Hailemariam Bullish on Strong Economic Growth Despite Poor Sectoral Performance

Growth in the Industrial and Services sectors have not compensated, for agricultural losses due to unfavourable weather conditions

Prime Minister Hailemariam Desalegn was unbending in his assertion that the Ethiopian economy is expected to register a strong growth of 8.5pc this year, despite falling agricultural productivity and disappointing export earnings.

Although meher (June to August) production declined in some parts of the country following the El Niño phenomenon, better rains during the belg (March to May) season led to increased harvest, he told the MPs on July 5,2016’s session.

“Agricultural output during the 2014/15 meher season was better than last years, but improved 2016 belg rains saw outputs rising by seven percent,” argued the Premier. “This rise impacted the entire sector, triggering a three percent growth in the same year, injecting a one to one and a half percent contribution to the overall Gross Domestic Product (GDP) of the country.”

Agriculture is still crucial, though it no longer boasts the lion’s share of GDP contribution, curtesy of a vibrant services sector. Last year alone, it had more than a 38pc share of the GDP. Growth in the agricultural sector is intricately linked with the economic growth of the country, not just owing to agriculture’s production output, but also cognisant of the fact that it provides employment for close to 70pc of the population.

This year’s three percent growth is significantly lower than last year’s 6.5pc growth and 2013/14’s 5.4pc, government reports show. The triple effects of months of failed rains, the El Niño phenomenon and impacts of climate change have drastically reduced agricultural productivity in the country, according to Oxfam. Some areas reported 50 to 90pc crop failure in the meher of 2015, putting the food security of millions of people in jeopardy, but also pulling the breaks on the pace of the country’s overall economic growth.

The environmental hardships faced by the agricultural sector resulted in a 40pc decline in productivity across the four grain-producing regions of the country – Amhara, Oromia, Tigray and the Southern Nations, Nationalities and Peoples Region – according to an assessment conducted by the Ethiopian Red Cross Association, a few months back.

The government has so far allocated around 800 million dollars, from its own coffers, to provide humanitarian assistance to the people affected by the natural disaster. While a noble deed, some claim the re-allocation of funds is putting strain on the government, which already has a wide-ranging public spending programme stimulating growth in various sectors of the economy.

While it may not be the dominant sector in the economy, agriculture is the most important in the country’s capacity to earn foreign currency through exports. It supplies most of Ethiopia’s export commodities, which are often primary goods, with little or no additional value. However, earnings from exports were also hit hard during the current fiscal year.

Data collected up until the third quarter of the current fiscal year shows an alarming decline in Ethiopia’s exports, Abdul-Aziz Mohammed, Minister of Finance & Economic Cooperation, told MPs in June. Exports in the current fiscal year saw a 6.5pc decline compared to the previous year, with just over two billion dollars collected from the sector. Falling productivity and a slowdown in the global economy which led to a decrease in demand for commodities, are to blame for the poor performance, he noted. There is also a concern over trade imbalances, with the country’s imports outdoing its exports by more than 10pc within the same period.

Considering the productivity shortfalls registered by the various sectors of the Ethiopian economy, the International Monetary Fund (IMF) has a rather subdued projection rate of growth for 2016. In its World Economic Outlook 2016, IMF projects a substantial decline in the growth of the economy – from 10.2pc in 2015 to 4.5pc in 2016. It lists drought as the main factorslowing Ethiopia’s economic progress.

The Prime Minister told MPs, however, that although his administration’s and IMF’s projections on the growth rate were unusually on par (except for the glairing 4-point difference), he is confident about the resilience of the economy to weather the shocks caused by the unfavourable weather. He also noted that the services and industrial sectors registered a seven percent growth this year.

“The Primer’s growth projections are unrealistic and hard to buy,” a senior macro-economist, who spoke on the condition of anonymity, told Fortune.

His argument takes into play various factors actually show that the country’s economy is slowing down. Rising imports, substantially falling agricultural productivity, declining exports, continuing power outages that affect industries and a diminishing forex reserve have had a negative impact on the country’s economy. Better performance of remittances in the services sector and the falling price of oil in the global commodity market have helped the Ethiopian economy to some degree, he noted, but not to a point where it can compensate the losses incurred in other sectors. Given the global economic stagnation, however, the economist underscored that even a 4.5pc projected growth is a remarkable achievement.


Published on Jul 12,2016 [ Vol 17 ,No 845]



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