ADDIS ABABA (Reuters) - Ethiopia plans to expand industry, sugar factories and power production using proceeds from its oversubscribed debut Eurobond that raised $1 billion, the finance minister said on Tuesday.
Ethiopia is the latest African state to receive a strong response on its first foray into the international debt markets. Investors have been eyeing Africa's sturdy growth rates and Ethiopia's economy is now expanding by about 9 percent a year.
"This amount will be spent on industry zones planned for construction across the country soon. They will attract investment and generate foreign currency," Finance Minister Sufian Ahmed told reporters.
Offering cheap labour and power supply, as well as improving transport and other infrastructure, Ethiopia aims to be a hub for textiles and other industries by attracting investors who are moving some manufacturing plants from China and other Asian markets, where costs are rising.
Ethiopia's government is setting up a new industrial park and expanding another at a total cost of $250 million as part of efforts to shift away from farming.
Another three manufacturing hubs are planned across the country in the next decade, including a Special Economic Zone in the eastern town of Dire Dawa of 3,000 to 20,000 hectares.
Plagued by power cuts, Ethiopia's bid to becoming a hub for manufacturing will depend on raising power production. The country plans to boost generating capacity to 10,000 megawatts from 2,000 MW now within three to five years.
Much of the additional power would be generated from the 6,000 MW Grand Renaissance Dam under construction on the Nile.
Sufian said some of the proceeds from the Eurobond will be used to construct transmission lines connecting Ethiopia with Djibouti, as well as building two sugar factories in the country's eastern and southern regions.
Despite strong growth, Ethiopia has limited hard currency earnings, making its debt-servicing capacity weaker than some African states. Analysts believe it will also be more difficult for Ethiopia to build foreign reserves, which now cover little more than two months of imports.
Ethiopia, like many of Africa’s new growing economies, began achieving high growth rates from a low base, writes William Gumede.
Thirty years ago, in 1984, Ethiopia was plunged into a terrifying famine, with hundreds of thousands starving to death and the economy in freefall.
For aboutt 10 years, the country has notched up double-digit economic growth rates. The average annual rate in the past 10 years has been 10.9 percent, according to figures from the African Development Bank.
By contrast, other sub-Saharan African economies grew 5.4 percent on average in the same period.
By the end of the 2012-13 fiscal year, Ethiopia’s economy had grown by 9.7 percent, according to the 2014 Economic Report on Africa from the UN Economic Commission for Africa. This year it will probably show bumper growth.
Ethiopia, like many of Africa’s new growing economies, began achieving high growth rates from a low base. Of course, in spite of its stellar growth, Ethiopia remains one of the poorest countries in the world.
It wants to become a middle-income country by 2025. This is defined by the World Bank as a country with a gross national income for each person of about $1 430 (about R16 500) a year. Ethiopia’s figure is low: $470 compared with $3 187 in Egypt and $7 508 in South Africa.
What is fuelling Ethiopia’s high growth rates? The large services sector and agricultural production have been significant factors. The country’s main exports include coffee, horticultural products and livestock.
Agriculture has been increasingly commercialised. Services are the largest sector because of the rapid increases in the size of the public sector, in financial intermediation, public administration and in retail business activities.
Ethiopia’s public investment has been driven mostly by the state. For example, two thirds of Ethiopia’s 8.5 percent GDP growth in 2011-12 were due to public investment, according to the World Bank.
Public investment in Ethiopia is the third highest in the world as a percentage of GDP and private investment is the sixth lowest, according to World Bank figures.
A large sum has been injected into a massive infrastructure drive that includes a multibillion-dollar plan to build a hydro-power dam on the Nile.
Ethiopia has spent more than $3.6 billion on road construction in the past 10 years. There has also been a dedicated effort to improve access to basic public services.
Remittances by Ethiopians living abroad to relatives and investment have risen considerably, contributing to the growth spurt. The World Bank estimates that Ethiopia gets about $3.5bn a year from its diaspora. It is reckoned that 14 percent of adult Ethiopians receive on average $600 in remittances from relatives – in five transfers a year on average.
About 20 percent of the national budget is from foreign aid and loans.
