The Current Development of Ethiopian Economy and Its Future

As the son of Ethiopian immigrants, it pains me to see what is currently being implemented in the country’s economic plan. The current plan is trying to dig the country out of its debt, but in fact, it is digging the country deeper into it. This counter-intuitive action is done through the decision that Ethiopia should rely on buying imports for an infrastructure-led economy instead of building an economy that relies on the country’s rich resources. Leulseged Lemma, a well-respected Ethiopian economist, said, “Because infrastructure is the precondition for economic take-off”, Ethiopia has relied on an infrastructure-led economy. But Lemma also states the current economic plan is creating a “huge trade balance deficit” which is doing more harm than good within the country. A reliance on Ethiopia’s own goods will provide the country with the proper tools to dig itself out of the financial hole it is presently in. This will happen not only on the national level but on the independent level of everyday workers who can be provided improved resources and income. Ethiopia’s government has ignored their lucrative natural resources thus plummeting the nation continuously into debt and aiding in the destruction of the nation’s quality of life.

Ethiopia has a plethora of resources that makes the country special when considering potentially lucrative sectors. Certain variations of natural resources are being used in their respective sectors. Ethiopia has varying resources, from iron, of which there are deposits of at least 20 million per year, to salt, of which there are at least 300,000 tons produced a year. Ethiopia also has many deposits of minerals like copper, potash, and gold of which there are at least 1 million tons found annually. Fossil fuels like petroleum and natural gas are found with addition to hydropower sourced by the Blue Nile River, 1% of which contains 110 billion cubic meters used for irrigation and hydroelectricity. Though these resources have not been tapped into for full utilization, the country still makes between $300 million and $500 million per year on them. These resources include gold, simultaneously the most profitable yet untapped resources in Ethiopia. With gold mines such as the Assosa gold mines yet to be cultivated, Ethiopia could easily rise to one of the top 5 exporting nations of gold. Gemstones and opal are both high contributors to the overall exporting economy of Ethiopia with both making up 98% of the overall exporting goods economic values. These two precious minerals are exported in their rough form due to the lack of proper cultivating equipment in Ethiopia, but once this is fixed the country can make even more off of those minerals. Aquamarine, tourmaline, amethyst, emerald, garnet, peridot, and sapphire are among the other potentially very profitable deposits yet to be fully utilized to make the country more money. Oil and gas are also very lucrative resources yet to be fully tapped into due to regional tensions, particularly those of which lie in the Somali Regional State’s Ogaden basin. The basin is 135,000 square miles potentially containing a tremendous amount of crude oil and natural gas. Ethiopia has had to repetitively invite international companies to drill and excavate the basin due to the lack of cultivation equipment and knowledge. This lack of utilization within the country as well as in the form of a lucrative export product is negatively impacting the country’s people and ecosystems. Most Ethiopians relied on wood as fuel for the fire, which is used for a variety of things, but as the forests within the country are being depleted, the people have resorted to using dung as fire fuel. In a world where innovations are being made in terms of energy sources, there is something not right about a resource-rich country being relegated to using dung-fueled fires for cooking and heating.

Now that there is a better understanding of what Ethiopia has to offer and know a bit more about the current situation in the country, a question arises: “Why is this the case and where did it come from?” One main reason is China is trying to make Ethiopia its infrastructure-led model and Ethiopia’s efforts in this strategy to start with infrastructure as a basis for growth has not been helping. An infrastructure-led economy is not likely to succeed when it comes to poorer countries like Ethiopia. When it does work, it is only for a restrictive amount of time for certain financial situations in more developed, richer countries. But, China continually puts more and more cash into these projects thus putting Ethiopia further into debt because it keeps accepting it. There has been an increase in demand for goods and resources only China gives Ethiopia. Ethiopia is continuing to rely on China for aid in an attempt to have the financial stability to pay back the Asiatic country. Ethiopia is, in a sense, digging itself deeper into debt through its efforts to have the bearings to climb out of this ever-deepening debt. To further this point of the unhealthy relationship Ethiopia has with its importers, the costs of imports outweigh exports by 400% furthering the debt to reach the US$26 billion benchmark. With the current plan, Ethiopia will only pay 60% of this cumulative sum. A substantial amount of this comes from the reliance of Ethiopia on China on goods and further loans for these goods to build a list of infractural structures. In fact, Ethiopian debt to China alone has increased over the last few years to around $12 billion.

