Yes, Ethiopia ‘the fastest growing economy globally’ – but it’s all in the details

Comments 1

Claim

Ethiopia is the fastest growing economy globally.

Source: Dr Peter Kagwanja on Kenyan broadcaster NTV

mostly-correct

Verdict

Explainer: Ethiopia has the highest 10-year growth rate of 194 economies tracked by the IMF, while World Bank data ranks it second.

  • Dr Peter Kagwanja of Kenya’s Africa Policy Institute said Ethiopia, a country in the Horn of Africa, had the world’s fastest growing economy.
  • IMF and World Bank data shows that over the most recent 10 year period, Ethiopia’s economy grew by between 9.5% and 9.8%.
  •  But experts say that this growth needs to be put into context, including what was driving it.


In a wide-ranging discussion of Ethiopia on Kenyan TV, a well-known analyst claimed economic growth in the Horn of Africa country was quicker than anywhere else.

“Ethiopia is the fastest growing economy globally,” said Dr Peter Kagwanja, the president of Africa Policy Institute, a Nairobi-based geopolitical think tank.

Describing the growth as “astronomical”, he predicted that Ethiopia would become a “major power” in East Africa. But he warned that if the country “exploded”, the region would “drown”. 

Ethiopia is home to an estimated 94.3 million people. Recently, it’s been in the global spotlight for a raft of reforms, including to its economy. 

But does it outpace everyone else? We looked.

IMF shows 9.5% average growth

Africa Check asked Kagwanja for the source of his information. He said the data was clear to see in International Monetary Fund and World Bank reports.

The IMF’s most recent data estimates that Ethiopia grew at 7.71% in 2018 (from 10.15% in 2017). But it also shows that at least four other countries – Libya (17.8%), Eritrea (12.2%), Rwanda (8.6%) and Bangladesh (7.9%) had higher estimated growth rates. 

We therefore asked the fund if the claim as stated was accurate. Catriona Purfield, a deputy director in the IMF’s Africa department, gave us figures on the country’s growth over the past 10 years. 

“Ethiopia’s real GDP growth has been [an average of] 9.5% per year during 2010 to 2019, the highest in the world, according to the fund’s World Economic Outlook database,” she told Africa Check.

Average global economic growth was 3.8%

Purfield shared a link to economic growth data on 194 countries. South Sudan is excluded due to conflict and a related lack of data. However, the IMF noted it does not monitor some countries, including Cuba and North Korea who are not its members. 

Over the same period, the island country of Nauru had the second highest growth, at 9.1%. Turkmenistan (8.7%), Mongolia (7.9%) and China (7.6%) rounded out the top five fastest growing economies, with the average global economic growth rate measured at 3.8%.

The IMF says its teams in each country make forecasts which then consider individual country projections. It therefore notes that “the methodology can vary from country to country … depending on many factors”.

What is gross domestic product?

Gross domestic product, or GDP, is a widely used measure of the health of an economy. It is the market value of all final goods and services produced in a country in a given period, usually a year.

Real GDP excludes inflation and is considered a more accurate measure than nominal or “current price” GDP. The IMF says that “when GDP is growing, especially if inflation is not a problem, workers and businesses are generally better off than when it is not”. 

Broadly, when real GDP is increasing, people have more money in their pockets. But in some cases, the IMF says, this GDP growth may not be fast enough to create the jobs needed for people looking for work.

Why look at growth over 10 years?

A longer period rather than just one year helps account for the impact of special factors, such as the resumption of oil production after conflict, droughts or business cycles, Purfield said. 

“Ten years gives a longer view of performance that is less impacted by passing factors,” she said. 

Prof Jannie Roussouw, the head of the school of economic and business sciences at the University of Witwatersrand, agreed. “A decade is a good indication of a growth trend, which may vary from year to year,” he told Africa Check. 

Ethiopia also leads on growth per person

Roussow also said that the change in real GDP per capita was another useful measure of growth.

The IMF’s Purfield said that when the population was considered, in “per-capita terms, Ethiopia’s growth has been 7.7% per year during the same period, still the highest in the world”.

China at 7.1% was next, followed by Turkmenistan’s 6.8%, as well as the 5.8% for India, Mongolia, and Myanmar. (Note: While per person growth is a useful average measure, it doesn’t indicate personal income or how this is distributed.)     

