Africa’s Lion: Why Ethiopia will continue to emerge despite losing its chief strategist, H.E Prime Minister Meles Zenawi

As we enter a new Ethiopian year (2005) without the leadership of H.E Prime Minster Meles Zenawi for the first time in 21 years, it is natural for all to ask what the future will hold for this great nation of about 90 million. More specifically, the business community, both foreign and local, has been concerned with the continuity of Ethiopia’s major gains established over the last decade. We at Precise Insights strongly believe that Ethiopia’s social, economic, and political progress is built on a solid base and the nation will continue to flourish for the coming decade. Here’s why.

Policy continuity

Ethiopia’s growth of the last decade has been fast and broad based. It has not been based on a single commodity or a single region. Instead, its growth saw many new products being produced for local and export markets and a significant reduction of its dependency on exports of coffee (down from as much as 75% sometime ago to as little as 25% now). While growth is visible and tangible in Addis Ababa, this is by no means the only focus of economic vibrancy. Ethiopia’s growth is in fact multipronged and with as many as 8 regional cities now growing rapidly. Much of this diversity in product and regional distribution is no accident. It is a result of a strong commitment by the government of the late Prime Minister, which made a strong political commitment early on to channel the national budget into pro-poor sectors of the economy and into the regions rather than into Addis Ababa.

The impressive result, which has delivered double-digit growth for eight consecutive years with GDP expected to exceed U.S $50 billion this year is based on a few major principles. It advocates investment in agriculture with the aim to increase productivity enough to feed the population but also provide excess labor and resource inputs into a now emerging labor-intensive manufacturing industry.

It also envisages massive increases in productivity driven by heavy investments in human and physical infrastructure connecting the country with itself and with the rest of the world. Another hallmark principle is the Government’s willingness to intervene in the market to fix pervasive market failures and direct credit. While this sort of policy doesn’t always lead to positive results, it is clear that Ethiopia has by in large benefited from it in many areas. The result is increasing production utilizing more land, more labor, but also via the increase in labor and land productivity we have started to see already.

It is important to note at this point that this strategy and policy may have been engineered by the late Prime Minister Meles, but that it is one that is fully owned by Ethiopia’s ruling coalition from its highest to the lowest ranks. It is also completely owned by the government bureaucracy the party has helped to create. It is therefore sure to continue under the leadership of the next Ethiopian prime minister, who will be chosen from the ranks of the EPRDF. This leader is likely to be current acting Prime Minister H.E Ato Hailemariam Dessalegn who has already declared his intention towards policy continuity.

Advances in human capacity

China’s explosive growth was to a major extent driven by its population dynamics, which was both low cost and young. In a smaller but very similar way, Ethiopia’s demography is well poised for growth. Out of the nation’s 90 million population, 50% or 45 million are under the age of 15. But the numbers are meaningless in and of themselves. What’s more important is that Ethiopia’s youth are increasingly healthy and more and more educated, thanks to education and health investments by the Government of Ethiopia over the years.

In our opinion, this is one of the most profound areas of success for the late Prime Minister Meles Zenawi. His effort has been recognized by the UNDP, which identified Ethiopia as the country in its Human Development Report of 2010, which made the most improvement in the quality of the lives of its people in the world from 2005-10. (second in the world in the period 2000-10). A healthier and better-educated Ethiopian population is thus one of the reasons why we feel confident of a continuation in Ethiopia’s explosive growth.

Advances in infrastructure, increased urbanization and interconnection

The fury with which Ethiopia is currently building infrastructure is quite impressive. The nation has one of the most ambitious road building programs in Africa that has continued to bring large swathes of productive Ethiopia into the market economy. Over the last decade, it has also begun an impressive drive to produce hydropower for its own as well as its neighbors’ growth. Its airline has emerged as Africa’s second largest and is already gunning to take over the top spot from South African Airways in the next decade. Its shipping line is similarly ambitious. A nationwide low cost housing scheme has provided the construction industry much stimulus. As if this isn’t enough, over the last few years, a new drive to link the nation via railways has taken off with the first 2000km expected to be complete by 2015.

Even if all these projects are not completed on time, their likely contribution to GDP growth over the coming few years is not hard to imagine. While this public investment is currently fueling growth, the business opportunities created is already helping to establish and grow Ethiopian enterprise. It is also staying ahead of the curve and providing the nation with increased future capacity to grow. Meanwhile, higher value added jobs being created in the cities across the nation are supplanting lower wage farm employment, and adding further fuel for continued robust growth.

Finance to fuel continued growth

As we pass through the half way mark of Ethiopia’s highly ambitious five-year Growth and Transformation Plan (GTP), issues of finance have always been a point of challenge. While it will take some more creative maneuvering to fulfill all the financing requirements of the GTP, we believe quite a bit will nevertheless be available to help fuel growth for the coming decade. Most importantly, Ethiopia’s domestic resource base, in the form of taxes and customs receipts is growing fast and becoming a more dependable source of government financing.

While there is still much room for growth in taxes however, other areas will continue to pick up the slack. Export growth and remittances have both continued without abating over the past decade despite a global slowdown. We expect this trend to continue for the next decade based on promising structural reasons on the ground. Given Ethiopia’s excellent record of efficiently using funds and its relations with multilateral and bilateral donors, we expect foreign aid to continue to be good source of funding. In addition, Ethiopia is likely to benefit further from its relations with the Government of China (with its 2.5 trillion dollar reserves) and India, as the country becomes an interesting place to manufacture but also provide gateway into the African hinterland.

The positive outlook and potential challenges

Given the above advantages, Precise Insights sees the rapid progress in Ethiopia continuing. Our assessment is that both the opportunities and challenges for Ethiopia reside in its young and vibrant population. Should the Government under its new leader and the nation be able to create private sector jobs for the healthier, more connected millions expected out of schools, it will prosper beyond the next 10 years and into the next decade. We have no doubt that the late Prime Minister’s vision of reaching middle-income status is thus highly achievable, perhaps even ahead of schedule.

The new Prime Minister’s major challenges will include figuring out how to continue to stabilize the macroeconomic environment with inflation under control and interest rates brought into the positive sphere. This won’t be quite that simple and will require some political commitment. He would also need to provide strong leadership in the transition that is underway from an agrarian into an industrial, private sector investment driven economy. This is critical if Ethiopia’s fast growth is to be sustained for another decade. It is also essential to provide jobs to its youthful population as the 20 million students that are currently in schools start to come out into the job market. This may in fact present the single largest medium term challenge for the nation.

It is often easy to forget that Ethiopia lived under a Marxist military junta only two decades ago. From that vantage point, its population torn by civil war, famine, disease, and lack of schooling didn’t provide a fertile ground for democracy to take solid root. Given the present course, we are tremendously hopeful that Ethiopia will progress democratically as the younger generation without the ideological burden of our emotionally charged past comes of age.

Ethiopia’s political progress thus will depend, not only on the Government of Ethiopia nurturing, but also on the broad participation of its citizens at home. It’s citizens’ participation in the private sector will no doubt be mirrored by a growing and more sophisticated civil society and bureaucratic infrastructure from the federal all the way to smallest administrative unit, the Kebele. Sure, none of this will be a straight line into success. But its direction of movement is undeniably clear. Despite the loss of its chief strategist and long serving leader, Ethiopia will continue to emerge as one of Africa’s lion economies.

Henok Assefa

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