Industrial Policy and Late Industrialization in Ethiopia

Abstract

Ethiopia has emerged as one of the fastest-growing economies in Africa in the early twenty-first century. Despite rapid growth, structural transformation of the economy remains the country’s central challenge. This chapter reviews the origins of Ethiopia’s industrialization and industrial policymaking process in the twentieth century. The Ethiopian government has pursued developmentalism and practised an active industrial policy since the early 2000s. However, a review of industrial policies in priority sectors shows that the outcome has been uneven across sectors, indicating the importance of the interaction between industrial structure, linkage dynamics, and politics/political economy for the evolution and effectiveness of an industrial policy. After examining the fundamental weakness in Ethiopia’s economic structure, this chapter illustrates why and how industrial policy must focus on manufacturing and exports to generate structural transformation and accelerate catch-up. The Ethiopian experience shows that an activist industrial policy goes hand in hand with an activist state.