India-First-Global-Insights-Analysis -Sharing-PlatformIndia-First-Global-Insights-Analysis -Sharing-Platform

Ethiopia: The Chinese way doesn’t work, the made in India, yes!

, February 23, 2018, 1 Comments

ethiopia-chinese-india-marketexpress-inMore than any other East African country, Ethiopia is hit by an effervescence that illustrates a growth rate close to 10% for more than a decade, familiar in Asia but singular in Africa. At this rate, GDP more than tripled in less than 15 years. And Ethiopia is not a small petro-monarchy.

Its hundred million inhabitants make it the second most densely populated country in Africa, and it will reach some 200 million in 2050 in a little over one million square kilometers, which is still a reasonable density, especially since its demographic transition is well underway.

Would the country of famines, sadly as mediatized as those of 1972 or 1984, be the country of an ‘economic miracle’ as it is sometimes painted? Would the ‘Chinese solution’ he claims to be inspired by, a good recipe for Africa? Not really convincing in both cases, as the forced resignation of the Ethiopian Prime Minister has just shown. But a good reading of the Ethiopian model with its assets and challenges can help to approach successfully an African economy as attractive in the future as Nigeria for example.

Let us start with the myth of the ‘Chinese way’ and its famous win-win slogan. China has undeniably targeted Ethiopia and hugely supported its authoritarian regime. But it’s a win-win game for herself and dubious for Ethiopia. China has indeed fuelled an infrastructure boom whose recent inauguration of the railway line to Djibouti is symbolic. But it is almost entirely financed on credit and first of all design to export its own products and equipment and eventually import raw materials that it has precluded throughout the region. As a result, Ethiopian debt explodes like the height of the towers built by the Chinese construction giants and as disruptive as the red Sinotruck trucks that sow terror on rural roads.

Officially, the infrastructure-driven growth model was to be based on a new small exporting dragon. The problem is that neither the administration, nor the labour force, let alone the location far from the coast, has produced a tidal wave of productive foreign direct investment, as China experienced at the beginning of its miracle. As a result, Ethiopia exported less than $3 billion last year, of which only a few hundred million were manufactured goods, while it imported more than $17 billion, probably half of which from China, taking into account the parallel flows. A record trade deficit about which the IMF is quite rightly concerned.

This is the second weakness of the Ethiopian model. Its undeniable effervescence across the country is in fact the result of two juxtaposed economic models. On top, a highly centralized and corrupt economy with a ruling party (EPRDF) colluding between northern Tigrayans who represent only 6% of the country’s population and who have been trying for 25 years to buy social peace with a double-digit growth driven by infrastructure and construction but at the cost of inflation exceeding 10% and a quite unsustainable domestic and external indebtedness.

At the bottom, a highly decentralized economy in the regions (except for taxes and their redistribution and therefore an object of permanent friction with the Center) that take advantage of the ingenious federalization of late Meles Zenawi and of the infrastructure boom to exploit the country’s enormous agricultural potential and massively import products not only made in China but also made in India. The Rickshaw and Indian motorcycles have invaded the country to the point that the word “Bajaj” has become more popular than any Chinese brand.

In the middle, the void. Youth underemployment is estimated at more than 70 per cent, and people’s basic needs such as access to safe drinking water, decent housing or minimum daily food rations are not met. In short, the very opposite of the Chinese model which ensures the legitimacy of the ruling Communist Party.

Pessimistic picture? No. The regime can no longer hide the permanent “rebellions” that are breaking out across the country. And the desire to stifle them by tightly controlling mobile networks and the Internet is only worsening the country’s backwardness in new technologies whereas they explode everywhere else in Africa.

The ruling party seems to be aware of the necessary reforms and that it needs to open up to other community/nations, particularly Oromos and Amharas, who represent more than two thirds of the population and above all, the true core of a national capitalism without which no endogenous development is possible. Reforms by will or by force, this is the real question, ultimately, for Ethiopia to enter a new phase of its transition towards a sustainable economic development. This emerging power has a bright future. Indian companies are right to target it.

Image Credits: Dr. Jean Joseph Boillot

  • Alex

    I visited Ethiophia one year ago..and I can say that this article describe the true reality. For example in Addis Abeba palaces are built in debt everywhere whose apartments few people can buy cause of too high prices
    In the popular markets and in the shops, only products imported from China are sold