EBRI Q3 2019 results: Ethiopia hits top spot in rankings


Jeremy Weltman
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The country has shown incredible economic growth assisted by development projects stemming from China’s engagement, as Beijing utilises the upside to leverage its involvement across Africa.

Ethiopia-China-meeting-R-340.jpgEthiopia is the most-improved country among a handful of tier-1 countries in Euromoney’s Belt and Road Index, moving ahead of Bangladesh in the third quarter of 2019 thanks to its strong economy and improving risk metrics.

The investor climate is graded in the EBRI rankings across five categories, or tiers.

Tier-1 includes countries showing the largest improvement in their economic growth rates and/or politico-economic and structural risk situation since China’s Belt and Road Initiative (BRI) – also known as One Belt and One Road – was inaugurated in 2013.

Ethiopia has seen enormous development go hand-in-hand with China’s willingness to provide more capital. Prime minister Abiy Ahmed’s commitment to the BRI resulted in several new project agreements signed at the Second Belt and Road Forum for International Cooperation held in Beijing in April.

This includes a deal with the State Grid Corporation of China worth $1.8 billion to provide electricity transmission and distribution lines. A new industrial park is to be built in Adama, a city in the central region of Oromia.

Previous collaborations financed and built by China include the Addis Ababa-Adama toll road, a light railway for the capital, and the 750-kilometre Ethiopia to Djibouti electrified railway costing $3.4 billion, most of which was financed by Export-Import Bank of China, which is operated by China Civil Engineering Construction Corporation and China Railway Group.

Rafiq Raji, senior economist at Macroafricaintel, believes Ethiopia’s relationship with China is perhaps the most successful on the continent so far.

“The BRI is a relatively recent factor in Ethiopia-China relations, however,” he says. “So, the BRI is riding on what was already a successful relationship. Thus, it is not surprising at all that Ethiopia has risen to the top of Euromoney’s Belt & Road Index.

“China’s recent write-off of Ethiopia’s debt, when Kenya and others struggle to be similarly considered, speaks to Ethiopia’s stature in China’s eyes.

“Ethiopia will be launching its first-ever satellite in December with China's help. A $1 billion riverside green development project in Addis Ababa was also recently launched in October, and the Addis Ababa light railway is perhaps the most conspicuous example of success of Chinese engagement on the continent”.

China’s growing influence is not without its detractors, however, who will readily point to the country’s growing debt burden, despite the write-offs, which is often secured using land as collateral, and the fact China lending comes without clearly defined conditions attached. The lack of local employment opportunities is also a point of criticism, as are corruption and human rights allegations, which contribute to some animosity to Chinese hegemony.

“True, there have been revisions in the timelines, costs, etc of certain projects”, Raji remarks. “And there has clearly been a greater debt burden owing to the relationship. But in the Ethiopian case, there have been more gains than losses for both sides."

Other high achievers

Alongside Ethiopia, Laos and Bangladesh are tier-1 countries in the EBRI, while two more achieved that status for the first time in the third quarter: the Maldives and Nepal. Their inclusion contributes to the improvement for Asia as a whole.

In both cases, upgrades are directly tied to very fast real-terms annual GDP growth, averaging 7.2% and 7.5% respectively in 2017/18. Forecasts of strong growth continue for 2019/20, despite global trade frictions.

The number of countries showing improvement in Euromoney’s BRI – with index values of 100 or more points and better investor climates – has increased by three in the third quarter of 2019, to 52 from 49 a year ago.

Madagascar, Serbia, Tajikistan and United Arab Emirates have all moved up from tier 4 to tier 3, according to the index metrics.

Tajikistan is particularly notable for its persistently high GDP growth and improved regulatory environment, making it one of the top-10 most improved nations for doing business, according to the World Bank.

This is reflected in Euromoney’s survey indicators showing an across-the-board improvement to economic risk, as well as to corruption and information access/transparency.

Wrong direction

Contrasting trends are emerging for Belarus and Turkey, however, which have both slipped from tier 4 to tier 5, among seven other countries showing the worst performance since 2013. The others are Azerbaijan, Kazakhstan, Russia, Ukraine and Yemen.

The government in Minsk is grappling with stagnant GDP growth and a slow pace of reform in comparison with other similarly-sized countries.

In Ankara, the authorities have failed to quell concerns about economic growth and other risks, notably surrounding Turkey’s offensive in Syria, which is deterring inbound capital, while sanctions against the country and a politically influenced monetary policy bear down on the lira.

By contrast, Bhutan has seen its GDP growth slow sharply from just over 8% in 2016/17 to 4.6% in 2017/18. Consequently, its EBRI score has fallen the most, pushing the country lower into tier four.

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