Tuesday, July 4, 2017

Premature de-industrialisation - Ethiopian edition

Consider this. Ethiopia may perhaps be the only economy which has grown at 11% a year since 2005. It has often been held up as a poster child of the new face of Africa, attracting big-brand FDI into its manufacturing sector, especially textiles and shoes. And its several advantages make it best placed for sustaining this growth.

It is one of the poorest countries, even in Africa, and therefore naturally with a very high catch-up potential. Its relative political stability, stronger bureaucracy, and very low wages make it a very attractive investment destination in Africa as well as provide an opportunity to increase its industrial base. And  manufacturing's share of GDP is lowest among all sub-Saharan African countries, with the average being 10.6%. 
But surprisingly, despite the very low base and wages, relatively favourable conditions, and the sustained very high economic growth rates, manufacturing value add has continued to decline steeply
In fact, during the decade when the economy grew at 10% annually, the manufacturing's share of GDP fell from over 6% in 2005 to 4.1% in 2015, well below the peak of 7.8% in 1997!

No comments: