I have never heard of any convincing reason as to why we should privatize land"
The Reporter (Addis Ababa), May 3, 2000
Addis Ababa - Interview - "I have never heard of any truly convincing reason as to
why we should privatize land." - PM Meles
Last Friday, the Prime Minister of Ethiopia, Mr. Meles Zenawi, responded to
questions and remarks by a panel of distinguished Ethiopians pertaining to issues
that relate to the socio-economic performance of the country during the past eight
years. The panel, which included Dr. Abdul Mejid Hussien, Sheik Mohammed
Al-Amoudi and Mr. Ermyas Amelga, asked questions and made remarks on the
land ownership issue, unfair taxation system and "disincentives" to the industrial
sectors of the country. Here are excerpts.
Question by Mr. Abdul Mejid Hussien: I am interested in the land tenure and land
utilization issues. During the past days, presenters posed the question of the need
to change the current land policy. Others also raised similar questions. The
changes suggested range from, as one has put it, more secure individual user
rights over the land they hold, the right to mortgage, exchange, loan or sell to
making land a commodity which should be bought and sold. Some also contend
that if there is any area, Mr. Prime Minister, where the government and EPRDF,
would never think of ever reviewing its policy, it is over the land issue. Yet I also
know that your government and party is well-known for also going the extra mile if
that serves the interests of the people. Mr. Prime Minister, I would like to ask this:
is the land policy of the government a holy cow that can not be touched? Meles:
Now, with regard to the land tenure system in Ethiopia, we would like to believe
that we, in the government and EPRDF, do not have any "holy cows." We do have
principles, values of course. But we do not have holy cows. I believe that applies to
the land questions too. Because of our principles and values, we believe there
should be a fair and equitable distribution of natural resources assets of this
country. And therefore the equity and the facts of our land policy you might call as
the political cum ideological aspect of it.
But at the same time we do not have any illusions as to what land ownership can
do to the peasant farmer over the long-term. We do not believe that the long-term
future and destiny of our peasant farmers is to be stuck in the mud, so to speak.
We feel that ultimately there has to be industrialization, ultimately these people
have to find to get employment outside agriculture.
And to the extent that does not succeed, then land ownership alone will not go far
Now we have, as I am sure all of you know, rejected the concept of changing land
into a commodity in Ethiopia. We feel that this choice in our context is not
economically rational. That is why we don't accept it. Why do we think it is not
economically rational? By fully privatizing land ownership, one starts the process
of differentiation. The creative, vigorous peasant farmer gets to own larger pieces of
land and the less effective get to be left to live in doubt. And that is supposed to
improve agricultural production and productivity in Ethiopia. We beg to differ on this
issue. We do not believe this is the right approach in our country. And we have a
number of reasons.
First, lets assume that if we allow land ownership, the private land owners would
automatically be the vigorous farmers. It is simply assumed that those who would
buy land would be the very ones who would use it best. We do not know of any
logic or evidence to prove that.
On the contrary, experiences in many countries seem to suggest that, in the type
of the economic environment that the businessman among the panel was
describing, the most likely outcome is that land would be one element in the
overall speculative environment of the economy. That, it should open the road for
land speculation and that we believe would be a mis-allocation of resources.
We believe that those who are wont to buy the land are not those who necessarily
would use it themselves but perhaps lease it. In that, it introduces the question of
land rent and some economist believe that this again results in mis-allocation of
Now, even if these were not true, even if there was no land speculation or that land
rent is to be an instrument of efficient allocation of resources, we still believe that
private ownership of land, which is in effect consolidate land ownership, is not the
right way in Ethiopia.
Why? Because we feel that the primary resource we have in abundance is labor.
And the central agenda in agricultural development at this time in our country is
not primarily to improve the productivity of labor but to improve the productivity of
the land by employing more and better labor for every piece of land. Our
agricultural growth has to be intensive in the utilization of labor. By displacing labor
from these pieces of land, consolidating land, using modern agricultural techniques
and instruments clearly the productivity of labor which remains on the land will be
improved significantly. We have no illusion about that.
