Zeryihun Kassa
The World Bank Report
illuminates the outstanding performance of Ethiopian economy over the last nine
years since 2004. It shows Ethiopia has a lion economy in Africa propelling at
a pace the East Asian tigers have done.
Nine
Years of Epic Economic Feat
The World Bank Report
says “Ethiopia has experienced strong and generally broad-based real economic
growth of around 10.6% on average since 2004 - 2011.”
Thursday (13 October
2012) saw the launching of the World Bank Report on Ethiopia’s Economy at the
Sheraton Addis.
Most often some try and
contest Ethiopia’s annual growth report assuming the government may cook data
to portray exaggerated picture of the reality. Yet, no credible international
institution has denied the fast powering economy of the country.
Here is another
testimony by the World Bank that illuminates the strong showing of the state of
the economy for a little less than a decade: “The growth over the last nine
years,” the report read, “was far beyond the growth rates recorded in aggregate
terms for Sub-Saharan Africa, which is 5.2% - less than half of Ethiopia’s
average real GDP growth rate during that period.” It seems currently Ethiopia
is the increasingly growing, non-oil tiger economy in Africa.
The report indicates
Ethiopia’s growth appears to have been inspired by the East Asian experiences
namely those of countries like China, Korea and Taiwan. It is reported to have
been induced by a mix of factors: agricultural modernization, the development
of the export sectors, strong global commodity demand, and government-led
development investments, among others.
Growth is estimated to
likely stay around that remarkable margin up until 2016.
Poverty
Reduced by 9.1%
The growth over the 5
years spanning from 2004/5 to 2009/10 has lifted around 2.5 million citizens
out of poverty, thereby bringing down people under the poverty line from 38.7%
to 29.6%, which is a 9.1% decrease.
The report further
estimates, given inflation kept tamed, Ethiopia is highly likely to make its
target of the Growth and Transformation Plan (GTP) reducing the poverty by
another 7.4%.
The national poverty
line here is less than US$0.6 per day. The report suggests it is so important
for Ethiopia to take the inflation down to maintain the hard-won reduction in
poverty.
Export
on the Rise
The World Bank Report
appreciates the country’s strategy of increasing exports to facilitate growth
as it is the development pattern of recently successful countries particularly
in East Asia. Ethiopia’s export products showed growth of 14.8% in 2011/12.
Boosting the export
sector is appropriate, the report noted, given the current limited size of the
country’s domestic market. Considering
the composition of the export by commodity, still coffee continues to be the
largest export while Gold closely follows behind. Despite recent decline in
volume of coffee export, trends suggest it will rebound. Ethiopia is also
diversifying its export with rising sale of oil seeds, flowers, live animals,
fruits and vegetables.
The growth in export of
goods, the report says, is to a good extent driven by volume growth across a
variety of product groups which is a result of recent efforts to increase and
diversify the export base.
However, the increase
in annual import goods by 33.5% in 2011/12 alone indicates the overall import/export
development resulted in a significantly bigger trade deficit, which stood at
7.9 billion US Dollars in 2010/11.
Inflation
Still a Threat
Though headline inflation
rate in October 2012 was 15.8%, it was over 33% in 2011. Currently inflation is
declining slowly.
The reduction in
inflation, according to the World Bank Report, is down to the tightening fiscal
stance and monetary base growth induced by the government of Ethiopia.
The hope is, in spite
of its persistence, inflation will remain in a descending trend.
Ethiopia’s
Economic Growth vis-à-vis China, South Korea
The World Bank Report
shows interesting comparisons of Ethiopian development experience to China and
Korea which depicts Ethiopia is well on track. Yet, the country has to
significantly boost its domestic savings and exports performance while keeping
inflation down to single digit.
Although there are few peculiarities
between them, by and large, Ethiopian economy is following the two fast
tracking economies-the Republic of China and South Korea.
Based on policies
observed in China in the 1990s, the comparison depicts, there are a series of
“quick-wins” that could be used to increase the potential for FDI inflows into
Ethiopia.
According to the
Report, Ethiopia’s fiscal performance appears to be adequate given the current
state of the economy and financing requirements for development.
Opportunities
for more growth
The current state of
the economy is a plus for investment in Ethiopia. Besides the strong political stability
and investment incentives are luring. Yet still there are rooms for improvement
to become a major destination of global investment.
The cheap abundant
labour, the size of the population and cheap electric power are some of the
appeals to FDI and massive local investment, given the government sorts out
some logistic doldrums that somehow hampers the progress.
The impressive annual
economic growth that endures for nearly a decade is another incentive to bring
in much-needed FDI in a way it further fuels the already fast-paced economic
development.
No doubt, I assume, if
the country sustains this growth momentum for a couple of decades, Ethiopia
will become a shining gem in the horn of Africa.
Challenges
of the Economy
Among the challenges
the World Bank Report surfaced, one is the poor saving rate of the country.
The Report says “Even
though Ethiopia achieved high income growth it is striking that the country has
not reached the subsistence level beyond which people start to save in earnest.”
Therefore, it is essential to considerably increase the domestic saving.
The other challenge is
the logistics problems that most often complicate things for investors. Indeed,
the World Bank Report and investors attending the launching of the report
admired the incentives Ethiopia has offered. Yet they see a number of gaps
specially related with customs regulations and other logistic matters.
One such example is the
cost of shipping from china to Djibouti and the cost of shipping from Djibouti
to Addis Ababa is the same which is odd given the big disparity in distance.
Participating investors asked the government to fill in the gaps so that the
investment climate for both domestic and foreign companies will be much
smoother.
