Month: June 2016

Ethiopia: Africa’s new economic powerhouse

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By Florence Gichoya

Ethiopia is a country of many contrasts. Africa’s most populous land locked country, is a rising economic powerhouse, recording the highest economic growth rate in the continent. But then again, Ethiopia performs dismally in the area of democracy and press freedom. The country’s parliament is deficient of opposition MPs. The ruling party, Ethiopian People’s Revolutionary Democratic Front (EPRDF), and its allied parties, won all the 546 parliamentary seats, in last year’s May elections.

Still, the state driven economy is upbeat and trounces many African countries, which are either grappled with conflict, corruption or hostile political environment that is unfavorable for investors.

There is an unstoppable construction boom. In 2013, Africa’s biggest wind farm was built in the south of Addis Ababa. The 324 MW wind power will address the growing energy demand for domestic and industrial use. Another mega project is the construction of the 6, 000 MW Grand Renaissance dam. It will cost $4.8 billion, making it the seventh biggest hydropower plant in the world.

By increasing and diversifying the source of energy, Ethiopia has paved way for local and foreign investors. In April last year, an American owned company General Electric Transportation announced that it would set up an electric cars factory in Ethiopia, it will be the first in the continent. The plant is expected to make 4,000 cars per month, and will offer employment to thousands.

In November last year, Ethiopia’s Ministry of Transport launched the country’s first manufacturing and assembly plant. The Bushoftu Automative Industry located in a military base, is expected to manufacture 10,000 to 20,000 vehicles per year. The Transport Ministry indicated that in 2014, there were only 587,400 vehicles for 94 million people in the country. That translates to two vehicles for every 1,000 people.

“This is a light duty manufacturing plant. In this factory we can manufacture and assemble pickups, station wagons, single and double cabins and mini-trucks. We can manufacture or assemble more than 20 units per day. If there is more demand we can increase this production,” said Major Metafer Beshawhwured, the factory’s Assistant General Manager.

Ethiopia has an ambition to not only manufacture automobiles to cater for domestic demands, but also to export to neighbouring countries including Kenya.

Transport and infrastructure boom

In November last year, Ethiopia made history when it launched the first light rail system in Sub-Saharan Africa. The 32 km rail is essential in decongesting the city that has a population of more than 4 million people. Another 800 km railway line connecting Addis Ababa and Djibouti’s Port City was completed. The train ferries 1,500 trucks of goods daily to land locked Ethiopia.

An elaborate road network to increase the economic growth is under construction. The World Bank Group is partly financing the construction of Modjo-Hawassa 203km road, to the tune of $370 million. The expressway will connect the southern region to central area, and northern Ethiopia will be linked to the Djibouti Port. The road will reduce duration of travel, from four hours to two hours, and accommodate 4,000 vehicles per day. The road is part of the transcontinental 10,000 km Cape Town to Cairo highway.

Unlike other African airlines that are making loses, year in year out, Ethiopia Airlines has maintained a sturdy profit making record. In the 2014 to 2015 financial year, the government owned airline recorded $175 profit. Last month, the carrier signed a pact with Rwanda’s RwandAir, to rid the fifth freedom rights. This partnership now allows both carriers to operate without restrictions in Ethiopia and Rwanda airspace.

Sustaining traditional exports

Coffee is Ethiopia’s leading foreign exchange earner and the country is Africa’s leading exporter of Arabica coffee. According to National Geographic Magazine, 12 million Ethiopians depend on coffee as a source of income. Kenya has a lot to learn from Ethiopia’s coffee industry.

In January this year, Ethiopia projected a 45 per cent increase in coffee exports. “Coffee exports will increase 45 per cent to over 260,000 tons this year. Incentives will help achieve this goal, and they will include marketing linkage, loans for coffee exporters and processors, and the promotion of the Arabica coffee that the country exports at trade shows abroad,” Shimelis Arega, Ethiopia’s Trade Ministry spokesperson pronounced.

In 2014, the World Bank indicated that Ethiopia’s coffee contributed to 84 per cent of the country’s total exports and 80 per cent of the country’s total employment. The country’s Ministry of Trade has embarked on training small scale farmers on value addition, in order to increase sales.

The country has also diversified into horticulture business, which has grown tremendously over the years. According to World Bank Economist, Lars Christian Moller, who authored Strengthening Export Performance through Improved Competitiveness (July 2014). He evaluated Ethiopia’s flower industry had grown, “from one single firm 14 years ago to about 100 firms today, earning $200 million per year from exports and employing an estimated 50,000 people.”

When it comes to livestock industry, Ethiopia takes the lead. The livestock contributes to 17 per cent of the country’s GDP. According to Ethiopia’s Ministry of Foreign Affairs, “Every year, the country produces about 2.7 million hides, 8.1 million sheepskins and 7.5 million goat skins.” The government attributes the high volume of animal hides and skins to the large population of 54 million cattle, 25.5 million sheep, 24 million goats, 7 million donkeys, two million horses and one million camels in the country. As a result, the leather industry has continued to thrive. Over 30 tanneries and numerous factories are used to process leather into shoes, bags, purses, industrial gloves, and other assorted items.

The end-products are exported to Asia, Europe and American markets. Foreign investors are encouraged to invest in the leather industry, where they enjoy a wide range of incentives, including more relief from income tax for a period of five years.

Ethiopia is an emerging power house that is on the rise. There is divided opinion on the ruling regime’s track record on human rights abuses, and its punitive methods of combating dissent. Nevertheless, Ethiopia continues to achieve great economic strides, making it an envy of Africa’s leading democracies