Tag: GDP

Ethiopia: How Investment in Irrigation Is Paying Off for Ethiopia’s Economy

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After rapid economic growth averaging 10%every year between 2004 and 2014, Ethiopia has emerged as an engine of development in Africa.

And there are no signs that ambitions for further growth are fading. This is clear from the government’s blueprint to achieve middle-income status – or gross national income of at least US$1006 per capita – by 2025. This would see a rapid increase in per capita income in Ethiopia, which is currently US$783, according to the World Bank.

Ethiopia’s growth has been propelled by at least two factors: the prioritisation of agriculture as a key contributor to development and the fast-paced adoption of new technologies to boost the sector.

A third of Ethiopia’s GDP is generated through agriculture, and more than 12 million households rely on small-scale farming for their livelihoods.

One of the drivers of growth in the agricultural sector has been the expansion of irrigation. The country has seen the fastest growth in irrigation of any African country. The area under irrigation increased by almost 52% between 2002 and 2014.

This was achieved by investing in the sector, and by harnessing technology to expand irrigation to farmers who traditionally relied on rainfall to water their crops. This boosted productivity and income for farmers by helping them extend the growing season and become more consistent in their production.

Meanwhile, only 6% of arable land is currently irrigated across the whole of Africa. This means that there’s huge potential to expand irrigation and unlock economic growth.

These factors are highlighted by a new report from the Malabo Montpellier Panel. The panel convenes experts in agriculture, ecology, nutrition and food security to guide policy choices by African governments. The aim is to help the continent accelerate progress towards food security and improved nutrition.

The panel’s latest report analyses progress – and highlights best practice – in irrigation in six countries. These include Kenya, Mali, Morocco, Niger and South Africa. Other African countries can draw lessons from the report’s insights.

Reasons for success

The report identified a number of common factors in countries where significant progress has been made to expand irrigation, including key policy and institutional innovations.

In the case of Ethiopia, one of the main reasons for its success is that agriculture and irrigation have been featured on the Ethiopian policy agenda since 1991. In addition, specialised institutions have been set up with clear commitments to maximise the benefits of water control and irrigation systems.

In addition, the government has invested in the sector and has plans to continue doing so. It aims to allocate US$15 billion to irrigation development by 2020.

The investment is expected to deliver a number of returns. These include: more efficient use of fertilisers, a reduction in the seasonal variability in productivity and better yields from irrigated crops grown.

Another major area of development has been the collection of data. This is an invaluable asset that allows for careful monitoring and management of resources such as water, especially in times of drought.

In 2013, Ethiopia’s Agricultural Transformation Agency began mapping more than 32,400 sq kms to identify water resources, particularly shallow groundwater, with the potential for irrigation development.

The final results of this mapping in 89 districts revealed nearly 3 billion cubic metres of water at a depth of less than 30 meters. This could allow approximately 100,000 hectares of land to be brought under irrigation, benefiting 376,000 families.

Finally, Ethiopia has harnessed the value of a full range of irrigation technologies. These have ranged small-scale interventions to large infrastructure.

A joint project between the Ethiopian Bureau of Agriculture, local extension officers, and an NGO called Farm Africa, for example, helped women and young people adopt small-scale irrigation. This was part of an initiative to increase their incomes and improve their nutrition.

Overall, the project reached nearly 6,400 women and landless people. The irrigation project also benefited 700 farming families.

NALYSIS By Gebisa Ejeta

“Speed up, scale up and synergise”, says Trade and Development Bank chief – Admassu Tadesse

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Admassu Tadesse, President, and CEO of the Trade and Development Bank (TDB) – shares his thoughts on the bank’s growth strategy and the prospects for drawing more investment into Africa.

Admassu Tadesse is believed by some to be one of the outstanding bankers of his generation. He has an enviable CV, having attended LSE, Wits and Harvard and having gained experience in banking in the US and South Africa. Like many Ethiopians, he is self-assured and determined. Colleagues say he has a very clear reading of situations. He was catapulted to the head of the Trade and Development Bank (formerly PTA Bank) at 41 and has since assembled a strong team of youth and experience, giving them, as he puts it, the reins to grow the bank.

“Systems are developed by people, systems are managed by people and in the end it’s all about talent and the ability to have an eye for what will work and what will not work,” he says.

Since he joined the bank in 2012, its balance sheet has grown from $1bn to nearly $6bn. To put this into context, the AfDB’s loan book stands at approximately $18bn and that of Afreximbank at $12bn. Over that time, he has managed to bring in a number of institutional partners as shareholders to support its growth, including African pension funds and insurance companies. In 2017 the bank grew 20%, despite a challenging environment. We caught up with Tadesse on the sidelines of the Africa Investment Forum in Johannesburg, where he called for partners to speed up, scale up and synergise to ensure greater investments into the continent. Here are excerpts:

How do you see the current economic outlook on the continent?

