(Kelechi Anyanwu & Olisemeka Obeche from MoFED)

Admired for having registered fast and impressive growth for the last six years, the government has braced up for the challenges of sustaining the country’s enviable economic growth record. To ensure that the Sub-Saharan Africa’s fifth largest economy continues to post remarkable growth rates, at worst, 11 percent every year and, at best, to double by the year 2015, and leap from the fifth to the third largest economy on the continent, as well as transform the Horn of Africa nation into a middle income country, government launched the five-year Growth and Transformation Plan (GTP). As implementation of the ambitious Plan takes centre stage, there is new optimism among a majority of Ethiopians.

Shaping the economic future

Ethiopia is transforming itself economically. In the coming years, the country could change for the better. The country’s economic achievements over the last seven years have set the momentum for accelerated economic development. The progress made in creating a stable economic environment and in particular the ease in the provision of land and capital, the tax incentives given for capital gains and the guarantee of security in FDIs have made Ethiopia one of the most attractive investment destinations among the newly emerging countries in the world.

The significant paradigm shift in economic policy since 2003 and the importance given to an integrated agricultural development, the emphasis on small enterprises in value addition and the massive infrastructure development in road and power have helped Ethiopia to sustain an average growth of 11 percent for six successive years.

Still growth focused, the Ethiopian government has incorporated bold plans in its GTP to double the overall economy’s production, adding up into something close to a trillion birr, while the industrial sector is expected to take over the role of leading it. Energy, road, railway, telecom and water supply are set to furnish the country with an infrastructure facility never seen before in the country’s history.

In 15 years, the authorities see the Ethiopian economy transformed to the point of becoming the third biggest in Sub-Saharan Africa, just behind South Africa and Nigeria with a GDP of about $500 billion.

To achieve this growth, the government agrees that it needs to focus on the winning sectors which have the greatest potential for contributing to the growth of the economy and one of these sectors is agriculture.

Close watchers were not surprised when the World Bank’s Global Economic Prospects 2011 Report described Ethiopia as the second ‘fast-growing country’ in Sub-Saharan Africa (SSA) in 2010. Unlike other fast-growing Sub-Saharan African economies, where growth has been heavily supported by the minerals sector, Ethiopia’s robust growth over the past couple of years, including its nine percent increase in GDP in 2010, has been driven by the service sector which grew by 14.5 percent, investment (10.2 percent) and agriculture (six percent).

For Ato Sufian Ahmed, Minister of Finance and Economic Development, “the country’s rapid and sustained economic growth and social development is a reflection of committed political leadership, and pro-poor and transformational policies. Moreso, the economy is driven by planned and coordinated development interventions by the public sector, conducive investment climate for the private sector, among others”.

He adds that the World Bank’s scorecard perfectly captures Ethiopia’s economic transformation from poverty to prosperity and efforts are on to sustain the growth momentum witnessed during the period of the Plan for Accelerated and Sustained Development to End Poverty (PASDEP, 2004/05 – 2009/2010).

Agriculture… an anchor for growth

government assumes that agriculture will continue to be one of the anchors for the Ethiopian economy’s steady climb to rank amongst the top three economies in Africa since it is the area that Ethiopia will have both competitive and comparative advantages. There will continue to be the basic farming but the authorities’ GTP looks to focus the more on the agro-industry in order to move up the value chain. For example, Ethiopia produces oranges but the groceries in Addis Ababa are filled with packaged orange juice imported from the Middle East like the United Arab Emirates (UAE), Egypt and Saudi Arabia. Chances are the raw materials came from Ethiopia. The country probably has to sell an entire 100 kilos bag of oranges to match the value of the imported one litre juice.

In this light, government plans to move up the value added chain whereby the packaged juice can actually be exported. The authorities are forecasting that agriculture will continue to be the basic foundation for the Ethiopian economy for the next 15 years while at the same time non-agro industrialization will expand.

Even though agriculture production is expected to double, the government’s ambitious five-year plan envisages the sector’s contribution to GDP to decrease as the input from the industrial sector increases in line with the government’s economic strategy — the Agricultural Development-Led Industrialisation (ADLI).

