The government’s long-term economic development strategy – Agricultural-Development-Led-Industrialization (ADLI) – is geared to the transformation of the economic structure. The strategy involves an export-led external sector, and internal emphasis on agriculture to supply commodities for exports, domestic food supply and industrial output, and expand markets for domestic manufacturing. The development strategy is supported by an economic reform program developed in cooperation with the World Bank and the International Monetary Fund (IMF) and by a series of structural adjustment programmes. There have been major gains from the reform programme, and from liberalization of the economy, including low inflation, fiscal discipline and low government borrowing, infrastructure improvement and the growth of the private sector after a privatization program was initiated in 1995 under which a majority of former government-owned firms have been denationalized.
The current Growth and Transformation Plan (GTP), finalized in November 2010, was built on the implementation of previous poverty reduction strategies, the Sustainable Development and Poverty Reduction Program for 2002/03−2004/5 and the Plan for Accelerated and Sustained Development to End Poverty for 2005/06−2009/10 (PASDEP) which laid out the directions to achieve the Millennium Development Goals by 2015 and the basis for Ethiopia to reach ‘middle-income’ status by 2020−25. In March 2012, the IMF said Ethiopia would achieve this earlier if its rapid growth continued.
PASDEP provided for substantial progress in the provision of social services such as education, health and infrastructure through investing in physical and human capital formation and allocating over 60% of the budget to pro-poor expenditure. The spending on poverty-targeted sectors (both recurrent and capital) steadily increased during this period rising from 42.0% of total expenditure in 2002/03 to over 64% and this has continued. The effects were visible in significantly improved education and healthcare services. Primary school net enrolment rose from 77 percent in 2004/05 to 82 percent in 2009/10, and is now over 96%; completion rates also increased steadily. Secondary enrolment also rose steadily. Tertiary level education increased sharply. The proportion of fully immunized children rose from 20 percent in 2006 to 66 percent in 2010; the percentage of births attended by healthcare workers increased from 16 percent to 29 percent during the same period. In 2005 the maternal mortality was 871 per 100,000 births; this declined to 590/100,000 by 2010. Under-five child deaths fell from 200/2000 to 75/2000 in 2009. Health service coverage increased from 30% to 89% during PASDEP.
In 2004, Ethiopian GDP (Gross Domestic Product) was about 63% of Kenyan GDP and 4.6% of South African GDP; by 2009, the comparison was 97% and 10.1% respectively. Per capita income had increased from $138 to $344 in 2009. In 2009/2010 the economy grew by 10.4%, compared to the estimated growth rate of 6.0% for all Sub-Saharan Africa. Agriculture and allied activities contributed 30% to the increase while the service and industry sectors provided 56% and 13% respectively. Inflationary pressure continued to ease due to prudent monetary and fiscal policies and other government measures, and annual average inflation dropped to 2.8% in June 2010 against 36.4% a year earlier. It has since fluctuated sharply, rising sharply in 2011 and remaining a serious problem in 2012.
The financial sector registered robust growth in 2009/10 despite global economic shock and financial crisis. The total number of banks operating in Ethiopia reached 15 as two new private banks joined the industry during the fiscal year. The number of bank branches also increased by 45 from 636 to 681. Banks were able to register high profit, enhance resource mobilization, expand their capital level and reduce their non-performing loans to a minimum level in 2009/2010. The fiscal year 2009/2010 saw strong performances in imports and exports, a surge in services and transfers and some narrowing of the current account deficit. Export proceeds amounted to US$ 2.0 billion, 37% higher than the previous year with increases of all major export items except leather products and pulses. Service inflows rose by over 18%. The total import bill grew by 7%, reaching US$8.3 billion, due to increases in the cost of semi-finished goods, fuel, capital goods and consumer goods.
Overall, during the period of PASDEP the non-agricultural sector of the economy showed a 23.6% expansion as a result of the combined effects of the growth in the industry and service sectors. The main factor for industrial growth came from the substantial investments in hydroelectric power generation. Manufacturing showed an annual growth rate of 22.5 percent; mining surged by 95%, though construction was affected by a 1.2% slow down because of a subsequently rectified shortage of cement. In the service sector financial intermediation showed over 30% annual average growth between 2004/5 and 2009/10 as the financial sector continued to expand along with the country’s economic growth.
