News / Economy

In Ethiopia, State Controls Hold Back Waking Giant

Ethiopian Prime Minister Hailemariam Desalegn walks arrives a day before the G20 Summit, St. Petersburg, Sept. 4, 2013.
Ethiopian Prime Minister Hailemariam Desalegn walks arrives a day before the G20 Summit, St. Petersburg, Sept. 4, 2013.
Reuters
— When global drinks giant Diageo bought a brewery in Ethiopia, it paid a premium for a stake in a barely tapped African market that in the 1980s had spectacularly failed to feed its own population.
 
Diageo paid $225 million for state-owned Meta Abo, joining a list of firms seeking a foothold in Africa's second most populous nation that was once run by communists and now has an emerging middle class after a decade of double-digit growth.
 
“We paid a premium of course and that was a deliberate decision ... We knew the value of what we were buying,” Francis Agbonlahor, Diageo's managing director at Meta Abo, told Reuters in a capital that boasts smart highways and new office blocks.
 
Ethiopia is now sub-Saharan Africa's fifth biggest economy, leap-frogging next door Kenya and wooing investors from Sweden, Britain and China, as other emerging markets lose some of their shine.
 
Few nations can better tell the story of “Africa Rising,” the narrative of a hopelessly mismanaged and violent continent now prized for strong growth and, in many cases, the kind of political stability scarcely imaginable a decade or two ago.
 
Yet like other African nations, Ethiopia must now work out how to maintain economic momentum as the U.S. Federal Reserve starts to turn off the taps of easy money that drove investors to more adventurous markets, and when China's economy and those of other emerging powers start to shift down a gear.
 
That means another tricky transition for Ethiopia, which has until now relied on the state to run its economy, but which has seen growth rates slip to 7-8 percent, short of the level needed for its goal of middle income status by 2025.
 
“When you are starting from a very low base with a lot of donor support, it is easy enough to grow in a strong, robust way,” said Razia Khan, head of Africa research for Standard Chartered bank. “As the economy matures ... it is going to become a lot more difficult.”
 
Dilemma
 
Opening up the economy, as many businesses at home and abroad want, could draw in new investment but may also loosen the controls that can be exerted by a government made up of ethnic and regional parties that has carefully managed development and kept a lid on rivalries.
 
That is the dilemma for Prime Minister Hailemariam Desalegn and his cabinet, who still work in the shadow of Meles Zenawi, the rebel-turned-statesman who ruled with an iron grip for two decades until he died last year. Caution remains the watchword.
 
“We are not ready now,” Foreign Affairs Minister Tedros Adhanom told Reuters when asked if Ethiopia could open up its mobile network or banks, prime targets for foreign investors.
 
Concerns about a deepening rich-poor divide and worries about changing the tried and tested policies of a charismatic leader, all weigh in to deter officials from a big shift.
 
But moving too slowly risks squandering investor enthusiasm and damaging the prospects of a nation once best known for “Red Terror” purges under communist rule in the 1970s and its 1980s famine. For now, at least, it has not deterred investors.
 
“I was in India recently and the thing that caught me by surprise [when talking] to foreign investors [was] the country that kept being mentioned was Ethiopia,” said Khan.
 
Diageo is not alone in seeing the potential. Heineken of Holland and France's BGI Castel have snapped up breweries, which were among first state firms to be sold off.
 
The Ethiopian Investment Agency says Unilever and Nestle are sniffing around, and South Korea's Samsung told Reuters it was exploring Ethiopia as a place to assemble its electronic goods. The two European companies did not comment.
 
Hennes & Mauritz (H&M), the world's second biggest fashion retailer, has put in test orders as the nation seeks to boost textile exports to $1 billion a year by 2016 from $100 million last year.
 
H&M spokeswoman Marie Rosenlind said that, if the tests were successful, production could start this autumn.
 
Lending support
 
With manufacturing accounting for just 4 percent of gross domestic product, Ethiopia needs such investors to help reduce its reliance on exports of coffee, horticultural products and livestock that have driven growth until now. It also remains one of the world's biggest recipients of aid.
 
“No other country that I'm aware of, aside from these resource-rich countries ... can go to middle-income status with still 50 percent of GDP on agriculture,” Guang Z. Chen, the World Bank's country director, told Reuters in a June interview.
 
China could lend support, though this time not in the usual form of donations that have helped African growth till now.
 
Chinese shoe exporter Huajian has announced plans to co-invest $2 billion in an industrial zone outside Addis Ababa to bolster its Ethiopian exports and create up to 100,000 jobs.
 
The African Development Bank says a switch by Beijing towards domestic consumption may boost manufacturing in African economies like Ethiopia, where labor is cheap and power is a third of the price in China.
 
Ethiopia is building a huge dam on the upper reaches of the Blue Nile, part of plans to export electricity in a few years.
 
Until now, the most visible signs of growth are in the capital, where building sites clad in wooden scaffolding have mushroomed. In the upmarket Bole Medhane Alem suburb, an emerging middle class is enjoying new luxuries.
 
