Ethiopia, Africa’s fastest growing economy, sits on a precipitous cusp as it navigates its way towards a market oriented economy, with the scourge of ethnic identity compounding the reformist agenda of Prime Minister Abiy Ahmed’s Administration.

Encapsulating the tenuous intra-ethnic peace existing within Africa’s oldest nation state was an attempted coup that took place this June, an incident where five government officials, including the army chief of staff and the president of the northern Amhara region were assassinated.

In addition, last year in June, during a rally attended by the Prime Minister in the country’s capital, Addis Ababa, a grenade attack happened, reportedly killing one person, wounding 253 others and critically injuring ten, according to Amir Aman, the country’s Health Minister.

After the explosion, the Prime Minister said in a grim address to the nation that this was a “well-orchestrated attack.”

“The casualties are martyrs of love, unity and peace,” he said, urging Ethiopians not to be discouraged and to work towards reforming the country.

According to David Williamson, a Senior Ethiopia Analyst at the International Crisis Group (ICG), a global think tank, the country has serious political problems. “They stem from unresolved questions about the structure and nature of the state and how to share power between Ethiopia’s various communities. There is now a clear objective to democratise, but it may be a tortuous journey to get there,” he says.

Since 1991, the country has been governed by a federation of ethnic states but in recent days, regional groups have intensified calls for more self-determination.

This July, the country’s electoral agency announced plans to conduct a referendum later in the year in regards to creating a 10th state, the first of a series of votes that are anticipated, as ethnic groups demand greater autonomy. An exemplar is the Sidama ethnic group, which had threatened to unilaterally declare statehood by July 18 unless the government announces plans for a plebiscite.

Last year, other ethnic groups drawn from the southern part of the country, including the Wolayta, Gurage and Gamo-Goffa, approved statehood requests, and are also demanding for referenda.

Until 1974, Ethiopia was an absolute monarchy, which collapsed after a socialist revolution deposed Emperor Haile Selassie who had held the reign for 44 years.

Ethiopia’s new rulers set up a Marxist regime, executed thousands of their political opponents, and, as a consequence, estranged themselves from the citizenry.

In early 1991, the Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF), a rebel group coalescing around the Tigrayan ethnic community, which accounts for only six percent of the country’s population, toppled the Marxist military leader, Mengistu Haile Mariam.

The EPRDF held sway until elections were first held in Ethiopia in 1995. Since then, polls have taken place every five years.

For the last four years, the country has endured bloody protests, mainly by members of the Oromo and Amhara communities, who together account for almost two-thirds of Ethiopia’s population and who routinely protested about economic and political marginalization by the Tigrayans, who have dominated Ethiopian politics since the 1990s.

These protests led Hailemariam Desalegn, the country’s second head of state since the then-rebel Ethiopian People’s Revolutionary Democratic Front seized control in 1991, to voluntarily relinquish power on February 15 2018, becoming the first ruler in modern Ethiopian history to step down voluntarily.

During Desalegn’s six-year reign, the country witnessed foreign direct investment surging from less than $1 billion to more than $4 billion, mostly in manufacturing.

After the exit of Desalegn, the EPRDF top brass carried out some horse trading, which resulted in Abiy Ahmed, an Oromo 43-year-old, becoming the country’s third prime minister in 23 years in April 2018.

Ethiopia has an estimated 110 million people, or 1.43%, of the world’s total population, according to the United Nations estimates. It is Africa’s second most populated nation.

“Ethiopia has more than 80 ethnic groups. Despite recent improvements, it also has a weak economy and an overwhelmingly poor citizenry. If Abiy wants to make a genuine attempt at real democracy, he must do away with tribal politics and make stronger strides towards national unity,” says Dr. Yohannes Gedamu, a lecturer of Political Science at Georgia Gwinnett College in Lawrenceville, USA.

According to the International Monetary Fund (IMF), Ethiopia’s $80 billion economy is the fastest-growing within the African continent. It has on average expanded by an average of almost 10% annually over the past decade.

Ethiopian journalist and political analyst Zecharias Zelalem says that the country’s economy has expanded rapidly because of public spending on massive projects, such as the $6.4 billion Grand Ethiopian Renaissance Dam (GERD), which will become the largest dam in Africa, generating 6,400 megawatts of electricity.

“The base of this growth is principally the brain-child of Meles Zenawi, a former Prime Minister who has since died, who championed a state-led path to growth after witnessing the policies of Asian states like China, Singapore, and South Korea. Using this model, Meles tried to insulate the country’s resources from being exploited by foreign companies.”

