This report assesses industrial policy in Ethiopia. Industrial policy is a contested issue, especially for low-income countries. Proactive policies are required to make the transition from low-productivity resourced-based societies with large informal sectors to more productive, knowledge-based and formalised patterns of productive organisation. However, channelling resources into preferential activities may reduce allocative efficiency. This can create perverse incentives for stakeholders including investors and bureaucrats. This problem is exacerbated in low income settings, where political checks and balances may be weak.
The Ethiopian government has created the preconditions for a market-based and socially inclusive industrial transformation. It has demonstrated commitment to investing in technological learning in order to build new competitive advantages through programmes to strengthen the Technical and Vocational Education System. Universities and specialised supporting institutions have been established. Diversification and industrial development are the objectives. Agricultural demand-led industrialisation and export promotion are central in its strategy. For the last ten years, the Ethiopian economy has grown at 11% annually, mainly due to favourable agro-climatic conditions, high coffee prices, considerable inflows of aid and remittances, and a boom in construction. However, the economic structure has not changed much and competitiveness has not increased. This study focuses on the policymaking process in the leather/leather products and the cut flower industries.