ADDIS ABABA, May 16, 2019 – Led by strong performance in the services sector, Ethiopia continues to register a strong economic growth, albeit at a slightly slower pace than in the previous years.
The slowdown was caused by sluggish industrial growth driven by lower construction due to foreign exchange shortages and weaker performance of manufacturing and agricultural sectors, according to the World Bank’s latest economic update for the country. The report, which includes a special focus on poverty and household welfare between 2011-2016, notes that overall households have seen improvements in welfare, although disparities between urban and rural areas, and within rural areas, persist.
Impressive growth of the services sector drove the expansion in total exports. By contrast, merchandise exports decreased reflecting the continued poor performance of Ethiopia’s major export items including coffee, oilseeds and pulses. The manufacturing sector underperformed in part due to the prevailing structural and logistics related challenges, severe foreign exchange shortages and a turbulent political landscape. The sector had some bright spots such as exports of textiles and electronics posting healthy double-digit growth rates.
Ethiopia’s economic growth should continue at a steady pace provided prudent economic management continues and the political atmosphere settles down. Double digit inflation due to expansion of public sector credit, broad money growth, devaluation, and political disruptions (which adversely affected distribution networks) contributed to economic headwinds the country faced.
Several challenges will need to be addressed to accelerate and sustain economic growth which is vital to poverty reduction. “To achieve its economic and social ambitions, including poverty reduction, Ethiopia will require to pursue sound, private sector-led, and export-oriented economic policies,” said Nora Carina Dihel, Senior Economist and co-author of the report.
The second most populous country in Sub-Saharan Africa, Ethiopia over the past decade has robustly combated poverty. The result was growth in median household consumption broadly shared across regional states, except for a few which saw a decrease in household consumption. However, at the national level the benefits of growth and poverty reduction were skewed in favor of the upper stratum of society. The poorest segment of society (10 percent) did not experience any consumption growth between 2011 and 2106. And urban areas fared much better than rural areas that experienced low and variable growth rates over the same period.
“Economic growth and development have substantially reduced poverty levels in Ethiopia, however, the monetary living standards of households remain low,” said Berhe Mekonnen, Economist and co-author of the report “This is especially true in rural areas and mainly for the bottom 40 percent.”
The report lauds the policies that have led to economic growth and recommends policies that could boost further economic growth. For instance, manufacturing sector can be boosted by resolving structural and competitive issues such as rigid labor and product markets, including an overvalued exchange rate.