Ethiopia: Please don’t stop the music

5 min
Stéphane Colliac
Stéphane Colliac Senior Economist for France and Africa

During the last decade, Ethiopia was among the fasted growing economies in the world. But growth seems to have faltered somewhat recently: goodbye +10% per year, hello +7.5% which should be the rate observed in the next fiscal year. Moreover, the country is not benefiting from rising exports despite the foreign direct investment made in its textile sector. Infrastructure spending was quite strong and construction made the main contribution to overall growth (about one third). However, difficulties to raise key infrastructure (such as access to power) fast enough to cope with public needs can create some discontent. Moreover, Ethiopia is still suffering from a USD shortage, with foreign reserves providing just two months of import cover. This is a key bottleneck since many goods still need to be imported (e.g. cars). Ethiopia surely needs more market-friendly reforms to engineer a new growth cycle, but in the short run poor rains are a more tremendous issue. It is a potential downside risk to growth and catalyst for discontent.