World Bank data has Nauru top

The World Bank in turn directed Africa Check to its World Development Indicators, a public database of 217 economies – 189 member countries and 28 “other” economies. It notes that the term “country” is used interchangeably with “economy” but this does not imply political independence. It instead refers to “any territory for which authorities report separate social or economic statistics”.

The World Bank’s data showed Ethiopia’s constant (real) GDP grew at 6.8% in 2018. There were other countries with growth higher than this, including Libya (7.8%), Cambodia (7.5%), India and Dominican Republic (both 7%) and Mongolia with 6.9%. 

The bank guided Africa Check through its constant GDP data. When an average of between 2009 and 2018, for when there is the most recent data, was taken, Nauru, which has an estimated 11,200 people, had the highest growth, at 12.9%. Ethiopia placed second with an average growth of 9.8%, with Turkmenistan next at 8.7%. 

‘Impossible’ to check if Ethiopia actually fastest growing

Workers package honey for sale at a processing plant in Mekele, Ethiopia in 2017.Photo: AFP/ZACHARIAS ABUBEKER

Morten Jerven is an economic historian at the Norwegian University of Life Sciences. He has published widely on African economic development. He told Africa Check that Ethiopia’s high growth rates in recent years have at times been contested.

As an example, Jerven highlighted when “Ethiopia reported 12% and the IMF said 6-7%”. (Note: For more on this, see here.) “A growth rate of 10-11% suggests a doubling of GDP every six to seven years. GDP per capita would have tripled,” he said. 

But it is “impossible” to check if Ethiopia is actually the fastest growing economy in the world, Jerven said. 

“GDP is not a fact, it is an estimate. No GDP estimate can be wrong – it’s just another GDP estimate. With the same set of data or facts you can estimate GDP in any number of ways.”

Both the IMF and World Bank shows high economic growth rates for Ethiopia. But are raw numbers enough? The context matters, several experts told Africa Check.

‘Relatively equitable income distribution’

Mizuki Yamanaka is a statistician at the World Bank’s development data unit. He told Africa Check that knowing what drove the growth when comparing economies was important.

“For example, you cannot say Ethiopia economically outperformed the USA between 2010-2019 on the ground that growth rate was higher, because the situations of their economy are completely different.”

“There are many other elements to consider such as the level of development, per capita values, economy of scale, inequality in the country, governance and the openness of market, price levels, and so forth,” he said.

The IMF’s Purfield told Africa Check that the high growth “has been driven by external borrowing by state-owned enterprises and infrastructure investment” leading to “imbalances”.

“Reforms are critical to sustain high growth and to create much-needed jobs.”

Analysts agreed. Some, such as Stephanie Jay in this write-up for pan-African publication Africa is a Country, have argued that as Ethiopia’s economy opens up, many people could be left out.

Growth ‘not felt by the common man’

The numbers do look brisk, but the growth has not been felt by “the common man on the streets of Addis Ababa or in the rural areas”. This is according to Prof Adugna Lemi, chair of the economics department at the University of Massachusetts in Boston, USA.

“This is because the high growth rate of GDP is mostly due to construction and other service sectors that have little impact in terms of creating jobs or a high wage,” Lemi told Africa Check. “In other words, there has not been a trickle down of this growth.”

Dr Scholastica Odhiambo is an economics lecturer in Kenya’s Maseno University. She has also written extensively about sub-Saharan African economies. 

Ethiopia’s state-led “closed economy model” stifled the private sector, hurting the country’s competitiveness in the global market, Odhiambo told Africa Check.

She said that to make the country’s growth more inclusive, there should be a focus on easing policy bottlenecks.

Conclusion: Ethiopia’s average economic growth over last 10 years places it top of the pile

Ethiopia is the fastest growing economy in the world, Kenyan analyst Peter Kagwanja said in a national TV discussion on East African geopolitics. 

International Monetary Fund data for the 10 years from 2010 to 2019 supports this claim. Ethiopia has the highest economic growth rate of 194 countries tracked by the fund. The World Bank placed the country second only to Nauru for average growth rate between 2009 and 2018.

We therefore rate the claim as mostly correct. (For more on how we rate, see here.)

Analysts say the country still has a lot to do if more Ethiopians are to benefit from this high speed of growth. 

Additional reporting by Alphonce Shiundu

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