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Ethiopia’s emergence as a leading African lion

It’s arguably the continent’s fastest-growing economy of the past 20 years.
Addis Ababa. Ethiopia’s economy has grown at an average of 9% since 2000. Image: Simon Dawson, Bloomberg

In the 1980s, ravaged by conflict and a brutally authoritarian state, Ethiopia was the poster child for Band Aid’s famine relief initiatives. 

Today, the story of Ethiopia is very different.

In a remarkable turnaround, its economy has grown at an average of 9% per year since 2000; it’s arguably Africa’s fastest-growing economy over the past 20 years.

A 2018 McKinsey report heralded Ethiopia as one of the 18 “global outperformers” and the only outperformer from Africa, based on an annual per capita income growth exceeding 5% for the 20 years between 1996 and 2016.

However, the country’s stellar performance extends beyond economics.

Nobel Peace Prize

Prime Minister Abiy Ahmed has just been awarded the Nobel Peace Prize for “his efforts to achieve peace and international cooperation, and in particular for his decisive initiative to resolve the border conflict with neighbouring Eritrea” – reaffirming the significant progress the country has made on several fronts.

Ethiopia has remained relatively closed off from the rest of the world, thanks to a traditionally authoritarian rule of governance and state-controlled monopolies across key sectors from banking to agriculture, telecoms and retail.

State-driven economic development plans, grounded in the vision of the late Prime Minister Meles Zenawi and orientated toward growth and transformation in an Asian Tigers-styled industrialisation model, aim to establish Ethiopia as a middle-income country by 2025.

Infrastructure megaprojects

The country’s remarkable growth over the past decade can be attributed to targeted investment in infrastructure megaprojects as the foundation to this development model.

Political and economic reforms have been intentional under Ahmed’s leadership.

His appointment in April 2018 further enticed investors, already drawn to Ethiopia’s high economic growth and a domestic market of around 110 million people (the second largest population in Africa, after Nigeria).

Despite the buzz around Ethiopia’s remarkable progress and untapped market, several crucial challenges need to be addressed to improve the country’s business and political environment, sustain economic growth, and accelerate poverty reduction to unlock its full demographic potential.

Despite a significant improvement in per capita income – jumping from $124 per annum in 2000 to around $850 today – and halving the rate of poverty, Ethiopia is still one of the world’s poorest countries, and far from the middle-income status it is aspiring to.

Challenges

Over 70% of Ethiopians are under the age of 30. And, like other parts of the continent, Ethiopia’s growing demand for jobs poses a significant threat to the country’s fragile political stability, especially with rising unemployment.

While some see this demographic ‘dividend’ as an enormous opportunity to increase the country’s prosperity through increased productivity and consumption, the stark reality of fewer opportunities and harsher living conditions is exacerbated by poor literacy rates and the high cost of urbanisation.

Almost half the population is still unable to read or write, despite a concerted effort by the government in improving education, and less than 21% live in urban areas.

A large majority of Ethiopia’s burgeoning youthful and rural population is at risk of being excluded or left behind as we enter the fourth industrial revolution.

Business and entrepreneurial solutions should unlock Ethiopia’s enormous potential and help solve many of the prevailing social issues. For this to happen, the right environment needs to exist.

Business environment

Ethiopia ranks 159th out of 190 countries on the World Bank’s Ease of Doing Business Report 2019, a relative drop compared with other countries competing on this index (South Africa ranks 82). Some of the basic constraints to business include a 93-day wait for electricity supply, forcing most businesses to run off generators at a massive additional cost. It takes 32 days to start a business and 300 hours to comply with tax regulations, compared with less than 24 hours in Rwanda.

Furthermore, corruption is widespread, internet penetration is one of the lowest in Africa and overall, connectivity is poor in spite of infrastructure investments. These are just some of the key issues the government has prioritised, as it gradually opens up to much-needed foreign investment.

Social and ethnic tensions continue to pose a significant risk to political stability in Ethiopia. Ethnic clashes in 2018 resulted in three million people being displaced. Journalists critical of government continue to be harassed and, as recently as June this year there was a total blackout of internet access, leading to widespread speculation of an attempted coup.

Despite the progress of peace and dialogue that Ahmed has facilitated in the horn of Africa, many still question the commitment and motivation behind the political reforms underway.

Ethiopia has reached a critical juncture and, especially in light of the recent Nobel Peace Prize, is being recognised as a leading African country.

Leading lights

Addis Ababa, the capital, is the home of the African Union as well as leading African firms such as Ethiopian Airlines, which is widely regarded as the most successful and best-connected airline on the continent.

The emergence of key sectors – from agriculture, manufacturing and technology (where the country has already achieved significant success) to cut flowers, research and development and mobile operators, alongside innovative new firms– is the next phase of the late Zenawi’s dream of Ethiopia becoming a middle-income country.

For this Ethiopia needs foreign investment and input.

The Ethiopian government will need to move from business owner to business enabler, while dealing with critical challenges around social and ethnic inclusion. While these may be daunting challenges, Ethiopia has proven that the only limitation is imagination.

The Nobel Peace Prize has recognised a significant peace dividend, essential for inclusive economic development.

Ethiopia’s history of visionary leadership seems to be repeating itself, this time with an imaginative flair that carries regional and continental interests well beyond the borders of Ethiopia.

Professor Lyal White is senior director of the Johannesburg Business School (JBS) at the University of Johannesburg. Liezl Rees heads up the Centre for African Business at JBS.

COMMENTS   4

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This article is delusional. Ethiopia has 105 million people! Japan has 126m. GDP per capita is USD 2200 vs USD 42000.

It is a hopelessly poor underdeveloped third world country and coming off a low base must compete against the Vietnams and other Asian tigers! How? No infrastructure? Poor education? Difficult to do business? What can they offer?

NOTHING!!

Good luck to them, coming off such a low base. The number that catches my eye (ok, after the 300 hours for tax compliance) is halving the poverty rate.

I hope they get more mileage in the long term from their Nobel Peace Prize than we seem to have got from ours.

Telecom companies want to invest due to the market being opened up.

There are some great you tube videos on reforestation /land rehabilitation in Ethiopia. Including one of the area where so many people were starving in the 1980s

The country also produces the most honey in Africa.

So perhaps there are some good interesting things happening.

End of comments.

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