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How Tigray’s Conflict is Affecting Ethiopian Economy

War often leads to forced migration, long-term and also serious economic costs – loss of buildings, infrastructure, a decline in the working population, uncertainty, rise in debt and disruption of normal economic activity. Others include poor economic opportunities and deficient social services leading to a failed social contract, environmental degradation, and the potential enrichment that accompanies some conflicts.

Armed conflict is a development issue while economic conflict is a conflict over economic issues, however, these motives have global as well as domestic dimensions. Although, even during World War II, economic warfare was effective in achieving its aims. It can be seen that the positive effects of increased military spending were outweighed by long term unintended negative macroeconomic consequences.

While the stimulatory effect of military outlays is evidently associated with boosts in economic growth, adverse effects show up either immediately or soon after, through higher inflation, budget deficits, high taxes and reductions in consumption or investment. Rectifying these effects has required subsequent painful adjustments which are neither efficient nor desirable. When an economy has excess capacity and unemployment, it is possible that increasing military. The Ethics of War starts by assuming that war is a bad thing, and should be avoided if possible, but it recognises that there can be situations when war may be the lesser evil of several bad choices.

How Abiy Reforms Are Sustaining Ethiopia Economic Growth

Ethiopia boasts the second-biggest population on the continent, Africa, with 110 million people. The country’s most promising resource is its agricultural land. Although soil erosion, overgrazing, and deforestation have seriously damaged the plateaus, nearly half the potentially cultivable land is still available for use. Most of the reserve land is located in parts of the country that have favourable climatic conditions for intensive agriculture.

Its people with diverse languages, regions, and religions entertain multiple histories and notions of the idea of Ethiopia. Evidently, to strike a balance between the current ethno-national federation and different regional units in a socially complex and plural setting has been proving to be a daunting task.

The Ethiopian Unexpected War in Tigray

Ethiopia has been a key actor in peacekeeping or counter-terrorism missions in Somalia, Sudan, and South Sudan, and has participated in the political transitions of all three. Because of its influence and willingness to collaborate it has for better or worse become an anchor state for international partners seeking to engage with the Horn of Africa.

In 2018, largely peaceful protests ousted the leader of an authoritarian government long dominated by ethnic Tigrayans, and a young reformist prime Minister named Abiy Ahmed took power. He opened the economy, freed political prisoners, and won international accolades. Abiy even won the Nobel Prize for ending decades of war with the neighboring gulag state of Eritrea. The previous regime had worked alongside Western countries in their more urgent geopolitical battles, in particular in the military intervention in Somalia. They did so, partly, in order to placate the West while resisting total absorption into what is often called the liberal international order.

File photo of a street in Mekelle, capital of the Tigray region of northern Ethiopia. Photograph: Maggie Fick/Reuters

Meles Zenawi, a founding member of the TPLF, created the Ethiopian constitution in the earliest days of his rule and the group’s present leaders sanction the constitution as a canonical text. They consider Abiy’s constitutional reform agenda as a ‘red line.’ The system of ethnic federalism under the EPRDF had privileged the TPLF as first among equals in a coalition government, according it an oversize share of political and economic power relative to its population size of 6 percent. Amending the constitution to redistribute power in proportion to population size would significantly reduce the TPLF’s share of power, which is something that Mekele is not prepared to concede.

From the 1980s, Ethiopia has gradually transformed its image from famine-riddled failed state to one of the fastest-developing economies in the world, an African darling for much of the past 20 years, regularly reporting annual GDP growth rates of 10%. However, fighting in Ethiopia’s northern Tigray region that erupted in November has exacerbated the impact of the coronavirus pandemic and raised economic uncertainty in that country. The IMF has slashed Ethiopia’s 2020 growth forecast to 1.9% from 6.2% and this was before the unfolding events in Tigray.

Ethiopians fleeing from the Tigray region walk towards a river to cross from Ethiopia to Sudan, near the Hamdeyat refugee transit camp, which houses refugees fleeing the fighting in the Tigray region, on the border in Sudan, December 1, 2020. REUTERS/Baz Ratner/File Photo

Tigray is one of Ethiopia’s ten administrative regions, divided according to a system of “ethnic federalism”. The region is known for its mountainous terrains that have often helped the people protect their territory from invaders, such as the Greeks, the Turkish, and the Italians. It is located in the farther north of Ethiopia and more than 600 kilometres from Addis Ababa, the federal capital. The region has played a major role in Ethiopia’s history, particularly its religious history, and is a major tourist destination. The region is also home to dozens of centuries-old churches carved into the rock atop sometimes spectacular rocky outcrops, as well as the Al-Nejashi mosque, a place of pilgrimage for Muslims, which was damaged during the conflict.

