Ethiopia Registers Promising Economic Growth Amidst Global, Regional Economic Downturn

May 26, 2023

BY SOLOMON DIBABA

In his recent speech at the G7 Summit in Hiroshima, Japan, the UN Secretary General Antonio Gutrres remarked “My message to G7 leaders is clear. While the economic picture in the world is uncertain everywhere, rich countries cannot ignore the fact that more than half of the world, the vast majority of countries are suffering through deep financial crisis.

The crushing economic impact of COVID-19 pandemic, climate crisis, Russian invasion of Ukraine, unsustainable level of debt, rising interest rates and inflation are devastating developing and emerging economies. Poverty and hunger are rising and development is sinking.”

The Secretary General spoke about the problems of the developing countries through three basic perspectives. In terms of moral, he noted that the world financial system is in favor of the developed countries and cited an example from the financial inequalities in the prevention and control of COVID-19 in which out of the 650 billion USD forwarded, while the G7 countries with a population of 772 million received 280 billion USD, Africa with a population of 1.2 billion received only 34 billion USD.

He noted that this was done in accordance to the rules which in themselves are fundamentally wrong. He mentioned the second problem which emanates from the power dynamics in the world which dates back to the 1945 he characterized the dynamics as outdated, dysfunctional and unfair. He called for a basic reform in the Security Council and the Breton woods Agreement.

The third problem face developing countries according to him is a practical problem in which enough support is to be provided for the developing countries which are the victims of climate change but contribute almost nothing to the global warming which unless stopped to the level of 1.5 degree Celsius could gallop to 2.8 degree Celsius at the end of the century. The entire situation in the world today reflects what Andre Gunther Frank called “development of under development.”

Moreover, According to the UN World Economic Situation and Prospects as of mid-2023 released a couple of days back, “ a robust global economic recovery remain dim amid stubborn inflation, rising interest rates and heightened uncertainties. Instead, the world economy faces the risk of a prolonged period of low growth as the lingering effects of the COVID-19 pandemic, the ever-worsening impact of climate change and macroeconomic structural challenges remain unaddressed, according to the World Economic Situation and Prospects as of mid-2023.

According to the report, the world economy is now projected to grow by 2.3 % in 2023 (+0.4 percentage points from the January forecast) and 2.5 % in 2024 (-0.2 percentage points), a slight uptick in the global growth forecast for 2023. In the United States, resilient household spending has prompted upward revision of growth forecast to 1.1 % in 2023. The European Union’s economy—driven by lower gas prices and robust consumer spending—is now projected to grow by 0.9 %.

China’s growth this year is now forecast at 5.3 % as the result of COVID-19 restrictions being lifted over the year in the country. Global trade remains under pressure due to geopolitical tensions, weakening global demand and tighter monetary and fiscal policies. The volume of global trade in goods and services is forecast to grow by 2.3 % in 2023, well below the pre-pandemic period.

World Bank report issued a couple of days ago for 2023 predicts that “Growth across Sub-Saharan Africa remains sluggish, dragged down by uncertainty in the global economy, the underperformance of the continent’s largest economies, high inflation, and a sharp deceleration of investment growth”.

In the face of dampened growth prospects and rising debt levels, African governments must sharpen their focus on macroeconomic stability, domestic revenue mobilization, debt reduction, and productive investments to reduce extreme poverty and boost shared prosperity in the medium to long term, WB recommended.

Economic growth in Sub-Saharan Africa is set to slow from 3.6% in 2022 to 3.1% in 2023, according to the latest Africa’s Pulse, the World Bank’s April 2023 economic update for Sub-Saharan Africa. Economic activity in South Africa is set to weaken further in 2023 (0.5% annual growth) as the energy crisis deepens, while the growth recovery in Nigeria for 2023 (2.8%) is still fragile as oil production remains subdued.

The real gross domestic product (GDP) growth of the Western and Central Africa sub-region is estimated to decline to 3.4% in 2023 from 3.7% in 2022, while that of Eastern and Southern Africa declines to 3.0% in 2023 from 3.5% in 2022. Despite the above mentioned global and regional bleak economic downturn, Ethiopia’s economy will show a 7.5 % growth in the current 2022/23 fiscal year, the Ministry of Planning and Development (MoPD) projected.

