Home to approximately 110 million people and the second-most populous country in the continent, Ethiopia has become the land of economic opportunities and the superstar of Africa. Here’s why…
Egypt, Nigeria and South Africa remained the three largest markets in Africa last year, but Ethiopia is set to be the fastest-growing economy in Africa, averaging 8,2% for the next six years – a slight normalisation from the 10% average experienced over the past decade.
It may be coming of a relatively low base, but the country has achieved the most robust GDP growth of any country globally, surpassing China, Qatar and Rwanda. According to the World Bank, the average income in the country has nearly tripled, and the proportion of people with access to electricity has doubled.
The result is that Ethiopia is now on the radar of many investment institutions and companies looking for the next big growth opportunity on the continent.
The Secret To It’s Success
We can attribute the country’s economic growth rise up the charts to a number of factors, primarily improved macroeconomic policies and higher government investment in local industries and human capital. Prime minister Abiy Ahmed has been a reformist new broom, unleashing political changes and encouraging foreign direct investment.
Government policy under Ahmed
Speaking at the World Economic Forum in Davos in January, Ahmed talked about the significant investment in infrastructure, which has contributed to the economic growth experienced in recent years.
“We are undergoing a period of economic and political renaissance,” said Ahmed. To enforce an upward trajectory, Ethiopia has embarked on a comprehensive economic, political and social reform programme since last April.
On the political front, Ethiopia has acted quickly and decisively by among other things releasing political prisoners, restoring licences to independent media, and will be revising civil society law soon, Ahmed said.
Increased investment in the private sector
Private investment has been another major contributor and continues to increase after the resolution of the long-standing conflict with Eritrea. The potential of the private sector is being unleashed by, among other things, making it easier for small and medium-sized enterprises (SMEs) to grow and flourish, by reprioritising access to funding as two thirds of SMEs have voiced their frustration with funding issues.
Ethiopia will also ease mainstream regulations that are needed to start a business and provide a better policy environment, said Ahmed, “to make it easier to do business with everyone who wishes to invest in our country”.
Commercial courts and business regulations will also be reviewed in order to make business easier and increase global competitiveness. “We will make the private sector an integral part of our economy as it should be.”
In a report earlier this year, Rand Merchant Bank (RMB) acknowledged these efforts and how they impact Ethiopia’s potential: “It is time for investors to seize business opportunities offered by landlocked Ethiopia as the country seeks to recover its past glories and improve its economy.”
The Challenges
While it seems Ethiopia is hard at work, analysts have cautioned that there are challenges ahead. We are still talking about a country where 35 million people do not have reliable access to clean water and approximately 90 million people do not have access to any modern sanitation facilities.
Another difficulty is the demographic bulge, or rapid growth of its population. The country has a burgeoning youthful population, which makes up 70% of the entire nation.
Professor Lyal White, senior director at the University of Johannesburg’s Business School, identifies the influx of people in urban areas as an important factor: “Creating jobs and making sure they are productive could be [some] of the challenges that the country could face. One of the biggest challenges in demographic growth is food security and water provision.”
Zachary Donnenfeld and Jakkie Cilliers from the Institute for Security Studies (ISS), while noting that Ethiopia is one of the most remarkable development success stories in the world, point to the Institute’s study on the nation’s long-term development prospects.
This study concluded, among other things, that although Ethiopia has made steady progress improving yields in recent years, the country has a long way to go toward establishing food security.
As land available for agriculture shrinks, boosting yields will have to become the predominant strategy for achieving food security, reducing hunger, and growing incomes in the agriculture sector.
Looking Ahead
As noted in that RMB report, a lack of infrastructure remains a perennial African problem. Across much of the continent of Africa, there is a need for investment in roads, rails, ports, airports, power grids and IT systems.
Together, these represent the infrastructural backbone required to support the economies of Africa. And yet, it is infrastructural constraints such as these that serve as catalysts and are drivers of African innovation.
Professor White is of the view that while the country is still closed for most conventional trade, it is slowly opening up some industries in a bid to accelerate its economy, attract investment and to ensure productivity among the population.
It has rolled out various extension programmes in the fields of agriculture, education, and health. In agriculture, for example, where Ethiopia’s primary export is coffee and tea, there has been a rise in employment, especially for women.
With Ethiopia under prime minister Ahmed also committed to opening up the economy to international investors in telecoms, logistics, energy, aviation, railways, and industrial parks, telecoms operators such as MTN, Orange and Vodacom are among those vying to enter Ethiopia.
It seems Ethiopia is getting its ducks in the row – but most importantly, it is open for business.
Words by Thabiso Mochiko
