REGIONAL DEVELOPMENT PLANNING IN ETHIOPIA: PAST EXPERIENCE, CURRENT INITIATIVES AND FUTURE PROSPECTS 1. Tegegne Gebre Egziabher *

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1 REGIONAL DEVELOPMENT PLANNING IN ETHIOPIA: PAST EXPERIENCE, CURRENT INITIATIVES AND FUTURE PROSPECTS 1 Tegegne Gebre Egziabher * Abstract: This paper examines the evolution of regional development planning in Ethiopia and explores its future prospects. The main contention of the paper is that in the past, regional development, in line with the functional integration approach, was considered a national project. Four main problems have influenced regional policy areas, namely: a) the need for rapid growth and development, b) the need to industrialise, c) the need to develop water resources, and d) the need to develop resource frontiers and expansion of agricultural export. A concentration strategy and package programs; import substitution industrialisation; river basin development and commercial farms have been the regional policy responses to the above problems. These policies were not adequate to stimulate regional development and reduce the imbalances in the country. The current initiatives of regional policies are marked by decentralised planning systems, inter-regional allocation of resources; investment policies; regional capacity building; river basin planning and special area programs. The adequacy of each of these elements, however, indicates that there is room for improvement. In addition these policies are not implemented as part of an overall regional policy. The future orientation of regional policy should be based on the macro-economic development model of the country. Hence regional policy should derive from the policies of deregulation, liberalisation, promotion of private investment, export-led growth and rural centred strategies. Similarly, the deepening of decentralisation should lead to more emphasis on local level development. Explicit concern with bringing regional equity should guide the resource allocation in future. It is recommended that the country should develop an explicit regional policy whose components should emphasise inter-regional cooperation; regional competitiveness; and regional resource mobilisation. Regional policies at regional levels should work towards achieving appropriate incentives/investment policy, participation of the people and generation of inter-sectoral plans. 1. INTRODUCTION Ethiopia has had some experience of regional development planning in the past years and had followed different strategies. However, these strategies have evolved by taking a certain shape that may be identified with a certain framework and ideology. In the past, regional development has been considered in so far as it improves the national economy. The main aim was to assist national growth and development. Since the fall of the Derg regime, regional planning has been given new impetus and focus. It has received political, administrative and economic support by such concepts of governance as federalism, decentralisation of power, revenue sharing etc. which are being implemented * Director, Institute of Development Research, Addis Ababa University.

2 Tegegne. Regional Development Planning in Ethiopia 66 in the country. The Five-Year Development Peace and Democracy Programme has made it explicit that there is a need to provide priority in, financial and technical support to less developed regions in bringing equitable development among regions. Similarly, the objective of enhancing regional capacity for administration is also given priority importance. This is a new direction in the focus and framework of regional planning. Currently regional development planning has been practised at two levels: at the federal or central, and at regional levels. The first level corresponds to what is known as inter-regional planing in the literature and the second level corresponds to intra-regional planning. Though the country has not accumulated wide experience along these lines, some programs have been undertaken. Regional development programs are not limited to one or other element. Rather, they constitute many elements in different areas and each element forms an ingredient of a larger picture which shows the direction of regional development policy in the country as a whole. The objective of the paper is to examine the evolution of Regional Development Planning (RDP) in Ethiopia and explore its future prospects. The specific objectives are: 1. To briefly examine past regional policies used to address regional problems with a view assessing their adequacy; 2. To identify the ingredients of the policy/programs which are guiding regional/area development today with a view to bringing out their adequacy and content; and 3. To provide suggestions for a future regional policy orientation which the country may need to follow. It is hoped that such analysis will give insights into the future regional planing efforts of the country by understanding the failures of past polices and the adequacy of the present efforts. The introduction in section one is followed by a conceptual framework on the paradigms of regional development in section two. Section three highlights major aspects of past regional policies. Section four discusses the different elements that make up regional policy today. Section five elaborates the prospects of regional development planning, while section six is a concluding section. 2. CONCEPTUAL FRAMEWORK - PARADIGMS OF REGIONAL DEVELOPMENT Theoretical approaches to regional development have witnessed different paradigms. The functional integration and the territorial development approaches are the two dominant paradigms that seem to guide regional development practices.

