Under the Radar: Ethiopia’s economic growth offers opportunities and challenges

Under the Radar: Ethiopia’s economic growth offers opportunities and challenges

Not many may know that Ethiopia was among the first countries to join the International Monetary Fund (IMF) when the latter was formed on 27 December 1945.  Nevertheless, it took another 72 years for Ethiopia to welcome its first visit from the IMF Managing Director, in this case, Christine Lagarde who in December 2017 visited Addis Ababa, Ethiopia and met with Prime Minister Hailemariam Desalegn. This followed the IMF’s  assertion that in 2017 Ethiopia’s economy surpassed Kenya’s to become East Africa’s largest economy. Lagarde’s visit served as the latest stamp of approval for Ethiopia’s bold plan to reach lower-middle income status by 2025.

Ethiopia’s growing economy

It was Ethiopia’s late President Meles Zenawi who crafted Ethiopia’s ambitious goal of becoming a lower middle-income country by 2025. Following victory in 1991, the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) set in motion far-reaching economic reforms aiming to transform this poverty-stricken nation into a “developmental state” while maintaining an iron grip on power. Although achieving lower middle-income status by 2025 is ambitious, Ethiopia is making strides in combating poverty and improving economic conditions with the poverty rate falling from 44% in 2000 to 23.5% in 2015-16 (IMF, 2017).

Ethiopia’s government has made great strides in raising Human Development indicators, increasing female labour force participation as well as pursuing pro-poor growth policies. In the last decade Ethiopia has consistently registered double-digit GDP growth buoyed by state-led investments in infrastructure and manufacturing. According to the IMF Ethiopia’s economy will expand by 8.5% in 2017/18.

This growth will be supported by infrastructure spending and Ethiopia’s attempts to become a regional manufacturing base, in contrast to resource dependent economies in Africa such as Nigeria. The 2014 fall in commodity prices has had a negligible impact on Ethiopia’s growth trajectory and for this reason Ethiopia is becoming the new standard for a working, non-resource rich, African economy.  

Ethiopia’s investment in infrastructure and manufacturing

Ethiopia is driving economic growth through the government’s laser-like focus on sectors such as manufacturing, energy and infrastructure. A notable example can be found in the Grand Ethiopian Renaissance Dam (GERD) where Ethiopia plans to leverage the Blue Nile to become Africa’s largest exporter of electricity. Although the GERD will boost the economy and meet Ethiopia and its neighbour’s energy needs the plan is facing severe pushback from Egypt which is traditionally the kingmaker when it comes to the River Nile. How Ethiopia negotiates this risk will be a key indicator of whether it achieves its goal of becoming a regional power supplier to neighbouring countries vis-à-vis Tanzania, Uganda and Sudan.

In terms of infrastructural investments, Ethiopia is fast becoming a destination of choice for Chinese investors. 2018 was ushered in with the opening of the Addis Ababa–Djibouti Railway which cost $4 billion and was funded by Chinese state-owned rail and construction firms as part of China’s transformative One Belt One Road Initiative. The Addis Ababa-Djibouti Railway connects the landlocked Ethiopia to Djibouti’s port which is significant as Djibouti handles 95% of Ethiopia’s cargo. With a growing population of 105 million Ethiopia is waking up to the perils of its landlocked status and dependence on Djibouti’s ports as proven by its recently acquired stake in Somaliland’s Berbera port. The ways in which Ethiopia capitalises on its economic linkages with neighbouring states will be key to it reaching lower-middle income status by 2025.

In addition to state-led Chinese investment, private Chinese companies have also invested in Ethiopia, creating over 28,000 jobs, mainly in the manufacturing sector. It was during the 21-year reign of autocrat Meles Zenawi that Ethiopia put in motion its industrial strategy that prioritises labour intensive sectors such as manufacturing as a means to create employment opportunities for its large and mostly poor population. Ethiopia has seen some success in manufacturing due to the creation of various industrial parks and the reduction of bureaucratic red tape for businesses through the introduction of “one-stop shop” type regulatory services from the government.

Outlook

Ethiopia’s new-found economic confidence is embodied by its state-owned, national carrier Ethiopia Airlines which has grown to become one of the world’s fastest growing airlines. Ethiopia Airlines recently overtook South Africa Airways to become Africa’s largest carrier in terms of revenue and profit. Ethiopia Airlines has succeeded through its policy of establishing multiple global hubs and expanding to more than 120 destinations with regular flights to key cities such as Rio De Janeiro, London, Shanghai, Beijing and Washington DC among others.

