Industrial Policy and Foreign Aid: promoting sustainable structural changes in Ethiopia

This article analyses the relationship between foreign aid and industrial policies and questions their ability to contribute to structural transformation in Ethiopia. The country is considered a relevant case study due to its growing economic and geopolitical importance beyond the Horn of Africa, its efforts to promote a wide set of industrial policies aimed at realising an industrial African hub, and the presence of a wide set of aid actors. After investigating the theoretical relationship among industrial policy, foreign aid, and structural change, we present the Ethiopian path towards modern industrialisation, taking into account the main industrial policies implemented and their current challenges. Subsequently, foreign aid interventions under the umbrella of the European Union (eu) Emergency Trust Fund for Africa are introduced. In particular, field work and direct data collection concerning the Stemming Irregular Migration in Northern and Central Ethiopia (since) Programme are presented, as this intervention is an example of the new eu aid approach linking development and migration objectives. This Italian-led cooperation programme provides technical and vocational training and advances the creation of local employment opportunities to stem the propensity of disadvantaged young Ethiopians to migrate irregularly. Due to the fragmentation of Ethiopian industrial policy, widespread poor employment outcomes, and growing socio-economic challenges, this article suggests that the effectiveness of foreign aid is weakened and may represent a lost opportunity to foster the aimed for national structural change. Therefore, better coordination between industrial policies and international aid is needed to govern the structural transformation desired in Ethiopia.