The severe structural imbalances in Ethiopia’s economy must be addressed, as the events of 206 have indicated, to sustain strong growth over the long term.

By Emma Gordon (African Business Magazine) |

In October 2016, the International Monetary Fund (IMF) announced that Ethiopia would overtake Kenya as East Africa’s largest economy, after posting average growth of 10.8% over the last decade. However, recently, it has become uncertain if the East African country can maintain this level of growth because of a series of shocks in 2016, which have harmed Ethiopia’s economy.

The IMF estimated growth would fall to 6.5% in the third-quarter of the year, in large part due to the drought that has hit the core agricultural sector hard. The final figure is expected to be lower still, following the recent wave of anti-government protests that have swept across large swathes of the country.

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This year has highlighted the medium-to-long term growth risks within Ethiopia’s economy, which is still driven by public sector spending. The creation of various infrastructure projects will support an increase in foreign investment, but further growth is needed in key areas such as manufacturing and mining. These sectors are likely to take up to a decade to become significant contributors to GDP, and until then, the economy remains unbalanced.

Disruptive Protests

Since November 2015, anti-government protests have rocked Oromia region, which encompasses central and western Ethiopia, and the sometimes violent demonstrations spread to Amhara in the northern and central highlands in August 2016. Protesters attacked foreign assets, including in agribusiness, cement and textiles sectors; while some Ethiopians also held work stoppages, strikes, and boycotts of government-related companies. A number of Western countries have issued travel alerts that have had a dramatic impact on the country’s growing tourism industry. Tourism accounts for 4.5% of GDP in 2015, but the expected rise over 2016-17 will not now materialize.

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