Ethiopian Premier League’s (EPL) newest club Mekele City FC (M City) announced the inclusion of three new foreign players to its squad on Wednesday. The three players joining Mekele include two Ghanaians and one from Equatorial Guinea.
Ethiopia’s emergence from land-locked isolation and integration into the global economy is deepening and accelerating, giving support to the label that has sometimes been accorded to it, namely that of Africa’s newest “Lion Economy”, writes Getachew Mekonnen.
The principal reason why economic diplomacy has become more important is that international economic relations have themselves become more important when compared to political relations, as globalization replaced more arms-length interdependence. Globalization has reduced the ability of individual states or even coalitions or groups of states to shape outcomes. Before globalization and the emergence of challenges such as, global warming and others, it was possible to make more of a distinction between domestic economic objectives and international developments. Today it has become increasingly difficult for governments to satisfy domestic economic demands without engaging in extensive international negotiation.
The old distinction between the high politics of international security and the low politics of commerce has lost all significance since the end of the cold war. This has led to a widening of the definition of security to include such things as the stability of the international financial system or the need for development in order to ensure collective security. The global financial crisis of 2007–2008 and the continuing instability have left no doubt as to the systemic nature of financial markets and the need for coordinated responses. With regard to the latter, underdevelopment has, especially since the early 2000s, been seen as a source of political instability, which can in turn result in destabilizing migration or failed states that facilitate terrorism. The increased importance of economic diplomacy has also come about as a result of the emergence of a multi polar world economy. The point here is similar to that already made, in that the stability of the international or global economy now requires negotiated solutions that include the emerging powers and developing countries. At this point, it is imperative to make clarifications of the concept of economic diplomacy.
Economic diplomacy: conceptual clarifications
Theoretically speaking, if diplomacy, in the field of international relations, is defined as the art of negotiations among nations through diplomats and foreign ministers, it follows, then, that economic diplomacy is the art of negotiating the nexus between power and wealth in international affairs, and deciphering the ways modern states conduct their external economic relations in the twenty first century. On the same line, Rana Kishan defines it as “The process through which countries tackle the outside world to maximize their national gain in all fields of activity, including trades, investments and other forms of economically beneficial
exchanges, where they enjoy comparative advantages; it has bilateral, regional and multilateral dimensions, each of which is important.” In practice, economic diplomacy covers foreign trade, external investments, bilateral and multilateral economic negotiations, technology exchanges, financial flows and aid. Recently, economic diplomacy has attracted great interest, both in terms of international practice and in the academic field, transcending the traditional understanding of commercial relations between nations. “No longer the monopoly of state entities, the official agents ,the foreign and economic ministries, the diplomatic and commercial services, plus their promotional agencies now engage in dynamic partnerships with an array of non-state actors.” Kishan postulates that such domestic collaboration is a sine-qua-non for effective external outreach; and the relationship between pairs of states is the building block in the composite process, where multilateral arrangements are more vital today than ever before. Nicholas Bayne describes economic diplomacy as the “method by which states conduct their external economic relationships. It embraces how they make decisions domestically, how they negotiate internationally and how the two processes interact.” Bayne believes that the efficacy of the country’s economic diplomacy is significantly measured by the interaction of two factors: the domestic decision-making and international negotiation. Due to the increasing global competition and pressure of regional groupings (as is the case of the EU) along with the recent international economic crisis, countries have become aware that economic strength is not only their route to national power, but also the objective for the use of other instruments of power. The striking feature of the response of developing states is its remarkably uneven nature, to the point where some countries have moved to the forefront, and others have stagnated, or slid backwards to become the victims of globalization. This unpredicted shift in economic power dynamics is urging countries to make of advancing economic agenda as the primary task of foreign policy, because comprehension of the position in this issue dictates corresponding development of economic diplomacy and its significance in administrative structure of the country. Economic diplomacy, therefore, has become an expression of the governance that a country dispenses to