Ato Sufian, who notes that the country’s economic prospect within the coming years is rosy, says: “We believe that through the development of agriculture and the creation of capacity, Ethiopia’s economy will transform from an agricultural-led economy to an industrial-led one.”

The agricultural output upon which the country’s economy overwhelmingly relies is expected to be doubled by 2015 by encouraging investment and large-scale farming. What is more? Ethiopia may not need any food aid within five years, thanks to the ambitious development plan that targets a heady average economic growth of 14.9 percent over the period. About 10 percent of the population relied on emergency food aid last year. But Prime Minister Meles Zenawi says “in the future, we will feed ourselves and we will be able to manage our own forms of social security. I don’t think that is possible. I think it is quite achievable over the next five years”.

There is no doubt that achieving self-sufficiency in food production and increasing agricultural proceeds for export occupies top priority in the agenda of the Ethiopian government. Ethiopia, Africa’s second-most populous nation after Nigeria, is the continent’s biggest coffee producer and the world’s fourth largest exporter of the sesame.

The growth recorded in the agricultural sector in the past five years is expected to be strengthened during the GTP period focusing on three thematic areas. These include small-farm holders, pastoralists and agro-pastoralists, and large scale agriculture.

An Agricultural Transformation Office has been created by the government to increase agricultural productivity and transform the sector. Interestingly, development partners such as the US are channeling US$2 million into the project yearly. The funding is expected to boost food security, and accelerate as well as expand the growth of Ethiopia’s agricultural sector as a prime mover of the country’s economic and social transformation.

And because most of the agriculture projects in Ethiopia are weather-dependent in a region given to long spells of droughts, efforts are under way to irrigate over 20,000 hectares (49,421 acres) of land to help transform farming in the country’s drought-threatened areas in the northwestern region as studies are being conducted on the potential for an additional 97,000 hectares to be irrigated.

Hayalsew Yilma, programme coordinator at the Water and Energy Ministry, says funding for Ethiopia’s five-year growth plan to increase the amount of irrigated land five-fold to about 10,000 hectares by mid-2015 is also receiving the blessings of donor agencies. Prospects also look good following plans by the World Bank to provide an additional $60 million of funding for irrigation projects in the Nile Basin, which has about 2.2 million hectares of Ethiopia’s 3.7 million hectares of irrigable land last June.

The Washington-based lender has provided $100 million since 2008 to support the Nile Basin Irrigation and Drainage Project, and government sees an additional funding from the World Bank as a welcome development towards boosting food security in the drought-prone nation. A United Nations report estimates that about three million Ethiopians currently receive emergency assistance and another 7.8 million get food or cash under an aid programme to support them, a development H.E. Meles Zenawi himself vowed to end by 2015 on the day he launched the Growth and Transformation Plan.

Still cheery news from the agriculture sector. The country has recorded an unprecedented growth in the export of textiles and garments, amidst growing output in agricultural and allied products. In the 2010/11 fiscal year, Ethiopia is expected to earn $62.2 million from the sector’s exports, which is the highest in the country’s history. The earnings are projected to hit $85 million in the 2011/12 period due to increase in investment in the sector. According to government’s GTP, the textile sector is expected to grow 20 percent by the end of the 2014/15 fiscal year, and generate at least a billion dollars in exports.

To make this a reality, government and other stakeholders in the textile industry are working with Swiss consultant firm Gherzi to undertake a benchmark study to solve the sector’s problems and move towards international standards.

“The company (Gherzi) will start to support and boost the capacity of 16 other textile and garment industries. Many foreign companies are now in the process of entering the sector. So we should meet our target,” says Fekadu Ethiopia, a corporate communication expert at the country’s Textile Industry Development Institute (TIDI).

Currently, over 80 textile and garment industries are producing traditionally hand-woven products and modern designs for export.

