Why Ethiopia has the potential to become Africa’s China


Ethiopia has an ambitious short-term plan of making the country a lower middle-income economy by the year 2025. That plan involves moving its economy from agrarian economy to an industrial one. The country has put up actions to march those plans, the country is already busy lobbying to get international investors to set up their manufacturing and industrial shops within the nation.

It is safe to say those efforts to attract foreign investors has bared fruits. As the country is currently ranked the seventh most attractive investment destination in Africa according to a report by the Africa Investment Index (AII) 2018.

Ethiopia has several factors working to its advantage that makes it somewhat comparable to China. For one the country has a massive population exceeding hundred million people; that means it has access to affordable labor. The country is also close to major international market, rapidly improving infrastructure, conducive policy environment, a rapidly growing economy, and a favorable FDI destination.

There are also a number of multinational companies that are choosing Ethiopia as the country of choice to set up their African base. These companies come from countries such as China, India, and Turkey. There is also a considerable number of American and European countries which are also relocating to the East African nation. Ethiopia has also become a conducive home to industries within the textile, apparel, and shoe business.

The IMF forecasts say Ethiopia economy will grow by 8.5% in 2019, and the country could very well retake its place as Africa’s fastest growing economy. The IMF further says Ethiopia registered an average of 10% economic growth over the last ten years. The IMF is confident that the sustained economic growth coupled with strong performance in the coming years, the outlook of Ethiopia’s economy going forward looks positive.

Political Instability

While Ethiopia has been hitting the right keys as far as its economic development and attraction of foreign investors, it has also been experiencing political unrest, particularly in the past three years. Though the recent election of the new Prime Minister Abiy Ahmed, who seems to enjoy the widespread support now gives the country a sense of unity.

Hopefully, the political storm will subside with the new Prime Minister in place, and Ethiopia could well be on its way to establishing political stability once again. Should that be the case, then the economy is expected to grow rapidly as already, many international investors are pleased with the economic outlook of the country.

Recently, CNN launched a report titled ‘Ethiopia is now Africa’s fastest growing economy.’ Another report released by Vijaya Ramachandran, an economist at the Center for Global Development (CGD) attributes the country’s rapid economic growth to the government’s efforts to bolster industrial production and manufacturing. Ramachandran and three other academics believe “Ethiopia can follow in China’s footsteps, and become a destination for low-wage manufacturing jobs.”

The economists’ report classifies Africa’s economy into three income levels:

Solidly Middle-Income Countries: This group includes Botswana and South Africa, which are characterized by very high labor costs and capital-intensive

Low and Lower-Middle Income Countries: Made up with countries like Kenya, Tanzania, and Senegal. These countries have a relatively stable economy with active business sectors. They also have relatively costly labor even when compared to Asian countries like Bangladesh.

The third group consists of countries at the very low end of the income spectrum, so poor that there are almost no real comparators. Countries such as DRC, Ethiopia, and to a lesser degree, Malawi, are said to fit in this group. However, the report dismisses DRC and Malawi as having any real prospects, and that is attributed to the failures of the governments to set up a conducive political environment to see meaningful economic growth.

The report asserts that Ethiopia has the real potential and traits to become the next China within the African economy. Below is an excerpt from the report:

Though landlocked, it (Ethiopia) has been moving towards easing logistics constraints through road and rail connections; it also has good air connections. It benefits from a stable administration that sees the manufacturing as a central part of its growth strategy. It also benefits from generally low costs. As measured by Purchasing- Power Parity, the general level of prices in Ethiopia is below the level in India and comparable to that of in Bangladesh. The firm surveys also suggest comparable levels of labor costs and a similar WEF Global Competitiveness ranking despite its far lower income level.

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