Previous Quarterly Editions
Expropriation Risk: 50 50 48 48 Political Violence Risk: 76 78 78 80 Terrorism Risk: 46 45 46 46 Exchange Transfer and Trade Sanction Risk: 63 62 63 64 Sovereign Default Risk: 66 68 66 66
TREND ▲ OUTLOOK ▲
Ethiopia has faced considerable turbulence since the start of the year but two recent developments, both with their roots in local politics, have had a particular impact on the situation at the national level. The first saw the president of the Amhara Region and the nation’s army chief assassinated within hours of each other in what the government has described as a failed regional coup attempt by Amhara nationalists. This narrative is riddled with inconsistencies and has given rise to multiple conspiracy theories, not least within the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) itself. The events prompted a very public airing of festering grievances between the Amhara and Tigray wings of the EPRDF coalition, which each accused the other of fomenting unrest by manipulating ethnic and nationalist sentiments. Meanwhile, in southern Ethiopia, demands for statehood by ethnic Sidama, made over a year ago but until now largely ignored by the federal government, came to a predictable head in July when a constitutional deadline for a referendum expired. Sidama nationalists had threatened to unilaterally declare statehood on that day if the federal government failed to respond. At the last minute, the National Electoral Board of Ethiopia (NEBE) promised a referendum within three months but this was not enough to prevent a fresh outbreak of violence. Federal security forces intervened as the government blacked out regional internet access, but not before reports of dozens of deaths leaked out. Neither issue has been fully resolved, although the Sidama referendum has finally been confirmed for November, and both point to a country that is increasingly fragmented as its government faces deeper internal divisions that are contributing to hapless policy responses. This is a dangerous recipe with national and local elections now less than a year away. Despite all the difficulties, Prime Minister Abiy Ahmed has remained resolute that these elections will be held on time, in part because of the reinforced legitimacy that success at the polls would bring. However, while there is currently no opposition force with the nationwide credentials to pose a serious threat to the EPRDF’s rule at the federal level, the elections are likely to see regional or urban-based political groups snatching chunks of the ruling party’s current monopoly on political power, leaving it weakened yet still needing to deal with the structural challenges it faces. The budget for the fiscal year that began in July is 13.8 billion dollars. When pressed in parliament on the country’s external debt levels, the prime minister claimed that Ethiopia has now restructured almost half of its Chinese debt from commercial loans into concessional loans, which should bring savings of an estimated 400 million dollars per year. However, while it is clear that Ethiopia has been reworking its Chinese debt, the opacity of these deals means that Abiy’s figures cannot be verified.
TREND ► OUTLOOK ▼
Despite the domestic challenges, Ethiopia is making significant efforts to move forward with its economic reform programme, not least in terms of its flagship privatisation initiative. A new privatisation law is now before parliament, and authorities have promised to allow private investors to hold up to 49% of Ethio Telecom, which at present is the country’s only telecommunications provider. There are also more distant plans to license new spectrum to foreign operators. In August, the government issued the first ever licence for a foreign financial firm to operate in Ethiopia. This went to Ethio Lease, which will lease industrial equipment to Ethiopian businesses. These are major steps forward for a country that has historically insisted on a central role for the state in strategic economic sectors, but they are driven by hard economic realities that include dwindling foreign reserves, high levels of debt, and major investment shortfalls. These factors strengthen the commitment to privatisation but efforts to improve the business environment remain in their infancy. Unresolved challenges include a structurally undervalued currency, a chronic shortage of foreign exchange, and a thicket of red tape, all of which will be of concern to potential investors despite the attractive opportunities on offer. Quick progress is unlikely, especially as the government will be forced to concentrate on political and security issues for some time to come.
The threat of political violence now exists across most of the country. With the exception of a recent reconciliation initiative between ethnic Oromo and Somali elders, which follows two years of violence in which thousands of people have been killed and more than a million displaced, there are few positive developments to note. Instead, tensions are at boiling point within and between so many regions, ethnic groups and interest lobbies that an unexpected trigger could unleash serious political violence in any one of several flashpoint areas, some of which could intersect. The greatest risk of political violence remains within Amhara, between Amhara and Tigray, and also within western Oromia and along the boundaries of Oromia state.
TREND ► OUTLOOK ▲
Ethiopia has no recent history of sustained domestic terrorism, but armed political actors have shown a willingness to challenge federal power through acts of violence, and the possibility that one group or another might adopt terrorist tactics to further their political aims cannot be discounted.
TREND ▲ OUTLOOK ►
The licence granted to Ethio Lease is directly related to the country’s foreign exchange crisis. The company is mandated to import machinery into Ethiopia that is then leased under contracts denominated in the Ethiopian birr, thereby bypassing the foreign exchange shortages that have constrained domestic businesses from funding purchases of such equipment. This could help provide a welcome productivity boost but will not address the foreign exchange and currency problems that made the move necessary in the first place.
TREND ► OUTLOOK ►
Ethiopia’s external debt, estimated to be around 27 billion dollars, remains high, with a further 7.5 billion dollars needed just to complete ongoing infrastructure projects. At the root of both the debt and foreign exchange crises is the underperformance of Ethiopia’s export-driven growth strategy, which took a further hit in June when the finance ministry admitted that annual export earnings had fallen by 8.3% to just 2.1 billion dollars.
Return to contents Next Chapter