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

    Clinton, Trump and the 'Woman’s Card'

    Ask supporters of Democratic front-runner in US presidential campaign, and they’ll tell you Republican presidential candidate is playing a dangerous hand

    Russian Censorship Group Seeks Chinese Help to Better Control Internet

    At recent Safe Internet League forum in Moscow, speakers from both nations underscored desire for authorities to further limit and control information online

    Video Makeshift Pakistani School Helps Slum Kids

    Free classes in Islamabad park serve a few of the country’s nearly 25 million out-of-school youths; NGO cites ‘education crisis’

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Turkish Kurd Islamist Rally Stokes Tensionsi
    X
    April 29, 2016 12:28 AM
    In a sign of the rising power of Islamists in Turkey, more than 100,000 people recently gathered in Diyarbakir, the main city in Turkey’s predominantly Kurdish southeast, to mark the birthday of the Prophet Muhammad. The gathering highlighted tensions with the pro-secular Kurdish nationalist movement. Dorian Jones reports from Diyarbakir.
    Video

    Video Turkish Kurd Islamist Rally Stokes Tensions

    In a sign of the rising power of Islamists in Turkey, more than 100,000 people recently gathered in Diyarbakir, the main city in Turkey’s predominantly Kurdish southeast, to mark the birthday of the Prophet Muhammad. The gathering highlighted tensions with the pro-secular Kurdish nationalist movement. Dorian Jones reports from Diyarbakir.
    Video

    Video Pakistani School Helps Slum Kids

    Master Mohammad Ayub runs a makeshift school in a public park in Islamabad. Thousands of poor children have benefited from his services over the years, but, as VOA's Ayesha Tanzeem reports, roughly 25 million school-age youths don't get an education in Pakistan.
    Video

    Video Florida’s Weeki Wachee ‘Mermaids’ Make a Splash

    Since 1947, ‘mermaids’ have fascinated tourists at central Florida’s Weeki Wachee Springs State Park with their fluid movements and synchronized ballet. Performing underwater has its challenges, including cold temperatures and a steady current, as VOA’s Lin Yang and Joseph Mok report.
    Video

    Video Somali, African Union Forces Face Resurgent Al-Shabab

    The Islamic State terror group claimed its first attack in Somalia earlier this week, though the claim has not been verified by forces on the ground. Meanwhile, al-Shabab militants have stepped up their attacks as Somalia prepares for elections later this year. Henry Ridgwell reports there are growing frustrations among Somalia’s Western backers over the country’s slow progress in forming its own armed forces to establish security after 25 years of chaos.
    Video

    Video Bangladesh Targeted Killings Spark Wave of Fear

    People in Bangladesh’s capital are expressing deep concern over the brutal attacks that have killed secular blogger, and most recently a gay rights activist and an employee of the U.S. embassy. Xulhaz Mannan, an embassy protocol officer and the editor of the country’s only gay and transgender magazine Roopban; and his friend Mehboob Rabbi Tanoy, a gay rights activist, were hacked to death by five attackers in Mannan’s Dhaka home earlier this month.
    Video

    Video Documentary Tells Tale of Chernobyl Returnees

    Ukraine this week is marking the 30th anniversary of the world's worst nuclear accident, at the Chernobyl nuclear power plant. Soviet officials at first said little about the accident, but later evacuated a 2,600-square-kilometer "exclusion zone." Some people, though, came back. American directors Holly Morris and Anne Bogart created a documentary about this faithful and brave community. VOA's Tetiana Kharchenko reports from New York on "The Babushkas of Chernobyl." Carol Pearson narrates.
    Video

    Video Nigerians Feel Bite of Buhari Economic Policy

    Despite the global drop in the price of oil, Nigerian President Muhammadu Buhari has refused to allow the country's currency to devalue, leading to a shortage of foreign exchange. Chris Stein reports from Lagos businessmen and consumers are feeling the impact as the country deals with a severe fuel shortage.
    Video

    Video  Return to the Wild

    There’s a growing trend in the United States to let old or underused golf courses revert back to nature. But as Erika Celeste reports from one parcel in Grafton, Ohio, converting 39 hectares of land back to green space is a lot more complicated than just not mowing the fairway.
    Video

    Video West Urges Unity in Libya as Migrant Numbers Soar

    The Italian government says a NATO-led mission aimed at stemming the flow of migrants from Libya to Europe could be up and running by July. There are concerns that the number of migrants could soar as the route through Greece and the Balkans remains blocked. Western powers say the political chaos in Libya is being exploited by people smugglers — and they are pressuring rival groups to come together under the new unity government. VOA's Henry Ridgwell reports.
    Video

    Video Russia’s TV Rain Swims Against Tide in Sea of Kremlin Propaganda

    Russia’s media freedoms have been gradually eroded under President Vladimir Putin as his government has increased state ownership, influence, and restrictions on critical reporting. Television, where most Russians get their news, has been the main target and is now almost completely state controlled. But in the Russian capital, TV Rain stands out as an island in a sea of Kremlin propaganda.

    Special Report

    Adrift The Invisible African Diaspora

    World Currencies

    EUR
    USD
    0.8769
    JPY
    USD
    107.28
    GBP
    USD
    0.6842
    CAD
    USD
    1.2528
    INR
    USD
    66.384

    Rates may not be current.