Economic Growth and Development in Ethiopia

Editor's Notes

1. In 2000, Ethiopia was the poorest country on the globe in per capita GDP – a mere $124 in current prices
2. Ethiopia’s ruling party, Ethiopian People’s Revolutionary Democratic Front (EPRDF), which has been in power since 1991 asserted its grip in the country’s politics by clinching 500 out of the 547 available seats in the May 2015 parliamentary elections Ethiopia faces terrorist threats, primarily from the Al-Shabaab insurgents
3. Over the past decade, Ethiopia has been one of the fastest growing economies in the world with growth averaging 10.9%. Despite recently facing the worst drought in fifty years, Ethiopia has remarkably been able to maintain positive growth
4. GDP per capita is very low and Ethiopia ranks 174/187 on the UN’s Human Development Index. However, progress has been achieved in the last decade, particularly regarding the poverty rate (30% in 2011 from 60% in 1995) A Gini index of 30 percent, is low by international and Sub-Saharan Africa (SSA) standards. Institutions are weak as per the governance indicators from the World Bank.
5. Sixth lowest mean years of schooling of all countries covered by the HDI
6. Agriculture accounts for over 40% of GDP, 75% of employment and more than 80% of exports. Hence, the economy is susceptible to volatility on global commodity markets and to weather patterns Ethiopia’s agriculture sector, however, faces many threats. These include soil degradation due to overuse, drought, high tax rates, low subsidies, and poor infrastructure.
7. Rain-fed agriculture (accounting for almost 50% of GDP) remains Ethiopia’s main source of employment and export earnings, which results in vulnerability to weather shocks. The country is also exposed to commodity prices, particularly for coffee, oilseeds and gold (22%, 16% and 14% of exports respectively).
8. What factors contribute to low trade openness for Ethiopia? What are some of the consequences of a low trade to GDP ratio?
9. The current account deficit is structurally high, given low- value exports and large capital imports (45% of imports) for infrastructure development. Major power generation projects are under way and should boost exports when completed. China is Ethiopia’s main trading partner (17% of exports, 19% of imports).
10. Managed depreciation against the US dollar – central bank wants to avoid excessive deprecation – reasons?
11. In addition, the completion of the Addis Ababa -Djibouti railway line, significantly eases trade logistics related constraints. The commencement of new industrial parks (Hawassa and Bole-Lemi Phase II) and the increasing capacity in power generation with the completion of transmission lines to neighboring countries (Sudan and Kenya) are also expected to improve the export performance and stimulate growth in the short- to medium-term According to the World Bank, only an estimated 12% of the population has access to electricity, and only 2% of the rural population fall under this category.
12. The government benefits from large foreign-aid inflows, at 9% of government revenues in 2014, although the share is declining Aid is supported by Ethiopia’s geopolitical importance as a key Western ally in the unstable, terrorism-prone Horn of Africa.
13. Ethiopia and debt relief Much lending is now concessional Attempt to issue Euro bonds
14. Ethiopia, are still overwhelmingly rural with only 20% of their population urbanized. But this will change rapidly as economies develop Urbanization has a strong correlation with the rate of real GDP growth, because productivity in cities is more than double that in the countryside: Africa’s urban GDP per person was $8,200 in 2015, compared with $3,300 in rural areas.
15. unit labor costs for the manufacture of polo shirts are $0.14 per unit, less than half the level in China and Vietnam
16. Little agreement on what a fragile state is but generally agreed characteristics: weak state legitimacy, weak state capacity, weak resilience to shocks all inter-related Economies are facing shocks all the time external, e.g. commodity prices internal e.g. natural disasters Some shocks are entirely man-made e.g. corruption scandals How governments respond to shocks is a key issue shocks have been linked to conflict Institutions are likely to be important in mediating this
17. In 2000, Ethiopia was the poorest country on the globe in per capita GDP – a mere $124 in current prices