Over the past decade, Ethiopia’s public-sector led development strategy with its focus on heavy investment in infrastructure has underpinned the country’s strong economic growth. This high rate of growth has been registered in different economic sectors.
Growth has been inclusive and widespread and a large number of new jobs have been created in both the public and private sectors, particularly through a boom in construction covering infrastructure, housing and commercial developments especially at the capital city Addis Ababa.
The service sector grew by 11.9% in 2013/14, mainly driven by an expansion in hotels and tourism (up 26.4%), financial intermediation (17.8%), wholesale and retail trade (14.9%), and transport and communications (13.7%). Over the same period, the industrial sector grew by 21.2% (14.4% of GDP, up 1.3 % points year on year) driven by construction, mining and manufacturing. The outlook for the sector remains positive with government measures to boost jobs and increase value added through provision of industrial shelters access to finance.
Targeting both the export-oriented light manufacturing industries garment, textile and leather and small and medium manufacturers the country has started supplying the world. Ethiopia has strong potential to rapidly transform its economy, link increasingly into global value chains and become the African manufacturer of the future. The garment and textile industries show particular development potential with the opportunity to expand into large-scale cotton production, and shoes.
Similarly, furniture manufacturing could develop harnessing the country’s sound forestry management, and agro-processing could draw on the country’s natural resources. Ethiopia’s fiscal policy aims to maintain a prudent fiscal stance while pursuing strong investment in infrastructure and basic services. The government has significantly reduced the cost of doing business by simplifying regulations and improving the quality and effectiveness of the institutions supporting businesses. Together, the state and private sector representatives have held at least two consultations per year, as set out under the terms of the Public Private Dialogue Forum signed in 2010. This consultative forum brings the government and private sector together around a shared agenda.
Nevertheless low income levels, high rates of poverty, and traditional economic structure of the Ethiopian economy still hinder Ethiopia’s competitiveness while low income per capita reflects low labour productivity experts explain.
“The ease of entry and exit from low-wage, low-productivity jobs and an improving business environment alone will not lead to improved competitiveness. These need to be critically complemented by competitiveness-enhancing reforms in basic requirement, such as improving institutions and bridging the infrastructure and human capital gap.” Alexander Burtenshaw Country Manager of Jovago Ethiopia.
Ethiopia’s state-led development model has delivered rapid economic growth, reduced poverty, and improved social welfare. However, structural transformation has proceeded less quickly than planned, and slow export growth has increased external vulnerabilities.
On the other hand according to international Monetary Fund the outlook for Ethiopia remains largely favorable, reflecting its significant economic potential, policies that generally support macroeconomic stability, and reforms aimed at improving competitiveness.
By Eden Sahle