News / Economy

World Bank Sees Ethiopia GDP Grow at 7 Percent for Medium Term

Men prepare bars of salt to be sold in the main market of the city of Mekele, northern Ethiopia, in this April 24, 2013, file photo.Men prepare bars of salt to be sold in the main market of the city of Mekele, northern Ethiopia, in this April 24, 2013, file photo.
x
Men prepare bars of salt to be sold in the main market of the city of Mekele, northern Ethiopia, in this April 24, 2013, file photo.
Men prepare bars of salt to be sold in the main market of the city of Mekele, northern Ethiopia, in this April 24, 2013, file photo.
Reuters
Ethiopia's economy is likely to grow seven percent a year over the next three to five years, below its average of the last decade, and to push that rate higher, the government needs to change policy to encourage private investment, the World Bank said.

While seven percent GDP growth would be the envy of finance ministers in Western economies, it would fall short of an average rate of 10.6 percent that Ethiopia said it achieved in the last 10 years with its state-interventionist policies.

It would also be insufficient to meet Ethiopia's target of reaching middle-income status by 2025. The bank says that goal is still within reach, however, if the government shifts the balance from public to more private investment.

”We still think growth could be robust - in the order of seven percent in the medium term would not be unexpected,” said Lars Christian Moller, the bank's lead economist in Ethiopia, in an interview on Monday.

The World Bank estimates Ethiopia's economy grew seven percent in the fiscal year July 8, 2012 to July 7, 2013, below the government's 10 percent estimate.

Moller said Ethiopia's $43 billion economy would need to repeat its performance of the last decade to become a middle income country - defined by the bank as one with a gross national income (GNI) per capita of around $1,430 - in 12 years.

The World Bank put Ethiopia's GNI at $410 in 2012.

Ethiopia is banking on massive state-supported energy and transport projects to help transform its agrarian economy.

Infrastructure spending required financing equivalent to 19 percent of Ethiopia's GDP in fiscal 2011-2012, the World Bank estimates.

But while public investment in Ethiopia is the third highest in the world as a percentage of GDP, private investment is the sixth lowest.

Major sectors including retail, transport, banking and telecoms are closed to foreign investors.

Double-digit inflation again?

Growth has been driven by an expansion in services, now the largest economic sector, and agriculture. Ethiopia's main exports include coffee and horticulture products, and it is also a big aid recipient.

Two thirds of Ethiopia's 8.5 percent GDP growth in 2011-2012 could be ascribed to public investment, the World Bank said.

Even though the public investments are intended to benefit the private sector in the long run, they are depriving the private sector of finances in the short term, Moller said. “And that is where a deliberate choice is being made,” he added.

”Maybe there are some really good private investment projects out there that could deserve to get that credit, that could actually make the economy grow even faster,” Moller said.

He added that Ethiopia should keep monetary policy tight to head off inflation, which could quickly return to double digits.

The annual inflation rate accelerated to eight percent in July from a 2013 low of 6.1 percent in April. It exceeded 40 percent in 2011.

A loose fiscal stance and periodic external price shocks have left Ethiopia vulnerable to price spikes. Its public investment program has injected liquidity into the market, fueling inflationary pressures.

”We are a little bit wary that inflation is going up and perhaps could hit double-digit levels again,” within the next six to 12 months, Moller said.

So far, Ethiopia has managed to keep down inflation by using its foreign exchange reserves to mop up liquidity.

That has raised questions within Ethiopia's private sector over how easily the government can sustain its spending program and keep inflation in single digits at the same time.

”The fiscal stance is loose, and so that is contributing to inflationary pressures,” Moller said. “So that would be another benefit of slowing down on public investment; you could maintain a lower level of inflation.”

You May Like

Obama: Alaskans Feel Signs of Climate Change

They're seeing bigger storm surges as sea ice melts, more wildfires, erosion of glaciers, shorelines More

Katrina Brought Enduring Changes to New Orleans

The city’s recovery is the result of the people and culture the city is famous for, as well as newcomers and start-up industries More

Magical Photo Slides Show Native Americans in Late 1800s

Walter McClintock spent 20 years photographing the Blackfoot Indians and their vanishing culture at the dawn of the modern age More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Colombians Flee Venezuela as Border Crisis Escalatesi
X
August 27, 2015 2:08 AM
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 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 Is China's Economic Data Accurate?

