Growth case study presentation Ethiopia

Growth case study presentation Ethiopia Economics 6470 Growth & Development , Fordham University, Spring 2013 Brandon Payne, IPED

Growth case study: Ethiopia • Growth history for Ethiopia peers/twins 2. IMF’s outlook Ethiopia going forward 3. Conclude with thoughts on institutions & governance and Ethiopia’s new export partner: China Brandon Payne Ethiopia Sp 2013

Source: PWT v7.1 Brandon Payne Ethiopia Sp 2013

Source: Cols 1 and 2 Jones, 2001, Appendix C, IMF WEO October 2012, accessed 3-25-2013. Columns 3-8 are trend line and data per capita income as share of $U.S. per capita income in $PPP 2005 current or constant 2005 prices. (from Prof McLeod’s spreadsheet) Brandon Payne Ethiopia Sp 2013

Brandon Payne Ethiopia Sp 2013

Source: IMF WEO Chapter 2, April 2013 IMF ETHIOPIA PROJECTED GROWTH: 2013: 6.5% 2014: 6.5% Lots of Aid & FDI, But lowest in group LIC SS African region: 2013: 6.9% 2014: 7.9%

Source: AlemayehuGeda & AbebeShimeles & John Weeks, 2009. "Growth, poverty and inequality in Ethiopia: Which way for pro-poor growth?," Journal of International Development, John Wiley & Sons, Ltd., vol. 21(7), pages 947-970. Brandon Payne Ethiopia Sp 2013

AlemayehuGeda & AbebeShimeles & John Weeks, 2009. "Growth, poverty and inequality in Ethiopia: Which way for pro-poor growth?," Journal of International Development, John Wiley & Sons, Ltd., vol. 21(7), pages 947-970. • Geda, Shimeles and Weeks (2007) find that growth in Ethiopia since 2000 has increased inequality in the country (consistent with Kuznets hypothesis) • “Growth with redistribution is the optimal strategy for Ethiopia” • Productive Safety Net Program! Brandon Payne Ethiopia Sp 2013

Productive Safety Net Program • Pays the poorest and most vulnerable people to work on public works projects for six months a year • Increase livestock holding by 10 head per household • Rehabilitates degraded land, creates terraced fields, feeder roads, small-scale irrigation systems • Funded by 10 development partners Source: “World Bank Support for Social Safety Net to Benefit 8.3 million Ethiopians by 2015. “ World Bank press release. 29 March 2012. Brandon Payne Ethiopia Sp 2013

Light Manufacturing in Africa 2012: “Light manufacturing can offer a viable path for Ethiopia and other Sub-Saharan African countries as they transform their economic structure and strive for productive job creation.” “Africans do not need to wait to have perfect investment climates to create millions of productive jobs in light manufacturing.” Light Manufacturing in Africa: Targeted Policies to Enhance Private Investment and Create Jobs. World Bank. 2012. Brandon Payne Ethiopia Sp 2013

Problems for Ethiopia in attracting FDI • Customs clearance efficiency • Restrictions in foreign exchange markets • Inconsistency in the tax regime • Low educational attainment among labor • Insufficient access to local finance • A lot of time spent on government relations Source: Geiger, Michael; Goh, Chorching. 2012. Chinese FDI in Ethiopia : a World Bank survey. Washington DC : World Bank. Brandon Payne Ethiopia Sp 2013

Ethiopia’s advantages in attracting FDI • Limited competition in an expanding local market • Cheap land • Cheap labor • Preferential market access • Tax holidays and tariff-free equipment imports • Stable political environment Source: Geiger, Michael; Goh, Chorching. 2012. Chinese FDI in Ethiopia : a World Bank survey. Washington DC : World Bank. Brandon Payne Ethiopia Sp 2013

Chinese investment has blown up • FDI from China to Ethiopia increased from virtually zero in 2004 to an annual amount of US$58.5 million in 2010 • Strongly facilitated by governments Source: Geiger, Michael; Goh, Chorching. 2012. Chinese FDI in Ethiopia : a World Bank survey. Washington DC : World Bank. Brandon Payne Ethiopia Sp 2013

“Helen Hai, GM for overseas investment at Huajian Group, a leading Chinese footwear manufacturer, has a bold vision: in 10 years she wants Ethiopia to be a global hub for the shoe industry, supplying the African, European and American markets and providing jobs for more than 100,000 local workers.”Source: “Ethiopia could be shoemaker to the world” Yahoo News South Africa. 4 April 2013. http://za.news.yahoo.com/ethiopia-could-shoemaker-world-035129218--finance.html Brandon Payne Ethiopia Sp 2013

What does Ethiopia have to do? • Only ranks 33rd on governance in Ibrahim Index but 15th in sustainable economic opportunity • 39th in Participation and Human Rights • 38th in Safety and Rule of Law • 29th in Human Development Source: http://www.moibrahimfoundation.org/ethiopia/ Brandon Payne Ethiopia Sp 2013

Table I-2 Starting a Business indicator: Cost (% of income per capita) Brandon Payne Ethiopia Sp 2013 Source: World Bank Doing Business 2013

Education • 36% of adults are literate • Ethiopia is doing well on primary education but needs to expand secondary education and revise curricula and be more flexible, and pursue gender equity • Necessary reforms possible to achieve this decade Joshi and Verspoor. Secondary Education in Ethiopia: Supporting Growth and Transformation. World Bank. 2013. Brandon Payne Ethiopia Sp 2013

Agriculture (43% of GDP, 80% of exports) • “The proposed approach will enable the government to harness resources more effectively and unlock up to USD 20 billion of additional GDP by 2025.” Accelerating Ethiopian Agriculture Development for Growth, Food Security, and Equity. Bill and Melinda Gates Foundation. 2010. Brandon Payne Ethiopia Sp 2013

Ethiopia’s Tourism Sector: Strategic Paths to Competitiveness and Job Creation. World Bank. 2012 Brandon Payne Ethiopia Sp 2013

Tourism • Huge growth potential • Need better marketing • Need better training for service provision • Need Special Tourism Economic Zones • Need multi-stakeholder platforms for dialogue • Need infrastructure development Ethiopia’s Tourism Sector: Strategic Paths to Competitiveness and Job Creation. World Bank. 2012 Brandon Payne Ethiopia Sp 2013

Creating infrastructure • In fiscal 2013 the government is investing 16% of GDP in industrial development, transport, telecom, energy and housing • Dispute with IMF/Egypt over Grand Renaissance Dam Project “IMF Urges Ethiopia to Slow Nile Dam Project to Protect Economy” Bloomberg News. 14 September 2012. http://www.bloomberg.com/news/2012-09-14/imf-urges-ethiopia-to-slow-nile-dam-project-to-protect-economy.html Brandon Payne Ethiopia Sp 2013

The Federal Democratic Republic of Ethiopia: 2012 Article IV Consultation—Staff Report. International Monetary Fund. 2012. Brandon Payne Ethiopia Sp 2013

Keep momentum but seek financial partners and focus on governance and human rights Fasilada’s castle at Gondar, Ethiopia Brandon Payne Ethiopia Sp 2013

Growth case study presentation Ethiopia