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Posted on Friday, 20 November 2015 11:00

Ethiopia Country Profile 2015: Successes and strains in the balance

By The Africa Report

altThe year ahead promises some key reckonings for the government of Prime Minister Hailemariam Desalegn.

Federal elections in May will be a test of its popularity and its commitment to political transparency. July marks the end of a national Growth and Transformation Plan (GTP), which has had officials scrambling to meet ambitious economic targets since 2010.

And in December 2015 comes the deadline for the Millennium Development Goals, which has Ethiopia vying with other countries to make the most progress in spheres including healthcare, education and poverty reduction.

At the polls in May, Ethiopia hopes to overcome an electoral history fraught with controversy. Federal elections in 2005 erupted into deadly violence after the Ethiopian People's Revolutionary Democratic Front (EPRDF) came away with a highly contested majority. The vote in 2010 was largely peaceful, but EU observers criticised the uneven playing field and lack of transparency.

A UN electoral-needs-assessment mission will be lending a hand, but concerns remain over the transparency and the independence of the national electoral board.

Uneven playing field

There are few indications that the EPRDF is in danger of losing its overwhelming majority. Of 547 seats in parliament, only one is currently occupied by an opposition party member.

Unity for Democracy and Justice – the largest party within Medrek, Ethiopia's largest opposition coalition – is working to present a clear policy platform. Its leader, Gizachew Shiferaw, expects the political playing field to be just as uneven as before.

Criticism of the ruling party – from within Ethiopia and abroad – continues to plague the federal government, led by Hailemariam since the death of Prime Minister Meles Zenawi in 2012.

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The arrests of nine bloggers and journalists, who were charged in July 2014 under the country's broad anti-terrorism law, were widely condemned.

International criticism also followed the July arrest of Andargachew Tsige, a British citizen passing through Yemen, who had previously been sentenced to death in absentia for leading Ginbot 7, an exiled opposition party described as a terrorist organisation.

Despite these concerns, Ethiopia – a Western ally long considered a bulwark against volatility in the Horn of Africa – has strengthened its reputation as a key diplomatic player due to its chairmanship of the Intergovernmental Authority on Development, mediating the fitful peace talks between warring parties in South Sudan.

Ethiopian soldiers remain integral to the ongoing fight against Al-Shabaab in Somalia. The country formally joined the AU peace-keeping force there in late January 2014.

State-driven economy

Ethiopia is unlikely to meet all of the targets of the GTP, but it can still boast of considerable progress. The country enjoys one of Africa's highest economic growth rates. The economy remains heavily state driven even though officials accept the need for a stronger private sector.

State-owned companies are pursuing ambitious projects: the Ethiopian Electric Power Corporation is overseeing construction of the Grand Ethiopian Renaissance Dam, set to be Africa's largest hydropower project; Ethio Telecom is working to unveil a 4G mobile phone network in Addis Ababa; and the Sugar Corporation is continuing its efforts to build 10 new factories by the end of the GTP, with an eye to become a top world sugar exporter.

The government argues that these projects will ultimately crowd in private sector growth, but its giant enterprises show glaring deficiencies.

Telecommunications are still unreliable. Electricity is scarce in rural areas, and urban dwellers deal with frequent outages. Sugar production has yet to meet even domestic demand amid delays in factory construction.

Furthermore, the state-owned enterprises' high levels of debt – much of it to the state-owned commercial bank – have concentrated risks in state accounts, making the growth of an independent private sector all the more crucial.

The government had planned to join the World Trade Organisation in 2015 but may delay the decision because it would be expected to liberalise its banking and telecoms sectors.

The government welcomed its first sovereign credit ratings from global agencies in 2014 – a B1 from Moody's and B ratings from both Fitch and Standard & Poor's – which could open the door to international capital markets and should help to attract foreign direct investment.

Currently, the bulk of foreign financing comes from China, which has committed hundreds of millions of dollars in loans to assist the state-owned corporations' mega-initiatives, as well as projects like roads, bridges and railways.

A World Investment Report released by the UN Conference on Trade and Development in June 2014 found that Ethiopia had become Africa's third-largest recipient of foreign direct investment, with a burgeoning but still small manufacturing industry beginning to attract more overseas investors despite difficulties with red tape and trade logistics.

Investors will be paying close attention to Ethiopia's intentions in 2015, when the government unveils its aims for the successor to the GTP.

Targeting poverty

Compared to other developing countries, Ethiopia's economic growth has been fairly inclusive.

Though about 30% of the population still lives on less than $1.25 a day, the country has made real progress on the Millennium Development Goals.

The UN says the country is on track to meet its aims in reducing poverty, improving access to education, reducing child mortality and combating
HIV by the end of 2015.

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The government raised civil servants' salaries in July, with wages increasing by as much as 46% for the lowest-paid workers. The measure affects about 1.3 million people, many of whom had been subsisting on about $21 per month. Still, the move has raised some concerns about inflation, which the government is keen to keep in the single digits.

About 80% of Ethiopia's 94 million people work in agriculture, and the government has been trying to increase harvests by promoting sales of higher-yielding seeds, initiating a nationwide soil-mapping system and constructing new fertiliser blending facilities.

Agricultural output is healthy, though export revenues are down due to falling international commodity prices, especially since Ethiopia has a long way to go towards the production of value-added products. 

Massive land leases to commercial farmers remain controversial. Because of seasonal flooding and poor planning, investors like Saudi Star, owned by Ethio-Saudi billionaire Mohammed Al Amoudi, and Karuturi Global, an Indian corporation, have fallen far behind schedule in their attempts to cultivate lands leased from the government.

Cities, rather than farms, are driving Ethiopia's economic growth. Urban areas continue to develop at a breakneck pace – especially Addis Ababa, where roads, buildings and a new light rail system are under construction. 

But a new master plan for infrastructural development erupted into controversy in 2014. It envisaged municipal projects extending beyond the capital city and into lands administrated by the surrounding Oromia National Regional State.

The master plan became a rallying cause for dissidents who complain that the government is dominated by northerners, and protests at several universities, both within the capital and throughout the Oromia Region, led to clashes between demonstrators and security forces. At least 11 people lost their lives.

Under construction: hydropower on the grand scale

Scheduled for completion in 2017, the Grand Ethiopian Renaissance Dam will be the largest hydropower plant on the African continent.

Controversy was inevitable because the dam sits on the Blue Nile, with Egypt worrying that it would impede downstream flows.

Strong rhetoric and technical disagreements brought the two countries to an impasse in early 2014, but the may election of Egypt's President Abdel Fattah al-Sisi heralded a new era of cooperation.

Stalled ministerial meetings resumed in late August. Apart from a $1bn transmission line being financed by China, Ethiopia is funding the project independently at an expected cost of more than $4bn.

A public mobilisation campaign rallied funds from Ethiopians at home and abroad, and the state-owned utility Ethiopian electric power is funding the rest with its own revenue and loans from the state-owned commercial bank.

Economists are concerned that the project could limit access to private credit in a country that already has the world's sixth-lowest private investment rate as a percentage of gross domestic product, but the government argues that the benefits – including revenues from exporting excess energy to neighbouring countries – will be well worth the sacrifice.



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