Ethiopia rising: A bright spot in sub-Saharan Africa

Ethiopia rising: A bright spot in sub-Saharan Africa
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Ethiopia’s economic growth is likely to continue on a positive trajectory. Significant foreign investment is flooding into the country, yet political dynamics pose reputational risks for investors.

Ethiopian Prime Minister Hailemariam Desalegn was re-elected at the beginning of October, continuing his leadership from 2012. In May of this year, the ruling party, The Ethiopian People’s Revolutionary Democratic Front (EPRDF), won a landslide victory in the elections, claiming every parliamentary seat and consolidating their grip on power.

At the top of the PM’s priority list is the implementation of the five-year Growth and Transformation Plan II (GTP II). The ultimate aim of the plan is to catapult Ethiopia into middle-income status by 2025 through transforming it into an industrialised economy, offering a fully integrated supply chain.

Ethiopian economy

On 27 October 2015, the IMF reported that, in spite of sub-Saharan Africa’s relatively miserable economic forecast of 3.75% growth this year, Ethiopia’s is expected to rise by 7% or more.

In order to drive growth, Desalegn is much keener than his predecessor to encourage trade liberalisation. He plans to liberalise 80% of the country’s trade in order to stimulate growth. However, a tension exists as no country has been able to simultaneously liberalise and industrialise without imposing substantial tariffs on foreign trade in order to regulate external competition.

Regardless, the extent of foreign commercial interests in the country is significant and welcomed by the government. In October alone, investor interest was impressive. For example, between 20-21 October 2015, ten Chinese pharmaceutical companies travelled to the county to explore possible joint ventures with Ethiopian companies. Secondly, on the 22nd, PM Desalegn urged Saudi investors, in bi-lateral talks, to explore opportunities in the agricultural sector. Finally, on 30th October, Standard Bank announced the opening of a representative office in the country.

A relative lack of corruption, cheap labour costs, fiscal incentives and a relative lack of security risks render Ethiopia an attractive market. In agriculture, infrastructure, manufacturing and energy sectors, Ethiopia draws substantial international investment particularly from China and the West.

China

In Ethiopian infrastructure development, Chinese investors have a significant presence. The Addis Ababa Light Railway project, operational since November and costing $475 million, was funded by China. China has also played a key role in financing the Addis-Djibouti railway which will increase trade between the two countries.

At the macro level, Sino-Ethiopian trade is impressive. In 2014, Chinese exports to Ethiopia stood at $4.5 billion, whist Ethiopia’s exports to China stood at $456 million. Yet, as China’s economy begins to stagnate, it will be in Ethiopia’s interest to further diversify its economic ties.

Go west

Ethiopia is already an attractive market for Western countries. For example, from 2010 to 2014, UK exports to the country increased by 37%.

In particular, the apparel industry is pivoting away from Asian markets due to increased labour costs, and are now looking toward Ethiopia. The country provides competitively cheap labour and has attracted major Western brands.

Ethiopia aims to offer a “dirt-to-shirt” service for the sector, seeking to act as a one-stop-shop in order to harness sustainable economic growth. The government has encouraged this trend with fiscal incentives such as export credits, duty-free imports and tax holidays.

In turn, the apparel industry is expected to account for $1 billion worth of exports by the end of 2016. This is in line with the government’s aim to increase manufacturing’s proportion of contribution to the GDP as part of the GTP II.

Human rights and reputation

Political stability is strong and Ethiopia is seen as an ‘Island of Stability’ in an otherwise volatile region. The EPRDF’s meritocratic system, lack of tolerance for opposition and strategic positioning in the war on terror has allowed the party to maintain a strong grip over the country.

Ethiopia farmer

A farmer keeps watch from a treetop south of Arba Minch, Ethiopia (David Stanley)

Although this has enabled accelerated economic growth and development, a variety of sensitive social and political issues have arisen in tandem. The government’s management of such grievances will be definitive in the future risk profile of the country for multinationals.

Issues such as alleged land grabbing and communal violence abound. Unfortunately, these issues are heavily associated with foreign investor activity and pose significant reputational risks for foreign investors.

Tens of thousands of people are thought to have been displaced across the country as land is leased out to foreign investors for cotton production. For example, the villagisation programme, operational since 2010, has seen many forcibly evicted from their land. This land, in a number of cases previously used for millet and sorghum production, is now resulting in food shortages.

Related to this problem, the influx of migrant workers into areas where communities have been torn apart by land grabs is contributing to incidents of intercommunal clashes. This is a notable problem in regions such as Gambella and Benishangul-Gumuz. In turn, this could negatively affect the commercial viability of operations.

Mitigation necessities

As Ethiopia industrialises, human rights could become an increasingly serious problem. Issues including land grabbing and intercommunal violence mean that foreign investors will need to undertake enhanced due diligence on commercial partners to mitigate reputational problems associated with their activities.

Given the highly sensitive nature of these issues and scrutiny from international NGOs, it will be necessary for companies to manage relationships with stakeholders at all levels and maintain open dialogue.