3 EASSRR, Vol. XVI, no. 1 January The functionalist approach considers development of regions as a function of national/economic development (Henderink and Titus 1988). This approach comes under the general paradigm of development `from above'. Development `from above' is an urban development paradigm and derives its inspiration from modernisation theory of capitalist economic growth. The approach aims at efficiency and modernisation using principles, means and practice of national economic planning, free trade, entrepreneurship and innovations as the driving forces for industrialisation, comparative advantage principle and central government intervention (Evangelinides-Arachovitu 1990). Regional economic policy and planning influenced by the functional regional development paradigm find expression in two major strategies, viz. growth centre and rural service center strategies. In the last twenty years, established theories of regional development and planning have witnessed shifts. Arguments for functional development and functional integration of economic space have lost their credibility in favour of decentralisation, territorial development and local autonomy. The territorial development approach emphasises the satisfaction of the basic needs of the regional population using principles, means and practices of wilful community action, selective regional closure, strategic regional advantage, small and medium sized projects, labour intensive mode of production, appropriate technology and self management organisational forms (Evangelinides-Arachovitou 1990). Friedman and Weaver (1979), the proponents of the approach, indicate that political decision making, governance and hence institutional changes form integral parts of the entire approach. Territorial development comes under the paradigm of development `from below'. Development `from below' involves a change of perspective of development. According to Stohr (1981), it implies going from the present principles of maximising return for selected factors to one of maximising resource mobilisation, substituting the principles of comparative advantage by one of equalising benefits from trade; and emphasising territorial rather than functional organisation. It also implies a change of development from that based on economic criteria, competitive behaviour, external motivation and large-scale redistributive mechanisms to a new model of development incorporating broader societal goals, collaborative behaviour and endogenous motivation. The principles and ideas of development `from below' are derived from the less developed countries and hence are more appropriate for regions in low-income countries. 3. SALIENT FEATURES OF PAST REGIONAL STRATEGIES IN ETHIOPIA Regional Development as a National Project Unlike many African countries, Ethiopia has never been under colonial powers that ravaged many African countries. In the absence of a colonial power, internal historical factors and policies have given rise to the emergence of unbalanced regional development characterised by a primate city, uneven distribution of services, infrastructure and facilities and languishing rural regions kept out of the mainstream processes of modernisation. Ethiopia has espoused different regional policies in the past.

4 Tegegne. Regional Development Planning in Ethiopia 68 These regional policies, however, were dominated by the then philosophy of national growth, which was highly dependent on a centrist ideology that looked upon regional development as a national project. Hence the objectives of regional development were national growth, and integration of regional economies into the national economy. The problem areas that defined the policy contents were a) the need to bring rapid growth and development in the country; b) the need to industrialise the country; c) the need to develop water resources; and d) the need to develop resource frontiers and expansion of agricultural exports. The first type of problem was addressed through a strategy which has its theoretical underpinning in the growth pole theory or concentrated investment strategy. As a strategy, it encouraged governments to concentrate investments in areas which were believed to be promising from a national development perspective. In this regard, the Second Five-Year Plan emphasised the importance of assessing the roles of each region in the long term economic development of the country and identified the Shashemene-Nazreth-Awash-Tendaho belt as a priority investment location since the area has already attracted a considerable number of agro-industrial activities and was served by communication and transportation facilities (Taddesse 1985). The development of agriculture in this area was seen as a prerequisite to fulfilling the targets envisaged in the Second Five-Year Plan for the production of cotton, wheat and livestock. The concentration strategy was further- promoted the Third Five-Year Plan which considered the intensification of agricultural development through package programmes. A more striking strategy along this line was the integrated rural development programmes of selected regions. The intensification of agricultural development through package programs in relatively small and well-defined areas was identified as a major area of concern in the Third Five-Year Plan. The Chilalo Agricultural Development Unit (CADU), The Welaita Agricultural Development Unit (WADU), The Ada District Development Project (ADDP), the Tach Adyabo and Hadgiti Development Unit (TAHDU), the Southern Regional Development Project (SORADEP) and the Humera Agricultural Development Project were different projects along this line with different objectives and comprehensiveness (Fossil 1985). CADU, which was launched in 1967, however, was the most popular project with a comprehensive package of improved technology, dissemination of new practices, credit, output, marketing, training, rural water supply, health services, road building, soil conservation, etc. (Dejene 1996:48). Others like WADU and ADDP followed similar lines. But these policies were led by sector specific policies and did not encourage any specific territorial regional development. The second type of problem was addressed by following an industrialisation strategy of import substitution of consumer goods and excessive dependence on foreign ownership and management of industry (Woldu 1983). Import substitution strategy has a clear spatial implication of favouring selected regions. Import substituting industries require close access to urban markets. Similarly, foreign owned and managed industries require locations with easy international communications and access to decision making. Addis Ababa thus became the favoured city as it fulfilled the requirements of import