FILE PHOTO: Debretsion Gebremichael, Tigray Regional President, attends the funeral ceremony of Ethiopia’s Army Chief of Staff Seare Mekonnen in Mekele, Tigray Region, Ethiopia June 26, 2019. REUTERS/Tiksa Negeri Reuters

Now, all the 5.7 million people in Tigray are affected by this crisis, of whom the United Nations estimates that 4.5 million are ‘in need’. The political disputes leading to this event began with Tigrayan dissatisfaction towards Ethiopian prime Minister, Abey Ahmid, and his attempts to centralise power. Disagreement escalated when Tigray held its own regional elections, against the will of the central government. This led to the government halting funding and cutting ties with Tigray, and war finally broke out when Tigrayan forces were accused of attacking government military bases.

The Ethiopian military retaliated with ongoing attacks across the Tigray region and shut down electricity, telephone and internet services .The conflict commenced at the peak of the main agricultural season (Meher) harvest period when many households had not yet harvested their crops. It is estimated that over 90 percent of the crop harvest was lost (looted, burned and/or destroyed), while 15 percent of the region’s 17 million livestock were reported looted or slaughtered. Given that the majority of Tigrayans depend on subsistence agriculture (80 percent rely on agriculture as their main source of food and livelihood), the loss of their harvest and production inputs has severely impacted their food security and nutrition. Besides starvation, people in Tigray are suffering from mass killings, sexual violence, attacks on refugee camps, destruction of mosques and monasteries.

An Ethiopian woman scoops up grains of wheat after it was distributed by the Relief Society of Tigray in the town of Agula, in the Tigray region of northern Ethiopia, May 8, 2021. (AP Photo)

This war is ultimately a battle for control of Ethiopia’s economy, its natural resources, and the billions of dollars the country receives annually from international donors and lenders. Access to those riches is a function of who heads the federal government which the Tigray People’s Liberation Front (TPLF) controlled for nearly three decades before Abiy came to power in April 2018, following widespread protests against the TPLF-led government.

Any hesitation by investors could spell trouble as the country’s manufacturing export push isn’t yet generating enough foreign currency either to pay for all the country’s imports or keep pace with rising debt service costs. Even before the pandemic, the International Monetary Fund (IMF) had warned that Ethiopia was at high risk of debt distress. The scale of the conflict could scare off foreign investment in the country’s garment industry. This sector is hugely important to Ethiopia, which aimed to propel its agricultural economy toward a more prosperous future built on providing clothing to consumers in the West.

The country is paying back its external debt some $30 billion (25 billion euros), mostly to China has proven difficult. Ethiopia owes about $2 billion to its creditors and has sought unsuccessfully to defer payment this year. Inflation remains high at over 13 percent, and food costs are soaring in Ethiopia. The East African nation plans to restructure a $1 billion debt as the government grapples with ways of freeing up funds to support economic recovery in the midst of a devastating conflict in the north.

The Tigray conflict, has shaved off over $2.3 billion from the coffers. While, holders of Ethiopia’s $1 billion Eurobonds were quick to react, raising the yields on its 2024 sovereign debt to the highest level in over a year, after rising consistently for the past month after economic sanctions imposed by the US. Yields on the securities climbed 30 basis points to 9.79 percent in London the biggest jump in seven weeks. Ethiopia is also restructuring its debt locally by converting short-term bills to long-term notes and bonds. Some $4.37 billion of National Bank of Ethiopia direct advance was restructured by converting the 15-year bond repayment period with a 10-year grace period. A further $3.4 billion old treasury bills were converted into long-term treasury notes.

In this Ethiopian fiscal year the Ethiopian diaspora have contributed a lot to their nation. They have contributed about 192.1 million Birr for the construction of the Grand Ethiopian Renaissance Dam (GERD), more than 30 million Birr for Dine for the Nation, about 282.8 million Birr for Covid-19, about 600 million Birr for Ethiopian Defense Forces and to support rehabilitation efforts in Tigray State. Furthermore, around 103 million Birr for voluntary services, and over 1.1 billion dollars as remittance.

Captured Ethiopian soldiers are paraded through the Tigrayan regional capital Mekelle. Photo:

Every transition in Ethiopia since the fall of Emperor Haile Selassie in 1974 has been violent, say analysts. Hopes that Abiy could engineer a peaceful change of guard appear to have failed. Recently, Abiy told parliament in Addis Ababa that a million young Ethiopians would volunteer to fight in Tigray if required, but also suggested he wanted a peaceful solution.

“We can continue the conflict, but the result will be to kill, to waste dollars from both sides, but we can’t win through this.”

Prime Minister Abiy Ahmed

According to Abiy, though being challenged by “locusts, floods and widespread conflict,” Ethiopia could make a turnaround of the debt distress situation in the next three years. A senior foreign diplomat in the country says, safeguarding Ethiopia is important not only for Ethiopians but also the region and the whole continent. Therefore, Ethiopian citizens especially, the youths must work together to safeguard their country. Ethiopia’s political problems could be solved through common understanding and dialogue.


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