Achieving Ethiopia’s economic growth

Posted on August 22, 2015 12:01 am

Ethiopia is one of the fastest growing economies in Sub Saharan Africa.It is a country where macroeconomics explains that in the short-run, the upward shift in aggregate demand will always result in economic growth accompanied by an inflation rate. Empirical data simulation confirms that Ethiopia in the productive stage experience not only high real economic growth but growth that is higher than the inflation rate. In my calculation using World Development Indicator data shows that in the last 15 years since 2000, developed countries like the USA and Japan experienced the huge economic moments for about five and 10 years, respectively. According to data available, America maintained it for about six years between 1960-1966 while Japan for about 10 years between 1960-1970. South African maintained its greatest moment for five years 1994-1999, while Ghana and Tunisia have also experienced it. Countries that have similar starting-points in terms of economic development with Ethiopia have experienced it. So, how about Ethiopia? Based on calculations, Ethiopia’s inflation rate has always been higher than its real economic growth. Moreover, in certain periods, inflation has soared to far higher levels. In 1976 to 1986, for instance,Ethiopia achieved, on average, real economic growth of about 3 percent, while its inflation rate was at a terrifying above 50 percent. This was during the political turmoil period and the infamous famine that shocked the world.

A similar sequence struck Ethiopia again during the economic crisis in the early 1990s after the war with Eritrea. This coincided with another political transition from the old generation to the reform era engineered by the late Prime Minister Meles Zenawi.This time, Ethiopia’s economic growth plummeted to less than 10 percent while its inflation rate rose to above 10 percent. After the economic crisis (1990-1995), Ethiopia still has had to face a higher than average rate of inflation of above 15 percent, compared to its real economic growth 8 percent.Ethiopia does not seem to have experienced a magical moment of economic growth. As forecasted, in order to achieve it Ethiopia needs to preserve, on average, around 10 percent of real economic growth together with a 3 percent rate of inflation continuously for 10 years. After the general election in 2015 went well, Ethiopia will now have a period of opportunity between 2016 and 2026 when the country’s per capita income is expected to shift from a middle to high-income earning country. But according to an economic researcher from UK, Ethiopia has myriad of challenges to tackle before it can realise upper middle income status country.It needs to adopt a technology-based economy and show the same enthusiasm like Kenya, to carry out extensive research and development, and putting science & technology at the heart of the process of industrialization to meet consumer demand. Technology is an essential factor in transforming Ethiopia from a developing to developed level.Ethiopia need to develop new technologies by addressing future demand, or find practical ways to support advanced countries’ production technology networks that already exist, in which Ethiopia must compete with its fellow developing countries.

The country also need to develop technology with a human face. From a consumer’s point of view, technology should fulfill human needs while, according to a producer’s view, its processes have to humanize humans. Ethiopia is currently developing nature-friendly technology but the technology must be efficient both in terms of using natural raw materials and minimising waste emissions. The planners in Addis Ababa need no reminder that technology is useless without educated, well-trained and healthy people and would suggest that Human Development Index is an important indicator.Ethiopia needs to be at least within the top 50 of the world’s HDI index.In terms of non-renewable resources, Ethiopia must implement at least two essential policies which the first, sell non-renewable energy at rational market price and second, support comprehensive action in searching for alternative, safe energy sources to reduce the speedy depletion of non-renewable energies.That’s why Ethiopia – Kenya economic cooperation that includes energy supply deal is important.Trade, particularly international trade, is believed to be the trigger for globalisation and Ethiopia cannot afford to be left behind.It is Ethiopia’s destiny to be ready to compete in the international market. If it can win against regional competition,it will win in its domestic market. Local entrepreneurs should be ready to compete with their international competitors at all levels. If these challenges can be addressed, Ethiopia will have a chance to achieve its moment of economic growth and become one of the future developed countries in Africa.

Contador Harrison