Seven Lessons for Ethiopia Innovation Economy from Switzerland

Countries Are Evolving From Factor Driven, to Efficiency Driven and Ultimately to Innovation Driven Economy Stage

The World Economic Forum (WEF) Global Competitiveness Index (GCI) classified its twelve pillars into three sub-indices matching three stages of economic development for countries. The first Basic Requirements sub-index pillars (institutions, infrastructure, macro-economic environment, health and primary education) mapped to Primary Commodity Exports Factor Driven Economies. The second Efficiency Enhancers sub-index pillars (higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size) corresponded to Manufacturing Efficiency Driven Economies. The third Innovation and Sophistication Factors sub-index pillars (business sophistication, innovation) synchronized to Innovation Driven Economies. Ethiopia is still a primary commodity driven economy. The country is really struggling in growing its manufacturing, value added (% of GDP)  from 4 percent in 2024 to the planned target of 17.2 percent in 2030.

A comparative review of Switzerland which was ranked first globally (67.5 percent score) versus Ethiopia which was placed at number 130 (12.3 percent score) in the 17^th edition of the World Intellectual Property Organization (WIPO) Global Innovation Index (GII) 2024 on ‘Unlocking the Promise of Social Entrepreneurship’, would be able to highlight best practices Ethiopia needs to review to become a world class innovation driven economy. Ethiopia ’s innovation inputs-outputs global rankings stood at (133^rd -112^th) versus Switzerland’s (2^nd-1st).Ethiopia ’s benchmark comparator Asian Tiger economies were led by Singapore at 4^th globally (61.2 percent), South Korea 6^th (60.9 percent), and Hong Kong 15^th (50.1 percent). Comparator Asian Tiger Cub economies had Malaysia at 33^rd (40.5 percent), Thailand 41^st (36.9 percent), Viet Nam 44^th (36.2 percent), Philippines 53^rd (31.1 percent), and Indonesia 54^th (30.6 percent). Latin America was led by Brazil at 50^th (32.7 percent) and Chile at 51^st (32.6 percent).  Ethiopia was ranked 6^th in Sub-Saharan Africa with Mauritius leading at 55^th (30.6), South Africa 69^th (28.3 percent), Botswana 87^th (23.1 percent), Cape Verde 90^th (22.3 percent) and Senegal 92^nd (22 percent).  North Africa was led by Morocco at 66^th (28.8 percent), Tunisia at 81^st (25.4 percent) and Egypt at 86^th (23.7 percent).The comparison between Ethiopia  Vis a Vis Switzerland will be across all seven pillars of WIPO GII which include; institutions, human capital and research, infrastructure, market sophistication, business sophistication, knowledge and technology outputs, and creative outputs.

Creative Destruction Theory on Innovation Economics.

Joseph Schumpeter (1883-1950) entrepreneurship theories argued that entrepreneurs drive technical progress and innovation of a nation and that large companies use their capital to invest in research and development of new products and services, distribute them cheaply to consumers and thus raise the standard of living of economies. Schumpeter’s 1942 book on  ‘Capitalism, Socialism and Democracy’ posited that changes in institutions, entrepreneurs, and technological changes drive economic growth and that capitalism is an evolutionary process of continuous innovation and creative destruction / Schumpeter’s Gale (a process where new innovations replace and make obsolete older innovations). Daron Acemoglu and James A. Robinson in their 2012 book ‘Why Nations Fail: The Origins of Power, Prosperity, and Poverty’ argues that countries reach stagnation and start decline because political elites block creative destruction thus thwarting innovation.

Pillar 1- Institutions- Ethiopia’s Score of   39.6 Percent Vs Switzerland 87.7 Percent.

Ethiopia  needs to improve its innovations institutional environment (operational stability for businesses- political, legal, operational or security risks, GOK effectiveness- quality of the civil service and policy implementation) as Switzerland at a score 92.4 percent is 3.51 times higher than Ethiopia ’s 26.3 percent. Innovations smart regulatory environment (regulation quality- sound private sector policies, rule of law- property rights and contract enforcement) requires mending to rise from 21.4 percent to Switzerland’s 89.2 percent.Easing of Doing Business Environment (policy stability for doing business, entrepreneurship policies and culture) is requisite with Ethiopia scoring 29 percent versus Switzerland at 81.5 percent.