Upward march towards MDGs

many Sub-Saharan African countries are off-track to achieve the Millennium Development Goals (MDGs), but there have been pockets of success: Ethiopia is set to be recognized as one of the few expected countries to realize the United Nations-sponsored MDG availing access to primary and universal education to all by the consummation of the Growth and Transformation Plan period by 2015. School enrolment in Ethiopia has increased by more than 500 percent since 1994. This follows the sustained commitment of government to reform the sector.

The government set out to improve the education sector when it came to power after the civil war, recognizing rural poverty was not only a key driver in conflict and inequality, but was also holding the country back and perpetuating the cycle of poverty as well as ensuring children had access to school was key to these broader development goals. The government developed education reform plans and gradually upped its education spending from eight percent of the total budget in 1985 to 23 percent in 2009, with donor education aid also rising.

The increased funds went towards abolishing school fees, constructing and improving schools, and hiring and training teachers, among other activities. Key to meeting MDG 2 (achieving universal primary education) was a move in 1991 to devolve power to regions and districts to run their own schools; and shifting the language of instruction to local languages. In 1994, just three million pupils in Ethiopia attended primary school; by 2008 15.5 million did so, while secondary school attendance increased five fold.

Local authorities involved parent-teacher associations in rehabilitating and reviving schools. Lots of the investments made created access to households to send their children to school for the first time. Even the country’s development partners are impressed. Thanks to Spain, scholarship opportunities are being given to some 20 Ethiopian students each year to support the effort the Meles Zenawi-led government is making to maintain quality of education.

Ethiopia is also on track to achieve gender parity in primary school enrolment by 2015. Though there are still gender disparity at this level of schooling, it is narrowing considerably. And government is tackling the wider disparity at higher levels of the Ethiopian educational system. The linear projections to gender parity in secondary and tertiary levels by the United Nations Development Programme (UNDP) (2010) indicate a possible divergence from the path to the Goal in 2015, thus the focus government is giving to it.

Ethiopia has equally made significant progress in reducing child mortality over the past decade. The government envisioned a reduction in the number of deaths of children under the age of five from 123 to 85 per 1 000 live births and the infant mortality rate from 77 to 45 per 1 000 live births in 2010. According to the UNDP, in 2009/10, under-five mortality and infant mortality rates decreased to 101 and 45 per 1 000 live births, respectively. Ethiopia is one of the countries with the highest maternal mortality ratio (MMR) in the world, which in 2005 was 871 per 100 000 live births. MMR in 1990 was 1 040 per 100 000 live births. The health sector development programme (HSDP III) had the target of reducing this to 600 per 100 000 live births by 2009/10. According to government’s sources, the maternal mortality rate is projected to fall to 267 per 100 000 by 2014/15. The number for 2010 according to government reports is 600/100 000 MMR.

Government has also made a reasonable impact in rolling back malaria which is still the greatest health menace in Africa today. This is achieved through the dissemination of information regarding the disease and the provision and use of insecticide-treated nets since 2006. According to a Federal Ministry of Health (MOH) report, malaria was the leading cause of morbidity and mortality in the country in 2005/06. The assessment of the implementation of PASDEP indicates that the household level Insecticide Treated Net (ITN) coverage rate in malaria-prone areas increased from 3.5% in 2005 to 100% in 2009/10.

In general, the progress towards achieving the MDGs has been encouraging. The government has made enormous progress in the provision of social services such as education, health and infrastructure by investing in both physical and human capital formation and allocating a large share of its budget, to the tune of over 60 percent, to pro-poor spending. The share of total spending on poverty-targeted sectors (both recurrent and capital from all sources) increased from about 42.0 percent of total expenditure in 2002/03 to over 64.1 percent by the end of 2007/08. This has resulted in significant strides towards meeting the MDGs and in human development generally in 2010/11.

Infrastructure…key to turning the growth levers

ethiopia, keen to attract foreign investment in agriculture and mineral exploration, passed a US$5.7 billion budget this year that targets infrastructure development to maintain annual growth rates of about 10 percent. Few years ago, Ethiopia’s surface and transport infrastructure was exceedingly poor and underdeveloped. The country had the lowest road density in the world, and only 13.3 percent of all roads were paved.