However, Ethiopia’s most consistent economic risk factor is its historically weak private sector. Ethiopia’s policy of “state-led capitalism” has prevented the emergence of a strong private sector, especially when compared to regional peers such as Kenya where the dynamic private sector is driving growth. To put this into perspective, Ethiopia’s 105 million citizens are served by the state-owned Ethio Telecom which has a monopoly on all telecommunication and mobile services. The Ethiopian government is waking up to the need for competition in key sectors as highlighted in the second Growth and Transformation Plan (GTP II) which aims to strengthen private sector development and increase FDI.

Despite this, the state has no shown no appetite for privatisation in key sectors such as telecoms and banking where it considers state-owned monopolies and enterprises as cash cows. Going forward, Ethiopia’s ability to reach lower-middle income status by 2025 will be characterised by its ability to reduce the power of large, state-owned enterprises (SOE’s). Other policies for the state to pursue include implementing Public-Private Partnerships (PPP’s) and economic reforms aimed at driving efficiency and stimulating competition in the economy.

Although Ethiopia has made great strides in terms of development, it is in the political sphere that Ethiopia faces the greatest risks in the medium and long term. Although Ethiopia’s “Ethnic Federalism” governance model afforded it stability during the reign of strongman Meles Zenawi, recent cracks have emerged under Prime Minister Hailemariam Desalegn. Examples include the ongoing protests of Oromo activists opposed to the government’s forceful seizure of their ancestral lands around Addis Ababa in the name of FDI. As such, Ethiopia’s ability to maintain consistent economic growth will be tied to its ability to integrate marginalised communities who need to be persuaded that they too have a stake in Ethiopia’s bold, new future.

 

Categories: Economics, Under The Radar

About Author

Bashir Ali

Bashir Ali is an Analyst in emerging markets and freelance writer. He has a MSc in Public Policy & Administration from the London School of Economics & Political Science (LSE) and a BSc in Economics from the School of Oriental & African Studies (SOAS). Bashir writes on economic, political and business trends in Sub Saharan Africa with a specific focus on markets in East Africa such as Kenya, Ethiopia, Somalia/Somaliland, Tanzania and Rwanda.


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  • Sarkis Dejene

    The World Bank announced an international poverty line of $1.90 per day in 2015 and the 2016 GDP per capita in Ethiopia was $707. This means the GDP per capita is roughly $1.93 per day, which is almost equal to the World Bank’s international poverty line. This is in contrast with the IMF’s poverty rate of 23.5% in 2015-2016 mentioned in this article. Furthermore, this is not considering the fact that $1.90 per day is not enough for basic human survival and purchasing power continues to decline in Ethiopia.

    According to The Guardian, “How much is $1.90 per day, adjusted for purchasing power? Technically, it represents the international equivalent of what $1.90 could buy in the United States in 2011. But we know that this amount of money is inadequate to achieve even the most basic nutrition. The US Department of Agriculture calculates that in 2011 the very minimum necessary to buy sufficient food was $5.04 per day. And that’s not taking account of other requirements for survival, such as shelter and clothing.”

  • Alem

    Thanks Bashir.
    Let me point out few items that could have greatly improved your article.
    1/ IMF Africa Region director, Abebe Aemro Selassie, was adviser to Meles Zenawi (Tigray Front) and was instrumental in arranging IMF’s “first visit.” Tigrayan “experts” are carefully planted in international organizations to legitimize “autocracy” and “ethnic federalism.” Expats simply don’t have the cultural lens to pick out the fact that an ethnic group has disguised itself in the name of “Ethiopia.” Dr. Mulu Ketsela (economic adviser to Meles and Tigrayan) is at WB/African Dev Bank, Tewodros Adhanom is at WHO, and so on.
    2/ Remember data you report are all provided by Ethiopian rulers. And by “experts” carefully planted in those organizations to recommend them. If you check poverty reduction reports over the last 25 years you would easily see the deception (as in comparing stats with the period before 1991 and then snatching a figure out of thin air as a starting point).
    3/ You have rightly used the term “autocrat” “strongman”, etc in relation the ruling party. But it sounded like you are ok with it as long as “consistent economic growth is maintained.” You also did not distinguish between Tplf (Meles’ party) and Eprdf (three ethnic parties put together in 1991 by Tplf with members of Tplf as leaders; Bereket (a Tplf) for Amhara, Abate Kisho (a Tplf for Southern state); Workineh (another Tplf for Ormo), etc. Further, all 4 ethnic parties have 9 members (making 36) in the executive committee irrespective of the fact that Tigray Front represented a little over 5% of population and Oromo and Amhara together 62%.
    4/ You write Ethiopia has eclipsed Kenya as the regional powerhouse without discussing population size and Kenya’s thriving private sector and civil society organizations (both of which were replaced by “developmental state” in Ethiopia). Following the 2005 election victory by the hastily organized opposition all CSOs were de-registered by Meles. Ethiopia is a one-party state with Internet blackouts and prisons and prison population growing beyond public knowledge.
    5/ You mentioned about increased female labor force participation. This is only partly true. Consider the over 2 million in virtually indentured servitude in the Middle East earning $200 per month for 16-20 hr per day work for a base wage of $800. And the tens of thousands fleeing the country in search of opportunities. And the irony of European Union paying Ethiopian rulers millions of euro to set up camps and rehabilitate migrants from crossing over to Europe. How dumb can one get?
    6/ Ethiopian muslims and/or any who criticize the ruling party are branded “terrorists.” The US and UK continue to write fat checks. When you get time see if the nearly $40 billions in aid in 25 years has really improved the living conditions of the majority. See if the ruling party will let the likes of you to come into the country and check the evidence.

