Previous Quarterly Editions
Expropriation Risk: 48 48 48 50 Political Violence Risk: 78 80 83 81 Terrorism Risk: 46 46 46 48 Exchange Transfer and Trade Sanction Risk: 63 64 65 67 Sovereign Default Risk: 66 66 66 69
TREND ▲ OUTLOOK ▲
At the end of March 2020, the National Electoral Board of Ethiopia (NEBE) announced that elections due at the end of August 2020 would be postponed because of the COVID-19 crisis. No new date has been set, but it will inevitably be after the current parliament’s term expires in September 2020 and it remains unclear how the country will be governed after that. Some opposition parties may push for an inclusive transitional government to be formed, but the government is unlikely to accept any genuine weakening of its current powers. The delay itself was broadly welcomed by most opposition parties, although they will be less forgiving if the government is seen to take advantage of any emergency powers it awards itself as part of the state of emergency declared in early April. Over the medium term, the delay could allow time for opposition parties to build stronger and more broad-based coalitions to challenge the ruling Prosperity Party when the elections are finally held. However, genuine ideological divisions among some of the larger opposition blocs still suggest full unity is beyond the opposition’s grasp. Meanwhile, the Prosperity Party is likely to use the time to bolster its electability by demonstrating continued progress in its reform agenda and development plans, as well as domestic and regional leadership during the COVID-19 crisis. Even so, when polls are eventually held, most likely in 2021 rather than late 2020, it will still face tough electoral competition, particularly in Addis Ababa, Oromia, Amhara and the Southern Nations, Nationalities and Peoples’ Region (SNNPR), and will almost certainly lose Tigray outright. This may create complex electoral outcomes, with the potential for split votes in various regions requiring the formation of post-electoral coalitions, or power being divided among different groups at federal, regional, or municipal levels. Most political actors already anticipate this reality and pre-electoral competition and cooperation is likely to operate on at least two levels, with political actors positioning themselves to build useful alliances for the elections themselves, while keeping one eye on the different alliances they may have to build in a post-election scenario.
The economic outlook has improved over the last year but the economy now faces a serious risk of political instability linked to the postponed elections as well as the impact of the COVID-19 crisis. The current government may lose momentum in attempting to implement its ambitious ‘Homegrown Economic Reform Plan’ as envisaged, and this would have implications for investment opportunities. Meanwhile, the expected global economic downturn as a result of COVID-19, and the potential for rising global protectionism and reduced foreign direct investment, could all undermine the export growth-led model on which Ethiopia’s recovery is premised. This could delay key reforms and initiatives such as the privatisation drive, and so put pressure on domestic industries and businesses that have previously been regarded as relatively stable, such as Ethiopian Airlines or the tourism sector more broadly, or as having key growth potential, such as Ethio Telecom or the apparel manufacturing sector.
TREND ▼ OUTLOOK ▲
The delay to the election schedule could help ease some short-term political tensions but the potential for political violence will remain high as political actors continue to position themselves for the eventual electoral race. The Coalition for Democratic Federalism (CDF), a grouping of the three leading ethnic Oromo parties that was established in January 2020, has reduced some of the potential for intra-Oromo electoral competition, but Oromia still represents the greatest risk area. Fighting between government forces and a renegade faction of the Oromo Liberation Front (OLF-Shene) continues in western Oromia amid an ongoing internet and media blackout, although reports are emerging of increasing human rights violations on both sides. In the SNNPR, which recently saw a relatively peaceful referendum on independence for the ethnic Sidama, other ethnic groups are now claiming self-rule and this could provoke violence both between ethnic groups and with government security forces. The release in mid-March 2020 of new constituency maps for the next election, which look relatively unchanged from the maps drawn under the deeply controversial 2007 census, will also drive discontent among those who feel politically disenfranchised, particularly in the Oromia, Amhara and Somali regions.
Ethiopian forces have become more involved in supporting the Federal Government of Somalia in its ongoing conflict with Somalia’s Jubaland region, with hundreds of troops crossing into Somalia in February and March 2020. Though this is a dispute between different levels of government in Somalia, it is happening in an area of significant al-Shabaab control. The jihadist group has responded with condemnation of foreign interference in Somali affairs, and the risk of a cross-border attack into Ethiopia is rising. The risk will be countered by the fairly effective Ethiopian security forces, but al-Shabaab may see the distractions around elections as a moment of opportunity. Meanwhile, there are continued reports of illicit arms smuggling into Ethiopia from Sudan. These could be used in domestic attacks by any one of several anti-government political forces, but most notably the OLF-Shene faction currently fighting in western Oromia.
Foreign currency shortages have already been made worse by the economic impacts of the COVID-19 crisis. Global logistical disruption means that import costs will rise even as exports and remittances fall, further constraining a foreign currency position that was already close to breaking point with less than two months of import cover. The impact will set back the government’s privatisation drive, which was expected to be the main means of attracting additional foreign currency. In terms of response, the 2.9-billion USD loan package agreed with the IMF will help but the government will try to avoid any actions, such as devaluing the exchange rate, that could cause inflationary pressures ahead of elections.
Sovereign debt is likely to rise significantly as a result of the COVID-19 crisis. Publicly guaranteed debt continues to decline, falling to 57% of GDP as of mid-2019, but debt service costs remain high and repayment will become more difficult. Prime Minister Abiy Ahmed has already issued a global appeal for debt restructuring and forgiveness on interest as a means of easing the pressure on developing countries. Though his comments were pitched as a call for support to Africa as a whole, the pressures he highlights are particularly pressing for Ethiopia. The global response to the COVID-19 crisis could have a critical bearing on debt sustainability in Ethiopia over the coming years. Some relief is likely, but it remains unclear how far creditors will be willing to go given the pressures that they themselves are facing.
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