ADDIS ABABA, Ethiopia – Recent international efforts to engage African nations in economic activity, as evidenced by the highly touted “Electrify Africa” initiative in the U.S. Congress, indicate Africa’s tremendous potential. Ethiopia, especially, has established itself as an economically viable entity, particularly with manufacturing.
The Ethiopian economy has traditionally depended upon agriculture, but circumstances have dictated growth in manufacturing and that trend may continue if government officials have their way. Ethiopia seems primed to attract private investment and build on key existing business relationships with China, among other Asian nations.
An International Business Times report states that Ethiopia is using the same proverbial formula for manufacturing success that worked in China, Korea, and South Vietnam. The country is especially attractive to the private sector because of the low cost of doing business, a ready workforce, and abundant natural resources.
Figures have manufacturing consistently at 4% of GDP each year, but the goal is to increase that number to rival agricultural GDP contributions. Not only would an uptick benefit private enterprise, it would prime Ethiopia for more foreign investment and work to alleviate poverty by employing more people who’d earn higher wages. The national government is currently working to remove systemic hindrances to this economic boom and improve trade logistics, or how fast a product moves about and out of the country.
All signs point to Ethiopia capitalizing on the opportunity that lies ahead. It’s economy grew 9.7% from 2012 through 2013, off 1.3% from a projected 11% growth. However, this can be attributed to a weaker global commodities market. Agriculture and coffee have dominated Ethiopian exports, and coffee prices dropped last year, according to a report from the Business Recorder.
Beginning in 2011, Ethiopia spent time and capital on infrastructure to position itself as a fast growing economy, raising growth to nearly 9% in 2011 and 2012. The International Monetary Fund (IMF) noted that the spending, coupled with inflation and what was traditionally a weak business environment did little to help private sector growth; “…public spending on mega-dams, roads, schools and other infrastructure required massive domestic funding, which was hampering the private sector’s access to credit. The World Bank sees growth averaging 7 percent for the next three to five years.”
Ethiopia was the 12th fastest growing economy in the world in 2012, and the steps it has taken could see the nation garnering a middle-income designation by 2025. The World Bank contends that to achieve that status, the nation must continue its focus on attracting private industry, upping domestic savings rates, and mastering trade logistics.
This means more banking options and financial literacy for citizens and incentivizing saving. “Ethiopia’s savings rate is at its lowest in 30 years, declining from 10% percent of gross domestic product (GDP) in the 1980s to six percent of GDP in the 2000s.” Streamlining how product moves across the nation and through borders will also attract private investment and manufacturing.
In early 2013, the Ethiopian government went to work creating two new government institutions aimed at improving, “…the food and beverage as well as the pharmaceutical and chemical sectors.” All Africa states that the Ethiopian Ministry of Industry (MoI) is behind this push, “…to assess the competitiveness of Ethiopian firms for participation in the Common Market for Eastern & Southern Africa (COMESA) Free Trade Area.”
Already, there are institutions dedicated to the advancement of the leather and textile industries. Each of these government institutions exists to help maximize potential; “Pharmaceuticals and chemical products earned seven million dollars out of a targeted 11.9 million dollars, which is 58.7pc during the 2011/12 fiscal year.”
Ethiopian changes in recent years are set to lead sub-Saharan Africa in new job creation, according to Justin Yifu Lin, Chief Economist and Senior Vice President for Development Economics for the World Bank. In 2012, he observed firsthand on a five-nation tour covering Africa and Asia that Ethiopia had a distinct advantage regarding natural resources, exports, and growing markets despite what it currently lacks in worker knowledge and trade logistics.
Increased cost of doing business in China and Asia is pushing manufacturing into the region however, and the proverbial table is set for Ethiopia to capitalize. With a burgeoning economy and the dogged pursuit of the national government to actualize and maximize industrial potential, Ethiopia looks to continue its sprint to middle income realization and a shift toward manufacturing–undoubtedly bolstering the economy against poverty.
– David Smith
Sources: International Business Times, Business Recorder, All Africa, World Bank
Photo: Times of Oman