Private sector actors are increasingly being recognized as a major force in development. They drive economic growth through investment, employment and business creation. This growth is likely to contribute to long-term poverty reduction as private companies include the public as producers, suppliers, employees and consumers. Public-private partnerships that are based on the identification of complementary expertise and shared commercial interests are also important tools that can harness the private sector’s contribution to such inclusive growth.
Powered by such substantial public infrastructure investment and a conducive external environment, Ethiopia’s growth has been rapid and it has managed to decrease poverty substantially by 30% according to the recent World Bank report. Private investments also play a key role to sustain this growth. Ethiopia has witnessed rapid economic growth, with gross domestic product (GDP) averaging 10.9%. This has lifted the country from being the second poorest in the world to aiming to become middle income country by 2025.
“Public institutions create the conditions and rules within which sustained and inclusive economic growth driven by the private sector is possible. Beyond this enabling environment, strong public sector capacity is needed to ensure that authorities are able to deliver services and carry out their regulatory responsibilities in a transparent manner, Alexander Burtenshaw, Country Manager of Jovago Ethiopia said. The combination of increased private sector activity alongside good public policies are most likely to lead to success.”
Although, the importance of the private sector to economic growth has long been recognized, private sector actors were not seen as development actors until recently. As a result, they were typically treated as a secondary potential vehicles of development financing. However, attitudes about development actors have been shifting. Policy discussions are now increasingly addressing the role and importance of other actors in development, including private enterprises and individuals.
On the other hand, foreign direct investment are vital complements to national and international development efforts. The private sector is being sought by the government as a partner for a number of reasons, including their expertise, market-based approaches and technological innovation. Various development agencies are also increasing their engagement with the private sector because of their growing awareness that it already is a major force in development.
With Ethiopia having the third largest infrastructure deficit in Africa and infrastructure being one of the most important drivers of economic growth. Other financing mechanisms including raising tax revenues, increasing private sector involvement, and improving public investment management can be considered to tap into the growth potential of reforms.
Private sector services and agriculture have largely contributed to the growth. Initially, agriculture was the main contributor to growth aided by a construction boom the services sector has taken over. Services contributed 5.4% to the GDP growth rate, followed by agriculture at 3.6%. Ethiopia witnessed accelerated growth as the service sector began to rise. The shift of workers from agriculture to service and construction also contributed to a quarter of Ethiopia’s per capita growth.
By Eden Sahle