The current issues and deficiencies within Ethiopia at present are in some form rooted in decisions made by previous governments, so a deeper assessment of previous government’s decisions is needed for a full picture. Foreign countries and collectives have been trying to offer Ethiopia financial assistance since before World War 2 but each time efforts were made, it failed in the long run; so Emperor Haile Salessie I decided to create financial surplus by looking within his own country and what it had to offer. This decision would prove to be a positive one for his country and its finance. His implementation of the plan to export Ethiopian resources through creating the materials and proper knowledge took place through three Five-Year Plans with a fourth being indefinitely postponed by the Derg takeover in 1974. These Five-Year Plans would build up infrastructure and the economy of the government (including the negative balance of trade between the imports and exports), though it never reached the anticipated goals it set because of the lack of experienced personnel. The First Five-Year lasted from 1957 to 1961, this plan focused on connecting the rural regions with the more urban, modernized regions through roadways. There was also a regulation of creating a skilled or semi-skilled working class of Ethiopians that were trained in modern industries to decrease the reliance on imported goods. The Second Five-Year lasted from 1962 to 1967 in which the focus was to diversify the industries Ethiopia had a hand in as a nation. This entailed modern processing methods being introduced to create universal economic growth throughout the nation. The Third Five-Year Plan was the final financial plan put forth by Emperor Selassie and ran from 1968 to 1973. The plan continued the push for the incorporation of modern production methods within the agricultural economy toward an agro-industrial economy. This plan became unique from those that preceded it because it allowed for a spreading of education while relying more on internal industries and resources and selling more goods to other countries.

After the Imperial government was overthrown by the Communist Derg regime in 1974 and with this came a massive economic shift that would further lead to the current economic problems. The economy under the Derg is divided into four individual phases. The first four years, 1974 to 1978, were stagnated years for the economy, within which the government was too busy still squelching uprisings and internal disputes to make any national economic pushes. The economic situation worsened with inflation jumping and debt deficits increasing in amount. That changed in the aftermath of the Ogaden War’s end in 1978 because, with the end of the war, a lot of the rebel activity with the country defused as well. The Development Through Cooperation Program, also called zemecha within the country, was a program that helped educate all Ethiopians, rural and urban, thus contributing in improving the national economy. With the weather helping crop growth, resources in the agricultural sector were booming for the second phase which lasted from 1978 to 1980. The military was built during this time to help secure a country that was cutting itself off from international investments and trading. This brevity would come back to bite the Ethiopian government during the third phase, which lasted from 1980 to 1985. Within this phase, every fiscal year brought a GDP decline with the exception of the 1982-1983 fiscal year brought into fruition by the drought thus the GDP fell as well. This is outside the fact millions of Ethiopians went hungry in addition to trying to support the huge military the government had accumulated. By the fourth phase (lasting from 1985 to 1990), the drought dissipated but its effects were still felt. The agricultural sector never came back to the point of paying back the national debt deficits which led to the GDP to continue its tumble downhill while the debt service continued its climb. This negative spiral would directly create the present economically-destructive situation.

