Ethiopia is undoubtedly the economic powerhouse of the Horn of Africa. Since time immemorial, economies have experienced growth as indicated by Gross Domestic Product (GDP), Gross National Product (GNP), and per capita income.
Growth projections are one of the key indicators of a growing economy. In this regard, Ethiopia shows tremendous progress and promising trends. However, both foreseen and unanticipated factors came into play to change the pattern of growth rates. Considering the war between Tigray and Ethiopia and her COVID-19 pandemic, some obstacles to Ethiopia’s awakening as an economic powerhouse become visible.
To assess how far a country has come, it is imperative to look at key growth indicators and the Human Development Index. It’s good to ask yourself how this country is aligned in terms of investment, gross domestic product, consumption, international trade and stability. These factors play an important role in determining the Human Development Index (HDI). Ethiopia’s HDI is growing slowly but consistently, which is encouraging.
Instead of focusing too much on what the country is doing, we must ask ourselves what we can do to improve our economy. What strategies can be adopted to ensure growth?
horrific trade imbalance
A trade imbalance, also known as a trade deficit, occurs when a country imports more than it exports. This means that countries are spending more on purchasing while reducing their income from selling products to the outside world. The trade deficit is what Ethiopia has to fight.
At this time, most of the country’s high-value commodities are imported from other countries: machinery, vehicles, fertilizers, iron, and ironically grains. On the other hand, we export coffee and leather products. From this list, we can always see that while the economy spends a lot on purchasing, the income generated from exports does not equal purchasing spending.
Trade imbalances essentially result in less job creation and more unemployment, ultimately hurting the economy. Minimizing imports does not mean abandoning basic commodities. No, it means they are creative enough to produce what they can and substitute some imports. It will be.
Creating jobs and fighting unemployment
The relationship between economic growth and employment remains complex. However, many studies have been done to explain how they correlate. Moreover, theories have been advanced to emphasize their connection.
According to the Keynesian multiplier theory, named after British economist John Maynard Keynes, people have money to spend and businesses thrive when they are employed. Ultimately, business growth creates more jobs and leads to economic growth.
In 2021, studies show that around 2.07 million people were unemployed in Ethiopia. That number is likely to rise to 2.35 million by 2022, and more. Employment opportunities through formal or informal employment have a positive impact on Ethiopia’s economy. Because jobs and job creation reduce crime rates, a major enemy of economic growth in African countries.
Improving access to finance
With unemployment rising in many African countries, it is important to give people the tools they need to find work. One way he does this is by empowering them financially and supporting courses and innovation.
To support small and medium enterprises, Ethiopia’s economy needs to make money easily available to those who do not have access to it. This means providing credit and loans to people at affordable interest rates and helping women, youth and people with disabilities. By providing people with credit, governments empower them to be more creative, create jobs, and give them the leeway to actively contribute to economic growth.
Promotes an entrepreneurial culture by providing incentives to attract venture capital investors, encouraging equity, and financing companies with performance-based loans. This is one of the things the government should consider.
Ease of doing business index
Ease of doing business refers to starting a business in the country. The index takes into account many factors such as business registration, licenses, compliance and tax payments.
When a country makes it easier for companies to do business, it attracts foreign investment, fosters innovation, and ultimately creates jobs for its own citizens. In the 2020 ranking of countries and ease of doing business, Ethiopia ranked 168th out of 190 economies. In the long run, this could discourage investors, make it harder to create jobs, and stunt economic growth.
Ease of doing business should also be considered. Let requirements and compliance be easy to attract investment while policies are relaxed and welcoming.
One of the most interesting things I’ve seen in global markets is how developed, developing, and underdeveloped countries do their trade. Developing countries like Ethiopia mainly export coffee and leather to other countries. Once that is done, the country that receives the coffee adds value and sells it to other countries at a higher price.
If Ethiopia can find the means, it can export more sophisticated products that add value, sell at much better prices, and spur economic growth.
Much more can be done for Ethiopia’s economy. It is a sleeping giant with enormous potential, and with the right policies and measures, it could push its limits and rank among the best in Africa and beyond.
Shana Gourdine works at the Meklit Wisdom Center.