Chapter 5: Development planning

and the Role of the State

•Concepts,
Rationale and Process
•Government Failure and Preferences for
Markets over Planning: Problems of plan
Implementation and Plan failure
 Concepts, Rationale and Process
DEFINITION:
Economic Planning may be described as
the deliberate governmental attempt to
coordinate economic decisions over the
long run so as to:
 influence, direct and in some cases, even
control changes in the level and growth of
the principal economic variables of a
country in order to achieve a pre-
determined set of development objectives.
2
Proponents of economic planning for
developing countries argue that the
uncontrolled market economy often lead these
nations to economic dualism, unstable
markets, low investment in key sectors, and
low levels of employment.
In particular, they claim that the market
economy is not geared to the principal
operational task of poor countries.
Therefore, planning has come to be accepted as
an essential means of guiding and accelerating
economic growth in almost all developing
countries. 3
 Development Planning In Mixed
Developing Economies

• UNDP dealing with developing

countries development program
distinguished four concepts of
planning used in these economies:
 First planning refers only to the
making of a programme of public
expenditure, extending over from
one year to say ten years.
4
 Second it refers some times to the setting up of
production targets, whether for private or for
public enterprises, in terms of the input of
manpower, of capital, or other scarce resources,
or use in terms of output.

 Thirdly the word planning may be used to

describe a statement which sets targets for the
economy as a whole, purporting (with aim) to
allocate all scarce resources among the various
branches of the economy, and

5
 Fourthly, the word is sometimes used to
describe the means which the government
use to try to enforce upon private
enterprise the targets which have been
previously determined.
• Uncontrolled market economy very often
lead these nations to economic stagnation,
fluctuating prices and low levels of
employment, as a result, planning has
become accepted as an essential and
pivotal means of guiding and accelerating
economic growth in the developing
countries.
6
Mixed economies are characterized by
the existence of an institutional setting in
which some of the productive resources are
privately owned and operated and some are
controlled by the public sector.
The actual proportionate division of public
and private ownership and control varies
from country to country, and;
neither the private nor the public sector
can really be considered in isolation from
the other.

7
 Mixed economies are often distinguished
by a substantial amount of government
ownership and control in the market
system.
 The private sector in developing
countries typically comprises four
traditional forms of private ownership
and a more recent emerging one.
1.The subsistence sector, consisting of
small-scale private farms and
handicraft shops selling a part of their
production to local markets
8
 2.Small-scale individual or family-owned
commercial business and services activities
in the formal and informal urban sectors
 3. Medium-size commercial enterprises in
agriculture, industry, trade, and transport
owned and operated by local entrepreneurs
 4. Large jointly owned or completely
foreign-owned manufacturing enterprises,
but sometimes with substantial local sales
(the capital for such enterprises usually
comes from abroad, and a good proportion
of the profits tends to be transferred
overseas) 9
PRINCAPAL COMPONENTES OF
DEVELOPMENT PLANNING IN MIXED
ECONOMIES
1. The government’s deliberate use of domestic
saving and foreign finance to carry out public
investment projects and;
2. Mobilizing and channelling scarce resources
into areas that make impressive contribution
toward the realization of long-term economic
objectives (e.g., the construction of railways,
schools, hydroelectric projects, and other
components of “economic infrastructure, as
well as the creation of import-substituting
industries” or projected future export sectors)
copyright 2006 www.brainybetty.com;
21/03/24 All Rights Reserved. 10
3.Government economic policy to
stimulate, direct, and in some cases even
control private economic activity (e.g.,
taxation, industrial licensing, the setting of
tariffs, and the manipulation of quotas,
wages, interest rates, and prices).
4. Ensuring a harmonious relationship
between the desires of private business
operators and the social objectives of the
central government