5 EASSRR, Vol. XVI, no. 1 January substitution industries. It is well known that the industrial distribution of the country even now is dominated by few places which attract services and population, exacerbating the pattern of inequality between regions. The fact that the urban system in Ethiopia is dominated by a primacy structure emanates from such past policies. The third type of problem was addressed mainly by implementing a river basin development strategy. Though river basins such as Wabishebelle and Blue Nile were candidates for development, it was actually the Awash Valley where activities had been undertaken. The Awash Valley Authority was the only regional frame of planning in Ethiopia, other than the administrative regions (Teshome 1985). The Awash Valley Authority (AVA) chartered in 1962, had the sole purpose of administering and developing the natural resources of the Awash Valley. Among the achievement of the AVA were large-scale concessionaires and medium and large scale commercial farms, numerous agro-industries, electricity production, village water supplies etc. (Teshome 1985). In addition some settlement schemes had also been implemented in the area. The AVA had features that clearly manifested that it was a national project. The fact that increasing traditional grazing land was given to concessionaires for commercial agriculture by displacing the nomads and without successfully integrating them in the development process bore witness to the objective of the AVA in maximising output and growth. Similarly, the fact that most of the developmental activities depended on foreign finance and investment indicated that the profits from the activities were withdrawn from the region (Teshome 1985). The need to develop resource frontiers forced past development efforts to concentrate on large scale commercial farms. Fiscal policies such as duty-free import of tractors and fuels were employed in order to attract foreign private capital and managerial know-how into agricultural sector (Dejene 1996:45). The commercial farms were concentrated in lowland areas. About 82% of the area under commercial crops in 1975 was located in Setit Humera, the Awash Valley and the Rift Valley. These farms focused on industrial raw materials and export crops. Mechanised fanning played a significant role in the economy in terms of employment and production. For example, mechanised farms gave rise to employment of 350,000 people each year and some farms such as Setit Humera led Ethiopia to capture 20% of the export market in seasame production (Dessalegn 1986). The commercial farms however were by and large unintegrated with the local population. By the middle 1970s, Ethiopia was adopting a socialistic idea in which interregional inequalities were seen as undesirable elements of the development process. For instance, the Second National Development Campaign programme mentioned the need to foster the equitable distribution of the benefits of socio-economic development among the people in all regions of the country and this was reflected in all subsequent five annual plans (Taddesse 1985). It is safe to conclude that the five annual plans of the Derg regime did not contain strong substantial policies and strategies in regional development that could have been implemented. Some authors such as Taddesse (1985) indicated that perhaps the most important development in the sphere of regional planning during this time were the establishment of a physical planning department within the organisational structure of the National

6 Tegegne. Regional Development Planning in Ethiopia 70 Revolution Development Campaigns and the creation of a provincial development campaign and planning offices in each of the 14 administrative regions of the country. Regarding the latter, seven regional planning units were formed by combining different administrative regions. These planning units were the Northern, Southern, Eastern, Western, South Eastern, Central and the Addis Ababa planning offices. The creation of these planning units, however, was more in line with administrative deconcentration as they were mostly meant to facilitate the functioning of national planning in different regions, by collecting and submitting data to the national level. These planning offices did not operate autonomously in planning and executing development programs of the different regions. All the efforts made prior to 1991 had a clear national development orientation in that the different programs were meant to integrate each region's economy with the national economy and regional development was understood as long as it aided national growth and output. Hence the functionalist integration approach seems to have provided inspiration for the various regional development practices of the country. 4. CURRENT INITIATIVES IN REGIONAL DEVELOPMENT The current initiatives in regional development could be understood in terms of the country's decentralised political system that gives greater power and responsibilities to regions and in terms of the government's commitment to redress regional imbalances. Thus the regional development objectives of the current government include the reduction of regional inequality through the provision of financial and technical support to less developed regions and the enhancement of regional capacity. Similarly, the objective of attaining a decentralised regional development is also given priority as the government has created an enabling environment to this end. The major initiatives discussed below are thus related to fulfilling these objectives. Elements of current practices of regional development could be divided as interregional and intra-regional. Inter-regional practices have been undertaken at the federal or central level while intra-regional practices are undertaken at the regional level. Among those practices which could be termed inter-regional are fiscal decentralisation or inter-regional allocation of grants; investment policy; river basin planning; special area planning; and regional capacity planning. Intra-regional practices include the decentralised planning system and its attendant institutional structure, resource mobilisation and the preparation of regional five years and annual development programs. 4.1 Decentralised Planning System Decentralisation paves the way for a territorial approach to economic development by moving important decision-making powers from the central government to lower levels in the hierarchy whether to provinces, municipalities or regional governments. To the extent that decentralisation is an attempt to strengthen the territorial units (districts, provinces, municipalities) at sub-national level, it is a key component of regional policy (Kekwete 1997).

