What is Ethiopia’s pathway to prosperity?

October 11, 2021

The Legatum Institute is publishing a new report that shows the huge opportunities for Ethiopia that are around the corner for its people if the country starts embracing a more open, inclusive economy underpinned by a stable political settlement.

The report suggests that the road to prosperity requires power to be shared between different stakeholders for the public good, with meaningful checks and balances on how it can be exercised in the political, institutional, and economic spheres, as well as the respecting of human rights.  And Ethiopia’s regions and the centre need to work together for common interests and objectives.

Second, states can become prosperous only if they are delivering through enlightened institutions and civil servants.  In the past, higher-ranking civil servants have generally been appointed due to party loyalty or ethnic factors, creating scope for corruption and hindering the state’s ability to deliver efficiently for its people.

The third driver of prosperity is good infrastructure.  Ethiopia has had one of the highest rates of public investment in the world.  But despite this, ‘last mile’ connections and maintenance have been relatively weak, and the country has one of the lowest levels of mobile and internet access in the regions.  This is largely because of the reliance on a monopolistic state-owned provider and the lack of an independent regulator.

Fourth, Ethiopia’s investment environment has not kept pace with international developments over the past decade.  By requiring state-controlled commercial banks to prioritise financing public sector infrastructure investments and state-owned enterprises, credit to the private sector in Ethiopia is among the lowest in East Africa.  And Ethiopia has become one of the most underbanked countries in the world, particularly affecting the rural population.

Finally, the new Government has rightly placed strong importance on improving Ethiopia’s business climate, to increase the productivity and competitiveness of Ethiopia’s private sector.  But there has been limited progress so far on simplifying business start-up costs and procedures.

Ethiopia has the potential to become a prosperous country. And in recent times it has been seen as one of the world’s best performers in economic growth.  Now is Ethiopia’s moment to capitalise on these past successes, and to embrace a more inclusive economy and a stable political settlement, so that sustainable economic growth and solid upper middle-income status are assured.