News / Africa

Ethiopia's Economic Growth Slowing as Private Sector Struggle

Traffic flows down a main street in Ethiopia's capital Addis Ababa, Ethiopia, Jan. 27, 2010.
Traffic flows down a main street in Ethiopia's capital Addis Ababa, Ethiopia, Jan. 27, 2010.
Reuters
Ethiopia's huge public spending has created one of Africa's fastest-growing economies, but volatile inflation, balance of payments pressures and a stifled private sector raise questions over its sustainability, the International Monetary Fund said.
    
Ethiopia's 85 million-strong population, making it Africa's second-most populous nation, offers an attractive market with cheap labor for foreign investors.
    
Across the capital, mushrooming construction sites, glass-clad office towers and giant billboards showcasing hi-tech electronics point to Ethiopia's emerging middle class. But idle youths loitering on streets and impoverished slums underscore some of the challenges facing the government.
    
Economic growth will slow to an estimated 6.5 percent this fiscal year from 8.5 percent in 2011/12, Jan Mikkelsen, the IMF's country representative in Ethiopia, said in an interview on Thursday.
    
Massive energy, transport, IT and manufacturing projects require financing equivalent to roughly 15 percent of Ethiopia's estimated $33 billion annual national output. About half had to be domestically funded, Mikkelsen said.
    
“The amount of financing that those projects absorb is so large that it is crowding out activity in the private sector,” said Mikkelsen, whose office overlooks a new superhighway running through central Addis Ababa.
    
Businesses struggle to access private credit and foreign exchange, curbing private sector activity and creating an imbalance between the private and public sectors.
    
“That imbalance is hurting growth over time and makes it more difficult to attract investors,” he said, projecting growth would remain steady at 6.5 percent in 2013/14 as well.
    
Key sectors, such as banking and telecoms, remain firmly in government hands.
    
The government has reported double-digit GDP growth for much of the past decade, but some economists say that is inflated. The IMF's next annual review is due out in a month.
    
Growth has been driven by an expansion in services and agriculture. The main exports include coffee, horticultural products and livestock. Ethiopia is also a big aid recipient.
  
Addis Ababa's high public spending had fuelled volatile swings in inflation as the government bought hard currency, thereby flooding the market with liquidity.
    
Food and oil price shocks exacerbated swings that saw inflation scale 60 percent during 2008, fall into negative territory in 2009 before spiking above 40 percent in 2011.
    
Foreign investment
   
That raised concerns regarding macro stability, Mikkelsen said. In the past 18 months, monetary policy has been tightened and the headline inflation rate slid to 6.1 percent in April.
    
“Our projection given the policy stance ... is that single-digit inflation will be maintained this year and next year,” said Mikkelsen, adding this probably meant upper single digits.
    
The battle against inflation has been fought at the expense of the country's foreign exchange reserves, the main tool used by Ethiopia to mop up liquidity and which fell by some $1 billion between 2010/11 and 2011/12, according to the IMF.
    
At the start of this fiscal year running to July 7, reserves stood at about $2.3 billion, less than two months' import cover.
  
The government was on track to end the year with reserves steady, Mikkelsen said, but there are questions over how easily the government can sustain its spending program while targeting single-digit inflation.
    
The Fund backs Ethiopia's efforts to build more roads and hydroelectric dams, but Mikkelsen said Addis Ababa could slow the pace of public sector investment to give private firms a bigger role, which would ease demand for domestic financing and attract foreign investors.
    
The state-owned Commercial Bank of Ethiopia controlled more than two thirds of the entire sector's assets in 2012, according to the IMF, while the only telecoms firm is state-run.
    
To lure foreign cash, Ethiopia needed to increase access to financial services, improve trade logistics and embrace private business as a force for development, Mikkelsen said.
    
“We think with the right policy close to double-digit growth is possible given the potential that is here in Ethiopia and given the interest that we see.”

