(Repeats story from Sunday)
* Government touts cheap power, reliable transport
* Ethiopia wants manufacturers and exporters
* Economists say must give more room for private business
* Foreigners cannot invest in banking, telecoms sectors
By Edmund Blair and Aaron Maasho
ADDIS ABABA, Feb 8 (Reuters) – Chinese workers mingle with
Ethiopians putting the finishing touches to a metro line that
cuts through Addis Ababa, one of a series of grand state
infrastructure projects that Ethiopia hopes will help it mimic
Asia’s industrial rise.
Brought to its knees by “Red Terror” communist purges in the
1970s and famine in the 1980s, Ethiopia has been transformed in
the last quarter century, becoming one of Africa’s
At the heart of the state’s “Growth and Transformation Plan”
are railway, road and dam projects to give the landlocked nation
cheap power and reliable transport, as well as the metro line –
the first urban light railway network in Sub-Saharan Africa.
“This is the future,” said Abate Yaye, 27, from the poor
south as he helped complete the $475 million system being built
by China Railway Engineering Corp, much of it on concrete stilts
to keep it above the crowded streets of an expanding capital.
“We will become an example for the whole of Africa.”
Hefty state-led investment has kept the economy of Africa’s
second most populous nation growing at more than 8 percent a
year for over a decade, but economists say Ethiopia’s rulers
need to relax their grip and give room for more private
enterprise to maintain momentum.
Foreigners cannot invest in banking and telecoms and foreign
retailers are barred, while Ethiopian banks are directed to buy
low-yielding government development bonds.
“This is a country where, relative to rest of Africa, there
is pretty good state capacity and a commitment to a development
mission,” said S. Kal Wajid, the outgoing Ethiopia mission chief
for the International Monetary Fund.
But he said private business needed room to grow and
generate income so the economy could reap greater benefit from
the new projects. “Where you are making a lot of infrastructure
investment, there is a risk that the pay-off may not be as big
as you thought,” he added.
Others in Africa have looked with envy at Asia’s inexorable
rise but few governments, if any, have proven as single-minded
as Ethiopia has in mobilising its resources in a bid to turn an
agrarian nation of 96 million people into a manufacturing hub.
Yet it comes at a cost. The IMF said last year Ethiopia was
“on the cusp” of shifting from low to moderate risk of debt
distress. Total debt at about 50 percent of gross domestic
product was still manageable, but tougher if it rises much more.
“In the next five-year plan, there should be a clear
indication of a change of emphasis and a significant emphasis on
the private sector,” said Wajid, referring to the next Growth
and Transformation Plan starting in July.
The government insists it will not rack up unsustainable
debts because funds are used to finance infrastructure and other
projects such as sugar factories and industrial zones.
Investors also say Ethiopia benefits from better security
than others in a region blighted by Islamist militant attacks.
And few executives cite corruption as a big hindrance in
business, although it can be elsewhere in Africa.
But Ethiopia is no model for political and media freedom –
there is just one opposition party member in the 547-seat
parliament and international rights groups say the authorities
muzzle critics. The government insists politics is open to all
and that it allows free speech.
The current five-year growth programme ends in June and the
government has given little away about the next plan. But it
remains clear about its economic goals.
“Without investing in infrastructure, it is now abundantly
clear that Africa cannot sustain growth,” Finance Minister
Sufian Ahmed told Reuters in December.
Sufian’s deputy Abraham Tekeste said this month the new plan
would likely continue “most of the priorities” of the last one.
The government can point to a list of investors suggesting
its formula works. Clothes retailer Hennes and Mauritz
is starting to source supplies from Ethiopia, consumer goods
maker Unilever is building a factory, Diageo
and Heineken have bought breweries.
U.S. private equity giant KKR invested in a flower farm last
year while an Ethiopian winery is among the investments of 8
Miles, an African-focused fund chaired by singer Bob Geldof who
launched Live Aid to help Ethiopian famine victims.
The government’s ban on foreign retailers is aimed at
encouraging local manufacturing, to cut back on imports, not
wanting a consumer culture that could drain foreign exchange.
Central bank foreign reserves barely cover two months of
imports – an inadequate level, according to the IMF. Other east
African states have at least four months.
The government says it wants to keep banks in the hands of
Ethiopians and telecoms controlled by the state as the sectors
provide funding for national projects such as infrastructure.
Earnings from the state telecoms monopoly are helping fund a
railway linking Addis Ababa to a port in Djibouti, for instance.
But that leaves few domestic funds available in the market
for businesses that could create jobs in future.
“If they are looking at achieving their goal of being a
middle-income country and getting employment, you must enable
access to financial options,” said James Kanagwa of pan-African
lender Ecobank, one of half a dozen foreign banks with
representative offices in Addis Ababa but barred from commercial
Ethiopia, with average annual per capita income of $470,
aims to reach middle-income status by 2025, which the World Bank
says starts at $1,046.
For now, even Ethiopian banks have limited room for
manoeuvre. They must invest the equivalent of 27 percent of
their loan portfolio in the development bonds, hindering their
ability to lend to the private sector.
“The lending capacity of banks is growing very slowly,” said
Mulugeta Asmare, president of Bank of Abyssinia, one of 16
private banks in a sector dominated by state-owned Commercial
Bank of Ethiopia.
Banks must rely on equity and deposits for funding, in a
nation where only one in 10 people have a bank account, because
there is no developed capital market.
After launching a debut $1 billion Eurobond in December,
Prime Minister Hailemariam Desalegn said tapping international
markets did not herald “liberalising the financial sector”.
“If you have an efficient effective state development model,
great,” Colin Coleman, managing director for Goldman Sachs based
in South Africa, told a conference in Addis Ababa last month.
“But you must allow businesses to develop in order to get
the dynamism in the economy.”
(Writing by Edmund Blair; Editing by Pravin Char)