3 March 2017

Ethiopia: Will African Lion, Ethiopia, Sustain Fast Growth?

Kenyan media outlets have it well covered recently that Ethiopia is about to overtake Kenya and become the leading economy in East Africa.

Building on decade-long double-digit growth catalyzed by enormous government spending on infrastructure, the size of the Ethiopian economy, in terms of Gross Domestic Product (GDP) measurements, will reach 69.2 billion USD according to projections the International Monetary Fund (IMF) made for 2016. In 2015, its GDP stood at 61.6 billion USD.

Kenya's GDP, on the other hand, is expected to rise to 69.1 billion USD in 2016, up from 63.4 billion USD in 2015.

If the projections turn out to be true, Ethiopia, hailed by pundits as an "African lion", will surpass Kenya. Though the possible win would be by a small margin, Kenyans have echoed that Ethiopia is surely becoming a new superpower in the region.

It is not hard to understand why the possibility of Ethiopia coming at the forefront has caused a stir among Kenyans.

Back in 2000, Kenya had a 70 per cent lead over Ethiopia. Kenya's GDP then stood at 14 billion USD while Ethiopia's output was somewhere around 8 billion USD.

Following the vigorous economic progress the government of Ethiopia has been able to spin over the years, however, the country has managed to catch up with Kenya and close the gap.

Booming foreign direct investment

An important contributing factor behind Ethiopia's quick ascension both the IMF and the African Development Bank (AfDB) suggest is the robust foreign direct investment (FDI), complementary to the government's huge investment.

According to the Ethiopian Investment Commission, China leads the foreign investment pack followed by Turkey and [many more foreign countries].

David Shinn, former U.S. Ambassador to Ethiopia, who actively follows events about the relations of China and Ethiopia, wrote on his blog that in 2014 China's investment in Ethiopia reached a cumulative one billion USD.

The diplomat went on to point out that the trade and investment relations the two countries have established over the course of the years registered a booming growth.

For instance, Shinn said "in 2000, China-Ethiopia trade was only 88 million USD. Since 2006, China has been Ethiopia's largest trading partner. Trade exceeded 2 billion U.S. dollars in 2013, although the trade balance heavily favours China. One of China's six special economic zones in Africa has been established in Ethiopia."

The diplomat also noted that Chinese companies are building most of the roads in Ethiopia. For example, the first phase of the Ethio-Djibouti railway project, the telecommunications infrastructure, and the light rail system in Addis Ababa. By 2014, the cumulative value of Chinese contracted projects exceeded 22 billion USD, Shinn said.

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