There is probably no one alive today that knows Ethiopia’s economy like Ato Sufian Ahmed. Having served as the country’s Finance and Economic Development Minister in the last two decades, Ato Sufian has a finger on the economy’s pulse; and what a rhythm it is beating.
In the last decade, the Ethiopian economy has been chugging along at a dizzying average growth rate of over 10 percent per annum, making it one of the world’s most attractive to investors.
As the fiscal policy coordinator, Ato Sufian has been involved in charting the development course of Ethiopia’s economy over the years. This year, he says the growth may even speed up to 11 percent, given the increased interest shown by foreign investors and government’s continued effort to further liberalize the economy with juicier incentives.
In a chat with AnnualMeetings Daily, the veteran policy maker/implementer unveils his country’s strategy for keeping the economy ticking. He also gives the long-term view and expectations of the Hailemariam Desalegn-led administration. For Ato Sufian, Ethiopia may be hitting the middle-income target sooner than the world thinks. After all, all the ingredients and elements of a go-getter are already evident in the ongoing work to improve power supply and the privatisation of infrastructure development. Excerpts:
Ethiopia has recorded phenomenal economic growth in Africa in recent time. What is responsible for this and how can it be sustained?
From the establishment of the new Ethiopia in 1991, the Government started laying the foundation for strong and sustainable economic development. Since then, a series of reforms has been introduced. Particularly, the old unitary economic structure was restructured into a market-oriented federal system. Tax and civil service reforms, liberalization of financial sector, privatization of public-owned enterprises were major programmes that prepared a fertile ground for overall economic growth. Besides, the Government of Ethiopia introduced sector-specific, but interlinked development programmes and strategies.
Agriculture has experienced a growth multiplier effect three times larger than the growth effect of non-agricultural sectors. Economic literature argue that agricultural growth is key for expansion of an entire economy since resources used for agricultural growth are rarely diverted from other sectors. Hence, rapid growth in agriculture tends to be additive to the growth in other sectors. This accounts for the significant contribution of the Agricultural Development-Led-Industrialization (ADLI) strategy introduced in the mid-1990s.
The private sector, an acknowledged engine of growth, has been helped by the Industry Sector Development Strategy. The strategy acknowledges private sector as an engine of growth. It focuses on the deepening of export-led industrialization, expansion of labour-intensive factories, creating a conducive environment for the industrialization process (i.e. stable macro-economic environment, development of conducive financial system, reliable infrastructure provision, provision of trained manpower, effective & efficient administrative/governance structure, efficient judicial system etc).
Most important, the role of the government in coordinating and leading the growth agenda as well as engaging in massive key infrastructure development activities and mobilizing the citizens around its vision is key to these successes.
What transformational role is agriculture playing in the economy?
Agriculture, the mainstay of the economy, accounts for 43% of the GDP, 90% of exports, and about 85% of the labour force and is the main source of raw materials. The government has made agriculture priority through the Agricultural Development Led-Industrialization (ADLI) strategy.
The overarching goal of ADLI is to ensure accelerated and sustained economic growth. Within the framework of ADLI, the government initiated a five-year agricultural development programme with the objective of closing the country’s food gap in the medium term. The Sustainable Development and Poverty Reduction Programme (SDPRP) and the Plan for Accelerated Sustainable Development to End Poverty (PASDEP) were also planned and implemented.
The on-going five-year plan, the Growth and Transformation Plan (GTP), is directed towards achieving Ethiopia’s long-term vision and sustaining the rapid and broad-based economic growth anchored on the experiences drawn from implementing development policies and strategies and the challenges of policy measures. The overriding development agenda of GTP is to sustain rapid and broad-based growth witnessed during the past several years and eventually, end poverty.
The Ethiopian economy has been registering double digit growth since 2003/04 and agriculture is the major contributor to the overall economic performance of the country. The agricultural sector on average has attained 8 percent growth in the last decade. Our farmers are becoming self-sufficient, diversifying their income sources and creating wealth to the extent of investing in off-farm businesses.
The core objective of the Food Security Programme includes: improving significantly the food security situation through programme components of voluntary resettlement, productive safety net, household asset building programme and complementary community investment programme.
The voluntary resettlement component has enabled the resettlement of well over 224,021 households. About 98% of the people have attained food self-sufficiency. The productive safety net component of the programme focuses on the prevention of asset depletion and increasing food availability at household and community levels. Making the food insecure households benefit from increased productivity of crops and animals as well as increased incomes both from agricultural and non-agricultural income sources are major targets. So far, well above seven million households have received PSNP transfers enabling them to meet consumption needs, and providing them with alternative options to prevent the selling off of their productive assets. More than 200,000 households have graduated from the PSNP.
To what extent is the economy insulated from commodity price shock?
Ethiopia’s export sector is expected to increase its growth rate in response to export promotion measures being taken, chief of which is the diversification of the export sector. We no longer depend on a single commodity — coffee — whose share declined from a high 60 percent to less than 30 percent last year. New products such as flower and some manufacturing products have joined the export trade. The market destination has also been diversified with more emphasis on Asian economies. We, however, know that we have to go a long way to make our export more competitive by addressing structural problems and increasing volume of manufactured products in which we have comparative advantage. Of course, to some extent, commodity price shock affects our import bill, particularly fuel import which we cannot do anything about.
How would you assess FDI inflows into the economy?
Since 1991 the Ethiopian economy has been opened for domestic and foreign private investment. Since then, the government has also introduced attractive private sector investment incentive schemes. Besides, the stable macroeconomic situation, the availability of trainable and cheap human labour, vast local market, and strong government institutions are major factors in attracting FDI.
In the past three years a total of US$3.59 billion FDI has been registered. In 2010/11, 2011/12 and 2012/13, net FDI inflows were US$1.24 billion, US$1.1 billion and US$1.3 billon, respectively. Even though annual inflow of FDI has been soaring, the rate must increase to match our huge investment needs in the coming years. Government will further stabilize macroeconomic environment, build institutions and implement attractive incentive mechanisms.
To what extent has Ethiopia’s stable macroeconomic environment and sustainable economic growth alleviated poverty?
Inclusive growth is defined as the kind of growth in which every segment of the society benefits from economic advancement. To reduce the number of people living below the poverty line, a number of polices and strategies have been designed and implemented for the past several years. Particularly, in urban areas, structured engagement in micro and small-scale activities and adoption of integrated development programmes have created new job opportunities. Furthermore, the allocations of huge investments in pro-poor and growth-enhancing sectors have successfully complemented the poverty eradication campaign of the country. Expansion in medium and large-scale private industries, and some of the investments in their operations, are creating new job opportunities. Similarly, to address rural poverty and ensure improvements in agriculture input supply, we are providing direct support for the farming community by adopting new agricultural technologies and conserving natural resources.
As a result, per capita income has increased and poverty declined significantly in both urban and rural areas. The proportion of the population living below the poverty line dropped to less than 29.6 percent in 2010/11 from 38.7 percent in 2004/05; a 9.1 percentage point decline in only five years.
Most emerging market economies are slowing down. Don’t you think this might be a drag on the Ethiopian economy?
The Ethiopian economy is one of the few not heavily affected by the recent global crisis. Economic growth was very strong during the crisis period. The growth of the Ethiopian economy is dominantly demand-driven, not commodity-driven. It was therefore able to survive the crisis. The recent slowdown in the emerging countries is actually creating investment opportunities for African countries and Africa’s economic growth will remain robust. The slowdown of the emerging economies will also not drag down Ethiopia’s economy because it does not depend solely on one pole of the world’s economy since there are now many emerging economies.