Pillar 2- Human Capital & Research- Ethiopia’s Score of   7.2 Percent Vs Switzerland 61.8 Percent.

Increasing budget allocation to education (expenditure on education % of GDP, government funding per secondary school pupil percent of GDP per capita, expected years from primary to tertiary, PISA scores for age 15 years on reading, mathematics and science; secondary teacher to pupil ratio) is needed to close the gap between Ethiopia’s score of 16.2 percent compared with Switzerland at 65.1 percent. Attention to tertiary education (tertiary gross enrolment percent of relevant age group, STEM graduates percent of all graduates, inbound mobility- percent of foreign students) percent) is vital in improving Ethiopia ’s score from a low of 4.2 percent to Switzerland’s 50 percent. A Marshal Plan on research and development (Full time employed researchers per a million people, Gross Expenditure on R&D percent of GDP, Top 3 global corporate R&D expenditure in million USD$, Average top 3 universities QS ranking) is paramount to move Ethiopia ’s score from a dismal 1.4 percent to Switzerland’s 70.4 percent.

Pillar 3- Infrastructure – Ethiopia’s Score of   21.5 Percent Vs Switzerland 60.8 Percent.

Ethiopia  ICT infrastructure scored 26.3 percent as compared to  Switzerland’s 82.1 percent (Access of mobile/internet/MNO network, Use- fixed broadband internet cost percent of GNI per capita and GB per subscription/mobile data and voice cost percent of GNI per capita/mobile broadband internet GB per subscription/ Active mobile-broadband subscriptions per 100 people ; Electronic government online services- services/technology/institution /content/electronic participation; Digital public participation). General Infrastructure (electricity output GWH per million population/logistics performance index/gross capital formation share of GDP) has a catch up gap to bridge with a 17 percent score versus Switzerland at 50.4 percent. Ecological Sustainability (PPP$ GDP per total energy supply/ percentage of low carbon energy use/ ISO 14001 EMS Certificates Issued Per Billion PPP$ GDP) saw Ethiopia score 21.2 percent as contrasted with Switzerland’s score of 49.9 percent.

 Pillar 4- Market Sophistication- Ethiopia’s Score of   5 Percent Vs Switzerland 66.5 Percent.

Ethiopia at 5.1 percent versus Switzerland’s 70.8 percent means the country needs to reform access to credit (finance for startups and scale ups, domestic credit to private sector percent of GDP, loans from MFIs percent of GDP). Increasing mobilization of capital for listed and private enterprises is needed to enhance Ethiopia’s really low score of 0.4 percent versus Switzerland’s 64.9 percent on investments (market capitalization share of GDP, number of venture capital investors deals per bn PPP$ GDP; number of venture capital recipients deals per bn PPP$ GDP; venture capital value received share of GDP).Reducing average tariffs , increasing manufacturing diversification by lowering Herfindahl Hirschman Index (HHI) and increasing domestic market scale (country’s PPP$ GDP) is key for helping Ethiopia  grow its trade, diversification and marketing scale score from 9.5 percent to Switzerland’s 63.9 percent.

Pillar 5 – Business Sophistication- Ethiopia’s Score of   13.3 Percent Vs Switzerland 67.2 Percent.

Raising proportion of knowledge intensive employment of total (legislators, senior officials, managers, professionals & associates, technicians), share of firms offering formal training, GERD implemented by business as share of GDP, proportion of GERD financed by business of total and female employees with advanced degrees share of total should assist Ethiopia  mature its knowledge workers score from 7.2 percent to Switzerland’s 71.2 percent. Scaling Ethiopia ’s low score of innovation linkages at 12.2 percent as compared to Switzerland at 80.4 percent demands rise in public-private co-authored research publications share of total, university-industry R&D collaboration, width and depth of industry clusters, number of strategic alliances and joint ventures (JVs) deals per bn PPP$GDP, and number of patent families filed in at least two countries per bn of PPP$ GDP.  Knowledge absorption score for Ethiopia  can be grown from 20.6 percent to Switzerland’s 50.1 percent, by increasing Intellectual Property Rights- IPR payments share of total trade, high tech (aerospace; computers and office machines; electronics and telecom; pharmacy; scientific instruments; electrical machinery; chemistry; non-electrical machinery; and armament) imports share of total trade, ICT services imports share of total trade, FDI net inflows share of GDP and share of business enterprise research staff share of the country’s total research staffs.

