Ethiopia’s economy remains positive, despite drought: WB report

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The overall growth of Ethiopia remains positive despite being affected by drought, claims the recent World Bank 5th Ethiopia Economic Update. Focusing on wages and employment in a crowded labor market, the report tries to identify urban areas that are centers of innovation and industrial development and key players in advancing structural change in Ethiopia.
Looking at the economic growth, outlook and challenges, the report points out that agriculture, construction, and the service sectors have been the drivers of growth, with investment and private consumption also contributing.
Although there have been many achievements, the report also points out that low commodity prices and an appreciating real exchange rate led to a decline in exports from Ethiopia in 2015/16. Similarly, the country’s current account deficit remains above 10 percent, which is considered high.
“Over the past two years, a weak external environment and a supply shock from the drought meant foregone agriculture production lead to weak export performance,” said Paloma AnosCasero World Bank Director of the Macro Economics & Fiscal Management Global Practice for Africa Region. “Moreover the overvalued currency limits Ethiopia’s export competitiveness and is a concern for the economy, especially with exports falling for three consecutive years.”
The report warns that if the performance of the industry and service sectors do not live up to expectations, it could negatively affect the growth. Furthermore unrests in the country could also pose a risk to Ethiopia’s economy.
According to the data, the report estimates that the proportion of households living below the international poverty line of USD 1.90 per day will decline from 27.2 percent in 2015 to 24.6 percent in 2018.
Looking into the nature of the country’s labor market, it points out that as Ethiopia is rapidly urbanizing, understanding the nature of the labor market provides valuable insights for further poverty reduction and for a successful transition to a manufacturing and a service-oriented economy.
Findings show that Ethiopia’s labor market trends are moving in the right direction, but, there has been little change in the country’s structure of urban labor markets. It shows that real wage trends have not reflected the increasing educational quality of the workforce.
While wages were more than double for those with a degree compared to those without, returns on education have fallen in the last decade. It also shows that while jobs are being created, there are not enough jobs available for those with primary and secondary education. Finding also shows that the high cost of a job search is a factor in the high urban unemployment rate.
The reports provides several recommendation on how Ethiopia could maintain economic growth, and reduce poverty while at the same time make structural change more inclusive. Among those recommendations is encouraging firm creation and growth that create jobs for non-graduates with a special focus on service and manufacturing sector growth.
Increasing labor productivity in the low-skill segment by addressing constraints faced by firms in accessing capital to ensure that the marginal product of labor increases above the nutrition-based wage. Investing further in job and technical training programs to build the skills of those in the job market, both for low skilled workers and at higher levels of education in order to increase their productivity are some of the recommendations.
It also recommends introducing targeted urban safety nets and labor market programs to invest in skills of low-skilled employees and the unemployed and provide financial support to enable their job search as well as enhancing the use of ICT to provide information on job vacancies throughout Addis Ababa while reducing the cost of looking for a job.