11
THE RATIONALE FOR DEVELOPMENT
PLANNING

There are four fundamental economic

and institutional arguments for
acceptance of planning as a
development tool in developing
countries.
1.Market Failure
2.Resource Mobilization and Allocation
3.Attitudinal or Psychological Impact
4.Foreign Aid
12
 MARKET FAILURE
Markets in developing economies are
characterized by imperfections of structure
and operation.
 Commodity and factor markets are often
badly organized,
 The existence of distorted prices often
make producers and consumers not to
respond to economic signals and incentives
that are a poor reflection of the real cost to
society of these goods, services, and
resources.
21/03/24 13
Non-existence or poorly developed or
well organised capital markets based on the
existence of specialised financial
institutions to be able to channelizing of
private savings into the loan markets to
provide capital funds to finance investment
projects
 Gross disparities between social and
private valuations of alternative investment
projects due to the failure of the market to
price factors of production correctly.
•It is because of this, the governments have an
important role to play in integrating markets and
modifying prices 21/03/24 14
In the absence of governmental interference
there will be a danger for misallocation of
present and future recourses
 The inadequacy of the market mechanism
as a means of allocating resources for
industrial development
United Nations conference on planning asserted
that ´it is an integral task of economic process to
achieve the best possible use of scarce resources
for economic development....The need for using
appropriate criteria for selecting projects arose
because of failure of the market mechanism to
provide a proper guideline”
21/03/24 15
Further the UNIDO(United Nations
Industrial Development Organisation)
provides the following market failure issue
and the rationale for planning in LDC’s
 “Government cannot, and should not, take
a merely passive role in the process of
industrial expansion. Planning has become
an integral part of industrial development
programmes which require huge effort of the
government and not left to private market
system.

21/03/24 16
 RESOURCE MOBILIZATION AND
ALLOCATION
This argument stresses that developing
economies cannot afford to waste their very
limited financial and skilled human
resources on unproductive ventures.
Investment projects must be chosen not
solely on the basis of partial productivity
analysis dictated by individual industrial
capital-output ratios but also in the context
of an overall development program that
takes account of external economies, indirect
repercussions, and long-term objectives.
21/03/24 17
Economic planning is assumed to help by
recognizing the existence of particular
constraints and by choosing and
coordinating investment projects so as to
channel these scarce factors into their most
productive outlets.
 In contrast, it is argued, competitive
markets will tend to generate less
investment and to direct that investment
into areas of low social priority (e.g.,
consumption goods for the rich).
21/03/24 18
 ATTITUDINAL OR
PSYCHOLOGICAL IMPACT
It is often assumed that a detailed statement
of national economic and social objectives in
the form of a specific development plan can
have an important attitudinal or psychological
impact on a diverse and often fragmented
population.
 It may succeed in rallying the people behind
the government in a national campaign to
eliminate poverty, ignorance, and disease or to
boost national progress.
copyright 2006 www.brainybetty.com;
21/03/24 All Rights Reserved. 19
 By mobilizing popular support and cutting
across class, caste, racial, religious, or tribal
factions with the plea to all citizens to work
together toward building the nation;
•it is argued that an enlightened central
government, through its economic plan, can
best provide the needed incentives to
overcome the inhibiting and often divisive
forces of sectionalism and traditionalism in a
common quest for widespread material and
social progress
21/03/24 20
FOREIGN AID
The formulation of detailed
development plans has often been a
necessary condition for the receipt of
bilateral and multilateral foreign aid.
 With a shopping list of projects,
governments are better equipped to solicit
foreign assistance and persuade donors
that their money will be used as an
essential ingredient in a well-conceived
and internally consistent plan of action.
21/03/24 21
THE PLANNING PROCESS IN
DEVELOPING COUNTRIES AND BASIC
CHARACTERSTICS

• There is diversity of development

plans and planning techniques in the
third world countries Comprehensive
development planning has six basic
characteristics as identified by the
Professor Tony Kellick
1. Planning attempts to define policy
objectives starting from the political
views and goals as the relate to the
future development of the economy
21/03/24 22
2. A development plan sets out a strategy to
achieve the objectives which are normally
translated into specific targets
3. The plan attempts to present a centrally
co-ordinated , internally consistent set of
principles and policies and the strategy to
achieve the targets and intended to be used as
a frame work to guide subsequent day- to-
day decisions

