Ethiopia’s economy is likely to grow 7 percent a year over the next three to five years, below its average of the last decade, and to push that rate higher, the government needs to change policy to encourage private investment, the World Bank said. While 7 percent GDP growth would be the envy of finance ministers in Western economies, it would fall short of an average rate of 10.6 percent that Ethiopia said it achieved in the last 10 years with its state-interventionist policies.
It would also be insufficient to meet Ethiopia’s target of reaching middle-income status by 2025. The bank says that goal is still within reach, however, if the government shifts the balance from public to more private investment. “We still think growth could be robust – in the order of 7 percent in the medium term would not be unexpected,” said Lars Christian Moller, the bank’s lead economist in Ethiopia, in an interview on Monday. The World Bank estimates Ethiopia’s economy grew 7 percent in the fiscal year July 8, 2012 to July 7, 2013, below the government’s 10 percent estimate.
Moller said Ethiopia’s $43 billion economy would need to repeat its performance of the last decade to become a middle income country – defined by the bank as one with a gross national income (GNI) per capita of around $1,430 – in 12 years. The World Bank put Ethiopia’s GNI at $410 in 2012. Ethiopia is banking on massive state-supported energy and transport projects to help transform its agrarian economy. Infrastructure spending required financing equivalent to 19 percent of Ethiopia’s GDP in fiscal 2011-2012, the World Bank estimates. But while public investment in Ethiopia is the third highest in the world as a percentage of GDP, private investment is the sixth lowest.