Why Ethiopia’s Economic Take -off Will Slow Down

Published on 10th December 2019

According to W.W. Rostow, Rostow (1960), economies pass through some identifiable stages of economic development. Regardless of one’s faith in the strict sequence and parameters of the theory, Ethiopia was approaching or at least putting the pre-requisites for what Rostow called an economic take off. In the Ethiopian case, this can be seen in the various investment initiatives in basic industries (including Industrial parks), the expansion in infrastructure (utilities, roads and railways, for instance), the huge progress in social indicators (health, education) and a double digit economic growth registered until 2018. All the developments in Ethiopia clearly suggest the beginning of the take off stage in which Ethiopia was about to embark on the ‘promised land’ of joining the middle-income countries by 2025. Among the many building blocks was the infrastructure for generating enough electric power that could jump start, support and sustain such economic growth.

Let me dwell on the the prospect of completing the Renascence Dam and joining the Middle-Income countries soon.

As many previous observers note, the Renascence Dam is far more than a source of electric power for Ethiopians. It is an iconic project that unites all Ethiopians (regardless of ethnicity, religion, and generation) and stimulates their pride and future hope. Electrification is a pre-requisite for an economic take off or restructuring the economy towards the industrial phase. According to preliminary estimates, its contribution to the domestic and regional economies was estimated to be substantial. Its potential contribution as a source of foreign exchange, fish production and limited irrigation was also presumed to be significant.

However, Ethiopia has a formidable foe in completing this Dam as has been witnessed thus far. This foe is smooth on the outside but rough on the inside with many tentacles that both scratch and kill thanks to its friends in high places and well-choreographed history. To be blunt, Egypt’s insistence on maintaining a forceful colonial agreement which was unfair, illegal and disproportionate in the distribution of waterflows is putting the prospect of a peaceful completion of the Dam complicated at best and uncertain at worst.

Despite showing some deceptive flexibility, it goes one step forward when its unfairness is exposed but goes two steps back when it thinks the balance of power is in its favor. In short, it has refused to play fairly on the basis of a mutual benefit (or win-win solution) to all. Its position of sharing the flow of water is based on a rigid outdated privilege it was accorded by a colonial regime which Ethiopia was never signatory to.

Let me recoup few points related to the opportunities offered and the provocation initiated by Egypt:

a. All Ethiopian Authorities (beginning PM Meles who initiated the project to current leaders) attempted to convince Egypt that they have no intention of hurting Egypt or Sudan by building this Dam; they even went out of their way to go to Egypt to explain to Egyptians why and how the Dam will not negatively affect them

b. Ethiopian authorities were doing this while still Egypt was supporting and arming every Ethiopian opposition political group it could think of destabilizing the country (including those who are now invited to Ethiopia to be king makers by the current Ethiopian government);

c. Egypt wants to apply a colonial rule agreed between British subjects in the 19th century excluding the country from whom the water flows but never was part of that agreement, Ethiopia. Since Ethiopia was not a British colony, what governs any cross-border rivers is current international law and not what the colonial powers enacted to water their cotton production during the colonial era

d. Egypt is bent on exploiting the Dam to calm its domestic political unrest, create havoc in Ethiopia by supporting all opposition groups and countries (Eritrea for instance) hoping to sabotage the Dam; its support to neighboring countries including establishing military bases in Eritrea and South Sudan and its sinister motive to create havoc in Ethiopia are two glaring examples. The recent purchase of huge and very advanced military arsenal from Russia to threaten and possibly bomb the Dam and its diplomatic mobilization using the Arab League to warn Ethiopia to adhere to Egypt’s demands are recent moves in that regard

e. Egypt has started to internationalize the issue of the dam. Ignoring the African Union and regional organizations, it has started to appeal to the US government and the world bank to be part of a mediation effort. Unfortunately, the Ethiopian government agreed to go along and the current foreign minister of Ethiopia seemed happier to be photographed with Mr Trump than what Egypt’s maneuver and the national interest implied; to believe that Mr Trump will be a neutral mediator, a person who  has probably broken a world record for lying and lack of trust even to his rich allies let alone to Ethiopia or Africa in general which he called S….countries is a cruel joke

