The armed conflict, which threatens to escalate into civil war, actually thwarted the large-scale transformations in Ethiopia, which analysts called an “economic miracle”, writes CNBC.
The fighting takes place in the Tigray region in the north of the country, controlled by the Popular Front for the Liberation of Tigray (NPLT). The organization, which has been part of the ruling parliamentary coalition for the past 30 years, has been striving for the independence of the region.
Since the beginning of November in Tigraya, as well as in other parts of the country, there have been clashes between separatists and outnumbered government forces, as well as attacks on civilians. President Abiy Ahmed, who has been in power since 2018, has announced his intention to take control of the entire territory of Ethiopia.
Until recently, Ethiopia has demonstrated the highest GDP growth rates of any African country. At the beginning of the year, International Monetary Fund predicted a growth of 6.2 percent on the results of 2020. Due to the coronavirus pandemic, the forecast was lowered to 1.9 percent, however, due to the unfolding hostilities and the threat of a full-scale war, GDP dynamics at the end of the year is likely to be negative.
Ethiopia’s success was also linked to the policy of Ahmed, who last year managed to resolve a long-standing territorial dispute with neighboring Eritrea. For this, the president received the Nobel Peace Prize, and the country was able to attract new investors. Ahmed also launched a large-scale transformation program, calculated until 2030. Its goal is to transform Ethiopia from an agrarian country into an industrial one.
However, local assets will now become much less attractive to them. Holders of securities are already getting rid of them and selling the national currency, the birr, which leads to its weakening. Analysts predict that if the conflict escalates into a full-fledged civil war, Ethiopia’s foreign trade ties with its main partners will be disrupted.