The Secret Behind of Ethiopia's Socio-Economic Progress

(Adem Mohamed 04-07-16)

The last decade has brought massive changes in the economy of Ethiopia. The government has made momentous progress in developing the country. The GDP has grown rapidly over the last decade averaging 10.8% in real terms.

These accomplishments were made by the government’s undertakings in roads, railroads, agricultural infrastructure such as sugar factories, and other ventures as well as in reducing child mortality, nearly reaching universal primary education, and fighting HIV, malaria and tuberculosis.

Indeed, the size of the economy of Ethiopia has reached an estimated nominal GDP of around $50 billion in 2014. It should be noted that the size of the GDP is bigger than that since the estimate does not probably fully include certain areas of the country are hard to reach due to a lack of infrastructure and insufficient resources and certain sectors remain largely informal eve if the engage tens thousands.

Ethiopia have also turn out to be a favorite destination of international investment. Investors are coming en masse to contribute and share in the thriving Ethiopian economy.

Ethiopia's progress in terms of international investment is also visible. Last year, Ethiopia has become Africa’s eighth-largest destination of foreign direct investment last year. Compare that to a few years ago, Ethiopia was on the 14th position. Since then, the number of projects in Ethiopia doubled.

Ethiopia's decade long double-digit growth and all-encompassing advance is an outcome of a committed leadership and prudent policy directions.

The first strong feature of Ethiopia's developmental leadership is its prudent fiscal management. Indeed, fiscal strength is indicates the overall wellbeing of public finances, including the valuation of relative debt burdens and debt affordability as well as the structure of government debt. Ethiopia’s fiscal position is characterized by low and stable deficits. These were achieved through prudent expenditure control despite the challenges of grant financing, and improved efforts to marshal domestic revenues as nominal spending has grown.

The federal government's budget implementation has been skintight over the past decade, that is, closely monitoring spending so as to ensure that it keeps up with the rate of revenues. The government's fiscal policy buttressed the development goals of the GTP via heavy investment in crucial sections of the economy.

Approximately 60% of government expenditures have been directed towards public investment projects; about two-thirds of the budget steadily targeted the pro-poor areas of education, health, agriculture, water supply and sanitation and roads. The outcome has been remarkable. Poverty has impressively decreased since 2000 and Ethiopia was one of only four Sub-Sahara Africa countries with such progress.

The second feature of Ethiopia's developmental leadership is the growing successes in revenue collection. Tax revenues have steadily grown - that is, from 11.9% of GDP in 2005 to 12.7% of GDP in 2014 - on the back of robust growth and enhanced tax administration. Nevertheless, there are much more enhancements needed, as the revenue part is about just 14% of GDP which is below the regional average of 23%.

The third important feature of Ethiopia is its resilient and reliable development partnerships. Development partners have shown dedication in their engagement with Ethiopia in the last decade. For example, in 2011, donor assistances have reached $900 million, which is about 19% of public revenues and a quarter of development expenditures.

Donor funding has declined in recent years and has sometimes been subject to a degree of unpredictability, however Ethiopia remains by far the biggest recipient of aid in Africa in nominal terms.

This mainly reflects Ethiopia’s critical geopolitical role in the Horn of Africa, a region characterized by political instability. The large aid inflows also result from the notable impact of donor funds on key social indicators such as access to education, health, and water.

The fourth feature of Ethiopia's effective developmental leadership is that the public spending has been pro-poor.

Ethiopia's budgetary apportionment for the poor has been the highest in Africa. The pro-poor governmental expenditure has been around 13% of GDP in the past decade, which is significantly beyond the regional peers. Pro-poor expenditure has been made a main government priority in all developmental programs.

These essential features resulted in the extraordinary success achieved in the past decade. Ethiopia became the seventh largest economy in Africa.

The real GDP growth rate averaged 10.1 percent, while the rate for agriculture, industry, and services have registered an annual average growth rate of 6.6 percent, twenty percent and 10.7 percent, respectively. That is double the growth rate registered in sub-Sahara Africa in the first half of this decade, which was an average growth rate of about five percent

Indeed, Ethiopia's developmental leadership has been successful in achieving the challenging objective of achieving significant GDP growth, while maintaining macroeconomic stability. Inflationary pressure was effectively controlled through effective policy and administrative measures. According to the report by the Central Statistical Agency, the general inflation rate for the final year of GTP (2014/15) is estimated at 9.5%. Both internal and external factors contributed to the inflationary pressure.

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