Ethiopia’s economy faces a rough road ahead because of the global financial crisis and the strong growth seen over the past five years may be curbed by weaker exports, the finance minister said.
The coffee-exporting Horn of Africa nation has benefited from programmes to boost agricultural output and diversify its economic base, but still remains one of the world’s poorest, ranking 170 out of 177 on the U.N. Human Development Index.
“Ethiopia’s economy is in the process of take-off but given the current global financial crisis and the macro challenges Ethiopia faces, the road ahead will be very difficult and rough,” Minister of Finance Sufian Ahmed told Reuters.
“The country’s export earnings could be affected. We also expect Overseas Development Assistance (ODA) would be affected because donors will be under tremendous constraints and naturally we assume the areas they would want to make some cuts may be ODA,” he said in an interview.
Ethiopia prides itself as the origin of coffee and is the largest producer on the continent. Its beans are grown in a region known as Kaffa, which is said to have given its name to the plant.
Ethiopia earned $525 million from coffee exports in 2007/08, just over a third of its total export earnings. Leading buyers of Ethiopian coffee are Germany followed by Saudi Arabia, Japan, the United States and the Netherlands.
“For the last five years, the economy has registered very encouraging growth rates. To be precise, the annual average GDP (gross domestic product) growth of the last five years has been 11.6 percent,” said Sufian.
INFLATION TO SLOW
In June, the finance ministry said it expected growth of 10.8 percent in 2008. The minister did not give a new forecast.
The United Nations and the African Development Bank said then they expected Ethiopia to grow by 7.5 percent in 2008 and 7.4 percent in 2009, helped by broad-based expansion in industry, agriculture and services.
Despite its healthy economic figures, the nation’s 81 million people are still vulnerable to frequent bouts of drought and periodic floods that make them dependent on food aid.
Earlier this year, Ethiopia had to scrap taxes on flour and grains to cushion the impact of inflation which Sufian said had risen to an annual average of 25 percent over the last five years, from 10 percent previously.
Sufian said the country’s growth was still largely dependent on agricultural production but that services, trade, tourism and the construction sector were also expanding.
“Ethiopia’s economy is in a different trajectory now because the country does not depend on coffee alone, as it used to previously. Export commodities have been diversified and oil seed, pulses and flowers also generate foreign currency.”
Sufian said, however, that he expected inflation to slow as the impact of high food and fuel prices waned.
“Oil imports had been a big burden on us with an annual expenditure of over $2 billion. The price decline of the commodity is a relief to us,” he said.
“There is a sign that inflation will reach single digits this year, if not next year,” he said.