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

Video Analysts: Beijing Parade a 'Bazaar' of Stolen Technology

Show commemorating victory over Japan in World War II involved long, medium and short range missiles, a range of tanks and 200 fighter aircraft More

Bernie Sanders Surge Reflects US Shift on Socialism

Although most analysts say it is unlikely he will get the Democratic nomination, Sanders' campaign opens up questions and issues that are otherwise marginalized More

Video On IS Frontline, Kurdish Fighters Ready for Offensive

Peshmerga soldiers say although they need more heavy artillery, they are poised to take the fight to the Islamic State extremists on their turf 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.
Drowned Migrant Toddler Photo Triggers European Outragei
X
Henry Ridgwell
September 04, 2015 11:36 AM
The harrowing picture of a drowned three-year-old Syrian boy washed up on a Turkish beach appears to have galvanized Europe’s leaders into doing more to address the refugee crisis. France, Germany and Italy issued a joint call Thursday for compulsory quotas of refugees for all EU states. But there were chaotic scenes in Hungary as police tried to force migrants off a train heading for Austria. Henry Ridgwell has more. And a caution, some of the images in this report may be disturbing.
Video

Video Drowned Migrant Toddler Photo Triggers European Outrage

The harrowing picture of a drowned three-year-old Syrian boy washed up on a Turkish beach appears to have galvanized Europe’s leaders into doing more to address the refugee crisis. France, Germany and Italy issued a joint call Thursday for compulsory quotas of refugees for all EU states. But there were chaotic scenes in Hungary as police tried to force migrants off a train heading for Austria. Henry Ridgwell has more. And a caution, some of the images in this report may be disturbing.
Video

Video Russians Observe 11th Anniversary of Beslan School Attack

This week, Russians have been observing the 11th anniversary of the attack by Islamic militants on a school in Russia's North Caucasus region that killed more than 330 hostages, including 186 children. The three-day siege and massacre that started on September 1, 2004 took place in Beslan, a town in the republic of North Ossetia, and is one of the bloodiest terrorist acts ever in Russia. VOA's Mike Richman reports.
Video

Video Native Americans Debate: Father Serra, Saint or Sinner?

Pope Francis will canonize an 18th century missionary to Spanish California during a papal visit to the United States this month.  But some Native Americans have criticized the elevation to sainthood of the missionary priest, Junipero Serra. VOA's Mike O’Sullivan has more from Los Angeles.
Video

Video Calais School Offers Another Face of Europe’s Migrant Crisis

Europe is facing mounting criticism over how it’s handling its biggest migration crisis since World War II. But not all Europeans believe building walls or passing repressive policies are the answer. A school for migrants in the French port city of Calais, is opening doors and building bonds across nationalities. VOA's Lisa Bryant reports.
Video

Video Kurdish Fighters on IS Frontline Ready for Offensive

Finger on the trigger, the Kurdish Peshmerga soldier stared across the dust at a village taken over by Islamic State extremists. The Kurdistan’s Khazir frontline, just 45 minutes from the Islamic State stronghold of Mosul. And at this point, the militants were less than two kilometers away. VOA's Sharon Behn reports.
Video

Video China Announces Troop Cuts at WWII Parade

Chinese President Xi Jinping Thursday announced plans to cut the world’s largest military force by 300,000 troops. The announcement was made during a massive military parade to commemorate victory over Japan in World War II. The event was shunned by most Western leaders and for some is raising fresh concerns about China’s military ambitions. VOA’s Bill Ide has more from Beijing.
Video

Video Russia-Japan Relations Cool as Putin Visits China for WWII Anniversary

Russian President Vladimir Putin is in Beijing for commemorations of the 70th anniversary of China's WWII victory over Japan. Putin is expected to visit Japan later this year, but tensions between Tokyo and Moscow over islands disputed since the war, and sanctions over Ukraine, could pour cold water on the plan. VOA's Daniel Schearf reports.
Video

Video Yemen ‘on Brink of Disaster’ as Medical Shortages Soar

Aid agencies warn Yemen is on the brink of humanitarian disaster – with up to half a million children facing severe malnutrition, and hospitals running out of basic medicines. There are fears Yemen's civil war could escalate as the coalition led by Saudi Arabia tries to drive back Houthi rebels, who seized control of much of the country earlier this year. Henry Ridgwell reports.
Video

Video Apps Helping Kenyan Businesses Stay Ahead of Counterfeiters

Counterfeit goods in Kenya cost the government as much as $1 billion each year in lost tax revenues. The fake goods also hurt entrepreneurs who find it hard to carve out a niche in the market and retain customers. But as Lenny Ruvaga reports from Nairobi, information technology is being used to try to beat the problem.
Video

Video Nobel Prize Winner Malala Talks to VOA

Nobel Peace Prize winner Malala Yousafzai met with VOA's Deewa service in Washington Sunday to talk about women’s rights and unveil a trailer for her new documentary. VOA's Katherine Gypson has more.
Video

Video War, Drought Threaten Iraq's Marshlands

Iraq's southern wetlands are in crisis. These areas are the spawning ground for Gulf fisheries, a resting place for migrating wildfowl, and source of livelihood for fishermen and herders. Faith Lapidus has more.
Video

Video Colombians Flee Venezuela as Border Crisis Escalates

Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Rebuilding New Orleans' Music Scene

Ten years after Hurricane Katrina inundated New Orleans, threatening to wash away its vibrant musical heritage along with its neighborhoods, the beat goes on. As Bronwyn Benito and Faith Lapidus report, a Musicians' Village is preserving the city's unique sound.
Video

Video In Russia, Auto Industry in Tailspin

Industry insiders say country relies too heavily on imports as inflation cuts too many consumers out of the market. Daniel Schearf has more from Moscow.
Video

Video Scientist Calls Use of Fetal Tissue in Medical Research Essential

An anti-abortion group responsible for secret recordings of workers at a women's health care organization claims the workers shown are offering baby parts for sale, a charge the organization strongly denies. While the selling of fetal tissue is against the law in the United States, abortion and the use of donated fetal tissue for medical research are both legal. VOA’s Julie Taboh reports.

VOA Blogs

World Currencies

EUR
USD
0.8905
JPY
USD
120.20
GBP
USD
0.6541
CAD
USD
1.3262
INR
USD
66.242

Rates may not be current.