World Bank says Ethiopia should diversify infrastructure funding

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By Aaron Maasho

ADDIS ABABA (Reuters) - Ethiopia needs to find new ways to finance infrastructure projects after relying heavily on state-driven investment to build new roads, railways and dams to drive growth in its economy, the World Bank said on Monday.

Huge public investment has been credited with pushing economic growth above 10 percent in the financial year 2014/15, one of the fastest rates of expansion in Africa.

But the state has carried much of the burden of raising financing, while demanding that banks invest the equivalent of 27 percent of the loan portfolio in low-yield state development bonds, leaving little for private business to borrow.

"Continued infrastructure development remains one of Ethiopia's best strategies to sustain growth, but the current financing model is not sustainable," the World Bank said in a report.

A $4 billion-hydro-electric dam on the Blue Nile and finishing a programme to build a 5,000 km railway network are among projects Ethiopia aims to complete in the next five years.

After decades of struggling with dilapidated transport networks, the World Bank said Ethiopia's investment in infrastructure promised high returns. But it said the private sector was being squeezed as the state sucked up financing.

Raising taxes, increased private sector activity and improved public investment management are some of the options Addis Ababa should consider, the World Bank said.

It also said other options included "increasing domestic savings and developing capital markets via a higher real interest rate, greater selectivity and prioritization of investments, securitization of infrastructure assets, and improved pricing, including higher electricity tariffs".   Continued...