The following overview presents a more detailed insight into Ethiopia’s context concerning external debt data spanning the period from 1970 to 2022. Complementing the information in the video are key events that have played pivotal roles in shaping the trajectory of Ethiopia’s overall economy and external loans. These events encompass political, economic, and social dimensions, believed to have directly or indirectly influenced the country’s context in relation to external loans.
The chronological timeline below provides a structured account of these events, offering brief explanations of their impact on the country’s economy and the potential fluctuations in external debt. By examining this timeline, viewers gain insights into the complex interplay of historical occurrences and policy decisions that have contributed to the rise or fall of Ethiopia’s external debt over the years.
First-wave global debt accumulation
Low global interest rates, coupled with the proliferation of syndicated loans, drove a surge in debt that has had a significant impact on Latin America and numerous low-income countries.
Wollo–Tigray famine
The Wollo-Tigray Famine was a profound humanitarian crisis in Ethiopia, stemming from a mix of factors, including drought and political instability. The repercussions on the economy were severe, manifesting in a decline in agricultural productivity and heightened reliance on foreign aid. The government's pursuit of assistance to cope with the aftermath of the famine notably contributed to a substantial increase in external debt.
© Express/Getty Images
© Express/Getty Images
Derg in power; enforced mass-scale nationalization
The Derg initiated the widespread nationalization of industries and resources, which resulted in economic inefficiencies and decline.
Ogaden War (Ethio-Somalia War)
The Ogaden War between Ethiopia and Somalia had economic repercussions, diverting resources from development and straining the economy. Additionally, the conflict contributed to an escalation in external debt as Ethiopia sought international support to counter the Somali invasion.
GDP hit an all-time low of -11.74%
In 1984, the Ethiopian economy hit a historic low, experiencing a significant decline in GDP growth to -11.74%. The Wollo-Tigray Famine, conflict, and economic mismanagement played substantial roles in this downturn, impacting the country's economic stability and necessitating external assistance.
USSR downfall
The downfall of the USSR had significant repercussions for Ethiopia, as it lost a major ally and source of support. The end of the Soviet Union shifted the USSR's debt responsibility to Russia, making Russia the next lead on Ethiopia's debtors' book. This shift also increased economic challenges and the need to explore alternative partnerships.
EPRDF came to power
The EPRDF's rise to power marked a shift toward a more market-oriented economic model. The government pursued economic reforms, privatizing enterprises, and encouraging foreign investment.
Eritrea's independence
Eritrea's independence had economic implications as Ethiopia lost access to Eritrean ports, forcing Ethiopia to seek alternative trade routes, impacting the transportation of goods and contributing to economic challenges.
Ethio-Eritrea War
Just five years after Eritrea's independence, with Ethiopia struggling to manage the import and export of commodities, a war erupted following tensions over the border.
© Associated Press/Sami Sallinen
© Associated Press/Sami Sallinen
GDP hit an all-time high of 13.57%
The Ethio-Eritrean War was presumed to strain Ethiopia's economy, leading to increased military spending and economic disruption, which would also contribute to the accumulation of external debt. However, in 2004, Ethiopia experienced a remarkable economic recovery, with GDP growth reaching an all-time high of 13.57%. This growth was attributed to improved agricultural productivity, increased government investment, and economic reforms.
The ‘97 election
The 1997 election had political repercussions, leading to protests and unrest that negatively affected investor confidence and economic stability.
Ethiopia's debt relief of $2.2B
In 2006, Ethiopia achieved a significant milestone in its economic history with the receipt of debt relief amounting to $2.2 billion from the World Bank and the International Monetary Fund (IMF) through the Multilateral Debt Relief Initiative (MDRI). This relief played a crucial role in alleviating the country's debt burden, providing fiscal space for essential expenditures, and fostering a more sustainable economic trajectory. The funds freed up through debt relief were redirected towards key development initiatives, contributing to improved economic stability and resilience.
ZTE's $2B project
ZTE entered into a $2 billion project to supply and install telecommunications equipment for Ethiopian Telecommunication Corporation (ETC), now known as Ethio Telecom, supported by a Chinese bond loan. However, the project became mired in corruption, with allegations of shady bidding practices within the ETC. This scandal not only tarnished the reputation of the involved companies but also raised concerns about transparency and governance in large-scale infrastructure projects. The economic impact was significant, as the corruption allegations likely led to financial losses, and the negative fallout could have hindered foreign investment in the Ethiopian telecommunications sector.
© Xinhua Photo
© Xinhua Photo
GTP I Launched
The launch of GTP I aimed at stimulating economic growth through infrastructure development and industrialization. The plan had mixed success, contributing to both positive economic outcomes and challenges.
Launch of GERD and light rail projects
The initiation of the Grand Ethiopian Renaissance Dam (GERD) and Addis Ababa Light Rail projects showcased Ethiopia's dedication to infrastructure development. Nevertheless, the elevated costs, particularly incurred by the light rail project, escalated the nation's debt levels, establishing China as Ethiopia's largest lender in the country's history.
