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Ethiopia’s Economic Growth

With approximately 102 million people, Ethiopia is the second most populated country in Africa, next only to Nigeria. Over the last couple of years, Ethiopia has shifted gears and is now one the fastest growing economy in the region. After recently solving its political issues with Eritrea, Ethiopia now has access to the Eritrean ports, which heavily increased its international trade capabilities.

However, Ethiopia is also one of the poorest countries in the region, with a per capita income of $783. The country’s government has lately been amending its laws to encourage development and aims to reach lower-middle-income status by 2025. While this may seem unrealistic to some, the recent economic growth of Ethiopia suggests it could be on the right track to reach its target: growth averaging 10.3% a year from 2006/07 to 2016/17, compared to a regional average of 5.4%.

 

Development Challenges in Ethiopia

One of the key challenges for Ethiopia is sustaining its positive economic growth, while accelerating its poverty reduction. Both can be simultaneously achieved through significant job creation.

Key challenges are mainly:

  • Political disruption, which often leads to social unrest. This could negatively impact tourism, investment and exports
  • Low competitiveness in certain industries, such as manufacturing. Hence, low creation of jobs and exports
  • An underdeveloped private sector, which currently may not be able to withstand strong competition.

 

 

Major Economical Improvements

Restoring and Expanding Internet Access

After being elected in April 2, 2018, the new prime minister of Ethiopia, Dr. Abiy Ahmed Ali first move was to encourage open internet in the country. Previously, the country’s access to the internet was limited to only Addis Ababa, the main city. The new Ethiopian government wants to ‘connect’ the country to the web. A study carried out by Deloitte suggests that one day of blackout costs around $1 million in a country like Ethiopia.

 

Peace with Eritrea

From 1962 to 1993, Eritrea was ruled as a province of Ethiopia, and the two nations amicably separated after a vote in 1993. But that decision left Ethiopia landlocked, which kickstarted a bitter rivalry and raised questions over national pride, and regional dominance. On July 9th 2018, the president of Eritrea and prime minister of Ethiopia signed a declaration, and ended 20 years of conflict. The two countries are now formally at peace. Airlines will connect their capitals once more, Ethiopia will use Eritrea’s ports again, its natural outlet to the sea, and diplomatic relations will be resumed.

 

Visa-on-arrival for Africans

Relaxing visa rules for Africans has shown Ethiopia in keen on accelerating its already rapid growth. This move will definitely have an impact on the countries trade and hospitality sector. Ethiopian Airlines is already dominating the continent’s airspace, and will likely benefit even more from this. The state-owned carrier currently operates 96 passenger aircraft and freighters and has more than 60 fleets on order. That essentially makes it Africa’s largest airline, flying to over 20 in-country locations, 58 destinations in Africa, and more than 100 cities in five continents globally.

 

Gender Parity

The parliament on Thursday 25th of October 2018 named Sahle-Work Zewde, a veteran of the diplomatic corps and the United Nations, as the country’s first female president. Her own appointment comes days after prime minister Abiy Ahmed appointed a 50% women cabinet, a measure, he said, aimed at promoting women’s contributions to the nation’s progress. At least half of the cabinet ministers are also PhD holders, which should benefit the country.

 

Current Growth Projects

The International Development Association (IDA) is officially Ethiopia’s largest development assistance provider. With over $20 billion committed on over 80 projects since 1991, the IDA has strongly contributed to the country’s prosperity.

 

Education

The IDA has helped Ethiopia expand access to quality primary education over the last nine years. Primary net enrollment rate increased from 79.1% in 2006 to 99.3% 2016. There has also been a considerable reduction of the gender gap for schooling. The ratio of girls to boys for grades 1–8 increased from 0.84 in 2006 to 0.92 in 2016. The gross enrollment rate for secondary school (grades 9–10) increased from 37.1% in 2007 to 44.8% in 2016. Through the Country Partnership Framework, the Bank is working to improve the quality of and equitable access to education to address issues including high dropout rates and low learning outcomes, especially for girls.

 

Water and Sanitation

Since 2013, a number of operations have increased access to safe water sources and sanitation services. Over the years, these improvements have helped over 4.2 million rural people. A $250 million urban water supply and sanitation project is to increase the sustainable water supply and sanitation services in Addis Ababa and selected cities, providing one million people in urban areas with improved water sources, 2.7 million with improved water supply services, and 200,000 with sanitation services. A follow-on $445 million IDA credit was approved in March 2017 and will be used to help the government’s goal of providing 100% national potable water supply coverage by 2020.

 

Road infrastructure

IDA has invested more than $2 billion since 1991 to address the country’s infrastructure gap, partly through the Road Sector Development Program (RSDP). IDA helped build capacity and establish a dedicated road fund for financing maintenance. Working in partnership with other donors, including the European Commission, Germany, Japan, Nordic countries and the United Kingdom, IDA helped increase both the size and quality of Ethiopia’s road network from under 20,000 km in 1991 to over 100,000 km in 2015. The World Bank continues supporting improvements in transport infrastructure and road connectivity to reduce travel times and improve connectivity between markets and secondary cities.

 

 

Ethiopia’s Economy Forecast

Being Africa’s fastest growing economy, Ethiopia is expected to maintain a robust growth pace. The latest reforms have been set up with one objective in mind: attract foreign investments to propel the country’s economy even further. Current trends suggest it should maintain a strong growth over the next couple of years and that the private sector will develop at wild pace in the near future.

This is ‘the time’ to invest in Ethiopia – business opportunities are just waiting to be taken. The government has shown it’s will to develop the country and welcome investors in key areas, such as telecommunication. Ethiopia has definitely taken the right steps to uplift its economy for the long run.

 


 

Africa HR Solutions can help you hire locals and manage their payrolls, for your projects in Ethiopia. With the strict regulations around employing expats through 3rd party companies, we cannot provide employment outsourcing for foreigners, but are fully equipped to provide you a full solution for local workers. If you have an entity, you can outsource your HR needs such as payroll calculations, work permits and employee on-boarding.
Talk to us on your next venture in Ethiopia.

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