The growth in agricultural output was largely attributed to improved productivity aided by favourable weather conditions and appropriate economic policies. The amount of land under cultivation increased steadily between 1996 and 2008, reaching 11.2 million hectares in 2009/10. The production of major crops, including cereals, pulses and oilseeds, increased by some 5.6% that year. Total agricultural production rose from 119.1 million quintals in 2004 to 191 million in 2009 with productivity averaging 15.7 quintal/hectare (up from 12.1 quintal/hectare in 2004/05). Between 1996 and 2008, cereal yields, aided by significantly greater use of fertilizer, increased by about 40%. Agriculture averaged 8.4% growth during PASDEP (2005/6-2009/10) and provided the basis for the average double-digit economic growth after 2004/2005.
The government has developed a pro-active policy for the horticulture industry, providing tax and excise duty rebates, allowing full proﬁt repatriation, making land and ﬁnance available at low cost, and actively promoting trade standards and the creation of institutions to train skilled staﬀ. The government has encouraged investment in agro-business projects and in land, particularly in areas where land is under-utilized or uncultivated. Some larger projects have been leased to foreign investors but most of those agreed between 2005 and 2010 involved Ethiopian investors. Largely in the southern and western parts of the country in the regional states of the SNNP, Benishangul Gumuz and Gambella, these are intended for the production of wheat, maize and rice as well as bio-fuel products sourced from sugar, jatropha, castor and palm. Generous leases with performance-linked options for renewal are tied to local employment and development as well as provision for sales to local or regional markets. Projects have to fulfil specific requirements in terms of economic benefit and sustainability with respect for the rights and interests of local populations. Any movement of people for agro-industrial development or for hydro-power projects, for example, must be voluntary.
During the period of PASDEP Ethiopia became one of the fastest-growing non-oil economies in Africa averaging 10-11% growth rates, and the economy has continued to increase at this rate. On the basis of the achievements of the Plan for Accelerated and Sustained Development to End Poverty the aims of the Growth and Transformation Plan (GTP), 2010/11-2014/15 are to remove finally the chronic food insecurity from which Ethiopia has suffered for so long, achieve high growth of at least 11% within a stable macroeconomic framework; achieve the MDG targets particularly in the social sectors, and establish a stable democratic and developmental state. The GTP identifies sustained rapid growth, emphasis on agriculture, the promotion of industrialization, investment in infrastructure, enhancement of social development, strengthening of governance, and the empowerment of youth and women as strategic pillars, and defines three strategic directions for strengthening governance: increasing implementation capacity; ensuring transparency and combating corruption; and securing participation in governance – all within a stable macroeconomic framework. It also underlines the importance of prioritizing public sector investment based on rigorous cost-benefit analysis, improving data quality and implementation capacity, maintaining fiscal prudence and continuing tax reform, containing inflation and promoting monetization and competition.
By the end of the plan, the government expects to achieve inter alia a number of ambitious targets. The Growth and Transformation Plan’s base case scenario allows for an 11.2% annual growth rate; the high case scenario anticipates 14.9% growth. Either allow for significant increases in agricultural production, possibly doubling it and substantial expansion in industrialization and infrastructural development. Other targets include reaching a per capita GDP of about USD 700 (the current level is about US$ 400); over 2 000 km of new railway line, 8 000 megawatts (MW) of additional power generation, mobile phone density of 8.5 per 100 (up from the current level of 1.5); and a road network of 136 000 km (up from the current level of 45 000 km). Farmers throughout the country are to be provided with access to roads, electricity and telecommunication services.
In the first year of the GTP, the service sector grew by 13%, industry by 10.6% and agriculture by 7.6. Currently the service sector provides 45% of Ethiopia’s GDP, agriculture 42% and industry 13%. The budget for 2011/2012 (the financial year runs from July to July) was just under 118 billion birr (US$7 billion) a nearly 40% increase over 2010/2011. 40% is earmarked for infrastructural development, and another 39% (31 billion birr) goes to budgetary support for the regional states. Over 80% of the capital budget is to be spent on roads, education, agriculture, water, rural electricity and health development. 79 billion birr will be collected from tax and non-tax domestic revenues with 24 billion coming from foreign aid and another 17.2 billion birr from loans, foreign and domestic. Fiscal policy is focusing on strengthening domestic revenue, broadening the tax base and increasing pro-poor spending.