itself in its external relationships. As with the other forms of governance, it is rooted in the vision, efficacy, organization and motivation of its people and institutions, including the leaders, the officials, and civil society at large. Economic diplomacy is therefore concerned with the processes of decision-making and negotiation on policy or questions relating to international economic relations in these core topics. This decision-making will clearly involve the state and therefore state (regional or international level) institutions. But the club of core decision-makers will reach beyond key players in the executive and legislative branches of the state to include those in quasi-governmental bodies or national regulatory agencies and even private, non-state actors. So the emphasis is on the process of decision-making and negotiation rather than the substance of the policy issues, which might be better covered by the term foreign policy. Diplomacy has been defined as the ‘(reconciliation) of the assertion of the political will of independent (state) activities’. Economic diplomacy differs in that it is about reconciling domestic and international policy objectives in an increasingly interdependent if not global economy. As mentioned already domestic policy objectives cannot be achieved independently of what is happening in the global economy or of the policies of other countries. The degree of interdependence can and does of course fluctuate over time, but there can be little doubt of its importance today. The stability of financial markets around the world depends on actions taken elsewhere or on cooperation between national authorities. With higher levels of trade dependence due to the fact that growth of trade and especially investment has consistently outpaced output for decades, economic growth and employment depend on an open trade and investment system. Environmental challenges, such as climate change, and a range of other less high-profile issues, cannot be resolved by individual national policies. In other words, economic diplomacy has become an essential instrument in the pursuit of domestic policy objectives. Economic diplomats in a range of different guises must seek to reconcile both the domestic and international policy aims if they are to be successful. The popular image of diplomacy is often viewed as maintaining good relations between states, which when combined with the conventional view of the anarchic nature of international relations suggests non-binding or voluntary relations. Economic diplomacy consists of both voluntary and binding relations between states. Indeed, in the economic sphere there is arguably a denser network of international organizations and regimes than is the case for general political or strategic relations, even if many economic regimes are of a technical nature.
These range from the G20 summits, IMF, and World Trade Organization or multilateral environment agreements (MEAs) at the political or heads of state and government level to the technical but arguably equally important standard setting bodies. Economic diplomacy therefore also encompasses the decision-making and negotiation that goes on in these international bodies, which may be multilateral, plurilateral (i.e. consisting of like-minded states or states that share common norms and values), regional (as in the African union or other regional groups), or bilateral (as in the case of many recent trade and investment initiatives).
Before suggesting some ways in which economic diplomacy could be seen as a distinct branch of diplomacy it is helpful to limit the scope of the term by saying what it is not. The definition of economic diplomacy does not include the use of economic leverage, either in the form of sanctions or inducement, in the pursuit of specific political or strategic goals. This would be defined as sanctions or perhaps economic statecraft. Economic diplomacy is about the creation and distribution of the economic benefits from international economic relations. Clearly political and strategic interests will be a factor in economic negotiations. Political objectives will not infrequently be a factor in decisions to initiate negotiations, but the concrete agenda, content, and conduct of the negotiations will be largely determined by economic factors and interests. I include international environment negotiations in the definition of economic diplomacy because of the close interdependence between economic and environmental objectives. Nor does the definition of economic diplomacy include the promotion of exports or investment, whether outward or inward. While governments have always intervened to promote their national industries, there has been a trend towards more active involvement of foreign services or even diplomatic services in seeking markets for national companies in recent decades. This differs from more traditional industrial policy or mercantilist trade policies. As traditional forms of intervention such as tariffs, subsidies, and other instruments that used to promote national champions have been disciplined by WTO and other trade regimes, governments have used diplomatic links, trade fairs, or visits of heads of state to promote commercial interests. Such activities are better captured by the term commercial diplomacy, which contrasts with economic diplomacy; the latter facilitates trade and investment by establishing the framework of rules and disciplines within which markets and such commercial diplomacy function.
