Ethiopia: Chapter 3. The Economy

Posted: March 6, 2008 in History
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Chapter 3. The Economy

by Mulatu Wubneh (Associate Professor of Planning at East Carolina University)

RESTRUCTURING THE ECONOMY along socialist lines and achieving sustained economic growth were the two major economic objectives of the Provisional Military Administrative Council when it assumed power in l974. After the 1974 revolution, the pace of economic restructuring was accelerated by a barrage of legislation. A key part of the effort to reshape the economy was the implementation of Africa’s most ambitious land reform program, which included nationalization of both rural and urban land. Most of Ethiopia’s industries, large-scale agricultural farms, and financial institutions were brought under the control of the government, and both rural and urban communities were organized into a hierarchy of associations. Pursuit of the military regime’s second objective–sustained economic growth–was less successful. Drought, regional conflicts, inflexible government policy, and lack of confidence by the private sector seriously affected the economy. Falling productivity, soaring inflation, growing dependence on foreign aid and loans, high unemployment, and a deteriorating balance of payments all combined to create a deepening economic crisis. In 1990 Ethiopia had a gross national product of US$6 billion and a per capita income of about US$120, one of the lowest per capita incomes of any country in the world.

Following the 1974 revolution, the socialist government developed a series of annual plans and a ten-year perspective plan to revitalize the war-ravaged economy. Although the annual plans helped the regime deal with some urgent economic problems, such as shortages of food and consumer goods, decline in productivity, lack of foreign exchange, and rising unemployment, these plans failed to move the country significantly closer to attaining its longterm development objectives. In l984/85 ( Ethiopian calendar year–see Glossary) the military government launched a new ten-year perspective plan, which represented a renewed commitment to economic growth and structural transformation of the economy. However, the economy continued to deteriorate. In response, the regime introduced several additional reforms. For instance, the l988 Investment Code allowed unlimited participation of the private sector in certain areas of the economy. In January l988, under pressure from aid donor countries, the government agreed to restructure agricultural and farm price policies. Finally, in March l990 President Mengistu Haile Mariam announced the end of the country’s Marxist economic system and the beginning of a mixed economy. Despite these reforms, the economy failed to improve.

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