Ethiopia will become one of the fastest growing economies of the world, averaging more than 8 per cent, due to a massive inflow of foreign investment and increased domestic consumption. Ethiopia is a landlocked nation in eastern Africa, with a population of over 100 million: the second….
Ethiopia will become one of the fastest growing economies of the world, averaging more than 8 per cent, due to a massive inflow of foreign investment and increased domestic consumption.
Background
Ethiopia is a landlocked nation in eastern Africa, with a population of over 100 million: the second highest in Africa. Over 70% of the population is dependent on agriculture for livelihood and 80% of the population lives in rural areas.
Ethiopia avoided colonial rule until the 20th century when it was invaded by fascist Italy in 1935. The occupation lasted 6 years. A revolt returned the former Emperor Selassie to power only to be overthrown by Soviet-backed dissidents in 1974. The Marxist Derg and its leader Colonel Mariam, who was responsible for the “red terror”, ruled for almost two decades, during which time the country saw severe droughts and famines.
In 1991, the Ethiopian People’s Revolutionary Democratic Front (EPRDF) captured the capital from the Derg. The Federal Democratic Republic of Ethiopia was formed. The EPRDF is Ethiopia’s current ruling coalition comprising of four parties: The Oromo Peoples’ Democratic Organization (OPDO), the Amhara National Democratic Movement (ANDM), the Southern Ethiopian People’s Democratic Movement (SEPDM), and the Tigrayan People’s Liberation Front (TPLF). The EPRDF has been accused of the wrongful imprisonment of opposition, amongst other human rights violations.
Ethiopia has been home to growing unrest since 2014 when peaceful protests against a development project in Oromo were met with violence from the state. These protests grew into a call for political and economic reform, largely from the regions of Omoro and Amhara, whose people claimed a lack of representation. Hundreds of people were killed during these protests, and over 10 thousand arrested. A 10-month state of emergency was instituted in October 2016. A year later, protests erupted again, with a continued demand for political change and the release of political prisoners.
Read more about our extensive analysis of the ongoing ethnic clashes in Ethiopia here
Analysis
Ethiopia’s economy is forecast to expand 8.5 percent in the July 2018-June 2019 period, from 7.5 percent in the previous fiscal year, the International Monetary Fund said on Wednesday.
In its first assessment since Prime Minister Abiy Ahmed took office in April, the IMF said Ethiopia was benefiting from easing uncertainty and improved domestic and foreign investment.
Abiy has signed a peace deal with neighbour Eritrea, lifted a state of emergency and promised to partially open up the government-dominated economy by attracting foreign capital to the state telecoms company and airline.
Eritrea and Ethiopia have also restored diplomatic ties, reopened borders and started flights.
“Growth is expected to step up in 2018/9 … supported by stronger confidence as the uncertainty of the previous year recedes, and the availability of domestic and foreign direct investment improves,” Julio Escolano, head of an IMF team that visited Ethiopia to make the assessment, said in a statement.
“The authorities’ strategy to shift the engine of economic activity to private sector development while the public sector consolidates is appropriate to maintain strong growth.”
Ethiopia has said it will open its logistics sector to foreign investors but cap their participation.
The EPRDF coalition, in power since ousting a military junta in 1991, aims for Ethiopia to reach middle-income status by 2025 and is pursuing manufacturing-led industrialisation that has involved building roads, a railway, and industrial parks – as well as mounting debt.
“At the same time, measures to reduce public sector borrowing and bring inflation back to target need to be intensified, as external imbalances and indebtedness remain a source of macroeconomic risk,” Escolano said.
Counterpoint
The recent eruption of ethnic-based violence in the south of the capital city threatens a largely peaceful economic expansion of the country over the past few years. Although Ethiopia has resolved its long-standing border tension with Eritrea, the domestic armed struggle will prevent a smooth economic growth as projected by the IMF.
As the country is populated with diverse ethnic groups, the clashes have resulted in the displacement of over 800,000 people and have resulted in in the partial breakdown of state machinery in certain areas. This could certainly derail Ethiopia’s economic growth and the outbreak of a civil war would be disastrous.
Assessment
Our assessment is that the IMF growth projections are based on the assumption where the government apparatus functions as planned without armed conflicts. The ongoing ethnic clashes are certainly detrimental to Ethiopia’s growth. We believe that PM Abiy will have to reach an agreement with other ethnic groups if he wants to sustain the projected pace of economic growth.
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