The foreign policy of Ethiopia clings on economic diplomacy
The foreign policy has described doing the ‘domestic assignment’ to influence the outside that Ethiopia and its government could not control. The policy has also brought the belief in making an economic breakthrough at home as the ultimate requirement of successful foreign policy execution. It argues that the external world and globalization are never always ready to open their doors unless the poverty situation at home is changed as soon as possible. Fully cognizant of this based on the developmental state model the Government is seeking to transform the economy, based on major investments in economic infrastructure, economic management reforms, and strategic public sector engagement in the economy for instance Industry parks are starting to spring up across Ethiopia, echoing China 20 years ago. The infrastructure program now underway is integrating the country’s internal economy. Ethiopia’s connections to global markets are being significantly upgraded with new, high-speed rail and road corridors under construction. Ethiopia’s emergence from land-locked isolation and integration into the global economy is deepening and accelerating, giving support to the label that has sometimes been accorded to it, namely that of Africa’s newest “Lion Economy”. The Foreign Policy has opened a new avenue and chapter for the Ministry of Foreign Affairs and the Diplomatic Missions of Ethiopia in terms of clearly defining the role and policy direction that the Ministry and the Missions should pursue in the field of economic diplomacy. The policy stresses on the importance of competitive economic diplomacy as the right basis of Ethiopia’s international relations. The policy has detailed the tenets of globalization where Ethiopia should never adopt an on-looker position due to inactivity and inequality. It has once again brought the capitalist international market as the major framework of Ethiopia’s International economic relations. I can illustrate this for instance Ethiopia has made preferential trade agreements with a number of countries. Under the various Generalized System of Preferences schemes (GSP), Ethiopia is one of the beneficiaries of preferential trade access for a wide spectrum of commodities from a number of advanced countries, including, among others, Australia, Canada, the European Union (EU), Japan, Norway, and the United States of America (WWW.UNCTAD.ORG/GSP) . Ethiopia also has additional preferential access opportunities to other markets. It is one of the 48 Countries granted quota and duty free export of a large number of commodities to Canada. Similarly, Japan, Australia and China have granted Ethiopia preferential export access for a large basket of goods. Ethiopia has given greater attention to external trade policies than any other prevailing economic policy. Accordingly, a number of incentives have been put in place. Duties on all exports are now removed; a financial credit support system (Export Guarantee Credit Scheme) to the export sector for pre and post shipments is structured; an export trade duty incentive scheme: duty draw back scheme, voucher scheme, and bonded manufacturing warehouse scheme are made operational; and the foreign credit scheme allows foreign suppliers to extend trade credit to Ethiopian partners. Germany is by far the major destination markets for Ethiopia’s export, followed by Japan, Saudi Arabia, Italy and China. African countries are not Ethiopia’s major trading partners, though there has been some improvement recently. Ethiopia submitted to the WTO its memorandum of the foreign trade regime and is currently negotiating with the working party established to investigate whether the country fulfills the requirements for accession. Ethiopia is a member of the Common Market for Eastern and Southern Africa (COMESA) trade bloc, although it has not yet acceded to the COMESA free trade area (FTA) and customs union (CU) arrangements. At the continental level, Ethiopia has signed and ratified the Abuja Treaty that aims to establish an Africa Economic Community (AEC) among the continent’s 54 countries. The Treaty emphasizes the importance of setting up the AEC through the coordination, harmonization, and progressive integration of the activities of regional economic communities (RECs). Formation of a Tripartite Free Trade Area (TFTA) among the three RECs namely COMESA, EAC and SADC is part of the preparatory action based on the Abuja treaty. At the inter-regional level, although the country’s current trade with the EU is governed by “Everything but Arms (EBA)” preferential trade arrangement, Ethiopia, as part of the Eastern and Southern Africa (ESA) configuration, is currently negotiating an Economic Partnership Agreement (EPA) with the EU. Ethiopia’s scores under the World Economic Forum’s Global Competitiveness Index (GCI) have improved over the period 2007/08 to 2012/13 in all areas – basic requirements (from 3.28 to 3.55), efficiency enhancers (from 3.26 to 3.33) and innovation and sophistication factors (from 2.90 to 2.96) (World Economic Forum’s Global Competitiveness Reports, 2006/07 and 2012/13) however the increments were relatively small and not sufficient to allow Ethiopia to leapfrog Significantly higher in the GCI’s global ranking. Ethiopia’s performance has moved it into the league of major emerging markets but significant challenges remain to consolidate that position, particularly in terms of stabilizing the monetary side of the economy and reducing business entry costs. The above stated positive factors and developments paint a picture that the foreign policy has apparently clung on economic diplomacy.
Ed.’s Note: The views expressed in this article do not necessarily reflect the views of The Reporter. The writer can be reached at [email protected].