It is interesting to observe and analyze the macro picture of Ethiopia in the first half of 2022. For the analysis, there are four core prisms through which we can observe Ethiopian development perspectives on topics highlighted in Ethiopia’s annual development.
Performance of Ethiopia’s main Macroeconomic Indicators
According to the International Monetary Fund (IMF), Ethiopia’s economic growth will remain at around 3.8% in 2022. This growing speed is down from 6.3% in 2021.
IMF gave this prediction based on the internal and external environment that Ethiopia has been facing. Specifically, the country has suffered from the ongoing spillover effects of the domestic military conflict, COVID-19, and the Russia-Ukraine conflict in the first half of the fiscal year.
However, two weeks after the IMF gave its forecast, Ethiopian authorities announced that the country’s gross domestic product is expected to grow 6.6% this year. The data given by the Ethiopian government is slightly better than the performance last year.
Meanwhile, the country’s inflation rate rose to 37.70% in May this year from 36.60% in April. Accordingly, the latest data shows the highest level of country inflation since November 2011.
At the same time, the CPI of Ethiopia rose from 273.20 points in April 2022 to 280.40 points in May. On the debit side, in the long run, Ethiopia’s government debt to GDP ratio might reach 64.00% by the end of 2022. Afterward, the ratio may become 63.00% in 2023, according to Trading Economics’ econometric model.
Impact of Recent External Environment on Ethiopia’s Economy
In the context of the ongoing armed conflict in Ethiopia, the Biden administration officially announced on January 1, 2022, the termination of Ethiopia’s preferential trade status under the African Growth and Opportunity Act (AGOA).
Previously, the Biden Administration had warned the Abbey government on November 2, 2021. Biden said that Ethiopia would no longer be eligible for AGOA if it failed to address numerous human rights violations.
Such a humanitarian crisis is happening during the civil war. Moreover, entrepreneurs warned the move could lead to the permanent loss of 1 million Ethiopian jobs last year.
On the other hand, some international stakeholders support the Ethiopian government in addressing the huge humanitarian crisis.
For instance, the World Bank announced a US $300 million grant to Ethiopia for post-conflict reconstruction in May 2022. The funds aim to offer monetary support to basic public services.
Such public services especially concentrated on education, health, and water supply. Also, the World Bank planned to use this financial assistance to help survivors of gender-based violence in conflict areas.
The regions of Amhara, Afar, Tigray, Oromia, and Benishangul Gumuz are key recipients of funds. The Ethiopian government will contract with a third-party organization to implement the project in the above areas.
Ethiopia’s Food Crisis in the first six months of 2022
Countries in the Horn of Africa, including Ethiopia, are facing a serious food security crisis. The crisis is due to severe droughts during the past three rainy seasons.
Simultaneously, the weather has brought widespread flooding and locust plagues to the region. Ethiopia is facing its worst locust plague in 25 years.
Moreover, according to the United Nations in April, the food crisis in the Horn of Africa may affect more than 20 million people in the region this year.
For instance, malnutrition rates in drought-affected southern and south-eastern Ethiopia have exceeded warning thresholds.
Also, food shortages in the Tigray region in the north of the country, caused by internal armed conflict over the past 20 months, have not been alleviated.
The UN Humanitarian Agency says no humanitarian aid trucks have entered Tigray since December 15 last year because of administrative and security restrictions.
Although the Abiy government declared a unilateral ceasefire in the north of the country in March 2022 to maximize humanitarian needs in the region, red tape and insecurity have severely limited humanitarian deliveries.
Therefore, the United Nations said in January that nearly 40 percent of Tigray, a region of 6 million people, faced extreme food and fuel shortages. As a result, aid workers had to deliver medicine and other vital supplies on foot.
Agencies warned that the region needed to raise at least $473m over the next six months to avert further humanitarian disasters, falling short of 4% of the target raised in the February appeal.
How has Ethiopia’s telecommunications sector developed recently?
In the information and communication technology (ICT) sector, the Abiy government initiated the partially privatizing state-owned Telecom operator Ethio Telecom on June 15, 2021, with plans to sell 40% of its shares.
But on March 18, 2022, Ethiopia announced a suspension. The Ministry of Finance stated: “Given recent developments and rapid changes in the global and national macro-economy, the Ethiopian government has chosen to postpone the privatization of Ethio Telecom indefinitely.”
Analysts said the move aimed at improving Ethio Telecom’s performance. The Tigray war has weakened the performance of Ethio Telecom.
On the technology side, Ethio Telecom launched the country’s first 5G network service in May. Such progress officially made Ethiopia the sixth sub-Saharan country to roll out 5G.
The 5G network service will only be available in designated hotspots in the capital Addis Ababa. The hotspots include Bole International Airport and the headquarters of Ethiopia Telecom.
Notably, the Chinese 5G giant Huawei has provided support for the satellite construction needed for Ethio Telecom’s 5G network.
Current situation of Grand Ethiopian Renaissance Dam (GERD)
Ethiopia first started generating electricity from the GERD in February 2022. However, the country has been facing strong opposition from neighboring countries, including Egypt and Sudan.
The $4.2 billion project plans to double Ethiopia’s electricity output when it becomes fully operational. In the face of the tensions in the region caused by the GERD in recent years, the Abiy government has again sought to assure its neighbors that Ethiopia has no intention of infringing on other countries’ interests.
Egypt’s Foreign Minister said the move was a serious violation of a preliminary agreement signed by the three countries in 2015. The agreement stipulated that neither side should take unilateral measures on Nile water resources.
On the other hand, relations between Ethiopia and Sudan soured again in late June. Currently, Sudan recalled its Ambassador to Ethiopia after seven Sudanese soldiers and one civilian were killed in a skirmish over a dam in the disputed border region of Ai-Fashaqa.
Conclusion
To summarize, Ethiopia’s development and challenges coexisted in the first half of 2022. The civil war and food crisis will pose huge financial challenges for Ethiopia.
If the government cannot handle the challenge properly, it could exacerbate an already existing humanitarian crisis. Currently, the government is still trying to improve the national economy by regulating key industries. However, the effectiveness of the policies is still under observation.
On the international front, the Ethiopian government has been under great pressure for the humanitarian disaster caused by the civil war.
Also, the construction of GERD has further challenged Ethiopia’s diplomatic relations with its neighbors. However, it’s worth noting that Ethiopia’s economic development and response to the humanitarian crisis cannot be successful without the support of the international community and a sound diplomatic environment.
