Without much notice,agriculture recently ceased to be the largest sector in the economy for the first time in Ethiopia’s history. This heralds a major structural transformation of the economy and we forecast that the services sector—which covers real estate, hotels, transportation, communication, banking, health and education—will make up more than half of Ethiopia’s GDP in just two years time, a development with many implications and opportunities for Ethiopian business.
That is Access Capital‘s take on the Ethiopian macroeconomy in 2010-11. Access is our partner on the factory study I’ve mentioned before. If their 6-8% growth forecast is correct, the economy should double in size every decade. Read the full, excellent report.
Here’s a few added thoughts, with the clear caveat that I’m a microeconomist with a mere six months experience in the country:
Labor looks promising. Skilled workers are relatively abundant, and real wages look less distorted than those of its neighbors.
With 80 million people, this is one of the only African nations with a large internal market. Poor infrastructure and expensive transport will cut both ways: it gives natural protection to local producers (remember that big internal market) but limits what you can export to the other 6 billion people on the planet.
The shallow financial sector–there is virtually no commercial credit for midsize firms–will be a big barrier to business growth. The government is very cagey about financial liberalization
But the big risk, for me, is succession. The Prime Minister claims he’s going to step down in five years, but we’ve heard that from him before. Like Kagame and Museveni, I doubt he is leaving anytime soon. While the drug trade worries me most in West Africa, in East Africa I worry about the leaders with endless terms and no plan for succession.
It’s a now familiar story. The leader is convinced he’s the only person to lead the country, and the opposition’s ideas or corruption pose a danger to the nation. We see this instinct everywhere–the main difference between a US leader and an Ethiopian one is that the former faces institutions and norms too formidable to subvert.
To hang onto power, the leader must undermine institutions, even his own party, and personalize power. His fear that he is the only man to run the country becomes self-fulfilling, for the cabal and not the greater institution is what holds the state together.
That’s not a climate one invests in.