Passing of PM Meles Zenawi
The passing of Prime Minister Meles Zenawi had political and economic consequences. It led to a period of transition with potential impacts on policy continuity and economic management. In addition, many corruption and money laundering instances are believed to have occurred during this season, which came to light after the 2018 reform.
© Monika Flueckiger/World Economic Forum
© Monika Flueckiger/World Economic Forum
GTP II Launched
GTP II, launched in 2015, aimed to build on the achievements of its predecessor. The plan focused on industrialization and infrastructure development, but concerns about debt sustainability persisted.
Addis-Djibouti Railway construction completed
Backed by the Exim Bank of China, the construction of the Addis-Djibouti Railway aimed to improve transportation infrastructure and import/export. While contributing to economic development, it also added to the country's debt burden.
Political reform
The political reforms in 2018 signaled a move towards increased political openness, intending to enhance governance and rectify mismanagement. Nevertheless, the transition also marked a concern about whether these reforms alone will have an immediate impact on the longstanding issue of accumulated debt over decades and its implications for economic stability.
© Zacharias Abubeker
© Zacharias Abubeker
China extended $4B debt repayment by 30 years
China agreed to restructure some of Ethiopia’s $4 billion loan for the Addis Ababa-Djibouti railway. It provided temporary relief but raised concerns about the country's increasing dependence on external creditors.
Launch of Home Grown Economic Reform I
The launch of Homegrown Economic Reform I signaled the government's commitment to addressing economic challenges by revitalizing the economy and creating a favorable development environment. This includes limiting the government's role to selected economic services, encouraging private investment, promoting further participation of the private sector in the economy, mobilizing external resources, and pursuing appropriate macroeconomic and sectoral policies.
COVID-19
The COVID-19 pandemic had a global economic impact, affecting Ethiopia's economy through disruptions in trade, tourism, and domestic activities. The government's response included economic stimulus measures— such as waiver of outstanding tax liabilities that taxpayers owe to the government; a tax amnesty or relief on interest and penalties for tax debt; and an extension of filing and tax payment deadlines— to mitigate the impact.
© Xinhua/Michael Tewelde)
© Xinhua/Michael Tewelde)
The Northern Conflict
The Northern Conflict added another layer of complexity to Ethiopia's challenges. The conflict in northern Ethiopia caused $22.7 billion worth of damage to infrastructure and a further $6 billion of productivity losses – equivalent to 26% of GDP – between November 2020 and December 2021 alone, according to an Ethiopian government assessment, including displacement, disruptions to agriculture, and increased humanitarian needs.
© Getty Images
© Getty Images
Establishment of Ethiopian Investment Holdings
Established in December 2021, "Ethiopian Investment Holding" envisions serving as the strategic investment arm of the government of Ethiopia and executing the state’s ownership of commercial assets. It manages the investment of 26 enterprises, including giants Ethiopian Airlines and Ethio Telecom.
© Ethiopian Investment Holdings
© Ethiopian Investment Holdings
Launch of the Ten Years Perspective Development Plan
Ethiopia prepared a ten-year perspective development plan with six strategic pillars: ensuring quality growth, improving productivity and competitiveness, undertaking institutional transformation, ensuring private sector leadership in the economy, ensuring equitable participation of women and children, and building a climate-resilient green economy. The vision is to become an African beacon of prosperity by 2030.
Safaricom's $1.2B initial investment
On May 22, 2021, an international consortium known as Global Partnership for Ethiopia led by Safaricom PLC, a member of the Vodafone Group, was awarded a license to operate telecom services in Ethiopia at a license fee of US$850 million with a total investment of $8 billion. This fee made it the single largest foreign direct investment in Ethiopia.
GDP per capita surpasses $1,000 mark
As reported by the World Bank, in 2021, Ethiopia had a GDP per capita of USD 1,027, compared to USD 549 a decade earlier. GDP per capita is a core indicator of economic performance and is commonly used as a broad measure of average living standards or economic well-being.
As illustrated in the timeline above, Ethiopia’s economic context has been significantly influenced by a myriad of factors over the years. Government transitions, shifts in political ideologies, ambitious grand projects, the ravages of war and famine, the unforeseen challenges posed by pandemics, and strategic decisions regarding debt treatment are among the diverse events that have left an indelible mark on the nation’s economic landscape which, undoubtedly, has a reverberating effect on the country’s debt accumulation. These occurrences not only serve as historical markers but also underscore the intricate relationship between geopolitical dynamics and economic realities. It’s important to note that this overview exclusively focuses on external loans, and the broader economic picture is further shaped by the substantial impact of internal loans and advances. Not to mention, while these events undoubtedly influenced the nation’s economic landscape, likely impacting its inclination towards loans, establishing a direct and quantifiable connection between these occurrences is exceedingly challenging. Thus, while this timeline provides valuable insights, it may not capture the entirety of Ethiopia’s economic complexity.
Source: International Debt Statistics Database (World Bank)
