Ethiopia: One Of World’s Fastest Growing Economies

Via The Financial Times, a look at Ethiopia’s economic growth:

Ethiopia appears to be doing something right. One of the world’s five fastest growing economies in 2010, it’s expected to reach 7 per cent growth this year and next and the government hopes for double digit growth in the medium term.

But this is not a natural resources bonanza. The economy is still largely dependent on agriculture, but has seen much of its growth from a boost in services. Yet foreign investment is limited, and the country has not benefitted from the non-cash payments revolution that has boosted other countries in the region such as Kenya. No wonder, then, that companies such as Visa are making encouraging noises.

In terms of technology, Ethiopia is lagging behind. The country’s mobile penetration is very low against the regional average. Internet connections are slow and unreliable even by African standards, and content is censored.

Financial services are also closed. Foreign investment in financial services is prohibited although domestic, non-state providers exist. Financial services are concentrated in a few towns: Addis Ababa, the capital, accounts for nearly 40 per cent of total branches of commercial banks. The country scores low on financial sophistication, technological readiness and innovation according to the African Development Bank, ranking 3.05 out of 7 compared to the continental average of 3.68.

In telecommunications, state-owned Ethio Telecom (formerly known as Ethiopian Telecommunications Corp) dominates mobile, internet and telephone landscape. ETC – so bad that peeved nationals have set up an ‘ETC Sucks’ Facebook group – has outsourced some of its services to France Telecom. If this prompts a more liberal approach to areas like electronic payments, it could boost Ethiopia’s growth further.

“When we look at the most successful electronic payment systems, they are those that are open, completely open, but the government sets standards for how different entities can participate,” says Elizabeth Buse, Visa’s group president for Asia-Pacific, Central Europe, the Middle East and Africa, the company’s fastest growing geographies. Visa acquired of phone payment company Fundamo last year as part of its African expansion plans.

The general rule of thumb is that a 10 per cent increase in mobile penetration contributes as much as 1.2 per cent to GDP. “The combination of mobile and electronic payments compounds that” says Bill Gajda, Visa’s head of mobile product. Might the government’s position on foreign investment in finance and communications change?

“There are a lot of different models being explored, and what we see – and I think Ethiopia won’t be an exception – is that over time, these models open up,” says Gajda. “Closed systems tend to not achieve the scale they want to, there isn’t the level of customer adoption, of direct foreign investment they are looking for, and they evolve over time to where they do bring in companies”.

In banking, there are fragile signs of a thaw. Ecobank have said publicly they want a license in Ethiopia, suggesting the authorities may be planning to open up, according to Paul Wallace, Africa editor at The Banker. And perhaps Ethiopia’s plans to woo back the diaspora lend strength to the argument in favour of greater competitiveness in electronic payments. After all, once you’ve got used to easier payment systems in other countries, it’s hard to revert back.

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