World Bank: Ethiopia’s Economy Grew by 10.6 Percent Every Year Between 2004 and 2011 (Video)
Jan. 01, 2013
Interesting analysis by Goolam Ballim, Chief Economist at Standard Bank in South Africa; chief researcher economist for Ethiopia, Christian Muller, and world bank country directory for Ethiopia, Guang Zhe Chen:
By Kidist Hailu
Jan. 16, 2013
Ethiopia: World Bank’s Acknowledgement: Better Late than Never
In line with their labeling of Africa a “hopeless continent”, Western experts and think-thanks have been skeptical of the potential of the continent for more than two decades. Their policy recommendations were either based on ideological predisposition or intended as temporary solutions.
The primary prescriptions of the last two decade, mainly structural adjustment and conditional development assistances, and aid channeled and directly through NGOs, had mainly the combined effect of weakening the already weak state structure.
As eloquently expounded in Meles Zenawi’s paper “African Development: Dead Ends and New Beginnings”, the imposition of the neo-liberal (also called “Washington Consensus”) prescriptions of liberalizing, deregulating and privatizing the economy didn’t change the rent-seeking nature of states nor did they created a vibrant free market economy and civil society. The measures weakened the role of the state in public service provision and economic management, yet it didn’t stop the political elites from collecting rent. They simply shifted from embezzling public owned enterprises to taking bribes from the private sector in the process of issuing license permits, privatization and other services.
The proliferation of foreign NGOs intended to fill the service provision gap created due to the weakening of the state further weakened the relevance and potential of the state. Rent seeking political economies tended to delegate service delivery to NGOs and let western financial institutions write their policies, in return for aid and loan much needed to sustain structures of patronage.
The western organizations were not ignorant of what was happening. But they were tied by ideological rigidity or There Is No Alternative mindset. Some scholars even tried to develop cultural, evolutionary, etc. hypothesis that explain why the continent is doomed to remain a “hopeless continent”.
It was at the pick of this outlook, in the beginning of the last decade, that the late PM Meles Zenawi started to outline the developmental state paradigm, an improvised version of the SE Asia experience, that would lift Africa from its vicious circle of poverty and rent-seeking, in his PhD thesis for the University of Columbia.
Outlining this revolutionary thought in terms of various policy areas and having them implemented was not an easy walk. The aggression of the predatory state in Asmara and the resistance of rent-seeking elements within Ethiopia’s ruling party stood on the way.
To embark on the developmental state path, Meles had to take the decisive leadership not to turn the war with Eritrea into a reckless adventure and to reform the party purging those unwilling to abandon rent-seeking tendencies. However, the new path had difficulty winning the pessimist attitude at home, leave along convince western analysts and institutions.
It was the organizational competence of the ruling party and the practicality of its policy measures that made possible public mobilization possible. Especially in the rural areas and the agricultural sector which takes the lion share for the GDP growth in the first 2-3 years of the consecutive growth observed since 2003.
The people started to see a bright light and followed directions given through various policy packages including micro and small enterprises development programs, agricultural extension services. This virtuous circle of government efforts and public mobilization and sustained growth brought today what would normally be thought improbable – Private saving reached about 10%, despite the government keeps tight control on the finance system.
International financial institutions, like World Bank, didn’t deny the achievements at each stage. However, they had difficulty accepting that Ethiopia is striding through a developmental path incompatible with the neo-liberal paradigm. At the beginning of the year, they put question marks on Ethiopia’s growth targets, only to congratulate at the end of the year. But in both instances they insist the achievements can not be sustained for even one more year without taking neo-liberal reforms.
The ideological predisposition of western experts and their strong skepticism a development path engineered in the “hopeless continent” is understandable to some level.
The sad affair was the pessimist attitude and doomsday prediction of some Ethiopia politicians and scholars who should have been more open-minded to a home-grown development strategy and should have trusted the potential of their fellow citizens to make miracles under good leadership. Contrary to that, they routinely picked up skepticisms of western experts as facts and tried to discourage the population and local and foreign investors by presenting the nation as a hopeless one. They even tried to create doubt about achievements accepted even by western think-tanks and institutions.
