Ethiopia to become Eastern Africa’s top economy

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Ethiopia’s economy is expected to overtake Kenya’s this year, buoyed by massive government spending on infrastructure that has kept the Horn of Africa nation in the list of the world’s fastest economies in the past 10 years.

The International Monetary Fund’s (IMF) latest statistical estimates indicate that Ethiopia’s gross domestic product (GDP) is forecast to grow from $61.62bn in 2015 to $69.21bn this year, narrowly beating Kenya’s output which is expected to rise from $63.39bn to $69.17bn over the same period.

“Ethiopia has experienced double-digit economic growth, averaging 10.8% since 2005, which has mainly been underpinned by public-sector-led development,” the African Development Bank, the OECD Development Centre and the United Nations Development Programme say in the latest African Economic Outlook report.

Kenya’s GDP of $14.1bn in 2000 was 71.6% larger than Ethiopia’s $8.23bn in the same year but the Horn of Africa nation has closed the economic gap in the last five years of robust growth.

The IMF’s GDP estimates are based on current market prices using exchange rates prevailing between July 22 and August 19.

Having established its economic lead ahead of Kenya, Ethiopia is forecast to maintain its position as Eastern Africa’s largest economy over the medium term — a position that is also expected to improve its standing as an investment destination.

Ethiopia’s rise as a regional economic powerhouse has mostly been fueled by mega public sector investment similar to the Chinese model that has enabled the Asian nation to become the world’s second-largest economy in two decades.

Ethiopia’s investment, as a percentage of GDP, rose sharply from 20.2% in 2000 to 39.2% last year and is expected to hit a new high of 39.2% of the domestic output this year.

While Kenya has also raised its public investments, including on big infrastructure projects, it remains significantly below that of Ethiopia.

Kenya’s investment as a percentage of GDP rose from 18% in 2000 to hit a high of 22.4% in 2014 before receding to 21.2% last year and is projected to rise to 22.5% this year.

Public investments

Ethiopia’s economy is expected to grow further riding on the state-led investment in infrastructure, according to the African Economic Outlook report.

“Public investments are expected to continue driving growth in the short and medium term with huge investments in infrastructure and the development of industrial parks, prioritised to ease bottlenecks to structural transformation, which will still have to take shape with industry playing a significant role in the economy,” the report says.

Ethiopia’s ongoing projects include the $5bn Grand Renaissance Dam with a generation capacity of 6,000 megawatts, which is expected to earn the country $1bn annually from electricity sales, including exports.

The Horn of Africa nation recently commissioned a railway linking its capital Addis Ababa to the Red Sea port city of Djibouti, fast-tracking the movement of goods and people across its vast territory.

The railway line is important for land-locked Ethiopia, which uses the port of Djibouti to trade with Europe, Asia and parts of Africa.

Besides, Ethiopia last year also launched a light rail project in Addis Ababa, the first metro service in sub-Saharan Africa.

The Horn of Africa nation’s GDP is set to overtake Kenya’s despite a debilitating drought that has left millions in need of aid this year – and stirred mixed feelings about its development model.


By Victor Juma, Business Daily