On Ethiopia

If you are like me then you have kept up with the news in recent years out of countries in East Africa such as Sudan and Somalia. Often involved in these stories has been Ethiopia, a country that it seems has been helping the US in various matters in the region. In the Nov. 3 issue of The Economist there was a good "briefing" article "A brittle Western ally in the Horn of Africa". It gives a good overview of recent history of that country, both improvements made in recent years and the many troubles still faced. The last half is mostly about the near-term strictly political issues, but what I found more interesting are the long-term and quite devastating economic (and political) issues. Here is that section:

The fact is that for all the aid money and Chinese loans coming in, Ethiopia's economy is neither growing fast enough nor producing enough jobs. The number of jobs created by flowers is insignificant beside an increase in population of about 2m a year, one of the fastest rates in Africa. Since every mother has about seven children, it is conceivable that Ethiopia, with 75m-plus people today, could overtake Nigeria (now 140m-strong) as Africa's most populous country by mid-century. Just to stand still, let alone make inroads into poverty, the country must produce hundreds of thousands of jobs a year.

It is hard to see where they will come from. The government claims that the economy has been growing at an impressive 10% a year since 2003-04, but the real figure is probably more like 5-6%, which is little more than the average for sub-Saharan Africa. And even that modestly improved rate, with a small building boom in Addis Ababa, for instance, has led to the overheating of the economy, with inflation moving up to 19% earlier this year before the government took remedial action.

The reasons for this economic crawl are not hard to find. Beyond the government-directed state, funded substantially by foreign aid, there is—almost uniquely in Africa—virtually no private-sector business at all. The IMF estimates that in 2005-06 the share of private investment in the country was just 11%, nearly unchanged since Mr Zenawi took over in the early 1990s. That is partly a reflection of the fact that, despite some privatisation since the centralised Marxist days of the Derg, large areas of the economy remain government monopolies, closed off to private business.

This is where Ethiopia misses out badly. Take telecoms. While the rest of Africa has been virtually transformed in just a few years by a revolution in mobile telephony, Ethiopia stumbles along with its inept and useless government-run services. Everywhere else, a plethora of South African, home-grown and European providers has leapt into the market to provide Africans with an extraordinary array of cheaper and more efficient services, now used even by the poorest of farmers, for instance, to check spot prices for agricultural goods in markets miles away. And the mobile-phone revolution has created thousands of new livelihoods; at times it seems as if every boy on a street corner is hawking a top-up card. Not in Ethiopia.

It is the same story in financial services, where, despite the growth of some smaller private banks, no foreign banks are allowed. Micro-finance schemes have expanded exponentially, but it remains almost impossible to find start-up loans for small or medium businesses.

There is no official unemployment rate, but youth unemployment, some experts reckon, may be as high as 70%. All those graduates coming out of state-run universities will find it very hard to get jobs. The mood of the young is often restless and despairing; many dream of moving abroad. It was this mood of resentment that the opposition tapped into in 2005, and the capital's maybe 300,000 unemployed young men proved a combustible force on the streets. The ruling party, the Ethiopian People's Revolutionary Democratic Front (EPRDF), underestimated the degree of disillusion with its policies, and thus overreacted when the opposition polled much better than expected.

Unless the private sector is allowed to create jobs, the country's problems will continue to mount and the gains of development may be squandered. Sooner rather than later, 2m more people a year will overwhelm a state that is trying to provide most of the jobs itself.