Category: Ethiopia

Where is Ethiopia going after the deal with the IMF?

basiloberholzer1 Comment

The agreement recently negotiated between the Government of Ethiopia and the International Monetary Fund (IMF) not only imposes austerity on the government, but also risks destroying the country鈥檚 model of economic development.

Ethiopia, Africa鈥檚 second-most populous country, has featured tremendous progress in its economic development in the past twenty years. A developmental state driving public investment while imposing tight regulations on the financial sector, a managed exchange rate, and capital controls, achieved a significant decline in hunger and malnutrition, and improvements in literacy and other relevant human development indicators.

Nonetheless, Ethiopia is facing serious macroeconomic challenges including high inflation of close to 30 percent, a current account deficit, foreign exchange shortage, and slowing growth, jointly with domestic conflicts and climate change impacts. This situation has forced the country into negotiations with creditors on its external debt, even though Ethiopia鈥檚 external debt stock compared to GDP is less compared to other low-income countries. International financial institutions see government budget deficits as the main culprit in causing inflation and an overvalued real exchange rate that causes trade deficits and balance-of-payments problems while crowding out private investment in the country. End of July 2024, the Government of Ethiopia and the International Monetary Fund (IMF) concluded an agreement on policy action to be taken for a stepwise release of a loan of USD 3.4 billion from the IMF, starting with the immediate release of USD 1 billion, as well as additional grants and loans from the World bank. The agreement is built on the following : 1) floating the exchange rate; 2) modernizing the monetary policy framework going from reserve targeting to interest rate targeting; 3) ending monetary financing of the government budget via the National Bank of Ethiopia (NBE) and exiting financial repression; 4) improving mobilization of domestic government revenues; 5) debt restructuring with external creditors; 6) strengthening the financial position of state-owned enterprises.

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Layers of compounding pressure: the gendered experiences of rural migrant youth in Addis Ababa, Ethiopia

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鈥淚 have lived everything there is to be lived in this city. Now I need to leave because all that is left for me here is misery and I want a better life for my child.鈥�

It is with these words that Tizita, a 21-year-old mother-of-one from Gojjam in northern Ethiopia, described her dismay at life in Addis Ababa when I interviewed her in 2022. After living in the Ethiopian capital for eight years, she had had enough. Tizita was set on moving to one of the Gulf States, a part of the world from where many of the women she met on the street had returned from and were planning to re-migrate to. Having previously worked as a domestic worker in Addis Ababa, and having learnt that sex work was the only way to make 鈥�real money鈥� in the city, the young woman remained focused on meeting the fundamental purpose of her migration project: transforming her life. 聽

For Fikadu, a 27-year-old man from Wollega in western Ethiopia, the strain of life in the city is similar, yet different. Unlike for young women like Tizita, whose income-earning activities are overwhelmingly limited to domestic work, petty street work, commercial sex work and begging, the fractions of the informal economy available to migrant men are slightly wider. Nevertheless, this is not to say that times have not been hard. Having previously worked as a street vendor selling second-hand clothes, Fikadu has had to downscale his work and is struggling to meet the rising costs of food, rent, sending money to his family of origin, and realising his plans for the future:  

鈥�Our supplies disappeared and when they were back, the price went up by more than double. That was the end of it. Now I pay for my life here by selling socks, but I don鈥檛 let that dismay me. I remain focused on my plans of transforming my life here, and once things improve I will start saving for my own metalwork shop.鈥� 

The testimonies of Tizita and Fikadu form part of a longitudinal qualitative research project that maps the livelihood strategies of a sample of migrant youth in Addis Ababa at two points in time between 2018 and 2022. Drawing on these findings, this blog outlines some of the ways in which rural-urban migrant youth between the ages of 15-27 experience and counteract pressure. Through an exploration of migrants鈥� everyday strategies of navigating the city, findings presented here show how dealing with the intricacies of urban life relates intimately to the lives rural youth left behind and the imaginary futures they aspire towards, the ways in which youth relate to the social and economic responsibilities they carry, and the manner in which subjective pressure experienced by women and men has a compounding effect that further exacerbates the challenges migrant youth face.