Assefa Tsegaye, the former general manager of the Commercial Bank of Ethiopia, perfectly wraps up the aforementioned regimes and the financial status within each. He stated, “In the aforementioned decades, of the 1950s, 1960s, and the latter part of the 1970s, especially during the imposition of Emperor Haile Selassie, there was a good measure of economic development in the country. The economy was market-led, financial stability was maintained, the propriety of the Ethiopian dollar was monetarily fixed to the American dollar…In the 1970s, Ethiopia was one of the very few countries that had reserved covering one-year import.” When the Dergue took over, the Reserve was depleted and used for weapons against Somalia because the USSR took over all of the support, financially and militarily, leaving Ethiopia without a lot of necessities like medicine. This shift from the self-reliant economic plans of the Imperial era to the reliance on larger powers like the USSR for financial and physical security of the Communist era lead to a destabilization within Ethiopia that is still felt to this day. The only difference is instead of the USSR being the relied-on country, the current occupant of the position is primarily China. Much as it did then, a reliance on others has left Ethiopia depleted and coming away with less than it did coming in.

The progression of the country’s democratic governance has a direct hand in improving the country’s economic foundation. As the country continues it switch from Communist styled business sectors and general governing, the privatization of businesses and enterprises have had a positive impact on the national GDP and the opportunities being presented to everyday Ethiopians. Since the nation adopted the mixed economy, the GDP’s growth rate varied between 8% and 11% outside of the deficit of 5.4% in the 2014-2015 fiscal year. The Growth and Transportation Plan set to be finished for 2025, has become the top potential economic plan. This plan has a projected growth of 20%. The Growth and Transportation Plan has been utilizing in-country resources to create goods. It has proven to be so that Deputy Prime Minister Demeke Mekonnen introduced the second Growth and Transformation Plan (GTP II) to the country. This plan will utilize in-country resources and the opportunities within the nation solely, creating more jobs of all classes and is projected to triple the GDP and simultaneously cut the poverty level by half over the course of the next few years.

The issues within the Ethiopian government does, indeed, come from its own history of governance but there are also other factors and causes that are external to the government of Ethiopia. Case in point, the aid and pressure within it sent by the Western World, exerting influence on the governing of Ethiopia. European aid in Ethiopia within the last decade has spent close to $2.5 billion dollars in aid projects. After the short-term goals were achieved, most of the projects haven't done much, if any, good for Ethiopia except spend money and place Ethiopia further into debt. This creates a donor-recipient relationship between Ethiopia and the aiding Western countries. This relationship requires a donor that has factors like a clear set of parameters that are met with the utmost accountability and commitment. Recipients must have a commitment to a plethora of things as well, like anti-corruption, meeting internal and external standards, setting up clear distinctions of power and accountability within government, and keeping a good, beneficial relationship with its donor. European aid is not properly working because there is a lack of objective-driven projects with longevity in mind. Most aid projects work momentarily before crumbling a while later. What is becoming evidently clear is that a continuous administrative authority over these projects would help them along as a lack of this in previous ventures have shown negative results. Skilled workers need to be trained and placed in proper positions for any aid to be done.

Not only is this aid stagnant and proving to be a burden but it has also proven to be a possible weapon to be used by both the Western countries and by the government of Ethiopia. For example, the European Union recently threatened to pull aid if Ethiopia did not govern how they saw fit. Not only did this harm Ethiopia as a whole but it proved to be in vain as the issue was resolved on a grander scale by the Ethiopian government. Another example dating a little further back, previous Ethiopian regimes had been documented using the allocation of external aid as a weapon against their opposition groups. This can not be stopped by unplugging international aid but once the accumulation of Ethiopian finances are grown or cultivated in each region of Ethiopia, the stripping and weaponizing of money can be dramatically restricted.

These ill-advised, detrimental aid programs have left Ethiopia with a lot less than the country should have, namely utilities and opportunities for its people. The average Ethiopian civilian’s home, around 70%, has no direct access with utilities at all. This stark negative number is not limited to households, there are utility-lacking schools numbered at 76% in Ethiopia and 70% of all Ethiopian clinics lacking utilities. Most Ethiopians, whether rural or urban, do not have access to fully-operational utilities, not only are homes or residential buildings but also in clinics and schools. This is not limited to electricity either, only 24% of the population has access to clean water and sanitation is only accessible to 13%. The electricity grid covers 80% of the country but only 33% of those living in rural areas can and are using electricity. In the urban areas, electricity accessibility is hardly doing any better with only 44% of urban Ethiopians being able to use the utility. The reforms set in place is not enough, as the lack of experience and the proper equipment has off-put many investors and companies. These concerns have been somewhat met by the increase of infrastructure building and educating more Ethiopians in the trade. The combination of the governmental reforms and the updating of the nation’s knowledge and equipment in the field has built up more confidence in the Ethiopian mining industry and has encouraged more investors and companies to take a deeper look and interest. It all comes back to properly educating Ethiopians to run and manage their own goods and resources as opposed to relying solely on foreign aid that lasts only a short period of time.