21/03/24 23
4. It comprehends the whole economy( it is
a comprehensive as against colonial or
public sector planning)
5. In order to secure optimality and
consistency, the comprehensive plan
employs a macro economic model
6. A development plan typically covers a
period say for eg. 5 years and find physical
expression as a medium-term plan
document, which may incorporate a long-
term perspective plan and be supported by
annual plans
21/03/24 24
Government Failure and Problems of Plan
Implementation and Plan failure

•The results of development planning have

been generally disappointing in most of the
developing countries.
•These countries have rejected the
comprehensive planning because of poor
performance and has had a number of
practical outcomes/alternatives.
•The important outcome which adopted by
majority of the developing countries is
market- oriented economic system .
Basic reasons for failure of development
planning in developing countries

 We can identify two inter- related

reasons.
 Firstly, dealing with the gap between
theoretical economic benefits and the
practical results of development planning in
developing countries has been quite large.
 Secondly, associated with the fundamental
defects in the planning process, especially it
relating to administrative capacities,
political will, and plan implementation.
Theory and Practice
 The principal economic arguments for
planning are- market failure,
divergences between private and social
valuations, resource mobilization, etc.
 The results turned out to be weakly
supported by the actual planning
experience.
 The market failure argument has
presumed that the government can play
a major role in reconciling the
divergence between private and social
valuations of benefits and costs.
•But the experience of government policy in
many countries has been widening rather than
reconciling these divergences-government failure
rather than market failure.
•In other words government policy often tended
to increase rather than reduce the divergence
between the private and social valuations
•In cases of certain economic issues like
eliminating of poverty, reducing inequality, and
lowering unemployment, and many developing
policies in developing countries have in fact
unwittingly contributed to their perpetuation.
Deficiencies in plans and Their
Implementation
•Plans are very often over ambitious and
trying to accomplish too many objectives at
once without consideration that some of the
objectives are competing or even conflicting
•The objectives set in these plans are very
impressive but vague on specific policies for
achieving stated objectives
•Finally the gap between plan formulation
and implementation is enormous( many plans
are never implemented)
Insufficient and Desirable Data
•The success of development plan depends to a
large extent on the quality and reliability of the
statistical data
•In developing countries the data are weak,
unreliable, or non-existence as a result the
accuracy and internal consistency of economy,
plans are greatly diminished
•In addition to unreliable data and inadequate
supply of qualified economists, statisticians and
other planning personal, to formulate and carry
out a comprehensive and detailed development
plans is likely to be frustrated at all levels.
Unanticipated Economic Disturbances,
External and Internal
•Most developing countries have open economies
dependent on changes of international trade, aid,
hot speculative capital inflows and private foreign
investment
•It becomes difficult to the developing countries to
engage even in short-term forecasting, leaving
alone long-range planning
•The oil price increase of the 1970 caused havoc
in most development plans in these economies
• Most governments in the developing world have
little control to determine the success or failure of
their development policies
 Institutional Weaknesses
The institutional weaknesses of the planning
process of most developing countries include
1.Separation of planning agency from day-to-day
decision making machinery of the government.
2.The failure of planners, administrators, and
political leaders to engage in continuous dialogue
and internal communication about goals and
strategies.
3.The international transfer of institutional
planning practices and organizational
arrangements are not suitable to these countries
and
4.Inappropriate local condition.
5. Incompetent and unqualified civil servants.
6. Cumbersome bureaucratic procedures
7.Excessive caution and resistance to innovation and
change
8.Interministerial personal and departmental
rivalries( e g. Finance ministries and planning
agencies are often conflicting rather than
cooperative forces in governments)
9.Lack of commitment to national goals as opposed
to regional, departmental, or simply private
objectives on the part of the political leaders and
government bureaucrats
10.Last but not least, lack of national as opposed to
personal interest, the political and bureaucratic
corruption that is pervasive in many
governments.
Lack of political will

