Ethiopia’s economy has grown at an annual rate of nearly 10 percent for the last seven years. But a third of the population still lives below the poverty line.
Samuel Bwalya is the economic advisor for the United Nations Development Program (UNDP) in Ethiopia. Bwalya says that the country has to be patient while waiting for a trickle-down effect to lift more people from poverty:
“Ethiopia is starting from a very low base in terms of development, so it should actually take much longer for this impact to take root,” Bwalya noted. “So I think we are too much in a hurry to see seven-year growth to start asking questions about how many people are out of poverty. Ethiopia is still very poor. But if you look where Ethiopia is coming from, it has made significant progress in reducing poverty.”
The late Prime Minister Meles Zenawi was often praised for his approach to helping the poor. Poverty has declined by a total of 10 percent in the last seven years. But the country is still one of the largest donor recipients worldwide, receiving over $3 billion annually.
Ethiopia ranked 174th out of 187 countries in the UNDP’s 2011 Human Development Report. Life expectancy is estimated at just 57 years, the inflation of 26 percent remains a problem for most people and there are over 12,000 street children in the capital city alone.
Bwalya of the UNDP says ongoing measures by the Ethiopian government will benefit the whole of the Ethiopian population in the long run.
“Ethiopia is spending over 40 percent of its budget on infrastructure development, public works, schools, health and roads,” Bwalya added. “That is extremely important in the initial period and these are investments that bring impact, slightly, in the medium- to long-term. We don’t see the impact of actually constructing a road today, to take impact on the lives of people the next day. It may take a couple of years to do that.”
Despite these investments, there are still challenges to make sure the economic growth helps all Ethiopians. Youth unemployment continues to be a major problem.
Jan Mikkelsen is the International Monetary Fund’s (IMF) resident representative in Ethiopia. Mikkelsen believes the country is making progress in the public sector. But he also believes that the private sector should be able to help the economy overcome some challenges such as the large number of young people who don’t have jobs.
“We believe that most of the employment in the long haul will be generated in the private sector,” Mikkelsen noted. “So this will be more dynamic, new jobs in new areas – IT (information technology), trade manufacturing and so forth. That’s where sustainable high value jobs will be.”
The IMF also believes the financial sector needs to be developed further to support smaller businesses, especially in rural areas. But the private sector is given little room to operate in Ethiopia’s state-run economy, and there is little direct foreign investment.
Wolday Amha is the director of the Association of Ethiopian Microfinance Institutions. He says that loans needed by micro-enterprises are coming from the poor themselves, and voices support for this approach.
“What you see in these countries in the rural areas and urban areas is huge demand for loans,” Amha explained. “This country is mobilizing resources from the poor people. If this is hijacked by the private sector, which wants to maximize profit at all costs, that will be a disaster, and it will create economic, political crisis.”
The government is implementing its Growth and Transformation Plan, which has ambitious development and economic projects that aim to make Ethiopia into a middle-income country by 2025.
Whether Ethiopia will achieve this goal with its current approach remains difficult to say, says Mikkelsen:
“There are different models around the world and there’s not one development model that is the right one,” Mikkelsen said.
Ethiopia predicts its economy will expand by more than 10 percent again in 2013. The IMF and the World Bank predict slightly less robust growth of seven percent.