f. In sum, given the domestic political and social environment in Ethiopia and Egypt’s aggressive and unfair recent stance, the prospect of completing the project as initially planned is becoming uncertain; What further strengthens this view is, despite the repeated pronouncement that no external body will be involved except Egypt, Sudan and Ethiopia to settle their issues, the new twist to involve the US government under Trump who could easily be persuaded by adulation and his intrinsic bias towards Sub-Saharan Africa (SSA) and the current Ethiopian prime Minister’s past history and obsession to please all at any cost is a bothersome development. The already announced reduction in the number of turbines in constructing the dam, the time it is taking to register noticeable progress, the Ethiopian government’s insignificant attention paid for such a pivotal project built by the unbelievable sacrifice of the poor, and more importantly the current PM’s policy shift and questionable loyalty for national interest does not offer confidence that it will be completed anytime soon, if at all.

The second issue that has been the source of hope and an inspiration to the people who have been ‘dealt an unfair hand’ is the hope of breaking this misery and joining the Middle-Income countries soon. An improvement in a country’s national income (which the status simply indicates) is necessary but not a sufficient condition that their lot will change. For Ethiopians who know the depth of their poverty but who have never been told otherwise by both their leaders and donors that Ethiopia will become a middle-income country before is, however, music to their ears. This gave them hope and a belief that there is light at the end of the tunnel, after all. Politicians know this and have repeatedly announced it in their speeches.

Those who are supposed to know the current state of the Ethiopian economy are silent probably not to be on the wrong side of the government’s media campaign. Their silence when there is no justifiable reason why profitable state enterprises are in the process of being privatized is also a case in point. 

Is the hope of joining the middle- income countries any time soon dashed or delayed? If so, by how long? To answer these questions, it is important to recoup how this narrative started and the assumptions that led to the prediction that Ethiopia will join the Middle-Income countries by 2025. Let me briefly state the current state of the Ethiopian economy relative to some of the main assumptions used to reach the conclusion. In sum, observing these two scenarios, one could easily conclude that the hope of reaching at that stage is slipping away. Let me explain:

1. The current state of the Ethiopian economy:

-  Inflation is double digit and is about to get worst due to the exchange rate shortage caused by stagnant export sector and heavy dependence on imports even for basic items and intermediate inputs;

- GDP growth has been declining from around 10% until 2017 to around 7% in the last two years; and IMF forecasts indicate Ethiopia’s economic growth will not exceed 7%, at least until 2024.

- Debt to GDP ratio has reached in excess of 60% and still climbing - more than half is external debt;

- With these weak fundamentals and the bursting population pressure and the implied huge unemployment, the prospect of the economy significantly turning around to achieve that goal is weak at best or unlikely at worst if the forecasts hold.

2. But the bases of the prediction are much rosy:

- The crucial assumption (among many) that Ethiopia will join the middle-income countries by 2025 was that the economy will, on average, continue to grow by more than 11.3% per annum. This was the assumption of the best-case-scenario initially suggested in 2008 by this author and later adopted by the Ethiopian Ministry of Finance;

- The assumption for the worst-case scenario was for the economy to grow at 6.3%; hence the actually realized and forecast data is closer to the worst-case scenario than the best-case scenario. According to the worst-case scenario, Ethiopia will likely join the middle-income countries not by around 2025 as the best-case scenario predicts but by the worst-case scenario which is about a decade later.

-  In fact, even the assumptions attached with the worst-case scenario have not incorporated the current developments in the country. These include: political turmoil, destruction of private enterprises and the implied negative investment climate, the disintegration of law and order and the overall political friction among various sectors of society.

These suggest that even the likelihood that Ethiopia will join the middle-income countries by 2035 is a daunting task let alone by 2025. One might ask, what is waiting for ten more years after living in poverty for eternity? Whatever the merit of that argument, such a delay just destroys the hope and prospect for millions that were told there is hope at the end of the tunnel since no light is visible!!!

By Haile Kebret

[email protected]

Courtesy: Aiga Forum

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