•Poor plan performance and wide gap between

plan formulation and plan implementation are
attributable to a lack of commitment and political
will on the part of the political leaders and high –
level decision makers in developing countries
•Success of development plans requires unusual
ability and a great deal of political courage to
challenge powerful elites and vested interest
groups
•In the absence of political will on the part of the
politicians is likely to meet with staunch
resistance, frustration, and internal conflict
Conflict, Post conflict, and Fragile State
•In extreme cases, violent conflict or the
large-scale failure of a state resulted a
disastrous failure of even the most
development objectives
END OF CHAPTER 5
THANK YOU

36
Chapter 6: - Role of the State, Private
Sector and Civil Societies in Dev’t
6.1. Rationale for Government Intervention
6.2. Bureaucracy and Economic Development
6.3. Public Enterprise and Economic Dev’t
6.4. Local Government and Economic Dev’t
6.5. Private Sector and Development
6.6. Civil Societies and Development

37
 6.1. Rationale for Government Intervention
This is the area of study of public sector
economics which deals with the questions
of;
 When should the government intervene in
the economy?
 How might the government intervene?
 What is the effect of those interventions on
economic outcomes? and;
 Why do governments choose to intervene in
the way that they do?
38
 Rational for government interventions
in the economy
Allocation Function-The market is not
functioning efficiently for the supply of public
goods.
It cannot ensure the production of goods, such as
defense, public order and safety, environmental
protection, etc.
The market only operates efficiently for the
provision of private goods.
Consequently, public goods are produced by the
government through the financing of budget or
allocation of resources and they are made available
free of direct charge 39
 Distribution Function
Distribution of income and wealth depends
upon the distribution of factor endowments.
Although people have the right to use the fruits
derived from their endowments, distribution has
to be arranged so as to maximize social
satisfaction.
In order to meet this requirement distribution
should meet certain standard of equity.
Therefore, through its fiscal policy the
government plays a determinant role in bringing
the most preferred distribution of income.
40
 Regulatory Function
Government provides the legal framework and
the service that needed for economy to operate
efficiently.
The legal framework is for market system so as
to ensure the right of private ownership and
allows the enforcement of rule and regulation
to maintain the interest of government,
producer and consume.
Government, therefore, intervenes and regulates
the allocation process of the market by legislating
against monopolies, and fraud, and prevents the
consumer form unhealthy situation. 41
 Stabilization Function
Major macroeconomic problems- business
cycle, inflation, unemployment and trade
deficit.
In order to solve these problems
governments usually design fiscal and
monetary policies.
 Thus, during the periods of economic slugs, the
government may use expansionary fiscal and
monetary policies, which may take the form of
reducing taxes or raising expenditure or easing
credits, in the case of high economic growth,
prudent fiscal policy and tight monetary policy
may be used. 42
Bureaucracy and Economic Development
Four main concepts lie at the core of any
definition of “bureaucracy”:
A well-defined division of administrative labor
among personnel and offices,
 A personnel system with consistent patterns of
recruitment and linear careers,
 A hierarchy among offices, so that the authority
and status be differentially distributed among
personnel
 Formal and informal networks that connect the
organizational personnel to one another through
flows of information and patterns of cooperation.
43
In Niskanen’s view, the bureaucracy results
from the inability of the market to supply
certain goods or services.
It provides a means of compensating for the
deficiencies of the market.
To Mises, bureaucracy appears as the
unavoidable outcome of government
hindrances of the market process.
The main consequence of bureaucracy is the
impossibility of economic calculation.
Bureaucracy means inefficiency in allocating
resources and some hindrances of human
plans. 44
 Characteristics of bureaucracy
Hierarchy: In a bureaucracy, activities
based on specialization are assigned to
specific positions.
Professional Qualities: All officials
possess professional qualities based on
which they are selected for appointment.
Rules and Procedures: In bureaucracy,
decisions are governed by a consistent
system of abstract rules, regulations and
procedures.

45
Specialization: Official tasks are organized
on a continuous regulated basis. These tasks
are subdivided into functionally distinct
spheres, each furnished with the requisite
authority and sanctions.
Organizational Resources: The resources of
the organization are quite distinct from those
of the members who are private individuals.
Officials do not own resources but they are
accountable for the use of official resources.

