As was reported in advance by last weekend's papers, the World Bank (WB) has just published its five-year Economic Memorandum for Ethiopia. It seems like a rather limp and toned down criticism of the economic policies in place. Indeed, it was even negotiated to some extent with Ethiopian officials before it was published.
 

The Economic Memorandum from the WB is particularly interesting in that it spends much time and energy explaining the historical causes of institutional obstacles to economic development in Ethiopia. Indeed, many have thought this for a long time, but this report offers an official stamp on this interpretation of Ethiopia's poor economic performance.
 

There is no denying the massively negative economic impacts institutional constraints have had on growth, particularly on the growth of the private sector. An imperial past is partly blamed in the report, with considerations for further growth of rigid public institutions under Mengistu Hailemariam. The report then goes on to list the reforms that have taken place under this government and the positive benefits that progressive liberation of the private sector has had.
 

The entire report seems to offer an apology for the sorry state of Ethiopia's economy today. Let us not forget that Ethiopia ranks among the very poorest 10 countries on the planet and that per capita income is still under 200 dollars a year. As has been demonstrated in that report, this government has gone some way to secure economic growth, but luckily it saves itself by also stating that more must be done.
 

The institutional weaknesses of the past still plague business in Ethiopia today. Long delays in the registration of businesses, heavy regulatory and tax burdens on operation, a weak competitive environment, and massive government monopolies all hinder the development of a free-enterprise mentality. The problems of Ethiopia's past are not sufficient excuses for the preservation of such inefficiencies. Recognising that the present government could do more is an important part of solving the puzzle of Ethiopia's present economic state.
 

A part of all this is denial. Somehow, all economic growth should be attributed to government intervention. Either the government will achieve growth directly through its own investments and production - the Ethiopian Telecommunications Corporation (ETC) springs to mind - or it can claim credit for freeing up activity in those few sectors that clearly work without government interference - witness the cut flower industry.
 

Of course, it is the same denial that also clung to the minds of Ethiopia's earlier leaders, somehow believing that economic growth was theirs to claim as a prize. 
 

If you recall, after a visit by International Monetary Fund (IMF) officials in March, the Fund emitted a press release suggesting that inflation in Ethiopia was demand-driven and linked to monetary liquidity, stoked in large part by public investment. At the time, the responsible Ethiopian spokespersons responded that they disagreed.
 

It has been stated by outside analysts, time and again, that Ethiopian inflation is linked in part to over-spending by the government of Ethiopia. This should not be in any way surprising, particularly in the case of a country where government spending accounts for such a high proportion of Gross Domestic Product (GDP). Public spending is directly linked to overall demand, general money liquidity and therefore to inflation.
 

Apart from slowing public spending, other recommendations touching on monetary supply and liquidity have suggested restricting credit, increasing interest rates on savings to decrease spending and improve the national saving rate, or even both.
 

The government disagrees with these recommendations; it also does not see the extent to which it is part of the problem in both inflation and poor economic growth.
 

It is the government that holds back the banking sector, while taking out huge loans itself to finance public works. Take the present challenges of business owners throughout the country in accessing loans and consider that in the last fiscal year the government borrowed over 860 million Br from domestic sources. Instead of freeing private enterprise, it holds it back to pursue its own aims.
 

The result of processes like these is that only the government is to blame for the economic challenges of this country. It also cannot be exonerated by blaming past institutional failings, when it preserves them to this day.
 

It is not sufficient to wait until an opportunity is hard won by the private sector, for the government then to step in and make the changes necessary to promote its expansion. It is of primary importance that the government realise the massive interference it presents to economic growth and to every business in this country. From there, it is necessary for the government to begin removing its large presence from the active economy, in every justifiable way, so that businesses can begin to explore the hidden potential in this country.

Generally, the WB Memorandum is well balanced and offers a decent roadmap to future growth. It is, however, too lenient with a government that displays many of the same characteristics of its predecessors and still resists the very changes that this country most needs.