You May Like

IS Militants Release 49 Turkish Hostages

Turkey's state-run Anadolu news agency reports that no ransom was paid and no conditions accepted for the hostages' release; few details of the release are known More

Photogallery IS Attacks Send Thousands of Syrian Kurds Fleeing to Turkey

Syrian Observatory for Human Rights says more than 300 Kurdish fighters crossed into Syria from Turkey to defend a Kurdish area from attack by the Islamic militants More

Video Sierra Leone's Ebola Lockdown Continues

Thousands of health workers are going door to door in the West African country of 6 million, informing people of how to avoid Ebola, handing out soap More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Fears Ebola Outbreak ‘Beyond Our Capability to Contain’i
X
Jeff Seldin
September 20, 2014 10:28 PM
Each day brings with it new warnings about the deadly Ebola outbreak already blamed for killing more than 2,600 people across West Africa. And while countries and international organizations like the United Nations are starting to come through on promises of help for those most affected, the unprecedented speed with which the virus has spread is raising questions about the international response. VOA's Jeff Seldin has more from Washington.
Video

Video Fears Ebola Outbreak ‘Beyond Our Capability to Contain’

Each day brings with it new warnings about the deadly Ebola outbreak already blamed for killing more than 2,600 people across West Africa. And while countries and international organizations like the United Nations are starting to come through on promises of help for those most affected, the unprecedented speed with which the virus has spread is raising questions about the international response. VOA's Jeff Seldin has more from Washington.
Video

Video Iran, World Powers Seek Progress in Nuclear Talks

Iran and the five permanent members of the U.N. Security Council plus Germany, known as the P5 + 1, have started a new round of talks on Iran's nuclear program. VOA State Department correspondent Pam Dockins reports that as the negotiations take place in New York, a U.S. envoy is questioning Iran's commitment to peaceful nuclear activity.
Video

Video Obama Goes to UN With Islamic State, Ebola on Agenda

President Obama goes to the United Nations General Assembly to rally nations to support a coalition against Islamic State militants in Iraq and Syria. He also will look for nations to back his plan to fight the Ebola virus in West Africa. As VOA White House correspondent Luis Ramirez reports, Obama’s efforts reflect new moves by the U.S. administration to take a leading role in addressing world crises.
Video

Video Migrants Caught in No-Man's Land Called Calais

The deaths of hundreds of migrants in the Mediterranean this week has only recast the spotlight on the perils of reaching Europe. And for those forunate enough to reach a place like Calais, France, only find that their problems aren't over. Lisa Bryant has the story.
Video

Video Westgate Siege Anniversary Brings Back Painful Memories

One year after it happened, the survivors of the terror attack on Nairobi's Westgate Shopping Mall still cannot shake the images of that tragic incident. For VOA, Mohammed Yusuf tells the story of victims still waiting for the answer to the question 'how could this happen?'
Video

Video Militant Assault in Syria Displaces Thousands of Kurds

A major assault by Islamic State militants on Kurds in Syria has sent a wave of new refugees to the Turkish border, where they were stopped by Turkish border security. Turkey is already hosting about 700,000 Syrian refugees who fled the civil war between the government and the opposition. But the government in Ankara has a history of strained relations with Turkey's Kurdish minority. Zlatica Hoke reports Turkey is asking for international help.
Video

Video Whaling Summit Votes to Uphold Ban on Japan Whale Hunt

The International Whaling Commission, meeting in Slovenia, has voted to uphold a court ruling banning Japan from hunting whales in the Antarctic Ocean. Conservationists hailed the ruling as a victory, but Tokyo says it will submit revised plans for a whale hunt in 2015. Henry Ridgwell reports from London.
Video

Video A Dinosaur Fit for Land and Water

Residents and tourists in Washington D.C. can now examine a life-size replica of an unusual dinosaur that lived almost a hundred million years ago in northern Africa. Scientists say studying the behemoth named Spinosaurus helps them better understand how some prehistoric animals adapted to life on land and in water. The Spinosaurus replica is on display at the National Geographic museum. VOA’s George Putic has more.
Video

Video Iraqi Kurdistan Church Helps Christian Children Cope find shelter in churches in the Kurdish capital, Irbil

In the past six weeks, tens of thousands of Iraqi Christians have been forced to flee their homes by Islamic State militants and find shelter in churches in the Kurdish capital, Irbil. Despite U.S. airstrikes in the region, the prospect of people returning home is still very low and concerns are starting to grow over the impact this is having on the displaced youth. Sebastian Meyer reports from Irbil on how one church is coping.


Carnage and mayhem are part of daily life in northern Nigeria, the result of a terror campaign by the Islamist group Boko Haram. Fears are growing that Nigeria’s government may not know how to counter it, and may be making things worse. More

AppleAndroid