The Year That Falls Short in Lofty Ambitions, Brittle Realities

Jan 4 , 2025.

Time seldom passes without prompting reflection, and the dawn of 2025 should nudge Ethiopians into contemplating their trajectory as the first quarter of the 21st Century closes.

This vast country of over 100 million people, endowed with abundant resources yet wracked by recent turmoil, has had successive leaders over the past 25 years scrambling to secure stability, economic opportunity, and security. In the two decades of the century, they managed explosive growth that earned plaudits from the World Bank and the IMF. Real GDP rose nearly 10pc annually between 2004 and 2018, while in 2023/24, the economy clocked in at 6.1pc.

Infrastructure investments reshaped Ethiopia’s economic evolution. Sixty million more people gained access to clean water, electricity coverage doubled, and child vaccination rates rose by 64pc. Poverty dropped from 39pc in 2004 to 24pc by 2016, feeding hopes that Ethiopia might achieve lower-middle-income status by 2025, a goal it has already missed.

The three leaders who have held power since the turn of the century have confronted a country that remains among the poorest in the world, with a meagre per capita gross national income of 1,020 dollars. The past five years have inflicted overlapping disasters that threatened to undo gains from earlier decades.

By the World Bank’s reckoning, 91pc of Ethiopians have been exposed to severe drought, floods, locust invasions, conflict, or all of these combined. A civil war that began in Tigray in 2020 displaced millions of people, leaving vast humanitarian needs estimated at 20 billion dollars. The Financial Times reported the broader economic toll of the war at 28 billion dollars.

These calamities have tested an economy anchored in infrastructure-driven growth, revealing deep structural fissures in policy, regulation, and governance. They have eroded competitiveness, stoked inflation, and heightened debt vulnerabilities. Living standards, which improved steadily for two decades, abruptly deteriorated, with around 15 million Ethiopians forced to rely on food handouts.

Prime Minister Abiy Ahmed (PhD), who assumed office in 2018, has embarked on what officials call a “home-grown economic reform” programme backed by the Bretton Woods institutions. The boldest initiative arrived in July 2024: the liberalisation of foreign-exchange rules, which removed many current-account restrictions. This marked a departure from demand-focused policymaking toward supply-side macroeconomic prescriptions, marking the most consequential economic policy measure in years.

Alongside these reforms stands a 10-year development plan unveiled in 2021, which sets out an ambition to lift annual manufacturing employment from 175,000 in 2019/20 to 850,000 by 2029/30 and an eye-catching five million total new jobs before the decade’s end. Given Ethiopia’s historically sluggish industrialisation, starved of sufficient infrastructure and skilled labour, this appears overly optimistic.

Though policymakers champion industrial parks and herald policy shifts, the country’s record in encouraging private enterprise and building industries remains limited. Lofty pronouncements alone will not satisfy demands for better incomes, more jobs, and improved public services.

Achieving these goals requires further macroeconomic and structural reforms. The state remains overly dominant, global trade integration has lagged, and private firms struggle to absorb the two million new entrants to the labour force each year. The underinvestment in human capital is glaring. According to the UNDP’s Human Capital Index, a child born this year in Ethiopia can realise only 38pc of her potential, while 37pc of children under five are stunted.

Although roads and factories are essential, education and health determine how many people can meaningfully participate in economic life. Ethiopia still trails the sub-Saharan African average on most development indicators, uncovering that reforms focusing solely on markets or macroeconomic adjustments will be insufficient to catapult it toward middle-income status.

The country’s vast population, natural resources, and the prospect of a nascent capital market do entice foreign investors. Yet institutional failings continue to repel them. Some liberalisation has occurred in sectors such as banking, logistics, export, and import trade, but unpredictability remains the norm.

Tax administration embodies these problems. The authorities have sweeping discretion, supported by hazy laws, directives, and circulars. Businesses complain that legitimate deductions are denied and that surprise tax bills arrive mid-year rather than being announced with clarity and consistency. Without more transparent and predictable tax policies, the authorities’ pledges of reform will ring hollow.

Immigration procedures further dampen enthusiasm. The Immigration & Citizenship Services (ICS) has been allegedly collecting unauthorised fees, outsourcing responsibilities to unregistered entities, and subjecting applicants to verbal and physical intimidation. Sudden hikes in service fees and seemingly random penalties cement an image of bureaucracy at odds with an investor-friendly environment.

Investors and domestic businesses also face headaches over property rights. Uncertain tenure, murky land policy, and haphazard land use frustrate those who fear that their assets could be lost to political caprice.

Politics may be the deepest drag. Despite official vows to improve security, the spectre of unrest, armed conflicts, and shaky property protections loom large. Few foreign investors would willingly gamble in a place where private property can vanish on a bureaucratic whim. No matter the fanfare over reforms, confidence will remain brittle if people doubt the system’s strength and commitment to protecting property and upholding contracts.

Federal and regional officials alike have shown scant regard for shielding citizens from predatory acts or guaranteeing that contracts are honoured when politically connected groups are involved. Such behaviour breeds a hostile business climate, one that undercuts any momentum generated by policy liberalisation.

Even so, these liberalisation steps might deliver a more hopeful outcome if they are followed by consistent enforcement. Sound institutions and independent regulators underpin transparency and a stable political environment, prerequisites for wooing capital. Should corruption, misgovernance, and the absence of security remain unchecked, ambitious talk of reform cannot conceal Ethiopia’s vulnerabilities.

The last five years of upheaval, culminating in a devastating civil war, have shaken trust in the sanctity of property rights, contract enforcement, and rule-based governance. Without robust protections, few outsiders will risk their money. Ethiopia’s leaders should abandon their reliance on crackdowns and arbitrary rulemaking if they wish to see the second quarter of this century unfold with greater promise.

Citizens deserve the confidence that their voices count, that they can express dissent without peril, and that negotiations—not bullets—will govern political disagreements. Understandably, many fret that this is too rosy. The near-term prospects remain clouded by tensions in various regions and the risk of renewed violence.

Yet, for all the troubles, if authorities can forge transparent institutions and credible dispute-resolution mechanisms, they might regain the trust of wary domestic and foreign investors. The next quarter-century could be shaped more by enterprise than by enmity.

That trust depends on whether the ruling class accepts the checks and balances of a more open society. Citizens want tangible progress, not grandiose plans overshadowed by draconian policies. Without stable politics and genuine liberalisation, the youth bulge threatening to overwhelm Ethiopia’s labour market will remain a destabilising force. In a globalised era, fleeting triumphs of power do not suffice. Reform should be consistent, transparent, and inclusive. Through the hardships, Ethiopians could still find reason to hope, against all odds.

PUBLISHED ON Jan 04,2025 [ VOL 25 , NO 1288]

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