7 EASSRR, Vol. XVI, no. 1 January Ethiopia has entered into an era of decentralisation in which the powers and responsibilities of central government are shared with lower sub-national local authorities. In the decentralisation process, the government structure has changed from a unitary to a federal one. As per the constitution, the country has been divided into nine regional governments and two administrative regions. These regions are relatively autonomous in that they have elected bodies and power to legislate and policy decisions regarding many activities. The formulation and execution of social and economic development policy is among the many responsibilities given to the regional governments. This localisation and decentralisation process poses a new challenge to regional development in the country. The old top-down, centralised planning system is no longer feasible. In response to this, regions have attempted to institutionalise' a system that resembles a decentralised planning system. The elements of this system could be studied by looking at the organisation of the planning process, the means of resource mobilisation and the mechanisms of popular participation. Concerning the organisation of the planning process, the planning system in different regions closely follows the local government system. The structure of the local government system is depicted in figure 1. Regional, wereda and kebele councils are elected bodies. The administration is responsible for different bureaux, departments and offices at regional, zonal and wereda levels respectively. The administration at each level plays the central role in approving the plans and budgets and it is supported by planning and sector units. The planning units are the regional planning bureaux and zonal planning departments which have cross-sectoral mandates. There are no planning units at wereda level and the tasks of cross-sectoral planning at this level is undertaken by wereda development committees. The sector units are different sector bureaux, departments and offices at different government levels. Sector units are responsible for planning for their own sectors and submitting the same for horizontal planning units at each government level. The actual process of policy formulation at regional level is a combination of top-down and bottom up approaches. Guidelines initiated from regional executive committees and concretised by regional planing bureaux flow down through sectors and lower planning units. Proposals which are initiated by sectoral offices, compiled by planning bureau and approved by executive committees pass all the way to the regional executive committees and later to the regional councils for approval (Tegegne 1998). The executive committee plays a significant role in policy making at the regional level. The executive committee, after analysing proposals submitted by bureaux and lower units councils, presents policy proposals to the regional council, for adoption. Regional councils, after discussing the policy proposals submitted to them, endorse the policy by consensus or voting. Under such decentralised planning systems regions have formulated five-year development plans and annual budget plans. An examination of the five-year development plans of different regions, however, reveals that the plans have much to be desired to qualify as a document of regional development strategy guiding the medium and long term developmental needs of the region. This is mainly due to the fact that what

8 Tegegne. Regional Development Planning in Ethiopia 72 are presented as regional plans are mere aggregates of sectoral proposals expressing wishes and activities to be performed. For instance, the five-year development programme of the Oromiya region 2 admits this by indicating " the approach of preparation of the document of this plan is such that it is a summary and compilation of sectoral programmes" (The Regional Government of Oromiya 1995). Moreover the document indicates standards as to the number of schools and hospitals to be built, amount of seeds and fertilisers to be distributed etc. This is a demand side approach which does not consider the supply or resource constraint. Hence the document does not relate investment to demand.

9 EASSRR, Vol. XVI, no. 1 January Figure 1: Local Government Structure in Ethiopia Regional Council Office of the President Regional Administration Regional Sectoral Bureaux Woreda Council Zonal Administration Zonal Departments Woreda Administration Woreda Offices Kebele Administration Kebele Administration Executive & Judiciary Committees In terms of resource mobilisation, proclamation no. 33/1992 defined the sharing of revenue between the central government and the regional governments. Accordingly, revenues are categorised as central, state and joint (see Appendix). State governments' tax revenue is mainly derived from personal income taxes while federal government revenue is drawn mostly from indirect taxes. For instance, the federal government collects about 90 percent of all indirect taxes with over 80 percent of sales taxes and 100 percent of import duties (Brosio and Gupta 1997). The tax sources which have higher yields are concentrated in the hands of the Federal Government. One major observation that emerges vividly is that the revenues collected by different regions cover only a small portion of their expenditure. This will affect the competitiveness of regions since they are dependent on external sources for financing their development. In order to fulfil the objective of competitiveness, there is a need, on the part of local government, to be able to mobilise all local resources and all local agents for the achievement of a common goal. Participation, negotiation and consensus-building therefore become integral elements of successful regional and local development strategies. These are non-economic objectives of development. The participation of agents and stakeholders in the development process implies the creation of institutional

