Ethiopian economics: A peculiar case

March 2, 2012 (The Economist) – JUST how sustainable is Ethiopia’s advance out of poverty? This is a vexed topic among bankers and others in Ethiopia who hold large wads of birr, the oft devalued currency. Despite hard work by the World Bank, oversight from the International Monetary Fund, and studies by economists from donor countries, it is not clear how factual Ethiopia’s economic data are. Life is intolerably expensive for Ethiopians in Addis Ababa, the capital, and its outlying towns. Some think Ethiopia’s inflation figures are fiddled with even more than those in Argentina. Even if the data are deemed usable, the double-digit growth rates predicted by the government of Prime Minister Meles Zenawi look fanciful.

Yet there is no denying that government efforts (with donor cash) mean that rural Ethiopia has more schools, clinics and agricultural projects than ever before—mostly (but not always) regardless of areas’ ethnicity or loyalty to the government. The foreign investors interviewed by Baobab who have gambled on Ethiopia seem to be happy, so far. And Ethiopia’s investment in hydropower is further changing the equation. Work was completed this week on a new 296km powerline between Ethiopia and Sudan; Ethiopia will provide Sudan with up to 100 megawatts of power. Electricity is also being exported to Djibouti. There are hopes to export 400 megawatts to neighbouring Kenya.

Ethiopia’s biggest advantage is its size. There will be 100m Ethiopians before 2020. Indeed, Ethiopia’s demographic growth promises to drive the entire region forward. It will likely allow neighbouring Somalia to sell its animals at top prices into the Ethiopian market to be processed for meat and leather; the scale of those transactions may in time diminish tensions between the two countries. There is potential for all kinds of trade between them. A Somali fisheries official had, he told Baobab this week, been in Addis Ababa trying to strike a deal to fly in several tonnes of Somali fish every day. The tuna, sailfish, and kingfish would go on the planes that fly ech morning from Ethiopia into Somalia loaded with qat—a narcotic leaf Somali men like to chew. “Forget about politics,” he beamed, “think of all those mouths that need feeding.”

The Economist