With about 120 million people, Ethiopia is the second most populous nation in Africa next to Nigeria, and one of the fastest-growing economies in the region. As one of the developing countries taking the right track towards growth and prosperity, Ethiopia has planned and working on to be a middle-income state within the shortest time possible.
Taking all this fact into account, The Ethiopian Herald approached Alemayehu Benti, an agro economist graduated from Haramaya University, to comment on what were the weaknesses in 2023 and strengths which need to be promoted and what measures have to be taken in 2024 to help Ethiopia secure sustainable economic growth.
He said, “Ethiopian economic growth is booming and GDP is projected to grow by 6.2% in 2024, driven by agriculture, industry, private consumption, and investment as the projection indicated. Ethiopia’s strong growth rate builds on a longer-term record of growth over the past years where the country’s economy grew at a remarkable rate per year. Undeniably, Ethiopia’s real gross domestic product (GDP) growth slowed due to multiple shocks including COVID-19, with growth in industry and services easing to single digits.”
As to Alemayehu, the consistently high economic growth over the years has resulted in positive trends in poverty reduction in both urban and rural areas. However, gains are modest when compared to other countries that saw fast growth, and inequality has increased in recent years. Furthermore, conflicts in various parts of Ethiopia, especially in the north, risked undermining the economic and social development progress the country has achieved.
The government has launched a 10-Year Development Plan, based on its 2019 Home-Grown Economic Reform Agenda, which runs from 2020/21 to 2029/30. The plan aims to sustain the high growth achieved under the Growth and Transformation Plans of the previous decade while facilitating the shift towards a more private-sector-driven economy. It also aims at fostering efficiency and introducing competition in key growth-enabling sectors such as energy, logistics, and telecom, improve the business climate, and address macroeconomic imbalances.
He said, “Ethiopia seeks to chart a development path that is sustainable and inclusive in order to accelerate poverty reduction and boost shared prosperity. Significant progress in job creation, as well as improved governance, will be needed to ensure that growth is equitable across society. Achieving these objectives will require addressing key challenges including addressing macroeconomic distortions that constrain private sector development, structural transformation, and generation of jobs, reducing the incidence of conflict that has been having a substantial impact on lives, livelihoods, and infrastructure.”
Urban employment levels have not recovered fully, some households and firms continue to report income losses, and poverty is estimated to have increased though the public is still suffering from the negative repercussions of high cost of living, he added.
According to Alemayehu, addressing food insecurity, which is growing due to high cost of living, adverse weather events, conflict, and global conditions leading to high inflation of food prices, needs to be the primary focus of the government.
“Ethiopia is one of the fastest economies in the world and its economy is expected to grow by 7.5 percent this year for instance. True, the economic growth comes against the backdrop of macroeconomic challenges that have plagued the country, including inflation, as well as the conflicts in different parts of the country. It is one of the few countries that are registering rapid economic growth in the world,” he added.
The good thing in this regard is the first home-grown economic reform that was introduced by the government has played a vital role in such economic performance. As to him, the agriculture sector, which accounts for a greater share of the economy, has greatly contributed to the economic performance and the country is making tremendous progress in poultry, dairy and fruit production that included in “Yelemat Tirufat” which means making the dining table of households full with diverse food items.
As to him, the country has to diligently work on leveling the gap witnessed between import and export by well hammering on the service, infrastructure and the sector targeting at boosting foreign direct investment.
The agricultural and service sectors continued to contribute to economic activity and growth, while other sectors such as manufacturing and construction were being impacted by acute foreign exchange shortages, the suspension of the country’s African Growth and Opportunity Act beneficiary status, and ongoing conflict in some parts of the country.
According to him, despite the various challenges, the agriculture sector has showcased a strong performance, particularly in irrigated wheat production, which bolstered economic activity. However, Ethiopia’s political environment remained difficult, with active insurgencies in the Amhara and Oromia regions though peace agreement with Tigray region is somehow delicate.
“High inflation and a shortage of foreign exchange further added to the short-term concerns regarding economic activity. The National Bank of Ethiopia said it has implemented import and exchange rate restrictions, leading to remittance transactions being conducted in the black market to manage foreign reserves. As a consequence, the gap between the parallel and official exchange rates continued to widen, foreign exchange reserves dwindled, and inflationary pressures intensified,” he opined.
As inflation, high debt distress, as well as shortages of foreign currency would continue to be major challenges for the Ethiopian economy, the government has to well devise possible mechanisms against the problems. The government has issued a proclamation allowing foreign banks to operate in Ethiopia – but challenges still remain around oversight and regulatory issues.
Ethiopia should enjoy a positive economic position, bolstered by the country’s free market-led economy, a well-established democracy and independent government institutions. Despite all these macroeconomic challenges, Ethiopia’s market potential remains attractive for businesses that envisage long-term investment and the gains would turn potential into inclusive affluence, he opined.
Plan to expand critical infrastructure throughout the country is also in the pipeline as far as it is known he said adding that the country looks to mitigate and adapt to the impacts of climate change, the need for net-zero emission technologies present significant new opportunities for investment.
Ethiopia has maintained solid economic growth since the end of the pandemic, and the measures taken will enable the gradual return of inflation to its medium-term level, which together with the dynamism of the external sector will allow the current account surplus to be maintained and the net international investment position to further improve, he added.
“Expanding investments and improvement in human capital can also be observed, achieved through investment in training and digital skills. Economic growth often is driven by consumer spending and business investment. Tax cuts and rebates are used to return money to consumers and boost spending. Deregulation relaxes the rules imposed on businesses and has been credited with creating growth but can lead to excessive risk-taking,” he said.
As to Alemayehu, infrastructure spending is designed to create construction jobs and increase productivity by enabling businesses to operate more efficiently. The challenge is to recover and rebuild in a way that creates sustained growth and transforms our economies while tackling the social and ecological stresses caused by our current economic models. It is also clear that there is now a new and feasible approach to development across the country, which is much more attractive than destructive paths of the past. But the nation must invest and act quickly to get there.
Much of the fundamental structural change needed lies in transforming the key systems of energy, transport, industry, cities and land. All require combinations of institutional change, standards and regulation, design and good policy. The combination of all these would result in economic growth followed by real change though it doesn’t suffice to deduce so, Alemayehu noted.
No doubt, he accentuated that economic development is key to eradicating poverty. Accelerating progress is essential if the goal of zero extreme poverty needs to be achieved.
He further underscored that as the private sector can be highly regarded as the engine of growth, the country has to capitalize on such a fashion for a successful businesses drive economic growth, create jobs and pay the taxes that finance services and investment.
He further stated that since foreign investment, and particularly exports can accelerate domestic development, the Ethiopian government has to work more towards encouraging responsible investment, helping markets work better for poor people and overcoming the impacts of high cost of living. This, of course, requires a focus on the short, medium and long term economic growth performances.
BY MENGESHA AMARE
THE ETHIOPIAN HERALD SPECIAL EDITION 31 DECEMBER 2023
