Issue No. 271

On 9 February, during a press briefing in Addis, the International Monetary Fund's (IMF) Managing Director Kristalina Georgieva called on Ethiopia to unite behind the government's economic reform agenda. Buoyed by the progress made by Addis, she said that the "reform Ethiopia has embraced is tough and takes time, but it will yield tremendous results." So far, these reforms– including the rapid liberalisation of the economy– have caused significant financial reverberations amid a period of widespread internal conflicts and rapid state contraction. 

Inflation may have 'officially' declined from 32.5% to 15.5%, but with wage stagnation and the Ethiopian Birr (ETB) having plummeted in value since it was floated in mid-2024, the cost of living remains exorbitant. Food, fuel, and everyday goods have become near-unaffordable for many in Ethiopia, particularly those in the peripheral and ever-more-adrift areas of the country. For those with fixed-wage salaries, such as civil servants, sustained inflation has savaged their pay. Last October, the federal government pledged substantial wage increases of up to 300% for public employees, but many have yet to see any rises. Meanwhile, measures such as higher electricity tariffs and revised tax codes have increased pressure on households, particularly impacting those from lower-income groups. The gap between the wealthiest in Addis and the poorest in the country has continued to grow.

With support from the IMF, the Ethiopian economy is being supposedly opened up for greater foreign investment and integration into global market economics. For the first time, foreign companies can invest in the telecoms and banking sectors, with the latter also facing a number of reforms and pressure for smaller banks to merge. The liberalisation of the economy is a far cry from the 'developmental state' of former PM Meles Zenawi, which preferred direct state investment into national infrastructure as well as highly regulated investment. But last year's federal Auditor General report into Foreign Direct Investment (FDI) in Ethiopia further makes for a grim reading, particularly for the Ethiopian Investment Commission (EIC). In a fiery showdown at the federal parliament at the beginning of February, EIC officials were lambasted for having failed to respond to the months-old report. The report highlighted the scale of the decline in FDI and the slashing of over 50% of investment permits provided since 2000 by the EIC. Ethiopia is unsurprisingly also struggling to retain investments, even while the EIC has asserted a 12% FDI increase. 

That 12% increase has been primarily driven by a pivot toward Chinese investment in Ethiopia amid the continued suspension of the country from the US's African Growth and Opportunity Act (AGOA). In 2021, as a result of the mass human rights violations being committed in Tigray, Ethiopia was removed from the list of tariff-free countries. That year, Ethiopia exported nearly USD 277 million in goods, the overwhelming majority of which were textiles and clothes. Another report, this time by the National Bank of Ethiopia, into the economic consequences of the AGOA suspension is also notable, with thousands of job losses cited and a drop in investment in industrial parks as well. What is likely to have an even more significant impact than AGOA, however, is the fallout from the USAID funding suspension. Ethiopia is the largest USAID benefactor in Africa, receiving over USD 1.3bn in 2023, with immense humanitarian and development funding being poured into the country. This is unlikely to be fully restored, considering the sledgehammer the Trump administration has taken to the institution. How the saga pans out will be highly consequential for millions of Ethiopians, and the country's socio-economic stability.

Ethiopia's economic crisis is further fuelling its rising instability, and vice versa. The cost of the damage being wrought upon the infrastructure of Amhara and western Oromia, as well as the systematic ruination of the Tigrayan economy during the war, has run into the tens of USD billion. The government's ability to collect taxes or develop economic growth across much of these three key economic regions has been badly diminished as a result of its military policies. And though immense funds are still being invested in the security forces, corruption within the police and the army has also been reported to have grown substantially. Police in Addis have carried out arbitrary arrests to extort individuals for their release. In Oromia, families have reported paying security officials to prevent the forced conscription of their sons into pro-government militias for deployment in the Amhara region. A steady stream of defections in the Ethiopian National Defense Forces (ENDF) also continues apace, with poorly-trained soldiers and militias unwilling to fight the insurgencies in Oromia and Amhara for minimal pay. 

One of the drivers of the raging Fano insurgency in the Amhara region in 2023 was the scarcity of fertiliser for impoverished rural farmers, who picked up arms in protest of their perceived marginalisation. For the coming year, the federal government– again– has missed its own fertiliser procurement targets, alleging that through thorough prioritisation, it needs less than expected. This is wishful accounting, and fertiliser costs have now surged as the federal government has even resorted to distributing out-of-date fertiliser. In Sidama, for instance, the costs of DAP fertiliser have jumped from ETB 3,600 to 8,400 per quintal. 

With western Oromia, as well as much of Amhara and Tigray, remaining largely economically inactive and the enormous crisis of over 20 million people requiring humanitarian assistance, the promises of a possible economic transformation are not grounded in reality. The federal government can attempt to liberalise the economy, but its heavily militarised policies towards internal dissent and instability make sustainable growth and significant FDI improbable. On the surface, there are signs that parts of Ethiopia's economy may be stabilising and improving, such as the surge in gold and coffee exports. The drop in food inflation is a positive indicator as well. Below that, however, is a far more unequal reality, one where state investment in healthcare and schooling has been laid aside in favour of vanity projects in Addis. For most, the IMF's optimism about the future of Ethiopia's economy appears devoid of reality.