Ethiopia: Old civilization, Africa s newest opportunity?

Transcription

1 Ethiopia: Old civilization, Africa s newest opportunity? Facilitator: Herman Warren, Network Director 27 October

2 Agenda Introduction HE Mulugeta Kelil, Ethiopian ambassador to South Africa Networking break Ethiopia overview and analysis, Herman Warren, network director, ECN An outsider s view from within, Guang Zhe Chen, country director, The World Bank Closing 2

3 Introduction 100 million population Only country in Africa to avoid colonisation Landlocked Fast growing economy Targeting to become middle income country by

4 Outlook for The ruling Ethiopian People s Revolutionary Democratic Front (EPRDF) will continue to dominate the political scene Financing pressures will pressure the government to make more market orientated reforms, although we expect that the administration will seek to defer this during the forecast period in favour of increased borrowing We forecast real GDP growth will average 6.8% a year in Inflation will average 8.7% a year over the period, although will be higher earlier in the forecast period due to unfavorable weather conditions The government will continue to seek to use managed devaluation of the Birr to maintain export competitiveness The current account deficit will narrow to 5.2% of GDP in 2015 owing to a lower oil import bill, but high demand for capital goods will lead to an average of 7.3% of GDP a year in

5 Risk report (1 of 2) Sovereign Ethiopia issued a debut dollar-denominated bond, worth US$1bn in Dec 2014 to help finance infrastructure development, and is likely to issue another bond towards end of forecast period Currency Authorities will continue their policy of gradual depreciation of the birr, although sharp downward adjustments remain possible Ø Low foreign exchange reserves Ø Twin fiscal and current-account deficits Banking sector Banking sector is well capitalised overall and non-performing loans stand at around 2% Banks overall liquidity ration is just above the 15% minimum requirement, structural constraints on lending the lack of credit-assessment agencies will remain a significant problem 5

6 Risk report (2 of 2) Political Ruling alliance scored substantial victory at the polls in May, although the improbable scale of victory has underscored doubts about the democratic process. Strength and loyalty of the security forces and the weakness of the opposition suggest that national unrest leading to the overthrow of the government is unlikely Economic Rain-fed agriculture is the main source of employment and export earnings, which make Ethiopia vulnerable to weather shocks. Reliance on commodity exports and aid for foreign exchange exposes the country to external risks International relations Ethiopia relative stability and role in the volatile Horn of Africa will cement its position as the key Western ally in the region, while leaving it open to potential attack by terrorist groups such as Somali-based al-shabab The protracted border dispute with Eritrea is likely to remain at an impasse 6

7 Policy trends: Economic Economic The Growth and Transformation Plan (GTP) II- the successor economic development programme to the government s ambitious GTP- will run from 2015 to 2020 Authorities will seek to adhere to the current state-led economic model, but it is questionable whether domestic financing will be able to fulfil its requirements Government s targeting FDI of more than US$8bn over the period of GTP II Restrictions on foreign participation in key economic sectors are likely to be retained Development of industrial zones offering foreign investors in non-restricted sectors tax incentives will continue 7

8 Policy trends: Fiscal and monetary Fiscal Ethiopia expected to run fiscal deficits Under the budget for FY2015/16 spending slated to total Birr223.3bn (US$10.8bn) up by nearly 20% on the prior year. Nearly 40% will be on capex In keeping with the government s long-term focus on development, the government plans to spend Birr32.9bn on education, up by more than one-third on the 2014/15 total Funding of the budget remains a concern. Tax revenue as a proportion of GDP remains well below the Sub-Saharan average of about 20%, at less than 13% Monetary The National Bank of Ethiopia (NBE) has adopted a tight monetary policy stance so as to keep inflation in single digits Inflationary pressures are building and are likely to increase still further if the El Nino weather phenomenon occurs in as is currently forecast NBE has made relatively little progress in improving liquidity management and the functioning of the money and forex markets 8

9 Real GDP growth P Source: Economist Intelligence Unit. 9

10 The role of agriculture Source: Economist Intelligence Unit. 10

11 Gross fixed investment Source: Economist Intelligence Unit. 11

12 Logisitc performance 12

13 DFI sourced infrastructure funding 13

14 Q&A 14

15 Inflation P Source: Economist Intelligence Unit. 15

16 Exchange rate index: LCU:US$(av) P Source: Economist Intelligence Unit. 16