Due to the lack of training and education for jobs needed in Ethiopia, not only to sustain the country but lead to financial prosperity, many Ethiopians are either unemployed or working menial jobs. The high unemployment rates’ effects are recorded by news outlets throughout the country. 16% to 26% of Ethiopians are without work with the worst of it affecting the youngest working demographic, particularly the recently college graduates. This has led to dissension in mind, self, and community of many of these unemployed youths. Depression, riots from political/socio-economic discontentment, and suicide and homicide have all stemmed from this very prevalent issue in Ethiopia. The recurring activities of alcoholism and lack of self-worth due to a lack of a stable job plagues the youth of the area leading to high percentiles of unaddressed depression and, later, suicide. The high unemployment rate of rural Ethiopia especially has led to many lives worsening and ultimately ending abruptly. Communities as a whole have collapsed socially and mentally because of the lack of opportunity and diversity in the local work-field. Between the mid to late 1990s and the 2010s, Ethiopia’s youth job population within these years has decreased from 35% to 28% as education has been prioritized among this age group. The job existence and diversity for these educated Ethiopian youths are very low in the urban and rural areas for all but particularly women, with female unemployment being 14% higher. Thus, the number of Ethiopians receiving a higher education is increasing but there is a deficiency of job opportunities for these Ethiopian graduates. These job-seekers are the prime sufferers of the negative physical and psychological effects of unemployment.

The emotional depression experienced by the individual workers and communities is simply a reflection of the depression of Ethiopian economics within the nation itself. Starting in 2015, the national debt of Ethiopia was US$17.94 billion which increased to US$21.84 billion in 2016. The following fiscal year of 2017 had a debt accumulation for the total of US$26.86 billion; this debt developed into US$34.13 billion in 2018 with 2019 continuing the national debt growth with US$39.43 billion. According to Ethiopian economists, the coming 2020 fiscal year shall have a national debt growth up to at least US$47.61 billion and 2021’s fiscal year’s national debt will grow to at least US$59.33 billion. If the current economic plan is continued to be applied in the coming decade, this trend is expected to continue as well and, as a result, 2025’s fiscal year’s national debt will reach at least US$85.9 billion. With the public debt increasing another $4.46 USD in the last fiscal year, Ethiopia’s economic situation is not looking like it is improving. In the last fiscal year alone, the debt compared to each Ethiopia living in the nation is $477 USD per person. This is of course not the best reflection on the national GDP which took a 3.51% decline within the respective fiscal year. Though the debt as a percentage of GDP’s evolution has steadily declined over the last two decades or so, the national debt in terms of millions of dollars has been on a meteoritic rise since 2010.

Ethiopia’s national debt is only a precursor to the international debt the country has accumulated with its flawed economic plan. Ethiopia is deeply in debt to other countries, especially China. The country, already US$12 billion in debt to its Asiatic donor, has had a change be made as far as the interest on the Chinese loans. As of spring of 2019, Chinese loans made out to Ethiopia have had interest rates included with each loan agreement made, furthering the already growing Ethiopian debt to China, making the debt deficit grow at a more rapid pace. While Ethiopia has begun making strides towards paying China back, it has become very concerning to believe that the country can back all of the debt accumulated over the agreed upon time without risking drastic economic increase.