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Reflections on aid and regime change in Ethiopia: a response to Cheeseman

Andrew M. Fischer1 Comment

By Jimi O. Adesina, Andrew M. Fischer and Nimi Hoffmann

In a , published on 22 December 2020, that he as the most important thing he wrote in 2020, Nic Cheeseman penned a strong criticism of what he calls the 鈥榤odel of authoritarian development鈥� in Africa. This phrase refers specifically to Ethiopia and Rwanda, the only two countries that fit the model, which is otherwise not generalisable to the rest of the continent. His argument, in a nutshell, is that donors have been increasingly enamoured with these two countries because they are seen as producing results. Yet the recent conflict in the Tigray region of Ethiopia shows that this argument needs to be questioned and discarded. He calls for supporting democracy in Africa, which he claims performs better in the long run than authoritarian regimes, especially in light of the conflicts and repression that inevitably emerge under authoritarianism. His argument could also be read as an implicit call for regime change, stoking donors to intensify political conditionalities on these countries before things get even worse.

Cheeseman鈥檚 argument rests on a number of misleading empirical assertions which have important implications for the conclusions that he draws. In clarifying these, our point is not to defend authoritarianism. Instead, we hope to inject a measure of interpretative caution and to guard against opportunistically using crises to fan the disciplinary zeal of donors, particularly in a context of increasingly militarised aid regimes that have been associated with disastrous ventures into regime change.

We make two points. First, his story of aid dynamics in Ethiopia is not supported by the data he cites, which instead reflect the rise of economic 鈥榬eform鈥� programmes pushed by the World Bank and IMF. The country鈥檚 current economic difficulties also need to be placed in the context of the systemic financial crisis currently slamming the continent, in which both authoritarian and (nominally) democratic regimes are faring poorly.

Second, we reflect on Cheeseman鈥檚 vision of aid as a lever of regime change. Within already stringent economic adjustment programmes, his call for intensifying political conditionalities amounts to a Good Governance Agenda 2.0. It ignores the legacy of the structural adjustment programmes in on the continent during the 1980s and 1990s. 

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Should the African lion learn from the Asian tigers? A comparison of FDI-oriented industrial policy in Ethiopia, South Korea and Taiwan

Jostein Hauge1 Comment

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The Huajian shoe factory in the Eastern Industrial Zone in Ethiopia. Photo: .

Ethiopia is being hailed as one of the most successful growth stories in Africa. Because of the country鈥檚 rapid economic growth, the high degree of state intervention in the economy, and the state鈥檚 focus on industrialization, people have started to compare Ethiopia to the Asian 鈥榯igers鈥� (; ; , ; ) 鈥� four countries in East Asia (Hong Kong, Singapore, South Korea and Taiwan) that underwent rapid industrialization and maintained exceptionally high growth rates in the post-WWII era.

However, this emerging literature on Ethiopia-Asia comparisons has not yet sufficiently addressed one of the most important aspects of Ethiopia鈥檚 industrialization strategy 鈥� the attraction of foreign direct investments (FDI) into the manufacturing sector.

The rationale of my was this gap in the literature. In it, I ask the question: Should the African lion learn from the Asian tigers with respect to FDI-oriented industrial policy?聽

In short, my answer is yes. While Ethiopia鈥檚 policies are bringing about short-term economic success and showing promise for further industrialization, the state could arguably bargain harder with foreign investors, like it did in South Korea and Taiwan.Read More »

To be Poor in Times of the Current Financial Architecture

annloesLeave a comment

Late developers are nowadays confronted with the problem of having to earn foreign currency to finance structural transformation under extremely unfavourable conditions. The dependency on forex is rooted in the international financial architecture and represents a major pitfall for countries trying to catch up. However, this structural impediment to transformation is not paid much attention to by the dominant development economics.Read More »