Growth case study presentation Ethiopia

Growth case study presentation Ethiopia

Economics 6470 Growth & Development , Fordham University, Spring 2013

Brandon Payne, IPED

Brandon Payne Ethiopia Sp 2013 2

Growth case study: Ethiopia

1. Growth history for Ethiopia peers/twins

2. IMF’s outlook Ethiopia going forward3. Conclude with thoughts on institutions & governance and Ethiopia’s new export partner: China

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3

19601963

19661969

19721975

19781981

19841987

19901993

19961999

20022005

20082.2

1.92.4 1.02.6 1.82.8

1.92.9

3.1

2.5

18.1

Figure T-1 1960 Twins for Ethiopia China leaves only to return…. (PWT 7.1 series y2 Ethiopia

GDP as share of U.S.)

Mozambique Zimbabwe Burundi

Ethiopia Malawi Tanzania

Burkina-Faso China

Source: PWT v7.14/24/2013 Brandon Payne Ethiopia Sp 2013


19601963

19661969

19721975

19781981

19841987

19901993

19961999

20022005

2008

2.2 1.9

2.4

1.0

2.6

1.8

2.8

1.9

2.93.1

2.5

Figure T-2 1960 Twins for Ethiopia (1960) China leaves but then returns (PWT 7.1 series y2)

Mozambique Zimbabwe BurundiEthiopia Malawi TanzaniaBurkina-Faso

Source: PWT v7.14/24/2013

19601962

19641966

19681970

19721974

19761978

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

2.21.9

2.2

0.9

2.4

1.0

2.6

1.8

2.8

1.9

2.8 2.93.1

2.5

Figure T-2: Ethiopia and twin economies excluding China (1960) Per capita income relative to the United States (PWT 7.1 series y2)

Mozambique Zimbabwe BurundiEthiopia Malawi TanzaniaBurkina-Faso

Source: PWT v7.14/24/2013 Brandon Payne Ethiopia Sp 20135


2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

1.0 0.91.1

1.81.8

2.9

1.9

2.5

Figure T-3: Ethiopia and twins since 2000 (no China) Mozambique ZimbabweBurundi EthiopiaMalawi TanzaniaBurkina-Faso

Source: PWT v7.14/24/2013

Brandon Payne Ethiopia Sp 2013 74/24/2013

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100.0

2.0

4.0

6.0

8.0

10.0

12.0

Ethiopia and peer economies

RwandaUgandaBoliviaParaguayZambiaEthiopia

Per c

apita

inco

me

rela

tive

to th

e Un

ited

Stat

es

Source: PWT v7.1

Brandon Payne Ethiopia Sp 2013 84/24/2013 Source: PWT v7.1

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20100.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Ethiopia and comparator economies

UgandaEgyptKenyaRwandaEthiopiaEritrea

Per c

apita

inco

me

real

tive

to th

e U

nite

d St

ates

Brandon Payne Ethiopia Sp 2013 9Source: Cols 1 and 2 Jones, 2001, Appendix C, IMF WEO October 2012, accessed 3-25-2013.

Columns 3-8 are trend line and data per capita income as share of $U.S. per capita income in $PPP 2005 current or constant 2005 prices. (from Prof McLeod’s spreadsheet)4/24/2013

Source: IMF WEO Chapter 2, April 20134/24/2013 11

IMF ETHIOPIA PROJECTED GROWTH: 2013: 6.5% 2014: 6.5%

LIC SS African region: 2013: 6.9% 2014: 7.9%

Lots of Aid & FDI,But lowest in group


Source: Alemayehu Geda & Abebe Shimeles & John Weeks, 2009. "Growth, poverty and inequality in Ethiopia: Which way for pro-poor growth?," Journal of International Development,

John Wiley & Sons, Ltd., vol. 21(7), pages 947-970.4/24/2013


Alemayehu Geda & Abebe Shimeles & John Weeks, 2009. "Growth, poverty and inequality in Ethiopia: Which way for pro-poor growth?," Journal of International

Development, John Wiley & Sons, Ltd., vol. 21(7), pages 947-970.

• Geda, Shimeles and Weeks (2007) find that growth in Ethiopia since 2000 has increased inequality in the country (consistent with Kuznets hypothesis)

• “Growth with redistribution is the optimal strategy for Ethiopia”

• Productive Safety Net Program!

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Productive Safety Net Program• Pays the poorest and most vulnerable people to

work on public works projects for six months a year

• Increase livestock holding by 10 head per household

• Rehabilitates degraded land, creates terraced fields, feeder roads, small-scale irrigation systems

• Funded by 10 development partners

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Source: “World Bank Support for Social Safety Net to Benefit 8.3 million Ethiopians by 2015. “ World Bank press release. 29 March 2012.


