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Economic pragmatist

Economic pragmatist

Born and raised in Addis Ababa, Brook Taye (PhD) is among the army of the new bloods that are wheeling the nation-wide reform process initiated by Prime Minister Abiy Ahmed (PhD). Went to study in England, Brook did both his “A level” and Law degree studies at the School of Oriental and African Studies at the University of London. Securing scholarship for his masters at three different universities— the University of Bologna, the University of Paul Cezanne Aix, Marcel in France and the University of Ghent, Belgium—Brook was able to receive his qualifications in a year. Finalizing two maters in Law and Economics: master’s in comparative law and economics, Brook went to join a firm that mainly deals with investments in West Africa. But his academic career was once more active when the Ecole Polytechnique, a university based in Paris provided Brook a PhD scholarship and he finalized his dissertation in a year to join the Windels Marx Lane & Mittendorf, an old law firm as Brook and his fellows refer to it since it was historically attached to the time of Edison’s test lab. In this New York based law firm, which incorporated the software giant IBM in the early 1980s, Brook initially worked as regulatory analyst and economist for six years until he got another job offer to join a private equity fund in Miami. After managing funds of A&A CAPITAL successfully for two years, he was confronted with the changing scene in Ethiopia where he says he always desired to come and contribute his part. Luckily, the minister of finance invited him to join the team as a senior economic advisor and he has spent a year trying to roll out an economic reform that seeks to revamp the economy through a series of privatization and liberalization measures. The work Brook has accepted has kept him so busy that even during this half an hour interview, he needed to see and briefly chat with some guests and answer numerous calls. Birhanu Fikade of The Reporter caught up with Brook at his office in the Ministry of Finance to learn about the ongoing economic reform agenda, what the privatization process is meant to the country and why some are flaring criticisms against the measures. Excerpts:

The Reporter: let’s talk about the fundamentals of Ethiopia’s economy. What really governs Ethiopia’s economy? Is it guided by Keynesian Principles? What do you see in Ethiopia’s economic models?

Brook Taye (PhD): I see pragmatism. All those Keynesian, or Friedmannian or any other type of economic principles you would want to talk about at the micro and macro level, they might be brilliant as a text book manual, but your life and my life are governed by reality and reality is governed by those pragmatic people. I really think that the economic approach our ministry is taking is funneled by pragmatism. What works for Ethiopia at this moment? That is how our analysis works on privatization; what works is the main consideration behind our homegrown economic reform. I don’t specifically prescribe to a certain principle. I am pragmatic; and for me, what I see right now is the most pragmatic way of looking at our issues and resolving them along the way.

The homegrown economic reform agenda appears to be a debatable issue. Macroeconomic, sectorial and structural issues are the key areas of the reform process. Some people argue that three years is not going to be enough to resolve a whole bunch of macroeconomic imbalances. Could you share your perspective on that?

My perspective is that three years is a lifetime if we work hard. A lot of things can change in three years, if we focus on the real problems. If we identify the most important indicators and symptoms of our economic imbalances, and if we really work hard towards them; three years is quite enough. But, the question should if there are any problems that are missing from the list of identified issues. The dialogue I want to have especially with experts at the macro sphere is about the issues we have not identified; not just timeframe. The government is working aggressively to address these problems, and I don’t think three years is a short time. In this regard, let’s look at some of the macro economic imbalances we are trying to resolve. If you look at the debt issue, we are already done with half of the total debt accumulated. We have been able to reschedule most of Chinese debt obligations. That pretty much has been a success. Our debt burden has been significantly reduced. With each financial institution that we had a discussion with, we were able to put in an idea that will help us to manage our debt exposure. Yes, there are a lot to be done; more optimization, more structuring needs to be done so that we will be more realistic on how we will make the payments. In terms of the unemployment issue, there is a plan set out to create some three million jobs and a Job Commission has been established and is aggressively working to create those jobs. In terms of ICT sector, the Ministry of Innovation and Technology is working hard to create 250,000 jobs and we think that is possible through the introduction of two more additional telecom operators and with the emerging digital economy. We are approaching inflation with a multifaceted approach. We wanted to see whether there is a supply side problem or if it is a broad money issue, or if it is happening because of non-commodity items? What are the areas creating this havoc? We are looking at every possible scenario. There is a team created to look at it from a logistics aspect and from a hording perspective. Are we allocating resources in a proper way? We are looking at all alternatives. The Ethiopian Investment Commission now permitted international companies to come and distribute key commodities to the local market. If you look at structural and sectoral issues, the same approach has been applied. On the structural aspect, the doing business reform has been reviewed and the Council of Ministers has approved a new Investment Law. From the sectoral point of view, we are looking at State Owned Enterprises (SoEs) and the way we are looking at SoEs is not to privatize the organizations, but we are looking at how we can reform and calibrate their role. For instance, one of the SoEs we are working with told us genuinely that they want to redefine their role. They said what they are doing is something the private sector is also doing and hence want to focus on value additions. This is the proposal the management came up with and they said the government should help them in financing their gaps. We know our assets that since most of the SoEs were created during the time of His Majesty Haile Selassie in the 1940s. They need to be recalibrated and they need to know what they have at their warehouses. I think this all relies on what individuals could do. If we really work hard and dedicate ourselves to make sure that it is a reality, three years is a life time.