Health sector strategic options, targets and implementation strategies are consistent with the latest health sector strategic plan—Health Sector Development Plan IV (HSDP IV). Health per capita expenditure more than doubled between 2004 and 2010, to US$16.09. Ethiopia has had double-digit GDP growth rates for the last eight years and this is set to continue. The GTP expects to sustain growth rates of between 11% and 14.9%. The Plan allows for major tax reforms and improved tax collection already visible in 2010/2011 with at least 70% of the budget coming from taxes. Other planned developments under the GTP include expanded sales of treasury bonds, increased savings, and the introduction of mortgage schemes. Civil service salaries were raised last year and government pension rates increased. There are now 21 public universities with another ten in course of construction, as well as 54 private higher learning establishments with the number of university students standing at 543,000 with 371,000 more enrolled in technical and vocational establishments (in 1995 the numbers were no more than 17,000 and 3,000 respectively).
Planned areas of specific development include doubling the current 300,000 tonnes output of sugar production, adding another ten factories to the three currently operating. By the end of the GTP overall production will reach 2,250,000 tonnes and be able to supply 2.5% of the world sugar market as well as satisfy local demand. Cement production will be increasing to 27 million tonnes with 34 new factories being built during the five year plan and three others extended. Production at the end of 2011 amounted to just under about 5 million tonnes. A fertilizer factory is to be built to provide for the expected increase fertilizer usage (running at 550,000 tonnes a year in 2010). Another important sector for development is the textile sector where earnings rose from $23m in 2009/2010 to $62 million in 2010/2011, and the sector has already attracted a number of international firms and investors. Other elements include an increase in mobile phone subscribers from 4.0 million to over 6 million and raising the number of fixed line subscribers from less than a million to over 8 million.
Agriculture now accounts for less than fifty percent of GDP, though some 80% of the population still gains its livelihood, directly or indirectly, from agricultural production. Coffee exports account for little under half of foreign exchange earnings. Ethiopia, the original home of coffee, is the biggest producer in Africa and in 2010/11 the third largest producer in the world after Brazil and Vietnam when exports of 196,118 tonnes brought in US$2.8 billion It has the well-deserved reputation of producing the world’s finest coffees, notably those marketed under the speciality labels of Hara, Sidamo, Yirgacheffe and others. Processed and semi-processed hides and skins are the second most important foreign exchange earners, though gold earned more in 2010/2011. Ethiopia is the 10th largest livestock producer in the world and now exports finished leather products as well as semi-processed hides and skins. Other major exports include oilseeds and pulses, natural gums, khat, cut flowers and vegetables, cotton, gold and, of course, coffee.
Hydro-electric power production is anticipated to increase to over 10,000 MWs by 2015. Recent projects include Gilgel Gibe II (420 MW) and Takezze (300 MW) which came on stream in 2009; and Tana Beles (460 MW) in 2010. Gilgel Gibe III, now under construction will be finished in 2013 and provide another 1870 MW. The largest development is that of the Grand Ethiopian Renaissance Dam on the Abay River, the Blue Nile, which will produce 5000 MW when complete in 2017, and create a reservoir double the volume of Lake Tana. This will have the capacity to provide power for both the Sudan and Egypt as well as regulate floods and offer substantial irrigation potential. It will be a monumental feat of engineering, the largest infrastructural project ever undertaken in Ethiopia. In the meantime, feasibility studies have been launched for three other projects in the Abay (Blue Nile) basin – Mendaia (200MW), Beko Abo (2100MW), and Karo Dodi (1600MW). Other feasibility studies are being carried out for projects on the Takezze River and on the Dedessa River to produce 450MW and 301MW respectively.
Overall there is immense potential for hydroelectric power and geothermal energy generation. Nine of the country’s major rivers are suitable for hydroelectric power generation. The potential for possible development of geothermal energy generation is also substantial. Africa’s largest wind farm is currently under construction as part of this comprehensive clean/green energy expansion. In all, Ethiopia has the capacity to produce some 45,000MW, more than the current total used by the whole of sub-Saharan Africa. Prior to 2005 the amount generated was less than 1,000MW with only 17% of the population having access to electricity. By 2011, the amount of power generated had risen to 2218MW with over 40% of the population using electricity. The Growth and Transformation Plan aims to increase power to between 8000 and 10000 MWs. This will allow Ethiopia to export power to Djibouti, Kenya and Sudan. Transmission lines to all three countries are in process of being built and Ethiopia is already providing 200 MW of power to Sudan through the Eastern African Power Pool framework, and a start has been made on supplies to both Djibouti and Kenya.
