Ethiopia is one of only two countries in Africa, the other being Rwanda, where economic growth has been consistently high for the past decade. Also, between 2004 and 2014, Ethiopia’s per capita growth of 8 percent was the highest in Africa. These statistics are impressive on their own but what makes it even more remarkable is that this growth was achieved without relying on a natural resource boom.
Much of this growth has come from increased manufacturing and agriculture productivity, as well as a hike in construction activity. Results have been nothing short of impressive; manufacturing, which has grown at 11 percent per year, has seen exports increase more than eleven-fold, mainly from export earnings of low-tech industries such as footwear and apparel manufacturing.
One reason for the growth in manufacturing is the country’s ‘Growth and Transformation Plan (2010 – 2015)’, which gave priority to manufacturing industries based on resource availability, labor intensity, linkages to agriculture, export potential and relatively low technological entry barriers. They included apparel and textiles, agro-processing, meat processing, leather and leather products, and construction, for which support institutes were set up to coordinate value chains effectively, including through ensuring efficient supply of inputs to manufacturers and assistance for upgrading technology. Two state-owned banks, the Commercial Bank of Ethiopia and the Development Bank of Ethiopia, were also mandated to provide credit on easy terms to firms in these industries.
To become internationally competitive, the Ethiopian government has invited foreign investors to provide much-needed investment capital and technological capabilities by offering attractive incentives to export-oriented industries. These include: Access to subsidized land rent in industrial zones, generous credit schemes and full exemption from payment of duties on imported capital goods and raw material for the export productions, as well as a five-year tax holiday on profits.
But it is not all emphasis on just manufacturing; the government has also invested massively in infrastructure development, focusing on transport and power generation. The road network expanded from 26,550km to 53,997km between 1997 and 2011. The country is set to quadruple its power generation capacity when the Grand Ethiopian Renaissance Dam on the Nile is finished in 2017/18. One of the largest hydroelectric power stations in the world, the dam will generate 6,000MW.
Feeding on the boom in construction, cement production has grown dramatically since 1999. With average annual growth of cement production more than twice the world average, Ethiopia is now the third largest cement producer in Africa. Similarly, the Ethiopian floriculture sector has also made important contributions to overall economic development. Cut flower exports increased from three tons in 2003/04 to more than 50,000 tons in 2011/12, substantially raising export earnings. From 2007 to 2012, the sector's employment doubled from 25,000 to 50,484. The industry grew from a single firm in 2000 to about 100 in 2014.
Given all these positive figures, Ethiopia might very well be on its way to becoming Africa's industrial powerhouse.