But capital is not a resource we have in abundance. Labor is. Then we have to
have a farming system that utilizes labor most effectively, most intensively and
most efficiently. By making sure that those who are able to work on land have
access to land and by assisting this labor to improve its agricultural practices and
by providing other services including extension services, we feel we would be using
our resources more efficiently than if there was to be privatization, consolidation of
land, and therefore, perhaps improvement of labor productivity.
So, from our point of view, the rational thing to do is to enable these [people] who
are willing to work on the land, to ensure access to the land to those people and to
provide technical assistance and training.
Now what is to happen if there was consolidation of land through privatization?
Clearly a good number of those who are working on the land now would have to be
shifted from agriculture to other endeavors. We do not believe that we have the
type of those that would allow us to shift in big numbers to make consolidation
possible, without a major social disruption and social explosion.
Even if we are to do that, we will be creating a large unemployed and perhaps
unemployable sector. That would be a mis-allocation of resources. We would be
mis-allocating the abundant resource we have, labor. We would be displacing it
from the land. If it is not employed in agriculture, we will not be able to provide it
with an alternative employment. And therefore, that key resources of ours would lie
idle if there was to be privatization of land, ownership and consolidation.
That is why we feel that this is not economically rational. And that is why we are
not particularly interested about this approach. Although I must say that quite a
number of respected institutions and individuals have proposed this to us. I have
not heard of any truly convincing reason as to why we should privatize land
ownership at this stage. I have not heard of any economic rationale for doing so. If
there were to be an overwhelming economic rationale to do it and ultimately that
would be the best way of securing the interests of our peasant farmer and therefore
politically that would be our agenda.
If, on the other hand, providing secure user rights to the peasants is the best way
forward for those peasant farmers we could necessarily be at the front of the queue
also. So, if there is any "holy cow," Abdul Mejid, that holy cow is that we try to
seek to protect the interest of the vast majority of our people on every policy issue,
including the land policy issue. What makes the most sense to those peasant
farmers is what makes the most sense to us. And that is what we protect and
That leads us to the second aspect of this land issue, i.e. the security of user
rights. We truly agree with those who suggest that for those peasant farmers that
have access to land to invest whatever they have on their land need to know that
they would continue to have access to this land on a long-term basis. We accept
that this is necessary and important.
In our own way, we feel that we have done that, perhaps in a way that is slightly
different from the ways some other countries have done it by suggesting that those
peasant farmers that have access to that particular piece of land. They have
access to it, in effect, in perpetuity, because they have the right to pass on that
land to their offspring by way of inheritance. We assume that is as much user
rights security as one can get.
Of course, there are various choices. One can give secure user rights for five, 15 or
40 years. What we have done is to provide this security in perpetuity. But there is
a qualification here. The qualification is while on one hand giving the peasant
farmer permanent access to this land, we are also reserving the right of the
government to redistribute land if necessary. Why do we have this provision? We
have this provision not because we believe we should redistribute land every five
years, 10 years or even every fifteen years. Frequent redistribution of land is not
our agenda. The reason why we are reserving this right is: First in the short-term,
there may be instances of land allocation that are totally unfair and in some
instances may be economically irrational and there are some instances in some
parts of our country.
There are peasant farmers who have access to significant tracks of land that they
cannot use themselves and therefore they lease it out to others.
Because it is too big a chunk for them to use in their own family labor, this would,
in effect, be private ownership of land or would have the consequence of private
ownership of land. And we may wish to correct that.
But even in such cases, we have to balance the impact of improving the fairness of
such land allocation and contrast it with the impact that land redistribution might
have in the feeling of security of the rest of the peasant farmers.
So, although we have reserved that right to ourselves, we have preferred to be very
cautious in terms of using it, because we are worried about what its impact might
be on the feelings of user rights security of the peasant farmers.
Now the second reason why we would wish to reserve this right for ourselves is in
case we have the best scenario of agricultural development in our county or the
nightmare scenario. In the best scenario, what would happen is that agricultural
productivity would improve in non-farming employment both in the rural and in
urban areas would increase tremendously and this would attract labor out of
agriculture to non-agricultural activities.
