Ethiopia’s an Investors’ haven — Abdulaziz Mohammed

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For Ato Abdulaziz Mohammed, the job of superintending the workings of government’s economic policy in the service of the people no longer causes anxiety. The country’s economy seems to be heading in the general direction envisioned in the Growth and Transformation Plan II (GTP II), the home-grown development blueprint scheduled to wind down by 2020.

The success recorded in such infrastructure projects as the record-breaking Addis Ababa light rail coupled with the Ethiopia—Djibouti electric railway testifies to the quality of leadership of the Prime Minister Hailemariam Desalegn-led government. Ato Abdulaziz reveals that more is to come. Industrial parks that would facilitate the dream of making the country a light manufacturing hub in Africa are taking shape nation-wide just as the various energy-projects to power them are receiving government attention. The entire government machine is firing on all cylinders, pushing towards self-imposed targets as Ethiopia pulls nearer the much-vaunted 2025, the year of promotion to the middle-income rank.

The African Economy’s discussion with the honourable minister unearths details of the plans and aspirations of the government on the task of permanently changing the Ethiopian narrative from a struggling economy to a credible pace-setter on the continent.

a5What efforts are being made to reach the laudable goals of becoming a middle-income economy with a zero net growth in emission by 2025?

The government of Ethiopia is very clear on the current and future impact of climate change on society, economy and the ecosystems. There is a deep link between the environment and socio-economic development of the country and government is taking steps to galvanize action locally and globally by adopting the Climate Resilient and Green Economy (CRGE) strategy. Ethiopia plans to reduce 64% of the national greenhouse gas emission by 2030. This is despite the fact that Ethiopia contributes only 0.02% of global emissions, 76% of its population lack access to electricity, and that 72% live on less than $2 per day.

The Environmental Council, chaired by the Prime Minister’s Office and comprising members from federal ministries, presidents of regional states, and private sector and civil society representatives provides overall oversight and is responsible for the realization of the CRGE Vision. Line Ministries have also established CRGE units, with the overall responsibility of coordinating and facilitating the planning and implementation of sectoral CRGE strategies. The former Environmental Protection Authority (EPA) has been upgraded into Ministry of Environment, Forest and Climate Change to technically coordinate the delivery of the strategy.

Preliminary estimates indicate that Ethiopia should invest over US$150 billion to realize its vision of building a low-carbon and climate-resilient middle-income country status by 2025. This is equivalent to an annual investment of US$7.5 billion to make the economy climate-smart and ensure the sustainability of economic growth. This resource should be mobilized from domestic and external sources including from  the private sector in the form of Foreign Direct Investment, from bilateral and multilateral sources in the form of grant, concessional loan and other instruments. The Ministry of Finance and Economic Cooperation (MOFEC) has also established the CRGE Facility to mobilize and access climate finance from bilateral and multilateral sources and leverage domestic allocations. To date, it has mobilized over US$ 40 million and is financing implementation of over 25 fast-track projects across the six key CRGE sectors.

Poverty reduction features prominently in the GTP and government’s objective is to reduce poverty considerably by 2020. How quickly can this be achieved?

I am happy to say that Ethiopia has come a long way from the 1970s when the country was associated with poverty and deprivation. The world now recognises Ethiopia as a fast-growing, well-governed democracy on the path of sustainable development. We have since jettisoned the policies of the socialist Dergue regime which resulted in extensive and severe poverty. The current government, under the Ethiopian People’s Revolutionary Democratic Front (EPRDF), reversed that trend by changing from command economy to market-oriented economy. The ultimate objective of economic growth has been poverty reduction. To this end, economic policies and strategies designed and implemented in this country have been pursued within the perspective of government’s poverty reduction objective.

Poverty is higher in the rural areas where more than 85 percent of the population resides. For a government whose objective is to reduce poverty, policies and strategies need to focus on this area, especially, agriculture; hence the adoption of the Agricultural Development Led-Industrialization (ADLI) strategy. Since then successive poverty reduction programmes such as the Sustainable Development and Poverty Reduction Programme (SDPRP) and the Plan for Accelerated and Sustained Development to End Poverty (PASDEP) made agricultural development an integral instrument for poverty reduction. The recent five-year plans — GTP I and GTP II — are also important for poverty reduction, of course, with focus beyond poverty reduction. Thus, economic and social policies and strategies implemented so far have enabled the country to reduce poverty tremendously.

