Form Bankrupt to Middle-Income: Zemedeneh Negatu Is the Managing Partner for Ethiopia and Head of Transaction Advisory for Eastern Africa at Ernst & Young, LLP
On a sunny October day in 2009, I presented a speech about the Ethiopian economy to a business conference in Washington DC in the US. The audience of mostly senior business executives and government officials listened intently - with the customary diplomatic politeness that Washington is famous for - until I presented the forecast that "Ethiopia will be the third biggest economy in sub-Saharan Africa in 15 years, with a GDP of $472bn".
Then, a visibly energised mood took over the conference hall. Some were pleasantly surprised while others were incredulous as to how a country more synonymous with poverty and famine could become such a high performer. This column reiterates the same forecast first made more than three years ago and discusses some of the key factors that are contributing to Ethiopia's rapid growth. The gradual shift of economic power from the developed West to the newly emerging East is benefiting Ethiopia. For example, China is now a major foreign direct investor (FDI) in Ethiopia, strategically benefiting both countries. And, unlike elsewhere in Africa where China's focus is primarily on natural resources, in Ethiopia it appears to be broad-based. One only needs to visit - as I did a few weeks ago - the brand new multi-million dollar factory of Huajian Group, just outside of the Ethiopian capital Addis Ababa, to understand China's emerging strategy.
Huajian is China's largest manufacturer of women's shoes and plans to export $4bn worth of footwear to the US and the rest of the world from Ethiopia. Not coincidentally, Huajian's factory is in a huge Chinese-owned industrial park, one of four such facilities in Africa, financed by a Chinese investment fund.
The demographic dividend
Ethiopia's population, already the second largest in Africa after Nigeria, will top 120m by the middle of the next decade with a median age of under 20. This represents an abundant and competitive workforce, especially for large-scale labour-intensive manufacturing and agro-industry. Brazil, Russia, India, China and South Africa have all leveraged their young populations to transform their economies into the BRICS, and I believe Ethiopia's demographic means it can do the same. Ethiopia still needs to do a lot more to improve the business operating environment. However, last year's annual ranking of the World Bank's Doing Business guide indicated that Ethiopia outranked three out of the four BRICS countries, confirming that policy reforms are already showing some positive results.
I am frequently asked when the financial services and telecoms sectors will open to foreign investors. The short answer, according to the government, is there is no plan any time soon. …