[Column] Bob Koigi: Awakening the giant: How Ethiopia overtook Kenya to become East Africa’s economic power house
15-06-2017 20:01:00 | by: Bob Koigi | hits: 46921 | Tags:

Kenya has traditionally held the enviable position of being the East African economic behemoth. But tables have now turned, and in a dramatic way. 

In 2000 for example, it commanded a 70 per cent lead over Ethiopia, a country that was struggling with incessant drought and poor profile to appeal to prospective investors. Kenya’s GDP, or the total value of goods and services produced annually, then stood at $14 billion with that of Ethiopia estimated to be $8 billion.

Fast forward to 2017 and the International Monetary Fund figures have put Ethiopia’s GDP at $78 billion this year, up from $72 billion last year overtaking Kenya with over $29 million.

Add that to a decade long double digital growth, a growing list of mega infrastructural projects and an impressive financial direct investment record and the picture of a well thought economic growth process starts forming.

The second most populous country in Africa, with an estimated population of 100 million, has in the last few years been burning the midnight oil to position itself as the economic hub in the region, and setting its eyes on the right trade partners.

According to a report by Deloitte released early this year for example, Ethiopia has surpassed the ideal global levels of expenditure in infrastructure projects in relation to a country’s GDP, which currently stands at 30 per cent. Ethiopia’s are at 39 per cent while Kenya’s stand at 21.5 per cent.

This has further seen it becoming the biggest recipient of private equity in the region at $4.4 billion compared to Kenya’s $1.3 billion.

This huge appetite for public led infrastructure projects and its strong governance structures with a zero tolerance for corruption and public funds has been a magnetic to investors. Kenya on the other hand has been struggling with shedding off numerous corruption cases that have rocked the government, further waning investors’ confidence.

But what is perhaps the greatest appeal to investors for Ethiopia that has even seen most of them move businesses from Kenya is the favourable business environment which to a great extent has been chaperoned by government.

Electricity which is a key aspect of cost of doing business especially for major industries has come at a heavily subsidized rate, at 6.7 US cents per kilowatt hour compared to Kenya’s 13.8 US cents.

Then there are the tax exemptions. In one of the most startling developments, Kenya flower industry umbrella body, The Kenya Flower Council, last year revealed that many of the flower farms in the country were relocating to Ethiopia to chase after the major incentives government was offering them, key among them tax waivers. The Kenyan industry was paying and still does about 41 different taxes and levies to various government bodies with production costs now being at an all-time high of 30 per cent. This, despite Kenya relying on the floriculture sub sector as one of its largest foreign exchange earners.

While the jury is still out on how long Ethiopia can still bask in this new glory, especially with last year’s anti- government protests that left hundreds dead and investor property destroyed which dented the hard earned confidence, coupled with the latest drought that has left over 7 million hungry in one of the record food crises in the country, the enormous investment in especially infrastructure projects are set to pay off in the near future. 

The Gibe III dam for example which is billed as Africa’s tallest dam once complete will not only double the country’s electrical output but will see it export it to countries like Kenya which have expressed interest in buying part of the power produced.  

Multiple award winning Kenyan journalist Bob Koigi is the Chief Editor East Africa at Africa Business Communities