290 Ethiopia’s strong economic performance can be attributed to a combination of several factors: improvements in structural policies, strengthening economic institutions, and some good luck. Tariffs and non-trade barriers have been significantly reduced, many sectors have been opened for domestic and foreign investors and, land market distortions are being gradually addressed. Regional states have been given considerable autonomy in developing independent economic policies and a more radical devolution process is underway, moving finances and functionaries to the woredas level. The favourable global environment, generous debt write-offs, large and increasing Official Development Assistance (ODA) and remittances, and a long spell of good weather, have all played important roles in moving Ethiopia to a higher growth trajectory. Nevertheless, these favourable factors have been offset to some extent by the rising price of oil, of which Ethiopia imports all of its consumption. 291 Ethiopia’s economic outlook is quite optimistic. Government, for example, has increased spending on infrastructure development (a large share of project financing is derived from foreign assistance) such as roads, thereby helping to make the economy more efficient. There are plans to invest more heavily in hydroelectric power, which will increase electricity generation. Foreign investment, particularly from China and India, is on the rise and government is encouraging foreign oil companies to explore for oil. 292 Construction activity is vibrant. The recent introduction of a value-added tax boosted government revenue. International debt relief slashed Ethiopia’s foreign debt and debt servicing costs. According to the World Bank, remittances from Ethiopians living abroad totalled US$172 million in 2006 and a similar amount was estimated for 2007. Finally, higher prices for coffee should help to underpin agricultural production. 293 Despite these very encouraging developments, the economy continues to face serious challenges that could potentially dampen growth in the mediumterm. First, inflation shows no signs of abating. Second, export growth is below expectations. During the first half of the fiscal year that began on 7 July 2007, overseas shipments totalled US$ 552.7 million. This was below the government’s - 128 -