The World’s Fastest Growing Economy

Ethiopia, Africa’s second most populous nation with 85m inhabitants, is the third fastest growing nation in the world, behind only China and India. However, if the Economist Intelligence Unit’s forecast for 2011 bears out, it will outpace both India and China next year. Ethiopian forecasters see the annual average growth rate of 11% continuing over […]


Ethiopia, Africa’s second most populous nation with 85m inhabitants, is the third fastest growing nation in the world, behind only China and India. However, if the Economist Intelligence Unit’s forecast for 2011 bears out, it will outpace both India and China next year. Ethiopian forecasters see the annual average growth rate of 11% continuing over the next five years with a best-case scenario approaching 14.9%.

With a GDP of $32.3bn, Ethiopia is currently Africa’s fourth-largest economy, having surpassed Kenya to become the largest economy in East Africa. The country’s spectacular growth over the past six years has been driven largely by the services sector, which has seen substantial investment by government and the private sector.   

The new Growth and Transformation Plan (2011–2015) anticipates that industry will grow at an average of 20%, while agriculture and services continue to register growth. Some analysts project GDP rising to $472bn in 15 years and per capita income rising to $4,000 over the next decade, making Ethiopia one of the three most powerful economies in Africa.

In this Special Report, we examine the impact of the country’s policies on the key sectors of the economy.

Ethiopia’s policy makers, aiming for 11% annual growth for the coming five years, are working on infrastructure projects worth tens of billions of dollars.

Growth needs infrastructure and the government is determined to build whatever is required despite forbidding terrain, mighty mountains, floods, droughts and decades of underdevelopment. International companies, especially Chinese, Indian and others with relevant experience, and hundreds of millions of dollars of government-backed vendor financing, are already partners in the construction.

In June 2011, Ethiopia’s Council of Ministers endorsed a record $6bn budget for 2011/12 (the fiscal year ends in early July). Of this, $2bn is for capital works including $1.6bn for infrastructure such as roads, agriculture, water development, education and health. Much of this falls within the current national five-year plan, called Growth and Transformation Plan (GTP), and running until 2014/15.


Ethiopia is one of Africa’s brightest sparks for clean energy with potential to generate 45,000MW of hydropower, 10,000MW of wind and at least 1,000MW from geothermal sources.

Fast economic growth means escalating demand for power. Previous national output was only 800-900MW, which led to regular load shedding and power outages for up to two days a week for many years, holding back economic growth.

The state electricity provider, Ethiopian Electric Power Corporation (EEPCo), is the sole operator of the national grid and transmission, but private companies are permitted to build and operate power stations.

EEPCo is driving the process of scaling up generation and plans to produce 20,000MW of power within the next decade and to spend $12bn over 25 years on power generation.

Gilgel Gibe III is set to generate 1,870MW and is due to be finished in July 2013 at a cost of €1.5bn. However, it was dwarfed when in April 2011, Prime Minister Meles Zenawi laid the foundation stone for a $4.8bn Ethiopian Renaissance Dam or Great Millennium Dam to generate 5,250MW on the River Nile. The first 700MW is due online in 2015. The first wind farm, Ashegoda in the north, was set to start generating 30MW by September 2011 and to increase to 120MW by 2013. Government has plans for more wind farms, including Ayisha (300MW), Debre Berhan and Asela (100MW each).

Ethiopia has signed power interconnect agreements with Kenya, Djibouti and Sudan as part of a six-country East African Power Pool. It is committed to start selling and exporting power to Kenya from 2012 and eventually will sell some 500MW of the power from the Gibe III dam.

Building transmission infrastructure is also key. Between 2004/5 and 2009/10, EEPCo increased the number of towns and rural villages with access to electrical power from 648 to 5,136, the transmission lines from 8,380 km to 12,147 km, and substation lines from 25,000 km to 126,038 km. The number of registered customers rose from 952,000 to 1.9m.

Plans are even bigger for the GTP period to 2014/5. The number of customers is targeted to grow to 4m and electricity service coverage from 41% of the country to 75%, carried on distribution lines that double the country’s total length of lines to 258,000 km while 8,130 km of power lines are to be rehabilitated. Local manufacturers are starting to produce components.


Ethiopia aims to bring access to safe drinking water to 98.5% of the population by 2014/5, as part of a drive to attain many of the 2015 Millennium Development Goals.

This includes drilling programmes and water-harvesting ponds, as well as systems to manage watersheds and river basins in environmentally appropriate ways. The government also says that 4m-5m hectares of farmland could be irrigated and plans to boost the irrigated land from 462,000 ha to 1.2m ha.


Ethiopia’s railway, built 100 years ago, snakes over mighty mountains and across a desert to the sea, but is not currently operating.

However, the government has a $6bn project to build three new lines with a total length of 2,395 km over the next five years, and China and India seem to be racing each other to provide finance and help construct the new railways.

One corridor involves remaking the Addis Ababa railway to the international border en route to Djibouti port. Other corridors go to the north and the southwest, opening new possibilities for agricultural, mining and industrial development. 

