Will the 2020s be the decade of Africa’s economic transformation?

16 Jan 2020

Ethiopia’s remarkable record of economic growth and home-grown development path has inspired the whole continent of Africa.

In reviewing the decade, a recent Financial Times article, Ethiopia seizes crown as the fastest-growing country in the 2010s acknowledges this fact. The country’s focus on productive investment, industrialisation, and education continues to generate jobs and economic growth. Here I look at the growing impact of foreign investment across Africa and consider the opportunities and challenges that lie ahead for the continent.

Africa’s bright spot

As the last decade drew to a close, Ethiopia, with its population of 112 million, is one of many countries to top the list for economic growth. The country’s gross domestic product has jumped by 146.7% since 2009, and its per-capita purchasing power parity has risen by 149%. According to the World Development Indicators, Ethiopia’s economic growth has averaged 10.5% since 2004, twice the African average, while life expectancy in the country rose from 44 to 66 years between 1990 and 2016, also twice the average for the continent.

Unlike other countries, Ethiopia’s development path has been home-driven, without the advantages of endowment in natural resources such as oil and minerals. It has therefore focussed on developing productive capacity and attracting productive investment by building physical infrastructure and developing human capital, especially in vocational education and transforming the university system.

Towards investment in the manufacturing sector

In 2010, Ethiopia shifted its attention towards attracting foreign direct investment (FDI) into the productive sector, particularly manufacturing, promoting targeted sectors and firms, and working closely with investors. Four-fifths of FDI inflow into Ethiopia in the last few years has been destined for manufacturing, indicating that the government’s strategy of shifting investment into productive sectors is bearing fruit.

Manufacturing FDI also needs to be channelled towards expanding the export sector to tackle the balance-of-payments constraint. A major challenge for policy-makers is how to sustain double-digit growth while at the same time:

  • generating enough decent jobs;
  • expanding the export sector;
  • resolving the balance-of-payments constraint;
  • building a solid manufacturing base; and
  • transforming the agriculture sector.

Ethiopia has built world-class industrial parks to attract investment, facilitate skill and know-how transfer, and promote linkages and environmental sustainability. This enabled it to increase FDI four-fold between 2012 and 2017. The country’s share of East Africa’s FDI inflows rose from 10% to about 50% and inflows into the rest of the continent from 1% to 10%.

For many foreign investors, the main reason for investing in landlocked Ethiopia has been the government’s commitment to support investors and engage in dialogue.

Attracting targeted and productive FDI is essential for creating jobs, broadening the skills base of the local industrial workforce, motivating domestic firms, and sharing management know-how.

Three ways to attract productive FDI

Africa’s economic performance since 2000 has significantly improved following the sluggish growth of the 1980s and 1990s, a period associated with Washington Consensus prescriptions for economic liberalisation. Although not comparable with that of Asia, Africa’s average annual GDP growth rate for the last 20 years has been 4.6%, but growth has been uneven across African countries (see my forthcoming book on African Economic Development: Evidence, Theory, and Policy with Cramer and Sender).

Ethiopia’s rapid and inspirational growth symbolises the continent’s bright future. At a time of slow global economic growth, African policy-makers should single-mindedly focus on building the continent’s production capacity and attracting productive FDI in three ways.

1. Create the necessary conditions for productive investment

While improving the business climate is essential, it is not enough. Productive investment requires educated personnel, energy infrastructure, and investment in efficient connectivity.

2. Avoid focussing solely on generic foreign investors

Evidence shows that the growth outcomes of FDI for host countries are mixed, with some of it simply ‘phantom’ rather than real capital and bricks-and-mortar investment. African governments should identify their priority sectors and the most promising sources for better quality FDI, and should also target selected firms. An institution fit for purpose should be developed to act as a single investment window, provide better coordination mechanisms, and build the diverse expertise required to attract, facilitate, and retain targeted FDI. Without these essential reforms, there can be no improvement in investment promotion outcomes.

3. Build pockets of excellence and create an industrial ecosystem

There is a need to build and expand industrial parks. Unfortunately, even policymakers often misunderstand the role of industrial parks and that they require a strategic approach linked to creating a wider productive ecosystem. Ethiopia’s approach to building an industrial ecosystem has been driven by learning from others and finding unique solutions to the various challenges and binding constraints.

The mission and challenges ahead

Many countries have encouraged their firms to invest in Africa, but have failed to have a major impact.

The conventional paradigm in advanced economies (such as European countries) must change from the dominant ‘donor‒recipient’ to ‘new growth generation’ that positively feeds Africa’s economic transformation.

The focus must shift to expanding trade, productive investment, financing infrastructure, and collaboration to build human capital.

For instance, in the last few years, the UK’s Official Development Assistance has increasingly focussed on supporting Ethiopia’s industrialisation path. The UK government is also organising the UK‒Africa Investment Summit to give more impetus to the flow of productive investment. However, it is important to note that these efforts are not enough and can only succeed where a government committed to rapid economic growth and economic transformation is playing a key developmental role (see the forthcoming book The Oxford Handbook of Industrial Policy). More needs to be done if the growth initiative and dynamics of many African countries are to be infused.

What Africa needs is not predatory states, but governments that have a strong commitment to economic progress, are capable of setting out policies that benefit Africans, and that support initiatives from the private sector and other social groups. Governments that champion economic development provide stronger support to the private sector, generate new investment opportunities, and improve the livelihoods of their people. It is a pity that the most fashionable prescription of our time has focussed on preaching for a dysfunctional or inactive government, rather than a proactive government that champions economic transformation.

