The Cost of Ethiopia’s Infrastructure Spending

7 mins read

By Daniel Teferra (PhD)*
Ethiopia has been borrowing billions of dollars for infrastructure projects. What is the cost of all this spending? The cost is measured in terms of the alternative projects that could have been undertaken with the borrowed money. Eliminating the threat of famine in Ethiopia tops the list of these foregone opportunities.
The government, for instance, is borrowing five billion dollars to build a huge dam on the Blue Nile. This money could have been used for land reform and agricultural development to eliminate the threat of famine and improve the standard of living of the population.
national bank of ethiopia
The regime in its prospectus for private foreign lenders disclosed that the country still lives under the threat of famine. Yet, it is borrowing money to fund more infrastructure projects rather than land reform and agricultural development.
In 1973-74, an estimated 100,000 to 200,000 people died in Tigrai and Wollo from famine. Again In 1984-85, a similar number of people died from famine in the same regions of Tigrai and Wollo, including parts of Begamder and the then province of Eritrea.
Ethiopia is a food-deficit country. That is, it imports more food than it exports and lacks sufficient foreign exchange to close the deficit by purchasing food on the international market. Because Ethiopia lacks foreign exchange, it has to rely on international food aid.
Ethiopia’s food deficit has increased dramatically since 2007. From 2002 to 2011, the average annual food deficit was 1.2 million metric tons. In fiscal year 2010-2014, Ethiopia received $310 million (398,145 metric tons) on average each year in food assistance from the United States of America and its partners, such as, World Food Program (WFP) and Catholic Relief Services (CRS).
Ethiopia possesses rich agricultural potential. It does not have to rely on international food assistance. Why doesn’t then the regime emphasize agricultural development rather than expensive infrastructure projects? The official explanation is that the country will grow faster and create more employment opportunities by emphasizing infrastructure projects, urbanization and manufacturing. Unfortunately, the explanation lacks adequate understanding of the development process and history of Ethiopia.
Generally, agriculture provides food for both rural and urban populations. It provides raw materials and labor for manufacturing. It creates markets for domestically manufactured goods. Furthermore, it generates tax revenue for government to fund infrastructure, urbanization and social service projects. It provides foreign exchange earnings to pay for imported goods. Agriculture is a source of economic prosperity and national security.
The current rulers of Ethiopia come from Tigrai, the poorest region in the country, which had been devastated by famine repeatedly. Ironically, they did not want to free land and the peasantry to develop Ethiopia’s agriculture and thereby eliminate the threat of famine.
In reading the current rulers’ manifesto, one clearly sees that they did not make agricultural development their priority. For instance, they blamed two factors for the poverty and recurrent famine in their region.
One was the gultanya (fief) land tenure system, which impoverished the peasantry. This was a correct conclusion. But the rulers did not offer any perspective to deal with the problem. They simply embraced the same, traditional rist (ancestral land) system, overlaid by state ownership of land (gultanya state), which had actually fettered the peasantry and agricultural productivity.
The second factor was a so-called “Amhara-centric-state.” The Tigrayan rulers argued that the Shoa-Amhara, with their center in Addis Ababa, exploited Tigrai for their own development. It was wrong to see Ethiopia as an Amhara-centric-state that exploited, the Tigrayans, especially in the north, forcing them to rebel.
Historically, the major beneficiaries of the Ethiopian State were the Tigrai/Amhara. Land alienation by the Shoa-Amhara did not occur in Tigrai. It took place in the non-Tigrai/Amhara south, where most of Ethiopia’s fertile lands were located. Consequently, peasants in the south were compelled to live as sharecroppers under onerous conditions.
The problem of land and agricultural development has dogged Ethiopia for decades. But successive rulers of Ethiopia rejected the idea of freeing land and the peasantry, thereby failed to transform the country’s agriculture and stave off famine.
Huge infrastructure spending and runaway inflation may have made growth rates in Ethiopia look impressive. However, all these expensive projects are costing the country unending food deficit and threat of famine. Economic development does not occur because of expensive infrastructure projects. Economic development occurs when government, to use John P. Powelson’s words, “is just and considerate towards its own people and accountable for the efficient use of resources.”
Ethiopia will be better off spending its scarce resources on land reform and agricultural development. Land privatization will empower the peasantry and democratize the country. It will help capitalize agriculture and improve productivity. Unfortunately, the current regime has chosen to lease rather privatize land to the peasantry.
In Ethiopia, poverty has utility for the rulers. They think they lose if the poor gain. Because of this zero sum game mentality, they are unable to appreciate the benefits of freeing land and the peasantry. But in a free, expanding economy everyone will get a larger share of a growing output without making someone else worse off.
*Emeritus Professor of Economics at Ferris State University; teferrad@uww.ed, UW-Whitewater.