World Bank's economic update of Ethiopia urges tight microeconomic policies
Ethiopia’s GDP growth will decelerate to 9.6% in fiscal year 2018 (July 2017 to June 2018), down from 10.9% in fiscal year 2017.
Ethiopia's GDP growth will decelerate to 9.6% in fiscal year 2018 (July 2017 to June 2018), down from 10.9% in fiscal year 2017, according to a new World Bank Group report.
The Horn of Africa nation was the world's fastest growing economy in 2017. According to official statistics, during the ten fiscal years ending June 2016, Ethiopia's GDP averaged 10.3% mainly driven by government consumption and private investment. The sixth edition of the Ethiopian Economic Update finds that last year's drought, which affected about 8.5 million people in southeastern Ethiopia, had minimal impact on the economy.
"We expect Ethiopia's economy to remain stable in FY2018 and the medium term, provided that the government continues to implement appropriate macroeconomic policies and manage risks related to external debt, foreign exchange shortages, any future droughts or social unrest that could impact foreign direct investments and tourism," said Mathew Verghis, World Bank Practice Manager for Macroeconomics, Trade and Investment.
In order to sustain growth, the report urges the authorities to maintain tight macroeconomic policies, improve external competitiveness, curb structural imbalances and expand the role of the private sector.
Services considered strategic - telecom, utility, and air and sea transport sectors - currently operate as strict public monopolies. Furthermore, professional and other backbone services are not promoted to the extent of their potential contributions to competitiveness and value addition. According to the report, putting more focus on the underdeveloped services sectors will result in major economic gains for Ethiopia.
The recommendations of the report include calls for services and trade policy reforms that should, ideally, involve:
- Raising awareness about the strategic importance of services as a first step ahead of the design of a comprehensive reform strategy that is linked with national development plans;
- Taking steps to relax trade and market access barriers; to eliminate regulatory obstacles, and deal with informality issues;
- Addressing the concerns of the poorest households and facilitating the inclusion of smallholder farmers in modern value chains; and,
- Dealing with skills issues in services and addressing infrastructure constraints such as roads and ports.
"Although a wholesale services policy reform in Ethiopia's current environment would be neither feasible nor desirable, several significant steps could be taken to open-up markets, increase economic efficiency and meet people's expectation for improved services," said Carolyn Turk, World Bank Country Director for Ethiopia, Sudan and South Sudan. "Meaningful reforms will help expand manufacturing, boost job creation, enhance food security and promote economic diversification among other things."
The Economic Update especially identifies distribution services as a potential entry point for such reforms. "By reforming its distribution services, Ethiopia could further promote competition, innovation and improve consumer satisfaction and welfare," said Nora Dihel, World Bank Senior Economist and co-author of the report.