Light Manufacturing in Africa 2012:“Light manufacturing can offer a viable path for Ethiopia and other Sub-Saharan African countries as they transform their economic structure and strive for productive job creation.”

“Africans do not need to wait to have perfect investment climates to create millions of productive jobs in light manufacturing.”

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Light Manufacturing in Africa: Targeted Policies to Enhance Private Investment and Create Jobs. World Bank. 2012.


Problems for Ethiopia in attracting FDI

• Customs clearance efficiency• Restrictions in foreign exchange markets• Inconsistency in the tax regime• Low educational attainment among labor• Insufficient access to local finance• A lot of time spent on government relations

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Source: Geiger, Michael; Goh, Chorching. 2012. Chinese FDI in Ethiopia : a World Bank survey. Washington DC : World Bank.


Ethiopia’s advantages in attracting FDI

• Limited competition in an expanding local market

• Cheap land• Cheap labor• Preferential market access• Tax holidays and tariff-free equipment imports• Stable political environment

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Chinese investment has blown up

• FDI from China to Ethiopia increased from virtually zero in 2004 to an annual amount of US$58.5 million in 2010

• Strongly facilitated by governments

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“Helen Hai, GM for overseas investment at Huajian Group, a leading Chinese footwear manufacturer, has a bold vision: in 10 years she wants Ethiopia to be a global hub for the shoe industry, supplying

the African, European and American markets and providing jobs for more than 100,000 local workers.”

Source: “Ethiopia could be shoemaker to the world” Yahoo News South Africa. 4 April 2013. http://za.news.yahoo.com/ethiopia-could-shoemaker-world-035129218--finance.html

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http://za.news.yahoo.com/ethiopia-could-shoemaker-world-035129218--finance.html


What does Ethiopia have to do?• Only ranks 33rd on governance in Ibrahim

Index but 15th in sustainable economic opportunity

• 39th in Participation and Human Rights• 38th in Safety and Rule of Law• 29th in Human Development

4/24/2013Source: http://www.moibrahimfoundation.org/ethiopia/

http://www.moibrahimfoundation.org/ethiopia/


Table I-2 Starting a Business indicator: Cost (% of income per capita)

Year Ethiopia Malawi Burundi China Zimbabwe Mozambique

2004 484 113 240.2 17.8 371 112.12005 77 141 181.4 15.9 304 93.42006 65 140 190.2 13.6 20 94.72007 46 216 213.8 9.3 6375 85.72008 41 189 241.2 8.4 676 21.62009 30 126 206.7 8.4 433 22.92010 267 108 145.7 4.9 354 19.32011 199 108 124.3 4.5 183 25.22012 181 91 116.8 3.6 149 21.22013 135 84 18.3 2.1 107 19.7

4/24/2013 Source: World Bank Doing Business 2013


Education

• 36% of adults are literate• Ethiopia is doing well on primary education

but needs to expand secondary education and revise curricula and be more flexible, and pursue gender equity

• Necessary reforms possible to achieve this decade

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Joshi and Verspoor. Secondary Education in Ethiopia: Supporting Growth and Transformation. World Bank. 2013.


Agriculture (43% of GDP, 80% of exports)• “The proposed

approach will enable the government to harness resources more effectively and unlock up to USD 20 billion of additional GDP by 2025.”

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Accelerating Ethiopian Agriculture Development for Growth, Food Security, and Equity. Bill and Melinda Gates Foundation. 2010.


Ethiopia’s Tourism Sector: Strategic Paths to Competitiveness and Job Creation. World Bank. 2012

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Tourism

• Huge growth potential• Need better marketing• Need better training for service provision• Need Special Tourism Economic Zones• Need multi-stakeholder platforms for dialogue• Need infrastructure development

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Ethiopia’s Tourism Sector: Strategic Paths to Competitiveness and Job Creation. World Bank. 2012


Creating infrastructure• In fiscal 2013 the government is investing 16%

of GDP in industrial development, transport, telecom, energy and housing

• Dispute with IMF/Egypt over Grand Renaissance Dam Project

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“IMF Urges Ethiopia to Slow Nile Dam Project to Protect Economy” Bloomberg News. 14 September 2012. http://www.bloomberg.com/news/2012-09-14/imf-urges-ethiopia-to-slow-nile-dam-project-to-protect-economy.html

http://www.bloomberg.com/news/2012-09-14/imf-urges-ethiopia-to-slow-nile-dam-project-to-protect-economy.html


The Federal Democratic Republic of Ethiopia: 2012 Article IV Consultation—Staff Report. International Monetary Fund. 2012.


Keep momentum but seek financial partners and focus on governance and human rights

Fasilada’s castle at Gondar, Ethiopia4/24/2013

Growth case study presentation Ethiopia

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