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

Video VOA Reporter Tours Devastated Peshawar School

Islamist militants wearing military uniforms and strapped with explosives attacked a military run school Tuesday in the northwestern Pakistani city of Peshawar. At least 141 people were killed in the horrific attack, most of them young students. More

Video Sudan School Becomes Target of Aerial Attacks

Dropout rate at an all-time high in South Kordofan state because many schools have been destroyed during 3-year civil war More

Tennessee Songbirds Fly Coop Long Before Tornadoes Arrive

Researchers say birds apparently alerted to danger by sounds at frequencies below range of human hearing More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
US: Response to Sony Hack Will Be Proportionali
X
Aru Pande
December 19, 2014 1:45 AM
The White House says President Barack Obama considers the cyberattack on Sony Corp. a serious national security matter and that the U.S. will counter with an "appropriate response." VOA correspondent Aru Pande reports.
Video

Video US: Response to Sony Hack Will Be Proportional

The White House says President Barack Obama considers the cyberattack on Sony Corp. a serious national security matter and that the U.S. will counter with an "appropriate response." VOA correspondent Aru Pande reports.
Video

Video Sudan School Becomes Target of Aerial Attacks

The school dropout rate is at an all-time high in Sudan's South Kordofan state because many schools have been destroyed during the three-year civil war between the government and SPLA-N rebel forces. Adam Bailes visited Sudan's Nuba Mountains' region and reports many children are simply too scared to go to school
Video

Video Nigerians Fleeing Boko Haram Languish in Camp Near Capital

In its five-year effort to impose Islamic law in northeastern Nigeria, the Boko Haram extremist group has killed thousands of people and forced hundreds of thousands to flee. Some of those who ran for their lives now live in squalor on the edges of the capital, Abuja. Chris Stein reports for VOA.
Video

Video Putin Says Russian Economy Will Emerge Stronger

Russian President Vladimir Putin has said his country's sinking economy will not only recover but also become stronger, despite falling oil prices and Western sanctions over Ukraine. VOA's Daniel Schearf reports.
Video

Video Detained Turkish Journalists Follow Teachings of US-Based Preacher

The Turkish government’s jailing of critical journalists has sparked international condemnation and is being seen as an effort to undermine the followers of an ailing Turkish preacher based in the United States. VOA religion reporter Jerome Socolovsky has more.
Video

Video ‘Anti-Islamization’ Marches Increase Tensions In Germany

Anti-immigrant rallies in Germany have been building in recent weeks, peaking Monday night in the city of Dresden where tens of thousands of people turned out to demonstrate against what they call the ‘Islamization’ of the West. Germany has offered asylum to more Syrian refugees than any other country, and this appears to have set off the protests. Henry Ridgwell reports from London.
Video

Video Aceh Rebuilt Decade After Tsunami, But Scars Remain

On December 26, 2004 there was an earthquake in the Indian Ocean so powerful it caused the Earth’s axis to wobble a few centimeters. Onshore on the island of Sumatra, the resulting tsunami was devastating. A decade later, VOA Correspondent Steve Herman reports from Banda Aceh, Indonesia, where although there is little remaining evidence of the physical devastation, the psychological scars among survivors remain.
Video

Video Refugees Living in Kenya Long for Peace in the Home Countries

Kenya is host to numerous refugees seeking safe haven from conflict. Immigrants from Somalia face challenges in their new lives in Kenya. Ahead of International Migrants Day (December 18) Lenny Ruvaga has more for VOA News from the Kenyan capital.

All About America

AppleAndroid

World Currencies

EUR
USD
0.8140
JPY
USD
118.81
GBP
USD
0.6402
CAD
USD
1.1597
INR
USD
63.066

Rates may not be current.