And there were few interconnecting links between nearby regions and large parts of the country were isolated and dependent upon pack animals for transportation. The main highway route was from Addis Ababa to the port of Djibouti, which Ethiopia uses extensively since it is a landlocked country without ports and harbours of its own. The only train network consisted of the 681-kilometres long segment of the century-old Addis Ababa-Djibouti railroad.

But today, the story is different. The government attaches due attention to infrastructure development, which would serve as a basis for the accomplishment of the GTP. That is because expansion of infrastructure ensures market access for producers. Ethiopia has expended considerable effort to repair and maintain the railroad lines. Moreover, with the help of various donors, including the World Bank, the European Union (EU), and the African Development Bank (AfDB), the government has implemented a US$3.9 billion Road Sector Development Plan designed to expand the road network. In 1994, 80 percent of Ethiopia’s population had to travel five hours on average to get to urban centres. Huge government investment on infrastructure has now enabled more than half of the country’s population to touch down at urban centres in less than three hours.

A large amount of the authorities’ development spending will go to roads. Ethiopia has spent $3.6 billion on roads over the last decade. Road building expenditure rose to 17.4 billion birr from 12 billion birr in 2010/11. Construction of 2,395 kilometres of railway lines is also in the pipeline.

The Ethiopian economy has grown by an annual average of 11.18 percent over the last four years on improved infrastructure and government is striving to attract foreign investors in agriculture, mineral exploration and hydropower. To achieve the goals of the Growth and Transformation Plan, energy has a central role to play. The supply of power is essential to register developments in the industrial sector for example.

Without abundant power and systems of large-scale centralized generation, it is not possible to start industrial decentralization. Taking this into consideration the government envisages a significant increase in electricity generation capacity, completing the power projects currently under construction and building new ones to increase the distribution of power to rural towns and kebeles on a large scale.

The GTP predicts a huge expansion of infrastructure, with the country’s power production set to increase from 2,000 megawatts to 10,000MW. Government plans to spend US$12 billion over 25 years on realising its ambition of becoming a power exporter on a continent where shortages are common and cost industry dear. And the authorities are matching words with action.

“We have gathered here today at the largest of our rivers to witness the launch of this great project. It is rightly called the Millennium Dam. It is the largest dam we could build at any point along the Nile, or indeed any other river. More importantly the project takes the pride of place, representing an incomparable addition to our national plan for expanding power production. It will not only raise our own power-generating capacity and meet our domestic needs, but also allow us to export to neighbouring countries and mobilize the resources so necessary for the realization of objectives for our rapid development endeavours, efforts which are already yielding promising results.”

With these words, Prime Minister Meles officially marked the commencement of the construction of the Millennium Hydro-electric Nile Dam. The country’s power plan allows for the generation of between 6,000MW and 8,000MW in the coming five years. Of this total, the Millennium Dam alone will have the capacity to produce 5,250 MW to assist government in reaching its goal of making Ethiopia a net exporter of power in Africa. The multibillion-dollar grand Millennium Dam and a hydroelectric power plant will span a section of the Blue Nile River in the country’s Benishangul-Gumuz region. When completed in 2015, the $4.7 billion dam will be the largest hydroelectric power plant in Africa and could supply more than 5,000 megawatts of electricity for itself and its neighbours, including South Sudan.

During the next five years, the government plans to quadruple power production capacity to 8,000 and even 10,000 MW and large investment are already being made. This would also allow for increasing electricity supply from the current 41 percent coverage to 75 percent of the population. In addition to new electric power plants now under construction, the government is working to connect various power supply stations to the national grid. One example of this is the inauguration of the 490 kilometres Beles-Bahr Dar-Debre Markos-Sululta extra high-voltage power transmission line and substation project with a 400 kilo volt capacity.

