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Is the Ethiopian economic miracle a model for Africa?

Thursday November 05 2020
ethiopia pic

Ethiopian Prime Minister Abiy Ahmed

On Saturday, July 13, 1985, Wembley Stadium in London was filled with thousands of people in a musical event organised by Bob Geldof. Similar events were conducted in over half a dozen other nations, drawing 40 percent of all humanity to the satellite feeds that were broadcasting the events. The goal was to raise relief aid for a hunger-stricken nation at the horn of Africa – Ethiopia.

Following a decade of misrule by the dictator Mengistu Haile Mariam, and after being ravaged by two years’ drought that claimed 1.2 million people, Ethiopia was on its knees. This was one of the nastiest humanitarian crises of the last century which made Ethiopia an object of pity – a parable for African misery and destitution.

That country is no more. In its place today stands an emerging economic giant, the biggest economy in the East African region, and one of the fastest growing economies in the world.

They say that numbers don’t lie and in this case it is actually true – in this millennium, only China and Myanmar are ahead of Ethiopia in terms of economic growth globally. By 2018, Ethiopia had sustained a 10 percent year on year GDP growth for ten years. A remarkable feat.

During this period of transformational growth, Ethiopia managed to reduce the number of people living in poverty dramatically – from over 50 percent of its population to 31 percent. This means that the growth is not only making the rich richer, but it is lifting people up out of poverty.

Ethiopia’s transformation is usually attributed to the late Meles Zenawi’s state-led development policies. Having reviewed the growth paths of the Asian tigers, Meles observed, citing Taiwan and South Korea, that an active catalytic state was instrumental in leading and supporting economic growth of certain sectors of the economy in Ethiopia.

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Therefore, Ethiopia embarked on a massive government-led investment program, focusing particularly on infrastructure – roads, telecoms, dams, rails, and health facilities.

Three projects deserve a mention. First, the 750km line connects the landlocked Ethiopia with the Red Sea, cutting travel time from two days by road to 12 hours, thus making it possible for Ethiopia to leverage its proximity to Asian and European markets competitively. Second, the recently completed Grand Renaissance Dam, on the Blue Nile, is Africa’s biggest dam, one which will make Ethiopia a net energy importer. Finally, the Kuraz Sugar Development Project in the south. This is Africa’s largest state agricultural program – equivalent to all the irrigated land in Kenya.

This is the approach which has been continued by the reform minded and Nobel laureate Prime Minister Abiy Ahmed. Probably reflecting the attitude and confidence of their Chinese mentors who have backed most of their projects with billions – when Ethiopia builds, it builds large.

In everything that is happening in Ethiopia, probably the most noteworthy is its industrial parks projects. In line with Ethiopia’s dream of becoming a light manufacturing hub for Africa, Ethiopia has been building many industrial parks, mostly funded by Chinese investors.

The now opened Hawassa Industrial Park, for example, built by China’s CCECC, is expected to generate $1 billion annually and hire up to 100,000 people. The project is built to provide efficiency: it has one-stop government services centre, provides all utilities within, plus other services such as banking and visa. All within the park.

With 30 similar parks at different levels of completeness, especially along the railway line to Djibouti, this is the model that is being replicated all around Ethiopia. And foreign investors are taking notice – big brands such as Zara, H & M, Tommy Hilfiger, and Calvin Klein, are now outsourcing to Ethiopia. There are other German, Turkish, Holland, Swiss, and Chinese companies investing in garments, textile, ceramics, shoemaking, glass, pharmaceutical products, etc.

This bold strategic move to industrialisation is having a significant effect in Ethiopia’s economic structure. For example, the agricultural sector, which once contributed over two thirds of GDP, now contributes only one third, while manufacturing and construction now contribute 25 percent of GDP.

Ethiopia appears to bet its future on these developments. With 2 million people entering the workforce every year, nothing less than an economic miracle can guarantee that. As a poor nation, Ethiopia still has so much work to do, but its model for industrialisation shows huge promise, for now, and this will generate foreign currency, facilitate technology transfer, and enable it to strategically integrate its economy with the world’s. These are all the steps which the Asian nations used to move forward.

Furthermore, industrialisation will transform Ethiopia’s institutions, as it has done in other nations. The dynamic learning process for technology acquisition and policy development will have a lasting effect on its productivity levels – a true measure of future economic success.

Is this the model worth of emulation by other African nations? Is this the way Africa can deal with its youth unemployment challenges?

African nations have a baggage of issues that come with their pasts. Current reports of violence in Ethiopia’s Tigray region highlights some of those issues which can short-circuit its development – in this case, the disastrous policy of segregating regions along tribal lines. So, while nations may have to tweak their approaches to growth, but Ethiopia surely provides a lot to ponder on.