Bloomberg News

Ethiopia’s Growth Plan Raises Economic Risks, World Bank Says

October 28, 2011

Oct. 28 (Bloomberg) -- Ethiopia’s economic growth plan is “over-ambitious” and relies too much on state-owned companies to boost manufacturing, a World Bank official said.

The government is taking “macroeconomic risks” to achieve its growth goals, Greg Toulmin, acting country director, told reporters in the capital, Addis Ababa on Oct. 25.

Ethiopia is spending 569.2 billion birr ($33 billion) investing in industry and infrastructure as part of a five-year growth plan that runs until July 2015. The government is counting on its state enterprises, such as Sugar Corp. and Metal and Engineering Corp. to develop the East African nation into a major sugar exporter and power provider for the region.

“We don’t think having state-owned enterprises doing manufacturing is the right way to create sustainable growth,” Toulmin said. “If the goals are to be achieved then the private sector has really got to scale up its activity. There’s got to be a significant expansion of manufacturing.”

Metal and Engineering is in charge of the electro- mechanical works for Africa’s biggest power plant, the $5 billion Grand Renaissance Dam on the Blue Nile river, and is also the Sugar Corp.’s major contractor for 10 new factories.

Plans to boost borrowing from abroad to 7.5 percent of gross domestic product annually over the next four years may lead to “debt distress”, the International Monetary Fund and World Bank said in a report on Oct. 13. While indications from the first year of the growth plan is that debt will remain manageable, other less risky options to raise revenue, such as ending the state telecommunications monopoly, are not under consideration, Toulmin said.

‘Highly Distorted’

“The government is choosing quite deliberately to take some major macroeconomic risks as it believes that is the way to achieve a high level of growth,” he said. “Our concern and the International Monetary Fund’s concern is that we don’t think the risks they are taking are appropriate.”

The IMF said on Oct. 13 that Ethiopia’s “highly distorted” monetary policy requires an overhaul as accelerating inflation and “entrenched negative real interest rates” threaten macroeconomic stability.

Ethiopia’s government aims to curb inflation to less than 10 percent from 40.1 percent reached in September, while targeting economic growth of 11.2 percent.

--Editor: Nasreen Seria

To contact the reporter on this story: William Davison in Addis Ababa via Nairobi at pmrichardson@bloomberg.net.

To contact the editor responsible for this story: Paul Richardson in Nairobi at pmrichardson@bloomberg.net.


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