Tue, May 21, 2024

Ethiopia’s GDP in the 21st Century

Ethiopia’s economic miracle

Africa’s second-most populous country was one of the poorest countries at the beginning of the 21st century.  In 2000, it was the third poorest country in the world. Ethiopia’s annual GDP per capita was about $620 in 2011 dollars.

Moreover, more than half of the population lived below the global poverty line. It was the highest poverty rate in the world. However, what happened next surprised economists.

Based on the information provided by the World Bank, from 2000 to 2019, Ethiopia was the third-largest growing country for 10 million or more in the world when it comes to GDP per capita.

Once a poor country changed the perception of many people as 20 years ago, it was nearly impossible to imagine such a scenario. Furthermore, it was not only about the wealthy people as the number of people living in poverty fell to 31% in 2015.

The GDP per capita rose by 189% in 18 years and this a huge achievement for any country. Thanks to relative prosperity, life expectancy rose from about 52 in 2000 to 66 years in 2017. Also, the infant mortality rate fell by 50% over that period.

Nevertheless, Ethiopia is far from being a wealthy country due to various factors. For example, the population will grow from the current 115 million to more than 205 million people by 2050. This result would make Ethiopia one of the fastest-growing large countries when it comes to the size of the population.

Right now, the question is for how long the economy will continue to grow and what may derail the situation.

The future of Ethiopia’s economyEthiopia’s GDP in the 21st century

The World Bank changed its projection for Ethiopia’s economy. According to the updated information, the World Bank projects that the economy would grow by 6.3% instead of 8.2%

It also revised the projection for 2021 as well. Next year the economy would increase by 6.4% down from 8.2%. However, the Ethiopian government did not change its projection and still think that GDP growth would reach more than 10% in 2020.

In the 2000s, nearly half of Ethiopia’s growth was due to improvements in productivity per worker. The other part of the growth is connected with the share of the employed population as well as capital investments.

Moreover, Ethiopia achieved even better results in the 2010s. Nevertheless, productivity growth declined to less than 2% per year. As a result, growth fell from more than 4% in the 2000s to less than 2% in the 2010s.

Consequently, Ethiopia’s debt rose from about 40% of GDP to 60%. Based on the information, government spending helped to boost the economy. However, as debt continues to rise along with falling government revenues may undermine the local economy.

One solution is to generate revenue through privatization. It is important to note that privatization is a priority for the current prime minister Abiy Ahmed. The Ethiopian government plans to raise $7.5 billion from assets such as railroads and telecommunications company Ethio Telecom.

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