From macroeconomic perspective there is a serious problem with regards to production and productivity. We don’t produce and export much and that kept us in a vicious circle. How is this problem worked out?

In terms of total factor productivity and increasing the efficiency of the economy requires time. But, there are low hanging fruits. On the ICT sector, for example, productivity is defined by individuals’ performance and the amount of time they spend on working on their specific areas, and their capacity to create more new entrepreneurial ideas. If that is the case, it is the individuals that are driving their productivity than on a firm level. We need to dissect them into different sectors. On the agricultural sector, the Ministry of Agriculture is working on the mechanization. They are working on a new incentive package to provide tax free privileges to farmers bringing in tractors and other equipment. But on the manufacturing side, there is always that curve that you must wait to attain in terms of comparative output levels of individual working in a factory line. For workers’ productivity to improve relative to workers in other countries, it requires time. Training and support and the structure of our educational systems are all integral parts of improving the productivity. But, as I said before, there also are low-hanging fruits that we can quickly rely on to make sure that productivity improvement is engendered immediately than certain areas that require more time.

Some experts say the homegrown economic reform plan is copy pasted from IMF’s templates while the government is saying that it is an inward looking economic agenda. What is your answer to that?

Well, it is very difficult to argue on the name in the first place. If the discussion and the debate is on the name, we can call it x or y. I don’t have time to defend or providing a counter factual for a name. That is irrelevant for me. But, nobody has a monopoly over knowledge. IMF has some knowledge, the WBG has some and Brook has some and everyone has some knowledge. As the Prime Minister said, many Ethiopian brilliant minds have worked on the reform program and I am so happy that they had worked on it. These are phenomenal people who have spent their time to design it. There will be an influence of idea that comes from everywhere and that is a given and normal. Ideas are fluid. You share, copy or adapt or innovate. But for me, the bottom line is whether this works for Ethiopia now or not. This pragmatic approach does it have holes? If it does, why don’t we discuss them rather than focusing on its name. It would have been better if one could say the structural issues that we have raised are half baked and unrealistic. It is better if one could suggest what elements we have missed to target. From what I have seen so far, personally, there is not a dedicated work from fellow citizens in charting out a new way.  It will be good if people come forward and suggest if our approach is not right rather than arguing over a name. 

How realistic is the government in achieving targets set in the homegrown economic strategy? 

The homegrown economic program is going to have its own challenges since it going to mobilize additional revenues. It relies on every layer of government really working towards achieving the strategy. I am sure there would be a concern if things are not moving in the right direction. But, this is a proactive approach where by you make sure that you have put in place a corrective measure at every juncture so that the plan is fulfilled. It is ambitious and ambitious goals always take some challenges; I think the team is up to it.

As far as FDI is concerned, one issue reputedly popping up is the profit repatriation predicament. Investors are always asking to take their money home, but due to the hard currency shortage, the government insists they should reinvest it?

Sure, repatriation is an issue that always comes up and it is true that hard currency shortage is problem. We have lopsided export structure and people are not motivated to export in larger quantities. Rather you would make more money by importing items and selling them on a premium price because when you try to export it has its own challenges. Once you achieve a positive balance of payment, you will not have that problem and there are short, medium-and long-term strategies on how to manage foreign currency, which is being worked at the National Bank of Ethiopia. All this holistically will result in a better management. Then, this issue will not be defining characteristics for Ethiopia. We have more diaspora communities than the entire East Africa Region put together and perhaps bar Somalia because of their situation they have more diaspora. If we could harness and channel all the remittances from the diaspora to come in a formal registered channel, we can have more resources. Working on the export side, we need to focus not only on coffee or sesame but on the extractive industries as well. We have Potash, Sulphur, gas, gold and others. If all of these resources we have are matched with the right investors, and if there are the right business structures is in place, Ethiopia will get all sorts of equitable royalties and other benefits. Then I don’t think foreign currency will be a problem anymore. If we put in all of our industrial park infrastructures to work, the amount of hard currency that is going to be generated is huge. I think scarcity always encourages people to be negatively innovative and that is what creates most of the shortages. But, in the long term, I don’t think it would be a major problem.

