Prolonged Conflict Deepens Economic Recession

Ethiopian Business ReviewNovember 15, 20202385

Ending the conflict with Eritrea, as well as implementing reforms that strengthened public institutions and broadened the political space are among achievements of Prime Minister Abiy Ahmed (PhD) administration. In addition, the homegrown economic reform agenda that outlined macroeconomic, structural, and sectoral reforms is expected to pave the way for jobs creation, poverty reduction, and inclusive growth. Regulatory reforms to improve the business environment were also introduced. In a bid to reverse the declining foreign direct investment (FDI) to its former heights, the government amended the investment law, bringing changes especially in connecting the local private sector with more opportunities and availing more sectors to foreign investors in a bid to capture the increasing flow of international capital to Africa and place Ethiopia on the global value chain. The administration even took concrete steps to liberalize the state-dominated economy.

However, implementing and solidifying these economic reforms under the current circumstances is becoming a luxury for the nation. The massacre of people in western Oromia under the watchfull eyes of the command post and the scaling-up of tension into full-scale armed conflict between the federal and Tigrai governments is testimony to how the last two years were wasted on shallow reforms. Winning through arms cannot save the very fabric of this country from slipping into civil conflict.

The corrugating relationships between federal and regional state governments steals the central government’s focus from economic development to militarization. By prolonging the life of conflicts, the administration only increases the depth of the economic scars drawing the nation back to a vicious circle. Ethiopia’s economy is not deep enough to sustain multiple shocks. Covid-19, desert locust invasion, climate distress, internal displacement, and an international water dispute are more pressing issues now. The shortcut that minimizes damage between federal and regional governments, especially in Tigrai, is entrusting all issues to discussion and negotiation. Both the Tigrai and federal governments have been mobilizing forces, rather than looking for a modest exit from a deadlocked situation. Peace talks were sidelined. Polarized politics and a dwindling economy are fertile grounds to tear the country apart. The role of the international community and independent mediators was given minimal attention in Ethiopia’s political reconciliation in the last two years. The failure to reach consensus on fundamental political principles during this time brought the nation back to square one.

The current political deadlock cannot be solved with conflict resolution instruments adopted by the government thus far, including military action. Wise decision-making, inclusiveness, and calculated moves to avoid any collateral damage, should be brands for the central government. At any time, professional and scientific conflict resolution was not given a chance in Ethiopia. Local and international nonpartisan organizations can play crucial roles in ensuring a de-escalation of conflicts.

It is not only Ethiopians that had hoped better was coming. The international business community had been betting high on Ethiopia too. Nevertheless, the escalating threats to peace and stability witnessed in the past two and half years are more than enough to scare off foreign investors. In fact, nowadays there are no assurances to persuade even domestic investors to plant money in their own native areas, let alone attract FDI. Two years after the ascendance of the Prime Minister, investors confidence has only worsened.

The government must therefore do the needful to avoid unnecessary cost due to escalating conflict, restore peace and build investors confidence at the shortest possible time. Otherwise, the nation may find it difficult to sustain hard-won economic gains at the minimum and risk its own existence. EBR


9th Year • Nov 16 – Dec 15 2020 • No. 92

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