Report recommends intensifying export efforts, increasing private investment in manufacturing
The Ministry of Finance and Economic Development (MoFED) presented a 134 page report to parliament analyzing the performance of the first three years of the Growth and Transformation Plan (GTP). It looks at the micro and macroeconomic state of the nation since the program came into existence. The assessment offers a mixed bag as some goals were achieved while others did not meet expectations. There were greater hopes for structural changes to occur in the economy than actually did; despite the economic growth the country has been experiencing.
Inflation, lower than expected achievement in agriculture, and the lack of engagement by the private sector in manufacturing were major obstacles during the first three years of the GTP that caused it to register lower than expected results.
The gross consumption expenditure against the GDP has declined to 82.3 percent in the past fiscal year, from 87.2 percent in the previous fiscal year. The private consumption expenditure, that took the major share, has declined to 75 percent of the GDP in the past fiscal year compared with 78.6 percent in the 2010/11 fiscal year and similarly the government’s consumption expenditure has declined to 7.3 percent of the GDP from 8.6 three years ago.
The report stated that an increased culture of saving in the past three years is considered to be the main reason for the decrease of the gross expenditure. The main direction in the macro economy of the GTP is to expand domestic savings and increase investment.
Domestic saving has greatly affected the macro economy. According to the report delivered to the House of Representatives, in the 2009/10 fiscal year domestic saving was 5.2 percent of the GDP but this figure tripled to 17.7 percent in the 2012/13 fiscal year, and is expected to grow to 20 percent by the end of the GTP. The actual target to be met during the GTP with regard to domestic savings was 15 percent of the GDP. Because of this the government revised its plan and raised the figure by five percent as a target.
From the total GDP, investment the share has grown to 33 percent from 27.9 percent three years ago.
Even though savings have grown greatly, the gap between investment and savings is still very wide. The discrepancy between savings and investment was 15.2, 18.1 and 15.3 percent in the 2010/11, 2011/12 and 2012/13 fiscal years respectively.
In the past three years the government revenue including grants averaged 113 billion birr and from this 89 percent has been collected from local sources and the balance from grants.
During the past three years Inland Revenue averaged 32.62 percent growth, while its collection reached 124.1 billion birr in the past year an increase from 53.86 billion birr in the 2009/10 fiscal year.
According to MoFED’s report, in the past three years of the total revenue collected from local sources 85 percent is from taxes, which indicates that the country’s tax collection is growing significantly, still it did not meet the goals of the GTP.
On average, in the past three years, the government has consumed 124.06 billion birr every year and from this 59 percent went to the capital budget.
In the 2010/11 fiscal year agricultural products were 45.6 percent of the GDP but they declined to 42.9 percent in the past fiscal year (2012/13). The industrial and service sectors were 12.4 percent and 45.2 percent of the GDP respectively up from 10.5 and 44.5 percent in the 2010/11 fiscal year.
According to the report, the unemployment rate in urban areas declined to 16.5 percent in the past fiscal year, down from 18.9 percent three years ago. The country’s per capita income in the 2009/10 fiscal year was USD 377, that figure grew to USD 550 in 2013. Based on this growth the percentage of people who live below the poverty line shrunk to 26 percent from 29.6 percent.
Agriculture, especially cereal is the major contributor to the new economic growth, even if it’s achievement is very far from the GTP target that government set at the beginning of the five year plan. In the past fiscal year agricultural production from major food items was 251.05 million quintals, which is a growth of 18.61 percent compared with the preceding year, when it was 232.44 million quintals. Even though agriculture has grown it has not met the production amount per hectare that the government hoped for. The report stated that producing major food products did not meet the goals for the fiscal year. Construction, wholesale and retail businesses, hotels and restaurants, transportation, communication, education and health are the major contributors to the economic growth.
In the past fiscal year the country earned USD 476.9 million from service exports, which experienced 536.7 percent growth compared with the preceding year. In the 2011/12 fiscal year the country earned USD 75 million from those exports. Manufacturing makes up only five percent of the GDP which indicates that the country’s goal of transforming to an economy based on manufacturing from agriculture has not yet been met.
Even though the manufacturing sector registered growth in the past three years, the export performance is lower than 50 percent of the target. The industry was supposed to contribute 15.3 percent of the GDP by the 2012/13 fiscal year but it was only 12.4 percent.
Manufacturing that focuses on import substitution especially in the cement sector has registered impressive growth. For instance in the past fiscal year the country’s cement production has reached a staggering 12.5 million tons from a mere 4.7 million tons in the 2010/11 fiscal year.
The export sector that was highly expected to expand in the five year plan has continued registering very poor performance; however the government offices have stated several reasons for this achievement.
According to the government target, the export revenue is expected to reach USD 10 billion by the end of the GTP including USD 2.5 billion in earnings from the manufacturing sector, but the actual achievement from manufacturing, agriculture and mining is very weak.
In the first three years of the GTP the country earned 2.7, 3.2 and 3.1 billion USD from exports in the 2010/11, 2011/12 and 2012/13 fiscal years respectively. Even last year’s performance shows that the revenue dropped compared with the preceding year. The first half of this year’s export performance is also very far from last year’s total and the GTP target.
MoFED report recommends expanding the country’s export revenue be given high priority. According to the ministry, to meet the set target variety, volume and quality of goods must increase and expanding the agricultural production and the manufacturing sector is crucial.
While exports are not showing tangible growth, imports are continuing on their vertical path. In the 2010/11 fiscal year, the beginning of the GTP, the country import volume stood at USD 8.3 billion, it has since grown to USD 11.1 billion within a year and USD 11.5 billion in the past year. Due to weak performance in the export sector and high growth in imports, the country’s import export gap has expand to USD 8.4 billion in the past fiscal year, which was previously USD 5.5 billion in 2010/11.
In the 2011/12 fiscal year the country’s exports covered imports by almost one third or 29 percent but have since declined to 27 percent in the 2012/13 fiscal year. The report recommends intense focus on narrowing the growing gap in balance of trade.
Private transfers taking place via individuals and non-governmental organizations in the past fiscal year was USD 3.9 billion, which was 3.2 billion USD in the 2011/12 fiscal year. International financial institutions and donor transfers declined to USD 1.3 billion from USD 1.8 billion in the 2011/12 fiscal year.
In the past three years foreign direct investment came to USD 3.59 billion. The nation’s national reserves can cover 2.22 months of imports a figure which has declined over the past two years, according to the report.