First GTP Economic Growth Challenges

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The Performances and Challenges of Growth and Transformation Plan I in Ethiopia: the Case of Economic Growth and Social Development, Part I By Teshome Adugna (PhD)1 September 27, 2015 1. Introduction Planning can be defined as a continuous process which involves decisions or choices, about alternative ways of using available resources, with the aim of achieving particular goals at some time in the future. In another ward it refers to deciding in advance what to do, how to do it, when to do it
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  1 The Performances and Challenges of Growth and Transformation Plan I in Ethiopia: the Case of Economic Growth and Social Development, Part I By Teshome Adugna (PhD) 1  September 27, 2015 1.   Introduction Planning can be defined as a continuous process which involves decisions or choices, about alternative ways of using available resources, with the aim of achieving particular goals at some time in the future. In another ward it refers to deciding in advance what to do, how to do it, when to do it and who is to d o it’ . Therefore, development planning has become a necessary tool used by many governments and organizations to set their visions, missions, and goals. It has an effective means of realizing development through effective direction and control. At the world level development plan became vital since great economic failure in the USA and post World War II (Marshall Plan-1948). The SSA African country had started to use development plan since their independence during the 1960s. Ethiopia is one the first African countries who started to use development plan. The country has implemented different types of development plan during the last fifty years. Currently the country is on the way to start its second Growth and Transformation Plan. When GTP I started in 2011, some experts from the IMF and World Bank said that the GTP target would overheat the economy and erode disposable income. The Joint Staff Advisory Note (JSAN) 2  calls for the government to scale down and redirect the GTP if it hopes to have any success. In contrast to this argument other scholars argue that the GTP target would facilitate the fast economic growth and structural transformation in the country. It is time to see the performances and challenges of Growth and Transformation Plan in Ethiopia. Therefore, the general objective of this study was to analyze the economic growth and social development performances in Ethiopia during the first Growth and Transformation Plan. The specific objective of this study was: to highlight the evolution of the development plan in Ethiopia, to evaluate the performances of Growth and Transformation Plan I in terms of economic growth and social development and to suggest the possible solution to maintain higher economic growth and social development in the country. This brief study will be presented in two parts. The first part focuses on economic growth and the latter part deals with social development during the first Growth and Transformation Plan. 1   Assistant Professor at Ethiopia Civil Service University, Email address:a.teshom@gmail.com   2  It refers to the joint staff team of the International Monetary Fund and World Bank.  2 2.   Brief Evolution of Development Plan in Ethiopia The national development plan in Ethiopia was commenced in 1957 when the First Five Year Development Plan implemented between 1957 and 1961; the priority of the plan was to achieve education and infrastructure development. The Second Five Year Development Plan (1962-67) was given little attention to the agricultural sector with more attention given for infrastructure development. The Third Five Year Development Plan (1968-73) which focus on agricultural development was implemented a different extension package program to increase peasant  productivity and modernize the agricultural sector. During the Third Five Year Development Plan, the Monarchy government has taken various activities for the development of manufacturing and service sector. The Military government could not prepare any short and long term development plan until 1984/85. The government was using development campaign to provide social and economic service to the people. The ineffectiveness of the development campaign compelled the Military government to introduce the Ten Year Perspective plan (1984/85-1993/94). The objective of the Ten Year Perspective plan was to achieve 6.5 annual growth rate of the national economy. Since the new government takes the position in 1991, various developments and reform policy have been implemented in the country. The comprehensive and broad base development plan was implemented in 2002. This plan was known as Sustainable Development and Poverty Reduction Program (SDPRP 3 ). The objective of the plan was to realize sustainable development with poverty reduction in the country. Following SDPRP, the Plan for Accelerated and Sustainable Development to End poverty (PASDEP) was implemented between 2005 and 2010. The PASDEP involved wide-ranging discussion with Ministries, the Council of Ministers, Parliament, Regional State governments and civil society. The last plan following the PASDEP was GTP I with the objective of structural transformation and national food self sufficiency. This plan was implemented between 2011 and 2015. 3.   Performances of Growth and Transformation Plan I In order to realize the sustainable and fast economic development, the Government of Ethiopia has implemented the Growth and Transformation plan between 2011and 2015. The fundamental  principles of Growth and Transformation Plan were to sustain faster and equitable economic growth, maintaining agriculture as a major source of economic growth, creating favorable conditions for the industry to play key role in the economy, enhancing expansion and quality of infrastructure development, enhancing expansion and quality of social development, building 3   The first Poverty Reduction Strategy Paper (PRSP) (2002/03  –  2004/05 Sustainable Development and Poverty Reduction Program/SDPRP, preceded by an I-PRSP in 2001/02) emerged largely as a donor-mandated requirement for HIPC eligibility and for continued World Bank and IMF support.  