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Ethiopia: Economic reforms can survive Tigray conflict, the AfDB says

By David Whitehouse
Posted on Tuesday, 20 April 2021 18:16

Ethiopia's PM Ahmed
Ethiopia's Prime Minister Abiy Ahmed in Addis Ababa, Ethiopia December 7, 2019. REUTERS/Tiksa Negeri

Ethiopia’s economic reforms can continue despite the impact of conflict in Tigray, Nnenna Nwabufo -- African Development Bank (AfDB) director general for East Africa -- tells The Africa Report.

The government is putting in place measures to promote private-sector participation in telecommunications, finance, logistics and manufacturing, Nwabufo says. “These reform measures aim to unleash the potential of the private sector and its contribution to the economy” and will also promote efficiency of public services, she says.

Prime Minister Abiy Ahmed has taken tentative steps to open Ethiopia’s economy. His administration partly opened the logistics and telecom sectors and foreigners can invest in power distribution and industrial parks. A planned privatisation of Ethiopian Airlines has been cancelled, but the government has said it will go ahead with the partial privatisation of Ethio Telecom.

The conflict in Tigray, which broke out in November, will have “some negative impact on the rest of the economy, but definitely will not grind the economy to a halt,” Nwabufo says. Ethiopia’s national elections, now planned for 5 June after two postponements, will give a renewed mandate and inspire more confidence in the government, she says.

Reports indicate that Tigray cannot afford to wait that long.

The region faces the danger of starvation, worse than in the 1980s, if stability is not achieved soon, according to the US-based World Peace Foundation. A report from the foundation details destruction of farms and factories across the region, destroying the food supply chain and going far beyond the bounds of what Ahmed has called a “law enforcement” operation against the Tigray People’s Liberation Front.

Stability needed

According to the Economist Intelligence Unit (EIU) in London, Ethiopia’s economy will recover moderately in 2021 before accelerating in 2022 in line with a global economic upturn. Mining and construction will attract foreign investment, with growth reaching 4.6% in 2022 and 7.0% in 2025, the EIU says.

“The government, with the support of development partners, is taking urgent steps to resolve the issues in Tigray region,” Nwabufo says. “Plans for restoration of social and economic services, and overall recovery are underway.”

Political stability is expected to improve gradually after the June election, the EIU says. Still, “the risk of electoral violence, election hijacking and voting irregularities cannot be ruled out, risking the poll’s democratic legitimacy”.

Nwabufo sees historically sustained Ethiopian growth rates of close to 10% a year as grounds for optimism.  Despite Covid-19, locust swarms and ‘sporadic conflicts’, Ethiopia still had growth of 6.1% in 2020, she says.

The growth, she says, has been driven by government investment in roads, railways, industrial parks and social services.

Ethiopia has a ‘big and robust economy’, and poverty has declined from almost 50% to 23.5% of the population over the past 20 years. Nwabufo also points to the country’s ‘ambitious’ 10-year development plan that runs to 2030.

“The government, with the support of development partners, is taking urgent steps to resolve the issues in Tigray region,” Nwabufo says. “Plans for restoration of social and economic services, and overall recovery are underway.”

The national budget and donor resources are being shifted to meet the region’s recovery requirements, Nwabufo says. “This, of course, takes invaluable resources away from earlier planned interventions.”

Bottom line

Development partners such as the AfDB are pressuring Ethiopia’s government to end the destruction in Tigray, where stability is the first pre-condition for economic recovery.

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