The leaders of Eritrea and neighbouring Ethiopia have declared the end of a more than 20-year-long war, and it is hoped that it will help boost economic growth in East Africa.
Ethiopia‘s economy has grown at a faster rate than any other African country in the past 10 years and it’s been trying to open up its economy. But foreign investors and local businesses complain a shortage of foreign currencies like the US dollar are stifling the private sector.
The International Monetary Fund (IMF) says that Ethiopia’s foreign reserves at the end of the 2016/2017 fiscal year stood at $3.2bn, which is less than what it spends on imports in two months.
The education numbers, the electricity numbers are just not there for either a digital economy or a big manufacturing sector.
But the IMF is forecasting a growth rate of 8.5 percent this year – far above the global average.
So, will Ethiopia be able to sustain its growth levels? What are the economic challenges facing Ethiopia? And what does peace with Eritrea mean for the economy?
Ethiopia has a “very odd model for development, but an odd model that has produced very high economic growth,” Charles Robertson, chief economist at Renaissance Capital told Counting the Cost.
“In our last big report, we focused on the fact that they were running out of foreign exchange to sustain that model … It’s a matter of how can they get the cash. They’ve been borrowing from China. And recent declarations from the government suggest that they might start to raise the money by selling … stakes in their golden geese – their major companies like Ethiopia Telecom or Ethiopia Airlines. And that way they can bring in the dollars that they need to be able to buy the investment goods that they need to be able to drive growth.”
Asked how the digital economy factors into the country’s economic growth, Robertson said: “There is an awful lot of PR, very successful PR that’s making out Ethiopia to be kind of the next China. And I think this is a valid comparison as long as you have the next China meaning with a 50-year lag, not a 10 or 20-year lag.”
“Less than half of the adults in Ethiopia can read or write in any language. That’s not what you need if you are going to be part of the digital economy. You’ve at least got to be able to read what’s on your mobile phone. They can’t. And the consequence of low adult literacy – it’s about 49 percent in 2015 – is that you can also not have an industrialising story either,” he told Counting the Cost.
According to Robertson, Ethiopia’s manufacturing factor is around four percent of GDP, so “despite the PR … there’s only eight countries in the world with smaller manufacturing sectors than Ethiopia … The education numbers, the electricity numbers are just not there for either a digital economy or a big manufacturing sector. It’s still a very rural, very poor agricultural economy.”
“With the peace deal with Eritrea, they can rebuild links to Eritrea, create a second export route and perhaps then get a better price when it comes to exporting their goods through the ports. So there is a benefit for longer-term trade.”
Source: Al Jazeera News