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

    Native Americans Ask: What About Our Water Supply?

    They say they have been facing a dangerous water contaminant for decades - uranium – but the problem has received far less attention than water contamination by lead in Flint, Michigan

    Pakistan's President Urges Nation Not to Celebrate Valentine's Day

    Mamnoon Hussain criticizes Valentine's Day, which falls on Sunday this year, as a Western import that threatens to undermine the Islamic values of Pakistan

    Mother of IS Supporter: Son Was Peaceful, 'Role Model'

    Somali-American Abdirizak Mohamed Warsame pleaded guilty Thursday to charges of conspiring to provide material support to Islamic State militants

    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.
    New Technology Aims to Bring Election Transparency to Ugandai
    X
    Serginho Roosblad
    February 12, 2016 9:29 PM
    A team of recent graduates from Uganda’s Makerere University has created a mobile application designed to help monitor elections and expose possible rigging. The developers say the app, called E-Poll, will make Uganda's democratic process fairer. From Kampala, VOA's Serginho Roosblad reports.
    Video

    Video New Technology Aims to Bring Election Transparency to Uganda

    A team of recent graduates from Uganda’s Makerere University has created a mobile application designed to help monitor elections and expose possible rigging. The developers say the app, called E-Poll, will make Uganda's democratic process fairer. From Kampala, VOA's Serginho Roosblad reports.
    Video

    Video Refugees in Kenya Vie to Compete in Rio Olympics

    In Kenya, refugees from other African nations are training at a special camp and competing for a limited number of slots in this year's Rio Olympics under the flag of the International Olympic Committee (IOC). As Lenny Ruvaga reports from Ngong, this is a first in Olympic history.
    Video

    Video Gateway to Mecca: Historical Old Jeddah

    Local leader Sami Nawar's family has been in the Old City of Jeddah for hundreds of years and takes us on a tour of this ancient route to Mecca, also believed to be the final resting place of Adam's wife, Eve.
    Video

    Video Two-thirds of World Faces Water Shortage

    Four billion people — or two out of every three on the planet — do not have enough water to meet their basic needs. That is far greater than previously thought, according to a new study that presents a more accurate picture of the problem. As VOA's Rosanne Skirble reports, the findings will help policymakers and the public craft solutions to address the threat.
    Video

    Video As Refugees Perish, Greek Graveyards Fill

    Aid workers on the Greek island of Lesbos say they are struggling to bury the increasing number of bodies of refugees that have been recovered or washed up ashore in recent months.  The graveyards are all full, they say, yet as tens of thousands of people clamor to get out of Syria, it is clear refugees will still be coming in record numbers. For VOA, Hamada Elrasam reports from Lesbos, Greece.
    Video

    Video Russia Bristles at NATO Expansion in E. Europe

    Russian Foreign Minister Sergei Lavrov is meeting Friday with the head of NATO after the Western military alliance and the United States announced plans for the biggest military build-up in Europe since the Cold War. Russia has called NATO's moves a threat to stability in Europe. But NATO says the troop rotations and equipment are aimed at reassuring allies concerned about Russia as VOA's Daniel Schearf reports from Moscow.
    Video

    Video To Fight Zika, Scientists Target Mosquitoes

    Mosquitoes strike again. The Zika virus outbreak is just the latest headline-grabbing epidemic carried by these biting pests, but researchers are fighting back with new ways to control them. VOA's Steve Baragona takes a look.
    Video

    Video Mosul Refugees Talk About Life Under IS

    A top U.S. intelligence official told Congress this week that a planned Iraqi-led operation to re-take the city of Mosul from Islamic State militants is unlikely to take place this year. IS took over the city in June 2014, and for the past year and a half, Mosul residents have been held captive under its rule. VOA's Zana Omar talked to some families who managed to escape. Bronwyn Benito narrates his report.
    Video

    Video Scientists Make Progress Toward Better Diabetes Treatment, Cure

    Scientists at two of the top U.S. universities say they have made significant advances in their quest to find a more efficient treatment for diabetes and eventually a cure. According to the International Diabetes Federation, the disease affects more than 370 million people worldwide. VOA’s George Putic reports.
    Video

    Video NATO to Target Migrant Smugglers

    NATO has announced plans to send warships to the Aegean Sea to target migrant smugglers in the alliance's most direct intervention so far since a wave of people began trying to reach European shores.
    Video

    Video Used Books Get a New Life on the Streets of Lagos

    Used booksellers are importing books from abroad and selling them on the streets of Africa's largest city. What‘s popular with readers may surprise you. Chris Stein reports from Lagos.
    Video

    Video After NH Primaries All Eyes on South Carolina

    After Tuesday's primary in New Hampshire, US presidential candidates swiftly turned to the next election coming up in South Carolina. The so-called “first-in-the-South” poll may help further narrow down the field of candidates. Zlatica Hoke reports.
    Video

    Video Smartphone Helps Grow Vegetables

    One day, you may be using your smartphone to grow your vegetables. A Taipei-based company has developed a farm cube — a small, enclosed ecosystem designed to grow plants indoors. The environment inside is automatically adjusted by the cube, but it can also be controlled through an app. VOA's Deborah Block has more on the gardening system.
    Video

    Video Exhibit Turns da Vinci’s Drawings Into Real Objects

    In addition to being a successful artist, Renaissance genius Leonardo da Vinci designed many practical machines, some of which are still in use today, although in different forms. But a number of his projects were never realized — until today. VOA’s George Putic reports.

    World Currencies

    EUR
    USD
    0.8869
    JPY
    USD
    112.70
    GBP
    USD
    0.6894
    CAD
    USD
    1.3922
    INR
    USD
    68.241

    Rates may not be current.