Ethiopia Beating The Economic Odds

Ethiopia Beating The Economic Odds
Addis Ababa, Ethiopia

AFRICANGLOBE – Ethiopia is considered as one of the fastest growing economies in the world today, a far cry from 30 years ago when the East African country was hit by a severe famine. But how much has changed since the famine.

Every so often, a speaker at a conference says something provocative or simply voices an opinion that sparks discussions long after the event. At African conferences, brusque comments by Nigerian officials used to dominate conversations. Not anymore.

Ethiopians have usurped the role. And there are good reasons to support the Ethiopians’ new assertiveness: they run one of the world’s fastest growing economies; they have done a good job in meeting the Millennium Development Goals; they are building what will soon be Africa’s largest hydroelectric dam; their national airline dominates the continent’s skies; they have achieved an admirable level of political stability in one of the region’s roughest neighbourhoods, and their capital Addis Ababa, whose skyline is dotted with construction cranes, is the continent’s diplomatic capital, thanks to the presence of the African Union’s headquarters.

“Ethiopia is in a hurry to develop,” says Eugene Owusu, who until recently was the head of the United Nations office in Ethiopia, adding: “You might think it’s insane for any country to aspire to grow at such a fast rate. But it reflects the confidence the country has right now. It reflects the bold ambition and the political commitment of the leadership.”

According to the World Bank, Ethiopia’s “strong and broad-based growth over the past decade” has lifted its GDP to an impressive average of 10% per year.

The high growth admittedly started from a low base, but it has catapulted Ethiopia from being identified with the infamous famine of the 1980s into a premier club member of the world’s fastest growing economies.


The East African nation is pouring billions into, among other things, building basic infrastructure in energy, rail and road transport. A Chinese-built electrified passenger railway will start operating in the capital during the second half of this year.

Several hydroelectric dams now under construction will soon generate enough electricity to meet Ethiopia’s needs plus surplus for export to other African countries.

The Grand Renaissance Dam on the Blue Nile is the most famous and has come to symbolise the country’s “bold ambition” and political assertiveness.

Ethiopia went ahead with the project despite initial resistance from Egypt, whose economy depends on the Nile’s water downstream, and after donors had refused to fund its construction.

Instead, it devised innovative ways to raise the money through local taxes, government bonds, donations from the wealthy and remittances from the diaspora.

The $4.7 billion dam is expected to generate 5,520 megawatts of electricity when completed in 2017. According to reports, by 2020 Ethiopia’s electricity production will reach 17GW, up from the 4GW generated in 2011.

As a landlocked country, Ethiopia relies heavily on Djibouti and Kenya for access to the sea. Today, it takes several days for freight trucks to haul containers from the port of Djibouti to Addis Ababa.

But when the refurbished electric railroad connecting the two cities opens next year, it will reduce transport costs and cut delivery time from four days to just ten hours.

The aviation story is different. Ethiopia’s geographic location 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.

Three years ago, the state-owned but privately-managed airline became the second carrier outside Japan to operate the Boeing 787 Dreamliner, a state-of-the-art passenger jet.

Chinese firms not only have a big presence in dam and road construction, but are also investing heavily in manufacturing in export processing zones that have sprouted throughout Addis Ababa. The zones have also become magnets to textile and leather manufacturers from India, Turkey and Bangladesh.

People Driven Economy

Last year, 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. The paper credits the country’s high FDI rates “to increased relocation of factories, attracted by low wages, cheap power and supportive government policies.”

Indeed, business-friendly policies and huge public investments have been the biggest catalyst for Ethiopia’s high growth rates over the past decade.

“The government has been pretty clear about what it wants and how it wants to grow the economy,” says Haddis Tadesse, the Bill and Melinda Gates Foundation representative to Ethiopia and to the African Union. “They’ve been very focused on infrastructure: the road and the light rail network is impressive, the power generation that Ethiopia has embarked upon is impressive.”

Experts list countless reasons to explain the economy’s remarkable performance. But top among them is Ethiopia’s pursuit of what economists call a “developmental state model” whereby the government controls, manages and regulates the economy.

They note that similar state-led development policies lifted East Asian economies out of poverty during the late 20th century.

“The Chinese economic model of success resonates with the Ethiopian current economic situation, given that China has gone through similar growth in recent history,” Tadesse said in an interview recently.

So far the approach appears to be working for Ethiopia. Its leaders are cruising ahead with what is evidently a very ambitious development programme and stubbornly refuse to listen to naysayers who warn it cannot be done or it cannot be sustained.

The country aspires to be a middle-income nation by 2025. Owusu of the UN says this aspiration “is what drives everything the government and the people are doing.” It is indeed sheer tenacity – what Owusu calls leadership with “bold ambition and a clear vision” – that is credited for Ethiopia’s economic success.

However, critics question if such policies can be sustained without active participation from the private sector. The West, in particular multilateral institutions, complain that by not opening up parts of its economy, Ethiopia’s state-led development policies have thwarted private investors.

Ethiopia’s laws forbid foreign businesses in sectors considered strategic like telecom, financial, insurance and transport services.

However, despite the impressive economic growth that has lifted millions out of abject poverty, Ethiopia is still a poor country. Its per capita income of $470 is one of the lowest in the world.

It ranks 173 out of 186 countries on the 2015 Human Development Index compiled by the UN Development Programme (UNDP), although the government has taken tangible steps to fight poverty.

UNDP reckons that in 2004-2005, for example, four in every ten Ethiopians lived in extreme poverty – or on less than $0.60 per day as measured by the country’s poverty standard. By 2012/13, the rate had improved to less than three in every ten citizens.

“This is a huge decline in terms of the proportion of the population that is below the poverty line,” says Owusu, who until recently was also the head of the UNDP in Ethiopia.

“We are not talking about a [small country] with two million people. We are talking about a country with 95 million people [the second most populous in Africa] – and that is a huge quantum leap in poverty reduction.”

Meeting Targets

The UN gives the country high marks for its success in meeting some of the Millennium Development Goals: it cut the child mortality rate by half, more than doubled the number of people with access to clean water and quadrupled primary school enrolments.

Yes, Ethiopia has been successful in growing the economy, but critics say the gains have come at the cost of human rights. They accuse the government of paying scant attention to basic freedoms and democracy.

Even the government’s supporters concede the country has a lot of catch-up to do especially, according to UNDP, in areas such as “improved political space, access to media, viability of opposition parties…and civic education.”

“Development is not just a common transformation,” says Owusu, “It also liberates the energies of the people.” Tadesse, the Gates Foundation representative, adds: “the late former Prime Minister Meles Zenawi once said human rights were not a precondition for development. ‘You can grow without adequately providing [basic freedoms],’ the prime minister said.

“‘But the entire system and your entire survival over time could be questioned because you have to have a democratic society that aspires for a brighter future.'”

Still, the prevailing narrative on Ethiopia is the success of its economic policies and the political clout that comes with it, which has generated scepticism among critics and admiration among supporters.

African analysts watch with awe and wonder if the success can be sustained or replicated in other African countries. The next decade – the period within which Ethiopia aspires to be a middle-income country – will provide the answers.


By: Masimba Tafirenyika