Robust economic growth of Ethiopia during the last decade contributed to poverty alleviation in the country

Robust economic growth of Ethiopia during the last decade contributed to poverty alleviation in the country

By Bewket Abebe

ADDIS ABABA – While the economy of sub-Saharan Africa grew on average by 4.9%, Ethiopian economy registered a robust growth of 7.5% in the 2012/13 fiscal year according to the latest African economic outlook. Ethiopia’s Ministry of Finance and Economic Development (MoFED) claimed in October 2013 that the country registered a 9.7% growth. In both cases, the figure was not a surprise but rather a weak performance of Ethiopia, which had been registering a consistent robust economic growth of 10.6% during the previous fiscal years.

Though the figures released at different times by the government and financial institutions such as the IMF and World Bank vary, the history of Ethiopian economy is changing. For this ancient country (with a history of over 3,000 years), whose name has been repeatedly mentioned in poverty narratives—particularly following the serious drought it faced in 1985—,the last ten fiscal years were meaningful when it comes to its economy.

Since the 2004/2005 fiscal year until the recent report in 2012/13 fiscal year, Ethiopian GDP had been steadily growing by an average of 10.6% each year according to the World Bank data. This in turn pushed the country to rank among the top fastest growing economies across the globe. Being led by the expansion of services sector followed by agriculture and manufacturing sectors, the economy is witnessing a boost by a boost. Even though the government’s strategy is to bring the industry (manufacturing) at the forefront thus replacing the agriculture, which is currently deemed to be the backbone of the economy, the services have stolen the lion’s share in the last fiscal years. The services contributed almost half of the average annual GDP growth rate registered each year. “The dynamic of the economy is doing very well,” asserts Getachew Regassa, secretary general of the Addis Ababa Chamber of Commerce & Sectoral Associations (AACCSA).

Most importantly, the economic growth of Ethiopia has been a crucial trigger in terms of the alleviation of poverty in the country. The growth of Ethiopian economy has translated itself to poverty reduction—a scenario that only a few economies across the globe (such as Brazil) succeeded in. Ethiopia’s GDP growth enabled it to reduce the number of people living under extreme poverty by about 12% within the last decade. A decade ago, 38.7% of the population used to live under extreme poverty. That figured has been reduced to 26.9% according to the report released by MoFED. With the completion of the Growth and Transformation Plan (GTP)—a five year plan which will be completed by 2015—the figure is expected to further drop to 22.2%. Nonetheless, neither 26.9% nor 22.2% are figures the administration could be proud of. Millions of Ethiopians continue to live under the extreme poverty level and therefore a lot remains to be done.

Moreover, there is a feature that makes the country’s economic growth a bit unique when compared with other growing economies. The wealth inequality has remained almost stagnant throughout the decade. The Gini Coefficient (a measure of income distribution, decoding income inequality) from 2000 up to 2011 increased only by 0.04, i.e from 0.29 in 2000 to 0.33 in 2011.

The last September—the begging of a new Ethiopian year according to its own calendar—brought good news. Its inflation, which had long constituted a serious challenge for the economy for the last decade, has been reduced to a single digit. In the previous fiscal years, inflation peaked up to 64% in 2008, but in September 2013 the country celebrated the first single digit (9.6%) inflation within the last decade. What substantially helped the single digit was a slowdown in the rise of food prices. The administration of Ethiopian Prime Minister Hailemariam Desalegn is now aiming to further cut on the inflation by subsidizing oil and wheat as well as raising the agricultural productivity of Ethiopia. In addition, the termination of Central Bank’s financing of the budget and significant sales of foreign exchange have also considerably influenced the outcome.

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