Mamo Mihretu on export-led manufacturing, economic reform and the macroeconomic foundations of a growing economy.
You can listen to this podcast on Spotify, Apple Podcasts, or wherever else you get your podcasts. You can also watch this conversation on YouTube, and we've also started a Substack for these episodes.
Ethiopia is arguably the most ambitious, and most closely watched, attempt to make export-led manufacturing work at scale in Africa. And that’s only one aspect of the country’s wide ranging set of reforms in recent years, which has seen the government embark on a range of macroeconomic policy changes, across exchange rates, monetary policy, taxation, and more.
For this wide ranging discussion, Kartik Akileswaran and I are joined by Mamo Mihretu. Having worked on trade competitiveness and finance at the World Bank, then as a senior economic advisor to the prime minister, and most recently as the tenth governor of the National Bank of Ethiopia, he has seen the same set of problems from different vantage points – both designing reforms, and actually implementing them. We start by discussing Ethiopia’s export-led manufacturing push, before getting into recent macroeconomic reforms that set the foundations for growth.
An engine that had reached its limits
By the headline numbers, when Mamo joined the government in 2018, Ethiopia looked like a roaring success. Growth was near 10%, large public infrastructure projects were under way, and a bold industrial-parks programme was taking shape. But the engine underneath faced severe challenges. Growth had been driven overwhelmingly by public, debt-financed infrastructure investment, sustained by financing from domestic banks, monetary financing of the budget by the central bank, and heavy external borrowing, particularly from China.
The trouble, as Mamo describes it, was that those financing sources “reached their limit almost at the same time.” The result was a macroeconomic imbalance: a chronic shortage of foreign currency, inflation running close to 30% for three years, mounting debt-sustainability risk and a financial sector dangerously exposed to a single large state lender. COVID and domestic conflict compounded these problems, pushing the exchange-rate premium to almost 100%. This was the situation any reform programme would have to confront.
Getting industrial parks off the ground
The industrial-parks agenda had arrived earlier, in the early 2010sl. In a country with strong developmental-state traditions, the idea of a geographically demarcated area running liberal economic rules separate from the rest of the country was a hard ideological sell.
Three things, for Mamo, built consensus. First, policymakers spent close to a year studying how industrial parks had evolved in China, Vietnam, Singapore and South Korea – and, just as importantly, where they had failed, as in Nigeria. That study became a strategy document used as a consensus-building tool. Second, the parks were framed not as ideology but as a practical fix for binding constraints: the shortage of foreign currency, the low manufacturing base, and weak exports. And third – for Mamo the most important – there was “a genuine attempt to develop the institutional infrastructure” to implement the strategy, not merely write it.
The Ethiopian Investment Commission was modelled on Singapore’s Economic Development Board, a new industrial-parks corporation on Singapore’s JTC, and an investment board chaired by the prime minister gave strategic direction. These were staffed by technocrats who “put development at the centre” and had developed serious expertise – these institutions were what set Ethiopia apart from countries that wrote the same strategy and went nowhere.
The most credible, not the cheapest
Nowhere is that clearer than in the Hawassa Industrial Park, built in under a year, with its first shipment reaching the US market less than two years after breaking ground. The strategy focused on landing an anchor investor – PVH, the apparel group behind Tommy Hilfiger and Calvin Klein – on the logic that the supply chain would follow.
Mamo recalls the investment commissioner going “to the airport at three o’clock in the morning” to receive investors in person, “because it matters to really project that desire.” What clinched it was not tax – incentives were “icing on the cake, but it was never the reason” – but credibility: a clear national vision, a focus on productivity and sustainability, and policymakers willing to “break into the logjam whenever a problem surfaced.” Ethiopia won investment, he says, “not because we were the cheapest, but because we were the most credible.”
At its peak around 2020–21, Hawassa alone supported roughly 100,000 jobs, but the suspension of Ethiopia’s AGOA access – its quota-free, tariff-free route into the US market – was “a serious blow” to textile competitiveness, which was compounded by conflict.
“Had it not been for the removal of the AGOA eligibility, I think Ethiopia’s textile exports would have increased significantly. It’s not so much that we lost in terms of actual export revenue because of the cancellation – but rather that the Ethiopian textile sector didn’t become what it could have been. That non-occurrence of what could have been is a significant development loss that I personally still regret.”
Getting the macro fundamentals right
For Mamo, none of this works without a sound macroeconomic foundation – and “the discussion about industrial policy and a competitive exchange rate is the same.” A misaligned exchange rate, with a premium of 80% or 100%, is simply a tax on every dollar an exporter earns; addressing it “is essentially creating a competitive manufacturing sector.”
To that he adds low and stable inflation, since “it’s very difficult for an exporter to enter into a five-year contract if inflation is hovering around 30%”; a financial sector able to supply working capital to manufacturers; and, above all, predictability. “If the business environment is not predictable, it’s very difficult for them to plan.” Deviate from these fundamentals, he warns, and “eventually, something will have to give.”
How the exchange rate reform was done
When Mamo became governor in 2023, the situation was acute enough that an importer could wait two years for the foreign-exchange permit to buy $1,000 of inputs. So the central bank worked on and set its own strategy – price stability, exchange-rate reform, financial-sector stability, and strengthening the institution itself. It modernised monetary policy onto an interest-rate basis, opened banking to foreign competition, secured instrument independence for the central bank, and put guardrails around the monetary financing of the budget that had fuelled inflation.
And in July 2024, Ethiopia moved to a market-determined exchange rate, ending decades of a fixed regime. But Mamo stresses it was a wholesale reform: for example more than 80 accumulated foreign-exchange regulations were rationalised into a single Green Book, so that any bank, investor or importer needed to consult only one source.
What made it stick was the method. Ahead of this exchange rate reform, monetary tightening began in August 2023 – involving a credit cap, a new policy rate, and control of money growth. It was coordinated with the finance ministry through a committee where “even when there is disagreement, the disagreement stays within that room.” And it came with built in mitigation: higher public salaries, targeted subsidies on edible oil, fuel and medicine, a phased rather than overnight removal of fuel subsidies, and more spending on social protection.
The results have been striking: exports heading towards $10 billion within two years, gold exports up from around $200 million to $4 billion, inflation back to single digits, and reserves up sixfold. “It’s not just the reform,” he says. “How you do the reform matters as much.”
What reform requires
Asked for the single most important lesson, Mamo offers several:
- Start with honest diagnostics, because “the real tragedy in development policy” is spending reform energy on things that don’t matter.
- Address the actual constraint in your own context, not what worked elsewhere.
- “Personnel is always policy”: assemble a team that can learn, synthesise and act.
- Sequencing “is half policy reform.”
- Communication is integral — “treating the public as adults.”
- And research “informs, but research doesn’t decide”; what policymakers need most is judgment about the right policy “at that particular time, in that particular context.”
The deepest point is about ownership. “If the reform is owned, then it outlives the person who initiated it,” Mamo says; “if reform is externally imposed, then it will die.”
Having addressed what he identifies as the “self-inflicted” macroeconomic mistakes of the past, Mamo is optimistic for economic prospects of Ethiopia, so long as the reform stays the course and there is a foundation of peace and regional stability.