$4.5bn is to be spent finishing the first 1,808 km within five years. China’s Export-Import Bank has pledged finance to support Chinese railway construction companies and India has also pledged $300m.

The ultimate plan is to build a 5,000 km rail network of lines radiating from Addis Ababa to the main economic zones and eventually across borders to neighbouring countries such as Kenya.

The fast-growing population of capital Addis Ababa could soon be travelling by mass-transit railway. The plan is to build 36.5 km of light railway to cross the city north-south and east-west. China has pledged $490m to finance 85% of the cost and China Railways Group Ltd has signed a Memorandum of Understanding to build it.


The parastatal Ethiopian Roads Authority is budgeted to spent 7.2bn building another 82,500 km of roads across the country in the period to 2014/15. In the previous five years (2004/5–2009/10) more than 11,000 kilometres of roads and 40 new federal roads were added. The road network totalled 48,800 km by mid 2010 and the proportion of roads classed as ‘in good condition’ was up from 64% to 81% over the period. New construction aims to boost the main road network to 64,500 km and to add 71,500 km of all-weather roads connecting all the country’s rural kebeles (18,000 neighbourhood administrations). Road density (km per 1,000 km² and per 1,000 people) is set nearly to triple.


Ethiopia currently relies for sea transport on neighbouring Djibouti, operated by Dubai’s global ports operator DP World. In August 2011 three-way talks to develop Berbera Port were underway between Ethiopia, the unrecognised government of independent Somaliland and China.

Berbera is already starting to be used for some bulk cargo, including relief food, and could also offer gas and other exports for Ethiopia. Future options could include a southern corridor to Kenyan ports. The Djibouti government made 164,000 m² of land available for Ethiopia to build a cargo terminal. This will also include an inland cargo-handling, transport and storage system, which is being built by the parastatal Dry Ports Service Enterprise (DPSE).


Ethiopia’s domestic and international airline services are operated by state-owned Ethiopian Airlines. Operating revenue for the airline was $1.26bn in the year to June 2010, according to Air Transport World rankings, putting it third in Africa after South African Airways and Egyptair. The airline carried 3.3m passengers and had net income for the period of $121.4m, making it Africa’s most profitable airline by far. Big plans include pushing revenues to $10bn by 2025. It has the youngest fleet in Africa and 32 new efficient aircraft on order, including 10 delayed Boeing 787-8 Dreamliners, 10 737-800 Boeings and 12 Airbus A350-900s. 

Ethiopia is also fast upgrading the infrastructure. The modern terminal at Bole International Airport was built in 2003, and the airport was ranked 11th busiest in Africa in 2010 with 3.8m passengers, and third busiest for cargo in 2011 with 2.4m tonnes.

Current expansion plans will expand it to three terminals and three concourses, two cargo mega-terminals, a cargo terminal for perishable goods such as flowers and fresh vegetables, a big aircraft maintenance hub and a five-star hotel for transit passengers.

Airports are also being built or expanded at seven cities and towns: Assosa, Humera, Jijiga, Jima, Jinka, Kombolcha and Semera. There is a network of airports making most tourist destinations accessible, while Mekele and Bahir Dar airports operate to international standards.


In 2004/5 there were only 20,000 mobile and 620,000 fixed-line customers and only 13% of the population was within 5km of a phone, but this was up to 62% by 2009/10 and is set to rise to 100% by 2014/15.

The fastest change is the number of mobile subscribers. By the end of June 2011 it had reached 10.5m and could rise to 40m by 2014/15. Fixed-line subscribers were up to 854,412 and forecast to rise to 3.05m by 2014/15, and internet and data subscribers were 128,764, but this too could increase as CDMA wireless networks are installed. In 2006, a $2.1bn agreement was signed with ZTE, China’s second-largest telecommunications equipment maker, with China backing the financing. In December 2010, the government signed a two-year agreement with France Telecom to manage the state-owned Ethio Telecom, improve efficiencies and accounting and introduce new services.

The roll-out of technology is set to transform parts of the economy. For instance, the Ethiopian Commodity Exchange is pushing out trading prices for key commodities countrywide through mobile phone messaging and interactive mobile phone services.

Urban development Ethiopia’s cities are sprouting fast, with housing pushed back for new highways, flyovers and skyscrapers. Foreign investors, including those from China, India, Egyp and Turkey, are developing industrial parks. A Chinese industrial zone in Dukem town, costed at $5bn, is intended to be a home for Chinese investors in cement, chemicals, leather, textiles and garments sectors.

The government has also launched an ambitious low-cost housing drive, including building 213,000 homes, of which some are condominium high-rise flats, in many towns. By July 2010, some 72,000 homes had been handed over. The plans are to add another 150,000 homes in Addis and more than 100,000 around sugar development projects.

One aim is to encourage the growth of local small construction enterprises and government says 4,306 have been created. Local administrations are surfacing smaller town roads with locally cut cobblestones, and building drains, sewers, markets and enterprise centres.

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