While the upheavals of 2016 unnerved foreign investors, the economy continues to grow apace.
Ethiopia appears to have withstood last year’s anti-government protests to become the world’s fastest-growing economy, but political reforms promised in the wake of the violence have been dismissed by international rights campaigners as “largely cosmetic” raising questions over the long-term stability of Africa’s second most populous state.
Investors were rattled by the turmoil in the Oromia and Amhara regions during which hundreds of protesters died and foreign- and state-owned enterprises were attacked. Foreign direct investment dropped by a fifth to $1.2 billion in the six months to December – the government paying out millions of dollars in compensation and offering tax relief to affected businesses.
A senior official said in February that while no planned foreign investment projects had been cancelled, the government’s FDI target of $3.5 billion for the year was unlikely to be met, with investors adopting a “wait-and-see attitude”. A state of emergency introduced in October – and extended for four months in March – has stabilized the country, restoring a degree of confidence in the economy. But investors’ faith in the government’s ability to maintain law and order has been shaken.
Last month, despite the economic disruption, Ethiopia was ranked as the fastest-growing economy in 2017 by the World Bank and has overtaken regional rival Kenya to head East Africa’s GDP league table, thanks largely to high levels of public spending and robust domestic demand. These are significant achievements for a country that not so long ago was synonymous with drought and famine. The recent violence, however, underlines the fragility of Ethiopia’s progress.
Under the authoritarian leadership of the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF), which seized power twenty-five years ago, the ethnically diverse country has undergone accelerated, Chinese-style development, averaging double-digit growth over the last decade. There has been considerable public investment in infrastructure, power generation and education, while foreign investment has increased ten-fold from $265 million in 2005 to $2.16 billion in 2015. The government is focusing on building up the country’s manufacturing base and agribusiness sector in an effort to achieve its goal of middle-income status by 2025. It is an ambitious target, given that most of the population still depends on subsistence farming, and more than a third live below the poverty line.
Those yet to benefit from the country’s rapid development bridle at corruption, limited job opportunities, the absence of political freedoms and the dominant role in government of the Tigrayan minority. The sparks that triggered last year’s upheaval were plans – later shelved – to expand the capital Addis Ababa into land belonging to the Oromo, the largest ethnic group. Protests, which began in late 2015, quickly escalated and spread north to the Amhara region, morphing into anti-government unrest.
The authorities cracked down heavily on the demonstrations, imposed a state of emergency and stifled dissent. Thousands of protesters were detained in “rehabilitation camps” and one of the country’s most prominent opposition leaders, Merera Gudina, is facing terrorism charges. He was arrested last December for criticising the state of emergency. In May, opposition politician Yonatan Tesfaye received a six-and-a-half-year prison sentence for encouraging terrorism. He was detained after criticizing the government, just as the protests in Oromia region were gaining momentum.
In an effort to reduce tensions, the authorities have eased the state of emergency, vowed to both undertake reforms and engage in dialogue with opposition parties to address their grievances. In a government reshuffle in November, nine Oromo representatives were appointed to the cabinet – two given prominent roles – while a more representative electoral system has been promised. Currently, the EPRDF controls all the seats in the 547-member parliament.
But critics say the government is failing to deliver on its pledges. In March Human Rights Watch dismissed steps taken so far as “largely cosmetic”. It said they “fell dramatically short” of the protesters’ calls for the protection of basic human rights. In May, Zeid Ra’ad al-Hussein, the United Nations High Commissioner for Human Rights, quoted in the Financial Times, warned that “social pressure will build to a point where dramatic things will happen” unless the country becomes more democratic.
Western powers have put little pressure on Ethiopia because it is a reliable partner in the war against Islamists in the Horn of Africa and has long been an island of stability in an otherwise volatile region. For now, the government appears to be prioritizing economic development over political reform, forging ahead with efforts to turn the country into a low-cost manufacturing hub. As part of plans to create tens of thousands of jobs a year, it aims to build 16 industrial parks around the country. The plants will benefit from a recently launched Chinese-funded electrified railway line to the port of Djibouti, boosting Ethiopia’s export potential.
The country clearly hopes to buy social peace through development, but its job-creation efforts may struggle to keep pace with its fast-expanding workforce. The World Bank estimates that about 600,000 Ethiopians enter the labour market every year. In order to give itself a chance of meeting this demand, the government must seek to maintain stability. State- and foreign-owned businesses were deliberately targeted in the recent unrest, and once the state of emergency is lifted they may again be in the firing line if political grievances are not properly addressed.
Yigal Chazan is an Associate at Alaco, a London-based business intelligence consultancy.
