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Can IT help transform Ethiopia’s economy?

By Samuel Alemu

Information technology (IT) is deeply integrated into every aspect of economic development, within countries, and worldwide. The relationship between IT and economic growth is quite complex. On the one hand, IT is no longer the primary source of competitive economic advantage, since every country in the world has at least the basic technologies to manage their economic processes. On the other hand, the extent, extensiveness, quality, and sophistication of IT can easily define the patterns of economic development at regional and national levels. Countries that have previously lagged behind readily embrace the advantages of the IT sector to move to the forefront of the global economic order. The IT sector is believed to have played a crucial role in advancing India’s economy to its current state. However, even the most ambitious achievements should be reviewed with a critical eye. Ethiopia can learn from India’s IT experience and adopt an IT-oriented philosophy of economic growth while mitigating the unintended consequences of IT development for the rest of the population.

Undoubtedly, IT shapes the economic conditions and patterns of economic development worldwide. The role of IT in pushing the global economy to a new level of quality performance can hardly be overstated. In a world that has become heavily reliant on technologies, IT is considered as the primary driver of economic development. However, its impact on national economies is far from being uniform. The influence of the IT sector on economic development has been considerable, and its effects on productivity and output have been visibly significant since the mid-1990s. As a result, many countries keep relying on the IT sector as the main source of their economic development and the critical factor behind their continuous economic growth.

This is definitely the case of India, which has become one of the leaders of the global IT industry in the 21st century. According to Singh (2002), “the success of India’s software industry on the global stage has captured the imagination of Indians in a way that only cricket and hockey successes could in the past’ (p. 2). Many Indian IT professionals extended their influence globally.  Statistically, the IT sector in India grew from $2.0 billion in 1994-1995 to $12.2 billion in 2000-2001 (Singh, 2002) and reached $160 billion in 2017 (NASSCOM).

It relies mostly on software development, distribution, and consulting for both domestic and international clients. The case of India illustrates how a country that large can capture and develop its competitive advantage for the benefit of the whole economy.

Definitely, the IT sector has strengthened India’s economy against the rest of the world, providing a new source of revenues and benefits such as job creation. However, as Barnes (2013) notes, IT firms in India do not have a significant effect on jobs and occupations that could be available to low-educated and unskilled people. To a large extent, low-skilled and unskilled residents of the poorest neighborhoods did not feel a substantial change in their lives with the advent of the IT sector. Simultaneously, India had a set of advantages, which predisposed the rapid development of its IT sector, including a surplus of technically qualified professionals and the presence of powerful political ties between state institutions and IT giants (Barnes, 2013). Therefore, should these factors be absent, the benefits of IT development might not be as significant as they were in India. However, it does not mean that other countries like Ethiopia should not follow this path.

Ethiopia has experienced rapid growth in its economy in recent years, with prospects to become a visible player in Africa. In many respects, today’s Ethiopia resembles India in late 1980s and early 1990s. Firstly, it experiences at least some surplus of technology, mathematics, engineering, and science graduates (Collins, 2019). They enter the labor market, looking for opportunities that IT could easily create in the nearest future. Secondly, Ethiopia is implementing a 70/30 philosophy in higher education, with 70 percent of students enrolled in technical and IT courses (Collins, 2019). As such, Ethiopia has some basic foundation that could underpin its transformation into an IT hub. Besides, as the global economy is shifting from manufacturing toward services, Ethiopia could well find a perfect IT market niche. However, the product it develops and the services it offers should have added value and be unique.

Critical to the success of the IT sector in Ethiopia should be the country’s ability and readiness to balance the advantages of technologies against other industries. Focusing on IT, Ethiopia should not ignore other sectors, such as education, agriculture and manufacturing. Otherwise, the effect would be the opposite, leaving low-skilled and unskilled workers outside of the labor market. Besides, substantial investments and critical policy changes are needed to renew the country’s technology infrastructure, without which the possibility for IT growth and development in Ethiopia will quickly wane.

Obviously, this path to become Africa’s IT hub will not be easy for Ethiopia. Its transition to technology-oriented economic development will hardly be seamless. However, Ethiopia can learn from India’s experience and adapt its IT lessons to achieve the best results. Ethiopia’s young generation will definitely support its transformation into an African and probably global IT hub.

Ed.’s Note: Samuel Alemu is a partner at the ILBSG, LLP. His partner at the ILBSG, LLP, Praveen C. Medikundam, contributed to this article. They are both admitted to the bar associations of New York State, United States Tax Court, and the United States Court of International Trade. Samuel can be reached at [email protected]. You can follow Samuel on twitter @salemu.