Economics Country Analysis Research Paper

Economics - Country Analysis

Country Overview and Current Events (News)

Ethiopia, traditionally known as Abyssinia, is a landlocked Sub-Saharan country located at the Horn of Africa in East Africa, bordering Somalia, Kenya, Eritrea, Djibouti, Sudan, and the newly-created South Sudan. It covers approximately 1,126,829km2 of land; about the size of the state of Texas, and was, until the split of Sudan, the second-largest country in Africa. Being landlocked, Ethiopia largely relies on the port of Djibouti, to which it is connected by both rail and road. Economic elements such as this, together with the country's history, population, geography and economic performance have been explored in the subsequent sections of this text.

Population: the U.S. Census Bureau, in June 2013, estimated Ethiopia's population to be 93,877,025; a figure that makes the country the second-most populous in Africa, after Nigeria (World Bank, Index Mundi). Ethiopia's population has been on a steady increase and so has the labor force, which rose steadily from 33.8 million in 2004 to 43.9 million in 2012 (Index Mundi, 2013). Despite the apparent labor force growth, Ethiopia is widely regarded a poor country, with an approximate 38.7% of its citizenry living below the poverty line, a low life expectancy of 54 years, and a dependent population of 85% the total ( 79% youth dependency and 6% elderly dependency) (Index Mundi).

Political and Historic History: save for the 1936-41 invasions by Italy, "Ethiopia has never been colonized" (Nations Online). Emperor Haile Selassie dominated the country's politics from 1930 to 1974, when he was deposed by military junta Mengistu Hailemariam (Nations Online). Hailemariam's socialist stand did not go down well with anti-socialist organizations, which organized large-scale uprisings and coup attempts against the administration. Drought and refugee crises rocked the country and Hailemariam' administration was finally overthrown by the EPRDF and anti-socialism rebel forces in 1991 (Nations Online). Meles Zenawi took over as ruler, gaining the title 'prime minister' after the adoption of the country's new constitution in 1994 - a position he held until his death in 2012 (World Bank). The new constitution effectively brought to an end Ethiopia's thirty-year-old struggle with Eritrea, and instigated the nation's first multiparty elections in 1995. Following Zenawi's death, Hailemariam Dessalegn took over as prime minister in a historically peaceful power transition (World Bank).

Democracy: Prime Minister Dessalegn and his predecessor Zenawi both belong to the Ethiopian People's revolutionary Democratic Front (EPRDF), which has been leading "an ambitious reform effort to initiate a transition to a more democratic system of governance and decentralize authority" (World Bank). The party's efforts have seen powers devolved from the central government to regions, district authorities and village authorities (the World Bank). Leaders are elected through a two-phase democratic voting process, involving parliamentary and national elections (World Bank).

Economic System: Ethiopia's economy displays characteristics of both communism and socialism. This is quite reasonable, given Prime Minister Zenawi's communist stand. There is a significant degree of government intervention in the economy, with efforts aimed at rationalizing the same currently ongoing (MSU). The recent past has seen the Ethiopian government offload a number of state-owned corporations to the private sector, and take control of others such as the crucial sugar corporations, which are considered key to the implementation of the Growth and Transformation Plan (2010-2011 through 2014-2015) (MSU).

Family Income Distribution: the extent to which a country's income distribution deviates from the ideal is measured by the Gini coefficient, where 0 represents perfect equality and 100 perfect inequalities (World Bank). In calculating the Gini index, a country's "cumulative family income is plotted against the number of families, arranged in an ascending order," to give rise to the Lorenz curve (Index Mundi). The "ratio of the area between the Lorenz curve and the 45-degree line" representing ideality, to that of the triangle "below the 45-degree line" is in basic terms the Gini Index (Index Mundi). Ethiopia's Gini Index was measured at 33.6 in 2011, down from 40 in 1995; a figure that makes the country the most equal, in terms of family income distribution, in the East African region (World Bank).

Economic Size: with $410 as its per-capita income, and which is essentially "lower than the regional average," Ethiopia could be regarded one of the poorest nations, not necessarily in the region, but across the world (World Bank). This is despite the strong broad-based growth recorded by the Ethiopian economy in the past decade (World Bank). The GDP growth during this period averaged 10.6% p.a., more than double the regional average (the World Bank). Increasing levels of public investment and private consumption have been put forward as possible reasons behind the increase (OECD 138). The latter is more significant, especially because of the increasing size of the agricultural sector as a result of technological advancement. The government expects the economy to achieve middle-income status by 2023 (the World Bank).

