Ethiopia Topping East Africa’s Economic Growth

By Eden Sahle –

Ethiopia has been praised for being one of the fastest growing countries not only from the continent but in the world. Ethiopia’s economy grew by 8.7% during 2015 and is expected to grow by 8.1% in 2016, according to International Monetary Fund (IMF) estimates.

In 2014, Ethiopia’s economy grew by 10.3%, making the country one of Africa’s top performing economies and this strong growth is expected to continue in 2016. Owing to a coordinated prudent fiscal and monetary policy strategy, inflation has been contained to single digits since 2013. Federalism and devolution of power to the regions also paved the way to overcoming geographic and socio-economic barriers to inclusive growth and structural transformation. Improving the country’s business climate to enable the private sector contributed to growth and employment has been the primary focus of Ethiopia. Although Ethiopia’s private sector is at a nascent stage, opportunities for private sector investment have increased in recent years. This is evidenced in the surge of foreign investment, especially from the emerging economies of Asia.

State dominated economy has been attributed to Ethiopia’s economic progress with new economic initiatives focusing on improving industries in the country. While Ethiopia’s exports have grown in recent years; trade volumes are still low relative to the size of the economy. Under the Growth and Transformation Plan (GTP), the government is embarking on a major export drive complemented with an efficient import substitution strategy. Ethiopia has been quite successful in the flower industry and growing its foreign direct investment.

Africa, however, needs more than marginal growth. The continent requires a great leap in economic performance that will be sustainable, inclusive, and transformative. Structural transformation of the African economies through industrialization is imperative. The current merchandise export structure of Africa, dominated by raw and unprocessed commodities, is not conducive to the envisaged level of development according to the Economic Report on Africa (ERA).

On the other hand, trade continues to play a major role in Africa’s economic growth performance and it has potential to promote trade-induced industrialization of the continent; provided it is deliberately directed at industrialization. Revenue mobilization is expected to improve as some countries, including Ethiopia and Rwanda, continue to improve tax policy and collection.

“Despite lower oil and commodity prices, slow recovery or decelerating growth, tighter global monetary policy, the Ebola outbreak, weather-related shocks and, in some countries, political instability, Africa’s prospects remained strong,” Alexander Burtenshaw, Country Manager of Jovago Ethiopia said.

Ethiopia has enhanced productivity through structural transformation, associated with its strong growth performance. Nevertheless, constraints for trade expansion such as high trade costs due to weak infrastructure links and poor transport logistics still impede further expansion. To improve this, Ethiopia is implementing regional infrastructure projects, notably the power interconnections with Djibouti and Sudan, and road corridor linking Addis Ababa to Kenya’s port of Mombasa. There are plans to develop railway links to external markets, through Djibouti.

To harness the creeping energy shortfall that may put a brake on the growth momentum; Ethiopia is prioritizing the energy sector to increase electricity access and reliability by building renewable energy resources, through additional hydropower plants and grid expansion.

Source: Africa Business


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