Welcome to Scribd. Sign in or start your free trial to enjoy unlimited e-books, audiobooks & documents.Find out more
Download
Standard view
Full view
of .
Look up keyword
Like this
3Activity
0 of .
Results for:
No results containing your search query
P. 1
01.12 - Info a a Nr 80_10 01 2012 ANEXA Ethiopia

01.12 - Info a a Nr 80_10 01 2012 ANEXA Ethiopia

Ratings: (0)|Views: 83|Likes:
Published by Chirag Fulwani

More info:

Categories:Types, Reviews, Book
Published by: Chirag Fulwani on Jun 21, 2012
Copyright:Attribution Non-commercial

Availability:

Read on Scribd mobile: iPhone, iPad and Android.
download as PDF, TXT or read online from Scribd
See more
See less

11/17/2012

pdf

text

original

 
ACCESS CAPITAL
Ethiopia: Macroeconomic Handbook 2011/12
The 2011/12 Macroeconomic Handbook is the third such annual report  prepared by Access Capital. As in the past, we organize our report around ten major economic and business themes. For this year, given the launch of a new Five-Year Growth and Transformation Plan, we take a long-term look 
at Ethiopia’s overall growth prospects (Chapters 1
-4); highlight the pressures faced by private business from certain macroeconomic and regulatory policies (Chapters 5-6); and finally present our views (inChapters 7-10) on reforms that we think can help ensure a favorableeconomic and business outlook. We also offer an Annex with Access
Capital’s macroeconomic projections for the year ahead.
  Access Capital Research December 30, 2011
 
2
Ethiopia Macroeconomic Handbook 2011-12
Macroeconomic Handbook 2011/12: Executive Summary
Four growth drivers
 — 
Public Investments, an Agricultural Transformation, a Consumer GoodsRevolution, and Emerging Export Industries
(or ―P
-A-C-
E‖)— 
will support a rapid pace of economicexpansion in Ethiopia in the coming years.
1.
 
Massive
public infrastructure investments
are set to deliver a wide range of public goods
 — 
roads,railways, power plants, schools, and clinics
 — 
while simultaneously propping up thousands of private sector companies involved in building and maintaining these brand new public facilities.2.
 
A genuine
agricultural transformation
 — 
involving a proliferation of modern commercial farmsas well as a leap in the productivity of smallholder agriculture
 — 
is in our view a very realisticpossibility in the next few years, and will hence be a key driver of economy-wide growth.3.
 
A
consumer goods revolution
is just beginning
among Ethiopia‘s
increasingly urban populationand will no doubt gather substantial momentum in the next five years.4.
 
Emerging export industries
 — 
in mining, manufacturing, and exportable services
 — 
are alreadymaking their mark as sources of growth in the Ethiopian economy and will soon overtaketraditional foreign exchange earnings from coffee and other agricultural goods.
However, two
overwhelming pressures in Ethiopia’s
current economic climate
 — 
inflation andchallenging new regulations
 — 
are putting strains on private business and could potentially dent the
country’s
positive growth prospects:
5.
 
High inflation has been and remains a major weakness of economic policy, and poses seriousthreats to the business environment by discouraging savings and distorting investment decisions.6.
 
Abrupt and challenging regulatory changes have also brought additional pressures to businessesin the areas of licensing, registration, taxation, retailing, land acquisition, real estate, and banking.
Fortunately, these recent pressures
 — 
including inflation
 — 
can be addressed and contained byactions firmly within the control of domestic economic policymakers. Indeed, taking an economicpolicymaker
s view, we would:
7.
 
Privatize the
BIG 5
‖ state
-owned companies, even if just partially, as this not only provides amajor source of GTP financing but also offers a cure for inflation.8.
 
Modify regulatory policies that inflate business costs and depress urban consumer incomes.9.
 
Go for bolder and more unconventional agricultural policies, as would be more fitting for adevelopmental state.10.
 
Put in place a smarter set of policies for the financial sector, the lifeblood and vital
―circulatory
system
for any fast-growing and modernizing economy
 
3
Ethiopia Macroeconomic Handbook 2011-12
1.
 
Massive public investments are set to deliver a wide range of public goods
 — 
roads, railways,power plants, schools, and clinics
 — 
while simultaneously propping up thousands of privatecompanies involved in building and maintaining these brand new facilities.
 
Key Points:
 
Public investment, involving spending by both government and state enterprises, will be one of the primary engines of the Ethiopian economy for many years to come.
 
Even if not fully implemented, the scope and scale of the planned public investment is massive,and involves vast new initiatives in both traditional government activities (road-building, powerplants) as well as in much less traditional ones (sugar factories and metal industries).
 
An often unrecognized feature of such large-scale public investment is just how much of itactually flows into private sector companies, large segments of whom stand to be majorbeneficiaries of bigger government budgets.Public investment has in recent years been one of the major drivers of economic growth inEthiopia.
Total government spending, which is for the first time crossing Birr 100 billion this year, hasdoubled in just the last three years and quadrupled in the past six years (Table 1.1). Expressed in relationto GDP, total government spending now makes up nearly one-fifth of GDP. Besides the growth ingovernment, the activities of state enterprises have multiplied in parallel, a trend best captured by the five-fold rise in their borrowing from the banking system, which is up from Birr 8 billion about five years agoto an estimated 42 billion in FY 2010/11. The combined economic weight of both government and stateenterprise activity has led to a situation where roughly two-thirds of all banking system credit is nowdirected to the public sector (Table 1.2).
1
 
A five-year Growth and Transformation Plan (GTP) enacted in early 2011 has set the stage for aneven bigger role for public sector spending in the coming years
. For the five-year GTP period as awhole, the sum of budgetary government spending and off-budget spending by public enterprises isprogrammed to reach Birr 1.26 trillion, or an average of 41 percent of GDP
 per year 
over five years(Table 1.3). In short, the equivalent of two-fifths of total economic activity will be linked to public sectoractivity in the coming years. One of the most distinctive features of the public spending envisaged aboveis the unusually high level of 
capital
expenditure, which will see its share rising from 56 to 61 percent of total government expenditure.
2
We find that Ethiopia now has the highest capital expenditure share ingovernment spending among African countries, where the normal capital expenditure share ingovernment spending is near 25 percent (Table 1.4). This means that much more spending is beingfunneled to capital projects (roads, power plants, water systems, etc.) and to capital equipment (machineryand equipment imports), rather than to current expenditure items such as wages, salaries, and operationaland maintenance costs.
1
Data for government expenditure based on MOFED budget data. Credit to government and credit to public sector figures fromthe IMF Staff Report of November 2010(www.imf.org), with FY 2010/11 representing estimates.
 
2
 
Beyond the high concentration on capital spending, two equally notable elements of the GTP public sector spending plans areits large borrowing requirements and its substantial foreign currency demands, issues that are addressed later in Chapter 7.
 

You're Reading a Free Preview

Download
scribd
/*********** DO NOT ALTER ANYTHING BELOW THIS LINE ! ************/ var s_code=s.t();if(s_code)document.write(s_code)//-->