Business
Rapidly expanding growth in Ethiopia dips to 7%
Ethiopia is banking on massive state-supported energy and transport projects to help transform its agrarian economy. Infrastructure spending required financing equivalent to 19 percent of Ethiopia’s GDP in fiscal 2011-2012.
But while public investment in Ethiopia is the third highest in the world as a percentage of GDP, private investment is the sixth lowest. Major sectors including retail, transport, banking and telecoms are closed to foreign investors.
Growth has been driven by an expansion in services, now the largest economic sector, and agriculture. Ethiopia’s main exports include coffee and horticulture products, and it is also a big aid recipient.
Two thirds of Ethiopia’s 8.5 percent GDP growth in 2011-2012 could be ascribed to public investment.
Even though the public investments are intended to benefit the private sector in the long run, they are depriving the private sector of finances in the short term, Moller said. “And that is where a deliberate choice is being made,” he added.
Ethiopia should keep monetary policy tight to head off inflation, which could quickly return to double digits. The annual inflation rate accelerated to 8 percent in July from a 2013 low of 6.1 percent in April.
It exceeded 40 percent in 2011. A loose fiscal stance and periodic external price shocks have left Ethiopia vulnerable to price spikes.
