Ethiopia keeps booming

No oil, no precious minerals are driving Ethiopia’s economic growth forwards by two digits each year. Hard work, economic reform and investments in its people and infrastructure are showing results to lift one of the world’s poorest nations up to new heights.

Ethiopia, with a population of 75 million, is the second most populous country in sub-Saharan Africa. One of the world’s oldest continuous civilizations, Ethiopia is also one of the world’s poorest. At US$ 130, Ethiopia’s per capita GDP is only about a fifth of the sub-Sahara African average, according to the World Bank.

But growth is extremely robust in this potential African powerhouse, comparable only to the oil-driven economies of Angola and Equatorial Guinea. In fact, the four years of double-digit growth is best characterised as a boom. And contrary to oil-booming states, very much of the economic growth reaches the poor masses of the country.

This was confirmed today by Takatoshi Kato of the International Monetary Fund (IMF), ending a high-profiled visit to Addis Ababa. Mr Kato described developments in Ethiopia in more a rosy rhetoric than is normal for IMF officials, emphasising he had felt “a strong sense of partnership between Ethiopia and the IMF.”

Despite having all economic factors against it – Ethiopia’s GDP still relies to almost 50 percent on its drought-exposed agriculture, it is landlocked and has few mineral resources – the country has managed to sustain high growth over a four-year period. For Mr Kato and the IMF, this mainly comes as a result of implementing economic policies prescribed by the Fund.

The IMF official expressed his support for “the government’s overall strategy to strengthen the foundations for growth – with an increasing role for the private sector – while preserving macroeconomic stability. This broad strategy includes maintaining a sustainable debt position, while scaling up public sector investment in the key areas of infrastructure, health and education, boosting overall economic activity through commercialisation of agriculture, and fostering the non-farm private sector,” he concluded.

But the Ethiopian success does not only stem from sticking strictly to IMF solutions – that would have triggered equal growth in most other African nations that practically are under the Fund’s administration. Ethiopia has been better than other countries in investing in key sectors that empowers the poor masses, mainly in education, infrastructure and agriculture.

One of the results is that the agricultural sector – which employs the large majority – is contributing even stronger to the rapid economic growth than other sectors. Weather conditions have not been the only reasons for the last years’ bumper harvests of coffee – which last year contributed for 48.4 percent of exports – and oilseeds (12.7 percent). Massive road construction and rural education schemes have been equally important to boost production.

According to the latest forecast by the Ethiopian Ministry of Finance and Economic Development, real GDP growth for the 2006-07 fiscal year we be at an impressing 11 percent. Growth in 2005-06 was at 10.6 percent and two years before even at 13.1 percent. This strong growth has meant that real per capita income has increased at about 7 percent per annum over the past three years – the fastest rate in Ethiopia’s recent history.

But Ethiopia still remains exposed to the crippling effects of drought. This was made clear in the 2002-03 season, as real GDP declined by 3.5 percent as a result of the poor performance of the agricultural sector due to a severe drought. But that detraction also came after years of economic instability and poor growth, meaning that the effects of recent reforms had not been noted. Analysts by now expect Ethiopia to be better positioned to meet the next severe drought – which is sure to come.

National statistics also document that growth has been invested in reducing poverty and creating amore robust environment to meet external shocks. Access to education has increased, with the primary enrolment rate rising from 64.4 percent in 2002-03 to over 80 percent by now. Access to clean water has risen from 34.1 percent in 2002-03 to 42.2 percent in 2004/05. In addition, the coverage of the roads network has increased from 31 kilometres per square kilometre in 2002-03 to 33.6 in 2004-05.

The only current cloud on the sky is that these social investments and the economic boom also have led to a relative high inflation, which has hit the poor strongest. This is however addressed by the Ministry of Finance and the National Bank of Ethiopia, which aim at lowering inflation during this fiscal year.

All in all, however, analysts expect the Ethiopian boom to continue during the next few years. A severe drought is sure to slow down growth, but will probably not lead to an economic detraction like five years ago. Also the IMF’s Mr Kato, who saw some “challenges ahead for Ethiopia to sustain rapid growth,” was widely optimistic that the Addis Ababa government was now on the right track to overcome these obstacles.

By staff writer

© afrol News

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