The Ethiopian government even recently claimed that in 20 years Ethiopia will be a middle income country. Though the growth rate might actually be correct, it is important to note several other factors that are influencing the economic growth and its ability to positively influence poverty reduction. Ethiopia’s economic growth has been noted to be short lived and caused by some positive shock that its ability to sustain long term growth is questionable. This is evident even based on the World Bank report which indicated that that the 2003 economic growth was -3.7; however in 2004 it jumped to 13.4. In less than one year the country bounded from severe recession to extraordinary growth. This kind of change undeniably happens because of some unexpected input than planned and targeted growth policy. In addition, it is less likely to sustain over time. However without long term economic growth, it is less likely that economic growth will bring any sustainable positive change.
First, Ethiopia’s economic growth seems much driven by government spending than private saving or investment or export. Ethiopia is running a soaring trade deficit. In 2003 alone, while import of goods and services was 37% of the GDP, export was less than half of that. In terms of volume import was $1.6 billion while export was $500 million. Ethiopia’s trade and budget deficient is continuously increasing, and without seriously addressing this issue, attaining economic growth is a futile effort. As we have seen many of the East Asian countries managed to sustain their economic growth through export-led economy. On the other hand, the central government expenditure on infrastructure in 2003 was close to 20% of the GDP. Though this is good for a long run growth, it also inflated the economic growth rate. Moreover, Ethiopia is also an aid-dependent country that the government expenditure and budget deficient are covered by foreign aid. In 2003 alone, Ethiopia received 1.5 billion dollar aid or about 25% of the GDP. One positive move has been the reduction in military budget and increase in educational expenditure. Ethiopia’s government expenditure in public education is 4.6% which is equivalent to military expenditure. However the military budget has been reduced by half since 1999 when Ethiopia was at war with Eritrea and expenditure in public education increased by 1.2% since 1992.
There is a theoretical debate that economic growth is positively associated with poverty reduction. In fact many developing countries in Latin America, Asia and Africa that had long term economic growth were able to reduce poverty. However, the probability of economic growth reducing poverty is associated with several other factors such as inequality. Economic growth in a country with wide inequality is less likely to benefit the poor. On the contrary, the growth might actually widen the gap and that proportionally those who are well off will benefit much more than the poor. Looking at the current economic and social inequality in Ethiopia, the regional disparity is widely visible. The regions or areas that are doing well such as Addis Ababa and Harar are 2.5 times richer than places like Omo, Konso and Gambella. Other regional disparities are reflected by the fact that primary school enrolment is close to 80% in Addis and only about only 10% in Somali and higher educations are filled by students from urban areas such as Addis Ababa, Jimma and Dire Dawa while very few come from Gamella and Afar. Infant mortally rate is 110 per thousand in Addis while it is more than double in Afar and Gambela. Leaving the regional inequalities aside, if we look at individual inequalities or gini coefficient, Ethiopia is doing as good as Canada and Austria. With a score of 30, Ethiopia is ranked No. 20 in having low inequality among citizens. However, this figure is as deceiving as the high rate of economic growth. Currently the top 20% of the population have control over close to 50% of the economy and thus proportionally benefit more from the growth than the rest of the poor.
Though last year’s and previous year’s economic growth was high, poverty has not declined much in the country for years. For the last few year, a little over 40% of Ethiopia’s population live on less than a dollar a day and 80% on less than two dollars a day. The fact that poverty has not declined with the high rate of economic growth shows two things: either the economic growth is not benefiting the poor or it is not going as fast as poverty reduction and population growth. In the years between 2002 and 2003 alone, the annual average change in consumer price index was 17%, which indicates that life is getting expensive for an average Ethiopian and based on a United Nations report, half of Ethiopia’s population cannot afford to spend enough to consume their daily minimum nutritional requirement. Thus without mentioning the corresponding poverty situation, to talk about only economic growth won’t give the full picture of current Ethiopia.
Looking at the overall economic and political conditions of Ethiopia, the country is missing several preconditions such as high literacy rate, good democratic institutions, openness to trade and governance. The adult literacy rate in Ethiopia is about 42%, though relatively better than many sub-Saharn African countries, it is still not good enough to influence or sustain strong economic growth. Political and administrative institutions are also so weak that the country is vulnerable to political uprising as we have seen in 2005. Thus without addressing these fundamental issues, high rate of economic growth for a year or even a couple of years won’t help the poor get out of poverty in Ethiopia.
The writer, Daniel Fikre, can be reached for comments at [email protected].
