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Maximizing on IMF's positive report

Maximizing on IMF’s positive report

Bereket Gebru 08-01-17

The IMF released its World Economic Outlook report in July and it was one that brought the world a continuation of the good news it has been receiving recently. According to the report, global growth for 2016 is estimated at 3.2 percent, slightly stronger than the April 2017 forecast. Economic activity in both advanced economies and emerging and developing economies is forecast to accelerate in 2017, to 2 percent and 4.6 percent respectively, with global growth projected to be 3.5 percent, unchanged from the April forecast. The growth forecast for 2018 is 1.9 percent for advanced economies, 0.1 percentage point below the April 2017 WEO, and 4.8 percent for emerging and developing economies, the same as in the spring. The 2018 global growth forecast is unchanged at 3.6 percent.

Emerging and developing economies are projected to see a sustained pickup in activity, with growth rising from 4.3 percent in 2016 to 4.6 percent in 2017 and 4.8 percent in 2018. In Sub-Saharan Africa, growth is projected to rise in 2017 and 2018. Growth is expected to rise from 1.3% in 2016 to 2.7% in 2017 and 3.5% in 2018 in Sub-Saharan Africa.

The IMF report indicates that there is still going to be increasing growth in Sub-Saharan African over the coming year. Considering the good news is indicative of the mood of the region in the coming year, Ethiopia needs to work hard to capitalize on the opportunity and push its growth even further.

Now that the World Bank’s 2017 Global Economic Prospects has identified Ethiopia as the fastest growing economy not only in Africa but the world in general, the country has a reputation to keep as one of the fastest growing economies in the world. Ethiopia’s 8.7% growth in 2016 proved to be unmatched anywhere in the world as Ethiopia finally assumes the leading role in economic growth in the world. This kind of success obviously should push the country towards sustained economic growth of this caliber in the long term.  

The past couple of years have been quite hard for Ethiopia as natural and manmade problems posed themselves as notable challenges to political and economic development. It has barely been a year since the country shrugged off the worst drought in half a century. The El Nino induced drought was then almost immediately replaced by a La Nina induced flood. There is also an ongoing drought in some parts of the country.

These natural calamities were, sadly, complemented by violent unrests in their destructive endeavors. The unrests that claimed the lives of hundreds of Ethiopians took their toll on political stability, investments in the country, momentum of economic growth and morale. The unity and determination required as a society to achieve sustainable development has taken a considerable blow as a result of the unrest.

With all these negatives weighing against it, it is no wonder that the Ethiopian economy slowed down. However, there have been positive signals along the way. One of these signals is that the economy managed to handle a severe drought and stopped it from turning into a famine. Its retention and drawing capacity of foreign investment after the fatal unrests is another indicator of an economy on solid basis. 

The fact that the investment has been coming in large amounts after the unrest is also indicative of the confidence investors have in the Ethiopian political and economic platform. The presence of numerous factors that make Ethiopia a very suitable destination for investment has also helped a lot. Some of these factors include:

Rapid economic growth: with a double digit growth over the past dozen years, Ethiopia’s economy has expanded considerably. The purchasing power of the people has also received a boost with the middle class expanding steadily.

Infrastructure development: the road networks of the country have slashed the time it takes a rural resident to get to an all weather road. Roads connecting woreda capitals to rural kebeles have been built in the first growth and transformation plan (GTP I) while those connecting rural kebeles together will be pursued in the second GTP. The country is also building a national rail grid. The power generation capacity of the country has drastically changed with huge hydroelectric generation projects commissioned in recent years along with renewable energy generation projects. Telecommunication and water supply have also shore up in recent years.

Political and economic stability: as the most stable country in the horn of Africa, Ethiopia plays a constructive role to peace and security in the entire region. With periodic elections and peaceful environment, Ethiopia provides an ideal climate for business to thrive in. The sustained economic growth over a dozen years also indicates the economic stability.

Abundant land, plant, animal and mineral resources: the abundance of land for agricultural and industrial purposes coupled with other resources that can be used as raw materials makes the country favourable for investment.  

Abundant cheap labour resource: with a population of about over 90 million, and with cheap cost of labor, Ethiopia can provide sufficient labor force which can provide the edge in cost-competitiveness. The cost of labour in the Ethiopian market is lower than some Asian and African nations. The nearly universal access to education in the country also means that the labour force has basic skills that can easily be adapted to various sectors.

Support through policy and incentives: The Ethiopian government has been steadily pushing towards market-oriented reform by means of developing the private sector, deregulating rigid control over the economy, liberalizing foreign exchange, lowering tariff rate, etc. Given that export promotion is of paramount importance, the government has issued a series of export incentives. All in all, in terms of macroeconomic policy, the Ethiopian government has created an enabling environment for the development of the manufacturing sector.

Proximity to major international markets: the location of Ethiopia, in the horn of Africa, on the cross-roads of the Asian and European markets provides easy access. Proximity to the Middle East and the Far East along with Europe is essential in cutting transport costs that increase cost competitiveness further in addition to cheap labour force.

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