Ethiopia’s Five-Year Plan To Grow Its Economy

Ethiopia’s Five-Year Plan To Grow Its Economy
Ethiopia has invested heavily in infrastructure and development

AFRICANGLOBE – As it seeks to become a lower middle-income country by 2025, Ethiopia aims to increase its export revenue to $16 billion, up from the current $3 billion, in the next five years.

Prime Minister Hailemariam Desalegn has made two key changes in his Cabinet: He appointed Yacob Yala as Trade Minister, and replaced Finance Minister Sufian Ahmed with Abdulaziz Mohammed.

Former trade minister Kebede Chane was allegedly dropped for failing to achieve export targets outlined in the country’s initial growth and transformation plan, in which Ethiopia secured $3 billion of the targeted $5 billion export revenue.

The new growth plan seeks to open up key areas of the economy as the country shifts from its reliance on agriculture. Ethiopia plans to reduce the agricultural sector contribution to the GDP by 4 percentage in the next five years, from the current 40 per cent, in favour of manufacturing and industry. Its current GDP stands at $55.7 billion.

The plan proposes the privatisation of public entities to attract investors. This would support key sectors that have been crowded out through unfair competition by the public sector and state-owned enterprises. For instance, in the banking sector, capital adequacy, bond buying programmes and a lack of an enabling environment are hindering private banks from lending.

Recently, Ethiopia has been riding on an economic transformation wave that has seen it raise funds through a $1 billion Eurobond, after it secured a better than anticipated rating from agencies. The country is expected to raise another $2 billion bond next month.

The government also aims to boost export revenue by 150 per cent in the next five years, projecting that the economy will be generating $16 billion in export revenue, with the manufacturing sector accounting for 25 per cent of total exports.

The Industrial Park programme aims to attract foreign direct investment through its export-led and labour intensive manufacturing sector.

Ethiopia’s manufacturing activities include processing of agricultural commodities, leather, textiles, tobacco, garment production, beverages, hides and skins.

Communication Affairs Office Minister Redwan Hussein said the economic transformation will be achieved by emphasis on the manufacturing sector during the five-year period.

“We are looking at enhancing the transformation of the domestic private sector to enable them to become a capable development force in our GDP. Special emphasis will be given to the domestic private sector, especially those who would like to invest in the manufacturing sector. This initiative will be enhanced through incentive packages and creating a favourable environment for doing business,” he said.

Chief economist at the National Bank of Ethiopia Ato Yohannes said the government was also aiming to double export revenues from the manufacturing sector.

“We want to see the export earnings from this sector contribute 25 per cent of the dollar inflows in the economy, up from the current 10 per cent. By 2015, we expect it to go up to 40 per cent of total export earnings,” he said.

“We will undertake supportive measures to encourage trade and service enterprises to invest in the manufacturing sector. The intention is to create and broaden the base for the emergence of capable, productive and competitive domestic private sector in manufacturing,” he added.

According to the World Bank, Ethiopia’s economy has had an average growth of 10.8 per cent per year between 2003 and 2013, compared with the East Africa average of 4.8 per cent. The growth has been driven by the expansion of services; the agricultural sector accounts for most of this growth, while manufacturing performance was relatively modest.

The country’s manufacturing and industrial sectors are expected to grow by 24 per cent over the next five years. By 2020, the industrial sector is expected to generate $4 billion from manufacturing exports alone.

Ethiopia also hopes to draw investors to infrastructure development.

In 2011, Ethiopia signed a $1.32 billion deal with China to build a 756 kilometre railway network linking Addis Ababa to Djibouti. Last week, the first freight train was unveiled, even through the project is not yet complete.

Ethiopia is also planning to construct a railway to the Port of Tadjoura in Djibouti. In October, Ethiopia became the first sub-Saharan African country to have a light railway system when it unveiled the $475 million Addis Ababa electrified light railway network.

In the energy sector, the country plans to raise electricity generation fivefold to 17,000MW, and increase access to 90 per cent of the population. According to the growth plan, Ethiopia will build mega dams along Rivers Omo and Nile that will produce 2,000MW each. The country’s the $4.1 billion Grand Renaissance Dam is expected to push its production to 10,000MW on completion.

Azeb Asnake, chief executive of the state-run Ethiopian Electric Power said that the government plans to fund 50 per cent of the energy projects.

“The total cost of this ambitious project is $25 billion. We expect the other 50 per cent to come in the form of grants, soft loans and commercial loans from foreign banks and governments,” Ms Asnake said.

 

By: Allan Olingo