Overcoming The Challenges Of Ethiopian Development

Ethiopia has an abundance of challenges, many of them acute and urgent, and many have to be tackled simultaneously even though resources are limited. They include the large and growing population, which is estimated at 85m or more and increasing by some 3m each year. Most of the people are still emerging from poverty and the country has huge development challenges in terms of education, health, water and sanitation and other basic needs. Still, through careful planning and execution the country is one of the fastest growing in Africa, with growth nearing double digits in the last two years.

When Ethiopia started its third millennium in September 2007, Prime Minister Meles Zenawi announced a drive for dramatic change through the “Hidase” (Ethiopian Renaissance). Ethiopia has adopted a political model of a “developmental state” to drive progress and turn the visions into reality through five-year plans.

The first of these, the Growth and Transformation Plan (2010-15) (GTP) identified a number of key areas to focus on to accelerate development and spur growth: these included finance and general access to finance (including foreign exchange), inflation and the threat of rising import prices; agricultural productivity; and human capital.

In addition to development challenges, the plan also identified political challenges, which included the potential for instability, both regionally and also internally. Four states have considerably less resources and lower standards of living as well as fewer skills to implement development programmes, so spreading the benefits of growth and development carefully was identified as another key process to guarantee peace and stability.

A proactive developmental response

The drought in the Horn of Africa in 2011 was described as the worst for 60 years. To tackle famines, Ethiopia has built a good famine early-warning system that works across the country. Warehouses store relief food and it can be delivered quickly and near to people’s homes when household supplies start to run short, although produce markets and a new and successful Ethiopian Commodity Exchange have helped considerably.

The goal is to free millions of small farmers from hunger and from a historical reliance on the traditional cultivation of subsistence crops. Tactics include making fertilizer and other inputs more available.

To boost farm productivity, Ethiopia is turning to local and foreign investors and made 3.5m hectares of farmland available in 2011, often at low prices and backed by tax incentives. Private investors such as Saudi-Ethiopian Sheikh Mohammed Hussein Al-Amoudi and India’s Karuturi aim to create farms covering hundreds of thousands of hectares. The government is also supporting more irrigated farming, including for small farmers. And the fruits are being borne today: Ethiopia is now the tenth-largest producer of livestock in the world.

Communities are being encouraged to support growth and mobilise more domestic savings. There are also initiatives to train more people, especially in engineering and medicine.

Finance, infrastructure and human capital are key

A key way to make growth and jobs sustainable is to transform the economic landscape through building infrastructure. The government’s ambitious investment programmes include US$4.8bn for the Grand Ethiopian Hidasi Hydroelectric Dam on the Nile, launched in April 2011, to be financed domestically. In October the government announced that local and diaspora investors had already invested $400m in millennium bonds for the dam. There are plans for 10,000MW of new power generation, up from previous national levels of 800-900MW. Electricity is to be exported to neighbouring countries, including Kenya, Sudan and Somaliland.

Infrastructure plans include $6bn to be invested to lay nearly 2,400 km of railways, including a mass-transit rail service for the crowded capital, Addis Ababa. China and India are both supporting railways. New and improved roads have already transformed some regional economies. The state-owned Ethiopian Airlines, one of Africa’s top airlines, is growing very fast and there is investment in upgrading airports and other transport infrastructure, as well as diversifying access to the sea.

Tackling the challenges and delivering rapid growth does not come without its own set of problems. An overheating economy can spark inflation. The government tightened monetary policy through controls on commercial banks in 2011, but in early January 2012 started easing to boost private-sector credit. The Ethiopian Revenue and Customs Authority is striving hard to improve tax collection and change mindsets as many businesses had been operating semi-informally and paying little tax.

The high road out of poverty is fast economic growth. International Monetary Fund economists forecast average annual growth could be 6-8% but the government targets a more ambitious 11-14% a year for the GTP period. Nevertheless the government is acutely aware that these growth rates are worthless if the wealth is not distributed equitably throughout the country. The long-term aim is to end poverty and become a middle-income country, something for which Ethiopia is well on track.