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Unlocking the door to prolonged growth

Unlocking the door to prolonged growth

Bereket Gebru 12-26-16

A couple of centuries ago, the whole world regarded exponential economic growth as an impossible feat for states to accomplish. The leading economists of the time dismissed the possibility of prolonged growth. Adam Smith and David Ricardo considered the basic factors of production of land, labour and capital. They considered labour and capital as factors of production that are capable of indefinite expansion while identifying land as limited. They argued that a country can grow as much as the amount nature allowed the land to produce. Anymore investments of capital and labour to land that has used up most of its producing capabilities, they explained, would result in less return to the investments. Their conclusion was, therefore, that a prolonged economic growth was impossible.

The main reason for their contemporarily pessimistic analysis towards prolonged growth, some economists explain, was the universality of organic economy during those days. With the absence of chemical fertilizers to enhance the production capacity of land, the economists argue that people in those days relied on the energy derived from photosynthesis for all sorts of production activities. The mechanical energy from human and animal muscle power and the heat energy from burning wood were both acquired from photosynthesis. The predominant reliance on photosynthesis, therefore, posed land as a major impediment to growth.

The increased use of coal, in place of burning wood, as a major source of heat energy raised the level of energy availability. The discovery of steam engine, on the other hand, brought about another tool of mechanical energy. Tony Wrigley, in his article entitled ‘Opening Pandora’s Box: a new look at the industrial revolution,’ wrote “once this was possible the problem of limited energy supply was solved for the whole spectrum of material production and transport.”

The increased use of coal and the discovery of steam engine were two of the major activities that set the industrial revolution in motion. The revolution enabled economies to double every half a century and led to the modern economic system. Its ability to do away with the problem of limited energy supply has led to the reference of the industrial revolution as an energy revolution.

The consideration of the industrial revolution as an energy revolution bares the role of a vast amount of energy in the process of industrialization. The developed countries of the world first tackled the problem of limited energy in achieving a prolonged time of economic growth that finally led them to over a century old prosperity and industrialization.

The case of Ethiopia

Until the overthrow of the Derge regime, Ethiopia generated less than 400 MW of electricity. With this small amount proving too small to solve the problem of limited energy, the prospect of prolonged economic growth was very weak. The amount of energy available in the country covered a small fraction of household demand mainly confined in large cities.

The quest for more electric energy in Ethiopia kicked off after the ascendance of EPRDF to state power. It was in the new millennium that the incumbent itself sprung to action in the sector of energy production. Various sources indicate that the current installed electrical capacity of Ethiopia has gone up to 4,400 MW. That is more than a tenfold increase in capacity over the last quarter of a century. Electricity service coverage at national level also increased from 41 percent in 2009/10 to 54 percent in 2013/14.

The country has numerous energy generating projects already under construction. The planned power plants up to 2019 include the Omokuraz I, II, III, IV, V and VI, Kassem, Genale and the Grand Ethiopian Renaissance Dam that is earmarked to produce 6,000 MW. The second Growth and Transformation Plan (GTP II) projects the country’s energy generating capacity to reach 15,000 MW by 2020, including 1,500 MW from wind energy, 11,000 MW from hydropower, 1,200 MW from geothermal, 300 MW from solar and 600 MW from co-generation. The main objective of the sector during GTP II is ‘increasing national energy generation, transmission and distribution capacity to fully satisfy domestic energy demand with production surplus ready for export market.’

The attainment of the planned 15,000 MW of electricity would be crucial in Ethiopia’s push to become a middle-income country by 2025. The proposed transformation from an agrarian economy to an industrial one would benefit a lot from the energy generating projects the country has embarked on. It has become obvious that Ethiopia has designed sound strategies to solve the problem of limited energy that holds states back from realizing a prolonged economic growth. Its success so far, in terms of energy production, also indicates that it is on the right track to support industrialization.

Ethiopia’s potential power production capacity is officially estimated to be more than 60,000 MW. It is endowed with a huge hydro generation potential which is estimated at approximately 45,000 MW. Similarly, the geothermal potential is estimated to be 7,000 MW, the solar energy potential 5.5 kWh /sq. m/day-annual average daily radiation, the average wind speed > 7 meter/second at 50 m above ground level - 1,350 GW.

Considering the tremendous potential the country has in generating power, it still needs to work hard to be able to exploit a considerable section of it. Accordingly, the country plans to invest $3 to 5 billion in transmissions and distribution infrastructure in the next few years. Ethiopian Electric Power Corporation (EEPCo) last year announced a revised 25-year power-sector strategy, aiming to boost generating capacity to 37,000 MW by 2037.

The projected amount of power generating capacity would, if attained, take the Ethiopian economy further forward in the attainment of prosperity and industrialization as the country would be able to host heavy industries. The capacity to support heavy industries on the other hand would help raise the level of industrialization in the country. As heavy industries produced processed goods, the type of exports from the country would also change from raw materials to capital goods. Since heavy industries like car manufacturing plants create a large amount of employment opportunities, their rise in number would contribute to mitigating the problem of unemployment.

Tackling the problem of limited energy by expanding investment in the sector would, therefore, go a long way towards helping Ethiopia mimic the trajectory achieved by developed states. It also ensures exponential and prolonged growth in the coming years, propelling the country to a higher level of economic prosperity. Its current investments on the energy sector are, therefore, crucial in unlocking the door to prolonged economic growth.

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