Ethiopia continues to post healthy economic growth, attracting global investments particularly for large-scale, light manufacturing, says Zemedeneh Negatu, the managing partner of EY Ethiopia. The country’s low-cost labor pool could make it the new China – even beating out Vietnam and Bangladesh. Boasting double-digit average GDP growth over the past decade, Negatu says Ethiopia is an oasis of stability in an area with unstable pockets. It is also building the largest hydroelectric power dam in Africa to supply much needed electricity to a region with uneven access. “That’s why I say fundamentals will continue to drive growth,” Negatu notes.

An edited version of the interview follows.

Knowledge@Wharton: We just heard at the Wharton Club of Africa Summit the minister of finance describe Ethiopia as a land in a hurry to attract investment.

Why don’t we start by taking stock of how things stand in Ethiopia in terms of the potential for investment and how this is part of the larger story of Africa as you see it from your perspective.

Zemedeneh Negatu: Ethiopia is a country in a rush and trying to accomplish a lot of things in a very compressed timeframe. There’s good reason. If you go back, say, 12 years, it was an economy that was just muddling along. But since 2002 to 2003, it has almost like it has been supercharged. According to the World Bank, it has grown on average about 10.6%, 10 years in a row. The first few years, we started from a low base. But today, it has the fourth-largest GDP in Africa. Adding 10.6% to a GDP of $70 billion on a nominal basis — or $156 billion on a PPP (purchasing power parity) basis — it starts to become substantial.

I think that gives you a perspective of where it came from. But what’s more important for investors and others is where is it going and how is it going to get there. I think that is probably the more interesting aspect of the discussion. In my view, if it continues to focus on where it has both competitive and comparative advantages (for example, light manufacturing), on transformation of the agricultural sector, and on investment in infrastructure, then the growth forward is sustainable.

“Ethiopia is starting to become the destination of choice for large-scale, light manufacturing, in particular garments and textiles.”

Why manufacturing? This is a country of about 100 million people, a very young population, median age under 20. So you have deployable, available labor. But at the same time affordable. I think that’s the very important component. So, for example, the average monthly cost of manufacturing in Ethiopia is a third of what it is in China. In China, in the coastal areas, it’s up to $600 a month. In Ethiopia, it’s still around $80, maybe $100.

That will give Ethiopia a competitive and comparative advantage. For growth to be sustained, it has to be driven by fundamentals, not piggybacking on the commodity price supercycle because, when commodity prices collapse, what do you do? But if you’re driven by investments in agriculture and manufacturing, you build the infrastructure that is the engine block for the transformation. I’m very confident that the growth can be sustained [even though] there will be bumps along the way.

Continue reading this interview on Knowledge@Wharton
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