Ethiopia has made significant progress in slashing red tape, trying to make it easier for residents to set up businesses. To stimulate Ethiopian industry, the country has closed major sectors, including retail, transport, banking and telecoms to foreigners.
Importantly, it is one African country that has built a manufacturing industry from an almost zero base, as part of a dedicated strategy.
The country has used its large cattle stocks to produce leather products and is exporting leather shoes to the US and the EU.
Can Ethiopia sustain the growth and make it more inclusive?
Its high growth rate mimics a classical economic take-off phase. Many African countries experience such growth after decades of economic stagnation and political instability. The challenge is to make such economic take-offs sustainable.
Initial state investment-led growth reaches a point where it needs to pull in the private sector by creating a critical mass of new industries or by forging partnerships with foreign companies. Over the past 50 years, many African countries have been unable to replace initial growth with growth in the private sector.
Ethiopia’s Growth and Transformation Plan is not giving attention to this. Sadly, almost every African country has yet to learn this painful lesson from 50 years of post-independence development.
As the African Development Bank points out, Ethiopia’s economy is vulnerable to exogenous shocks because of its dependence on primary commodities and rain-fed agriculture. Any slight global changes in the prices of coffee or fuel can destabilise the economy.
Agriculture has been expanded by extending the area of cultivated land, not by increasing production.
Ethiopia is one of the few African countries that have genuinely focused on building a manufacturing base that can create a sizeable number of jobs and substantially undo poverty and inequality. However, the manufacturing sector is contributing less than 5 percent of GDP growth. Ethiopia needs a well thought-out industrial policy to diversify its economy.
Growth, as in many African countries, is benefiting only small elites. According to a survey by the consultancy New World Health, between 2007 and last year, Ethiopia had the most new dollar millionaires in Africa. Most of the beneficiaries are the elites linked to the ruling Ethiopian People’s Revolutionary Democratic Front.
The lack of genuine democracy and the crushing of critical voices is undermining the potential for higher economic growth rates.
*Gumede is chairman of the Democracy Works Foundation. His latest book is: South Africa in Brics: Salvation or Ruination, Tafelberg (http:// www.amazon.com/Tafelberg-Short-Africa-Salvation-ruination-ebook/ dp/B00FRHV7LC)
** The views expressed here are not necessarily those of Independent Media.
Ethiopia, like many of Africa’s new growing economies, began achieving high growth rates from a low base, writes William Gumede.
Thirty years ago, in 1984, Ethiopia was plunged into a terrifying famine, with hundreds of thousands starving to death and the economy in freefall.
For aboutt 10 years, the country has notched up double-digit economic growth rates. The average annual rate in the past 10 years has been 10.9 percent, according to figures from the African Development Bank.
By contrast, other sub-Saharan African economies grew 5.4 percent on average in the same period.
By the end of the 2012-13 fiscal year, Ethiopia’s economy had grown by 9.7 percent, according to the 2014 Economic Report on Africa from the UN Economic Commission for Africa. This year it will probably show bumper growth.
Ethiopia, like many of Africa’s new growing economies, began achieving high growth rates from a low base. Of course, in spite of its stellar growth, Ethiopia remains one of the poorest countries in the world.
It wants to become a middle-income country by 2025. This is defined by the World Bank as a country with a gross national income for each person of about $1 430 (about R16 500) a year. Ethiopia’s figure is low: $470 compared with $3 187 in Egypt and $7 508 in South Africa.
What is fuelling Ethiopia’s high growth rates? The large services sector and agricultural production have been significant factors. The country’s main exports include coffee, horticultural products and livestock.
Agriculture has been increasingly commercialised. Services are the largest sector because of the rapid increases in the size of the public sector, in financial intermediation, public administration and in retail business activities.
Ethiopia’s public investment has been driven mostly by the state. For example, two thirds of Ethiopia’s 8.5 percent GDP growth in 2011-12 were due to public investment, according to the World Bank.
Public investment in Ethiopia is the third highest in the world as a percentage of GDP and private investment is the sixth lowest, according to World Bank figures.
A large sum has been injected into a massive infrastructure drive that includes a multibillion-dollar plan to build a hydro-power dam on the Nile.
