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Ethiopia: Making the Mini-Boom Last
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Addis Fortune (Addis Ababa)
OPINION
21 January 2008
Posted to the web 22 January 2008
Addisu Tadesse
Addis Ababa
Addisu Tadesse, an Ethiopian residing in the United Kingdom (UK) and working as a research and development engineer for a multinational company, has a very positive impression of Ethiopia's economic development after his recent visit in November 2007. Although reluctant to make the current regime brag about his positive observations, concerned that it may lead to complacency, he argues that his is an effort to emphasise the importance of hard work to win the hearts and minds of the people. He would also like to remind the opposition to recognise the changes on the ground and prepare themselves accordingly by formulating a better strategy based on what has already been achieved.
There are lots of indications that the economy and infrastructure of the country is going through major changes. You see them in various ways. A journey that took you many hours to reach your destination previously appears to have shortened because of upgraded roads in the last few years. Particularly the works in areas such as hydroelectric power, road construction and communication are noticeable. Their impact on development is substantial.
The roads from the capital to the West, East, South and North - with the exception of the northeast exist up to Debresina - are well built making the countryside open for business, investment and development. Access to mobile phones has increased significantly and subscribers are no more localised in the capital but also go as far as the lowlands into the desert. This too is bound to change the mindset as well as opening the vast untapped countryside for investment and development.
Like in the past, people are not yet prepared to work far from the capital city. Upon graduation, I myself had done everything possible not to go far away from the capital, particularly to the north of Ethiopia due to the conflict that had been going on and lack of basic infrastructures. Now there is a possibility that the labour force and capital may start moving outside the metropolis looking for opportunities - either investment or employment - if life outside Addis Abeba becomes a little bit more bearable.
Above all, the investment in hydroelectric power is the most strategic development that the country has taken. So far it has tapped less than two per cent of its potential and less than six per cent of the population has access to electricity. Although Ethiopia is a source of major rivers, the development of these rivers has been suppressed for long due to lack of money and geopolitical influences.
In a paradoxical way, the government in power seems to have the best of both worlds; it has backing from China (cheap expertise and technology) and Western countries (finance). You see a large number of Chinese driving around or walking the streets signifying their presence in a large number of infrastructure projects. The government is also lucky that those hydroelectric power projects are not opposed by downstream countries. In fact, power lines to Sudan and Djibouti are being installed to export electricity.
When I say large number of infrastructure projects, I mean the four hydroelectric dams - costing more than 20 billion Br; thousands of kilometres of roads; Tendaho irrigation project for sugar plantation; mobile network coverage; and the new universities in all of the regions which required many billions of birr in investment.
When I grasp the full extent, I began to ask where the money is coming from and how the government is managing to fund all these multi-billion dollar projects. These projects, such as dams, power stations, roads, communication facilities and universities, are expensive. The export items of the country have remained almost the same except for a few promising shifts towards horticulture, which its advocates argue would replace coffee in a few years as the major source of export revenue. When I dig deeper, I realised that the trade balance has gone over the roof.
For example, according to Central Statistics Office data, exports were worth about seven billion Birr in the 2004/05 fiscal year compared to 32 billion Br worth of imports. The trade deficit was more than 25 billion Br and growing year by the year.
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Though the country has a trade deficit about four times its exports, money has been flowing into the country from donor courtiers as well as from Ethiopians in the Diaspora. I believe the internal as well as external sources of income of the country have grown dramatically in the last 10 years.
The government is enjoying a windfall of income from the recently introduced Value Added Tax (VAT) of 15pc on the majority of business transactions. Ethiopia never had VAT until it was introduced - most likely under International Monetary Fund (IMF) pressure - in 2003; thus, when you have a cup of coffee or a piece of cake at the local coffee house, you are putting 15pc value of the coffee into the government's pocket. That must have beefed up the government's coffer significantly.
Second, land prices have skyrocketed because the government is the lone landlord in the country and has a tight control over the supply. Price of land is not controlled by demand and supply of market economy. Tight control of the land supply appears to generate a windfall for the treasurer. Now every inch of the land in the capital and major cities has been sold at a premium rate (no one can import cheap land from china).
I am extremely impressed by the well- researched, well-thought and well-said article by Mr. Addisu Tadesse, on Ethiopia and its development in the last few years. I thank you for your mature and honest advice to those Ethiopians who tend to be in constant crusade of blaming the government. Let us learn to count our blessings and build our country from that point. We do not have to reverse history in order to go forward. We can build on what we have already achieved so far. I, myself, went to visit in 2004 and my observation was yes! finally... [Read Full Text]
I wish to congratulate Ato Addisu for a well researched objective article. Having been away from Ethiopia for over two decades, I have visited Ethiopia frequently over the last 8 years. Ato Addisu's article reflects the reality on the ground in Ethiopia that I have also witnessed. A developing country which has reduced its infant mortality by 40% in 15 years according to the UNICEF report just published should be told "BRAVO! KEEP UP THE GOOD JOB". Bravo to you too Ato Addisu.
Kebir T
Very interesting article. Hope the image of Ethiopia would be changes with this kind of factual based assessment of the reality on the ground. The rest of the world knows only too things about Ethiopia: Famine and Athletics. It is time some coverage is given about the positive aspect of this ancient country. Addisu's article helped me to understand the changes that the country is going through. Well-done.
I really appreciate addisu's professional comment.But the government as well as all professional economists should focus on how to control the double digit inflation.Because,in one side it is said that [especially by the government] during a fast economic growth[the forth fastest in africa] inflation is inevitable ;the south east asians experience also witnness this.If this is so, the economic development is no good for many ethiopians especially the town dwellers.So in order to witness the development on the citizen's life something must be done to cut back or reduce the double digit inflation.
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