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| [PHOTO: Tax Credits/CC BY 2.0] |
Addis Ababa, Ethiopia: Over the past decade, the Ethiopian economy has been growing
at twice the rate of the Africa region, averaging, 10.6 percent GDP growth per
year between 2004 and 2011 compared to 5.2 percent in Sub-Saharan Africa, according
to a new report by the World Bank.
The Ethiopia Economic Update launched recently attributes this
impressive economic growth mainly to agricultural modernization, the
development of new export sectors, strong global commodity demand, and
government-led development investments.
“Two and a half million people in Ethiopia have been lifted
out of poverty over the past five years as a result of strong economic growth,
bringing the poverty rate down from 38.7 percent to 29.6 percent between
2004/05 and 2010/11”, says Guang Zhe Chen, World Bank Country Director for
Ethiopia. “The Government target to reduce poverty to 22.2 percent by 2014/15is
ambitious but attainable.”
The Government of Ethiopia has also made progress in
tackling the persistently high inflation which affected the economy over the
past two years by tightening its fiscal and monetary stance. As a result,
inflation is on a decreasing trend, falling from 33 percent in 2011 to 15.8
percent in October 2012 (year on year).This is good news for the poor and for
the overall economy.
"Ethiopia follows a strategy of increasing exports to
facilitate growth. This is appropriate given the limited size of the domestic
market and it is consistent with the development experience of some of the
recently successful countries, particularly in East Asia”, says Michael Geiger,
the Bank’s Country Economist for Ethiopia and one of the lead authors of the
report. “Growth of goods exports has mainly been driven by volume growth across
a variety of product groups, implying that Ethiopia is increasingly
diversifying its export base.”
Lars Christian Moller, Lead Economist and Sector Leader for
Ethiopia said “Ethiopia is one of the few large, land-locked economies in the
world that exports more services than goods. Yet, there is widespread
perception that the comparative advantage of a low-income country like Ethiopia
lies in export of primary products and labor intensive, low-skill manufacturing
goods.”
Ethiopia’s fiscal performance appears to be adequate given
the current state of the economy and financing requirements for development,
according to the Bank report. The overall general government deficit (including
grants) declined from 1.6 percent of GDP in 2010/11 to 1.2 percent of GDP in
2011/12.Tax collections have been boosted by the 2010 tax reform, while public
management reforms (such as program-based budgeting) have strengthened public
expenditures. Public debt is on a declining trend at 35 percent of GDP in
2011/12 and Ethiopia has a low risk of external debt distress.
The launch of the Ethiopia Economic Update was complemented
with the presentation of a Survey Report of Chinese Foreign Investment in
Ethiopia. Responding to a request from the Government, the World Bank surveyed
69 active Chinese enterprises doing business in Ethiopia with a tailored
enterprise survey. The report recommends a series of policy areas to facilitate
foreign investors coming into Ethiopia so that the country can reap the
benefits it needs to further its development path. Key recommendations include
streamlining custom procedures and trade regulations, improving tax
administration consistency and efficacy, and increasing the supply and quality
of skilled workers.
The two reports form part of a new programmatic knowledge
service prepared by the World Bank as a part of its economic policy dialogue
with the Government of Ethiopia. Going forward, the Bank is planning to release
an Economic Update report for Ethiopia every six months along with other
tailored knowledge products in close coordination with the Ministry of Finance
and Economic Development.