Now we clearly recognize that the time for the rural Ethiopia to be primarily
populated by old people, women and small children, if it is ever going to happen in
Ethiopia, it is in a very distance future.
But we would like to hope and believe that much of the labor in agriculture can be
diverted to non-agricultural activities. The improvement in agricultural productivity
would provide the ground to it because fewer farmers would be able to feed all of
us. The growth in non-agricultural activity would provide for it because it will provide
alternative employment more meriting our peasant farmers, and therefore the
pressure on land would continuously decrease.
At that stage, it is possible that we would have fewer hands to work the land and
land consolidation may be necessary. That type of land consolidation is, of course,
the best case scenario for us. We would like to reserve our right to promote such
land consolidation without privatization through redistributing to the able-bodied
persons in the rural areas that remain behind. Therefore, giving them bigger chunks
of land, because there would be fewer hands requiring it. So in the long-term future,
we would like to reserve that right if it becomes necessary.
In the nightmare scenario case, what we would have is agricultural productivity and
non-farming employment would not increase significantly.
New mouths to feed will obviously crop up in the rural areas in big numbers.
They will have no access to non-farming employment because it is not being
created in enough numbers. If they were to have redistribution, they will have no
access to any means of sustenance. That is the scenario that we dearly hope
would never happen. But if it does, we would not want to close doors that we could
use to alleviate that problem on temporary basis.
Because we know that it is not going to be a long-term solution. So, it is for these
perhaps unlikely scenarios that we reserve governmental right to redistribute land
and to allocate un- utilized land.
Has this significantly affected the confidence of the farmer in his right to use that
land in perpetuity? My information does not suggest that. But it so happens that a
World Bank official came to our country to study this very issue and he seemed to
suggest from preliminary study that this may be indeed the case. But that is only
a preliminary study. If some one was to come up with concrete and overwhelming
evidence that the user right security which we think we have guaranteed is not
there, then obviously we would have to seek ways of ensuring to find other ways of
securing this user rights.
So while we are not contemplating the possibility of changing our land policy in
terms of turning it into a commodity, and this is not only for primarily political
reasons, but because we do not think that the alternative is economically rational.
We do not close the opportunities for improving upon the guaranties that we have
Question and proposals by Mr. Ermiyas Amelga: Your excellency Mr. Prime
Minister, as a representative of the Ethiopian private sector, I would like to raise
what I believe is a central issue in the development of the industrial base in
Ethiopia. I think we all believe it is a necessary element to the overall economic
development of this country. In so doing, I beg of your indulgence in giving me two
minutes to providing some context to the question I would like to ask.
There is no doubt that there is great progress in improving the overall
microeconomics situation in Ethiopia over the past nine years. This fact has been
aptly demonstrated with fact and figures over the part two days.
Inflation is under control, interest rates are low, the exchange rate, by standards of
most African if not most developing countries, has been fairly stable although
It is clear we have made this progress, mostly on our own terms and in our own
way and it is also understood that all these were not built in one day, one year, nor
in 10 years. It takes generations to build a nation.
But the question is: Could we not do better? Could we not do more and go a little
faster? If there is ever a question I would like to raise (if we have agreed that we
have achieved an admirable level macroeconomics stability that is conducive to
investment) is why we are not seeing the kind of accelerated growth in productive
capacity that we are led to expect given such a favorable macroeconomics
environment? Is the Ethiopian businessman or woman incompetent or do we not
recognize a good investment opportunity when we see one? I could like to propose
and this is what I would seek your comment upon. There are some
microeconomics issues which are critical that need to be addressed to translate
into accelerated growth in the industrial sector. I believe that Ethiopia has its full
share of very smart and competent business people recognizing a good investment
opportunity and a good profit opportunity when they see one.
The problem I think is these smart business people make rational decisions and
most of them have decided to be traders, as opposed to industrialists.
