Op:Ed: The virtues of true decentralization

Belachew Mekuria, PhD, For Addis Standard

Addis Abeba, June 18/2019 – In an earlier piece for AS, I highlighted the need for empowered regional states in our federal arrangement so as to enable us ‘establish and sustain one economic community.’ The praxis of our federalism is hardly in sync with the constitutional promises of a truly self-governing structures in social, economic and political dimensions. The role of regional governments in looking after the socio-economic and political affairs of their people is dashed aside to the margins rendering them dependent on the ‘almighty’ center that, under the guise of building single economic community, controls the formulation and implementation of the country’s policies spanning every aspect of the body politic. I intend to briefly explain why true decentralization is one of the many long overdue reforms that the country ought to address.

Centralized economy, decentralized poverty

It is desirable to pursue economic policies that embrace local conditions and endeavor to meet the needs of the people who are not only poor, but in relative terms, are getting poorer by the day. Creation of single economic community is excessively referenced to legitimize the central control of economic policy making that is supported by a relatively over-capacitated central bureaucracy. House of Federation has the mandate to propose laws that help establish and sustain one economic community for enactment by the House of Peoples’ Representatives. While an attempt is made to institutionalize a centralized economic policy making, implementation and monitoring infrastructure, it has not led to an overall improvement in well-being and livelihoods. As a result, the capacity to design sound policies for accelerated economic growth at regional level is highly undermined; poverty still remains ubiquitous; some experiencing it more than others.

Though there are a number of areas that call for genuine decentralization, I limit the discussions to three key areas for devolution of power to the respective regions having profound implication on empowering members of the federation.

Taxation

The state-owned enterprises (SoEs) like the commercial bank and Ethiopian Insurance Corporation, Ethiopian Airlines and Ethio-telecom, probably the most lucrative revenue sources, are all made to fall within the central government’s taxation power. Moreover, multinationals licensed by the federal government fall within the central government’s tax jurisdiction. After a region has cleared investment land shouldering both the social and economic costs, at times bearing the serious political backlashes, the tax revenue goes to the central coffers from which it gets redistributed to all the units of the federation on the basis of commonly agreed allocation formula. Understandably, many of the regional governments and their people have increasingly become less enthused about foreign investment projects, especially those that require extensive land and water resources as their main inputs.

Regions should however be made to see benefits that go beyond the employment and related opportunities including direct tax collection benefits that come from multinational investment projects. Fiscal federalism is therefore one among many of the subjects that render the initiation of constitutional amendment process an imperative. It must aim at mitigating both vertical and horizontal imbalances in terms of revenue and expenditure which has become an established norm under the current arrangement. Regions are expected to achieve a number of development objectives with minimal revenue sources at their disposal.

In this regard, for instance Sobel  expresses his preference, on the basis of an elaborate analysis, as follows: “system where only states have the power of taxation and the federal government is financed through a system of contributions from the state governments, is the strictly preferred system of taxation in a federal system of governments.” Though the suggestion to out-rightly withdraw the central government’s power would take us to the other extreme, there has to be a middle ground that, at the minimum, enable the regions to make an autonomous decision on tax rates, directly collect the full or part of the corporate income tax of those investments established within their borders and exercise some level of control on matters that have implications on large/lucrative state owned enterprises. No doubt that one may be fearful of regional competition in attracting investment and a race to the bottom, but various schemes could be designed to mitigate such circumstances including setting up a minimum rate below which no state is allowed to go.

Under the current arrangement where strength, if not legitimacy, is slowly getting eroded from the center, efforts to attract foreign investments and also encouraging local industries will be an upward battle without bringing the federal units to the front burner. Therefore, correcting the tax regime through a decentralized revenue collection powers will incentivize regions to play an active role in the creation, nurturing and constructive regulatory engagement of productive industries. Regions should not only directly collect the full or portion of corporate income tax irrespective of where the company is headquartered (so long as the activity that generates revenue is within the particular region), they should also formulate fiscal and non-fiscal incentives within the limits of a broader national framework.

Land administration

Land is another subject that undermines the possibilities of running a decentralized federal system in Ethiopia. From the old monarchical rule through the Derg’s era and till the present, Ethiopians have never seen what a private ownership system of land looks like. Absentee landlords lived by and on the sweats of the farmers during the imperial rule followed by a total expropriation in favor of the socialist regime that deceptively overwhelmed the minds of the youth by the ‘land to the tiller’ motto. Fundamentally, nothing significant has changed since. I quote one poetic characterization of Ethiopia’s past and present land policy that I found extremely apt (Amharic):

The poem satirically portrays the reality we live in. The regions have for long relinquished their constitutional right of administering their land in the name of allocation efficiency particularly in respect to investment. The central government in many situations stretches its long arms to undermine the federal units’ mandates of using land as a means to implement socio-economic policy objectives. If a particular investment requires a land area exceeding a certain amount, contractual dealings are handled by the central government. Land being a highly valued natural resource and a lever for political, social and economic policy making and effectiveness, there will not be a meaningful decentralized governance in the absence of some control on decision making powers relating to land.

Governance

Matters of huge national significance fall in the hands of the federal government that makes decisions having direct implications on members of the federation and the Ethiopian people collectively. Economic directions like developmental state policy or otherwise, the establishment and expansion of large state-owned enterprises, provision of generous tax incentives for multinationals etc are exclusively decided at the center. One may be tempted to say that representation is achieved through the parliamentarians who must bring to the floors of the House the voices of their constituencies. However, the stature and practices of our Lower House (House of Peoples’ Representatives) does suggest everything but being critical on the central power politics. Voter turnout has for long been extremely low in the country, particularly pre and post 2005 elections, due to the narrow democratic space. Under these circumstances, parties (in our case members of the ruling coalition) get voted-in by presenting candidates who are not necessarily ‘meant something in society’, rather because they happen to be members of the political party that rallies them forward. Accordingly, in the words of David Van Reybrouk ‘they are going to mean something because they are elected.’ A genuine representation in parliament and mechanism of consultations with regional councils including lower level administrative units is required to accommodate the interests and aspirations of the regions on matters that help ‘establish and sustain one economic community.’

In today’s digital world where awareness levels on what happens around the world is at its peak, more localized governance and direct citizens’ engagement is critical. Our federal arrangement as a structure is useful if we are ready to look at it as a means to devolve power down to the regions. Recalling my earlier note on the beauty of having more regions, I believe that we have what it takes to bring government closer to the governed, instead of laboring on the impossible task of bringing the governed closer to government through rationing of positions that should rather go to those with merits. It is desirous therefore to endeavor for more decentralization of government on subjects of, among others, taxation, governance and land administration. What we have seen for a long time is political decentralization which unfortunately is again nominal due to an internal party system that is highly influenced by the old Bolshevik’s legacy of democratic centralism.  

What then for the federal government?

The list could be endless here. The central government should move towards investing in science and technology, deploy resources for and lead ground breaking research initiatives, secure the nation’s international borders through diplomacy and disciplined armed force and those other common goods that are best handled collectively. It is also critical to view the constitutional aspiration of one economic community as an outcome rather than having any bearing on the process. In other words, the fact that we aspire to build a single economic community doesn’t necessarily imply empowering a single entity (the central government) as the driver of the processes thereby granting it exclusive control on the means of reaching there. AS

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Editor’s Note: Belachew Mekuria (PhD), was former commissioner of the Ethiopian Investment Commission. He can be reached at belachewmekuria@gmail.com