Ongoing Social Unrest Undermines Booming Ethiopia’s Grand Economic Plans
Last month, at the world’s largest mining investment conference, held this year in South Africa, Ethiopian officials emphasized their priority of developing their country’s mining sector, which currently contributes less than 1 percentto GDP. By 2025, they hope to boost that to 10 percent. If successful, Ethiopian officials believe that the mining sector could become the “backbone” of Ethiopia’s industry as early as 2023.
In 2016, the Ethiopian government entered the second phase of its so-called Growth and Transformation Plan, an ambitious economic initiative that envisions Ethiopia becoming a middle-income country by 2025. A key component of the plan is completing large-scale public infrastructure and energy projects, such as the $5 billion Grand Renaissance Dam, which is expected to generate 6,000 megawatts of electricity output and earn $1 billion in electricity exports once completed by 2018.
The mining sector is central to the Ethiopian government’s economic plans, which rely on natural resources to fund many export-oriented development schemes. Ethiopia, like nearby Egypt, has enjoyed a mining culture dating back to ancient times. The country remains rich in gold, platinum, gemstones and industrial minerals such as coal and soda ash, among many others. The Ethiopian government aims to strengthen international mining partnerships and avoid the mistakes that Egypt made in late January, when it held its first international tender for gold-mining concessions in eight years but failed to entice investors because of commercial terms that are among the least attractive in the world. Ethiopia, by contrast, provides incentives such as a low corporate tax, investor protection protocols and the duty-free import of mining equipment and material.
But Ethiopia’s long-term economic prospects are offset by an ongoing surge in civil unrest and regional instability. With the government extending a six-month-long state of emergency this week for another four months, domestic instability and the failure to address popular grievances could undermine any grand economic vision.
Although Ethiopia has one of the fastest-growing economies in the word, with annual growth rates averaging 10.8 percent since 2005, its mining potential can only be realized if considerable resources are invested in revitalizing failing infrastructure or building entirely new modes of transportation and mineral-processing sites. Recently completed transportation projects, such as a vital electric railway between Addis Ababa and Djibouti, are promising steps in that direction.
The effects of last year’s unrest and the now-extended state of emergency are clearly having an economic impact.
The 470-mile, Chinese-built railway was completed last October and marks the completion of Africa’s first standard-gauge international railway. It’s also Ethiopia’s most critical link to the global economy—95 percent of Ethiopia’s trade passes through Djibouti to markets in Europe, Asia and other parts of Africa. It makes up 70 percent of the overall activity at the port of Djibouti. The railway project, which took nearly six years to complete, replaces the defunct Addis Ababa-Djibouti railway first established in 1897.
The Ethiopian Roads Authority isn’t done, though. It announced new plans in January to upgrade and resurface 231 miles of roads through a $289 million contract with several Chinese and domestic engineering and construction firms. Expected to take three years to complete, the work would provide safer transport links and more reliable access to quarries and mining sites in practically every corner of the country.
Yet Ethiopia is not relying upon China as its only benefactor. In December, Ethiopia signed five memorandums of understanding with Turkey, including plans to increase cooperation in the mining, transportation and electricity sectors. Ethiopia and Turkey intend to increase their current $450 million trade balance to $1 billion in less than two years, and Ethiopia has requested Turkish assistance in constructing additional railways. Ethiopia strengthened bilateral relations with Qatar in December by signing 11 agreements regarding investment, financing, infrastructure development and tourism. And it signed a $3.7 billion deal last November with a Moroccan company to build a massive industrial plant to produce fertilizers in eastern Ethiopia.
Amid these deals, the country has been wracked by ethnic protests and state violence. The ruling Ethiopian People’s Revolutionary Democratic Front, or EPRDF—a tenuous merger of political parties representing Ethiopia’s main ethnic groups since 1991—declared a state of emergency last October in response to the ongoing unrest among Ethiopia’s two largest ethnic groups, the Oromo and the Amhara. The turmoil initially began in 2014 after the EPRDF announced its plans to extend the boundaries of Addis Ababa into areas of Oromia, the largest of Ethiopia’s nine ethnically based states, under a new development plan.
The ethnic Oromo, who comprise approximately 35 percent of Ethiopia’s population, charged that the plan equated to an illegal land grab and would force thousands of Oromo to unfairly abandon their farmland. The Oromo claim they are being politically marginalized and culturally discriminated against by the ruling EPRDF and have demanded the release of political prisoners and an end to abusive state crackdowns. The Oromo People’s Democratic Organization, or OPDO, which is one faction of the EPRDF, ultimately scrapped the master plan in January 2016 following negotiations with political opposition representatives.
But ethnic Amhara have launched their own demonstrations, insisting that the region of Tigray had illegally annexed Welkait, a district that was once part of Amhara, during the political transition in 1991. The authorities’ attempt last July to arrest Demeke Zewdu, an Amhara opposition leader and head of the Welkait Committee, set off a series of clashes between demonstrators and state security services throughout the summer of 2016. Separate clashes occurred in the southern region of Oromia, prompting the EPRDF to declare the state of emergency in October.
The EPRDF has detained between 20,000 and 70,000 Ethiopians accused of civil disobedience and killed at least 600 demonstrators in a brutal attempt to end the protests. The state of emergency initially had shut down Ethiopia’s already limited access to the internet and prohibited all forms of political activism. In February, the EPRDF announced that the state of emergency had so far mitigated any threat to the integrity of the state, while vowing to crush any threats to its economic model. But the effects of last year’s unrest and the now-extended state of emergency are clearly having an economic impact.
Ethiopia experienced a drop in foreign direct investment by nearly a fifth during the first half of the country’s fiscal year, which in Ethiopia begins in mid-September. Both foreign- and domestic-owned businesses were heavily damaged during last year’s clashes and crackdowns, although no foreign investors have yet canceled any planned projects. The unrest has also hurt Ethiopia’s evolving tourism industry, which registered a 5 percent drop in the number of tourists in 2016 compared to the record-setting 910,000 who visited in 2015.
It’s unclear how high a cost the state of emergency will exact on Ethiopia’s budding mining sector. But without addressing serious social grievances and concerns over boundaries and land rights, Ethiopia’s grand plans for its potentially lucrative natural resources could falter.