And I would propose this is a very rational decision. Industrial investment in
Ethiopia requires extensive but difficult to acquire infrastructure, land, power,
trained manpower, technical know-how project financing and so forth. The returns
are long-term, the investment is in liquid, project financing is difficult to secure.
And the tax regime, although much improved, is very burdensome.
Investing in trading activities, on the other hand, requires minimum infrastructure -
a warehouse, an office and may be a store at most. The returns are quick and
high. Merchandise loans are more readily available than project financing. The tax
regime has been, until very recently, very favorable to importers and somewhat
unfavorable to local producers.
As I see it, the problem we have with regard to industrial growth and development
is that we have yet to address the critical operational and policy related issues that
relate to macro, microeconomic business environment.
To cite one example to clarify my case, it is true we have very low interest rates by
standards of most African countries if not most developing countries. But what we
hear from most people in industry is how difficult it is to get financing. The reason
given is that bank lending policies are extremely restrictive. I understand that
banks need to be prudent but I venture to say that the level of bank lending and
bank borrowing would not change much if interest rates were five percent or 15
percent, because the financing for most projects and investors that want to get
involved in industry is difficult to come by.
Your Excellency, the question that I would like to hear your views on is given the
many advantages that trading enjoys over industry in Ethiopia and given our stated
desire to encourage industry, do we not need to do substantially more in terms of
creating an industry-friendly microeconomics business environment? I am referring
to things such as a more aggressive taxing structure, encouraging more flexible
but still prudent landing policies, or more broadly, encouraging the growth of capital
markets to the efforts of the National Bank and even such issues as providing free
or at least very inexpensive land for factories. It is about addressing many of the
microeconomics issues that once we get outside the macro picture, that people
should want to get involved in productive investment have to face.
Meles: With regard to the question of creating appropriate microeconomics
environment for industrialists in our county I tend to agree with much of your
analysis, Sir, despite some advises to the contrary. We have never believed that
creating a stable macroeconomics environment is the beginning and the end of all
It is just the beginning, creating a stable, predictable environment for businessmen
so that they can plan ahead. That is not even a holy cow as far as we are
concerned. It is a necessary condition. Some macroeconomics stability, we
believe, is necessary for industrialists like yourselves to be able to plan ahead. At
the same time, you can have a predictable, stable environment that is not
pro-growth. So we would like to have a macroeconomics environment that is not
only stable but also conducive to growth, particularly industrial growth. We feel we
have gone far enough in that direction. It does not mean that there are no need for
I can mention some of our particular area where there is need for improvement.
And that is our tax system, not so much in terms of the rate. I think our tax rates
are not high by global standards. The marginal rate as far as I know is some 35
percent, except for the excise tax, of course. To that, I will come back later.
But our tax system, especially our revenue collection system, is such that it can
only tax those that are very clearly visible, the industrialists. It is not able to tax
the type of people you are mentioning that are having a field day now, the difficult
to tax sector.
So, in effect our tax system is a disincentive to the industrialists, and an incentive
to the other sectors that you mentioned, although the tax rates are equal for all.
Nevertheless, because that sector is not being taxed, while the industrialists are
being taxed, there is clearly a disincentive here. So we would like to have an
effective tax collection system that would tax everybody effectively; and therefore
that would allow us to use the tax rates as an instrument of promoting industrial
At this stage, it is not possible to effectively use the tax system. Because the
non-industrials by and large do not pay any taxes, not because they are not
supposed to pay, but because of the tax collection system is such that they do
not actually pay.
But having said that, much of the problem lies in the microeconomics area, in the
area of institutional reform, in providing infrastructural services, utilities, and in
partnership between government and the industrial sector for common purpose of
creating a viable, internationally competitive industrial sector in our country.
Here is one area where we differ. With much of received wisdom in the international
financial institutions, this is an area that we intend to work on over the next five
years. We have a draft plan for the next five years.
Among other things, we feel we need to establish a closer, more structured
partnership with the private sector in general, and industrialists in particular.
We propose that through this partnership, the government and the private sector
should cooperate to promote industrial development in this country.