3 capacity and deepen good governance and promote women and youth empowerment and equitable  benefit. This section resented the economic growth and its characteristics during the first GTP. 3.1   Economic Growth in GTP I Economic growth refers to an increase in the national output/income or per capita income. During the first GTP, the country has achieved an average of 10.1 percent economic growth 4  against the  planned 11.2 percent. Except 2012, the country economic growth performances were close to the law base scenario which was above or equal to ten percent. In 2012 the economic growth was only 8.6 as compared to 11.1 percent of the GTP target. The low agricultural growth, which was only 4.9 percent, was the major reason for the poor performances of economic growth in 2012. In general the country was successful in achieving an average of double digit economic growth. During the first four years of GTP I period, the national output, which is measured by Gross Domestic Product (GDP 5 ) has increased from USD 30 Billion in 2009/10 to USD 55 Billion to 2013/14. Just within four year s the national output increased by 83 percent. According to the International Monetary Fund, among countries with over 10 million people, only China and India will have grown faster than Ethiopia between 2011 and 2015(Belete Meshesha,2015) Sources: MoFED, 2015 3.2 Characteristics of Ethiopia Economic Growth The economic growth in the country was characterized as  sustainable, fast, broad based, pro-poor and slow structural change . This subsection explains in detail these characteristics of Ethiopia economic growth during the first Growth and Transformation Plan. Understanding the characteristics of economic growth in Ethiopia will enable us to know that impacts of the current economic growth on social development in the country. 4   For some countries, economic growth is the primary policy goal, and poverty reduction is to be achieved through measures complementary to growth. This is not the approach of the Ethiopian government. Poverty reduction is the core objective of the Ethiopian government. Economic growth is the principal, but not the only, means to this objective(MoFED, 2002) 5  GDP refers to the market value of all goods and service produced in the country in the given period. GDP used to measure the change in the national output in the given period usually one year.  4 Sustainable economic growth : The first characteristic of economic growth during the first GTP  period was sustainable 6  or continued economic growth. The country has accomplished stable economic growth with less irregularity. Ethiopia 7  achieved above ten percent economic growth in all GTP year except the 8.7 percent economic growth in 2012. This was not the case in most of SSA countries. For instance, in 2010, both Ethiopia and Nigeria were achieved 10.6 percent economic growth. When Ethiopia maintained the higher economic growth, Nigeria economic growth was declined to 4.3 and 5.4 percent in 2012 and 2014 respectively. In the same way the Botswana economic growth was declined from 8.6 percent in 2010 to 4.3 percent in 2012 and 5.2 in 2014. In the same period the South Africa economic growth declined from 3 percent in 2010 to 2.2 and 1.5 in 2012 and 2014 respectively. Figure 2 shows the economic growth in selected countries  between 2006 and 2014. As you can see in the Figure 2, the economic growth irregularity was higher in most of African countries as compared to Ethiopia. In addition to higher economic growth, Ethiopia has achieved relatively stable economic growth during the GTP period. Further, such stable economic growth in Ethiopia was achieved with wide range land development activities and environmentally friendly development policies/activities.   There are a number of positive developments that will help the current growth to persist well into the future (Alemayew Geda, 2014). The current economic growth in Ethiopia was not achieved by the cost of environmental degradation or future generations. Fast economic growth : The second characteristic of Ethiopia economic growth was fast economic growth. As you can see in the Figure 2 below, the Ethiopia economic growth 8  was higher than the SSA countries economic growth. Between 2006 and 2014, average Africa economic growth was 4.7 percent. During this period, Ethiopia economic growth was 10.6 percent. As compared to the average SSA countries, Ethiopia economic growth 9  was twice higher than SSA countries. Even during the GTP I period the average economic growth in Ethiopia was 10.1 percent when SSA countries achieved only an average of 4.5 percent. 6   Sustainable economic growth means a rate of growth which can be maintained without creating other significant economic problems, especially for future generations. There is clearly a trade-off  between rapid economic growth today, and growth in the future. Rapid growth today may exhaust resources and create environmental problems for future generations, including the depletion of oil and fish stocks, and global warming. 7   During the last ten years the country achieved higher economic growth as compared to 7 percent required to reduce  poverty by half in 2015. 8   The International Monetary Fund (IMF) ranks Ethiopia as among the five fastest growing economies in the world. After a decade of continuous expansion (during which real GDP growth averaged 10.8% per annum), in 2013/14 the economy grew for its 11th consecutive year posting 10.3% growth (Africa Economic Outlook, 2015). 9   Ethiopia has registered remarkable economic performance with annual growth averaging 10.9% over the past ten years. This is double the Sub Sahara Africa and triples the world average growths over this period and has led to Ethiopia being rated as one of the fastest growing economies in the world (UNDP, 20114).
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