Abiy Ahmed-Economy

Abiy Ahmed

Ethiopia is one of the fastest-growing economies, not only in Africa but in the entire world. When Abiy Ahmed assumed office in 2018, he took the responsibility of maintaining this growth and seeing widespread economic prosperity. In doing so, Abiy took a neoliberal approach with an emphasis on free-market capitalism and the privatization of many Ethiopian industrial sectors. While moving the country towards the free market, Abiy did so to increase competition and inspire innovation in the country’s important industries. 

In regards to the country’s most grandeur national project, the Grand Ethiopian Renaissance Dam is being pushed forward as a strategy to alleviate poverty and connect more Ethiopians to the national grid. The dam has been said to have the potential to make Ethiopia a continental energy producer and provider, making it a high priority for Abiy and his party. Also, upon the signing of the monumental peace deal with Eritrea, Abiy saw the potential economic opportunities that could be achieved through mutual reconciliation between the two countries. 

Economic Transformation

As a neo-liberal leader, Abiy is pushing the country’s steady transformation towards further privatization of the country’s industries. Ethiopia grows at an average rate of 9.9% of GDP each year, and Abiy views the answer to sustaining this progress in moving towards a neoliberal economy. Since coming into office, Abiy has pushed for the privatization of many of the country’s public sectors such as the telecom services and Ethiopian Electric Power Corporation. Through this privatization strategy, Abiy hopes to strengthen job growth and to foster a free market whilst promoting investment in the country’s corporations. 

In the process of privatization, Abiy opened the sectors to foreign and domestic investors, and in April 2020 Abiy signed legislation making the minimum required FDI investment stand at $200,000 for a single project. This investment floor is likely to attract more devoted investors into the country’s private market, which the administration hopes will lead to more efficient ownership. Nonetheless, the FDI has actually fallen under his rule, probably due to the COVID-19 effects. The UN credits Abiy’s move as an improvement in “the investment environment and enhances the competitiveness of the national economy by promoting investments in productive and enabling sectors”.

Additionally, Abiy’s fight against the communist Derg regime during his teenage years clearly demonstrates his interest in having the citizens take part in the free market. When asked about his economic reforms, Abiy plainly responded “my model is capitalism”. He is true to his words, as we have seen him sell many portions of the country’s state-owned entities. Abiy asserts that transitioning will have huge benefits as it will allow for the private sector participation to help with the steadily increasing economy. Public-Private sector partnerships are also something that Abiy was working on in 2017 when he was working in the Oromia state regional government under Lemma Megersa. The transitional economic moves have been positively seen by many of Ethiopia’s western allies such as the United States and the European Union, who remain important ties for the country. Although this strategy might help the economy to continue growing, it may not make life better for the average Ethiopian citizen. The country has been riddled with income inequality in its recent history. Nonetheless, Abiy is actually hopeful that these economic reforms will be able to alleviate poverty and income inequality in Ethiopia.

The Economic Significance of the GERD

The Grand Ethiopian Renaissance Dam, a project that will allow Ethiopia to secure its place as a resource giant in Africa, has both domestic and international significance. The project will use hydro power from the Blue Nile and convert the energy into electricity that will be consumed within the country and will connect its citizens to the grid. For even the most vulnerable, the dam is an extremely important project as it will speed up the efforts of poverty alleviation, in a country where 7/10 Ethiopians and about 1/4 schools go without electricity. The country will be able to alleviate poverty through exports of electricity and simultaneously allow for more people, schools, and hospitals to gain easier access to electricity. The dam aims to have 100% of the population connected to the grid by 2025, increasing the quality of life, and allowing more opportunities for the country’s population. When functioning at full capacity, the dam allows the country to hold more than double its carrying capacity of electricity to 6450 megawatts, making it possible for the country to step up as the largest energy producer in Africa.  

In an economic sense, just as much as culture, the dam is an element of high importance to the Ethiopian public and to Abiy Ahmed. The dam, once working at full capacity, has the power to “secure up to 1 billion Dollars per year, suggesting that further delay will only prevent the country from seeing these benefits and the nationwide improvements of connectivity. Therefore, the PM will likely remain tough on foreign interventions concerning the dam’s fill rate, which will ultimately depend on whether or not he can fabricate some sort of deal in the future with Sudan and Egypt. Failure to sign an agreement will inevitably hurt the relations between Ethiopia and Egypt, but as the project is of extreme importance, it seems to be a sacrifice Abiy will be willing to make. 

Ethiopia-Eritrea Peace Deal and its Economic Advantages

Since the establishment of the Eritrean state, which separated from Ethiopia in 1993, Ethiopia and their northern neighbor have been in extremely poor diplomatic standing, one that took a great toll on the Horn of Africa region. After Eritrean voters went to the polls to vote on a referendum of national sovereignty, the separation was expected to be a friendly [one]”. But due to the drawing of the Eritrean border, the two states fell into a war over the village town of Badme and other disputed border territory, eventually leaving approximately 100,000 people dead. Following the war, economic and diplomatic relations were largely cut off as travel between the border was restricted, and Eritrea was practically isolated from the rest of the world. With the arrival of Abiy onto the political scene in 2018, he bolstered a message of peace and unity, especially with Eritrea. In 2018 Abiy, along with Isaias Afwerki, the President of Ertirea, signed the Agreement On Peace, Friendship, And Comprehensive Cooperation Between The Federal Democratic Republic Of Ethiopia And The State Of Eritrea. This would become Abiy’s most popular move in the first year of office and eventually lead to his award of the Nobel Peace Price. The peace agreement was meant for the two countries to open up their economies in a joint effort for stability, peace, and progress. 

By spreading the message of unity and prosperity, Abiy was able to walk away from the deal with several economic benefits. For example, the opening of their economies has permitted Ethiopia to utilize Eritrea’s seaports, saving Ethiopia $1.5 billion a year- given that the country no longer needs to remain in a binding deal with Djibouti. Additionally, the UAE, who sponsored the meeting between the two in Jeddah, gave Ethiopia a $3 billion package to be used for foreign currency and investment projects. Ethiopia and Eritrea also opened their physical borders, which has allowed businesses to move freely and ‘set up shop’ in the neighboring country. This has also permitted flights of their respective national airlines to fly over the border, allowing families once separated by war to reunite. 

Abiy’s extension of the olive branch to the Eritrean leader, Isaias Afwerki, was applauded by the international community. Since Ethiopia continues to be one of the largest growing economies in the world, Abiy will likely continue to broker trade deals with Eritrea and push to promote regional stability, a topic the two leaders discussed in late 2019.

Although the deal’s motives were rooted in desires to revolutionize the two countries’ economic and social standing, it has not reached all of the goals Abiy sought for. Though border tensions have dramatically decreased, the dual economic prosperity has since lost its focus. When the borders were opened to foster mutual business ventures, it also resulted in 30 thousand Eritreans every month going to seek asylum in Ethiopia. This actually has caused their border to close, representing a step in the wrong direction for both countries.  

RAIA Team

The shared Account of RAIA members and Alumni