medium Agro- manufacturing - public
8.28
Large/medium Agro-manufacturing - private
1.71
Large/medium Other manufacturing - public
3.55
Large/medium Other manufacturing - private
2.76
Large/medium Manufacturing - total
16.29
Other industry n.c.e - public
10.5
Other industry n.c.e - private
61.66
Other industry n.c.e. - public + private
72.16
Large/medium scale manufacturing
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accounts for about 8% of output and 3.5% of value-added
of the country
dominated by Agro-manufacturing - 56% of output and
61% of value-added.
publicly owned enterprises are a major player - 58% of
output and 72% of value-added
appears to be rather undercapitalised - US$6600 of fixed
assets per worker and US$3600, of machinery and
equipment capital per worker are low;
characterised by relatively small-sized firms - average
number of workers per firm of 120 and potential annual
output per firm of US$ 2.5 million (public owned ones 5
times bigger)
low capacity utilisation - 57% and 48% of annual capacity in
1999/2000 and 2001/2002
Why?
• Aggregate private investment low – 11 % of GDP, 10% of
GDE
• Private investment in industry even lower
Item
Housing construction
Industry
Distributive services
Farm Implements
Change in Livestock
Share
45.6
7.9
35.4
4.6
3.7
Why?
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Low Returns - mean (10%) and median (13%) before-tax profit rates
are low in large/medium manufacturing (during 2001/2002);
High transactions costs – 21% of output in industry
Irreversibility – increases the option value of waiting and lowers
investment:
High uncertainty – demand uncertainty, cost uncertainty, regulatory
uncertainty reduce investment;
Evidence - the pattern of private investment appears, albeit very
crudely, to confirm the role of costly reversibility – agriculture less
than 10% (by capital) of investments approved, manufacturing 32%,
construction and services 55%;
Low human capital – high returns to education an evidence
Demand and inter-industry linkages – coordination failure;
Weak Contract enforcement – 835 days in court on average
What can be done?
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Continue with the on-going effort to reduce the costs of
entrepreneurship – reforming the civil service, reducing
bureaucratic obstacles, reforming tax administration – and
periodically review outcomes with stakeholders participation;
Continue investing in infrastructure with greater focus on
connecting less accessible areas;
Further liberalise the telecommunications sector by allowing
private investment other than joint-ventures with the
government, while using innovative ways to ensure universal
service
Expand the information and technical support capacity – a
well organised industrial extension service;
What can be done?
• Select a number of activities with dynamic comparative
advantage and implement an integrated program of
development that encompasses:
– Investing or encouraging private investment throughout the value
chain (primary inputs, necessary services, marketing);
– Temporary and performance-based protection;
– Transparent and performance-related credit direction;
– Skill formation and technological innovation;
– Enhance product quality;
Specific sectors with potential – leather textiles, and key
imported intermediate inputs;
What can be done?
• Institutionalise the diagnostic and policy choice
process to sustain growth
• Expand the speed at and options through which
investors could raise capital up to and including
opening a public credit registry to facilitate credit
transactions, establishing a stock exchange;
• Expand the role of business associations in policy
formulation and implementation – can, among other
things, help:
– improve the quality and flow of information,
– reduce pessimism and doubt which can dampen private
investment;