Average Educational Attainment: approximately 60% of Ethiopia's population (aged 15 and over) is uneducated, with only less than 10% of the entire workforce having attained post-primary education (Index Mundi). Women make up approximately 60% of this uneducated percentage (Index Mundi). Ethiopia is one of the developing countries that experts believe will still have a relatively large uneducated population in 2050 (Index Mundi). High levels of illiteracy have been found to be an impediment to economic development because they translate to low levels of innovation, and make a country unable to compete in the fast-paced technology-driven world.

Primary Language and Ethnic Diversity: Whereas English is widely taught in Ethiopian schools, Amharic is the official language (Index Mundi). Ethiopia is rich in ethnic diversity, comprising "of more than eighty ethnic groups and as many languages" (Nations Online). The Oromos, Amharans and Tigrayans are the largest linguistic and ethnic groups (Index Mundi). The country's new constitution, promulgated in 1994, guarantees the different ethnic groups their political, cultural, as well as religious rights (Nations Online). More than 80% of the population belongs to the Ethiopian Orthodox and Muslim faiths, with Protestants, Catholics and traditional believers taking up the remainder (Index Mundi).

Natural Resource Endowment / Major Industries: agriculture and mining are the main industries in Ethiopia. Agriculture contributes approximately half of Ethiopia's GDP, not less than 75% of total exports, and is the largest employer in the economy (MSU). Coffee is the country's leading export and foreign exchange earner - although khat, oilseeds, pulses, and leather goods also contribute significantly to the export base (MSU). Tantalum, marble, gold and limestone are the main non-agricultural exports, with gold bringing in almost 20% of annual export proceedings (MSU). The country is also endowed with iron ore deposits, potash, and natural gas (MSU). The economy's potential has, however, yet to be fully realized, mainly because of poor governance, corruption and high illiteracy levels (MSU).

The Global Recession: with a population exceeding eighty million, Ethiopia happens to be one of Sub-Saharan Africa's fastest-growing economies. Although the country recorded a modest fall in foreign investments, remittances and exports in the years immediately following the 2007 financial crisis, current statistics, as shown and analyzed in part two of this text, indicate not only recovery, but improvements above pre-crisis levels (Index Mundi, World Bank).

Critical Issues Facing Ethiopia

HIV / AIDS: there has been a significant decrease in the number of HIV-related deaths in Ethiopia (280, 000 in 1999 to 67,000 in 2007) (Index Mundi). HIV is, however, still a fundamental concern because this figure is still substantially high, especially when compared to figures obtained from the developed world.

Poverty: 29.6% of Ethiopia's population lives below the poverty line (World Bank). This represents a 9.1 percentage point decrease from the 38.7% figure reported in 2005 (World Bank). The decrease in poverty levels can largely be attributed to the implementation of the Growth and Transformation Plan (GTP), which seeks to further bring down the said levels to 22% by 2015 (World Bank). The plan comprises of a number of MDGs (millennium development goals). The country has already achieved the MDG "for child mortality and is on track for achieving them in gender parity in education, HIV / AIDS and malaria" (World Bank).

Summary

It is undisputable that Ethiopia has a rich natural resource endowment, is strategically located, enjoys a wide range of cultural, ethnic and religious diversity, and is one of the world's oldest civilizations. Moreover, compared to other East African countries, Ethiopia is seen to display a stronger, more equitable economy, relatively steadier GDP growth, and more commitment towards the fulfillment of long-term development plans. The question then, is; why isn't Ethiopia the most developed country in the East African region? The next step in this study involves establishing the possible reasons as to why Ethiopia's economic state is not representative of the advantages and strengths it enjoys.

Part 2: Macroeconomic Analysis: Creation of Tables and Graphs of Data and Analysis of Data

I) Real GDP Growth

Table 1: Ethiopia's GDP Real Growth Rate between 2001 and 2011

Year

Real GDP Change

2001

7.3

2002

5.5

2003

-3.8

2004

11.6

2005

8.9

2006

10.6…