Ethiopian GDP Growing Strong

Ethiopia’s gross domestic product grew on average 10.9% from 2004-14. The growth spurt—attributed mostly to agriculture and services sectors—moved it from being the world’s second-poorest nation to becoming a middle-income country by 2025, according to a new World Bank Group report, Ethiopia’s Great Run: The Growth Acceleration and How to Pace It. The country’s “growth strategy stands out for its uniqueness in focusing on promoting agriculture and industrial development with a strong public infrastructure drive,” the bank said.

“Ethiopia began to see accelerated economic progress in 1992, and it shifted to an even higher gear in 2004, pulling millions of people out of poverty and leading to improvements in other areas like improved life expectancy and reduced child and maternal mortality,” said Lars Christian Moller, the firm’s lead economist for Ethiopia and lead author of the report. “To continue the impressive run, Ethiopia needs to modernize the policy framework to further strengthen the foundations of its economy.”

A decline in military spending as a part of a restraint on government consumption facilitated high public infrastructure investment. “A strong rise in exports, greater trade openness and an expansion of secondary education were some of the additional enabling factors that supported the economic boom and facilitated a substantial decrease in poverty from 44% in 2000 to 30% in 2011, measured by the national poverty line,” World Bank stated.

The report highlights three policy recommendations:
  • Continued infrastructure investment, sustainably financed through new ways such as raising tax revenues, encouraging private sector involvement or improving public investment management and less dependence on debt financing.
  • Supporting and sustaining the private sector through credit markets and private investments. (“Ethiopian firms are more credit constrained than peers and exhibit poorer performance as a result,” the bank said.)
  • Tapping into the growth potential of structural reforms. Ethiopia has liberalized its merchandise trade and “can make further progress by gradually reforming the services sector, including domestic finance,” the bank stated. “In doing so, it can benefit from the lessons of early reformers and tailor reforms to its own circumstances.”

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