Ethiopia surpasses Kenya to become east Africa’s top economic giant

According to data from the International Monetary Fund’s (IMF) Ethiopia’s annual economic output, also known as the gross domestic product (GDP), hit $72.52 billion (Sh7.4 trillion) last year from $64.68 billion in 2015 and is expected to touch $78.3 billion this year. This has opened a Sh3 billion gap against former leader Kenya to make it East Africa’s top economic giant.

Ethiopia’s winning qualities

The country’s growth has been attributed to public-led spending on infrastructure and a robust domestic demand.

The African Economic Outlook report said “Public investments are expected to continue driving growth in the short and medium term with huge investments in infrastructure and the development of industrial parks, prioritized to ease bottlenecks to structural transformation, which will still have to take shape with industry playing a significant role in the economy,”

The landlocked country is now an emerging industrial hub offering manufacturers, mostly Chinese firms, cheaper electricity at Sh6.9 (6.7 US cents) per kilowatt hour (kWh), half Kenya’s industrial tariff of Sh14.22 (13.8 US cents). Similarly a number of projects in Ethiopia such as the $5 billion (Sh515 billion) Grand Renaissance Dam and the $475 million (Sh48.9 billion) 32-kilometre light rail project (first metro service in sub-Saharan Africa) may well steer the country’s economic output even further.

The Light Rail System opened on Sunday Photo: ethiopiavid

Also with a population twice that of Kenya, Ethiopia’s large labor force and huge domestic market has proved attractive to investors.

“Ethiopia has experienced double-digit economic growth, averaging 10.8 per cent since 2005, which has mainly been underpinned by public-sector-led development,” the African Development Bank, the OECD Development Centre and the United Nations Development Programme said in the latest African Economic Outlook report.

Read: Africa’s future is urban

Further to these much of Ethiopia’s success is due to the dominance of the state in the economy. The nation exports very little compared to its African peers and capital controls mean the currency (the birr) has retained its value despite the global downturn i.e. In 2016 the continued failure of commodity prices to recover significantly and the global slowdown of economic growth, especially in China and other emerging markets, made 2016 a tumultuous year for many African economies.

Airbus A350 XWB water cannon salute Photo: Ethiopian Airlines/Twitter

Kenya’s weaknesses

Kenya lost its glory as the leading country in the region on matters economy as soon as Ethiopia rushed to modernize its roads, railways and power plants as from 2015.

Another major factor working against the country according to the latest 2017 Human Development Index (HDI) which shows despite Kenya being the largest economy in East Africa; millions of its citizens are still languishing in poverty without any tangible economic activity.

Read: Between Global Policy and National Development Agendas: From Talk to Action

“While Kenya has shown progress in promotion of human development — in improving access to education, health and sanitation, with more people rising out of extreme poverty — several groups remain disadvantaged,” the UN says in the report.

Kenya’s rate of unemployment is equal to those of neighboring Ethiopia and Rwanda combined, highlighting the paradox of economic policies that have sustained growth without generating jobs — culminating to poor distribution of the benefits of growth.

Ugandan anti-corruption sign. Corruption greatly undermines government effectiveness. Photo: futureatlas.com/Flickr/ www.futureatlas.com

Other Factors Include;

1. Corruption- Thanks to corruption, Kenya losses a third of its state budget -the equivalent of about $6 billion – to corruption every year according to the latest statistics from Ethics and anti-corruption commission.

2. Collapsed industries- A country without industries is a dead country. Kenya had more industries in the 80’s – 90’s than it has now, as mismanagement and corruption have driven Kenya’s once vibrant industries and parastatals to a slow painful death

3. Commercial degrees- According to World Bank estimates, close to 800,000 youth, mostly from the numerous institutions of learning, enter the Kenyan job market annually. Out of this number, only about 70,000 may succeed in securing professional employment in the formal sector.

4. Nairobi was recently ranked the second-worst city in the world with the most traffic congestion only after Kolkata (formerly Calcutta) in India. According to the website numbeo.com based in Serbia, 2017 Traffic Index on average, Nairobians spend 62.44 minutes on traffic while in Kolkata they spend an average of 68.86, Mumbai (60.11), Jakarta (56.98) and Manila ( 56.77minutes)

Overall Comparison

Even having been removed from the top position Kenya’s capital city Nairobi’s attractiveness to multinationals, boils down to its location and favorable business environment.

“There are numerous factors which impact on the organization’s selection of a specific city. They include the local market potential, maturity of the industry, existing competitors, political stability, maturity of industry, business language, quality of the employment market, laws and regulations,” said a report by Infomineo, a global business research company specializing in Africa and the Middle East.

Kenya’s capital city Nairobi. Photo: KenyaBuzz.com

Equally, Nairobi again was ranked as the most intelligent city in Africa according to an article appearing in the CNN. Nairobi was the only African city to appear on their shortlist of 21 hubs throughout the world for 2015 the Intelligent Community Forum.

“Intelligent communities” are those that have taken “conscious steps” to create an economy that can prosper in the “broadband economy.”

Ultimately Kenya can still claim the richer economy compared with Ethiopia.

Ethiopia’s GDP per capita stood at $686.5 (Sh69, 345) last year and is projected to rise to $758.9 (Sh76, 648) this year, compared with Kenya’s, which stood at $1,434.3 (Sh144, 864) in 2015 and is expected to hit $1,521.8 (Sh153, 701) this year.

Besides a richer consumer base, Kenya has a relatively more developed financial sector and human resources and is improving its standing as a regional transport and communications hub with access to the sea.

But most notably, the dissimilarity between the two countries centers around security and governance, key factors affecting respective development trajectory, whatever Kenya’s comparative advantages of geography and arithmetic.

Perhaps the most important reason for Ethiopia’s stellar growth performance is its political stability. It has, for a start, a state that works – in striking contrast to many other African countries such as, most obviously, Kenya or Nigeria. As the oldest state in Africa, and the only one to retain its independence through the colonial era, it rests on engrained habits of command and obedience which means that the government has a capacity, shared by few African states, to make and effectively implement policies and in turn better governance also means less corruption and better value for money.