The government could assist in particular in manufactured exports, marketing,
manpower training, providing utilities and financing all the areas that businessmen
have to have. We feel that the government can make a difference by supporting.
And so I am very glad that we have at least one businessman who appears to be
perfectly prepared to benefit from this situation, from this policy and is very willing
to work together with the government for the improvement of industrial development
in our country.
I have to say I agree with you. We are trying to address it. It is not going to be very
easy. It not going to be very popular with some of our friends. Nevertheless,
because we think this is the future of our country, we have to do it and hope that in
the end our friends would understand.
Question and remarks by Sheik Mohammed Al-Amoudi: Please forgive me. I am
born from two societies. Therefore I can only talk either in Amharic or in Arabic.
Your Excellency, Mr. Prime Minister, if I had known that there was this kind of
opportunity I would have come here a week ago. So, when I get this opportunity, if I
was to cite all the problems, a month would not be enough.
But I have to give the others the opportunity [therefore I will restrain myself.]
Because the taxation is [high], it is not allowing to implement our programs and we
could not to forward with the things we produce.
When I look at some of the things here, we are really at an amazing (surprising)
stage. For example, the excise tax has pulled us, the industrialists, backward in
many things. It has made investors to retreat and discouraged others from
I can give you two examples. While excise tax on alcoholic drinks and tobacco
has decreased, soft drinks, those that our children drink, has not been decreased
As our report indicates, we have paid 94% of our total revenue as tax to the
government. If we were to borrow from the banks, another 10 percent I would have
to pay, another 2 percent extra to pay from our pockets.
So if something is not done about this tax issue, if there are no investment
incentives, it is something that drags us back, and not make us go forward.
For instance, when we bought Moha Soft Drinks from the government, we paid 115
million birr. We also made an extra investment of 90 million birr and another new
investment of 224 million birr has been made, making it a 428 million birr
investment. If you were to ask me what I have profited from it, it is negative, zero.
Then, 70 percent of the whole investment has a local component with 30 percent
coming from abroad.
We do so much. It is for the government. If 94 percent is paid to the government,
where are we to put the 4 present? So how do you see this and what is going to be
done in the future? Meles: The question about taxation, that of especially excise
tax on soft drinks, the best person placed to answer the question is Ato Sufian
Mohammed [Minister of Finance]. But since he has kept me informed, as I am
sure all of you in the sector also kept me informed by writing letters.
Now, the story is we have a very high excise tax on all sorts of drinks and tobacco.
The Finance Minister comes and tell us that this is not the best way to go about it.
That we should reduce the excise tax. But being a Finance Minister, he also
comes up with the idea that in so doing, we should not reduce government
So, we say how do we square this? He suggests we promise ahead of time to the
private sector that we are going to reduce the excise tax by so much, so that in
their investment planning, they would know that over a certain period, or after
certain things happen, excise tax would come down an therefore their businesses
would be liable.
By announcing our intention to reduce excise taxes ahead of time, we would be
promoting investment. By reducing the excise tax, when these investments
materialize and start producing, we would be reducing the excise rate. But we
would not be reducing the overall government revenue. That was the logic.
So we got to reducing the excise tax on beer at the beginning of the current budget
year. With regards to soft drinks, technically speaking, the requirements of that
provision are not fulfilled. But we are not particularly keen to be precise about the
technical requirements. It is also true that this is not a year when the Ethiopian
government could be, shall we say, adventurous about its revenues. So that too
had something to do with the fact that we are not able to reduce the excise tax for
Nevertheless, I can promise Sheik Al-Amoudi that our Finance Minister in his
preliminary proposals for our budget for the next year does in fact consider the
possibility of reducing the excise tax by some 80 percent.
I don't know if that adds up to the 90% of the income of your enterprise. I suppose
that much of it would be paid by the consumer. Nevertheless, we feel that this is a
drag. That is why we promised several years ago that we would reduce it, if certain
conditions are fulfilled. But, we are considering the possibility of reducing the
excise tax over the next year.