Inaugurating the transmission line at Sululta, Deputy Prime Minister and Foreign Affairs Minister Ato Hailemariam Desalegn says the project is one of the major government objectives being executed during the five-year Growth and Transformation Plan. Its completion would allow for efficient service for investors engaged in the industrial sector. Overall, Ethiopia is continuing to work hard to address the demands of electric power in the country and aims to achieve universal coverage by 2015. The Gilgel Gibe III Dam is part of this comprehensive clean-energy expansion to meet the country’s growing demand for energy and export.

Against all odds…Optimism reigns

the International Monetary Fund’s forecast in late May that Ethiopia’s economic expansion may slow next fiscal year (July 2012) amid rising inflation, restrictions on private-bank lending and a “difficult” business environment caused some stir in Addis Ababa. The reason is not far-fetched: the six percent growth rate predicted by IMF analysts for Ethiopia was below the official projection of 11.4 percent for the period. But the Ethiopian government insists that the projected growth rate is still achievable.

While analyzing plans to fast-track Ethiopia’s economy growth under the Growth and Transformation Plan, Finance Minister Ato Sufian Ahmed told The African Economy that efforts are in top gear to ensure that the programme does not suffer backward momentum.

“The Plan intends to sustain this growth momentum as we implement the same stable policies and strategies at macroeconomic and sectoral levels. Our prudent monetary and fiscal policy is also expected to ensure that inflation remains at single digit. We are also focused on strengthening the tax collection and administration systems to up domestic revenue substantially,” he declares.

“The overarching objective of the Plan is to aggressively lay the foundation for transformation of the Ethiopian economy. The goals of the Plan go beyond achieving the MDGs targets. So, our development objectives are in the short-term to sustain the current performance level of the economy and in the next five years, attain an even higher performance of economic growth rate of 14.9 per cent,” Ato Sufian adds.

Tackling inflation

reining in inflation, which hovers over 30 percent, is at the heart of government’s policy. Inflation still remains a challenge for Ethiopia’s economy. According to Ato Bekalu Zeleke Ewnetu, President/CEO, Commercial Bank of Ethiopia (CBE), the main challenge facing banks and businesses is inflation. However, he notes, “the government has taken a number of measures to bring the inflation to a single digit. Part of these measures is that the government has pledged not to borrow from the National Bank of Ethiopia and to go into importation of food items that are in critical short supply. It is hoped that these measures will reduce inflation to a single digit”.

Ethiopia’s year-on-year inflation rate slowed slightly to 7.3 percent in June from 7.4 percent in May this year, although food prices continued to rise. And government abolished lending caps on lenders after inflation in the country slowed. The restrictions imposed in January 2009 to curb inflation that peaked at 64.2 percent in July 2008 were removed on April 4 this year. The inflation rate fell to 16.5 percent in February, a level that is not a cause for concern. Little wonder the IMF hailed the Horn of Africa nation for successfully implementing policies to curb inflation.

For Yohannes Ayalew, deputy governor of monetary stability at the National Bank of Ethiopia, “generally we are confident we have put in place monetary and fiscal measures to control inflation. The central bank has used measures that include requiring banks to keep 15 percent of deposits in reserve and restricting money supply growth to nine percent as its main monetary policy tools, In addition, the national budget deficit has been reduced to 1.5 percent of gross domestic product, curbing government spending”.

Lifeline for the Private Sector…banking support

the importance government attaches to boosting the private sector is clear. The authorities believe the private sector is the engine room for growth and employment generation. Government envisions a vibrant private sector with full capacity that competes both in the domestic and foreign markets, big companies that subcontract medium and small companies and closely work with multinational companies and firms that can conduct their own research and closely work with academia in the area of basic research.

The authorities are giving prime attention to micro and small-scale enterprises during the coming five years as these enterprises created 75 per cent of all job opportunities. Moreso, micro and small-scale enterprises laid the foundation for the industrial sector in the country.

Government’s commitment to develop the private sector is clearly captured in the Sustainable Development and Poverty Reduction Programme (SDPRP) for 2002-05 and the Plan for Accelerated and Sustained Development to End Poverty (PASDEP) for 2006-10, as well as the new Growth and Transformation Plan (2010/11-2014/15).