  • Alem

    Thanks Bashir.
    Let me point out few items that could have greatly improved your article.
    1/ IMF Africa Region director, Abebe Aemro Selassie, was adviser to Meles
    Zenawi (Tigray Front) and was instrumental in arranging IMF’s “first
    visit.” Tigrayan “experts” are carefully planted in
    international organizations to legitimize “autocracy” and
    “ethnic federalism.” Expats simply don’t have the cultural lens to
    pick out the fact that an ethnic group has disguised itself in the name of
    “Ethiopia.” Dr. Mulu Ketsela (economic adviser to Meles and Tigrayan)
    is at WB/African Dev Bank, Tewodros Adhanom is at WHO, and so on.
    2/ Remember data you report are all provided by Ethiopian rulers. And by
    “experts” carefully planted in those organizations to recommend them.
    If you check poverty reduction reports over the last 25 years you would easily
    see the deception (as in comparing stats with the period before 1991 and then
    snatching a figure out of thin air as a starting point).
    3/ You have rightly used the term “autocrat” “strongman”,
    etc in relation the ruling party. But it sounded like you are ok with it as
    long as “consistent economic growth is maintained.” You also did not
    distinguish between Tplf (Meles’ party) and Eprdf (three ethnic parties put
    together in 1991 by Tplf with members of Tplf as leaders; Bereket (a Tplf) for
    Amhara, Abate Kisho (a Tplf for Southern state); Workineh (another Tplf for
    Ormo), etc. Further, all 4 ethnic parties have 9 members (making 36) in the
    executive committee irrespective of the fact that Tigray Front represented a
    little over 5% of population and Oromo and Amhara together 62%.
    4/ You write Ethiopia has eclipsed Kenya as the regional powerhouse without
    discussing population size and Kenya’s thriving private sector and civil society
    organizations (both of which were replaced by “developmental state”
    in Ethiopia). Following the 2005 election victory by the hastily organized
    opposition all CSOs were de-registered by Meles. Ethiopia is a one-party state
    with Internet blackouts and prisons and prison population growing beyond public
    knowledge.
    5/ You mentioned about increased female labor force participation. This is only
    partly true. Consider the over 2 million in virtually indentured servitude in
    the Middle East earning $200 per month for 16-20 hr per day work for a base
    wage of $800. And the tens of thousands fleeing the country in search of
    opportunities. And the irony of European Union paying Ethiopian rulers millions
    of euro to set up camps and rehabilitate migrants from crossing over to Europe.
    How dumb can one get?
    6/ Ethiopian muslims and/or any who criticize the ruling party are branded
    “terrorists.” The US and UK continue to write fat checks. When you
    get time see if the nearly $40 billions in aid in 25 years has really improved
    the living conditions of the majority. See if the ruling party will let the
    likes of you to come into the country and check the evidence.

    cc: psb

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  • Alem

    Bashir. I see you have twice removed my comments. You could respond to it but to NOT publish it smacks of the censorship we are fighting as well as goes against LSE and SOAS principles of free flow of ideas you might have picked up.

    Let me point out few items that could have greatly improved your article.
    1/ IMF Africa Region director, Abebe Aemro Selassie, was adviser to Meles
    Zenawi (Tigray Front) and was instrumental in arranging IMF’s “first
    visit.” Tigrayan “experts” are carefully planted in
    international organizations to legitimize “autocracy” and
    “ethnic federalism.” Expats simply don’t have the cultural lens to
    pick out the fact that an ethnic group has disguised itself in the name of
    “Ethiopia.” You find such “experts” in the Africa Union, Africa
    Development Bank, WHO, and so on. I mention this not as a personal opinion