Ethiopia has spent more than $3.6 billion on road construction in the past 10 years. There has also been a dedicated effort to improve access to basic public services.
Remittances by Ethiopians living abroad to relatives and investment have risen considerably, contributing to the growth spurt. The World Bank estimates that Ethiopia gets about $3.5bn a year from its diaspora. It is reckoned that 14 percent of adult Ethiopians receive on average $600 in remittances from relatives – in five transfers a year on average.
About 20 percent of the national budget is from foreign aid and loans.
Ethiopia has made significant progress in slashing red tape, trying to make it easier for residents to set up businesses. To stimulate Ethiopian industry, the country has closed major sectors, including retail, transport, banking and telecoms to foreigners.
Importantly, it is one African country that has built a manufacturing industry from an almost zero base, as part of a dedicated strategy.
The country has used its large cattle stocks to produce leather products and is exporting leather shoes to the US and the EU.
Can Ethiopia sustain the growth and make it more inclusive?
Its high growth rate mimics a classical economic take-off phase. Many African countries experience such growth after decades of economic stagnation and political instability. The challenge is to make such economic take-offs sustainable.
Initial state investment-led growth reaches a point where it needs to pull in the private sector by creating a critical mass of new industries or by forging partnerships with foreign companies. Over the past 50 years, many African countries have been unable to replace initial growth with growth in the private sector.
Ethiopia’s Growth and Transformation Plan is not giving attention to this. Sadly, almost every African country has yet to learn this painful lesson from 50 years of post-independence development.
As the African Development Bank points out, Ethiopia’s economy is vulnerable to exogenous shocks because of its dependence on primary commodities and rain-fed agriculture. Any slight global changes in the prices of coffee or fuel can destabilise the economy.
Agriculture has been expanded by extending the area of cultivated land, not by increasing production.
Ethiopia is one of the few African countries that have genuinely focused on building a manufacturing base that can create a sizeable number of jobs and substantially undo poverty and inequality. However, the manufacturing sector is contributing less than 5 percent of GDP growth. Ethiopia needs a well thought-out industrial policy to diversify its economy.
Growth, as in many African countries, is benefiting only small elites. According to a survey by the consultancy New World Health, between 2007 and last year, Ethiopia had the most new dollar millionaires in Africa. Most of the beneficiaries are the elites linked to the ruling Ethiopian People’s Revolutionary Democratic Front.
The lack of genuine democracy and the crushing of critical voices is undermining the potential for higher economic growth rates.
*Gumede is chairman of the Democracy Works Foundation. His latest book is: South Africa in Brics: Salvation or Ruination, Tafelberg (http:// www.amazon.com/Tafelberg-Short-Africa-Salvation-ruination-ebook/ dp/B00FRHV7LC)
** The views expressed here are not necessarily those of Independent Media.
GUNCHIRE, Ethiopia — President Barack Obama is counting on an unusual mix of taxpayer dollars and investments from profit-hunting agribusiness giants such as DuPont to feed the globe's growing population.
For the plan to work, small-scale Ethiopian farmers like Tekalgna Abebe will need to greatly increase their paltry yields of corn and other crops. That will be no small achievement in a country where farmers typically plow by hand or with oxen and still plant their crops by tossing the seed willy-nilly out on the ground instead of placing it in rows.
Abebe, 38, a participant in DuPont's program, harvested about 4 tons of corn from just over an acre of land last year, four times what he produced the year before. The extra corn will help him pay for schooling for his four children, the oldest of whom is 8. "I am confident that my children will have a bright future," he said through an interpreter.
His village of Gunchire has a long history of food shortages, and it is one of the places that DuPont's Iowa-based seed business, DuPont Pioneer, and the U.S. Agency for International Development are testing a new approach to improve the production of corn among the millions of poor, small-scale farmers who dominate African agriculture.
The plan, part of the Obama administration's Feed the Future initiative, is to give farmers bags of nonbiotech hybrid seed and train them on how to properly plant the seeds and apply chemical fertilizers. Only 1 in 10 Ethiopian farmers who grows corn typically uses improved seeds.
