ETHIOPIA AS EXEMPLAR
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caps on some food products would hurt some consumers but benefit producers, thus encouraging production and employment. Even if both the number of beneficiaries and the scale of benefits would far exceed the number of losers and the magnitude of losses, as with the measures proposed in this report, favorable cost-benefit ratios do not guarantee smooth passage and implementation of the reform program. Mitigating this risk calls for consideration of several dimensions of program design:
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Analyze the impact of proposed reforms. The government should make every effort to mobilize support through public discussion and facilitate the creation of the broadest possible coalition in favor of reform. A gradual process of coalition building, especially among national and regional policy elites, was a key ingredient in China’s eventual decision to adopt a “socialist market economy with Chinese characteristics,” which represented a massive shift from the previous plan-oriented regime (Shirk 1993; Naughton 2008). Structure reforms as a package designed to mobilize sufficiently broad support and counter potential opposition. Phased implementation of some measures (import liberalization) might give potential losers time to adjust, thus reducing their losses and possibly muting their opposition to a reform package. Leverage donor support. Ethiopian manufacturing industries receive support from several donors. The German Development Bank (KfW), through the Engineering Capacity Building project, provides support to manufacturing industries similar to that of the World Bank’s factory floor–level interventions to improve product quality and productivity by funding foreign technicians. It also supports market linkages, particularly to the EU and Germany. The Japan International Cooperation Agency provides support to about 30 medium and small enterprises and introduces the Kaizen system of continuous monitoring of productivity and quality improvement efforts, while the United Nations Industrial Development Organization provides support for benchmarking studies, particularly for the leather sector. The USAID supports market linkages for industries attempting to export to the U.S. market through fair trade participation and arranges direct buyer-seller linkages.
The proposed program of reforms is sharply focused and should therefore be fiscally manageable because its recommendations are few in number, are specific, and can be packaged and prioritized along the most promising subsectors (with the help of development partners). Table 8.5 lays out the costs and feasibility of this report’s major recommendations. Although the proposed policies are designed to limit rent seeking, parts of the government may find ways to favor connected firms and extract rents from others. To avoid this, it is essential to secure and sustain the commitment of the top level of government to the growth and jobs agenda and to implement controls and incentives that will assure proper implementation.