10 Tegegne. Regional Development Planning in Ethiopia 74 sets of relations in situ. Local government as the representative institution should have the task of convening participants in search of local consensus and cooperation (Lathrop 1997). Some regions have put in place a structure in which local people find a way of expressing their interest and wishes particularly in the development process of their locality. For instance, in both Tigray and Amhara Regions, grassroots development teams comprising people from different sectors of society (youngsters, women, and the elderly) have been established. These development teams are accountable to subkebeles which in turn are accountable to the kebeles. It seems that these development teams are created to express their wishes and participate in developmental work through contribution of resources. Hence real participation in decision making seems to be far removed from the current planning practices. In other regions there are no grassroots institutions which will help people participate in the planning and decision making process. 4.2 Inter-Regional Allocation of Grants It seems that there are two reasons for exercising inter-regional allocation of grants by the Federal Government. The first is the inability of regions to cover their own expenditure because of low resource mobilisation, and the second is the commitment of the government to bring equitable development among regions. Regarding the latter, the government has chosen a policy of inequitable resource allocation to achieve equity among regions. The grant system has thus become an important instrument of regional development and has occupied a prominent position in the economic and social development of regions. As a result, the lump sum capital budget allocated in the form of subsidy for all National Regional States/ Administration increased from Birr million in 1993/94 to Birr million in 1997/98 with an annual average growth rate of 13 percent while the recurrent budget increased from Birr million in 1993/94 to Birr million in 1997/98 with an annual average growth rate of 12 %. (MEDAL 1998) The system of allocating grants among different regions uses a formula that has equity bias in its criteria and computations. The equity bias is derived from the intention of the government to be redistributive of the fruits of development. Population size, levels of development and ratio of revenue to capital budgets transferred form the major criteria in allocating resources to different regions. Table 1 shows the total budget of regional governments, the per cent share of federal money in regional budgets and the per capita share of federal money for the years 1994/95 to 1997/98. The table shows that except Addis Ababa, all other regions are major recipients of federal money. The per cent share of the federal money ranged from a low of 31 per cent in Dire Dawa to a high of 77 percent in Tigray in 1994/95. In 1977/98 the federal money ranged from a low of 60 per cent in Dire Dawa to a high of 91 per cent in Afar. There is a clear trend that both the lowest and the highest shares of federal money are increasing which is an indication of more reliance on federal money by all regions. Similarly, the magnitude of the per capita federal money also seems to have increased for all regions from 1994/95 to 1977/98.

11 EASSRR, Vol. XVI, no. 1 January The table shows that Gambella is the highest per capita recipient and is followed by Harari, Benishangul and Afar in that order. These regions, except Harari, are the most less developed regions in the country. This indicates that the grant system has a strong redistributive effect. It does not, however, mean that the grant system brings equity, because there are other variables which enter in to the picture, affecting the extent of equity regions may attain. First, extra-budgetary allocations from donors may distort the picture and those regions which may have the lowest per capita grant system may have other sources of income, masking the differences in the Federal grant allocations. Second, equity cannot be ascertained only by looking at the per capita figure or the total sum of federal grant. Internal redistribution of benefits and access to benefits will influence the extent to which people in the region enjoy equally the fruits of development.

12 Table 1. Regional Government Budget in Million Birr (1996/79), Percentage of Federal Money and Per Capita Share of Federal Money 1994/ / / /98 Grand Federal Percapita Grand Federal Percapita Grand Federal Percapita Grand Federal Per total money as share of fed total money as share of total money as share of total money as capita % of total money % of total Federal % of total fed money % of total share of money Federal money Tigray Afar Amhara Oromiya Somali BenishanguUGumuz SNNp Gambella Harari Addis Ababa Dire Dawa Source: MEDAC, 1998, unpublished report.

13 4.3 Inducement of Private Sector Participation The recognition of the limited capacity of the state to lead and run development activities has forced nations to adopt a market oriented system in which the private sector occupies a key position in the overall development process. Privatisation is a new policy environment Ethiopia is currently following. The private sector is considered a major force to implement the economic strategy of the country. The government is expected to create favourable conditions for encouraging and strengthening private capital. Private investors are expected to promote and enhance their participation in development by establishing business ventures in the various regions, taking advantage of the enabling environment (MOPED 1993). Private capital is expected to go to regions designated as priority regions by the government and to widely participate in the economic development of the country. Regions, in turn, are expected to cultivate and attract private investors in their effort to develop their own economies. The role of the private sector in regional development is an emerging issue that requires appropriate policy and strategy. The privatisation process requires a new role for central and regional governments and poses a challenge in properly developing and guiding the private sector. The inducement of private sector participation is done through investment policy. The government has promulgated a national investment policy, the purpose of which was to attract and guide the distribution of investment. With regard to attracting investment, the policy provides different encouragement (incentives) based on capital and sectoral priorities. The incentive types are exemption from customs import duty, income tax holiday, R & D incentives, remittance of capital, losses carried forward, etc. Sectors are distinguished as pioneer, and, promoted, activities. Pioneer activities receive tax exemptions ranging from 3-5 years while promoted activities receive tax exemption from 1-3 years. Full, or 100% exemption from the payment of import customs duties and other taxes levied on imports, is granted to all investment capital goods, such as plant, machinery equipment, etc., as well as spare parts worth up to 15 % of the value of the imported investment capital goods, if the goods are neither produced nor available locally. In response to this policy, 3520 private investment projects with an estimated capital of million Birr have been approved between the periods 1992/93 and June Out of the total approved, 732 investment projects (20.8 %) with investment capital of million Birr have started production and 552 projects (15.7%) are still under implementation (MEDAL 1998). The amount of investment attracted so far is far below expectations and this triggers an examination into the problems and constraints of investment attraction in the country. With regard to guiding the distribution of investment, the policy indicates that its objectives are to encourage balanced development and integrated economic activity among the regions, and to strengthen the inter-sectoral linkages of the economy (FDRE 1996a). In this regard the policy makes spatial discrimination in the provision of incentives, particularly tax exemption. The geographical criteria are clearly spelt out in the Investment Incentive Council of Ministers Regulation (FDRE 1996b). It is stated that