The forecast comes a week after the African Development Bank said Ethiopia and four other African nations would reclaim their position among the world’s 10 fastest-growing economies in 2023-24. In spite of the positive developments, the Minister reported a slight drop in export trade performance. Ethiopia secured a little more than 1.8 billion US Dollars in six-month export trade, achieving 77% of the target set by authorities.

Fluctuating prices of commodities at the global market, illegal trade and contrabands, and various bottlenecks in the nation’s trading system have been blamed for the drop in export revenues. Despite a drop in export earnings, the half-year also saw the government’s revenues spike by 28.9%. More than 222 billion Birr has been generated from tax and non-tax sources.

Prime Minister Abiy and his cabinet are now evaluated the economic performance at Halala Kella – part of the ‘Dine for Ethiopia’. PM Abiy praised the overall economic performance of the economy saying “While we continue to be confronted with many challenges, our economy perseveres resiliently.” According to reports delivered by the concerned ministers, over the last 9 months, the country has managed to create 2.4 million new jobs with 79% performance against the plan.

The nation planned to collect 328.4 billion birr in 9 months and collected 328.4 birr. Ethiopia managed to preform 70% of its FDI plan and the ministry of industry reported that 1.9 billion USD was secured in import substitution programs conducted over the year. The market share of the industry sector has grown from 30% at the start of the Tens Years Perspective Plan.

Agriculture production has shown 6.3% growth while self-sufficiency and export standard has been secured in wheat production and beer grain production has been substituted by local production. The IP sector planned to secure 156 million USD over the year but managed to secure 122 million USD creating 36,800 new jobs and providing market linkage for 100,000 farmers.

In spite of the challenges from the two digit inflation the country is facing, contraband trade, corruption is in various forms, lower export earnings and the demanding relief and rehabilitation efforts which demanded huge amount of fund, today Ethiopia stands as one of the fastest growing economies in Sub- Sharan Africa and Africa at large.

With the reforms under way in almost all sectors with the support from Digital Ethiopia 2025 and Ethiopia’s fast growing AI services, Ethiopia could perform even more. The prevalence of relative peace in the country and strong leadership Ethiopia could become a manufacturing and agriculture hub for Africa.

Now what is to be done in the future to improve global, regional and Ethiopia economy? The author wishes to suggest several options. As the UN Secretary General has pointed out unless a major total global economic reform is introduced, the less developed countries will remain in their vicious circle of economic regression while the most favored developed countries will continue to develop at the expense of poor countries that do not benefit from the unfair global economy which favors the developed west.

As the Secretary General has clearly indicated, the world could certainly be divided into several or two separate types of economies as a means to a solution. In addition, global financial institutions like the WB and IMF need to urgently revise their economic policies to address the development needs of the developing countries in a more independent manner.

This could be an important step towards creating a new world economic order that is based on equity. Promoting climate change justice by the industrialized countries by effectively fulfilling their annual pledge of 100 billion USD towards support for the most vulnerable countries being affected by ever growing devastations of climate change.

Ethiopia needs to further develop its mining resources like gold and precious stones and rare metals to ensure further industrialization of the country instead of heavily depending upon the service sector. The tourism sector is showing promising results by generating 3 billion USD and this income could be doubled by next fiscal year if more expansion is conducted in luring tourists into the newly developed eco-tourism project sites across the country.

Ethiopia needs to strive to create a minimum level of economic integration with the countries of the Horn of Africa particularly with Djibouti, Kenya and South Sudan by using existing infrastructure facilities and constructing new ones like the all-weather road to South Sudan. As GERD is nearing completion more hydroelectric power will be produced to meet the needs of the industries in the country but this effort needs to continue in producing more power from solar and wind farm projects.

The construction of a Free Trade Area in Dire Dawa needs to be followed by commissioning more free trade areas in the major economic corridors in the country. Ethiopia’s socio-economic development has always been on the right track even during the war in the northern part of the country. The successes gained this year need to set the pace for more accelerated development over the remaining years of the Ten Years Perspective Plan.

Editor’s Note: The views entertained in this article do not necessarily reflect the stance of The Ethiopian Herald

THE ETHIOPIAN HERALD FRIDAY 26 MAY 2023