The current economic plan in Ethiopia is an infrastructure-led economy, and though it has short-term benefits on the employment rate, there are more negative effects of an infrastructure led economy in the long run. Infrastructure and its resources can be allocated and focused in the wrong settings, furthering the fallacy of an infrastructure led economy, especially in a poorer African country. In every case of “success” (all monetary and fleeting), only well-off countries like the US, Japan, and China can afford an infrastructure led economy that is beneficial. Japan’s already developed economy made an investment of $6.3 billion, or annual 4.7% of GDP spending, into infrastructure and its sublet areas. But this large amount of investment only produced an annual 0.5% GDP growth. After about 3 years in the US, the benefits of an infrastructural economy, for example 2.3 million jobs, will have expended. There has to be careful planning and acting out on the part of these well-developed countries as an infrastructure led economy only works in the favor of its user for a particular amount of time under specific financial situations. A clear example of the harmful effects of the lack of planning in Ethiopia can be seen in recent GDP decline. Short term has shown a positive growth constant of 3.767 within the national GDP. There was also a constant trend of 0.230 within the GDP. As time passed, though, there has become a constant decline of -4.329. As this economy continues, a constant and trend drops to -6.235. The short term relationship between Ethiopian economics and an infrastructure led economy has been previously successful but as time passed and the infrastructure led economy is being continuously applied, the economic growth ceases and turns into economic decay.

The issues of the country’s economy is evident and has been for some time with its harmful effects being seen more and more throughout Ethiopia. Now, all hope is not lost as there is a clear-cut way to improve said situation. The first step is understanding and fully utilizing Ethiopian resources as this can heavily increase the national economy through different resources like gold and other mining products, all of which haven’t been fully utilized. From the northern Tigray region and the southernmost Oromia region, there are extensive mineral deposits still yet to be fully assessed and cultivated to national financial gain in Ethiopia. Gold and other mining materials can be found in 74% of the country in great volume but gold only makes up 10% of the total exported materials. There are high chances that this sector can multiply the amount it is making now, as a bonus, a coinciding potential to make at least another million jobs in this sector is evident, even if partially utilized. Ethiopia only uses less than 1% of all of these goods for international trade. The effects of this matter is reflected in the truth that it makes less than 1% of GDP, 14 % of exports, and 1% of government revenue. This is attributed to the lack of strong guidelines and national ministry to efficiently control and optimize financial gain. Thus, there is a need for regulation and parameters in this potentially prosperous sector of industry. Once this regulation is implemented, the country can create a competition for these mineral hotspots, increasing their value and profitability. Ethiopia is able to grow 32.8% in the mining sector within the next few years easily with these miniscule steps of improvement.

Opening new sectors like the aforementioned mining sector will give Ethiopia new grounds to make itself a strong, internationally-respected country (and not a respect solely based on what the country once was). As the steps to modernize Ethiopia’s economy, new reforms are being implemented, allowing the debt owed to China to be worked off easier. One such reform, placed by Ethiopia’s Prime Minister, Abiy Ahmed, to privatize public companies, has found a favorable audience with the capitalist American government in addition to other Western superpower countries. This is refuting and undoing the many Communist doctrines and policies of the previous governments. The diversity of financial aid on which Ethiopia is reliant has increased, in theory, the positive connection of Ethiopia’s relationship with these superpowers. As Ethiopia stays on this positive track, more people will find jobs that feed into their skill sets, allowing them to build financial stability and put more money into the capitalist system. Under the previous doctrines, somewhere around 80% of Ethiopians traveling to the few urban areas of the country (around 19% of the country’s land area), there is a need for more job opportunities within the other 81% of the country’s land. This self-doctoring reform allows for rural Ethiopians to find more opportunities within prosperous regional sectors like agricultural, livestock, and food-manufacturing sectors. Ethiopia’s plan to build the economy through reforms and full utilization of resources, has made the country more prevalent to the public eye. This international respect has opened doors and have created better opportunities for the country to use.