Some investors say China's wild stock market gyrations have been made worse by worries about the reliability of that nation's economic data. And some critics say the reports can mislead investors by painting an unrealistically-strong picture of the economy. A key China scholar says Beijing is not fudging ((manipulating)) the numbers, but that the economy is evolving quickly from smoke-stack industries to services, and the ways of tracking new economic activity are falling behind the change. V
Video

Video Next to Iran, Climate at Forefront of Obama Agenda

President Barack Obama this week announced new initiatives aimed at making it easier for Americans to access renewable energy sources such as solar and wind. Obama is not slowing down when it comes to pushing through climate change measures, an issue he says is the greatest threat to the country’s national security. VOA correspondent Aru Pande has more from the White House.
Video

Video Shipping Containers Provide Experimental Housing

Housing prices around the San Francisco Bay area are out of reach for many people, so some young entrepreneurs, artists and tech industry workers are creating their own houses using converted shipping containers. But as VOA's Mike O’Sullivan reports from Oakland, the effort requires ingenuity and dealing with restrictive local laws.
Video

Video Arctic Draws International Competition for Oil

A new geopolitical “Great Game” is underway in earth’s northernmost region, the Arctic, where Russia has claimed a large area for resource development and President Barack Obama recently approved Shell Oil Company’s test-drilling project in an area under U.S. control. Greg Flakus reports.
Video

Video Philippine Maritime Police: Chinese Fishermen a Threat to Country’s Security

China and the Philippines both claim maritime rights in the South China Sea.  That includes the right to fish in those waters. Jason Strother reports on how the Philippines is catching Chinese nationals it says are illegal poachers. He has the story from Palawan province.
Video

Video Technique May Eliminate Drill-and-Fill Dental Care

Many people dread visiting dentists because they're afraid of drills. Now, however, a technology developed by a British firm promises to eliminate the need for mechanical cleaning of dental cavities by speeding a natural process of tooth repair. VOA’s George Putic reports.
Video

Video China's Spratly Island Building Said to Light Up the Night 'Like A City'

Southeast Asian countries claim China has illegally seized territory in the Spratly islands. It is especially a concern for a Philippine mayor who says Beijing is occupying parts of his municipality. Jason Strother reports from the capital of Palawan province, Puerto Princesa.
Video

Video Ages-old Ice Reveals Secrets of Climate Change

Ice caps don't just exist at the world's poles. There are also tropical ice caps, and the largest sits atop the Peruvian Andes - but it is melting, quickly, and may be gone within the next 20 years. George Putic reports scientists are now rushing to take samples to get at the valuable information about climate change locked in the ice.
Video

Video French Experiment in Integrating Roma Under Threat

Plans to destroy France’s oldest slum have sparked an outcry on the part of its Roma residents. As Lisa Bryant reports from the Paris suburb of La Courneuve, rights groups argue the community is a fledgling experiment on integrating Roma who are often outcasts in many parts of Europe.
Video

Video Kenyans Turn to Agriculture for Business

Each year Kenyan universities continue to churn out graduates for the job market despite the already existing high rate of unemployment among youth in the country. Some of these young men and women have realized that agriculture can be as rewarding as any other business or job, and they are resorting to agribusiness in large numbers as a way of tackling unemployment. Rael Ombuor reports for VOA.
Video

Video First Women Graduate Elite Army Ranger School

Two women are making history for the U.S. Army by proving they are among the toughest of the tough. VOA's Carla Babb reports from Fort Benning, Georgia as 94 men and those two women rise as graduates of the difficult Ranger school.

VOA Blogs

World Currencies

EUR
USD
0.8874
JPY
USD
120.83
GBP
USD
0.6497
CAD
USD
1.3271
INR
USD
66.162

Rates may not be current.