The year 2018 has been quite a watershed in many respects. We have seen Zimbabwe reset, we’ve seen Ethiopia reset, we’ve seen Angola reset and we’ve also seen South Africa reset. So these are four very significant countries where the political risk perspective is somewhat improved. We’ve also seen South Sudan sign a peace agreement. We’ve seen Egypt advance its reforms and improve its economic performance and prospects. We’ve to see Sudan come out of sanctions.

That’s seven countries where there have been very significant positive developments. We are not operating in any way in Somalia but Somalia also has a government that’s looking much more robust than in the past. So just generally in Eastern and Southern Africa, there has been a positive development. We are seeing sanctions being removed from Eritrea on the back of the wind of peace that is coming out of the Horn of Africa. So that’s eight very interesting developments. It means that there are more prospects for co-financing projects and opportunities with partners.

And the investment picture in your East African base?

We come from East Africa, which is continuing to grow very strongly. We have Tanzania, Kenya, Uganda, Ethiopia, Rwanda. These five countries are all growing in the range of 5 to 9%, so the average growth rate would be the highest in Africa. Mozambique is beginning to recover and they’ve also now closed one or two big deals on the gas front. All of this adds up and translates into a more interesting set of transactions to come on many different fronts.

Will you continue growing at 20% in the foreseeable future?

We have an asset growth strategy that is scenario based, where growth can range from 5-20% per annum. Our base case, our working plan, is to grow assets, mainly loan and investment assets, at between 10-15% per annum. The low case is 5-10% and the high case is 15-20%. If the business environment is enabling, and we are able to originate healthy assets on a diversified basis we can still do 20% per annum.

Historically, the majority of our loan book has been trading finance, roughly two thirds, and our long-term loan book would range between 30% to 40%. Our strategy is to keep trade finance as being a majority [of our loan book]. You don’t just grow for the sake of it, we are always trying to shape our portfolio that meets certain requirements. The success of any portfolio depends on the geographic base on which it sits.

Which sectors are giving you case for excitement?

We are seeing quite a bit of demand coming through on the resources side, gas and mining. Agri-business is also a continuous area of growth. Trade is back as well, dominated by commodities. And with higher valuations, the volumes of trade have gone up again. So that’s also going to give us some good opportunities for further growth in some of those sectors. The power sector is well poised to attract considerable investment. It is attractive as an investment sector now because the cost reflective tariffs today have moved us beyond where we used to be in the past, where power was so deeply subsidized.

Transport is also a sector where we will see more activity. There are a lot of opportunities for spinning off transport projects, such as toll road based projects.

The speed of execution has been a common complaint from private sector operators with regards to DFIs. How is the organisation adapting to respond to their needs?

We’ve introduced innovations in our organizational structures. We’ve established offices closer to the subregions in order to speed up access to the bank and to have people residing in the different sub-regions able to receive applications and process them quicker. At the same time, we’ve strengthened our capacity at the centre to actually process the deals, to do the due diligence, prepare the papers, get the approval systems in place. The committees meet much more regularly. So we’ve been investing in a more efficient and quicker business process.

You mentioned that investment rates need to grow. Can you elaborate on what you meant?

We are actually at record levels of FDI and fixed capital formation has improved. At the turn of the millennium, we were all very critical of the levels of investment in Africa.

We were looking at very low numbers and today, there are many countries that are getting very close to 25% and quite a handful that are well above 25 and several above 30. Twenty-five percent fixed capital formation is considered to be an adequate level of investment to help generate 6% growth. But with African population growth at about 3%, we need to be aiming higher. We’ve seen the Asians invest for sustained periods, 35%, 40%, 45% of GDP.

It’s very important that we keep stimulating the discussions around how to regenerate surplus savings so that we can finance more of our own investment, but that is not going to be very easy to do because savings are very low in Africa. The private sector has a domestic, regional and global character and we need much more of that to come in and boost the numbers.

We’ve scaled up already, we are doing much better than we were 10 years ago, but it’s still nowhere near where we need to be. We have to be much more aggressive, much more proactive and innovative in how we do things. We really have to boost confidence internationally to make Africa a very serious investment destination.

Source: African Business Magazine

Burkina Faso on track for GDP growth of around 6 % this year: IMF

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Burkina Faso’s economy is on track to grow by around 6 percent this year, in line with the last two years’ average, the International Monetary Fund said in a statement on Monday.

Burkina Faso’s economy expanded by more than 6 percent per year on average during 2016-2017, showing considerable resilience in the face of security and weather-related shocks.

‘‘This performance reflects considerable resilience in the face of external shocks, notably three significant terrorist attacks in Ouagadougou over the last two years and a deteriorating security situation in the border regions in the north, as well as poor rainfall in 2017, which threatens food security in the country,’‘ said Dalia Hakura, who led the IMF team that visited Burkina Faso.

 

The West African nation, which agreed a programme with the Fund in March, will meanwhile aim to reduce its fiscal deficit to 3 percent of GDP by 2019 after it ballooned to an unprecedented 7.7 percent last year.

Reporting by Joe Bavier;