Once the plan is implemented, the living conditions and opportunities within Ethiopia will abound with the financial surplus brought on by smarter economics. There are many potential case studies that can prove the theories about quality of life and accessibility to rural communities endowed with natural resources. These communities with natural resources can cultivate its appeal to international trade and commercial relationships. With this trade and relationship, better management and sustainability will become the norm thus raising the standard of living higher to meet the needs of these international and commercial connections. These natural resources can vary, some being ecotourist locations while others are mining and agricultural hotspots filled with unique, priceless goods. The continual revenue and economic growth that can come from businesses like ecotourism creates wealth for each community that has it. When growth is achieved, these communities begin building infrastructure that will improve the quality of life for not only the visitors but the community members themselves.

Not only communities can be improved on but also the individual community members. As the economy grows, the employment rate of sectors within the area in question increases as well. The more money the government regenerates, the more job opportunities there will be for average people. Ideally, as the economy grows, education opportunities will grow as well producing a job diversity within the aforementioned area. Through the increase of jobs in these examples, the improvement of poverty rates and the standard of living and quality of life. The better jobs are handled and spread out to urban and rural areas alike, the more money and economic stability can be given to all citizens of Ethiopia.

As just mentioned, a better understanding of both job-handling and job-spreading can directly lead to a surplus on the nation of Ethiopia as a whole and on the individual employee. The conscious act of spreading and handling jobs of expertise in the specific regions that know most about a particular sector has positively served the government and its strides for improvement. For example, there are aid programs in rural Ethiopia particularly in the prominent agricultural and livestock sectors. This has led to various positive improvements in the poverty rates in assorted regions of Ethiopia, varying from one unspecified area’s poverty rates’ decrease from 26% to 15% to another’s decrease from 30% to 26%. At the turn of the 21st century, Ethiopia had one of the highest poverty rates in the world but once job opportunities in the form of self-employment, jobs began popping everywhere in Ethiopia, whether rural or urban regions, the poverty rate of the country went down. Not only was the poverty rate improved so, too, were the life expectancy (increased from 52 years old to 63 years old) and the child and infant mortality rates. A clear example of the importance of job-handling and job-spreading within Ethiopia is the flower farmers in the Ziway (pronounced zig-whey) region of Ethiopia. The wages the workers had improved over time thus did the community and the living quality within, for example the workers funded their own community school and hospital to be built. The times of conservative pay had made the workers work for and live by less than the decent amount. In addition to this, the normalcy of the low wages made the workers not request and inquire for higher pay thus the situation remained stagnant until a change was made. Obviously there are improvements needed to be made by the government and the job handlers and spreaders to give decent wages to further the already growing living standards of the Ziway region’s people; this need is universal for all the regions of the country.

Individual wealth, both fiscal and mental, can provide Ethiopians deeper self-worth and their culture. As the economic climate of Ethiopia has gotten better with more businesses and industries rising all over the country to eager global consumers, most Ethiopian’s standards of living have increased as their income decreased with the national poverty rate dropping by 20% over five years. With more programs to help form region-specific jobs, there is another 8% decrease projected for the upcoming terms. With the reduction of poverty and the increase of individual income, various cultures from all over Ethiopia are thriving and being better preserved for success. A case study taken in a rural area of Nepal discovered that the more income these cultural areas received, the stronger their mental footing was within their culture and its coinciding lifestyle. The rural regions of Ethiopia are little different from the aforementioned region of Nepal thus an increase of income for the peoples living in these regions will strengthen a culture that would otherwise disappear.

In conclusion, the current infrastructure-led economy of Ethiopia, while it has short-term benefits, is not sustainable in the long run. The negative effects of an infrastructure-led economy in a poorer African country outweigh its advantages. The country needs to focus on full utilization of its resources, such as mining and other natural resources, which have not been fully assessed or cultivated to national financial gain. Additionally, the privatization of public companies and the implementation of reforms will allow Ethiopia to build a more modern economy and create more job opportunities for its citizens. By focusing on these changes, Ethiopia can increase its revenue, raise its standard of living, and become a strong, internationally-respected country.