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Ethiopia – TPLF conflict in Tigray will dampen investor appetite

By Andrew MacDonald
Posted on Thursday, 19 November 2020 18:46, updated on Friday, 20 November 2020 09:05

ethiopia
A man holds a national flag as he waits in the stands to give blood at a blood drive in support of the country's military, at a stadium in the capital Addis Ababa, Ethiopia Thursday, Nov. 12, 2020. (AP Photo/Mulugeta Ayene)

Human rights abuses will deter ESG-conscious investors at a time when Ethiopia’s Prime Minister Abiy Ahmed is looking to drive his Homegrown Economic Reform agenda, which aims to transform the nation from an agrarian to an industrialised economy by 2030, says risk consultancy Verisk Maplecroft.

Ethiopian forces are marching towards Mekelle, the capital of the regional government of Tigray. As of Wednesday 18 November, Prime Minister Abiy has said the operation in the Tigray region was entering its “final phase.”

READ MORE Ethiopia: Escalating strife with Tigray could lead to civil war

This comes amidst reports of a mass killing of civilians in what “would amount to war crimes” if confirmed, warned UN human rights chief Michelle Bachelet. Both sides accuse each other of the massacre committed on 9 November.

Bad timing for FDI

The timing of such events bodes badly for the Ethiopian government which has been eager to lure foreign direct investment flows (FDI) in the tens of billions of dollars through economic liberalisation, particularly privatisation.

Foreign investor sentiment in Ethiopia is almost certain to be muted if hostilities continue.

The government’s reform programme aims to leverage the economic momentum Ethiopia has achieved in recent years and one of these measures has included alleviating sustained foreign exchange shortages.

READ MORE Ethiopia prepares for partial privatisation of Ethio Telecom

According to the Financial Times, Ethiopia’s foreign reserves stood at $3.1bn at the end of the fiscal year to July – enough to cover about two months of imports.

“Ethiopia only narrowly escapes being categorised as an extreme risk country in our Security Forces and Human Rights Index meaning the impact on local populations could be severe,” senior Africa analyst Ed Hobey-Hamsher at Verisk Maplecroft tells The Africa Report.

And looking ahead to 2021, the IMF expects economic growth in Ethiopia to clock at zero and with a comprehensive rollout of a COVID-19 vaccine to Africa not yet in sight, foreign investor sentiment in Ethiopia is almost certain to be muted if hostilities continue.

Worsening situation on the ground

On 14 November, the leaders of Tigray, the semi-autonomous federal state, claimed rocket attacks on two airports in a nearby state and as well as Eritrea’s capital. That in turn has added fuel to growing fears that the conflict could develop into a protracted civil war, drawing in its neighbouring nation.

So far, the conflict has killed hundreds and sent nearly 30,000 civilians to seek refuge in neighbouring Sudan.

Ethiopian refugees rest in Qadarif region, easter Sudan, Wednesday, Nov 18, 2020. (AP Photo/Marwan Ali)

Tensions have been boiling since Tigray’s governing party, the Tigray People’s Liberation Front (TPLF) refused to join Abiy’s ruling Prosperity Party. When he came to power, Abiy curbed the historically strong influence of the TPLF after he dissolved the previous ruling coalition in 2018.

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

Tigray also has substantial links to the Ethiopian military with soldiers currently serving in Ethiopia’s large contingent of peacekeepers to Somalia.

With the continent’s second largest population, Ethiopia is the dominant nation in the Horn of Africa. The United Nations, the African Union and others are concerned the fighting could spread to other parts of Ethiopia and destabilise a wider region already weakened by locust infestation and Islamist extremism.

Looking to 2021, the IMF expects economic growth in Ethiopia to clock at zero and with a comprehensive rollout of a COVID-19 vaccine to Africa not yet in sight, foreign investor sentiment into Ethiopia is almost certain to be muted if hostilities continue.

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