14 Tegegne. Regional Development Planning in Ethiopia 78 where the investment is in Addis Ababa, Nazreth or in a locality within a radius of 15 kms of the main highway connecting the two cities, the period of tax exemption shall be for one year. Where the investment is in relatively underdeveloped regions such as Gambella, Benishangul and Gumuz, South Omo, certain zones in Afar, Somali and other regions to be determined by the Board the period of exemption shall be for 3 years (FDRE 1996b) While the above tax holidays apply to promoted activities, the tax holidays for pioneer activities are 3 years for the city of Addis Ababa and the surroundings while for underdeveloped regions this goes to 5 years and this is given to be 4 years for other locations (table 2). Table 2. Tax Holidays by Locations Location Type of investment activity Tax holidays (in years) Addis Ababa, Nazreth and in locations Pioneer 3 within 15 km of the main highway connecting two cities Promoted 1 Relatively underdeveloped locations: Pioneer 5 Benishangul and Gumuz. Gambella, South Omo, certain zones in Afar, Somali and other regions which will be determined by Promoted 3 the investment board All other locations Pioneer 4 Promoted 2 Source: Ethiopian Investment Authority, Similarly, business enterprises that suffer losses during the tax holiday period can carry forward such losses following the expiry of the exemption period under the conditions stated in table 3.

15 EASSRR, Vol. XVI, no. 1 January Table 3. Losses Carried forward Location Type of investment activity Period of losses forward after the expiry of tax holiday Addis Ababa, Nazreth and in locations within 15 kms of the main highway connecting the two cities Pioneer Promoted 3 3 Underdeveloped locations: Benishangul and Gumuz, Gambella, South Omo, certain zones of Afar, Pioneer Promoted 5 4 Somali and other regions determined by investment board All other locations Pioneer 5 Source: Price Waterhouse Coopers, Promoted 3 While the above incentive policy is clearly biased towards the less developed regions and aims to discourage development in already developed regions, the extent to which such a policy has influenced or is adequate to attract investment towards the less developed regions is a matter for study. In this regard the regional investment distribution after July 4, 1996, the date of issuing the regulations, shows that the incentive policy could not achieve its stated goal of attracting investment to the less developed regions. Table 4 shows that the relatively well developed regions of Oromiya, Addis Ababa, Tigray and Amhara lead the investment attraction. Benishangul and Afar still trail in investment distribution as they did prior to July 4, 1996 (see table 4). This perhaps indicates that the provision of incentives alone in the form of tax holidays is not adequate to influence the regional patterns of development. The use of incentives to entice firm locations in not feasible unless there are real comparative advantages in terms of natural resources, unique locations, special skills, etc. (Kaothien and Webster 1999). In addition to the national investment policy, regional governments have developed institutional structures for the administration of investment and have provided some proclamations regarding the use of rural and urban land for investment purposes.

