Is it the Right Model for Ethiopia?
When Ethiopia adopted the developmental state as its growth model almost two decades ago, many did not expect the East African nation would reap massive economic gains. However, the country was able to register one of the fastest economic growths in the world for more than a decade. This contributed to the increase in per capita income and significant reduction of poverty.
Many, on the other hand, discredit the achievements because of gross human rights violations, narrowing political space, and a stifling private sector. The development model has also been criticized for making the state a dominant economic actor in the economy by hugely investing in infrastructure development projects. To finance its huge development plans, the government has excessively borrowed from local and foreign sources. This led the national debt to more than USD50 billion as of June 2019. More than half of the loans were acquired from foreign sources.
As the government was pumping huge supply of money in the economy, the situation created a surge in demand amid a huge supply constraint. The supply was poor because equal volume of investment was not made in the productive sector of the economy, agriculture and manufacturing. The result has been a bulge in the trade deficit because of mounting imports while exports remained stagnant or declining in those years. Now, aiming to address these macroeconomic woes, the administration of Prime Minister Abiy Ahmed has been trying to deviate from the past trends of development. EBR’s Samson Berhane investigates.