Jun
10

Taxi Drivers Know More Than You Think

Hello everyone! I arrived in Addis Ababa, Ethiopia’s capital, a little more than a week ago and I now finally have time to sit down and reflect on my time here. I have spent the first stint of my stay familiarizing myself with the city and figuring out what resources will be useful for my research. Essentially, this translates to spending most of my time reading and searching through archives. The National Archives has become my second home because of the breadth and depth of its historical government statistical collection. When I am not holed up at the archives, you can usually find me at a nice hotel far above my paygrade, grabbing a cup of coffee so I can mooch off their WIFI and do research! Unfortunately, where I am staying does not have WIFI, so I must get creative where I work. I have become a master at managing the delicate balance between ordering enough, so workers do not know I am there for the WIFI, but not enough to break my bank account.

The outside gate of where I stay

The gate outside of my Airbnb

I have also got in touch with my research advisor, Getnet Alemu, at Addis Ababa University. Getnet is friends with my other advisor back at William & Mary and my point of contact while I am in Ethiopia. He has also graciously taken me around the city and to lunch with his friends where I got to taste Ethiopian cuisine! While it is an Ethiopian delicacy to eat raw meat, Getnet ordered fried meat for me because he did not think my stomach could hang (which he is probably right about).

This is Victory Monument and marks the beginning of Arat Kilo, the neighborhood I stayed in

This is Victory Monument; traffic circles are very common here and quite hectic to say the least! The monument marks the beginning of Arat Kilo, the neighborhood I stayed in

I am so excited to be in Ethiopia to conduct research on the political economy surrounding Ethiopian industrial policy. I am also interested to learn how the historical cash-crop economy, which for the better part of the 20th century accounted for almost 70% of Ethiopia’s economy, currently shapes the distribution of economic activity in the country and how it should inform current industrial policy decision-making. Industrial policy is a set of explicit and implicit policy tools politicians use to promote manufacturing. Many development economists argue that transformative long-run economic growth can only occur when the manufacturing sector is sufficiently large enough. In short, manufacturing is thought to be more productive than other sectors and have larger spill-over effects on the rest of the economy. But, how do developing countries create the necessary conditions to support industrialization? Can the government artificially create competitive, export-oriented manufacturing sectors?

The jury is still out on this question and you will get a wide variety of answers depending with whom you talk to. Most Western economists argue that industrial policy is largely ineffective at promoting industrialization because it restricts markets from properly functioning and impedes countries from focusing on their comparative advantage. People from this school of thought often point to the failed import-substitution-industry (ISI) policy measures Latin American countries undertook during the 20th as evidence to support their claim. On the other hand, proponents point to East Asian “Tigers” experience such as South Korea, Japan, Taiwan, and most recently China, as these countries effectively used industrial policy to promote export industries and ultimately create higher value products. There is a lot of evidence to suggest that current international name-brand companies like Samsung, Sony, Hyundai, and Toyota would not be around today were it not for East Asian countries’ government support.

After classes get out at the University, students generally come and hang out at the soccer field and watch pick-up

After classes get out at the University, students come to hang out at the soccer field and watch pick-up

Ethiopia has elected to side with the East Asian “development state” strategy, where the government plays an active role in supporting industrial development by picking sectoral “winners”, or certain industries to support. I am interested to learn more about whether the East Asia “Tiger” policy agenda can be successfully applied to the African continent, in a drastically different cultural and historical context. To understand how this policy process affects local Ethiopian businesses, it is helpful to talk to those who experience it and are affected by the government’s mandates.

Surprisingly, I have learned more about the current obstacles Ethiopian businesses face by talking to taxi-cab drivers than I have talking to researchers. I am often in transit, traveling from place-to-place in Addis, so I have had many opportunities to strike up conversations with local drivers. There are generally two ways to hail taxis in Addis; by waving down blue-colored taxis or using an Uber-like app called “Ride”.  The app is transparent, and rates are cheaper since I do not have to negotiate with the driver, rather the app tells you exactly how much to pay. In my first couple of days in country, before I knew about the app, taxi-drivers had their way with me. I had no idea what a good rate was and often paid four times the average rate to get across town!

Taxi-cabs have often seen better days and the interior can be rather interesting...

Taxi-cabs have often seen better days and the interior can be rather interesting…

Interestingly, “Ride” drivers often come from well-educated backgrounds and use the app as an additional avenue to supplement their primary source of income. I was shocked by the number of drivers that were college educated and were owners of their own small business. Being a taxi-cab driver seems like an unproductive use of their time and skills, especially when you have a small business to run, so why are they driving? It is relatively common for workers to hold multiple jobs, regardless of education-level, because of high living costs. Oftentimes, drivers would use the additional income they earn to support their small business. One driver I met operated his own IT firm, but he also drove to make ends meet because his firm currently cannot operate at full capacity. The lack of foreign currency has driven up IT hardware prices, which are all imported, making it harder to service contracts at a competitive price. He attests that if the country’s export earnings increased over the long run, creating a steady supply of foreign currency reserves, he could devote more time to his business since he would be able to serve more contracts. Although the IT business appears to be booming on the demand side, costly imported inputs prohibit IT firms from supplying this growing market.