The commitment of the government reflects in the sectoral allocations in the budget. The general government spending composition shows that the pro-poor spending (agriculture, education, health, natural resources and water, as well as roads) has grown from about 18 percent in 1996/7 to over 66 percent of the total spending in 2014/15. This clearly signifies the commitment of the government towards reducing poverty. Moreover, aggressive investment in other infrastructure such as electricity and telecom has been important just as well-directed policies give farmers better access to agricultural inputs which enhance increased productivity, promote value addition to agricultural commodities and access to market.

Statistics speak for the government. Poverty headcount in 1995 was 45.5 percent (47.5 and 33.2 percent in rural and urban, respectively). Owing to the various poverty reduction policies, programmes, and strategies implemented since then, the figures came down to 29.6 percent (30.4 and 25.7 percent in rural and urban, respectively) in 2011. By the end of 2014/15 the proportion of the population living below the national poverty line was estimated to have further declined to 23.4 percent.

Studies have shown that the economic growth, measured in the change of Gross Domestic Product (GDP) on yearly basis viz elasticity of poverty is -1.943. This means that a one percent increase in GDP results in a decrease in poverty headcount by about two percent. Income elasticity of poverty in sub-Saharan  African countries on average, is -0.8. It is -1.0 in developing countries. The implication is that with double-digit economic growth and the high income elasticity of poverty, Ethiopia will soon eradicate poverty. To this end, during the GTP II and beyond, economic transformation will be central to sustain economic growth and development, through enhancing agricultural productivity, industrialisation, and reduction in urban unemployment.

Aside electricity, what other area is government focusing on in the quest to industrialise the country?

Infrastructure development for Ethiopia is an important factor in achieving sustainable, fast and inclusive, as well as environment-friendly growth. We have realized that an efficient transport system for improved industrial and agricultural production led by the private sector is a prerequisite for economic growth and development.

Priority has therefore been accorded road construction and development as it has multifaceted benefits in accelerating industrial development. Thus, upgrading and improving the existing main roads and construction of express roads that link to the main corridors will continue. In GTP II, total road length is planned to increase from 110,414 kilometres in 2014/15 two-fold by 2019/20. Our road development programme also includes privately managed toll roads, paving the way for public-private partnerships in the sector.

Railway is the choice mode of transportation for bulk goods at lower cost and shorter travel time. Thus, the development of our national railway network is another priority going forward. Completion and operationalization of the national railway network over 2,741km in five corridors and six routes will be undertaken in the next four or five years.

Next, we have industrial parks which make land and facilities available for industries and export development. The parks are eventually transferred to private investors with utmost transparency and accountability. Consequently, costs of production and services delivery will be reduced, productivity increased and competitiveness enhanced.

In recognizing the importance of information and communication technology (ICT) as an important ingredient of economic development, we are expanding the ICT network to accommodate the latest information technologies, and improving quality and coverage.

As urbanization is expanding at an unprecedented rate, we have recognized that housing construction has to be on the national agenda and not to be left to municipalities and local governments. In view of this, we have developed a national housing strategy and are relentlessly implementing it through a mix of modalities.

Agriculture is the lifeblood of most developing economies including Ethiopia. What is being done to scale up investment in the sector?

To attract investors in the agricultural sector, the government offers incentives such as duty-free importation of goods, tax holidays, access to affordable lease holds and access to finance from a development bank. Regarding institutional support, government  has established the Ethiopian Investment Agency which is a focal point for investment facilitation and promotion. In addition to this, there are several institutions which support the modernization of both small-scale and large-scale farming. Research institutions in the public and private sectors have been playing a crucial role in providing hybrid seeds, irrigation techniques, farming methods and crop shifting system to farmers.

As I have mentioned earlier, we are providing a variety of infrastructural facilities needed to enhance productivity not only in agriculture, but also in the economy at large.

What is the government doing to develop the critical manpower and institutional capacity needed to prosecute its grand transformation programme?

Over the last two decades, the government of Ethiopia has implemented four successive Education Sector Programmes with the aim of promoting basic education, creating a system which assures quality and producing competent citizens.

During GTPI, the main goal of the educational sector was to raise the quality of education and consolidate the expansion of education service coverage. GTP II is ensuring the relevance and quality of education at all levels, i.e. general education (primary, secondary and preparatory), Technical and Vocational Educational Training (TVET), and higher education.

To complement improvement in facilities, we are working on teachers-development programme as well as improving curriculum, information and communication technology. In order to provide the required level of qualified manpower for the industrialization programme, the higher education system is designed to produce 70 percent of undergraduate students in Science, Engineering and Technology and the remaining 30 percent in social studies disciplines. . This effort is also reinforced through implementing result-based TVET institutions are aimed at supporting micro and small-scale enterprises, creating job opportunities and training middle-level human power needed by the industries.

