Ethiopia has been named the fastest-growing economy in 2017, according to the World Bank’s latest edition of Global Economic Prospects with GDP forecast to grow by 8.3%, by contrast, global growth is projected to be 2.7%.
In 2000, Ethiopia, the second-most populous Country in Africa, was the third-poorest Country in the world. Its annual GDP per capita was only about $650. More than 50% of the population lived below the global poverty line, the highest poverty rate in the world.
According to IMF estimates, from 2000 to 2016, Ethiopia was the third-fastest growing country of 10 million or more people in the world, as measured by GDP per capita. The country’s poverty rate fell to 31% by 2011.
The East African country’s accelerating growth comes with government spending on infrastructure. With a GDP of $69.22 billion, Ethiopia is now the biggest economy in the region, beating Kenya (US$66 billion) which has held the position for many decades.
Ethiopia’s economy is concentrated in the services and agriculture sectors. The World Bank estimates that of the 10.8% average annual growth recorded by Ethiopia between 2004 and 2014, half came from services, like hospitality and transportation.
Agriculture, meanwhile, accounted for 3.6% of the growth. Coffee remains the largest foreign exchange earner with the country diversifying exports, commodities like gold, sesame, khat, livestock, and horticulture products are becoming increasingly important.
Manufacturing represented less than 8% of total exports in 2016, but manufacturing exports should increase due to a growing international investment in the country, according to experts.
Its capital, Addis Ababa, has also been acknowledged as the third biggest United Nations hub, following New York and Brussels. Prime Minister Hailemariam Desalegn was also named ‘Man of the Year’ 2015, for sustaining the Country’s rapid economic growth.
Dr. Carlos Lopes, former Executive Secretary of the UN Economic Commission for Africa (UNECA), argued that Ethiopia would become Africa’s biggest economy by 2050.
Dr. Carlos weighed prospects and challenges for Nigeria, South Africa-current economic giants in Africa, with resource-rich DR Congo.
A vulnerable recovery
However, the World Bank has warned that the recovery in the global economy is vulnerable.
New trade restrictions like those threatened by President Donald Trump, could hamper global trade, just as uncertainty over policies could hamper investment.
Mounting public debt is also of concern to the World Bank, as borrowing conditions such as interest rates could get tougher, which would affect countries’ economies.
At the end of 2016, Government debt exceeded its 2007 level by more than 10% of GDP, in more than half of emerging market and developing economies. Fiscal balances (the ability of a country to cope with increases in costs of financing) worsened from their 2007 levels by more than 5% of GDP in one-third of these countries, says the World Bank.
The World Bank also advised these countries to undertake institutional and market reforms in order to attract private investment to help sustain growth in the long-term.
“The reassuring news is that trade is recovering. The concern is that investment remains weak. In response, we are shifting our priorities for lending, toward projects that can spur follow-on investment by the private sector,” said World Bank Chief Economist, Paul Romer.
The loopholes in using GDP
GDP has been widely used over the years to measure economic progress. However, many argue that it’s not a useful indicator.
Nobel Prize-winning Economist Joseph Stiglitz, IMF head Christine Lagarde and MIT Professor, Erik Brynjolfsson, have all said GDP is a poor indicator of progress, and suggested a change to the way of measuring economic and social development.
Alternatives could include measuring jobs, well-being, and health. GDP also ignores the impact of things like climate change.