They tried to belittle Ethiopia’s achievements with all sorts of make-believe claims and flawed arguments. At one time, they tried to downplay the growth indicating the low base from which the economy started as if that is the ruling party’s fault. At another time, they belittled the effort of the farmers and the gains of agricultural extension services as results of increased rain, while knowing climate factors had been better for several decades in the country. They tried to argue citing inflation, though it is a common knowledge that a booming economy is exposed to inflationary factors. They even attempted to question the government data which they believe when it presents bad news. The recent mantra was that the economy’s expansion is attributable to public expenditure financed by money printing, though as IMF recently confirmed base-money growth has been halted for almost three years, while tax revenue has shown steady growth. On the other hand, recurrent expenditure was tightened even beyond target in the last year, while capital expenditure by public enterprises had shown a rise. An attribute of a healthy economic growth.
One useful tool of the doomsayers for confusing the mass was the conceptual difference between growth and development. But that was hopelessly squashed about two years ago when the Human Development Index revealed that: “Ethiopia is rated among these htop moversh at rank 11 out of the 135 countries which registered improvement in Human Development Index that stretched the rating between 1970 and 2010. While assessing the achievement status of same countries between 2000 and 2010, Ethiopiafs status goes up to put the country 2nd rank.
Same measurement was also conducted between 2005 and 2010. According to the measurement done between 2005 and 2010, Ethiopiafs position comes at the top of the top movers of the development achievers.”
Encouraged by these achievements the Ethiopian government and people launched even more ambitious plan – 5-years Growth and Transformation Plan, which envisions to eextricate Ethiopia from poverty to reach the level of a middle-income economy between 2020 and 2023Œ. However, the plan was criticized by many as realistic and improbable, until a two years and half committed effort of the government and the people demonstrated of the viability of the plan. Fortunately, the mid-term of the GTP coincided with the launch of World bank’s “Ethiopia Economic Update” report and the new Country Strategy Plan of the Bank.
The “Ethiopia Economic Update” report unequivocally confirmed the robust and sustained growth of the past decade squashing doubts once and for all. The report stated “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”. The Bank’s experts explained that:
gTwo 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 2010/11h.
“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 Asiah. gGrowth 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.h
Ethiopiafs 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.”
Subsequently, the Bank approved its Country Partnership Strategy plan for Ethiopia which budgets about 4 billion dollar assistance for 2013-2016. The strategy, according to World Bank Country Director Guang Z. Chen, gis a result based strategy anchored in the government of Ethiopiafs Growth and Transformation Plan as well as the World Bank strategy for Africa.” The belated but deserved acknowledgement of Ethiopia’s development direction came in this context. The Bank said that: gThe Government target to reduce poverty to 22.2 percent by 2014/15 is ambitious but attainable.h This poverty reduction target is the primary component of Ethiopia’s 5-years plan, for which 60% the GTP budget is allocated.
World Bank praises Ethiopia’s inflation battle
By Mohammed Awad
Jan. 24, 2013
ADDIS ABABA: According to a new report by the World Bank, the Ethiopian economy has been growing at twice the rate of the rest of Africa, averaging, 10.6 percent GDP growth a year between 2004 and 2011 compared to 5.2 percent in Sub-Saharan Africa.
The Ethiopia Economic Update launched in December 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 2014/15 is 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.
The Report illustrates comparisons of Ethiopia’s development experience with those of China and Korea. These suggest Ethiopia is well on track for its development.
According to analysts Bikyanews.com spoke with, there is much optimism over recent East Asian investments and the future bolstering of the Ethiopian economy, especially considering the change in leadership the country witnessed last fall following the passing of Prime Minister Meles Zenawi. They believe that the country is on the right path toward increasing their economic growth and feel that measures in place should help create a new boom for the East African country.