Engaging with local communities and ensuring that operations will benefit communities whilst compensating losses will also be instrumental in preventing potential security problems as tensions rise between local communities and migrant workers.

About Author

Elliot Kratt

Elliot is a Freelance Analyst with The Economist Intelligence Unit. Prior to this, he held positions in a number of risk consultancies and has worked in East and West Africa. He has been quoted by journalists with the Financial Times and Wall Street Journal. Elliot holds a first class BA (Hons) in International Relations from the University of Leeds. All views expressed are his own.


  • ተስፋዬ

    Elliot Kratt, What you wrote is crap. PM Hailemariam was hand-picked following Meles Zenawi’s death because Meles’ party could not agree on who should succeed him. It appears you are not aware of this. In election 2015 the ruling party won by 100% [not making it up]. Election 2010 was won by 99.6% [I am quoting government report]. May be you were away on a long journey.

    The news these few days is that 15 million are starving and need emergency food aid. Talk of “Ethiopia rising” is a cruel comment to make when there is so much suffering in the country.
    Ethiopian rulers say they are worried about “refugee crisis” when 15 million of their own population is starving? They have been telling the world of “fastest economy” and “peace and stability” and now using “refugees” to deflect from prying eyes. Or excusing it on El Nino. Know what? The root problem is the fact that land is owned by the state. Did you hear that? Yes, all land belongs to the state. The small farmer has no ownership of the land; just a tenant prone to evictions and to no access to credit or fertilizer IF he did not vote for the ruling party.

    That simple. The US and UK know this is the case but are willing to go along because Ethiopian rulers deliver soldiers to fight/monitor in South Sudan and in Somalia and have allowed a US Drone base in southeast Ethiopia. It is politics. Does the taxpayer know all this? NO. Will NGOs talk about this? No, because then they can not raise funds!

    How about explaining why Arab agribusinesses are allowed to evict farmers, deforest the land and produce grain for consumption in their own countries when Ethiopians are relegated to eternal beggary?

    • Elliot

      Thanks I am well aware of these issues, many of which I have alluded to above. I agree the stories these few days concerning starvation are particularly heart-breaking. This was written last week and aims to provide an insight, it doesn’t have a politically motivated or humanitarian focus. For this, you will be able to find other resources which do not have a commercial focus.

      • Abe

        Thanks Elliot! i agree with you.

      • Abiy

        I believe your assessment is genuine. Even though the concerns of relocation is a little hyped than its actual risks. If the government ensures communities benefit together with the development, which it is being stated over and over again, I am sure the benefit is way huge than its risks. I believe at the end this, people will enjoy the industrialization program and everyone goes happy. I don’t think the government is that much immature and without preparation not to handle such disputes by ensuring the people there their development with minimum cost of diligence at higher level management. And such types of skepticism is not new for Ethiopian. To give one recent example, no one has believed when the government announced the 6000 Mega watt Great Ethiopian Renaissance Dam(GERD) project on the blue nile. Oppositions like the first commenter here, the entire world and even the population did not take it seriously. everyone was expecting war with Egypt even though happy to pay whatever sacrifice if it comes to that. But right now thank God, it has reached its over 50% construction stage and its way far from what people were thinking about it at the beginning. Hence, like the former prime minister Meles put it very clearly, its not wise to leave those people in Gambela and Benishangul be as they are, undeveloped, with no technology, no progress whatsoever,and keeping them living naked and backward so that some big mouth westerners could make them tourist destinations to spend their vacation. I m sure even everyone used to live naked and backward some centuries back. And how can we judge this people do not have the right to join the 21 century development era by following the rest of the worlds way. That’s the ugly face of politics and trust me, Ethiopia is not in the position of falling for such craps at this time. Every one will see the regions of Gambela, Benishangul and their people growing at high rate in few years time and all this skepticism will be history. As for the first commentor here, I feel so sad for him. He is so blind that he can not appreciate any thing good happening in Ethiopia now or in the future. I am so ashamed of such people calling them selves Ethiopian and create such hypocritical lies over lies just to gain some cheap popularity or I don’t know what.

        • ተስፋዬ

          Abiy, I thought you have moved on from your post in the Consulate. I see you are trying to play down the enormity of the present situation. It is not that I do not appreciate attempts that are being made. All I am saying is that this is no time to lecture us on a future industralization when all things are going to work out and rehashing Meles’s speeches. You seem clueless as to how people feel when they are hungry and about to die. What a cold-hearted response. Probably you need to explain why tens of thousands are leaving for Europe, the Middle East and African countries in the midst of a booming economy. Why are Ethiopian rulers suddenly so concerned about Sudanese refugees when 15 million of their own citizens are on the verge of dying? Emperor Haileselassie and Derg both were in denial and refusing the world to know about the 1978 and 1984 famine. Guess what? That led to the end of their rule. Ethiopian government report on worsening corruption and no legal action thus far is a commentary on the state we are in. The independence of the court system is so compromised that ruling party officials are getting promotions when they should be thrown in jail. Every objection, every denial you make is a threat to the lives of those in danger.