Under Feed the Future, the administration is spending more than $1 billion a year to increase food production in 19 target countries. And in a novel approach to international agricultural assistance, the taxpayer funding now is being supplemented in some countries by commitments from corporations such as DuPont, Cargill and beverage giant Diageo.
The administration launched Feed the Future in the wake of the 2008 food-price spikes that sparked civil unrest in some countries and brought global criticism to U.S. biofuel policies that were seen as contributing to the soaring prices.
"Feed the Future demonstrates a new model of development, one working alongside partner governments, the private sector, civil society and innovators to help the world's most vulnerable communities progress from dependency to self-sufficiency," said USAID Administrator Rajiv Shah. "This is a true expression of American values."
The initiative also is providing a modest counterweight to the billions of dollars that China is investing in Africa though the financing and construction of major infrastructure projects.
Critics say the administration had no business enlisting the private sector. "Corporations are accountable to their shareholders, obliged to make a profit. They are not charities. They are bound by law, but not by the public interest," wrote Sophia Murphy of the Institute for Agriculture and Trade Policy.
Under the program, farmers are given seeds the first year. After that, they have to buy them.
Early results from DuPont's project in Ethiopia have shown some promise. Some of the 20 farmers say they harvested as much as four times more corn in 2013 from the same amount of land as they did the year before. They were among 320 farmers in 16 districts around central Ethiopia who received training in 2013. More than 3,000 farmers were added this year, and that is scheduled to jump to more than 30,000 in 2015.
Farmers only recently started harvesting this year's crop, but DuPont officials say the yields should be improved again this year and that the project remains on track.
Abebe doubled his acreage this year and trained 20 to 30 farmers in the methods he learned, including the use of hybrid seed.
An farmer near Gunchire, Gifty Jemal, said she learned from the project to plant the hybrid seed in rows. She also used twice as much fertilizer as she did before, and made it more effective by applying it near the seeds. The extra corn meant that she had more than she needed and could sell some in the local market.
A 2010 study by the International Food Policy Research Institute estimated that Ethiopian farmers could increase corn production by more than 60 percent just by adopting commercial seeds and improving their practices on one-quarter of the nation's cropland.
But the study found in part that government control of the public-sector seed price was making it very difficult for private-sector companies like DuPont to compete.
Tekalign Mamo, a top adviser in the Ethiopian agriculture ministry, likes the competition that DuPont can provide to the local seed sector. Even though the Pioneer seed can cost three times as much as locally produced varieties, farmers will buy it because of the results, he said. He said the commercial competition creates a "check-and-balance system. This will make the locals work hard."
DuPont is expanding the project to Ghana and Zambia, two other Feed the Future countries.
Paul Schickler, president of Johnston-based DuPont Pioneer, insists the Ethiopian project is neither a public relations stunt nor an attempt to exploit African farmers and coax them into adopting American-style farming practices.
"Our goal is to improve farmer livelihoods, and that's in Iowa, and in China, and in Ethiopia," Schickler said.
He said improving food production in Ethiopia has to be done "farm by farm, providing them the inputs that they need, the financing that they need, but then equally important is the knowledge."
Whether Feed the Future has a long-lasting effect remains to be seen. The initiative is designed to promote a series of demonstration projects — DuPont's is one — that can be shown to increase food production and reduce hunger. But it will then be up to the countries themselves to see that successful ideas are carried out.
Ethiopia has so far been slow to act on 15 promised policy and legal changes the government made to entice the investment from DuPont, Diageo, DuPont rival Syngenta and other multinational companies. All of the changes were to have been made by April 2014; as of this summer only one had been completed.
The government implemented a new policy for regulating seeds, a critical move for DuPont. But it has so far failed, for example, to lift an export ban on grains, which would encourage private investment in farming.
Ethiopia also is hamstrung at least temporarily by the steep cost of the Chinese-driven infrastructure program. The Ethiopian government required banks to buy bonds worth 27 percent of their annual loans, a move that has made private financing harder to get for agriculture and other sectors.
Still, Jonathan Shrier, the State Department's top diplomat for food-security issues, says that relying on host governments makes it more likely Feed the Future will ultimately deliver long-lasting results.
"The old style of development was criticized in the past for creating a perpetual dependency on assistance. That's not the idea here," he said.