16 Tegegne. Regional Development Planning in Ethiopia 80 Table 4. Private Investment in Regional States/ Administrations, 1992/ /96 (in Million Birr) Approved projects Projects expenditure on production Region 1992/ / / / /97 Total Tigray (12) (24) (148) (146) (19) (349) (251) Afar (1) (13) (21) (29) (64) (8) Amhara (22) (32) (73) (123) (62) (312) (93) Oromiya (43) (101) (150) (276) (204) (774) (143) Somali (1) (4) (5) (10) Benishangul & Gumuz (1) (5) (21) (10) (37) (18) SNNP (9) (20) (46) (76) (161) (312) (91) Gambella (1) (1) (1) (3) (2) (8) (4) Harari (2) (40) (21) (25) (88) (1) Region (459) (360) (199) (220) (277) 6(1515) (121) Dire Dawa (1) (3) (8) (12) (27) (51) (2) Total (549) (557) (691) (931) (792) (3520) (732) Source: MEDAL, Note: Numbers in parentheses are number of projects. The regional performance and distribution of investment, however, does not corroborate the intention provided by the regional investment proclamation. The participation of private investors is far below expectations (The Regional State of Oromiya 1995). This obviously indicates that neither the regional investment policy nor the incentive system are adequate to lure investors. There may, however, be administrative and other problems which preclude the attraction of investment to regions.

17 EASSRR, Vol. XVI, no. 1 January Special Area Programmes The kind of regional development practised in some countries has focused on special area programmes such as less developed areas, tribal areas, etc. The purpose of such special area programmes is to alleviate the particular problems these regions might be facing. In Ethiopia some regions have been seriously affected in-the past by drought and war. Schools, hospitals, clinics, bridges, airports, buildings have been destroyed in the course of a protracted war. The Ethiopian Social Rehabilitation Fund (ESRF) was established in December 1992 to reconstruct the country's war torn and neglected infrastructure and re-establish social services (ESRF 1995). ESRF aims at helping the target groups who are demobilised soldiers, returning refugees, internally displaced people, women heads of household, disabled people, orphans and street children. ESRF started its operation in three pilot regions namely: Addis Ababa, Tigray and Hossaina and with 10 % of its fund going to non-pilot regions (ESRF 1995). These regions were selected on the basis of their special problems. Tigray is a food deficit region and is one of the war torn areas where infrastructure and facilities have been destroyed. Addis Ababa, the capital city, has suffered from population increase as many displaced people have put a strain on the infrastructure and services while Welaita, which is one of the highly populated regions of Ethiopia, has a very high concentration of the target groups. The ESRF assists demand driven and community based micro projects. Those eligible for funding are productive and income generating projects, social infrastructure and social assistance projects, and economic infrastructure projects. By June 30, 1995 ESRF had committed Birr 54,410,372 to finance 217 micro projects in different regions out of a total of 1024 microprojects submitted for funding (see table 5). Table 5. Geographic Distribution of Submitted and Approved Microprojects and ESRF Commitment by June 30, 1995 Region Projects On-going ESRF commitment submitted projects Addis Ababa ,428,090 Tigray ,335,285 Hossaina ,841,777 Non-pilot , 805,220 Total ,410,372 Source: ESRF, Microprojects are submitted by community beneficiaries, local administration, and local and international NGOs. Community beneficiaries involve village, kebele, peasant, women, and youth associations, while local administrations involve woreda, zonal or regional administrations and regional government technical bureaux. The highest number of micro projects were submitted by local administrations. In its expanded phase, the

18 Tegegne. Regional Development Planning in Ethiopia 82 fund has spread to all regions of the country under the name ESRDF (Ethiopian Rehabilitation and Development Fund) to finance projects on education, health and sanitation, small scale irrigation, rural water supply, micro finance, training and capacity building (ESRF 1995). In this expanded phase ESRDF is accepted as one of the poverty reducing strategies, the target people being mainly poor rural communities with special focus on women. It also attempts to give focus and special assistance to regions with weaker institutional capacity such as Afar, Somali, Benishangul and Gambella (ESRF 1996). From the above discussion we can observe that ESRDF has expanded its objective from assisting special target groups to overall poverty reduction. To the extent that poverty has a regional dimension and is more pronounced in some regions, the program can be thought to have a regional component. The explicit regional component, however, has diminished from the pilot phase which started with a strong regional component. The activities of ESRDF, however, need to be integrated with regional government activities so that they contribute or become part of the overall regional development strategies. 4.5 River Basin Planning River basin planning is a resource development strategy which involves the physical development of water resources. River basin planning has a strong regional development component in that it is expected to stimulate economic growth within the region (Le Marquand 1989). River basin development stimulates regional development first, as the money spent on physical development and its multiplier, increase income in the region. Secondly, new forms of economic activity such as irrigation, fishing, new business and industry will be attracted to the region to take advantage of the opportunities created by the project (Le Marquand 1989). In the past, Ethiopia had followed a strategy of river basin planning by developing the Awash Valley. It was noted that the development of the Awash Valley is more of a national than a regional project. At present the government has placed great emphasis on river basin development and has commissioned master plan studies of major rivers of the country such as the Abbay, Tekeze, Omo-Ghibe, Baro-Akobo, Genale and Wabisheble rivers. The master plans which indicate the development plans of these basins are completed. The key reasons for the continuation and intensive use of the river basins in Ethiopia are the different types of demand for water resources. Ethiopia has a huge demand for irrigation, hydropower, livestock, industry and drinking water etc. According to one study, the irrigation water demand in Ethiopia is in the order of 40 billion m 3 of water while the domestic hydro demand is estimated at about 23, 700 Gwh/year and the export hydro demand is 70,000 Gwh/year (Zewdie 1994). This is estimated to require about 76 billion m 3 of regulated water discharge. Similarly the livestock water demand is estimated to increase from about 230 million m 3 in 1990 to 700 million m 3 by the year 2040 and the industrial water demand is also expected to increase from 100 million m 3 in 1990 to 28, 600 million m3 in 2040 when full industrialisation is achieved (Zewdie 1994). The drinking water demand in both urban and rural areas is enormous. All this indicates that there is a demand for utilising the water resources of the country which is one of the prerequisites for developing river basins (Le Marquand 1989).