The Plan calls for the building of some two thousand four hundred kilometres of railway to enable the bulk transport of commodities to and from markets and with regional port facilities. Rail projects include a light railway for Addis Ababa and 656 kms of the revived Addis Ababa to Djibouti line. Other plans include a railway line from a new port at Tadjourah in northern Djibouti to Makelle in Tigray Regional State through the potash areas under development in Afar Regional State. Though outside the GTP, Ethiopia may also benefit from the proposed rail and road links linking the planned multi-billion port project and oil refinery at Lamu in Kenya to South Sudan, passing through Ethiopia, the Lamu Port South Sudan Ethiopian Transport Corridor (LAPSSET). One related element is intended to include a rail link to Addis Ababa. Another element of the Plan is for Ethiopian Shipping Lines to acquire additional ships, including seven multi-purpose cargo vessels and two oil tankers.
Horticultural development for the export of flowers, fruit and vegetables has been one the success stories of recent years. It is set to continue. In 2011 the House of Representatives approved a law imposing mandatory environmental controls on horticultural producers, covering flower, fruit and vegetable production for export. They are now required to obtain certification from the Ethiopian Environmental Protection Agency. Coffee production is expected to double during the GTP, increasing from 300,000 tonnes to up to 700,000 tonnes. Spice production is expected to nearly triple during the five year plan. The plan also involves the provision of training, organization, supply of finance and technology to farmers and the expansion of micro and small-scale enterprises in urban areas, to provide support for low and middle income groups. Overall, the plan calls for a shift to high-value crops, a focus on high-potential areas, the commercialisation of smallholder farming, and the development of large-scale, commercial agriculture. The industrial sector will remain heavily dependent on imports of semi-processed goods, raw materials, spare -parts and fuel. Industries will include food processing and beverages, household and office furniture, metal works and printing as well as leather and textile factories. Over 60% of industries have been located in and around Addis Ababa but this is rapidly changing as the regional capitals develop.
The Growth and Transformation Plan builds on recent economic developments including the average 10-11% economic growth rate over the last eight years. Inflation has fluctuated but for most of the last decade it was in single figures and the government is committed to controlling it. The country has currently achieved macro-economic stability under economic policies emphasizing development of the private sector. There is a significant absence of corruption and a safe and secure working environment. Ethiopia is also on track to achieve all of the Millennium Development Goals by 2015. In March 2010 it enacted an Assets and Property Registration Law which requires that government officials and their relatives register their assets and properties. Aimed at reducing the prevalence of corruption, this will provide considerable support for the work of the Federal Anti-Corruption Commission
Ethiopia, following the example of Asian industrialization, is convinced of the role that the developmental state and a ruling party can provide to direct development, to stimulate and sustain growth. The government’s strategy is centrally directed towards economic growth and development, as a managed transition from a pre-capitalist economy to a capitalist one. The rise of an entrepreneurial middle class is important to boost the economy and to secure the eventual transition to full-fledged democracy. The economy has opened up significantly since 1991 with land retained in public hands to ensure the allocation of resources fairly and efficiently. The state retains a strong presence in strategic sectors in the supply of key inputs and key services to manage the market. It is now committed to achieving zero carbon emissions and to becoming carbon emission-free state by 2025.
In the last decade the government has given much increased encouragement to Foreign Direct Investment in various sectors of the economy while domestic investment has begun to take off particularly in commercial agriculture. The effect on the private sector has been marked. In the last few years, Foreign Direct Investment has been rising at a rate of 25% a year, with increasing amounts from Saudi Arabia, India, China, Sudan and Turkey in particular. The partnerships between Ethiopia and China, Japan, India and Turkey have been steadily expanding. Of these, China has been the most important providing financing and construction of infrastructure such as roads, power and communications as the levels of trade and investment demonstrate. China is currently the leading export destination for Ethiopia as well as the leading source of imports for Ethiopia. Total trade has risen from US$ 100 million in 2002 to over US$ 700 million in 2006 and over US$ 1 billion in 2009/10. Chinese companies are currently involved in most of the power generation projects, and in major projects in telecommunication and road sectors. Chinese firms provide competitive bidding and self-financing options and the majority are concentrated in the manufacturing sector. A Chinese investment group has begun construction of a Chinese industrial zone, outside Addis Ababa. The projects include textiles and garments, shoe, leather and leather products, food, electrical materials and steel and when complete will provide 20,000 jobs. The government sees these new partnerships including the provision of optimal investment, trade and industrial policies as leading to a win-win situation for both Ethiopia and its new friends.