    but as the stated public policy of Tigray Front-led government.
    2/ Remember data you report were all provided by Ethiopian rulers and
    recommended “experts” carefully planted in those organizations. If
    you check poverty reduction reports over the last 25 years you would easily see
    the deception (as in comparing stats with the period before 1991 and then
    snatching a figure out of thin air as a starting point).
    3/ You have rightly used the term “autocrat” “strongman”,
    etc in relation the ruling party. But it sounded like you are ok with it as
    long as “consistent economic growth is maintained.” You also did not
    distinguish between Tplf (Meles’ party) and Eprdf (three ethnic parties put
    together in 1991 by Tplf with members of Tplf as leaders; Bereket (a Tplf) for
    Amhara, Abate Kisho (a Tplf for Southern state); Workineh (another Tplf for
    Ormo), etc. Further, all 4 ethnic parties have 9 members (making 36) in the
    executive committee irrespective of the fact that Tigray Front represented a
    little over 5% of population and Oromo and Amhara together 62%.
    4/ You write Ethiopia has eclipsed Kenya as the regional powerhouse without
    discussing population size and Kenya’s thriving private sector and civil society
    organizations (both of which were replaced by “developmental state”
    in Ethiopia). Following the 2005 election victory by the hastily organized
    opposition all CSOs were de-registered by Meles. Ethiopia is a one-party state
    with Internet blackouts and prisons and prison population growing beyond public
    knowledge.
    5/ You mentioned about increased female labor force participation. This is only
    partly true. Consider the over 2 million in virtually indentured servitude in
    the Middle East earning $200 per month for 16-20 hr per day work for a base
    wage of $800. And the tens of thousands fleeing the country in search of
    opportunities. And the irony of European Union paying Ethiopian rulers millions
    of euro to set up camps and rehabilitate migrants from crossing over to Europe.
    How dumb can one get?
    6/ Ethiopian muslims and/or any who criticize the ruling party are branded
    “terrorists.” The US and UK continue to write fat checks. When you
    get time see if the nearly $40 billions in aid in 25 years has really improved
    the living conditions of the majority. See if the ruling party will let the
    likes of you to come into the country and check the evidence.

    • Global Risk Insights

      Many thanks for your constructive and detailed comments – they have not been deleted, it’s not clear why they haven’t shown up. – Eds.

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  • Alisa Lockwood

    Comment originally posted by user “Alem” but unable to be published due to unknown technical issues – Eds.

    Let me point out few items that could have greatly improved your article.
    1/ IMF Africa Region director, Abebe Aemro Selassie, was adviser to Meles
    Zenawi (Tigray Front) and was instrumental in arranging IMF’s “first
    visit.” Tigrayan “experts” are carefully planted in
    international organizations to legitimize “autocracy” and
    “ethnic federalism.” Expats simply don’t have the cultural lens to
    pick out the fact that an ethnic group has disguised itself in the name of
    “Ethiopia.” You find such “experts” in the Africa Union, Africa
    Development Bank, WHO, and so on. I mention this not as a personal opinion

    but as the stated public policy of Tigray Front-led government.
    2/ Remember data you report were all provided by Ethiopian rulers and
    recommended “experts” carefully planted in those organizations. If
    you check poverty reduction reports over the last 25 years you would easily see
    the deception (as in comparing stats with the period before 1991 and then
    snatching a figure out of thin air as a starting point).
    3/ You have rightly used the term “autocrat” “strongman”,
    etc in relation the ruling party. But it sounded like you are ok with it as
    long as “consistent economic growth is maintained.” You also did not
    distinguish between Tplf (Meles’ party) and Eprdf (three ethnic parties put
    together in 1991 by Tplf with members of Tplf as leaders; Bereket (a Tplf) for
    Amhara, Abate Kisho (a Tplf for Southern state); Workineh (another Tplf for
    Ormo), etc. Further, all 4 ethnic parties have 9 members (making 36) in the
    executive committee irrespective of the fact that Tigray Front represented a
    little over 5% of population and Oromo and Amhara together 62%.
    4/ You write Ethiopia has eclipsed Kenya as the regional powerhouse without
    discussing population size and Kenya’s thriving private sector and civil society
    organizations (both of which were replaced by “developmental state”
    in Ethiopia). Following the 2005 election victory by the hastily organized
    opposition all CSOs were de-registered by Meles. Ethiopia is a one-party state
    with Internet blackouts and prisons and prison population growing beyond public
    knowledge.
    5/ You mentioned about increased female labor force participation. This is only
    partly true. Consider the over 2 million in virtually indentured servitude in
    the Middle East earning $200 per month for 16-20 hr per day work for a base
    wage of $800. And the tens of thousands fleeing the country in search of
    opportunities. And the irony of European Union paying Ethiopian rulers millions
    of euro to set up camps and rehabilitate migrants from crossing over to Europe.
    How dumb can one get?
    6/ Ethiopian muslims and/or any who criticize the ruling party are branded
    “terrorists.” The US and UK continue to write fat checks. When you
    get time see if the nearly $40 billions in aid in 25 years has really improved
    the living conditions of the majority. See if the ruling party will let the
    likes of you to come into the country and check the evidence.