Ethiopia's economic reforms hindered

The International Monetary Fund (IMF) said economic expansion slowed in Ethiopia from 9 % in 2019, to 2% in 2021.

18 June 2021 | Economics

We are not now in a position to pay. Alemayehu Geda, Professor of economics: Addis Ababa University.

MARION DOUET

Shortly after taking office, Prime Minister Abiy Ahmed promised a spectacular overhaul of Ethiopia's economy by implementing reforms to spur growth, unshackle the country's potential, and lift millions out of poverty.

But three years on, with elections on June 21, Abiy's agenda remains largely unrealised, and the country burdened with debt, the economic pain of the coronavirus, and a costly war in Tigray.

"Things are worse now. The country is breaking and on the verge of defaulting," said one European diplomat, who asked not to be named.

One of Africa's fastest-growing economies, Ethiopia took massive loans to fund some of its flashiest infrastructure projects, including a modern railway from Addis Ababa to Djibouti.

But paying back its external debt some US$30 billion, mostly to China has proven difficult. This year alone, Ethiopia owes about US$2 billion to its creditors and has sought unsuccessfully to defer payment.

"We are not now in a position to pay," said Alemayehu Geda, a professor of economics at Addis Ababa University.

Ratings agency Moody's in May downgraded Ethiopia's credit score, following a similar cut by Fitch Ratings in February.

Alemayehu said the problem is not the amount of borrowing Ethiopia's external debt to GDP ratio has fallen under Abiy but a dire lack of dollars.

The country of 110 million people imports far more than it exports, fuelling a structural deficit of much-needed foreign exchange.

This currency crisis also hurts businesses, which are often forced to wait months to secure the dollars they need to run their ventures

A nationwide shortage of cement, for example, is because manufacturers cannot import the spare parts needed to run their factories, not due to a lack of raw materials, said Ashenafi Endale, editor of the Ethiopian Business Review magazine.

Inflation meanwhile described recently by Abiy as "the cancer of the economy" remains high at over 13 percent, and food costs are soaring.

Poverty

Compounding the pain, Alemayehu estimated some three to four million Ethiopians have been driven into poverty by the Covid-19 pandemic.

The International Monetary Fund (IMF) said economic expansion slowed in Ethiopia from nine percent in 2019, to two percent in 2021.

However, agriculture the backbone of Ethiopia's economy, contributing one-third of GDP resisted the downturn, and the IMF forecasts that growth will rebound to eight percent in 2022.

Abiy has acknowledged the unexpected cost of the pandemic to his reforms. In November 2020, Abiy ordered troops into Tigray after accusing the region's former ruling party of orchestrating attacks on federal army camps.

He vowed a swift operation to bring the dissident regime to heel but seven months later, the war drags on at untold cost to lives and state coffers.

The human toll of the war has also been devastating, with the UN reporting 5.2 million people in Tigray need urgent food assistance and an emerging famine threatening some 350 000 people. Nevertheless, Ethiopia's economy has begun opening under Abiy.

Less than 10 percent of the various economic sectors were open to foreign investment when Abiy was appointed prime minister in 2018, said Olivier Poujade, founder of East Africa Gate, a consulting firm.

"Now, the opposite is true," he said, praising a "very different mentality" under the new administration.

Some of the higher-profile commitments such as the partial privatisation of state-owned behemoth Ethiopian Airlines, the largest carrier in Africa are still pending.

But in June, the government started the process to partially privatise Ethio Telecom, and earlier awarded a telecom licence to a consortium led by Kenya's Safaricom, marking the historic end of a state monopoly over the key sector. – Nampa/AFP

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