Since taking power, Abiy has been on a drive to open up the country to foreign investors. He has embraced opposition and rebel groups, and purged sticky fingers from his administration, but more significantly ended two decades of acrimony with neighboring Eritrea.

On June 28, Coca Cola, which has a 60 year history of doing business in Ethiopia, announced plans to invest $300 million into Ethiopia, as it expands its business in the horn of Africa. In the next five years, an immediate outlay of $70 million will be spent to build a fourth plant in Sebeta, 25 kilometers (15.5 miles) outside the capital, Addis Ababa. The complex will have a capacity of 70,000 cases per day.

In the same month, the country’s parliament approved a draft law that enables foreign companies to invest in the lucrative telecommunications industry.

The continent’s largest mobile phone companies, including MTN Group and Vodacom Group Ltd, have shown interest in investing in the country.

But there are nagging problems for companies that would wish to engage in Ethiopia.

“The liberalisation challenge for the government is to improve its regulatory capacity so it is able to competently oversee sectors such as a competitive telecoms market or a modernised financial sector with a stock exchange,” says Williamson.

But Abiy is not slowing down in soon. He has made rapid changes to Ethiopia’s once carefully controlled political and economic space, with the nation’s ruling politburo announcing plans to open up state-owned industries drawn from the sugar and power generating sectors to foreign investors.

Oddly, ownership of all land remains in the hands of the state, with use rights granted to landholders. 

“The judiciary is officially independent, but its judgments rarely deviate from government policy. Government officials and state institutions reportedly enjoy preferential access to credit, land leases, and jobs. Corruption and bribery remain significant problems, although the new prime minister has a reformist agenda,” according to the 2019 index of Economic Freedom, an annual index and ranking created in 1995 by The Heritage Foundation and the Wall Street Journal, which measures the degree of economic freedom in the world’s nations.

Within the first year of Abiy, the country received a record $13 billion of investments, loans, grants and remittances.

“Ethiopia has attracted relatively large amounts of FDI recently through having very cheap labour, land, and electricity costs; high growth and a large consumer market of more than 100 million people; preferential tariff access to EU and US markets; and by offering generous tax and other incentives to foreign investors,” says Williamson. 

Candidly, Abiy has owned up to the challenges facing the economy, saying that not enough is being generated to pay off loans the state took to finance the Horn of Africa nation’s ambitious infrastructure and development programs.

Ethiopia has rescheduled 60 percent of its loan repayments to 30 years from 10 years, he said.

“After the political unrest in the country, we have seen high macro-economic imbalance,” Abiy says, referring to turmoil that began about four years ago. “Our economy will face danger in the coming few years if we don’t take corrective measures on this.”

Last year the World Bank stepped in with $1.7 billion funding to help the nation narrow its budget deficit with Abiy, warning that stagflation may occur if no corrective measures are taken. Ethiopia’s export-import ratio stands at 1:5, he said.

State-owned Ethiopian Electric Power Corp, which Abiy says would be privatized, holds more than 300 billion Birr ($10.6 billion) of debt, equal to 99 percent of its capital, meaning that should the state-owned company be sold off, the nation would get only 1 percent shareholding, Abiy points out.

“If we don’t work on what we started, Ethio Telecom will be useless,” Abiy says, referring to the telecom monopoly that’s among state enterprises to be liberalized. The European Union wants to support infrastructure between Ethiopia and Eritrea, while the World Bank is willing to fund the development of Eritrean ports, Abiy says.

Last December, the IMF estimated that the country’s public debt would be 57.2% of gross domestic product in the fiscal year to July 7 and forecast the current-account deficit at 6.2% of GDP. Spending plans for the year, beginning this July, will expand to 386.9 billion birr ($13.4 billion), leading the economy to grow by 9%, Ethiopian Finance Minister Ahmed Shide has said. But the IMF sees the average annual growth rate slipping to 7.2% through 2024, which is still an applaudable figure compared with other nations in the world. 

“Abiy’s reputation as a reformer will face a serious test in getting the country ready in time for the 2020 elections. The appointment of Birtukan Mideksa, a former opposition party leader, to head the country’s election board demonstrates Abiy’s recognition of the symbolic and political importance of the 2020 polls. The government has also appointed a new, professional electoral board, after consultations with opposition parties,” says Terrence Lyons, associate professor at the school for Conflict Analysis and Resolution at George Mason University and the author of The Puzzle of Ethiopian Politics.

Ominously, a census scheduled for this year, which was due before the elections, has since been indefinitely put on hold.

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