          • Abiy

            Look man, if you are really a concerned citizen, let me give you a proof to the real context of the situation in Ethiopia…just read this UN press release from two days ago and stop this blackmailing…

            http://reliefweb.int/report/ethiopia/ethiopia-government-and-humanitarian-partners-responding-el-ni-o-driven-drought

            Here is from what it says.
            “The leadership and commitment of the government in driving this response has been exceptional” said Mr. Paul Handley, UNOCHA’s Head of Office.

            This is what the UN is saying about the Ethiopian governments effort to respond to the affected 8.2 million people, EXCEPTIONAL…

            The government may have its own weak sides which you can comment on, which it has, so why blame something it is doing good? You think you are helping the Ethiopian people by such immoral behavior? Why does every thing has to be politics for you guys? This is on millions of affected people you are daring to open your mouth over. How dare you?

            By the way, the 15 mil you are talking about is a prediction yet to reach in coming months if something is not to be done on time. Right now it is 8.2 million. its still too much, why lies? is it not enough for you?

            Let me add one thing from the press release here…

            “One thing is certain” according to Mr.Samir Wanmali, Acting Country Director for the UN’s World Food Programme, “Ethiopia today is far different from the Ethiopia of the past. Ethiopia has a robust disaster risk management system in place to respond to the needs of its people. With the Government’s leadership and support from the international community, we will mitigate the worst of El Nino’s effect. We need to ensure that this natural disaster does not affect the remarkable progress that Ethiopia has made over the past decade.”

            So check your sources before you say anything man. If you want to do something good for your country you have uncountable options. Not by blackmailing everything good happening to it.

            And what is the wrong side of worrying for Sudanese refugees when such threat is imminent while they are under your protection in your country? Please open your eyes.

          • Abiy

            Or are you that deluded to question United Nation’s credibility and expect us to believe your crap imaginations ?

          • Abiy

            I see more of your issue is about the rulling party, their officials, when will it end, bla bla… Not of the Ethiopian people. This guy has wrote what he has actually observed. Why would you have a problem with that? You seem to me like those who are salivating about grabbing a chair in Ethiopia’s politics to satisfy their ill desires. Wherever I see some thing is posted about Ethiopia, you guys are there speaking nonsense and lies. Believe me you will only lie and bark your entire life like a dog. May God protect my Ethiopia from evil thinkers like you.

      • Abiy

        The gay who commented first here, is copying and pasting his ill thoughts of the same propoganda wherever an article on Ethiopia is posted. He is not even changing any word or so. So I suggest everyone knows his bad motive behind and give no attention.

        For Eg. Check out the same comment on
        http://home.bt.com/news/world-news/ethiopia-warns-of-major-crisis-over-refugees-food-aid-11364015677948

    • Abiy

      Look man, if you are really a concerned citizen, let me give you a proof to the real context of the situation in Ethiopia…just read this UN press release of two days ago and stop this blackmailing…

      http://reliefweb.int/report/ethiopia/ethiopia-government-and-humanitarian-partners-responding-el-ni-o-driven-drought

      Here is from what it says.
      “The leadership and commitment of the government in driving this response has been exceptional” said Mr. Paul Handley, UNOCHA’s Head of Office.

      This is what the UN is saying about the Ethiopian governments effort to respond to the 8.2 million people, EXCEPTIONAL…

      The government may have its own weak sides which you can comment on, which it has, so why blame something that it is doing good. You think you are helping the Ethiopian people by such immoral behavior. Why does every thing has to be politics for you guys. This is about millions of people you are daring to open your mouth over. How dare you?

      By the way, the 15 mil you are talking about is a prediction yet to reach in coming months if something is not done on time. Right now it is 8.2 million. its still too much, why lies? is it not enough for you?

      Let me add one thing from the press release here…

      “One thing is certain” according to Mr.Samir Wanmali, Acting Country Director for the
      UN’s World Food Programme, “Ethiopia today is far different from the Ethiopia of the
      past. Ethiopia has a robust disaster risk management system in place to respond to the
      needs of its people. With the Government’s leadership and support from the international
      community, we will mitigate the worst of El Nino’s effect. We need to ensure that this
      natural disaster does not affect the remarkable progress that Ethiopia has made over the
      past decade.”

      So check your sources before you say anything man. If you want to do something good for your country you have uncountable ways of options. Not by blackmailing everything good happening.

      And what is the wrong side of worrying for Sudanese refugees when such threats are imminent while they are under your protection in your country? Please open your eyes.

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  • Russom Bahrinegash

    Mr.Kraft I do not understand why you have apparently included Eritrea as part of Ethiopai in your map. Is done on purpose of out of ignorance? In either case , you really are a barf-out. And in either case, please go back to school and pick up the elementary skills of professional report writing. You do not seem to have the required intellectual grounding for the job. None the less I ask you to issue an apology for your trangression. As for the validity of your banal report, I can only say , it is an insult to the millions starving Ethiopians.For some unscrupulous reporters 7% gdp annual growth , 15 million starving massess and 100% electoral victory is a tantalising cocktail of good governance. What a disgrace!

    • Elliot

      What map.

    • Abiy

      Your name implies you are Eritrean. So as your comments.

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