‘It’s our moment’: Ethiopia reforming to become African gateway

Ethiopia’s finance minister, Ahmed Shide, tells GlobalMarkets that Ethiopia is preparing to open up to the world and plans to establish the country as a gateway for Africa

  • By Lewis McLellan, Toby Fildes
  • 18 Oct 2019
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In an exclusive interview with GlobalMarkets, Ahmed Shide, Ethiopia’s finance minister, said Ethiopia can become a gateway to Africa through an ambitious programme of reforms and infrastructure investment.

Ethiopia has an unusual competitive advantage compared to many of its neighbours — access to large export markets, including Europe, the US, Japan and Russia without tariffs.

This, according to Shide, gives Ethiopia the opportunity to do something that several other sovereigns in the region have aspired to: become Africa’s gateway.

Ethiopia’s infrastructure spending has hitherto come directly from the government’s budget, funded by concessional lending from international financing institutions, or development partners including China and Saudi Arabia.

Shide added that loans from China had helped finance the Djibouti railway, which is an important “maritime gateway for Ethiopian products”.

Shide is not overly concerned about Ethiopia’s debt level — 61.8% of GDP, 33.3% external. “Our debt to GDP ratio is not a big problem. We’re more concerned about our export to debt service ratio,” said Shide. “That’s why we need to invest in infrastructure to boost exports.”

Ethiopia is also beginning to open up industries formerly dominated by state monopolies to free market competition. Ethio-Telecom and Sugar Corporation are both being assessed in preparation for privatisation.


Sources of funding

With other African neighbours struggling under the weight of Chinese debt, the sources of funding for the investments are just as important as the results. “We’re mindful of the threat of a debt trap, but we won’t fall into the same problem,” said Shide.

“Our overall debt is not that high, and 60% of it is in the form of concessional loans. Our concern more is the ratio of exports to debt service, which we will improve through our reforms.”

He added: “Directly funding such projects from our budget created good assets, but it causes concerns about debt sustainability. From now on, we intend to use a mix of public and private capital, channelling private investment into infrastructure.”

Clothing chain Uniqlo is moving some of its manufacturing operations to Ethiopia, which should increase its textile exports. Volkswagen is also considering making a similar move, GlobalMarkets understands.

Emmanuel Aubert, senior vice president at Lazard said: “There is good debt and bad debt. Some economies borrow to finance current expenditure. In Ethiopia’s case, it’s for capital expenditure and infrastructure investment, which is much more sustainable.”

Shide added that Ethiopia’s debt is not used to finance currency expenditure or “white elephants”, but for infrastructure investments “that will grow in value and generate long term income for the economy.”

Although Ethiopia appears to be doing what is needed internally to promote growth and economic development, external conditions are hardly ideal for an outsider to break on to the scene.


Export markets

With economic growth and global demand slowing, there is a risk of commodity price shocks and businesses battening down the hatches.

“We understand the challenges of the global environment, and the impact of slowing demand,” said Shide. “But we have some unique competitive advantages: we have a large population and a lot to offer. We have a lot of land. We have access to a lot of export markets, free from duty or quotas.”

Ethiopia’s prime minister Abiy Ahmed was last week awarded the Nobel peace prize.

  • By Lewis McLellan, Toby Fildes
  • 18 Oct 2019

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