Ethiopia’s Prolific Growth - What’s Next for Africa’s Tiger Economy?

According to a recent release of the World Bank Group's Poverty Assessment report, poverty in Ethiopia, Sub-Saharan Africa’s second-largest country, fell by 33 percent from 2000 to 2011. Ethiopia continues to remain one of Africa’s most remarkable success stories, posting nearly double-digit growth the past decade, prompting it to be labeled as one of Africa’s “Tigers.” This recent improvement in economic conditions is remarkable for a country that lacks significant commodity resources, and even suffered a famine that claimed the lives of a million people just thirty years ago. By adopting agriculture-orientated strategies, Ethiopia’s government has succeeded in bringing about high levels of growth that have lifted millions out of poverty. Still, much more needs to be done if the country hopes to reach its goal of becoming a middle-income country by 2025.

The World Bank cited agricultural development as a primary multiplier of farmers’ incomes: agricultural growth has reduced poverty by four percent every year since 2005. High food prices and good weather have been a blessing for the agricultural sector, but growth can also be attributed to government policy. The Productive Safety Net Program has ensured that millions of consistently food insecure Ethiopians are given transfer payments that would enable them to remain productive. Those living in rural areas have also substantially benefited from the government’s increased investments in basic services.

Furthermore, Ethiopia’s growth has not only been limited to agriculture. The government’s ambitious Agricultural-Development-Led-Industrialization (ADLI) strategy has emphasized agricultural production as a means to drive exports and spur manufacturing. From 2005 to 2010, the non-agricultural sector grew by an impressive 23.6 percent, mainly due to greater production in the manufacturing and energy sectors. Exports, once mostly coffee-based, now include oil seeds, flowers, gold, textiles and leather products. The construction sector has also boomed: large-scale public infrastructure projects that cost about 15 percent of GDP per year have provided roads, rails and dams that are meant to better integrate the country’s economy.

Still, there is plenty of room for improvement. According to the 2013-2014 ‘Ease of Doing Business’ report, Ethiopia’s business climate stands as the 14th best in Sub-Saharan Africa. Yet, while it has excelled in areas such as construction permits and contract enforcement, it ranks near the bottom in terms of credit access and trade facilitation. Ethiopia also suffers from high levels of corruption: according to Transparency International, it is only the 20th least corrupt country in Sub-Saharan Africa and 110th in the world. Some have even accused Ethiopia’s quasi-dictatorial government of pocketing gains from its economic boom and regular reception of development aid: In 2013, Global Financial Integrity found that approximately $12 billion dollars has illicitly flowed out of Ethiopia since 2000.

While growth has been strong, the government needs to push the country’s goods up the value chain in order to maintain growth levels and economic competitiveness. This does not necessarily call for a switch to more industrialized products: A July 2014 World Bank study on Ethiopia’s exports recommends that the country can do more to improve the quality of the products that it already exports. For instance, 29 percent of its shipments are from unroasted coffee beans-- yet, turning these raw, unprocessed beans into roasted ones could result in a price gain of $38 per kilo.

Ethiopia has come a long way from the brutal 1984 famine that was infamously described by one journalist as “hell on earth.” The World Bank study illustrates how the country has tremendously succeeded in translating GDP growth into improvements in standards of living. Indicators such as life expectancy, caloric intake and infant mortality have improved tremendously over the past 30 years. Despite the expected slide in commodity prices this year, Ethiopia’s economy is expected to move along smoothly-- and the country’s progress demonstrates how double-digit growth is possible even without dependence on natural resources. This positive outlook means that Africa’s second-largest nation will only continue to be cited as a development success story. At the same time, it must battle significant obstacles such as inflation, corruption, and slow private sector growth in order to maintain its “Tiger” status in the long term. With a large, young population and a growth-orientated government, expect Ethiopia to stay in the headlines for years to come.