Is Ethiopia a developmental state?: an enquiry into the emergence of domestic capital in complex industrial sectors

Nkunzi, Sibulele
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The slow process of structural transformation and lack of industrialization on the African continent clearly highlights the need for industrial policy. The Ethiopian state quickly realized this and implemented industrial policy to support and promote a number of light manufacturing sectors. A preparation for the emergence of more advanced industrial activities through the state-owned and military-run Metals and Engineering Corporation has been subsequently underway. This focus on advanced industries is fundamental, not only because they consist of a challenging and complex set of manufacturing activities, but because an African country’s ability to develop in this direction could be a litmus test for whether or not we have a developmental state on the continent. However, like many other African countries, Ethiopia does not have a significant productive capitalist class to begin with. If the emergence happens, the East Asian developmental state experience informs us that it has to be driven mainly through import substitution and a domestic industrialist class that is able to push the government to defend its interests. On the other hand, the key to the success of Industrial policy lies in the effective design and implementation reciprocal control mechanisms (RCMs) by the state. Through a political economy lens, the study draws on the case of Ethiopia’s state-owned and military-run Metals and Engineering Corporation (METEC) and its role as a conduit for technology transfer and vehicle for driving the development of a domestic industrialist base in Ethiopia. First, the metals and engineering sector and METEC were located within the broader Ethiopian industrial policy context as well as the development praxis around Ethiopia mega-projects. The study found the Ethiopian state to be an exemplary case of the 21st century in its intention to bridge the continental-wide gap in African indigenous productive capitalists by using state and military capital to form strategic links with foreign and domestic companies for technology transfer and capability building. Second, I explored the extent to which learning-by-doing has been taking place through the METEC structure and its outcomes. The evidence shows that domestic capital has been stimulated and technological capabilities are being acquired across a number of areas in the metals and engineering sector. At the same time, however, a plethora of challenges associated with learning-by-doing and learning from failure at policy, sectoral and firm levels were revealed. Third, I explored the governance of industrial policy by looking at state-business relations across the state, METEC and the private sector. The analysis of state-business relationships shows the complexities associated with the effective design, management and enforcement of RCMs in a context where learning needed to be nudged much more proactively. However, even the failures should be seen as part and parcel of the processes of learning during a ‘teething’ stage and not taken as a confirmation of the pessimism associated with low-income countries turning to complex manufacturing structures. Ultimately, Ethiopia has been edging closer to a developmental state. Unlike others, the state has claimed the right to learn and fail. The ambitiousness of Ethiopian industrial policy needs to be matched by an equally stronger and serious dimension of policy instruments and disciplinary mechanisms that would ensure better design of policy and high levels of effort in learning
A thesis submitted to the School of Economics and Finance, University of the Witwatersrand, for the degree of Doctor of Philosophy ( in Applied Development Economics), 2021