05/02/2019 – Country Focus / Ethiopia

Ethiopia’s Great Reformer?

Ethiopia’s charismatic new prime minister is accelerating a radical reform programme that seeks to upend the status quo in Africa’s fastest growing economy.

 

“His name, Abiyot, means ‘revolution’ I called him Abiy for short,” said the father of Ethiopia’s new Prime Minister when asked to describe his son’s early years. Nominative determinism is a somewhat shaky hypothesis, yet since coming to power in April 2018, few would argue that 42-year-old Abiy Ahmed has cut something of a revolutionary figure, having embarked on the most radical liberalisation drive in Ethiopia’s history, spanning sweeping reforms in political, social and economic spheres alike. 

 

Drive for democracy 

 

The country’s sham election of 2015, in which the ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) and allies sailed to victory – winning an implausible 95 per cent of the vote and every single seat in parliament – ignited the spark for what many in the country now refer to as Ethiopia’s ‘Third Revolution’. 

 

Angry protestors took to the streets – and the government responded by shooting dozens of them and arresting thousands more. Riots followed, with factories burned down and roads blockaded. Thereafter, in October 2016, the government imposed a ‘state of emergency’, which forbade circulation of printed material or signs that could stir up tensions, alongside any protests or even the assembly of groups. Citizens in various states closed their shops in defiance of the mandate, leading in some instances to the bizarre situation of the government actually forcing business owners to reopen their stores. Desperate to end the chaos, on 2nd April 2018 the EPRDF named reformist Abiy Ahmed – from Omoria, a mainly Muslim region in central Ethiopia, where many of the protesters resided – as the country’s new leader. Born in 1976 to a Muslim father and Christian mother, it was hoped that Mr Ahmed’s appointment – the first such constitutional handover in the millennial history of the Ethiopian state – would serve to help unite various factions at play in the country.

 

Certainly, the pace of reform enacted by Mr Ahmed since coming to the helm has been positively dizzying. As a result of such efforts, the country’s state of emergency was lifted two months earlier than planned – in June 2018. As part of his democracy drive, the new prime minister has freed thousands of political prisoners, and welcomed back various ethnic opposition groups, alongside ungagging the media and promising to hold fair elections in 2020.  

 

Crucially, Mr Ahmed has also been swift to tackle graft. The nation watched in disbelief in November as former high-ranking military officers were arrested on live television before being bundled into police vans – just the latest development in what has been described as one of the biggest corruption crackdowns in Ethiopia’s recent history. Ethiopians have widely welcomed the purge of the military elite, whose alleged misdeeds include overseeing gross human rights abuses and illegal arms smuggling.

 

Access Addis Ababa

 

One of Mr Ahmed’s first major acts was to sign a peace deal with neighbouring Eritrea, ending a two-decade-long stand-off between the countries. Restoring diplomatic ties has opened up the long-closed border between the two countries, as well as restoring land-locked Ethiopia’s access to the sea from the Eritrean coast – a move that bodes well for ramping up international exports in years ahead. 

 

The new PM’s deregulation of Ethiopia’s internet (formerly banned outside the capital) will also massively enhance business operations throughout the country, as will his progressive market-oriented reforms, and moves to sell off parts of its government-owned companies in order to help alleviate the country’s debt burden. 

 

Indeed, while Ethiopia’s economy has expanded at a breakneck pace of 10-per-cent GDP growth annually over the past 15 years (according to government figures), much of that momentum came from state spending on infrastructure – largely financed through borrowing abroad. The binge has pushed foreign-currency debt to the equivalent of 350 per cent of annual export earnings today – leading the IMF to warn the country is at high risk of “debt distress”, while inflation sits at around 14 per cent. 

 

Keen to unleash the power of the private sector, although cautious to keep control in certain core sectors, Mr Ahmed’s government plans to retain majority holdings in state-run airline, logistics, telecoms and energy companies, yet everything else – from hotels to sugar farming and cement production – could be opened up to private sector players. The sole exception looks to be the tightly-controlled financial services sector, whose fate has yet to be decided.

 

Enviable assets

 

The reforms are expected to liberalise some of the world’s largest untapped markets. Even with respect to stake sales, huge investment potential will exist for firms willing to work with Ethiopia’s government.

 

The energy sector is likely to be a particular draw for foreign investors, as Ethiopia’s status as a significant regional electricity exporter strengthens. The country generated nearly US$82 million from electricity exports to Sudan and Djibouti in the last fiscal year, while an Ethio-Kenya-Tanzania transmission line (slated for completion in 2019) could see up to 400MW of electricity exported to Kenya and 400MW to Tanzania in the not-too-distant future.

 

The mighty Grand Ethiopian Renaissance Dam (GERD) – set to be Africa’s largest hydro-electric power-source and now close completion after more than seven years in development – is set to put Ethiopia on the map. An abundance of green energy sources means that many more power developments will follow. The country’s current generating capacity (4,500MW) of energy will more than double by 2022, according to the country’s Growth & Transformation Plan II (GTP II) – yet potential generation capacity is a whopping 45,000MW of hydropower, 10,000MW of geothermal and 1.3 million megawatts of wind power. No wonder Mr Ahmed is looking to leverage upon such resources via more big-ticket private-sector-fuelled power projects, with the Public-Private Partnership Office recently announcing US$7bn in new energy and road projects (see p10) to help boost economic development. 

 

Beyond that, the government has said it will cede a minority stake in Ethiopian Airlines – Africa’s largest airline by fleet size and revenues, which has recorded phenomenal growth (20-25 per cent per annum) in recent years. The airline carried around nine million passengers in the 2017/18 fiscal year. An ambitious expansion plan and considerable fleet investment aims to boost that figure to 22 million by 2025.

 

Another area of great interest to foreign firms is telecoms – on account of the sheer size of the market and also the low penetration rate at present. State-run monopoly Ethio Telecom currently has around 16 million subscribers to its Internet services – in a country of over 100 million people. Inking new VISP (virtual internet service provider) agreements with private sector players will not only boost subscriptions; it will lower the price of such services too. Improving such connectivity could have a phenomenal impact on the country’s businesses – especially the kind of tech start-ups that currently thrive in neighbouring Kenya. 

 

Turning a page

 

Certainly, various dynamics appear to be moving the country in the right direction: The new prime minister’s market-oriented reforms look set to help Ethiopia turn the page on decades of state reliance, driving economic growth and prosperity in so doing. This could ultimately offer the country greater opportunity to move up to middle-income status over time. 

 

On a regional level, the recent accord with Eritrea has blown a “wind of hope” across the Horn of Africa, according to the UN Secretary-General, with Eritrea having since signed a peace agreement with Djibouti, and restored diplomatic ties with Somalia. 

 

Nonetheless, it is far from clear whether Mr Ahmed will be able to curb attrition back home in Ethiopia – a country composed of more than 80 ethnic groups. Amongst those he has welcomed back to the fold are violent separatists who no longer fear being shot by the more temperate security services patrolling the streets today. In June 2018, two people died and dozens more were injured after a grenade was thrown at a huge political rally in Addis Ababa’s vast Meskel Square – one staged to showcase the new PM’s reforms. Mr Ahmed described the attack as an “unsuccessful attempt by forces who do not want to see Ethiopia united”. 

 

There will undoubtedly be many challenges ahead for Ethiopia’s new Prime Minister as he strives to steer the country in the right direction. Given his tremendous popularity, Abiy Ahmed stands a better chance than any that have gone before him to unite this swiftly emerging country, and guide it towards free elections and a future of sustainable, equitable growth.

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