Ethiopia: Single-Minded Progress

Ethiopia's Grand Renaissance Dam 42% Complete
Ethiopia’s Grand Renaissance Dam

AFRICANGLOBE – Ethiopia’s ruling party secured all 547 parliamentary seats in last month’s general elections, leaving no place in parliament for the opposition.

The Ethiopian People’s Revolutionary Democratic Front has been in power since 1991. Its democratic credentials are frequently under fire, even though it has been credited for economic growth that has averaged over 10% of GDP for the past decade.

The government is expected to use the election results to support its intention to continue with the second phase of its Growth & Transformation Plan (GTP), aimed at propelling the Horn of Africa nation to become a middle-income country by 2025.

Ethiopia introduced the GTP in 2010. It was the brainchild of former prime minister Meles Zenawi, and placed emphasis on agriculture, industry, infrastructure, social and human development and governance.

The first phase of the plan, which comes to an end this month, has been “impressive”, says Aly-Khan Satchu, a Nairobi-based financial analyst and investor. “Singularity of purpose and execution make Ethiopia’s fast growth possible.”

Ethiopia’s GDP has grown to US$52,3bn in 2014 from $29,9bn in 2010. Total investment grew from 21% of GDP in 2009 to 34% of GDP in 2014, having peaked at 37% in 2012, according to World Bank data.

“Ethiopia has cleverly taken big bets which are set to pay off and make Ethiopia the new manufacturing hot spot,” Satchu says.

Ethiopia received $5bn worth of foreign direct investment in the first phase of the GTP. It hopes to grow this to $8bn in the next five years. Its industrial zones — which cover 3500ha of land — have attracted substantial investment.

The country has six industrial zones, which allow for tax holidays of up to seven years and low tariffs on imported manufactured goods. The early establishment of “Shoe City” by the Chinese Huajian Group — which employs more than 3000 workers — has helped lure 20 more Chinese companies into the industrial zones.

“Ethiopia remains a ‘command’ economy and most closely [resembles] the Chinese structure ahead of its great leapfrog into the 21st century,” Satchu says.

GTP 1’s projects include the Grand Renaissance Dam on the Nile River and Gilgel Gibe III Dam, together boosting the country’s electricity generation to 10000MW upon completion in 2017, from current capacity of just 2 200MW.

This capacity, once the extra is exported, could earn Ethiopia foreign exchange of up to $1bn/year, the World Bank says. A project to build 1000km of distribution infrastructure to Kenya is under way, which will facilitate exports.

Ethiopia already exports power to Kenya, Sudan and Djibouti. It has signed deals to supply Tanzania, Rwanda, South Sudan and Yemen.

Most of the $6.6bn required to finance the Grand Renaissance Dam ($4.8bn) is from government coffers. The rest of the funding comes from Chinese banks. Using its GTPs, Ethiopia plans to produce 15,000MW of power by 2020, some of which will come from renewable energy sources.

But energy hasn’t been the government’s only focus. Ethiopia plans to have 5,000km of new working railway lines across the country by 2020. This includes Addis Ababa Light Rail, the $475m, 32km passenger rail line under construction by a Chinese firm. Also under construction is the 700km Addis-Djibouti railway line, scheduled for completion in 2016, which will mainly serve manufacturing industries. It will cost $4bn.

Ethiopia is also expanding the capital’s airport to triple the number of passengers it handles to 20m/year by 2018.

Education has been recognised as another priority. The country has built 30 new universities — which will jump to 40 by 2017, a massive rise from the two universities in 2000. The quality of the education, however, has been criticised.

Satchu says: “Trickle down is notoriously slow, but increasingly citizens at ground level will feel the economic upswing, particularly by the trend of manufacturing job creation.”

Ethiopia has been able to contain annual consumer price inflation to 7% in 2014, compared with 39% in 2011, with tight monetary policy.

A recent World Bank report suggests a shift from Ethiopia’s traditional approach of financing infrastructure using government money to a more pronounced role for the private sector.

The report adds: “Ethiopia’s growth may decelerate in the coming decade, making it challenging for Ethiopia to attain its middle-income country target by 2025.”

In July, US president Barack Obama will be the first sitting American president to visit Ethiopia for talks on closer economic ties and security.


By: Samuel Gebre