A special report by the British Broadcasting Corporation "BBC" revealed how the Ethiopian economy has been affected by the conflict in the Tigray region.

The BBC said: Many Ethiopians are living in refugee camps in neighboring Sudan due to the ongoing conflict in their country, as the 10-month civil war in Ethiopia has caused huge human losses, thousands have been killed and millions have been displaced, many of whom are in dire need of assistance, but this is not The only damage to Africa's second-most populous country - the war has incurred a huge economic cost, too, which could take years to fix.

In the capital, Addis Ababa, 26-year-old Tegest says her monthly expenses have doubled for two reasons: the war that broke out in the northern Tigray region in November, and the coronavirus pandemic.

She says, “Before Covid and the conflict, I was paying 1,000 birrs [about $22; £16] a month on groceries, now spend 2,000 birrs.” “Things are more expensive now - phones, food, clothes.”

Official statistics indicate that the cost of basic consumer goods has already risen in Ethiopia - it was on average about a quarter higher in July compared to the previous year.

The spending on Ethiopia's war and military effort "really negatively affected Ethiopia's access to dollars" and caused the exchange rate to deteriorate, says Faisal Roble, a US-based analyst specializing in the Horn of Africa.

It is not clear how much the war has cost, but there is an economic forecast that military spending will reach $502m (£365m) by the end of the year, up from $460m last year.

Last week, UN Secretary-General Antonio Guterres said the conflict had "drained more than $1 billion from the country's coffers".

The Ethiopian economy and the epidemic

Before the global pandemic and war, the Ethiopian economy was one of the fastest-growing in the region, expanding at an average rate of 10% per year in the decade to 2019, according to the World Bank.

The birr has also fallen further on the informal market, says Rupel, and is now at 67 birrs to the dollar.

He adds that business owners in the country are concerned about the deteriorating security situation as the war spreads beyond Tigray and into the neighboring Afar and Amhara regions.

Roble added that many businessmen are now fleeing Ethiopia and this is forcing the value of the land to fall even more.

Civil war

The civil war began when Tigray's ruling party, the Tigray People's Liberation Front, attacked federal military bases in November, amid an escalating disagreement with the prime minister over dissolving the ruling coalition and postponing elections.

Since then, the Ethiopian army - as well as its Eritrean allies, government police forces, and local militias - have fought a bloody war against the Tigrayan fighters.

More than 400,000 people in Tigray are already living in famine-like conditions, while aid distribution has been stifled and electricity and fuel supplies dwindle, driving up prices.

Philemon Burhani, a resident of Mikkeli, told the BBC that food prices and rents had risen dramatically recently. "There is no money because all the banks are closed and government offices are not paying salaries," he said.

Internationally, the war has had a major impact on Ethiopia's reputation as a place to invest, says economist Irmgard Erasmus of the NKC African Economics consultancy.

"If your customers are under severe pressure from high rates of inflation, you won't see consumer-driven growth as we see in the United States," she continued.

And she continued, "In general, foreign investment in Ethiopia has declined, and Ethiopia's military spending may be higher than expected."

Ethiopia's overall economic growth for this year is expected to slow significantly from 6% in 2020 to just 2% in 2021 - the lowest level in nearly two decades, according to the International Monetary Fund.

The country imports about $14 billion in goods annually, while exporting only $3.4 billion.

Also alarming to economic observers is Ethiopia's national debt, which some expect will reach $60 billion this year, or nearly 70% of GDP.

About a quarter of the population also lives below the national poverty line, and the median annual income is just $850 per person.

“There is clearly scope for tougher sanctions if the Ethiopian regime does not de-escalate the conflict," says Whitney Schneidman, a non-resident fellow at the Brookings Institution thinks tank in Washington.

How the conflict in Tigray is fraying Ethiopia's finances | Counting the Cost


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