19 EASSRR, Vol. XVI, no. 1 January There are, however, a number of issues which surround the use of river basin planning as a regional policy in Ethiopia. First of all, these rivers, unlike the Awash River, have an international dimension in that they cross the boundary of the country and flow to neighbouring countries. The extent to which Ethiopia can use these rivers unilaterally in strategies of her own choice is a matter for further resolution. Secondly these rivers are shared by two or more regional governments within the country. For instance the Omo-Ghibe river basin is shared by the Oromiya and SNNP regions and the Baro Akobo river basin by Gambella, Oromiya, Benishangul Gumuz and SNNP. Hence inter-regional co-operation must first be fostered in terms of developing these river basins. The fact that the constitution does not have any provision for inter-regional co-operation requires that the regions need to design mechanisms and ways of developing such resources together. Where separate commissions or institutions are established, these should be supra regional in their authority. Thirdly, in many cases river basin development involves resettlement as the development process involves social dislocation from the previous places or the occupation of virgin areas. For example, pastoraiists in the Awash Valley were displaced to make way for huge commercial farms. The issues of resettlement in an ethnic based federal country will be different from those of a unitary government. In the former, resettlements may cause inconvenience and potential conflicts among the settlers as it involves mixing different ethnic groups. Fourthly it remains to be seen whether the master plans adopt appropriate technology which minimises the environmental impacts and the social dislocation of people from the project area. Lastly it also remains to be seen whether these river basins can be regional projects in that they foster regional development wherever they are physically found, instead of being a national project aimed at maximising HEP and Irrigation for national growth. 4.6 Regional Capacity Building The process of regionalisation and a decentralised planning system entail the creation of machinery that has to provide the necessary human resources and logistical support. Ethiopia having no a priori experience in decentralisation programs was faced with problems of capacity in human resources, materials and equipment. Some of the problems observed to be true in all regions are: weak administrative capacity, shortage of technical experts, weak institutionalisation of regional administration, poor logistical supply. In terms of administrative capacity, regions lack the trained, skilled, experienced and qualified manpower needed to carry out regional administration. The problems are more severe in some regions than others. Regions such as Afar, Somali, and Benishangul where, during previous regimes, there had not been a base to establish trained manpower are the ones most seriously affected. The consequence of weak administrative capacity is poor implementation of development activities and budgets. The problem of technical expertise in different development fields is also a major problem of all regions. The regional distribution of trained manpower by level of education ranging from Diploma to Ph.D. shows that in 1996 there were only 37,438 professionals excluding the Afar region and the figure was 49,402 in 1997.

20 Tegegne. Regional Development Planning in Ethiopia 84 The regional distribution shows that some regions such as SNP, Amhara and Oromiya have the highest share of professionals. These regions account for 75 and 76 percent of the professionals in 1996 and 1997, respectively (see tables 6 and 7). Table 6. Regional Distribution of Professional Civil Servants by Level of Education 1996 Region Diploma B.ABSc. M.D D.V.M M.A/M.Sc. Ph.D. Total Tigray Afar NA NA NA NA NA NA - Amahara Oromiya Somali NA NA NA NA NA NA - Benishangul & Gumuz SNNPR Gambella Harari Addis Ababa Dire Dawa Total ,438 Source: MEDAC, Table 7. Regional Civil Servants (professionals) Distribution by Level of Education, 1997 Region Diploma B.AB.Sc. M.D D.V.M M.A/M.Sc. Ph.D. Total Tigray Afar NA NA NA NA NA NA - Amhara Oromiya Somali NA NA NA NA NA NA - Benishangul & Gumuz SNNPR Gambella Harari Addis Ababa Dire Dawa Total Source: MEDAC, 1998.