Another critical issue is that Africa should continue to engage with its traditional partners (the ‘west’ and the ‘north’), but it also needs new partners from the east and the south. The economic ties between Africa and China are a good example of how African countries can generate win-win benefits, especially when it comes to attracting productive investment, trade, financing infrastructure, and human capital. This should induce other countries to develop ties with Africa’s interest at their heart, not governed by ‘pre-conditionality,’ but based on values of mutual respect and non-interference in others’ internal affairs.

This will help to build a more prosperous Africa and turn the coming ten years into the decade of Africa’s economic transformation.

Source: Overseas Development Institute (ODI)



Arkebe Oqubay
Distinguished Fellow

Arkebe Oqubay is a Senior Minister and Special Adviser to the Prime Minister of Ethiopia. He has been at the centre of policymaking in Ethiopia for over 25 years and is a former mayor of its capital, Addis Ababa.

Latest News

Browse all
Let us demonstrate as a nation and people that in the face of adversity, we rise to the challenge of confronting the Coronavirus, united by our responsibility to the home we call Ethiopia!
31 Mar 2020
Together We Will Overcome!
There is a major flaw in the strategy to deal with the coronavirus pandemic. Advanced economies are unveiling unprecedented economic stimulus packages. African countries, by contrast, lack the wherewithal to make similarly meaningful interventions. Yet if the virus is not defeated in Africa, it will only bounce back to the rest of the world.
25 Mar 2020
PM Abiy: If Covid-19 is not beaten in Africa it will return to haunt us all
Letter to the Editor - Ahmed Aboudou’s piece “Blood on the Nile...” with its 13 mentions of “war”, was alarmist, and contained inaccuracies. It is not the case that “war looms on the horizon”. All 10 African countries through which the Nile passes, including Egypt, know that war would be disastrous for all concerned.
25 Mar 2020
Civilisation and peace for who? Nile Basin is made up of 10 countries
As Coronavirus continues to change our lives in unprecedented ways, we wanted to give you further information on the actions we are now taking to keep all of our customers and employees safe, and the work we are doing to continue to provide essential services in these difficult times.
24 Mar 2020
Update: Our Approach to the Coronavirus Outbreak
Amid the developing Coronavirus situation, we have put in place measures as a responsible employer and service provider. We continue to closely monitor the situation and follow Government guidelines and will make necessary changes to ensure continuity of service and the protection of our customers and employees in case of the further spread of COVID-19.
17 Mar 2020
Our Approach to the Coronavirus Outbreak
የኢትዮጵያ ፌዴራላዊ ዴሞክራሲያዊ ሪፐብሊክ የውጭ ጉዳይ ሚኒስቴር እና የውሃ፣ መስኖ እና ኢነርጂ ሚኒሰቴር የአሜሪካ የግምጃ ቤት ዲፓርትመንት ሴክሬታሪ በየካቲት 21 ቀን 2012 ዓ.ም. (እ.ኤ.አ. በ28 ፌብሩዋሪ 2020) የታላቁ የኢትዮጵያ ህዳሴ ግድብን በተመለከተ ኢትዮጵያ ያልተሳተፈችበትን ስብሰባ ተከትሎ የወጣውን የፕሬስ መግለጫ በከፍተኛ ቅሬታ ተመልክተውታል።
29 Feb 2020
በታላቁ የኢትዮጵያ ህዳሴ ግድብ ድርድር ዙሪያ የተሰጠ መግለጫ
The Ministry of Foreign Affairs and the Ministry of Water, Irrigation and Energy of the Federal Democratic Republic of Ethiopia noted with disappointment the Statement issued by the United States Department of Treasury on the Grand Ethiopian Renaissance Dam (GERD) released on 28 February 2020, following a meeting held without Ethiopia’s participation.
29 Feb 2020
Statement of Ethiopia on the Negotiations on the Grand Ethiopian Renaissance Dam
On 26 February, the Embassy hosted an event to commemorate the 60th anniversary of the very successful collaboration between Ethiopia and the British Institute in Eastern Africa. Ambassador Fesseha warmly welcomed 90 guests to two illustrated talks, which were followed by a cocktail reception sponsored by Diageo.
28 Feb 2020
The British Institute in Eastern Africa celebrates 60 years of partnership with Ethiopia
Ethiopia’s Green Legacy Intiative, which resulted in over 4 billion trees being planted in 2019, has been shortlisted for The Climate Coalition's Green Heart Hero Award, which recognises the incredible work that is being done to tackle climate change. Ethiopia is nominated under the “Overseas Inspiration” category.
25 Feb 2020
Ethiopia’s tree-planting drive shortlisted for national climate change award
A rare Ethiopian crown from the 18th century that was stolen and has been missing for two decades, was returned to Ethiopia on 20th February after it was discovered in the Netherlands. The crown was received by PM Abiy Ahmed, the Minister of Culture and Tourism, H.E. Dr. Hirut Kassaw, and other senior officials.
24 Feb 2020
Stolen 18th century crown returned to Ethiopia
Brighton Festival, the largest annual, curated multi-arts festival in England, is set to get a little taste of Ethiopia thanks to the acclaimed Ethio-British poet, playwright, broadcaster and speaker, Lemn Sissay MBE, who has been selected as this year's Guest Director. The Festival is scheduled to take place from 2 - 24 May and will feature some Ethiopian artists.
19 Feb 2020
Brighton Festival 2020 launches with Lemn Sissay as Guest Director