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Rising Instability In Ethiopia Could Impact Markets

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Ethiopia is facing a number of sensitive challenges which have arisen in tandem with its impressive economic growth rates, which the World Bank claims will result in the country reaching middle-income status by 2025 thanks to the government’s astute economic decision-making.

Ethiopia’s continued rise

Exciting developments continue to emerge from Ethiopia into 2016. On 5 January, the Ministry of Foreign Affairs announced plans to increase regional trade links with Sudan, South Sudan, Kenya, Somalia and Kenya, supported through the government’s increased investments in infrastructure linking the neighboring countries.

In addition, Ethiopia’s large coffee industry is set to play an increasingly important role in the country’s economy. According to recent reports, Ethiopia will likely increase coffee exports by 45% due to government initiatives, with coffee exports already earning around 30% of Ethiopia’s hard currency.

Furthermore, the Ethiopian government is implementing an Urban Productive Safety Net Program costing USD 559 million. Efforts such as this, complemented by continued economic growth have reportedly decreased poverty levels to 29%, down from 60% around 20 years ago.

Development and instability

As Ethiopia develops, its capital city, Addis Ababa is also set to expand, a source of significant controversy and instability. There are plans to utilize farmland surrounding the city for business parks which expand into the Oromia region. This has sparked protests met with a severe government response. On 8 January, it was alleged that security forces were responsible for killing 140 people in a crackdown on protestors. In turn, Human Rights Watch claims that the country is on a “dangerous trajectory” posing risks to the country’s long-term stability.

Ethiopia’s government is likely to depend on its continued economic performance to maintain internal and external legitimacy. Yet, those who do not feel the benefits of economic growth will continue to perpetuate social unrest, a potentially serious risk, given that the Oromo, the affected ethnic group in the case of Addis Ababa’s expansion, account for 40% of the population. Responsive to the current protests, the government has decided to halt its Oromia expansion plans.

The government’s continued management of social unrest will be decisive in determining its long-term stability. If the government fails to manage human rights issues sensitively, then increased frequency of protests and crackdowns could cause substantial problems economically. Foreign investors may be deterred in an attempt to avoid reputational risks, a problem which would be enhanced if the US begins to pull back from supporting the Ethiopian government.