Ethiopia, one of the largest countries in Africa, is seeking $20 billion in aid to rebuild its conflict-stricken regions.
The two-year civil war in the country has left a trail of destruction, with the cost of damages and economic losses estimated at over $28 billion.
Now, as the war comes to an end with a peace accord signed in November, Ethiopia’s finance minister, Ahmed Shide, has revealed that the country needs substantial financial support from international institutions and investors to kickstart the post-conflict reconstruction efforts.
Ahmed Shide stated that $20 billion will be necessary over a period of five years to help the conflict-hit areas, primarily located in northern Ethiopia, recover from the devastating effects of the war. While federal and regional budgets will play a role in funding this endeavour, the assistance of organisations like the World Bank will be crucial. In fact, the president of the World Bank, Ajay Banga, visited Ethiopia earlier this month as part of his first trip to Africa, signifying the significance of Ethiopia’s request for aid.
The war in Ethiopia’s northern Tigray region began in 2020 when Prime Minister Abiy Ahmed accused fighters there of attacking the federal army. Over time, the conflict spread to the neighbouring regions of Amhara and Afar, resulting in widespread devastation and loss of life. It is estimated that hundreds of thousands of people have died in what has been described as a war marked by atrocities committed by both sides.
Given the scale of damage and destruction caused by the war, the recovery and reconstruction efforts are expected to come at a significant financial cost. Rebuilding infrastructure, providing humanitarian aid, and supporting the affected communities will require substantial funding. The $20 billion sought by Ethiopia reflects the enormity of the task at hand and the need for international assistance in rebuilding the country.
The civil war in Ethiopia had a profound impact on the country’s economy, which had been experiencing impressive growth for 15 years. According to World Bank data, Ethiopia’s economy grew at an average rate of 10% annually before the conflict erupted.
Following the outbreak of fighting, foreign donors withdraw billions of dollars in support, and the US revoked Ethiopia’s tariff-free access to its markets. This market loss resulted in approximately 12,000 job losses in Ethiopia’s textile industry, as reported by the country’s industry ministry.
More recently, violence in the Oromia region and renewed conflicts in Amhara have brought additional risks to Ethiopia. The Ethiopian government has declared a state of emergency following clashes between the federal army and local militia over attempts to disband it, further escalating tensions.
Despite these challenges, Ethiopia’s economy managed to grow by 6.4% during the 2022-23 period, according to data from the finance ministry. This growth is nearly double the sub-Saharan Africa average. Looking ahead, the ministry forecasts a growth rate of 7.5% for the 2023-24 period.
Ethiopian officials are optimistic that the peace agreement supported by the African Union in Tigray can unlock frozen funding and pave the way for substantial international financing worth “billions” of dollars. This funding will be crucial to implement much-needed reforms in Ethiopia’s $126 billion economy.
Prime Minister Ahmed expressed positive sentiments about talks with the World Bank and confirmed that advanced negotiations with the International Monetary Fund are underway ahead of an upcoming visit by IMF representatives to Addis Ababa next month.
“Our renewed relationship with our development partners in Ethiopia is highly promising. We are optimistic about the implementation of new economic reform measures,” stated an official. The IMF has expressed potential support for Ethiopia’s economic policies and reforms, highlighting the progress made so far while acknowledging the work still ahead.
Since Abiy assumed office in 2018, he has undertaken significant pro-market reforms aimed at opening up the Ethiopian economy, which had been under state control for many years. Unfortunately, these efforts were hindered by the Tigray conflict.
Nonetheless, the government plans to sell a 45% stake in Ethio Telecom, certain assets of Ethiopian Shipping Lines, and a state-owned hotel managed by Hilton since 1969. Additionally, Ethiopia is preparing to launch its first-ever open stock market as part of its historic 3,000-year timeline.
Ethiopia’s central bank governor, Mamo Mihretu, emphasized the government’s commitment not only to implement economic reforms but also to deepen them. This includes plans to open up the banking sector to foreign companies by this year.
The market potential in Ethiopia is significant, and there is considerable interest from foreign investors. However, it will be crucial for the government to actively establish trust and confidence with these investors after emerging from a period of conflict.”
