20 April 2017

Ethiopia's Growth Momentum Amid Challenges


The direction the world is heading seems to go even worse every passing day. The infuriating realities that grab the world's attention as a relatively new phenomenon spread as the sad norms of the world within no time.

The inhumane beheadings by extremist religious groups were bizarre developments once but now they are debatable topics with a few people sympathizing with the culprits. Unilateral actions by a state to mount a military attack on any other nation was called invasion a few years back. Now it all depends on which country is doing it and there are numerous countries with the license to invade and loot. Nowadays, leaders openly talk about overthrowing the leaders of other nations. States are no longer equal actors in international relations.

The forces of internationalization seem to have won the battle with nationalism as borders and sovereignty have become less important in international affairs. Free trade and privatization have become the major characterization of inter-state relations. The policies of states in the world are dictated by the most powerful states and the international organizations they head. The forces of internationalization have managed to make globalization a reality spanning the entire world.

There, however, seems to be a shift in stand in the developed world where a wave of politicians is demanding more nationalist policies. Despite their description as populists, their stands to put their respective citizens first and their general suspicion of foreigners spells nationalism in bold. Economically, these populists have pursued protectionism instead of boundless open trade.

They are also known to be xenophobic as they blame immigrants for every problem in their countries. A good deal of them is coming to the helm of state power both in the U.S and Europe. This strong sense of nationalism in the West in an international setting of internationalism or globalization has compounded the sense of uncertainty in the world.

The World Bank, one of the international organizations at the forefront of globalization, seems to recognize these trends as it themed it's January 2017 Global Economic Prospects Report "Weak Investment in Uncertain Times." The report states: "stalling global trade, weak investment, and heightened policy uncertainty have depressed world economic activity. Global growth is estimated to have fallen to 2.3 percent in 2016 -- the weakest performance since the global financial crisis and 0.1 percentage point below June 2016 Global Economic Prospects forecasts."

As shown above, economic growth slowed down in the world during 2016. The slowdown was so significant that the usual big hitters like China saw their economies grow by a mere 6.7 per cent. In this unfavourable period for economic growth, advanced-economy growth is estimated to have slowed to 1.6 per cent in 2016. Emerging Markets and Developing Economies (EMDEs) grew at an estimated 3.4 per cent in line with previous projections. Within the broader group of EMDEs, however, growth in Low-income countries (LICs) is estimated to have decelerated slightly to 4.7 per cent in 2016.

Our country Ethiopia has also endured a number of natural and man-made challenges on its path to development. The El-Nino induced drought in various parts of the country is one of the notable natural disasters. The La-Nina triggered floods in numerous parts of the country then followed with their devastating impacts on agricultural production and construction of infrastructure.

Especially the drought was the most chronic in the last fifty years. It affected well over fifteen million people in Ethiopia and covered all four sides of the country. However, Ethiopia managed to arrest its transformation from drought into famine as the sustained development of the country over the last fifteen years proved essential in averting the crisis. For many doubters, the country's ability to avert famine has served as a proof of the shift in its economic capabilities.

The most notable of the man-made challenges was the political unrest in some parts of the country. The fatal unrest that followed the hijacking of good governance related popular requests of the public by anti-peace elements led to unstable political conditions and the destruction of numerous investment projects. These things had their own negative bearing on the economic performance of the country. However, the government moved swiftly to reinstate peace and security throughout the country and restore investor confidence in the country.

Yet another one of the challenges was the global slowdown in economic growth. As part of a system that functions together under an increasingly pronounced era of globalization, Ethiopia's economic performance also depends on how heated or stalled the world economy is. Plummeting economic production in the economies that supply the Ethiopian market spells a slow down on economic growth in Ethiopia.

The World Bank Report has acknowledged Ethiopia had to endure all the above stated challenges over the past year. It cited low commodity prices, adverse weather conditions, and political and security challenges as major factors that contributed to the reduction of GDP growth in Low Income Countries (LICs) to an average of 4.7 per cent. The report states that severe weather conditions caused a sharp fall in agricultural production in some countries, citing Ethiopia as one of those. It goes on to state that the severe weather also contributed to food insecurity in Ethiopia and Malawi.

World Finance ranked the world's five fastest growing economies based on the average percentages projected in the Global Outlook for 2017, 2018 and 2019. Accordingly, Ethiopia is the second fastest growing economy in the world with 8.7 per cent growth rate only next to Bhutan which has an average growth of 11.1 per cent.

Despite the considerable challenges the Ethiopian economy has faced over the past year, its performance is still impressive at an international stage. The ranking is, therefore, an affirmation that Ethiopia's economy has matured to keep itself growing sustainably at a very high rate despite the presence of major obstacles. The ranking is proof of the long way the country has come away from average economic performance.

On a cautionary note, the Report states that fiscal deficits widened in Ethiopia as robust growth encouraged higher expenditures. The Report also showed that "among commodity importers, government debt rose markedly in Ethiopia, due to the financing of an ambitious infrastructure program." The Ethiopian government needs to take these facts into consideration and work on ways of averting them.


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