To grow the private sector, government is creating conducive business environment for businesses to thrive. It has passed a competition law; it is setting up a public-private partnership forum and attempting to control inflation. And businesses have been benefitting.

According to Ato Esayas Bahre, President of Development Bank of Ethiopia (DBE), “the country’s favourable environment for private investment has led to huge growth in the bank’s financing. In line with this the bank’s loan portfolio has now reached Birr 11.98 billion growing from Birr 2.97 billion in 2001 and showing a fourth fold growth of monumental achievements. This clearly shows the growth in the role played by the Bank in the development endeavour of the nation”.

The favourable business environment has also seen the Commercial Bank of Ethiopia (CBE) growing its market share, hitting more than 70 per cent due to its ability to finance huge credit disbursement.

And for the Ethiopian Shipping Lines, it has seen its activities go up with the growth of the economy. Ato Ambachew Abraha, Managing Director, Ethiopian Shipping Lines, says “within the existing shipping industry and depending on the country’s economy, the company will extend the entire transport and logistic chain, with ultimate goal of building competitive advantage by minimizing transportation costs to the Ethiopian exporters and importers.”

More so, the tempo of activities in the financial sector is already telling the tale that government’s growth plan is truly accelerating in top gear. Banks are rolling out innovative products to have a slice of the market.

According to Ato Haileyesus Bekele, President, Construction and Business Bank, the “CBB is in the process of automating all of its services through the use of an up-to-date and art of the day banking applications in which the provision of all e-banking services will become a reality in the very near future. Such innovative products will enable our customers to secure different banking services at their door step without going to our branch banks”.

For Wegagen Bank, it has introduced a payment card service that enables its clients get 24/7 banking services. “With Agar VISA Card, the bank’s debit card product line, one can perform multiple banking operations at ATMs and POS terminals network,” explains Ato Araya G/Egzabher, President of Wegagen Bank.

And take for example the relationship between Ethiopia’s collection of banks and its increasingly burgeoning private sector, which has been flourishing so much of late. The private sector is the banking sector’s number one customer. In the past decade and more, both have been growing side by side. The number of business interactions between the two has also been increasing. The private sector accounts for about 85 percent of the total investment licensed. Additionally, the majority of investment ventures in all Ethiopian industries are in the private sector.

And the banks have seen similar success, or to some degree, dominance. Ninety-two percent of all of the assets in the financial industry is in the hands of only about 15 banks. Those assets represent close to 34 percent of Ethiopia’s gross domestic product.

Until recently, however, banks got most of their business from the public sector, since it was pretty much the only game in town. Starting around 2003, private enterprises began securing a large number of loans and currently take in 61 percent of all the loans that are dispersed.

Ato Teklewold Atnafu, Governor, National Bank of Ethiopia, is brimming with confidence that the central bank would deliver on its key targets as well as supervise the sector towards realising the GTP and sustaining the ongoing speedy economic growth. The Construction and Business Bank is one of several businesses which is thriving, thanks to the improving business environment for the private sector and banking.

The role of the banking sector in this development drive cannot be overemphasized. This is why the government is paying special attention to the growth of the sector. To this end, it is understood government is set to deepen financial sector reform and come up with new financial innovations such as venture capital, capital market and investment banking.

Beckoning

businesses are settling for Ethiopia as their destination. The country is one of Africa’s largest potential markets, with a population of about 80 million. Chinese shoe factories are finding Ethiopia attractive. They are eyeing investing in Ethiopia. Hu Han Zangur, a shoe factory producing 15 million pairs of shoes a year, which is looking for markets in Africa, is set to open shop in Ethiopia. New Gmy Company, which has already started building its six million dollar shoe factory, plans to manufacture one million pair of shoes a year and also to raise this to 5-6 million in three years time.

Dutch investors too are interested in the country’s poultry and meat sectors. When a Dutch trade delegation consisting of 16 members arrived in Ethiopia early this year, investment opportunities for commercial livestock breeding, production and processing of meat, milk and eggs, and establishing useful business contact were of highest importance for the visiting companies.

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