CM July_August 2019

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COUNTRY FOCUS Ethiopia is challenged by State interference OUT OF AFRICA Ethiopia: Part two The Recognised Standard / www.cicm.com / July/August 2019 / PAGE 34
COUNTRY FOCUS AUTHOR – Adam Bernstein The state is heavily engaged in the economy with infrastructure projects involving power production and distribution, roads, rail, dams, airports and industrial parks. ETHIOPIA faces a number of challenges not least of which is sustaining positive economic growth and accelerating poverty reduction. Both require investment in job creation as well as improved governance. But challenges exist in terms of limited competition which isn’t helping manufacturing; the creation of jobs and the increase of exports; an underdeveloped private sector; and political disruption. The state is heavily engaged in the economy with infrastructure projects involving power production and distribution, roads, rail, dams, airports and industrial parks. There are a number of sectors that involve state-owned organisations in telecoms, banking and insurance, and power distribution. But one issue affecting development is that, according to Forbes and the CIA’s Factbook, under Ethiopia’s constitution, the state owns all land and provides long-term leases to tenants – land cannot be bought or sold. Any title rights that exist in urban areas, particularly Addis Ababa, are poorly regulated, and subject to corruption. The agricultural sector has historically been the engine of the Ethiopian economy, but it has recently given way to the service sector. The National Bank of Ethiopia notes agriculture, industry and services have contributed 36 percent, 25.6 percent and 39.3 percent to GDP respectively in 2016/17 as opposed to 36.7 percent, 16.7 percent and 47.3 percent, to GDP in 2015/2016. The agricultural sector’s share of GDP shrank by more than 25 percent between 2005 and 2016, while the service sector’s share grew by 27 percent during the same period. The service sector’s share started falling sharply in 2016/17 as manufacturing has risen in importance. Service sector growth is mainly driven by expansion in communication and transport services, hotel and restaurant businesses, as well as wholesale and retail trading. Commodities are important to Ethiopia. Coffee remains the largest foreign exchange earner, but Ethiopia is diversifying exports so that commodities such as gold, sesame, khat, livestock and horticulture products are becoming increasingly important. While manufacturing represented less than eight percent of total exports in 2016, this is expected to increase because of a growing international presence. Ethiopia attracted $3.7 billion foreign direct investment in the last financial year according to the Ethiopian Investment Commission. To support industrialisation in sectors where Ethiopia has a comparative advantage, such as textiles and garments, leather goods, and processed agricultural products, the country plans to increase installed power generation capacity by 8320 MW, up from a capacity of 2000 MW, by building three major dams and expanding use of other sources of renewable energy. It’s worth noting that Ethiopia has its own calendar year which features 13 months, 12 months with 30 days each and one month of five or six days depending on whether the year is a leap year or not. The Ethiopian calendar year begins on 11 September, which is the Ethiopian New Year. The government fiscal year starts on 8 July. Firms should consider this when organising visits to Ethiopia and when approaching the government to finance goods and services to ensure funding and appropriate approvals. The Recognised Standard / www.cicm.com / July/August 2019 / PAGE 35
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