Regarding institutional capacity building, Ethiopia started implementing the Kaizen management philosophy since 2012/13. As a result of this, significant and measurable quality and productivity improvements have been registered on the production processes of strategic products such as sugar and cement. To strengthen the institutional capacity of the Ministry of Industry and its affiliated institutes, the government is working on building their man-power capacity and equipping them with necessary facilities and inputs. Twinning arrangement with similar globally recognized institutes is on course as new institutes are connecting with universities and other research institutes. This is helping Ethiopian institutions to adopt best practices from abroad for the purpose of customizing them to the peculiar national research and development needs capacity.

Over the last decade, Ethiopia has continued to post strong, broad-based growth, expanding by a mean of 10.8 percent, which is more than twice the regional average. How sustainable is this high growth rate going into next decade?

Ethiopia has been registering rapid, broad-based and equitable economic growth and development during the last decade. This resulted in the significant rise in real per capita GDP and a dramatic drop in the national poverty and unemployment rates. Non-monetary dimensions of well-being have also improved, including in the rural areas. Based on the Human Development Index (HDI), Ethiopia has been successful in translating economic growth into higher living standards for its citizens, and consistently maintaining fair distribution of income. In the next five years, the aim is to sustain the growth acceleration and to make the economic growth even more inclusive and equitable. We are proud that we have achieved all these through home-grown development polices, strategies and plans. There is no doubt that we are moving towards our vision of becoming a lower middle-income country where social justice and equity will prevail.

Going forward, agriculture and particularly smallholder agriculture will remain the most important source of economic growth. We have learned from past experience that high rate of agricultural growth has broad positive implications for accelerated, inclusive and equitable economic growth in terms of increasing income and promoting poverty reduction. High agricultural growth and rural development also helps avoid the creation of unplanned urbanization with the attendant spread of slums. In order to achieve such rapid agricultural growth with positive economy-wide linkages, we will engage smallholder farmers and integrate educated young farmers with private investors that are large enough to adopt new technologies and produce significant marketable surpluses. Public and private investments in infrastructure including road, electricity and telecommunications will be promoted to reduce marketing costs with positive spillover effects on growth of rural market towns and secondary cities. During the plan period, accelerated growth of the manufacturing industry will be a crucial strategy in creating jobs and improving income, promoting export development, improving the competitiveness of the economy, as well as enhancing technological capability and skills development.

By and large, industrialization will remain a crucial strategy to promote structural transformation of the economy so that the country can sustain its growth acceleration to achieve its medium-term vision of becoming a lower middle income economy. During the next 10 years, Ethiopia’s vision in relation to the manufacturing sector is to become a light manufacturing hub in Africa. This vision will play a significant role in creating an inclusive growth, expediting economic transformation, generating employment, increasing income earnings and expanding export earnings.

In general, to ensure sustainable, equitable and inclusive growth, the economy is projected to grow at 11 percent per annum during GTP II, driven primarily by agriculture but supported by the industrial and service sectors generating employment opportunities and enhancing sectoral integration and linkages. To this effect, large number of MSMEs will be established, and labour-intensive large-scale manufacturing industries are expected to flourish.

In sustaining the growth momentum, we will focus on enhancing and utilizing the country’s competitive advantages and ensuring participation in the world economy.

Existing studies indicate that the productive sectors of the economy are currently operating below potential production capacity. Factors of production are not efficiently utilized in the production process. The technical efficiency and technological progress of the economy is believed to be at a low level. Thus, we are striving to reach the production possibility frontier of the economy from this trough with a sense of urgency to enhance the efficient allocation and utilization of resources.

What is the outlook for Ethiopia’s economy in the next five years?

In the next five years, it is projected that GDP will grow on average by 11 percent per annum. We hope to sustain the broad-based and double-digit economic growth by eradicating poverty and reducing unemployment. Structural transformation will be achieved through expansion of the manufacturing industry and value addition, technology transfer, agricultural transformation, export promotion, sustainable urban development, sector wide capacity building and expansion of micro and small-scale industry.

We envisage a sectoral average growth rate of eight percent per annum for agriculture, 20 percent for industry and 10.1 percent for services. The industrial sector’s share will rise from 15 percent in 2014/15 to 22.3 percent in the next five years.

Consequently, the share of the agricultural sector in GDP is projected to decline to 33.5 percent in 2019/20 financial year from 38.5 percent posted in 2014/15. The share of the service sector is projected to decline slightly to 44.3 percent from 46.3 percent in the same period. The proportion of the population living below national poverty line is expected to fall from 23.4 percent (2014/15) to 16.7 percent by the end of 2019/20.

 

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