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Recent Study: Ethiopia Business Forecast Report 2013

17.04.2013 - 15:41

Core Views

Despite the sudden death of long-standing Prime Minister Meles Zenawi in August 2012, the smooth handover of power and his successor's endorsement of the status quo should see stability and broad policy continuity preserved through to elections in 2015.

We expect the Ethiopian economy to remain on a robust growth trajectory over the next few years - BMI forecasts real GDP growth of 6.7% in 2013 and 6.1% in 2014 - underpinned by strong investment in the energy and transport sectors and an improvement in conditions for the Ethiopian consumer.

Having reached a peak of 40.6% year-on-year (y-o-y) in August 2011, headline inflation in Ethiopia has - as we predicted - fallen steadily over the last 18 months and we expect price pressures to continue to ease in 2013 on the back of a relatively favourable outlook for food production and a moderation in global oil prices.

Full Report Details at
- http://www.fastmr.com/prod/584461_ethiopia_business_forecast_report_2013.aspx

We expect Ethiopia to sustain a persistent, but stable fiscal shortfall over the medium term, with the deficit hovering between 2.5% and 3.5% of GDP. The deficit will be sustained primarily by high levels of government spending on infrastructure and poverty reduction under the Growth and Transformation Plan.

Major Forecast Changes

Recently published data by the National Bank of Ethiopia in FY2011/2012 (October-September) suggest that the country's fiscal shortfall widened slightly more than we had anticipated, reaching an estimated 3.2% of GDP. In 2012/13, BMI forecasts the deficit to remain in similar shaping at 3.2% of GDP (compared with our previous projections of 2.6%).

Key Risks To Outlook

Despite the relatively smooth handover of power following Meles Zenawi's death, political risks will remain heightened. Increasing social tensions raise the prospect of an uptick in domestic unrest, while a behind-close-doors power struggle among the political elite could threaten policy-making.

As is the case for many African nations, Ethiopia is highly susceptible to the volatility of commodity markets, particularly coffee, which can either adversely or favourably affect export revenues and headline growth.

While inflation has come down significantly from the high levels witnessed in recent years inflation will continue to represent a key risk to macroeconomic stability. Food price inflation in particular will remain a concern, with unpredictable weather a constant threat.

Partial Table of Contents:

Executive Summary
Core Views
Major Forecast Changes
Key Risks To Outlook
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Political Outlook
Status Quo Preserved, But Outlook Muddied By PM's Death
- Despite the sudden death of long-standing Prime Minister Meles Zenawi in August 2012, the smooth handover of power and his successor's endorsement of the status quo should see stability and broad policy continuity preserved through to elections in 2015. That said, political risks will remain heightened, with increasing social tensions raising the prospect of an up tick in domestic unrest, while a behind-close-doors power struggle among the political elite could threaten policy-making.
Long-Term Political Outlook
More Armed Conflict Likely This Decade
- Ethiopia's much-vaunted democratisation programme - particularly a devolution of authority to the regions - is being used as a facade for ethnically-based 'divide and rule' policies designed to protect the interests of a small Tigrayan-run clique. This increasingly crude concentration of power ultimately risks exacerbating resentment to the point that largely fragmented groups could coalesce into a coherent armed threat to the regime.
TABLE: POLITICAL OVERVIEW
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Growth
Growth To Remain Strong, But Below Trend
- Spearheaded by heavy public investment and supported by a steady pick-up in domestic demand, we expect the Ethiopian economy to remain on a robust growth trajectory over the next few years. We are forecasting real GDP to expand at around 6.0% on average between 2013 and 2017, which although below the stellar growth rates witnessed over the last decade, remains high by regional standards.
TABLE: ECONOMIC ACTIVITY
Balance Of Payments
Structural Weakness Drives Persistent Current Account Deficit
- High import demand driven by an ambitious state-led investment agenda will see Ethiopia maintain a persistent, albeit narrowing, current account deficit over the next few years. While we expect these successive shortfalls to be adequately financed by investment inflows, dwindling foreign reserves will mean that the external accounts and the economy will remain susceptible to shocks.
TABLE: CURRENT ACCOUNT
Monetary Policy
Modest Disinflation In 2013, But Risks Abound
- We believe price pressures in Ethiopia will continue to ease in 2013, largely on the back of a relatively favourable outlook for food production and a moderation in global oil prices. That said, we expect inflation to remain elevated, with a more sustained fall to be precluded by a combination of persistently high levels of public borrowing and a weak currency.
TABLE: MONETARY POLICY
Fiscal Policy
Stable Fiscal Shortfall Over The Medium-Term
- We expect Ethiopia to sustain a persistent, but stable fiscal shortfall over the medium term, with the deficit hovering between 2.5% and 3.5% of GDP. This deficit will largely be sustained by high levels of government spending on infrastructure and poverty reduction over the next few years, while efforts to boost revenue mobilisation will face challenges.
TABLE: FISCAL POLICY
Chapter 3: 10-Year Forecast
The Ethiopian Economy To 2022

Full Table of Contents is available at:
-- http://www.fastmr.com/catalog/product.aspx?productid=584461&dt=t

About Business Monitor International

Business Monitor International (BMI) offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities, across 175 markets. BMI offers three main areas of expertise: Country Risk BMI's country risk and macroeconomic forecast portfolio includes weekly financial market reports, monthly regional Monitors, and in-depth quarterly Business Forecast Reports. Industry Analysis BMI covers a total of 17 industry verticals through a portfolio of services, including in-depth quarterly Country Forecast Reports. View more research from Business Monitor International at http://www.fastmr.com/catalog/publishers.aspx?pubid=1010

About Fast Market Research

Fast Market Research is an online aggregator and distributor of market research and business information. We represent the world's top research publishers and analysts and provide quick and easy access to the best competitive intelligence available.

For more information about these or related research reports, please visit our website at http://www.fastmr.com or call us at 1.800.844.8156.

(PR-Inside.com)

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