How Economic Growth in Ethiopia
- Ms. Aulia Asri
- Feb 2, 2021
- 4 min read
Ethiopia is Africa’s oldest independent country and considered as the only one never been colonialized. The land of origins where coffeee was born. A home for home to more than a hundred million people from 80 traditional ethnic groups. A country where the headquarter of African Union located in its capital city, Addis Ababa. Located in the horn of Africa, Ethiopia is preparing themself as East Africa’s Emerging Giant
Ethiopia or officially name is Federal Democratic Republic of Ethiopia, is a landlocked country bordering by Eritrea, Somalia, Kenya, South Sudan, and Sudan in the Horn of Africa. This location gives it strategic dominance as a jumping off point in the Horn of Africa, close to the Middle East and its markets. The country known as a birthplace of coffee has been using neighboring Djibouti's main port for the last two decades. However, with the recent peace with Eritrea, Ethiopia is set to resume accessing the Eritrean ports of Assab and Massawa for its international trade. Ethiopia is the second most populous nation in Africa after Nigeria, and the fastest growing economy in the region.
This country has suffered military rule, civil war, and catastrophic famine over the past half century. In 2000, Ethiopia, was the third-poorest country in the world. Its annual GDP per capita was only about $620 (in 2011 dollars). More than 50% of the population lived below the global poverty line, the highest poverty rate in the world.
What has happened since is miraculous. Ethiopia’s rapid economic growth is one of the great stories of the 21st Century. In recent years, it has emerged as a major power in the Horn of Africa, enjoying rapid economic growth and increasing strategic importance in the region. According to World Bank estimates, from 2000 to 2018, Ethiopia was the third-fastest growing country of 10 million or more people in the world, as measured by GDP per capita. The country’s poverty rate fell to 31% by 2015 (the latest year Ethiopia’s poverty level was assessed by the World Bank). Life expectancy rose from about 52 in 2000 to 66 in 2017, and infant mortality more than halved over that period.
Ethiopia’s GDP growth was even faster than in the 2000s. Yet productivity growth stagnated, down to less than 2% per year, compared to over 4% in the 2000s. Productivity growth has mostly been replaced by increasing capital investment, most of which has been done by the government or state-owned enterprises. Ethiopia’s economy experienced strong, broad-based growth averaging 9.8% a year from 2008/09 to 2018/19, Ethiopia’s real gross domestic product (GDP) growth rebounded to 9% in 2018/19. In the 2010s,
In 2014, Ethiopia attracted $1.2 billion in foreign direct investments, and this year it expects a record $1.5 billion, according to the Financial Times, a UK business daily. Meanwhile, according to the IMF, foreign direct investment growth was 27.6% in 2016/17, with investments going into new industrial parks and privatization inflows. Ethiopia has also encouraged foreign investment in its manufacturing industry, hoping to compete with India and China with its cheap labour costs. Fashion brands like H&M, Guess, J Crew, and Naturalizer have already established manufacturing centres there. In addition, Ethiopia has a stable administration that sees manufacturing as a central part of its growth strategy.
A recent research paper suggests Ethiopia can be the new China, because it has been improving its road and rail connections, and has good air connections. Ethiopia has been very focused on infrastructure: the road and the light rail network is impressive, the power generation that Ethiopia has embarked upon is impressive. Transport infrastructure is also being overhauled in the Ethiopian capital. In fact, Addis Ababa’s $475million metro rail has drawn to completion barely three years since construction began in 2012. The metro rail, which is expected to carry 60,000 passengers a day, is the first of its kind in Sub-Saharan Africa outside of South Africa. Ethiopia’s geographic lcation and the success of its national airline give it easy access to many global markets. Ethiopian Airlines flies passengers to 83 international destinations, 49 of them in Africa, and hauls cargo to 24 cities around the globe. It is Africa’s fastest growing and most profitable passenger and cargo carrier.
Ethiopia’s growth has been primarily driven by manufacturing, agriculture and transport. The country is currently constructing Africa’s largest hydropower plant, the Grand Ethiopian Renaissance Dam, which is the first largest in Africa and the tenth largest hydropower dam in the world with its 1,780 meters length and 145 meters height. Its completion will change the face of East African power infrastructure: it is estimated to have the potential to generate 6,000 MW, which is equivalent to the combined power of 4 nuclear reactors. By 2016, two turbines of the dam will start to generate about 750 MW of electricity. Ethiopian officials claim will be financed by the country’s own finances and not foreigners. Increased power supply should lower power bills for large consumers such as manufacturers, leading to expanded investments in the manufacturing sector.
Similar to China, Ethiopia’s historically authoritarian government has played a significant role in creating growth and reducing poverty, and only recently allowed more private sector participation. Ethiopia, as the one of the fastest growing countries in the world, has the potential to be at the forefront. The coronavirus will likely cause 2020 to be a down year for Ethiopia’s economy, as the world economy is expected to contract 3% this year.
Like China, Ethiopia has a huge population, at least when compared to other African countries. There are approximately 94 million people in Ethiopia. Ethiopia also has a very young population—44 percent of its population is under 15 and 73 percent under 30. A huge working population, coupled with heavy government control that limits unionization, has made labor very affordable in Ethiopia. Just like China, Ethiopian government maintains heavy control on the economy, including the labor market. If Ethiopia achieves greater political stability and follows the recommended economic steps, it can become the “China of Africa.”
Source:
- https://www.weforum.org/agenda/2018/05/ethiopia-africa-fastest-growing-economy/
- https://www.un.org/africarenewal/magazine/august-2015/changing-face-ethiopia
- https://qz.com/africa/1785100/will-ethiopia-stay-one-of-fastest-growing-economies-in-the-world/
- https://www.cfr.org/backgrounder/ethiopia-east-africas-emerging-giant
- https://www.diplomaticourier.com/posts/how-ethiopia-can-become-the-next-china
- http://www.fahamu.org/ep_articles/ethiopia-africas-new-china/
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