Ethiopia’s economy is expected to overtake Kenya’s this year, buoyed by massive government spending on infrastructure that has kept the Horn of Africa nation in the list of the world’s fastest economies in the past 10 years.
The International Monetary Fund’s (IMF) latest statistical estimates indicate that Ethiopia’s gross domestic product (GDP) is forecast to grow from $61.62 billion in 2015 to $69.21 billion this year, narrowly beating Kenya’s output which is expected to rise from $63.39 billion to $69.17 billion over the same period.
“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 say in the latest African Economic Outlook report.
Kenya’s GDP of $14.1 billion in 2000 was 71.6 per cent larger than Ethiopia’s $8.23 billion in the same year but the Horn of Africa nation has closed the economic gap in the last five years of robust growth.
The IMF’s GDP estimates are based on current market prices using exchange rates prevailing between July 22 and August 19.
Having established its economic lead ahead of Kenya, Ethiopia is forecast to maintain its position as Eastern Africa’s largest economy over the medium term — a position that is also expected to improve its standing as an investment destination.
Ethiopia’s rise as a regional economic powerhouse has mostly been fuelled by mega public sector investment similar to the Chinese model that has enabled the Asian nation to become the world’s second-largest economy in two decades.
Ethiopia’s investment, as a percentage of GDP, rose sharply from 20.2 per cent in 2000 to 39.2 per cent last year and is expected to hit a new high of 39.2 per cent of the domestic output this year.
While Kenya has also raised its public investments, including on big infrastructure projects, it remains significantly below that of Ethiopia.
Kenya’s investment as a percentage of GDP rose from 18 per cent in 2000 to hit a high of 22.4 per cent in 2014 before receding to 21.2 per cent last year and is projected to rise to 22.5 per cent this year.
Ethiopia’s economy is expected to grow further riding on the state-led investment in infrastructure, according to the African Economic Outlook report.
“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, prioritised to ease bottlenecks to structural transformation, which will still have to take shape with industry playing a significant role in the economy,” the report says.
Ethiopia’s ongoing projects include the $5 billion Grand Renaissance Dam with a generation capacity of 6,000 megawatts, which is expected to earn the country $1 billion annually from electricity sales, including exports.