Ethiopia: Listed as one of the top growing economies, is new flavor of the month for Africa watchers

Ethiopia is the new flavor of the month for Africa watchers.

The East African nation led the pack of fastest-growing economies – not just in Africa, but in the world – in 2015.

While many African nations are struggling to cope with falling revenue from commodities which is also resulting in plunging currencies, Ethiopia’s economy grew 8.7 percent last year and is set to expand 8.1 percent in 2016, according to International Monetary Fund (IMF) estimates.

Globally, only Papua New Guinea in the southwestern Pacific grew faster last year, at 12.3 percent, but no big country matched Africa’s second most populous nation after Nigeria.

Much of Ethiopia’s success is due to the dominance of the state in the economy. The nation exports very little compared to its African peers and capital controls mean the currency, the birr, has retained its value despite the global downturn.

“The fact that much of the spending is on capital projects, especially infrastructure, means that government spending has been the key driver of the boom,” said Getachew Teklemariam, an independent economist based in the capital, Addis Ababa. “It is unimaginable to think of Ethiopia as one of the fast-growing countries in the world without government spending.”

It is that spending by state-owned companies such as the Commercial Bank of Ethiopia, Ethio Telecom and Ethiopia Electric Power that has led to a 70 percent boost in capital investment in the past 3 fiscal years to 155.2 billion birr (US$7.3 billion). The government is building everything from industrial parks to sugar factories and power lines.

Ethiopia’s development model is being led by a government that’s been in power since toppling a military regime in 1991. While the state’s dominance and a relatively closed economy make it difficult for private investors to come in, Ethiopia does have its fans. Most notably, the Chinese.

Ethiopia offers security, low-tariff access to markets in nearby rich countries, and cheap labor, says Li Yifan, China’s ambassador to Ethiopia. Investors from the Asian nation have been attracted by the country’s rapid grown and in turn have opened textile and leather factories.

A new electrified railway to neighboring Djibouti – Ethiopia’s main port is now complete (part of the massive infrastructure expansion boom in the country).

“Ethiopia’s government has managed to keep peace and stability in this country,” Li Yifan said in a January 22 interview. “That is the basis of any meaningful economic activity. Without that I don’t think the investors will come over here.”

Source: Bloomberg