The new east african land of opportunity

Economy - Transport - Tourism - Agriculture - Finance - Trade & Industry - Coffee/Sugar -
- Privatization - Telecoms - U.N. - Corruption - Conflict - Future Prospect


The new market oriented economic policy and the various economic reform measures so far undertaken by the government have resulted in encouraging outcomes. The economy for the last 6 years has been growing at annual average rate of 7 percent. The inflation rate, as a result of tightly controlled government expenditures has declined from a pick rate around 20 percent in 1992 to below 4 percent at present, the country's foreign exchange revenue has dramatically improved reaching a sufficient level to cover its import for over six months.

Mr. Sufian declares " Now regarding the macro economic stability of the country, we are in good shape. Meaning, we do not have high inflation, instead our inflation has been lowered to 3 percent. We have an economic growth of 6 percent".

The economy is getting strong through time by maintaining stable rate of foreign exchange and budget surplus instead of the previous budget deficit. He adds, "Our exchange system is fairly stable, and particularly in the fiscal aspect, we managed, to have surplus instead of budget deficit."

The establishment of private banks since 1995 has helped to enhance the private sector participation in banking business and also created conducive condition for competitive financial market. Mr. Sufian states "Our banking system should be loaded, competitive, and help the economy. In the last years, we encouraged new banks to enter into the system for domestic investors. As a result, we have now over six private banks operating in Ethiopia. We have restructured our business, our construction, our agriculture and our development banks. At present, we are thinking of strengthening our biggest bank, the Commercial Bank of Ethiopia."

Commercial Bank of Ethiopia is known for its short-term credit. The giant Commercial Bank of Ethiopia has been providing only short-term credit that is used mainly for carrying inventories and financing the production of export items.

However, in recent years when privatization started to take place by strengthening financial position of entrepreneurs and investors, Commercial Bank of Ethiopia has started providing 3 to 5 years long-term loans. These loans' time extension has helped many businessmen to participate in tenders in the process of privatization.

Commercial Bank of Ethiopia

Mr. Tilahun Abbay, president of the Commercial Bank of Ethiopia, discloses the dominance of the Commercial Bank of Ethiopia in the financial sector. " The role of the Commercial Bank of Ethiopia, by virtue of its size is enormous. Our bank is also the only one involved in privatization financing.

We are financing all interested privatization agencies. We require a feasibility study on the basis of equity ratio, the greater portion 60 to 70 percent, and investor will provide the rest. We are the only bank involved in this kind of financing. Because of our size and our deposit structure, we can afford to lend, immediate and long terms."

Businessmen who participate in foreign trade are also entitled to borrow from the Commercial Bank of Ethiopia without any restriction. Especially coffee exporters are entitled to get higher amount of long-term loan. This is the good will of the Commercial Bank of Ethiopia's financial policies which have empowered the practical implementation.

The Commercial Bank of Ethiopia by taking as a guarantee, central government's budget allocation to the regions, provides loans to the farmers.
Financial liberalization measures during the last 6 years have been more of prudential character and they have resulted in a certain degree of financial deepening and improved financial intermediation.

Paving the Way

Despite the road transport being the dominant means of movement compared to rail, air and water transport system, due to its low density it can only serve about 20 percent of the country. The road network presently consists of only 24,571 km of trunk, major link, main access and regional (rural) roads. The trunk roads have a length of 5,575 km, the major link roads 4,985km, main access roads 3,051km. Similarly, the regional roads total length does not exceed 10,960km.

In addition to the classified road network, there are about 30,000km of unclassified low standard, dry weather tracks and trails. Some of these tracks and trails are barely passable by pack animals and pedestrians.

The existing road network is one of the lowest in Africa. The road network density coverage is estimated at 21km per 1000 sq. km and 0.43km per thousand population (without considering the unclassified roads).

Mr. Girma Birru, Minister of Economic Development and Co-operation

Mr. Girma Birru, Minister of Economic Development and Co-operation, discloses, "Compared with our population, we have indeed the lowest road density in the world. About 70 - 75 percent of the population has to travel half a day to reach the roads."

The government has got a special program, to tackle the problem of the inadequate coverage of the road network. The main focuses of Road Sector Development Program are rehabilitation of trunk roads, up grading interventions and constructing new inter - urban roads. Mr. Girma - Says, " We have planned to spend 3 - 5 billion dollar and 50 percent of the national budget for the maintenance and upgrading of roads. Therefore, we welcome all major contractors coming from outside to build and upgrade our roads. We have a plan of ten years for road development. This year we are planning to give over 2500 km of roads for different foreign contractors.

Since the Ethiopian economy is one of the under developed economies, which would suffer from deficit and balance of payments problems, its reliance on foreign loans and grants is rather deep. Furthermore, it is becoming more and more deep-rooted as time passes by. Since the domestic economy leaves an insignificant amount of savings for capital formation (investment) and the development efforts of the government tend to depend on foreign resources for its achievement. Mr. Girma says, "Our first process is to mobilize foreign grants and loans for the investment program."

The role of IMF and the World Bank in the development efforts of Ethiopia's economy is significant. Mr. Girma says "Since 1992, we were able to install our economic reform program with the assistance of the World Bank and IMF."

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© World INvestment NEws, 1999.
This is the electronic edition of the special country report on Ethiopia published in Forbes Global Magazine.
July 26th 1999 Issue.
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