Ethiopia, once hailed for its remarkable economic growth, now finds itself at a critical juncture where security challenges are casting long shadows over its economic prospects. The country, which experienced one of Africa’s fastest-growing economies until recently, is now grappling with a multifaceted insecurity landscape that threatens not just peace but also the economic fabric of the nation.
The roots of Ethiopia’s current security issues are deeply entwined with ethnic tensions, regional conflicts, and environmental crises. The Tigray conflict, which erupted in November 2020 between the federal government and the Tigray People’s Liberation Front (TPLF), has not only resulted in significant loss of life and displacement but has also led to a substantial economic downturn in the region. Despite a peace agreement in 2022, the ripple effects continue to be felt across the country, with insecurity persisting in various forms, including in the Amhara and Oromia regions where insurgencies have taken root.
These conflicts have direct implications on Ethiopia’s economy. Firstly, the agricultural sector, which is the backbone of Ethiopia’s economy, accounting for about 40% of the GDP and providing livelihoods to over 80% of the population, is severely impacted. The displacement of farmers, destruction of agricultural infrastructure, and the inability to access fields have led to reduced agricultural productivity, which in turn affects food security and increases reliance on costly imports.
Moreover, the insecurity has deterred both domestic and foreign investment. Investors, wary of the instability, are hesitant to commit resources to a region where the political situation remains volatile. This reluctance is exacerbated by Ethiopia’s struggles with foreign exchange, making it challenging for businesses to import necessary materials or machinery. The lack of investment stunts economic growth, reduces job creation, and delays infrastructure projects that are crucial for long-term development.
The conflict also disrupts trade routes, particularly affecting Ethiopia’s access to ports, which is vital for its landlocked status. Disruptions in logistics and transportation due to blockades or unsafe conditions increase operational costs for businesses, further straining an already fragile economy. Ethiopia’s foreign exchange reserves have dwindled, partly due to these disruptions, which has led to a significant depreciation of the birr, fueling inflation and making imports, including essential goods like medicine and fuel, prohibitively expensive for the average citizen.
On the humanitarian front, the insecurity has led to one of the worst humanitarian crises in recent years, with millions facing acute food insecurity. The conflict in Tigray, combined with droughts in other regions, has pushed Ethiopia into a situation where over 20 million people are in need of food aid. This crisis not only strains government resources but also diverts funds from development projects to emergency relief, further hampering economic growth.
The economic implications are not just short-term. The ongoing insecurity has long-term effects on human capital development. Educational institutions have been damaged or closed, leading to a generation potentially missing out on education, which is a cornerstone of economic development. Health services have also been disrupted, increasing morbidity and reducing the workforce’s productivity.
Furthermore, the government’s focus on security has led to an increase in military expenditure, which, while necessary, diverts funds from other critical areas like infrastructure and social services. This reallocation of resources could have significant long-term implications for Ethiopia’s economic trajectory, as it might delay or derail projects aimed at economic diversification and modernization.
The international community’s response has been mixed. While there have been efforts to mediate peace, the economic sanctions or suspensions of aid from various countries due to human rights concerns have further strained the economy. However, there’s also a recognition of Ethiopia’s strategic importance, leading to some investments in infrastructure and negotiations for debt relief, which could offer a lifeline if peace stabilizes.
Ethiopia’s security challenges are not merely a matter of regional disputes but a significant economic concern. The violence disrupts economic activities, scares away investors, diminishes agricultural output, and leads to a humanitarian crisis that saps the nation’s resources. For Ethiopia to return to its path of economic prosperity, it is imperative that peace and stability are restored. This requires not just cessation of hostilities but also addressing the underlying ethnic, political, and environmental grievances that fuel the conflict. Only then can Ethiopia hope to leverage its vast human and natural resources to build a resilient economy that can withstand and recover from the current storm of insecurity.