A fast-food outlet sells burgers and fries for a just over $4, more than many Ethiopians earn for several days' work. “We're not coping with demand,” said one employee.
 
At a nearby coffee house, whose logo mimics Starbucks, hip youths in low-cut jeans sip Frappuccino’s and caramel macchiatos.
 
“The middle class is growing and is really increasing its purchasing power,” said 18-year-old Yohannes, sitting near a billboard advertising two new residential tower blocks carrying the slogan: “From shabby to chic. Witness the transformation.”
 
'I won't be one of them'
 
Yet for some, change is not being felt, including those in the capital's tin-roofed slums.
 
“You can see it all around you, there are rich people. But I am not going to be one of them,” said Elias Zelalem, a teenager who earns $1.60 a day shining shoes — if business is brisk.
 
Ethiopia's ambition is to achieve middle income status in 12 years’ time, defined by the World Bank as a per capita income of $1,430. In 2012, Ethiopia's per capita income was $410.
 
Yet to do this, Ethiopia's $43 billion economy needs to repeat the 10.7 percent average annual growth achieved in 2004 to 2011. Some question whether the state's determination to meet this target is coming at the cost of private business.
 
“We have to overcome poverty. How fast we should do this, therein lies the difference [of opinion],” said Zafu Eyessus Zafu, whose United Insurance Company is a shareholder in a commercial bank. He wants financial services open to foreigners.
 
Two thirds of Ethiopia's 8.5 percent growth in 2011/12 was due to public spending, the World Bank said. Half of spending needs are raised domestically, leaving little for private firms.
 
“If we need 50 million birr ($2.7 million) from the bank we may get 20-25 million,” said a truck importer who identified himself as Taye, wary of using his full name in a nation where the state has long kept a tight lid on dissent and criticism.
 
“For foreign currency it is impossible. We can apply to the bank and wait a month or more,” he added.
 
Proven policy
 
The credit crunch is deepened by a state-imposed requirement that each time a bank lends cash it must loan an additional 27 percent of the loan's value to the government in the form of a low-interest Treasury bond to help fund development projects.
 
But the government shows no change of tack. Reining in the state would challenge the vision of Meles, whose portrait still hangs in government offices.
 
“There is no need to look for policy changes at this time,” deputy premier Muktar Kedir told Reuters earlier this year.
 
“We are of the mind that we have to fully implement the policy that has already proven itself successful,” he said.
 
A policy shift could open rifts along ethnic lines in the coalition made up of four main regional parties. There is little room for anyone who might challenge the status quo.
 
Without the force of personality or reputation of his predecessor, Hailemariam has shown no sign he has the political will or clout to veer from Meles' path.
 
That may mean Ethiopia has to be content with slower growth and investors will need patience.
 
“Ethiopia is missing out in several respects,” said Standard Chartered's Khan. “But there is this very cautious policy.”

You May Like

Reports of Mass Murder on Mediterranean Smuggler’s Boat

Boat sailed from Libya with 750 migrants aboard and arrived in Italy with 569 More

Video New Thailand Hotline Targets Misbehaving Monks

Officials say move aims to restore country’s image of Buddhism, tarnished by recent high profile scandals such as opulent lifestyle, drug and alcohol abuse, as well as child sex abuse More

Study: Dust from Sahara Helped Form Bahama Islands

What does the Sahara have in common with a Caribbean island? Quite a lot, researchers say More

This forum has been closed.
Comment Sorting
Comments
     
by: David
September 19, 2013 4:58 PM
1) Voice of America (VOA) is the official external broadcast institution of the United States federal government. http://en.wikipedia.org/wiki/Voice_of_America

2) The main sectors of interest to U.S. companies are telecommunications, financial services, logistics, and wholesaling. U.S. firms have a significant competitive advantage in these areas. These sectors, however, are closed to foreign investors and U.S. firms are discouraged by Ethiopia’s relatively weak private sector and state-dominated economy.
Testimony by Donald Yamamoto "Ethiopia after Meles" Congressional Hearing
http://nazret.com/blog/index.php/2013/06/26/testimony-by-donald-yamamoto-ethiopia-after-meles-congressional-hearing


by: Mussie from: Norway
September 19, 2013 4:28 AM
Neoliberalistic one-fits-all attitude has always been an impediment to the development of African economies. Gone are the days when westerners could bully states into their economic influence.


by: occupy walstreet from: US
September 18, 2013 9:32 PM
The priests of liberalism are weeping a crocodile tear as always for the interest of their pops, the 1%. No Ethiopia never be a prey for your vulture capitalism. You are late bullies.


