On November 15, Ethiopian leader Prime Minister Abiy Ahmed Ali addressed parliamentarians on the recent agreement to end the civil war in Tigray and the state of the country’s economy, which has been hampered by this war.
Just three years ago, the think tank at the Brookings Institution in Washington, DC, had declared Ethiopia is one of the best economic performers in Africa. This was shortly after Abiy came to power, promising economic and other reforms meant to accelerate what had already been more than a decade of growth.
After his November 15 speech, Abiy tweeted more boasts about the economy, including:
“The Ethiopian economy has withstood the pressure and reached $127.6 billion, demonstrating that our economy is unbreakable and will continue to grow. Per capita income reached $1,212.
Obviously, he also took issue with a World Bank report on the Ethiopian economy, saying it was not positive enough:
“According to the World Bank, the economy has risen to 1st in East Africa and 3rd in Sub-Saharan Africa… However, we do not agree with the report in its entirety.
“Because Ethiopia has both formal and informal economic activity, we believe it has achieved greater growth than the report indicates.”
Abiy may have plenty to cheer about economically, but his per capita income is 26% higher than the $960 demanded by the world Bank. Then there is the issue of inflation, a chronic problem in Ethiopia that has significantly eroded revenue growth under Abiy’s tenure.
In all, Abiy pink outlook appears uncertain. Additionally, big questions loom over the recent truce, disarmament and long-term political solution with the militant group Tigray People’s Liberation Front (TPLF).
There is no doubt that the conflict over Tigray has put a huge strain on Abiy’s economy. In September, the Associated Press reported:
“[T]he meeting of the Ethiopian Economic Association this month made it clear that the country is suffering as international mediators urgently seek to advance talks to end the fighting.
“Due to internal conflicts, destruction of infrastructure and uncontrolled spending are hurting the economy while ordinary Ethiopians face declining incomes and growing poverty,” economist Alemayehu Seyoum told the meeting. ..
“The Ministry of Finance is now pleading with the public and the large Ethiopian diaspora to contribute to a ‘national cause’ for reconstruction and war aid. The National Bank of Ethiopia has introduced changes to give the government all possible access to foreign currency, including requiring foreign residents to convert everything they own upon entry.
Thanks to cease fire, humanitarian aid began to arrive in the conflict zone again the same day that Abiy addressed the parliamentarians. The truce ended two years of fighting in which researchers say 400,000 to 600,000 civilians may have diedmost because of hunger or lack of medical care.
Ethiopia’s inflation rate hit 27% in 2021, according to World Bank data. Since 2018, when Abiy came to power, inflation has averaged 20% per year. The The IMF puts average inflation for 2022 at 33.6% in Ethiopia.
In its economic outlook for East Africa this month, the The African Development Bank said Inflation in Ethiopia will be the highest among 13 countries in the region except Sudan. Overall prices are expected to rise by a third in 2022 and another 27% next year.
Last summer, Ethiopia faced record food prices that jumped 40% in February, according to the United States Department of Agriculture. Foreign Agricultural Service said.
The African Development Bank predicts that the Ethiopian economy will grow by 4.8% next year. Yet it is slower than Rwanda, Uganda, Kenya, Seychelles, Djibouti and Tanzania. This leaves a much poorer image than that of Abiy.
On November 15, he projected GDP growth of 7.5% by the end of Ethiopia’s fiscal year next July, although this figure is down from an earlier estimate of 9.2%. GDP stands for Gross Domestic Product, the total economic output of a country.
All countries in East Africa are facing major economic headwinds, according to the outlook of the World Bank:
“The Russian-Ukrainian war has pushed up global food and energy prices and increased inflationary pressures in East Africa. Its continuation could weigh heavily on countries importing raw materials from the region and exacerbate food insecurity. Similarly, several East African (EA) countries, including Ethiopia, Kenya and Uganda, may face growing risks of debt distress…”
This month’s ceasefire is not the first stop-fighting agreement. Last March, the TPLF and Abiy’s government reached a humanitarian agreement which only lasted a few months.
Writing about the first deal in March, Susan Stigant, director of Africa programs at the US Institute of Peace, describe the tangled history of the Tigray conflict and why the economy was then one of the greatest potential obstacles to finding a permanent political solution.
“This war has dampened what was one of Africa’s fastest growing economies. This country of 117 million inhabitants, the second most populous in Africa… is struggling to meet its basic needs. Even some middle-class families can no longer afford three meals a day.
“People cannot eat a declaration of truce, so a large and timely injection of funds will be needed.”
Eight months later, many of them challenges stay.
Abiy’s tweet argues that Ethiopia’s economy is stronger than official estimates due to “informal” economic activity. In fact, the concept of informal economy is well known, but it is not clear that it helps Abiy’s case.
The International Monetary Fund describe the informal economy in this way:
“The informal economy consists of activities that have market value but are not officially registered.
“The informal economy encompasses occupations as diverse as minibus drivers in Africa, market stalls in Latin America, and peddlers at red lights around the world. In advanced economies, examples can range from gig and construction workers, to domestic workers, to registered businesses that engage in informal activities.
“The International Labor Organization estimates that around 2 billion workers, more than 60% of the global adult workforce, operate in the informal sector – at least part-time.
According to world Bank, a large informal economy is not correlated with economic power. Completely the opposite :
“High levels of informality generally mean lower development outcomes. Countries with larger informal sectors have lower per capita incomes, greater poverty, greater income inequality, less developed financial markets and lower investment, and are further from achieving the Sustainable Development Goals .
In a global way report published last year, “The Long Shadow of Informality”, the World Bank stated that “the sector constitutes more than 70% of total employment in [developing] country and about a third of the production.
Government revenues tend to be lower in countries where levels of informality in the economy are above average, according to the report.
In Ethiopia, according to the report, informal economic activity represented a smaller share of the economy – less than 30% – than some other sub-Saharan countries, including Nigeria, Tanzania, Angola, Uganda and Rwanda. .