Nairobi: Ethiopia, one of the world’s biggest aid recipients, has for the past 10 years claimed more than 10 per cent economic growth annually, and has predicted 11 per cent for this year. The International Monetary Fund estimates growth has on average been seven per cent, and would slow down to 5.5 per cent next year.
But apart from the disparity in figures, it is widely agreed that Ethiopia has consistently been one of Africa’s fastest growing economies. This growth rides on the back of mega infrastructure projects being implemented at dizzying speed, as Addis Ababa ignores calls by the West for caution in favour of a wider social welfare net for its tens of millions poor.
To fund the billion-dollar projects, Ethiopia has put on the market dozens of state-owned enterprises, leased out big chunks of arable land, assiduously courted foreign direct investment and tightened its tax collection noose. Even cybercafés have not been spared, with a sales tax slapped onto customers’ Internet bills.
The aggressive infrastructure drive has stretched national budget, with the millions poor particularly feeling the pinch as spending on basic services suffers. Teachers were recently up in arms over a measly salary increase, while the urban poor have found themselves on the ropes as they continue to be left out of the already anaemic national poverty alleviation plans.
The spending on big projects is anchored on a five-year Growth and Transformation Plan, for which the government has struggled to raise funds. Among the big projects are the billion-dollar Renaissance hydropower dam on the $5 billion Nile River, expected to generate more than 5,250 megawatts to be fully financed by the government, which expects to raise funds through public contributions and the state budget.
Apart from donations and efforts to create a fund, the authorities have introduced a mandatory contribution from every employee of at least one month’s salary every year.
Another dam, the Giant Gibe III, cost an estimated $2.3 billion. After donors refused to finance the project mainly on environmental concerns, the government coughed up $780 million while the Chinese involved in the project parted with $470 million are being asked to plug the shortfall.
Ethiopia is also rushing to build a 5,000-kilometre multiple rail link to major cities and to the port of Djibouti, with a projected cost of $10 billion. The first phase of the project to connect Addis Ababa with Djibouti is already under construction.
Under the five-year plan, a number of road and other constructions are also mushrooming all over the Horn of Africa country.
Donors such as the World Bank, while appreciating the vision, have questioned the country’s capacity to invest billions in the projects, while others have been more hesitant in funding the plan. To counter this, Prime Minister Meles Zenawi has turned East to emerging economies such as India and China, but the financing gap still remains considerable.
Both global and local factors such as an import-export imbalance have dampened foreign currency income.
Over the past seven months, Ethiopian exports — mainly coffee — brought in only $2.8 billion, while imports cost $4.5 billion. Rising fuel prices have also burdened the import bill.
After years of refusal — since 1991 — to liberalise state-owned firms inherited from the former Marxist military regime under Mengistu Haile Mariam, Ethiopia is now privatising them, with the exception of strategic and profitable ones like in telecoms, aviation and banks.
Some 40 firms have been sold, while another 41 are awaiting competitive bids. The government expects to raise $9.6 billion from the sales.
World class companies such as the global brewers Heineken and UK’s Diageo recently snapped up state-owned beer factories for a combined $390 million. US retail chain giant Walmart, with $100 billion in annual revenue, has just concluded negotiations with the government to open a branch in Addis Ababa, the capital city.
China has also brought about 80 manufacturers to the East Industrial Zone, just 40km from Addis. Among the best known is shoe and clothing company Huajian, which targets to employ some 100,000 workers and produce $4 billion worth of exports in the next 10 years. The country has also leased a third of the 3.6 million hectares of arable land it has identified as available for investors, making it among the top three global destinations for commercial agriculture, often controversial due to existing communal interests. Subsistence farming, a vital source of income for Ethiopia’s dominant rural community, has been far from successful with millions living in poverty.
To compound this, the government’s stretched budget and the increased cost of living has tightened the screws.
Last month, the government could only manage a $4 salary increment for teachers as inflation touched 35 per cent in the same month.
The disappointment over the long awaited pay rise quickly turned to anger and an unorganised strike, which petered out after only two days following a threat that the striking teachers could be sacked.
Finance and Development minister Abreham Tekeste in a recent report to donors played up a decline of poverty in Ethiopia as a “remarkable achievement”.
Only 25 million of Ethiopia’s 84. 7 million-strong population lives below the poverty line, the report stated, adding that the figure represents a reduction of four million since 2004 and that the population is also growing at 2.5 per cent annually.
World Bank lead economist on poverty reduction in Africa Chorching Goh cautioned that while Ethiopia’s growth figures over the past decade are impressive, they start from a very low statistical base. Ethiopia’s poverty line is well below the internationally accepted rate of $1.25 a day. “The trend is very positive, but still we’re talking about nearly 30 million people below the poverty line, and this is a very poor country, and when we’re talking about rural poverty line, their poverty line is actually below the world accepted average” she said.
Ms Goh added that the Human Development Index that ranks countries by living standards still shows Ethiopia near the bottom. The UN’s Human Development Index 2011 report ranked Ethiopia 174 of 187 countries with a per capita income below $400. The urban residents, who are estimated at 14 per cent of the 84.7 million population, are struggling with commodity price rises due to direct government tax policies aimed at generating income.
With the rest of the world looking to make information communication technology available to more, in Ethiopia Internet cybercafés must add a 15 per cent sales tax to their customers’ bill.
Bisrat Teshome, an Addis Ababa-based economist who has researched extensively on urban poverty, pointed out that food insecurity in towns is increasing but that both government and aid organisations are not aware of this dimension of the problem.
“A very biased attitude and poor awareness on the situation plus inflation usually result in making the urban poor more vulnerable to food insecurity,” Mr Bisrat said, adding that Ethiopia’s traditionally rural-centred food security projects must also consider the urban poor.