Ethiopia’s Growth and Transformation Plan (GTP)

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As five-year economic plans go, Ethiopia’s Growth and Transformation Plan (GTP) will likely be remembered as a transformative success. With the period it covers coming to an end this December, all eyes are on the government of Ethiopia for an indication of what the next stage holds.

The Ethiopian Central Statistics Agency (CSA), with assistance from external bodies like the UK’s Department for International Development, is in the process of assessing GTP and planning for its successor program, GTP II. The government’s long-term economic goal of transforming Ethiopia into a middle-income country by 2023 remains, and the hope is that GTP will continue Ethiopia’s progress in that direction.

While GTP I focused on infrastructure and capacity development, GTP II is expected to be far more explicit about plans to increase manufacturing and agricultural exports.

Although Ethiopia will not reach all of the benchmarks laid out in GTP I, the distance between GTP I’s goals and present-day reality is reassuringly small. Many of the GTP I targets were drawn from the United Nations’ Millennium Development Goals (MDGs), which set growth and development benchmarks for developing countries, to be achieved by the end of 2015.

Both the MDGs and GTP I aimed to halve the number of people living on less than $1.25 a day: Ethiopia is already within 5% of that target. Likewise, GTP’s goal of universal primary education is unlikely to be met, but enrollment has risen from 50% in 2000 to 87% of all eligible children today. And around two-thirds of children finish primary education.

Average annual GDP growth rates in Ethiopia have been over 8% for the last seven years and, while GTP I called for 11.4% growth in 2014, the economy’s continued strength is encouraging.

As a result, investors are increasingly warming to Ethiopia as a destination with potential. Despite some uncertainty in 2012, when foreign direct investment (FDI) fell from $627m to just $291, it rebounded in 2013 to hit a record of $953m flowing into the country, largely from private Asian investors taking advantage of government incentives to build in industrial zones. Despite this sharp growth in FDI, KPMG still describes Ethiopia as “a textbook example of an undeveloped country with enormous potential” for investment. This investment will continue as long as Ethiopia remains a country with a stable and supportive government, and Black Rhino plans to contribute to the influx of foreign capital from which Ethiopia is currently benefitting.

In a recent interview with The Reporter, development economist Professor Izumi Ohno said that he believed industrialisation in Ethiopia is poised to happen on a large scale.

“Ethiopia is like Vietnam about 20 years ago,” he says, but the country will catch up with Asian tigers in half the time.

Critical to this expected development will be the continued process of economic diversification. Traditionally, Ethiopia has relied on coffee exports to balance its foreign exchange, and the crop still accounts for around a quarter of all overseas sales and a similar proportion of jobs. But things are changing, and there is plenty of opportunity for investors to support the growth of nascent industries across the country.

One area that will be fundamental to the success of GTP II will be continued focus on power generation. Ethiopia won’t hit its target of 8GW nameplate capacity – laid down in GTP I – by the end of this year, but the 6GW Grand Ethiopian Renaissance Dam on the Blue Nile River is likely to come online within the next two years and is expected to allow Ethiopia to become a regional exporter of energy.

A recently completed project connected the Ethiopians’ national grid to neighbouring Kenya, Somalia, and Djibouti. It’s reckoned that there exists some 45GW of hydropower capacity alone in Ethiopia, and the country is already home to what was, until December, Africa’s largest wind farm. The United States’ development agency, USAID, is explicitly supporting Ethiopia’s goal to become a regional hub for renewable energy through its Power Africa initiative.

Progress on current projects is encouraging. The sizeable Grand Ethiopian Renaissance Dam and the 1.8GW Gilgel Gibe 3 hydroelectric projects, the latter to be commissioned by 2016, and the 1GW Corbetti geothermal project, the first phase of which is expected to come online in 2018, promise to treble the current power generating capacity of the country.

Currently, 91m of Ethiopia’s citizens survive on less than 3GW of installed capacity. By comparison, South Africa’s 52m citizens can boast just under 45GW capacity – and they still wrestle with daily blackouts – while Nigeria’s 174m people can access just 6GW. The UK, meanwhile, has just under 100GW capacity to service some 64m people. It’s clear that further investment in power production will support Ethiopia’s GTP II in meeting its targets of increased manufacturing and export growth.

What’s next for Ethiopia then? GTP II is likely to be characteristic of the country’s recent history and governing party. Ambitious, but rightfully so.

 

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