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Ethiopia Growth to Slow Unless Private Sector Boosted, IMF Says

October 3, 2012

By William Davison
Oct. 2 (Bloomberg) — Ethiopia’s growth will slow to 6.5 percent this year and over the “medium term” unless there’s more private-sector involvement in infrastructure projects, the International Monetary Fund said.
Economic performance was “mixed” in the 12 months to July 7, with “strong, broad-based growth” of 7 percent, the IMF said in an e-mailed statement yesterday. Inflation averaged 33 percent in the same period, according to the statement.
Growth will be 6.5 percent in the medium term without an “increased role of the private sector to leverage the large public infrastructure investment, and efforts to improve the doing business conditions,” the IMF said in the statement.
Africa’s second-most populous nation encourages foreign investment while the state dominates or monopolizes industries such as telecommunications, banking and power generation. The government this fiscal year will invest 144 billion birr ($8billion), or about 16 percent of gross domestic product, in industrial development, transport, telecommunications, energy and housing, according to a five-year growth plan.
“With several large projects expected to be financed either fully or partially from domestic sources, we have cautioned against crowding out of the private sector, which will slow down growth,” the IMF’s representative in Ethiopia, Jan Mikkelsen, said in a Sept. 17 e-mail.
Growth in the Horn of Africa nation averaged 10.1 percent for the last nine years and about 7.5 percent over the last three years, he said in a Sept. 18 e-mail.
A reduction in central bank lending to the government has helped slow inflation, which the IMF expects to average 14.4 percent in the 12 months through July 7, 2013, Mikkelsen said.
“Closer scrutiny” is needed of the state-owned Commercial Bank of Ethiopia’s exposure to public enterprises and its growing market share as the country’s biggest bank, as well as the “adverse impact” of a requirement for other banks to buy
central bank securities, the IMF said.

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