Another area of significant development as well as considerable potential is the tourism sector which is currently undergoing a major programme of upgrading and expansion with improvements to regional airports and infrastructural links, and the building of numerous new hotels, particularly in Addis Ababa. Visa [link to section on visas] and custom regulations have been eased. The Ministry for Culture and Tourism works closely with the regional state tourist bureaux to bring together private tour operators (of which there are now over 60) and regulatory authorities.
Overall, all major economic sectors have been liberalized for investment and marketing. Investors can remit dividend and interest from invested capital as well as principal and interest payments on external loans, proceeds from sales, salaries and other payments. 100% foreign ownership of investment is allowed. The Investment Code [Link??] provides guarantees against expropriation and Ethiopia is a signatory of the Multi-lateral Investment Guarantee Agency (MIGA), the Convention on Settlement of Investment Disputes and other international agreements. A one-stop shop for investment has been developed through the Ethiopian Investment Commission (EIC). There are significant tax incentives, including exemptions on imports of capital goods and income tax holidays of up-to-eight years) as well as various incentives and benefits for exports including an Export Credit Guarantee scheme and a Franco Valuta Import facility. The tax environment has been described as ‘conducive’. There are double taxation treaties with a number of countries as well as bilateral treaties for protection and promotion of investments.
Ethiopia has the second largest population in sub-Saharan Africa with over 80 million people. It currently turns out over 10,000 university graduates a year, and the number is increasing fast. In total there are over 150 technical and vocational training schools at various levels. Average private sector wages remain highly competitive and expatriate employees are welcome though the EIC expects replacements to be trained within a designated period. It is usefully located at the crossroads of Africa, the Middle East and Asia, and although landlocked has easy access to the sea at Djibouti as well as being able to use Berbera in Somaliland and Port Sudan in the Sudan. A member of IGAD, the regional organization, Ethiopia also belongs to COMESA, the Common Market for East and Southern Africa, which provides it with preferential tariff rates with 23 countries and well over 300 million people. Ethiopia is a member of the ACP and is negotiating with the World Trade Organization. It has duty and quota free access to the US through AGOA, and to the EU which allows duty free entry for all industrial manufactured products.
International air links are excellent with Addis Ababa as the headquarters of the African Union (AU) and of the UN Economic Commission for Africa (UN-ECA) and a number of other international bodies, operating as the diplomatic capital of Africa. Ethiopian Airlines has an outstanding safety record and is one of the fastest growing airlines in the world with links to Asia, Europe, the Americas and elsewhere in Africa. All regional state capitals and other major towns are linked by microwave with automatic tele services. Similar links join Ethiopia to Djibouti, Kenya and the Sudan. Satellite earth stations provide international communication links and there are optical fibre links with the Sudan and Djibouti.
Ethiopia has a large and fast growing domestic and regional market offering prospects for a wide range of consumer goods. It has a strong range of natural resources with an exceptional climate for agricultural activity. While the economy remains predominately agricultural, the current Growth and Transformation Plan will increase industrial development on a significant scale, with particular focus on energy and infrastructure. Specific areas for increased development include agriculture and agro-processing; leather and hides, horticulture and floriculture exports, building materials and tourism. Details of dozens of state owned enterprises have been drawn up for privatization, mainly in food and beverage industries, transport and communications, agricultural services, tourism and the pharmaceutical industry. Under the country’s environmental laws, the Environmental Protection Agency investigates the environmental impact of new investments and is responsible for regular audits to ensure standards are maintained.
While all land is state owned, it is available on a leasehold basis for up to 99 years. Leases vary according to location, type of investment and the class of land, and according to the incentives available. Regional governments negotiate details with businesses and investors. Much of the potential of Ethiopia has yet to be exploited. Out of the 60% of land which has potential for agricultural development, only 15% has yet been developed to any degree. Equally, many of the mineral resources, which include gold, platinum, marble, tantalite, copper, potash, soda-ash, zinc, nickel, iron, and natural gas, have yet to be developed.