Alaco

11.10.2016 | Ethiopia’s advance in jeopardy

Foreign investment has been driving Ethiopia’s rapid economic growth, but progress is being imperilled by unprecedented anti-government protests.

Ethiopia’s businesses are breathing a sigh of relief.  No longer will they have to truck goods hundreds of kilometres along a congested, pot-holed road to and from Djibouti, the landlocked country’s main trading outlet.  A new $3.4 billion Chinese-funded railway will cut travel time between Addis Ababa and the Red Sea port in half, significantly improving Ethiopia’s access to international markets, and further boosting its growing reputation as an emerging industrial force in sub-Saharan Africa.

Ethiopia has come a long way since the distressing famines of the 1980s, which shocked television viewers around the world.  Over the last decade or so, its economy has been motoring, with average annual growth close to 10 per cent, attributed mainly to a construction boom and increased agricultural productivity.  Its performance is all the more remarkable given that it has not been based on natural resource wealth.  The government has single-mindedly sought to transform a largely agrarian society through commercial farming and industrialisation, but in the process it has thwarted political opposition and failed to address economic inequalities. 

International donors have been keen to support the government’s development strategy, seemingly even at the risk of being accused of  turning a blind to eye to its authoritarian rule and poor human rights record.  Western powers have also largely set aside concerns and sought ever-close ties, viewing Ethiopia as an important ally in the effort to curb Islamic militancy in the region.

The country’s relative stability, low labour costs and a slew of investor incentives have seen foreign direct investment grow from $108 million in 2009 to around $2 billion this year.  Western companies have bought stakes in a range of sectors, from breweries to flower farms.  But China has been leading the way, investing billions in recent years, much of it in the form of low-interest loans to improve infrastructure.  Last year, a Chinese-built $475 million electrified light railway in Addis Ababa was launched, the first such transit system in sub-Saharan Africa. 

Investment in transport and energy production to fuel economic growth has been a key priority of the Ethiopian government.  The country doubled the size of its road network between 1997 and the 2011; the Djibouti railway is the first stage of a plan to build a 5,000 km network of track connecting Ethiopia to the wider region; while the country will quadruple its power generation capacity when the Grand Ethiopian Renaissance Dam is completed in the next couple of years.

But all this impressive progress is being jeopardised by a wave of unrest.  At the weekend, the government declared a state of emergency for six months in an effort to quell protests by the country’s two largest ethnic groups, the Oromo and the Amhara.  These have led to clashes with security forces that are said to have claimed hundreds of lives.  The unrest broke out last November, when the Oromo protested over fears that a government plan to expand the capital Addis Ababa would lead to the seizure of their land.  The authorities eventually dropped the urban enlargement plan, but their violent suppression of the demonstrators set off a chain of protests that spread to Amhara territory in the north.

Both the Oromo and Amhara, who make up 60 per cent of the population, complain of being economically and politically marginalised by the government, which they see as dominated by the minority Tigrayans, who spearheaded the overthrow of the Mengistu dictatorship in 1991.  The ruling party, Ethiopian People’s Revolutionary Democratic Front, which controls all the seats in the parliament, has centralised power and tolerated little dissent, jailing journalists and opposition activists.

The protests, whose targets have included some foreign-owned companies, have exposed long-standing political tensions and economic grievances, with one opposition leader describing the unrest as an Ethiopian ‘intifada’.  The government, meanwhile, has accused opponents in neighbouring countries of fomenting the violence.  It is hard to say whether there is any truth in these claims, but the turbulence has unquestionably shaken the foundations of the country’s authoritarian model of development, which has been in place for 25 years.

With Ethiopia dependent on overseas investment to drive growth, there is concern that investors may start getting nervous, particularly if foreign-owned companies continue to be targeted.  With last year’s drought, the worst in three decades, forecast to slow growth to 4.5% this year, the government needs to act quickly to stave off further economic damage or, worse, the possibility of the unrest turning into an armed revolt.

German Chancellor Angela Merkel this week urged the authorities to allow the opposition to have more of a voice.  Ethiopian officials have said they are prepared to makespoken of possible concessions.  But the only really significant measure to be proposed so far, a reform of the election law to enable greater political participation, has been dismissed by one senior Oromo politician as “too little, too late”.