Country Report Ethiopia January 2011

Outlook for 2011-12: Economic growth

Economic growth will accelerate as the economy recovers from a slowdown caused by the fragile global economic environment. Growth in agriculture will continue to underpin the economic expansion as-barring drought-agriculture and agro-industry benefit from the movement of subsistence farmers into the commercial economy, helped by the expansion of road, power and market networks. Moreover, an increase in the area planted and greater fertiliser use should ensure higher yields. Industry will be helped by an improvement in power supply; the addition of three hydroelectric power stations in 2010 more than doubled capacity to around 2,000 mw. Rationing has continued, as all three have been producing below capacity owing to teething troubles, but output will improve over 2011-12, boosting economic activity. Barriers to business caused by the government's state-led development model will hinder private-sector growth, but the stable political outlook following elections in 2010 will make the investment climate more attractive. Based on these factors, we forecast real GDP growth of 9% in 2010/11. This will increase slightly to 9.5% in 2011/12 as foreign investment rises and the electricity supply stabilises.

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