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.
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.”
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

Video Russia’s Syrian Escalation Tests Obama’s Crisis Response

Critics once again question whether president has been slow to act on Syrian conflict, thus creating opening for powers like Russia More

Ancient African DNA Shows Mass Migration Back Into Africa

First genetic analysis of ancient human remains in Africa suggests massive migration from north around time of Egyptian empire More

NASA: Pluto Has Blue Sky

New photos also reveal the presence of water ice More

This forum has been closed.
Comment Sorting
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.

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

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.
Hungary Criticized for Handling of Refugeesi
Henry Ridgwell
October 08, 2015 8:02 PM
Amnesty International has accused Hungary of breaking multiple international and European human rights laws in its handling of the refugee crisis. As Henry Ridgwell reports, thousands of migrants and refugees continue to travel through the Balkans to Hungary every day.

Video Hungary Criticized for Handling of Refugees

Amnesty International has accused Hungary of breaking multiple international and European human rights laws in its handling of the refugee crisis. As Henry Ridgwell reports, thousands of migrants and refugees continue to travel through the Balkans to Hungary every day.

Video Iraqi-Kurdish Teachers Vow to Continue Protest

Sixteen people were injured when police used tear gas and rubber bullets to disperse teachers and other public employees who took to the streets in Iraq’s Kurdish north, demanding their salaries from the Kurdish Regional Government (KRG). VOA’s Dilshad Anwar, in Sulaimaniya, caught up with protesting teachers who say they have not been paid for three months. Parke Brewer narrates his report.

Video Syrian Village Community Faces Double Displacement in Lebanon

Driven by war from their village in southwestern Syria, a group of families found shelter in Lebanon, resettling en masse in a half-built university to form one of the biggest settlements of its kind in Lebanon. Three years later, however, they now face being kicked out and dispersed in a country where finding shelter as a refugee can be especially tough. John Owens has more for VOA from the city of Saida, also known as Sidon.

Video Bat Colony: Unusual Tourist Attraction in Texas

The action hero Batman might be everyone’s favorite but real bats hardly get that kind of adoration. Put more than a million of these creatures of the night together and it only evokes images of horror. Sarah Zaman visited the largest urban bat colony in North America to see just how well bat and human get along with each other.

Video Device Shows Promise of Stopping Motion Sickness

It’s a sickening feeling — the dizziness, nausea and vomiting that comes with motion sickness. But a device now being developed could stop motion sickness by suppressing certain signals in the brain. VOA’s Deborah Block reports.

Video Making a Mint

While apples, corn, and cranberries top the list of fall produce in the US, it’s also the time to harvest gum, candy, and toothpaste—or at least the oil that makes them minty fresh. Erika Celeste reports from South Bend, Indiana on the mint harvest.

Video Activists Decry Lagos Slum Demolition

Acting on a court order, authorities in Nigeria demolished a slum last month in the commercial capital, Lagos. But human rights activists say the order was illegal, and the community was razed to make way for a government housing project. Chris Stein has more from Lagos.

Video TPP Agreed, But Faces Stiff Opposition

President Barack Obama promoted the Trans-Pacific Partnership on Tuesday, one day after 12 Pacific Rim nations reached the free trade deal in Atlanta. The controversial pact that would involve about 40 percent of global trade still needs approval by lawmakers in respective countries. Zlatica Hoke reports Obama is facing strong opposition to the deal, including from members of his own party.

Video Ukranian Artist Portrays Putin in an Unusual Way

As Russian President Vladimir Putin was addressing the United Nations in New York last month, he was also being featured in an art exhibition in Washington. It’s not a flattering exhibit. It’s done by a Ukrainian artist in a unique medium. And its creator says it’s not only a work of art - it’s a political statement. VOA’s Tetiana Kharchenko has more.

Video Nano-tech Filter Cleans Dirty Water

Access to clean water is a problem for hundreds of millions of people around the world. Now, a scientist and chemical engineer in Tanzania (in East Africa) is working to change that by creating an innovative water filter that makes dirty water safe. VOA’s Deborah Block has the story.

Video Demand Rising for Organic Produce in Cambodia

In Cambodia, where rice has long been the main cash crop, farmers are being encouraged to turn to vegetables to satisfy the growing demand for locally produced organic farm products. Daniel de Carteret has more from Phnom Penh.

Video Botanists Grow Furniture, with Pruning Shears

For something a bit out of the ordinary to furnish your home, why not consider wooden chairs, crafted by nature, with a little help from some British botanists with an eye for design. VOA’s Jessica Berman reports.

VOA Blogs

World Currencies


Rates may not be current.