Pillar 6 – Knowledge & Technology Outputs – Ethiopia’s Score of   14.7 Percent Vs Switzerland 65.1 Percent.

Increasing number of patents per bn PPP$ GDP, number of Patent Cooperation Treaty (PCT) applications per bn PPP$ GDP, number of Utility Model- UM patent rights applications per bn PPP$ GDP, number of published STEM articles per bn PPP$ GDP and number of published articles with a H citation is the holy grail of raising Ethiopia ’s knowledge creation score from 14.6 percent to Switzerland’s 78.7 percent. Ethiopia ’s knowledge impact score  of 23.9 percent can be raised to Switzerland’s 55.9 percent through interventions which grow the rate of GDP per employed person (labor productivity), increase the combined valuation of the country’s unicorns percent of GDP, grow software spending percent of GDP and accelerating the high technology and medium-high technology (MHT) output as a percentage of total manufacturing output. Knowledge diffusion score in Ethiopia at  a low of 5.7 percent  can be enhanced to Switzerland’s 60.7 percent by investing in increasing receipts from Intellectual Property Rights-IPRs percent of total trade, complexity (sophistication) of production and export (Economic Complexity Index), high tech exports percent of total trade, ICT exports percent of total trade and number of ISO 9001 Quality Management System certificates issued per bn PPP$ GDP.

Pillar 7 – Creative Outputs – Ethiopia’s Score of   5.2 Percent Vs Switzerland 67.1 Percent.

Growing Ethiopia ’s intangible assets score from 1.9 percent to Switzerland’s 61.7 percent needs raising of the country’s top 15 companies intangible assets value proportion of their total value, number of trademark applications per bn PPP$ GDP, top 5000 firms brand value percent of GDP, and number of industrial design applications per bn PPP$ GDP.

Ethiopia  has a Herculean task in raising its creative goods and services score from 0.1 percent to reach Switzerland’s global high of 59.7 percent by increasing its cultural and creative services exports as a percent of total trade, number of feature films produced per million of population aged 15-69, Global Telecom, Entertainment & Media Outlook per million of population aged 15-69, and value of creative goods exports over total trade.

Ethiopia’s online creativity score of 18.1 percent lags Switzerland’s 85.4 as it has to increase the number of Generic Top Level Domains (TLDs- .biz, .info, .org, .net,.com) per thousand population aged15-69, number of batched changes received and sent by publicly available projects on GitHub and global downloads of mobile apps per bn PPP$ GDP.

Ethiopia ’s innovation economy can further benefit from doubling efforts on several game changer innovation and technology targets in its 10 Years Development Plan by 2030. Ethiopia targets to increase access to mobile and internet from 37.2 percent and 18.6 percent respectively to 100 percent by 2030 more so given heightened competition to Ethio Telecom after licensing of Safaricom and another 3^rd MNO (Mobile Network Operator).  In 2022, Ethiopia’s mobile cellular subscriptions (per 100 people) stood at 57 percent versus Hong Kong at 319.5 percent.  Individuals using the internet (share of population) in Ethiopia stood at 16.7 percent in 2021 compared with Malaysia at 97.7 percent in 2023. WIPO Global Innovation Index (GII) 2024 ranked Ethiopia 130/133 with a score of 12.3 percent as opposed to Singapore which was ranked 4/133 and scored 61.2 percent. Universities and TVETs commercialization of research (spinoffs; spinouts) and hackathon culture. Building entrepreneur ecosystems and industry clusters. Angel investor networks to fund an Ethiopian ‘startups nation’’. Early stage venture capital and private equity including setting up of corporate venture funds by Ethiopia’s private sector.

You can reach the writer nikaminduku@gmail.com