Achieving economic growth is determined by leadership commitment, good policymaking, and new thinking. It also involves macroeconomic adjustment. Besides, the latter can help to remove distortions caused by regulatory measures and can create opportunities for private sector growth.
Ethiopia has recognized entrepreneurship as one of the key driving forces of sustained economic development and is accordingly making many efforts to encourage and facilitate entrepreneurial activities.
Tewodros Mekonnen (PhD), an economist told local media that, the Ethiopian government has implemented a number of reforms to improve and develop the financial sector; these include the liberalization of foreign exchange depending on demand and supply, loosening restrictions on interest rates, and the development of new financial instruments and institutions. The loosening of restrictions on interest rates is a very important mechanism because, until recently, interest rates were set by the government and were not allowed to fluctuate freely in response to market conditions.
As to him, the previous constraints made conditions difficult for banks to operate profitably and for businesses to access finance. But after these restrictions were lifted, banks are now able to set their own interest rates, which flow freely according to market forces.
The foreign exchange market in the past was also highly regulated and inefficient. It was difficult for businesses to access foreign currency, and this limited the flow of foreign investments into the country. The reform has seen to it that exchange rates are allowed to flow more freely, and the market has become more open and competitive.
The implementation of these economic reforms has been critical to the country’s transformation journey. Without these reforms, the country wouldn’t have experienced the level of economic growth and development it has attained. They have helped to increase access to finance, attract foreign investments, promote financial inclusion, and improve the efficiency of the financial system, boosting economic growth, creating jobs, and reducing poverty.
Kebour Gena , a renowned economist says macroeconomic reform, is a set of policies aiming at improving economic efficiency, eliminating distortions caused by market actors, simplifying tax policy implementation in a transparent manner, broadening tax bases, spending budget efficiently and targeting basic social services and safety nets.
It also involves labor market—removing rigidities in the labor market as well as adopting a strategy that is led by outward-looking private sector.
He further said that, economic reform can have many positive aspects and advantages like increasing competition, lower inflation, coming up with improved business environment, attracting foreign investment, securing improved environmental quality, having reduced public debt risks, owning improved public institutions, aspiring long-term growth, improved access to basic needs, having increased private investment and ensuring better governance.
As to Kebour economic reform can help sustain high economic growth and employment, and improve social sector indicators. To mention a few examples of economic reform in Ethiopia, increasing private investment, liberalizing sectors like energy, logistics, and telecommunications, improving governance and accountability of public enterprises, strengthening public finances, gradually moving towards a flexible exchange rate regime and developing capital markets and enhancing financial sector development.
Solomon Zegeye is a senior economist in Nyala Insurance Company. As to him, economic reform is important for long-term economic growth, employment, and social sector improvements. It can also help to restructure the economy and enterprises to achieve these goals. It includes macro-financial reforms, which aim at stabilizing the macro economy by reducing public debt risks, inflation, and external vulnerabilities.
It can also improve growth, investment, and exports, structural reforms, which in turn aim at easing to doing business, such as tariffs and non-tariff barriers to international trade. They can also improve the efficiency of public institutions and services like electricity, telecom, and logistics. Besides, it entails sectorial reforms, which include developing legal frameworks to enhance land use, improving the productivity of small-holder farmers, and modernizing livestock production.
He further indicates that economic reform entails numerous aspects, among others, efficient and removal of barriers of labor market and investment rigidities. Costentinos Berhutesfa (PhD) on his part said that, there are some limitations that need to be addressed in due course of implementing the economic reform.
These include the government may reintroduce tight control over foreign exchange if there is a drop in foreign currency reserves or a decline in prices for a key commodity. Besides, it may change the policies of the previous government due to time gaps.
Obviously, there may be a delay between the implementation of economic reform and the desired outcome due to international pressure as global influence can impact the success of economic reform.
Costentinos further said that, factors such as lack of access to finance, lack of infrastructure, and a lack of a culture of innovation contribute immensely to delay of growth. It would require a coordinated approach from the government and private sector to address these factors.
These challenges can be addressed using alternative financing mechanisms. Venture capital and angel investment are two ways of financing businesses, and they would be effective in Ethiopia. Venture capital firms provide funding for startups and early-stage businesses, while angel investors are individuals who invest their own money in businesses. These two options would provide the type of large-scale financing that is needed to grow businesses.
He said that limiting regulatory burdens, improving bankruptcy legislation, implementing excise taxes, applying excise taxes to petroleum products, alcohol, and tobacco at the point of production or import, limiting import tariffs, and improving personal and corporate income tax, as well as improving incentives, need to be applied to make the reform workable.
In addition to venture capital, access to finance can be addressed by the creation of government-backed loan guarantee schemes, the expansion of mobile banking and other financial technologies, the development of innovative products such as savings and loan associations and village banking, and the promotion of financial literacy and education. These would help to address the issue of lack of access to finance, helping startups and early-stage businesses grow and thrive, increasing the financial capacity of entrepreneurs, and contributing to the financial growth of the nation.
He said adding that the challenges, though unique and complex, are not insurmountable. They can be addressed through conscious efforts by the government and the private sector.
Kebour on his part said that, high public investments in infrastructure and human capital development fueled the country’s growth. These investments narrowed fundamental gaps in transport and energy infrastructure and human capital developments, there by laying the foundation for a sustained growth. However, the public investment led growth model had its own shortcomings.
He said that the reform agenda builds on the achievements of the past decade in infrastructure and human capital developments. The primary objective of the reform is to sustain the economic growth through creating an economic environment supportive of higher private investment and structural transformation. Macro-financial reforms aim to reduce the risks associated with public debt, lower external vulnerabilities, arrest inflation, and enhance growth, investment, and exports.
These reforms include strengthening public finances, including through improving the efficiency of the private sector and privatization; gradually moving towards a flexible exchange rate regime to address external imbalances; strengthening the monetary policy framework with the objective to stabilize prices and support economic growth; and enhancing financial sector development and developing capital markets.
According to Solomon, the structural reforms aim to address bottlenecks inhibiting private sector growth through stepping up reforms to ease the constraints to doing business, easing tariff and non-tariff barriers to international trade, improving the efficiency of public institutions, and improving services such as logistics, telecom, and electricity, which is crucial.
For Ethiopia, he said, the industries in which it excels are often lousy stepping-stones for further diversification, meaning that they require capabilities that are not easily redeployed towards other industries.
As to him, the jobs of the future will be in these new industries directly and in the multiplier effect in the rest of the economy that these industries will have by demanding inputs from others or through the local spending of the incomes that they generate.
BY ABEBE WOLDEGIORGIS
THE ETHIOPIAN HERALD THURSDAY 17, July 2025
