Public spending propels Africa's fastest growing economy Ethiopia

By Staff Writer

Feb 06, 2016 03:55 AM EST

Ethiopia is leading the group of fastest growing economies not only across the African continent, but also in the world. Ethiopian economy is growing over 8 percent annually. The encouraging growth of Ethiopia assumes significance in the wake of sluggish global economy amid drop in commodity revenues and currencies.

Ethiopia, the East African country, registered 8.7 percent economy growth for 2015 and is poised to grow at 8.1 percent for 2016, according to International Monetary Fund (IMF). Only Papua New Guinea grew 12.3 percent in 2015 among the world economies. Several African nations are suffering from falling revenues in commodities and weaker currencies. 

Bloomberg reports that the main driver of the economy is the government. Ethiopia's exports are in limited range when compared with its African peers. Ethiopia's currency Birr is able to retain its value despite sluggish global economy. Ethiopian government is spending heavily on infrastructure projects and this is the key driver of the economy.

When everything is going well, environmental issues pose a major challenge. El Niño dried up the rainfall. The country is facing very bad drought as it was in 1984. The farmers are suffering from crop loss and livestock death. The Ministry of Agriculture is distributing food to rural people. The government already spent over $380 mln (£260mln). 

According to a report by BBC, Ethiopia has been doing well for 15 years and it's the world's fastest growing economy. Why it needs international funding when drought conditions are hitting hard. Millions of Ethiopians have come out of the poverty clutches as economy is flourishing. This is propelling business investments as well.

The State-owned companies are playing a vital role in economy growth. The public sector companies such as the Commercial Bank of Ethiopia, Ethio Telecom and Ethiopia Electric Power contributed 70 percent to the capital investment during the past three years. The total investment was recorded at Birr155.2 ($7.3 billion). 

Ethiopian economy is attracting investments from the US and other African nations. The latest initiative 'Doing Business in Ethiopia' is giving more insights into economy for foreign investors. Industry experts advised Ethiopia to develop human resources and focus on education, as per a report in All Africa.

Getachew Teklemariam, an independent economist based in the capital, Addis Ababa, said: "The fact is that much of the spending is on capital projects. It is unimaginable to think of Ethiopia as one of the fast-growing countries in the world without government spending."

Ethiopian government is keen on infrastructure development including industrial parks, sugar factories and power lines. Since the collapse of military rule in 1991, the Ethiopian government is leading the economy development continuously. The ruling coalition won entire 547 federal Parliament seats in the elections held in 2015. 

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