[Column] Korede Ologun: What African countries can learn from Ethiopia and its economic success
05-07-2017 14:17:00 | by: Andrea Ayemoba | hits: 13230 | Tags:

East Africa continues to maintain its lead in regional growth in Africa reaching 5.3% in 2016 Real GDP growth. The economic success of Ethiopia is attributable to its desire to grow its economic base amidst structural challenges. This birthed the Growth and Transformation Plan, GTP I five years ago with the objectives of achieving specific goals capable of sustaining the country’s economic growth. The GTP I had bold targets and vision but also contained motivating and mobilizing power strong enough to see through its implementation.

During the first four years of GTP I implementation (2010/11 to 2013/14), real GDP growth rate averaged 10.1%, slightly lower than the target set for the period but larger than Nigeria, Egypt and South Africa combined. In the same period, government of Ethiopia was able to manage general inflation which increased to 38% and 20.8% during the first two years (2010/11 through 2011/12) of GTP implementation through fiscal and monetary policy brilliance. Inflation was reduced to 13.5% in 2012/13 and 8.1% in 2013/14 through the Government’s concurrent and effective policy and administrative measures. This also included governments’ effort in the importation and distribution of basic commodities to stabilize domestic market and protect low income group. The government is also making significant investments in growing agricultural productivity and manufacturing (to remove supply side constraints) as a more sustainable means to economic expansion.

Ethiopia recorded significant improvements in saving and investment, public finance, external sector, fiscal and monetary policy although volatility in global commodity prices moderated growth in key areas. Ethiopia is about to close a tough FY 2016 on the back of its worst drought in thirty years in 2015/2016. Economic growth is expected to slow to a consecutive year low, dragged down by slower private consumption, lower export growth and a massive drought that has impacted the country’s large agricultural sector. Despite this slowdown, the economy is one of the few bright spots in Sub-Saharan Africa thanks to substantial FDI inflows in infrastructure and manufacturing (significant foreign investment in textiles, leather, commercial agriculture, and light manufacturing). Ethiopia is diversifying exports and commodities such as gold, sesame, khat, livestock and horticulture products which are becoming increasingly important although coffee remains the largest foreign exchange earner.

In the fall of 2015, the government finalized and published the Growth and Transformation Plan, GTP II (2016-2020 five year plans). GTP II is built on sectoral policies, strategies & programs, lessons drawn from the implementation of the first GTP, and post-2015 Sustainable Development Goals (SDGs). Ethiopia is exploring development of sectors where it has comparative advantage in exporting, including textiles and garments, leather goods, and processed agricultural products. These efforts are also supported by new infrastructure projects which include power production and distribution, roads, rails, airports and industrial parks. Ethiopia plans to increase power generation by 8,320 MW, from an installed capacity of 2,000 MW, by building three more major dams and expanding to other sources of renewable energy to support industrialization. Notably, construction is underway on an electric railway network that will connect Ethiopia neighbouring countries, with a link to the Port of Djibouti already finished and partially functioning. The international airport in Addis Ababa is also being improved in terms of capacity handling to 25 million passengers (3 times its current capacity) and will be completed in 2017.

Ethiopia continues to outperform most of its peers and is among the fastest-growing economies in the region. In June, credit ratings agency Fitch noted the strong growth trajectory and affirmed the country’s B rating and stable outlook. The agency highlighted that the country’s remarkable economic growth has helped to offset severe external imbalances and debt accumulation. Simply put, the country has been sincere with its drive to lift majority of its people out of poverty by planning and implementation. The country is expected to grow at a broadly-stable pace over the next few years on the back of strong public spending and solid FDI inflows.
 

Korede Ologun, Corporate Finance at PanAfrican Capital, Lagos, Nigeria.