Infrastructure investments driving ‘impressive’ growth in Ethiopa, says World Bank report

The bank’s ‘5th Ethiopia Economic Update’ (79-page / 8.19 MB PDF) said the government’s increased focus on new industrial parks is also helping to “improve export performance and stimulate growth in the short to medium-term”.

According to the bank’s country director for Ethiopia, Sudan and South Sudan Carolyn Turk: “Economic growth remained at a respectable 8% in 2015/16, which is impressive especially compared to previous drought situations which often resulted in economic contraction.”

The bank’s report said “the negative impact of the drought is expected to be temporary in nature”. However, the report added: “The current civil unrest in some regions, if not stopped, could pose potential harm on the economy and affect tourist and foreign direct investment (FDI) inflow – yet the effect is uncertain at this stage.”

There is also a need “for both faster job creation and investments in skills for non-graduates”, the report said. “More and better job opportunities for those with secondary and primary education are required. This segment of the market is in desperate need of high-productivity employment creation.”

Within investment, both private and public sources drove Ethiopia’s growth rates in 2015/16, the report said. “This is evidenced by a variety of indicators: Private investment grew by 25% despite public investment declining by 6%. FDI improved increasing from 3.4% to 4.2% of gross domestic product in 2015/16 and has reached to $3 billion.”

The start of the country’s 756-kilometre Addis-Djibouti railway line “eases the constraint in trade logistics and reduces the transportation cost of moving goods in and out of the country”, the report said. “It takes only 10 hours for the new railway to take goods between Ethiopia and Djibouti, a huge cut compared to the three to four days for a truck.

Further, the recently inaugurated Hawassa Industrial Park, 275km from Addis and the completion of Bole-Lemi Industrial Park Phase II are set to increase manufacturing exports and contribute to the diversification of the coffee and gold dominated export profile of Ethiopia.”

Meanwhile, the completion of power transmission lines from Ethiopia to neighbouring Kenya and Sudan “and the expansion in power generation capacity will increase electricity export, further boosting the diversification efforts”, the report said.

On Ethiopia’s banking sector, the report said “banks are profitable and well-capitalised although liquidity is a concern. In March 2015, the average risk-weighted, system-wide capital adequacy ratio was 16.6%, which the report said was “double the minimum requirement”. In addition, “profitability was robust, with return on assets (ROA) at 3% and return on equity (ROE) at 45%, well above regional averages”. “The non-performing loan ratio was only 2.4%,” the report said. “However, no financial sector assessment programme has been conducted in Ethiopia and the absence of detailed bank data precludes the assessment of potential vulnerabilities in individual banks.”

A key recommendation of the World Bank’s report is to “enhance the use of information and communications technology” to make it easier and more cost-effective for Ethiopians seeking employment. “The cost of travelling to job boards is not trivial for the unemployed, who live a median distance of 5.5km from the city centre, and who state that this constrains their search,” the report said.

“The cost of a trip to search for work in the town centre could be as much as 15 birr (ETB) ($0.8) in total and on average respondents took about two trips per week, compared to a median total weekly expenditure of ETB100. Consequently, job seekers devoted around 25% of their budget to transport, a sizeable portion considering that they spend around 40% in food. Not surprisingly, 50% of the respondents reported that transportation costs are the main constraint for their job search, and 84% said that these costs were a constraint for their job search.”

The report said the costs of looking for a job over a sustained period of time “may explain why educated job seekers that cannot find a permanent work may accept low quality temporary jobs for some time”.

In 2014, Addis Ababa was included in a list of so-called ‘next 10’ cities in sub-Saharan Africa that are expected to see faster economic growth than any other region by 2040. The list was part of professional services firm PwC's 'Global Economy Watch'.