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The government targets to boost export revenue by 29 percent in each year of the coming Growth and Transformation Plan (GTP II). It also stipulates in the 2019/20 fiscal year, the country will generate USD 16 billion in export revenue, while the manufacturing sector will account for 25 percent of total exports.
The government aims to continue developing basic investment sectors.
The government has launched public dialogue throughout the country on GTP II, which will be launched in the coming week. As part of the ongoing dialogue, the Addis Ababa City Administration had organized a two-day forum for the private sector at Hilton Hotel this week.
Vice governor and Chief Economist of National Bank of Ethiopia (NBE) Yohannes Ayalew said that GTP II will focus on expanding the export sector as in previous years.
Yohannes noted that export revenue is expected to grow by 29 percent each year for the next five years. He also said that expanding export is crucial to strengthening the private sector and supplying hard currency for the country’s development.
“In the coming years, we will expand the system to attain production targets, mainly in the manufacturing sector,” the chief economist said.
The industrial sector is expected to register significant growth in GTP II, consistent with targets that were set in GTP I.
The government similarly seeks to attract service sector actors to join the industrial sector by providing different incentives and strategies.
The government especially targets to attract the business community engaged in the service sector, mainly in the retail business, to the industry sector.
GTP I was expected to generate USD 10 billion in its last year – the current fiscal year. However, it only managed to achieve less than one third of the target.
The government has reportedly targeted to earn USD 16 billion in the 2019/20 fiscal year, which is the last year of GTP II.
Budget policy
GTP II is expected to feature an 11 percent yearly economic growth.
A set of five strategies has been devised to promote healthy macroeconomic conditions with stable foreign exchange that will facilitate an internationally competitive private sector.
Further, the budget deficit will reportedly remain under three percent of the GDP.
Gross inland revenue is expected to account for 18.8 percent of the GDP. The share of domestic savings, which currently stands at over 22 percent of the GDP, will also grow to 29.6 percent.
Investment will represent 41.3 percent of the GDP in the coming GTP.
Meanwhile, the industrial sector is expected to grow by over 18 percent in the next five years.
The chief economist said that the manufacturing sector will play a significant role to attain increased exports. Yohannes said that air transportation and tourism will contribute considerably to fetch hard currency. The manufacturing sector will also focus on light industries, while the government has planned to give special attention to heavy industries.
Fiscal and Monetary policy
Tax revenue is expected to reach 17 percent of the GDP, from 12.5 percent in the past GTP.
Yohannes said that the government will focus on capital expenditure to accelerate poverty reduction.
Two-thirds of investments will be generated through local sources. To achieve objective, domestic savings must grow considerably.
Development in the financial and industrial sectors is another key area they government will focus on to facilitate stable economic growth. As in previous years, financial institutions are expected to have considerable involvement in export investments.
Export trade, including tourism and air transport, will represent 25 percent of the GDP by mid-2020.
The agricultural sector will continue to be a major contributor to GDP in the coming years, hence increased productivity is vital for the realization of the second national development marshal plan.
In the current fiscal year, agricultural yield was t 270 million quintals, and is expected to grow to 406 million quintals by the end of the five year plan.
To foster agricultural development, irrigation systems will be developed over four million hectares of land. Irrigation expansion was established as a priority in GTP I. With a decreasing share of GDP, the agricultural sector is expected to represent only 36 percent of the GDP by the end of GTP II.
The agricultural sector has registered notable growth in the past years, despite failing to meet GTP I targets.
The private sector’s contribution to agriculture is also expected to grow in the coming period.
The manufacturing sector will grow by 24 percent in the coming years, while total industrial sector development is targeted to register an 18 percent growth.
The manufacturing sector has grown by 8 percent in the past five years. Based on the current plan, it is expected to register a threefold increase. The industrial sector share will also reach 23 percent of the GDP by 2020.
The manufacturing sector is one of the basic pillars of the economic restructuring. In the final year of the five year plan, the sector is expected to generate USD four billion from manufacturing export.
While export from the manufacturing sector currently accounts for only 10 percent of the total export, it is expected to make up 25 of the total share of hard currency earnings in GTP II. Manufacturing will rise to 40 percent of total export earnings by 2025.
Yohannes said that the government will privatize all public enterprises. “However, the government will continue to invest strongly in air, rail and maritime transport, as well as in electric, telecom, financial, metal, engineering, sugar, fertilizer and chemical industries,” he clarified.
Maritime cargo export capacity will be increased from 70 percent to 100 percent in the coming five year period.
Further, given that cargo is currently stored at sea ports for up to 40 days, the new plan aims to reduce the storage period to three days.
The government also seeks to expand the multimodal cargo export system, which includes air, land and sea transport, to 90 percent from the current 30 percent.
The government has targeted to overhaul the country’s import/export system, which is primarily dependent on the ports at Djibouti. The railway line that stretches from the port of Djibouti to central Ethiopia in Sebeta town, 25km west of Addis Ababa is expected to accelerate cargo transport, which currently depends on truck transport.
The government has also planned to expand the railway line to other parts of the country, potentially connecting to other ports. The construction of a railway line extending to the Port of Tadjoura, which is the new port constructed on the northern coast of Djibouti, at the connection of the Red Sea and the Gulf of Eden, is part of GTP II.