Another conversation that stuck with me was with a driver named Maru who graduated from Addis Ababa University with a degree in economics, the university I am affiliated with for the summer. Maru has had numerous entrepreneurial endeavors, previously working as an importer, cash-crop farmer, and most recently as a leatherworker. He went to a technical school to receive vocational training in leatherworking and earned a certificate. Through various industrial policy mechanisms, the national government has strongly promoted the leather industry. Ethiopia has a long history manufacturing leather products, arguably Ethiopia’s first manufacturing sector, and the country has a large endowed cattle livestock. Ethiopia has the fourth largest cattle population in the world and cattle hides are the most expensive input in the leather-making process. Neo-classical economics and conventional wisdom would suggest that promoting an export-oriented leather making industry would be good policy; Ethiopia already has their foot in the global leather-making value chain and presumably, can use their comparative advantage to climb up the value chain by processing cattle-hides in country and manufacture high-quality leather goods. Seems easy right?

This is probably my favorite painting housed at the National Musuem, where you can also find the famous prehistoric remains of "Lucy", one of the oldest hominins in the world

This is probably my favorite painting housed at the National Museum, where you can also find the famous prehistoric remains of “Lucy”, one of the oldest hominins in the world

Well if only economic theory always translated to reality *sigh*. As Arkebe Oqubay highlighted in his 2015 comprehensive case-study of the Ethiopian leather-making industry, poor sectoral policy prescriptions have failed to foster the necessary backward linkages needed for leather-makers to take advantage of “theoretically” cheap cattle hides. I put “theoretically” in quotations because it was clear through my conversation with Maru that cowhides are not cheap. Due to a host of reasons -Oqubay 2015 does a fantastic job explaining the nuances, for those industrial policy nerds who are interested in learning more, I know this is a small crowd- cattle hides are generally of poor quality and thus do not meet international standards. High-quality hides must be used in the production process of high-quality leather goods, but they are rare and very expensive. Furthermore, the supply of cattle hides is erratic, so even if Maru had an order, he could not always fill it. Poor input quality and erratic input supply, coupled with international leather goods prices slipping, doomed his small business. Maru said he may re-enter if business conditions improve, but he seemed rather skeptical that he could ultimately make a sustainable living in the leather-making sector.

Business owners in Ethiopia face steep roadblocks that we simply cannot relate to. American consumers get frustrated when their Amazon package arrives a day late; now imagine your business depends on receiving an Amazon package and it arrives a week late, and when it does arrive, it is not what you ordered. It is important to recognize how systemic and interrelated these problems are; there clearly is no silver bullet and evidence suggests that it will take years of policy learning and adaptation for the government to successfully serve emerging manufacturing sectors. Since Ethiopia has placed a massive bet on kick-starting their manufacturing sector in the hopes it can lead to long-run growth by taking out massive loans, the elephant in the room is how long can Ethiopia wait?

Even though taxi-drivers have their misgivings about the economy, they are generally optimistic for the future and maintain confidence that the national government will steer the economy in the right direction. Since the early 2000s, the economy has grown at a blistering rate (10% a year for the past 15 years!) and in Addis Ababa you can visualize this economic ascension as the city is one big construction zone. You cannot walk a block without seeing a massive construction project underway. Girma, the taxi-driver who picked me up from the airport, told me that he can barely recognize the city he grew up in. Although the country has a long way to go towards transforming its economy and meetings its ambitious goal to become a lower middle-income country by 2025, the country is certainly better off now than ten years ago.

People’s attitudes have recently become more favorable with the election of a new prime minister. Prime Minister Abiy Ahmed (known as Abiy to the locals), has continued to push forward the government’s “development state” agenda. Yet, unlike his predecessor, he has managed to govern in a more politically inclusive manner. As Girma strongly put it, the former prime minister acted like a “dictator,” by suppressing the press and jailing journalists. These tensions culminated in 2016 protests when national soldiers opened fire on a crowd of government protestors and killed more than 60 civilians. The current prime minister has gone a long way towards restoring political unity and diffusing ethnopolitical tensions by freeing journalists and being more accommodating to ethnic minorities in the ruling political party, EPRDF.

I was able to witness first-hand Abiy’s popularity. While pouring over old government statistical agency records at the National Archives- where it is so quiet you can hear a whisper as students judiciously work on their studies- I was startled to hear pandemonium-like screams reverberate throughout the entire building. I had absolutely no idea what was happening as people began scrambling to the front of the building. As I followed the masses, everyone converged around one person, unbeknownst to me it was the prime minister who came to promote a book-drive campaign. It was as if the paparazzi had rolled up to see a Rockstar make a surprise public appearance; cameras were everywhere, kids were screaming, and of course, everyone wanted to get their picture with Abiy and shake his hand. Abiy surely has the student coalition in his pocket!

Prime Minister Abiy at the National Archives greeting students

The paparazzi flocks to Prime Minister Abiy at the National Archives as he greets students

Well, that is all from me now. I know this has been a long blog post, but a lot has happened in a short amount of time and there is no better way to internalize your thoughts than writing! Next week, I am traveling to Morocco to continue to do research, but in a different capacity. I will be staying outside Casablanca to continue with the research I previously conducted in Liberia. Last summer, I worked with a soccer academy in Liberia to implement an impact evaluation to discern the effects the academy has on the cognitive, non-cognitive, and gender views of its student-athletes. Since the academy is expanding to Morocco this summer, the academy asked me back to collect baseline data to help with future impact evaluations!

More to come,

Henry

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