VZCZCXRO8976
RR RUEHROV
DE RUEHDS #2159/01 1920907
ZNR UUUUU ZZH
R 110907Z JUL 07
FM AMEMBASSY ADDIS ABABA
TO RUEHC/SECSTATE WASHDC 6936
INFO RUCNIAD/IGAD COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0043

UNCLAS SECTION 01 OF 02 ADDIS ABABA 002159 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR AF/E AND AF/EPS 
LONDON, PARIS, ROME FOR AFRICA WATCHER 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV EAGR ET
SUBJECT: ETHIOPIA: PRIME MINISTER MELES COMMENTS ON PRIVATE-SECTOR 
LED ECONOMIC GROWTH 
 
ADDIS ABAB 00002159  001.2 OF 002 
 
 
¶1. SUMMARY: A two-day conference organized by the World Bank, 
donors, and the Ministry of Trade and Industry underscored the GOE's 
commitment to accelerate private sector and export-led economic 
growth.  Following the conference, Prime Minister Meles met for two 
hours with selected conference participants to discuss 
recommendations and the findings of the World Bank's 2006 Ethiopian 
Investment Climate Survey.  END SUMMARY. 
 
¶2. On June 27 and 28, the Ministry of Trade and Industry, the World 
Bank, and the Donor Assistance Group on Private Sector Development 
and Trade, organized a conference on private sector-led growth in 
Ethiopia, drawing approximately 150 participants from the private 
sector, government, donor groups, NGOs, embassies, civil society and 
the Ethiopian Diaspora.  USAID provided key input in helping to 
shape the conference agenda, and in formulating and presenting 
recommendations for consideration by the Prime Minister and other 
senior government officials.  USTR Director for African Affairs 
William Jackson was a conference speaker. 
 
¶3. Sufian Ahmed, Minister of Finance and Economic Development, 
underscored the GOE's commitment to stimulating private-sector 
economic growth, asserting that the GOE continued to implement 
reforms focused on reducing the cost of doing business and enhancing 
the confidence of the private sector.  He also noted the challenges 
to the private sector, including low labor productivity and limited 
capacity to compete. 
 
¶4. Ishac Diwan, Country Director of the World Bank for Ethiopia and 
Sudan, noted that industry could be an important component of 
promoting economic growth and reducing urban unemployment, and that 
export development could help close the balance of payments gap.  He 
expressed optimism that Ethiopia was realizing the vision of 
private-sector growth, noting that several sectors were beginning to 
show signs of dynamism, and that 26 state-owned enterprises had been 
privatized over the last year. Ethiopia was on its way to a fourth 
consecutive year of rapid economic growth.  Diwan said the GOE's 
industrial development strategy needed updating to reflect recent 
dynamism in the economy.  Additionally, he noted the importance of 
using the Diaspora's talents to support Ethiopia?s development. 
 
-------------------------------------------- 
RESULTS OF THE WORLD BANK INVESTMENT CLIMATE 
STUDY AND CHALLENGES TO COMPETITIVENESS 
-------------------------------------------- 
 
¶5. World Bank officials noted that a comparison of Investment 
Climate Studies from 2002 and 2006 indicated significant 
improvements in many investment climate variables (i.e., access to 
land and finance, tax rates and tax administration), but also showed 
that significant constraints remain, especially perceived unfair 
competition.  Labor productivity remains low, and industries are not 
sufficiently clustered to achieve market competitiveness.  Further, 
the study indicates that progress is uneven and that state-owned 
enterprises face a more favorable investment climate. 
 
¶6. Following the presentation of the study results, Minister of 
Industry Tadesse Haile discussed the basic principles of the GOE's 
industrial development strategy, including: recognition of the 
private sector as an engine of economic development; linkages with 
agricultural development led-industrialization (ADLI); export-led 
industrialization; focus on labor-intensive technologies; the role 
of domestic and foreign investments; the role of Government in 
spearheading investments; and public-private partnership.  The 
strategy identifies priority sectors for exports, including textiles 
and garments, meat and meat products, agro-processing, leather and 
leather products, and metal.  Currently, industry accounts for 13.5 
percent of GDP, which falls short of ultimate goals.  Minister 
Tadesse said the role of government was crucial in improving the 
investment climate and tax administration, ensuring efficient 
allocation of resources, and stimulating private sector development 
by improving infrastructure.  As evidence of the policy's impact, he 
cited 26 percent annual growth in total exports.  Ethiopia had begun 
to export finished leather products, flower exports had increased to 
USD 8 million monthly, and there was diversification into new 
exports.  Challenges included lack of intra-industry linkages, lack 
of capital and skill or knowledge, and low institutional capacity. 
 
 
------------------------------------------ 
PRIME MINISTER DISCUSSES GOVERNMENT?S ROLE 
------------------------------------------ 
 
¶7. At the conclusion of the conference, Prime Minister Meles Zenawi 
met with selected participants to discuss the findings of the 
report.  The PM stressed several points: 
-- the Government would actively address any bottlenecks hindering 
private sector export-led economic growth; 
 
ADDIS ABAB 00002159  002.2 OF 002 
 
 
-- the GOE's current strategy calls for focusing on a few 
sub-sectors, demonstrating their potential to be globally 
competitive, and then taking steps to scale up successes; 
-- the cluster development approach should be pursued to achieve 
trade competitiveness (the floriculture and leather sectors were 
cited as examples); 
-- while the financial sector should be reformed if needed to 
improve financial services for the private sector, the Government 
was not convinced of the need for complete liberalization; and 
-- a one-stop shop should be established to provide information to 
the Diaspora on investment opportunities, processes, and available 
assistance. 
 
¶8. While the Prime Minister was open to many of the findings of the 
World Bank report, he expressed reluctance to move forward with some 
key reforms.  For example, he stated that bilateral agreements such 
as AGOA with the U.S., and EBA with the European Union, may obviate 
the need for World Trade Organization accession in the short term. 
He also noted additional challenges to Ethiopia's development, 
including foreign exchange shortages, and capacity constraints in 
human resources, infrastructure, and systems. 
 
¶9. COMMENT: The consultation by the Prime Minister with the private 
sector and international donors underscored the GOE?s renewed 
commitment to accelerate private sector and export-led economic 
growth.  Although the GOE expressed concerns about advancing too 
rapidly on some issues (i.e., full liberalization of the financial 
sector, land tenure reform, deeper telecommunications reform, and 
WTO accession), the conference highlighted the Government's 
willingness to engage in constructive dialogue with the private 
sector and other development partners, and to take measures to 
enhance the overall investment climate, including increasing 
government funding for infrastructure development, technology 
generation and transfer, and capacity building.  END COMMENT. 
 
YAMAMOTO