Catch 22

Ethiopian economic liberalisation threatened by looming crisis

By David Whitehouse

Posted on April 30, 2020 11:54

Ethiopia’s Prime Minister Abiy Ahmed
Ethiopia’s Prime Minister Abiy Ahmed REUTERS/Tiksa Negeri

The emergence of a strong government in Ethiopia would likely derail economic reform.

The elections, which were set for August, were postponed at the end of March because of the coronavirus pandemic.

The constitution “does not seem to have envisaged the possibility of such an emergency during an election year,” says Zemelak Ayele, a constitutional lawyer in Addis Ababa.

No target date for the elections was given.

READ MORE: Coronavirus: Ethiopia, Kenya and Rwanda see first East African cases

“The issue of how the country will be governed in the interim period is a question that needs a clear answer,” says Ayele.

Prime Minister Abiy Ahmed has taken partial steps to liberalise the country’s state-directed economy. Reforms include planned new licences for mobile network operators and the sale of a stake in Ethio Telecom.

The continuation of the current weak government, by definition unstable, is the best hope for the continuation of reform, says Mehari Taddele Maru, a strategic adviser on African affairs in Addis Ababa.

  • “A strong, stable government means that economic liberalisation will be halted,” he says.
  • Once there is a strong government, “it’s highly likely that liberalisation will be slowed down or totally halted.”

The parliamentary elections, originally scheduled for May, had already been postponed due to unrest. It was never feasible to hold the election in August as rains make movement very difficult, says Ayele.

The pandemic, in that sense, was “a blessing in disguise” as it gave the government and the election board an “uncontestable” reason for a further postponement.

“Without question there will be a constitutional crisis,” says Maru.

There must be a new government by September or recourse to extra-constitutional measures. But at least six to seven months will be needed for an election, and COVID-19 could easily extend the timeframe, he says.

  • The only constitutional options that Maru sees are a caretaker government, or a coalition of national unity pulled together to fight the pandemic.

Huge Resistance

Ahmed came to power in April 2018.

Under his rule, Maru says a lot of energy has been spent on diplomacy and the Eritrea peace process, meaning a lack of a “hands-on approach” to economic reform.

He adds “liberalisation was not happening as the result of strong direction from the government.”

READ MORE: Abiy Ahmed paddles Ethiopia’s Prosperity Party towards elections

Progress to date could easily be reversed at little political cost.

There remains “huge resistance to liberalisation. Political parties will make use of it to mobilise their constituencies,” says Maru.

Potential in Ethiopia

Executives such as Coenraad Vrolijk, CEO of Allianz Africa, have identified Ethiopia as a market with great long-term potential. But foreign direct investment in insurance is still not allowed.

  • Reform has meant “nothing tangible yet in most sectors,” says Tobias Hagmann, associate professor at Roskilde University in Denmark.
  • Compared with telecoms, there are much bigger vested interests involved in shielding the country’s banking and insurance industries, he says.
  • “The old guard are all leftists, regardless of ethnic background.”

READ MORE: Coronavirus: Ethiopia’s opportunity to reboot its troubled transition

The good news? The country’s statistics on coronavirus may be better than they look. According to research from Renaissance Capital, Ethiopia’s current ratio of positive tests to daily tests, as of April 28, is lower than its cumulative ratio, indicating that the pandemic is being brought under control.

Bottom line: Multinationals planning to enter Africa’s biggest unopened market face a long wait.

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