eBusiness Weekly
Kudzanai Sharara Taking Stock
The latest IMF World Economic Outlook report released this week predicts Ethiopia’s Gross Domestic Product will record an 8,5 percent economic growth rate in 2018, far outstripping that of advanced economies. Ivory Coast is also expected to record significant growth at 7,4 percent, Senegal 7 percent, Tanzania 6,4 percent and Ghana 6,3 percent. This is against IMF’s growth projections of Zimbabwe at just 2,8 percent, much lower than Government’s projection of 4,5 percent.
This comes at a time the ruling Zanu-PF Government has promised a 6 percent economic growth rate for the next 5 years if given the mandate to form the country’s next Government.
This, however, comes short of the growth rates this country needs if it is to record any significant economic development and growth.
According to Finance and Economic Planning Minister Patrick Chinamasa, Zimbabwe requires 8 percent annual growth rate within the next 10-15 years if it is to catch up with other African countries whose economies have been booming.
How do we close the gap: Lessons from Ethiopia
Ethiopia’s rise has been largely driven by an increase in industrial activity, including investments in infrastructure and manufacturing. The country is currently building on the Blue Nile river what is going to be Africa’s largest dam, The Grand Renaissance Dam.
The amount of money invested in such projects has serious implications in downstream and upstream industries and makes significant contributions to economic growth. This should be a lesson to the Zimbabwean Government that embarking on projects such as the Beitbridge-Chirundu road among other bigger projects will lead to significant economic growth. But safeguards must be put in place that, the funds go through local banks, and the bulk of the inputs, where possible, are sourced locally. We have seen major projects being embarked on in the past, but we have not seen the economic benefits during the construction period.
Another area that has helped Ethiopia record significant economic growth has been investments in a light rail system, the first of its kind in sub-Saharan Africa. The $475 million Light Rail Project, a joint venture between Ethiopia and China, was embarked on in 2015. For workers in Addis Ababa, going to work is no longer the nightmare it used to be in the past, when traffic jams were an integral part of the chaotic city. Workers are now using the fast, cheap and reliable light railway.
The light rail started operating two years ago and is currently serves an average 101,000 passengers daily, with the number sometimes jumping to 185,000. There is also another rail project, the Chinese-built Ethiopia-Djibouti Standard Gauge Rail which is providing both passenger and freight transportation between Ethiopia and Red Sea nation Djibouti. Ethiopia, a landlocked country, heavily relies on the seaports of Djibouti with 95 percent of its import and export commodities presently transported via the Port of Djibouti.
One can thus never underestimate the benefits that are brought by the two rail lines. The economic benefits, the efficiencies, the reduced costs can easily contribute to economic development and growth. Zimbabwe’s rail system is in a deplorable state, but if revived can also contribute to the country’s economic development.
Much of the investment in Ethiopia has come from overseas.
According to the IMF, foreign direct investment growth was 27.6 percent in 2017, with investments going into new industrial parks and privatization inflows. Ethiopia has also been selling its state-owned businesses to outside investors like China.
Zimbabwe which is also in the process of privatising its state-owned companies could learn one or two things from the east African country.
Vice President Constantino Chiwenga this week said the new dispensation was determined to ensure that state enterprises and parastatals (SEPs) reform was a success, for the good of the economy. This is in line with Cabinet’s decision to approve the consolidation and dissolving of some underperforming SEPs as they had become a liability to the State. Ethiopia should thus become a case study as it has gone through similar processes that have led to the country attaining the impressive growth rates as seen in the last few years as well as future projections.
Ethiopia’s determined control of its public borrowing and imports can also come in handy for Zimbabwe, as the country has for years struggled with high local borrowings as well as a huge import bill.
Zimbabwe is one of the sub-Saharan African economies with high debt levels with domestic debt having reached $11,3 billion early this year. Over the years, Zimbabwe’s external debt has progressively risen, according to RBZ figures, from $3,5 billion in 2000 to $10,6 billion in 2015.
Such high levels are already not sustainable but unfortunately the country continues to borrow through issuance of treasury bills among other facilities being used by Government to fund economic activities. The high import bill is also not sustainable given the foreign currency backlog that is threatening to choke industry as we report elsewhere in this publication.
With such high economic growth rates, Zimbabwe can learn a thing or two from a nation that’s blazing a trail for economic development on the African continent.