Currently, both the government and macroeconomic experts are on the same page when saying the economy is facing many imbalances. But, there are those who say we are in a macroeconomic crises’ situation. Do you agree? 

Not at all. We are not even in the realm of being in a crisis. Perhaps we are in the middle of a perception crises. It is peoples’ perception this as a crisis. I really don’t buy that. Nevertheless, any economist that did econ 101 will have his/her own views and that is normal. But, it matters when the opinion is on crisis. I don’t know what argument they have put forward to substantiate their position. Of course, in terms of growth rate, in terms of what you could achieve, there is a lot to be done. But, I don’t agree that we are in the realm of crisis.

They cite shortcomings of unemployment, inflation, acute hard currency shortage, project management inefficiencies and resource wastage. Capital flight and hard currency shifting are also said to have strengthened the claim of crisis. What do you say to that?

I think that is more of a scare mongering. This is not a crisis. There are economic issues we need to solve. There is no question about that. Yes, capital flight is there but what’s new about that? It has been there for many years. The government is working to incentivize people to retain their capital and reinvest it and make sure that they do it right. Project mismanagement and capacity weaknesses have also been there; but, there is working to make sure that from the project inception phase all the way to the execution, there needs to be a new model and approach. But, for me, the issues of the past do not define Ethiopia of the future.

Let’s see privatization. It is also one of the most contested issues in the reform. But, what exactly is the core agenda of behind privatization in the first place?

I don’t think there is a privatization agenda. There is a misunderstanding, there. The agenda I know is the reform process on the SoEs. That is the agenda; I am working on the issue of lack of capital, the issue of inefficiency and the issue of debt. While doing that the government is moving towards a different direction in terms of liberalizing several sectors of the economy. When you do that there are sectors, there are SoEs that need to be fully or partially privatized. Privatization is a subset of many things that are underneath the entire reform process. I don’t see it as a privatization agenda that the government is working on, rather it is more of a SoE reform agenda. But, in the discussion panels that I have attended and the argument I heard from some people completely misses the mark. When you talk about the sugar sector privatization, the attempt made so far to make sure that Ethiopia is both self-sufficient and hard currency generating country from export of sugar has not been successful. Then what do you do? Do you funnel additional 100 billion birr towards that sector from the budget, from the treasury or from the tax payers and then you try to fulfill without improving your project management structure? Or as a government, as a regulator, work with private players in a very transparent way and generate revenues from those properties to utilize that finance on other infrastructure. There are SoEs that require additional capital. Where do they generate that capital from? The government has stopped borrowing on commercial basis from external sources. Hence, how do you find additional finances, you have to privatize some properties in a partial set or provide a certain equity so that they continue. The discussions were healthy; however, some of the arguments, for instance, on the partial privatization of Ethio Telecom missed the mark completely. The reason why we need to partially privatize, when you have a market dynamic in which two operators are coming, is that it needs to be properly structured to become the dominant successful player in the market place across East Africa.

That is sounds fine until we came to notice what has happened to the Kenyan Airways (KQ) that it was privatized and failed to attain the expected improvement. Now, there are talks of renationalizing it because it is bankrupt. In the pipeline, you have the likes of Ethiopian Airlines and there is fear as to what could happen to ET; this is also true of other SoEs. Are these experiences considered?

For me, the KQ example doesn’t apply for what we are doing here.  The KQ problem does not emanate from it being privatized; or because it was run by the private sector. There are many reasons ranging from the terrorist incidents in Nairobi that created significant amount of reduction in Kenya’s inflow of tourists, to its expansion strategy, management style and a lot of other issues. Yes, it was privatized and now they are trying to renationalize it. But, I don’t see a parallel case with us. For us, if you are talking about the sugar sector, it is a completely different case. For Ethio Telecom, we are talking about a minority position and the finance will help to defend its market place and expand as well. There are partial privatizations planned for Industrial Parks and energy facilities; but, the study is still on identifying what do we mean by partial privatization. We are going to define the thinking with the study that might tell us what would happen 10 to 15 years later. Having said that, though we are not going to exclude what has happened in the past. When I started this assignment, most of the memos that I wrote focused on failures not success stories because we really wanted to understand how other countries failed in doing this exercise. We want to know why and most of the areas were transparency, corruption and not thinking through in identifying before the sake of doing it. We are trying to create a scenario that can’t happen in Ethiopia.