Ethiopia's newly elected Prime Minister Abiy Ahmed. Picture: REUTERS/ TIKSA NEGERI
Ethiopia's newly elected Prime Minister Abiy Ahmed. Picture: REUTERS/ TIKSA NEGERI

Addis Ababa — Ethiopia had to work harder to attract foreign investment and boost international trade, Prime Minister Abiy Ahmed said on Friday as he pushed a fundamental overhaul of how the nation is run.

With frankness that has become characteristic since he took office in April, Abiy said in a parliamentary budget debate that the economy grew slower than expected in the 2017-18 year and export earnings were falling far short of targets.

"We need to work [so that] investors have full confidence in the country," he said. The government had to be more prudent in its spending.

Parliament passed the 346.9-billion Ethiopian birr ($12.71bn) budget for 2018-19, representing a spending contraction in dollar terms on 2017’s budget.

Abiy has launched peace talks with neighbour and sworn enemy Eritrea, lifted a state of emergency and promised to open up the government-dominated economy partially by attracting foreign capital to the state telecoms company and airline. He has also criticised security forces for brutality.

On Friday, he acknowledged that the effort to boost earnings from manufacturing is for now falling short. "We are earning the lowest in the region," he said of exports from the sector.

The budget assumes the economy will grow 11% in the fiscal year beginning in July.

Though growth has averaged nearly 10% for the past decade — starting from a very low base — analysts said the economy was choked by dollar shortages caused mainly by heavy public investment in mega projects. Abiy has said foreign exchange shortages will last for years.

The government devalued the birr in 2017, but economists said it was still overvalued by as much as 25% and dollar shortages may deter investment. "They can try to square the circle by advancing privatisation and attracting foreign capital but they will get a lower price for those assets if there are acute dollar shortages," said Renaissance Capital global chief economist Charlie Robertson.

Despite Abiy’s desire for change, the budget contained no major shifts in spending priorities. Parliament approved modest increases in defence and security spending.