Post-conflict reconstruction in Ethiopia following a deal to end its two-year civil war will cost about $20bn and require help from international institutions and investors, according to the country’s finance minister.
“We need about $20bn over five years,” Ahmed Shide said of the sum needed to help conflict-hit areas, mainly in northern Ethiopia, recover from the fighting that ended with a peace accord signed in November.
Federal and regional budgets would be deployed to achieve this, but support from the likes of the World Bank — whose president, Ajay Banga, visited Ethiopia this month as part of his first trip to Africa — would also be needed, Ahmed told the Financial Times at his offices in the capital Addis Ababa.
The civil war cost Ethiopia more than $28bn in damages and “economic losses”, he said. “Given the unprecedented levels of damage and destruction . . . the recovery and reconstruction will come at a significant financial cost.”
Fighting broke out in Ethiopia’s northern Tigray region in 2020 after Prime Minister Abiy Ahmed accused fighters there of attacking the federal army. The conflict spread to the Amhara and Afar regions before a deal was agreed in South Africa between the Ethiopian government and the Tigray People’s Liberation Front two years later.
Hundreds of thousands of people are estimated to have died in a war that became notorious for the atrocities committed by the warring sides.
The fighting also derailed one of Africa’s fastest growing economies. The economy of Ethiopia, Africa’s second-most populous country, grew at an average of 10 per cent annually for 15 years before the civil war broke out, according to World Bank data.
Foreign donors withdrew billions of dollars in support after the fighting started, while the US ended Ethiopia’s tariff-free access to its markets. The latter cost about 12,000 jobs in the burgeoning textile industry, according to data from Ethiopia’s industry ministry.
More recently, violence in the Oromia region and renewed conflict in Amhara — where the government has declared a state of emergency following fighting between the federal army and a local militia over attempts to disband it — pose new risks, analysts said.
Despite the challenges, the economy of the coffee exporter grew 6.4 per cent in the 2022-23 period, according to finance ministry data, almost double the sub-Saharan Africa average. In the 2023-24 period, the ministry forecasts growth of 7.5 per cent.
Ethiopian officials hope the African Union-backed deal in Tigray can unlock funding that was frozen during the conflict and open the way for “billions” worth of international financing to help push through reforms in the $126bn economy.
Ahmed, the finance minister, described talks with the World Bank as “positive” and said Ethiopia was in “advanced negotiations” with the IMF ahead of a visit by the fund’s representatives to Addis Ababa next month.
“We’re very optimistic on this renewed relationship with our development partners as Ethiopia . . . continues to implement new economic reform measures,” he said.
IMF spokesperson Julie Kozack recently said the US-based lender could “potentially” support some Ethiopian “economic policies and reforms”. A senior official from another international institution added: “The conflict has abated and they’ve done seminal work, but they still have much work to do.”
Abiy initiated a series of pro-market reforms after taking office in 2018 as part of a plan to open up the Ethiopian economy that was state-controlled for decades, a process that was undermined by the Tigray war.
His government now envisages selling a 45 per cent stake in Ethio Telecom, parts of Ethiopian Shipping Lines and a state-owned but Hilton-managed hotel opened by emperor Haile Selassie in 1969. It is also due to launch the first open stock market in Ethiopia’s 3,000-year history.
Mamo Mihretu, Ethiopia’s central bank governor, said the government was “committed to not only implement economic reforms, but also deepen them”, including opening the banking sector to foreign companies as soon as this year.
“The market potential is high and interest is there,” said Mehrteab Leul, managing partner at MLA, an Ethiopian law firm that advises foreign investors. “One challenge after coming out of a conflict is that government needs to proactively work to get the trust and confidence of the foreign investor.”
Source: Economy - ft.com