by: endalk from: USA
September 18, 2013 10:12 AM
Poor westerners,who are attempting ,in vain, to infiltrate the Ethiopian economy in order to poison it,just like the 2007 US financial crash......
That is why it's (ET) leaders will never succumb to their evil plans since they seem to be standing and working for it's people,unlike western Govt who stand for the 1 %


by: Gebru G/Egziabher from: Addis Ababa
September 18, 2013 3:10 AM
Well i have read the articl it has both encouraging/discouraging ideas but both are appriciable because a country should not expect to be appriciated only rather comments from the other angle is important.
after saing so i just want to say something on the economic development of the country (Ethiopia). but before that ary you (Western orented Idealsits) steal thinking that if a country wants to develop, it has to open its doors to the "Wester' in the name of free market "Neo-Liberal Ideology"? I thing and I am sure this has passed thatnks to the Visionary Leader, the let Meles and his followers, they have showen us the way the thought us the difference, so please let us follow our Developmental State way of development, with the governments interferance in areas of macro projects and infrastructurs.
so our dear brothers and sisters from the "West" if you are now able to see and understand what is happening and will happen in the futur in Africa please come and join the other development partners (llike from China, India Turky etc) or you just leave us alon and see from far.


by: Safia A., phd from: Ethiopia
September 17, 2013 3:35 PM
Western venture (aka "vulture") capitalists telling us what's good for us. Comedy!

Western banks made millions homeless globally, and even in U.S. income inequality shows 95% of recent economic recovery gains went to the top 1%, the wealthy bankers!




In Response

by: EthiopinLion
September 17, 2013 11:04 PM
Lol its ok, we don't need advice from greedy western bankers and investors who look out for themselves, where were you when we were "asleep"??? we don't need you!

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Astronauts Train in Underwater Labi
X
George Putic
July 25, 2014 7:25 PM
In the world’s only underwater laboratory, four U.S. astronauts train for a planned visit to an asteroid. The lab - called Aquarius- is located five kilometers off Key Largo, in southern Florida. Living in close quarters and making excursions only into the surrounding ocean, they try to simulate the daily routine of a crew that will someday travel to collect samples of a rock orbiting far away from earth. VOA’s George Putic has more.
Video

Video Astronauts Train in Underwater Lab

In the world’s only underwater laboratory, four U.S. astronauts train for a planned visit to an asteroid. The lab - called Aquarius- is located five kilometers off Key Largo, in southern Florida. Living in close quarters and making excursions only into the surrounding ocean, they try to simulate the daily routine of a crew that will someday travel to collect samples of a rock orbiting far away from earth. VOA’s George Putic has more.
Video

Video Not Even Monks Spared From Thailand’s Junta-Backed Morality Push

With Thailand’s military government firmly in control after May’s bloodless coup, authorities are carrying out plans they say are aimed at restoring discipline, morality and patriotism to all Thais. The measures include a crackdown on illegal gambling, education reforms to promote students’ moral development, and a new 24-hour phone hotline for citizens to report misbehaving monks. Steve Sandford reports from Bangkok.
Video

Video Virtual Program Teaches Farming Skills

In a fast-changing world beset by unpredictable climate conditions, farmers cannot afford to ignore new technology. Researchers in Australia are developing an online virtual world program to share information about climate change and more sustainable farming techniques for sugar cane growers. As VOA's Zlatica Hoke reports, the idea is to create a wider support network for farmers.
Video

Video Airline Expert: Missile will Show Signature on Debris

The debris field from Malaysia Airlines Flight 17 is spread over a 21-kilometer radius in eastern Ukraine. It is expected to take investigators months to sort through the airplane pieces to learn about the missile that brought down the jetliner and who fired it. VOAs Carolyn Presutti explains how this work will be done.
Video

Video Treatment for Childhood Epilepsy Heats up Medical Marijuana Debate

In the United States, marijuana is classed as an illegal drug by the federal government. But nearly half the states have legalized it, to some degree. Proponents say some strains of marijuana might have exceptional health benefits, for treating pain or inflammation in chronic conditions such as cancer, multiple sclerosis and epilepsy. Shelley Schlender reports on a strain of medical marijuana developed in Colorado that is reputed to reduce seizures in childhood epilepsy
Video

Video Airbus Adds Metal 3D Printed Parts to New Jets

By the end of this year, European aircraft manufacturing consortium Airbus plans to deliver the first of its new, extra-wide-body passenger jets, the A350-XWB. Among other technological innovations, the new plane will also incorporate metal parts made in a 3-D printer. VOA's George Putic has more.
Video

Video AIDS Conference Welcomes Exciting Developments in HIV Treatment, Prevention

Significant strides have been made in recent years toward the treatment and prevention of HIV, the virus that causes AIDS. This year, at the International AIDS Conference, the AIDS community welcomed progress on a new pill that may prevent transmission of the deadly virus. VOA’s Anita Powell reports from Melbourne, Australia.
Video

Video IAEA: Iran Turns its Enriched Uranium Into Less Harmful Form

Iran has converted its stockpiles of enriched uranium into a less dangerous form that is more difficult to use for nuclear weapons, according to the United Nations’ Atomic Energy Agency. The move complies with an interim deal reached with Western powers on Iran's nuclear program last year, in exchange for easing of sanctions. Henry Ridgwell reports for VOA from London.

AppleAndroid

World Currencies

EUR
USD
0.7305
JPY
USD
101.53
GBP
USD
0.5830
CAD
USD
1.0656
INR
USD
60.075

Rates may not be current.