46
 Control over bureaucracy
The principal forms of control over
bureaucracy can be classified as follows:
 Political accountability-State bureaucracy
can be made accountable to the political
executive, parliament, assembly, the
judiciary or the public.
 Politicization–this is make bureaucracy
committed to the party and ideological lines
of the Government in power to ensures
higher level of loyalty and commitment
towards political executive.
47
Counter-bureaucracies- The final
mechanism of political control is through
a structure designed to support or assist
politicians or to act as a counter weight
to the official bureaucracy.

48
Public Enterprise and Economic
Development
 Public enterprise denotes a form of business
organization owned and managed by the
government/the public
 Used as an instrument of public policy

Challenge of public enterprise

 Combination of financial and economic
objectives with social and political aims
makes it difficult to devise appropriate
performance measurement instrument.
49
 Importance of Public Sector
Enterprises
Balanced regional development;
Price control of essential goods;
 Limit the influence of private monopoly;
Minimize economic inequalities.
Boost the basic industries of an economy;
 Concentrate on public welfare activities

50
Differences between public and private
enterprise
1. Private firms are to maximize profits while that of
public firm are welfare maximization, output
maximization or unemployment minimization.
2. Public enterprises have closer tie to the
government. Key positions in public firms are
often assigned to political allies
3. Public firms may exhibit a strategic advantage
because of cheaper access to finance or implicit
government guarantees.
4. Internal incentives structures of public firms are
often less powerful, resulting in low growth and
efficiency.
51
Reasons for the poor performance of public
enterprises
(1) Lack of Incentives on the Part of Management
Lack of performance bonuses and low salaries
tend to deter skilled managers and increase staff
turnover.
(2) Shortage of Competent Managers: Many senior
posts are left vacant or are filled by unqualified
staff.
(3) Lack of Competition: Many state-owned firms
are monopolies producing goods and services that
are not traded internationally or that the government
prefers to produce domestically for reasons of
national security or public interest.
52
(4) Little Emphasis on Profitability and
Efficiency: The public enterprises are not
instructed to maximize profits and minimize costs
as it can result in political problems.
(5) Conflicting Goals: The state-owned
enterprises are often required to perform
noncommercial roles such as hiring extra staff to
increase employment or setting up a plant in a
particular area to promote regional development
(6) Government Intervention: Too much
interference in state owned enterprises decisions
that should be the prerogative of management, and
yet management fails to coordinate their action.
53
Private Sector and Development
The private sector is an entity whose aim to
make profit.
Roles of private sector in development
It contributes to economic growth
reduces unemployment and increases
employment opportunities;
involves in social development;
supply goods and service based on
consumers demand
54
Privatization and Development
The major methods of privatization are:
The sale of state-owned enterprises to
private investors.
Internal privatization
Share
giving the property rights of a company
back to the original owner

55
 Strengths of the private sector:
Stronger management capability due to its ability
to recruit and compensate qualified managers and
technicians;
Relative freedom to operate outside of political and
bureaucratic constraints and etc
Better company specific labor management;
Potentially greater experience in developing
facilities and providing services attuned to the
competitive world of global trade; and
Access to non-traditional resources for investment
in the infrastructure to serve trade

56
Thus government policy objective to
promote private sector include :
To improve efficiency and productivity of
operations
To reduce the financial and administrative
burden on the public sector
To generate revenue
To promote private sector involvement in
the economy
To attract new or additional business and
trade(FDI)
57
58
59
Obstacles to Privatization
1. Privatization is politically sensitive that
can arouse political opposition from
employees who may lose their jobs,
 politician who fear the short term
unemployment
 bureaucrats who stand to lose patronage
and
 those sections of the public that fear that
national assets are being transferred to a
particular ethnic group or foreigners.
60
2. Governments often sell only their money losers, for
which there are few buyers.
fear of renationalization and extensive government
regulation may force governments to accept a lower
price than the market value.
(3) Absence of a strong capital market.
Domestic investors may not be able to raise enough
capital to buy.
Selling to oligopolists who already dominate the
private sector might reduce competition.
4) Both the employees of the enterprise and some
consumers will be affected.

61
 Requirements for a Successful
Privatization
For a privatization program to be successful,
a number of conditions must be met:
(1) Public Support: The government should
embark on a vigorous debate and educational
program focusing on the credible reasons for
privatization-that is:
 capital needs and efficiency argument
defusing the emotional and political rhetoric
regarding Public ownership by offering
shares widely to the public. 62
(2) Managerial Ability and Support: the
directors of the enterprises should be
effective in selling the investment to
prospective shareholders.
(3) Legislative Actions: enacting specific
legislations to transfer the state entry into
privatization is necessary.
(4) Adequacy of Capital Markets: this
implies access to a capital market of
sufficient depth
63
 Micro and small enterprise
Pro-MSE policies is based on three core
arguments
1, MSE enhance
competition and entrepreneurship
Efficiency and innovation

2, MSE are more productive than large firms,

but financial market and other institutional
failures impede MSE development.
3, MSE expansion boosts employment than
large enterprises as they are are more labor
intensive.
64
 Factors affecting the private sector in general
Macroeconomic stability (inflation, exchange rate),
Tariffs, port facility (time it takes to clear customs),
Infrastructure (availability and efficiency of
services such as power, telephone, roads, waste
disposal),
Corruption,
Skill and education of workers,
Shortage of business support services
the absence of well-developed and regulated capital
markets,
The absence of a culture of innovation as evidenced
by limited investments in research and
65
Private sector development strategy
Private sector development (PSD) is an
important tool for stabilization and
economic recovery.
Most African countries consider the
private sector as a partner in economic
development and have provided a range
of incentives, including tax reductions,
physical infrastructure and other cost-
reduction mechanisms to attract private
investment.
66
The following are the major strategies
for the development of private sector
Creating specific institutions to facilitate
the development of the private sector
Simplifying the tax systems and providing
tax and other incentives for investors.
Improving access to finance and
infrastructure.
Reducing the burden and cost of doing
business.
Providing training and support for
entrepreneurship. 67
Protecting property rights and enforcing
business contracts.
Ensuring competition.
Pursuing an anticorruption strategy.
Treating the private sector as a legitimate
and effective partner in promoting
sustainable growth, development and
poverty eradication

68
 Private Sector Development Policy in
Ethiopia
After military government, the transitional
government of Ethiopia committed itself to
implement the stabilization and structural
adjustment program with the help of the IMF
and the World Bank.
The objective of the program was to remove
price distortions, improve market related
incentives, promote private enterprises and
exports, and liberalize the economy and to
reduce the role of the public sector in the
economy
69
The Three Phases of the Road Map for
Private Sector Development in Ethiopia
Phase One Institution Building & Self
Discovery:
 Revision of the Commercial Code
 Modernization of Company Register
 Institutionalization of Corporate Governance
 Standardization of Accounting and Auditing
 Capital Market development
 Introduction of Competition Policy
 Develop a public – private sector policy dialogue
and policy study platform
 Focus on selected sectors for action (commercial
agriculture, livestock, tourism, and electronics) 70
Phase Two Consolidation and
Transformation
The sectoral diversity and size of the
private sector gets consolidated
The private sector transforms itself in
terms of business conduct
 Growth and expansion in domestic
market and beyond

71
 Phase Three Steady Growth and
Economic leadership
A vibrant sector with full capacity that
competes both in the domestic and foreign
market emerges
 Big companies that subcontract medium
and small companies, and closely work with
multinational companies will emerge
 The firms can conduct their own research
and closely work with academia in the area
of basic research
72
Civil Societies and Development
In addition to state and private sector civil
societies play the major role in economic
development of countries.
“A vibrant civil society can challenge
those in power by documenting corruption
or uncovering activities like the murder of
political enemies. In democracies, this
function is mostly performed by the media,
NGOs or opposition parties. “
Evgeny Morozov
73
NGOs and Economic Development
NGO is a social organization motivated to
work in sectors like religion, socio-
cultural, economic, educational,
environment, women, children, etc,
irrespective of any political and
ideological belief.
They are usually also not-profit and are
very often involved in providing
information about their cause to
government bodies
74
There are many different types of NGO
including development organizations,
religious groups, charities, environmental
agencies (eg Greenpeace) etc.
In different countries various terms are used
for NGOs, such as:
 private voluntary organizations in the United
States,
 civil organizations in Latin America,
 voluntary development organizations in Africa
and
 Peoples' organizations in some parts of Asia.
75
NGOs should have certain fundamental
features which distinguish them from others.
This includes:
 They should be privately set up and
sufficiently autonomous in its activity ,i e.
independent of direct governmental control.
Secondly, an NGO should also be non-profit,
which would clearly define its voluntary
character.
Thirdly, it cannot be considered a political
party with an aim of attaining political power
Fourthly, an NGO should support development
which demonstrates its public interest character
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 In general, the major role of NGOs in
economics development include;
 Social development through various
development project,
 Provide funds for economic development,
 Mobilize society in economic development,
 Provide employment opportunity and Increase
investment in the economy
◦ For instance, NGOs promoted
activities/strategies that are meant to emerge as
alternative or complementary to the prevailing or
established governmental strategies at the
specific time. 77
Limitation of NGOs
The following are the major limitations of
NGOs:
 Fragmentation
Weak management:
Ad hoc focus
Politicization
 Actual nature of operations

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 Measure to improve NGOs
Stating their mission, values and objectives
clearly and ensuring that these strategies are
followed,
Better human resources development and
training for their managers and staff
including board members and volunteers
Better management processes as well as
financial management, accounting, and
budget systems.
 Increase institutional capacity to monitor
and evaluate the performances of NGOs 79
Cooperative and Economic Development
It is a voluntary association of persons who
work together to promote their economic
interest.
It works on the principle of self-help as well
as mutual help.
A cooperative is a people association who,
having common needs, freely decide to
create and manage, based on an equitable
sharing of resources, an enterprise with the
purpose of satisfying those needs.
80
The latest Proclamation on cooperative
societies (1998) in Ethiopia defines a
cooperative as “a society established by
individuals on a voluntary basis to
collectively solve their economic and social
problems and to democratically manage
[the] same”.
The Proclamation provides cooperatives
with the right to engage in productive or
service provision activities that can be
determined by the byelaws of the
cooperative.
81
Cooperative is owned, controlled and
used by its members unlike other forms of
business societies.
In general the following are the major
objectives of cooperative Society:
 render service rather than making
profit; mutual help instead of
competition; and
 self help instead of dependence.

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Types of Co-operative Societies
Consumers’ Co-operative Society
Producers’ Co-operative Society.
Co-operative Marketing Society
Co-operative Credit Society
Co-operative Farming Society
Housing Co-operative Society

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 Cooperative in Ethiopia
The history of cooperatives in Ethiopia
goes back to the imperial regime.
The first proclamation on cooperatives
was issued in 1961,which led to
emergence of many cooperatives from
1974 to 1991. Under this government
cooperatives were organized into:
 service and producer cooperatives with
objectives to promote the use of modern
agriculture technology, contribute to national
development and safeguard socialism.
84
Service cooperatives were responsible for
crop procurement expansion services,
marketing, loan disbursement, sale of
consumer goods and political education.
All were organized on the socialist
principle of collective farming and all
members were required to contribute an
equal amount and have an equal share

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In 1998, the new proclamation approved by the
current government.
According to the proclamation there are three
level of cooperative:
 Primary cooperative,
 Cooperative union and
 Cooperative federation.
The new proclamation on cooperative and
government support for cooperative
facilitate the fast growth of cooperative in
the country. As a result the number
increased from 7 thousand in 1991 to
around 19 thousand in 2007. 86
 END OF CHAPTER 5

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