[#StopTheKillings] Would foreign banks be beneficial for Ethiopia? (2)

Aid is not free
The upheaval in the majority Oromo areas that birthed Mr Ahmed’s premiership re-mains; albeit subdued. Long suppressed by the hitherto ruling Tigray minority, Oromos took to the streets in spite of almost sure death, imprisonment or torture, indicating they had had enough. Mr Ahmed, an Oromo and thus a beneficiary of their struggle, has thus far not disappointed them. He has perhaps been moving too fast, though. But in light of the recent attack at a rally of his supporters, which is widely believed to be a failed assassination attempt and one of many planned attacks to cripple the economy, he may have rightly judged speed to be of essence. Thankfully, there is no sign that he has been cowed by the unfortunate incident. Instead, he seems even more energized.
The Ahmed government does not seem to be in a hurry to liberalise the banking sector, however. That is probably a mistake. Unless Ethiopians begin to see meaningful change in their standard of living, it might be only a matter of time before his popularity begins to wane. Without a doubt, an immediate solution to the foreign exchange shortage and myriad economic problems crisis would be to liberalise key sectors of the economy. Allowing foreign participants into the banking sector would allow for new FX flows and expertise needed to develop the country’s virtually non-existent capital markets.
The consequent change could be potentially overwhelming for a bureaucracy and political class long nurtured on a cautious approach. Thus, the necessary quick changes the Ahmed administration has to put in place are fraught with huge risks; for him, the stability of his government and indeed a somewhat pampered socialist-oriented populace. All indications suggest Mr Ahmed is up to the task, however. But he is only one man. For the needed changes to materialise, he would have to carry an old-school bureaucracy along.
Even so, the aforementioned troubles would not entirely prevent the economy from growing at what are still remarkable growth rates. But unless something drastic is done, erstwhile double-digit growth rates would be increasingly elusive. Still, the International Monetary Fund (IMF) reckons the Ethiopian economy should grow by about 9% in the current year. That would be a slowdown from the remarkable heights of the past decade. Foreign exchange reserves are just enough to cover about 2 months of imports or less; about $3 billion. In fact, imports have been four times as much as exports in recent years. Without at least as much exports, the differential has to be filled from external loans and aid.
The new administration currently enjoys some goodwill, however. In mid-June 2018, the United Arab Emirates (UAE) deposited $1 billion with the central bank and pledged another $2 billion in investments to the country. The government says the investments would be in tourism, agriculture and renewable energy. All these came about during a visit by Crown Prince Mohamed Bin Zayed of Abu Dhabi in the month. It is believed the generosity of the prince may not be unconnected to Mr Ahmed proving to be an excellent host.
But the goodwill is not going to last forever. And the aid, like almost every other, is not likely to be entirely free: The UAE might be desirous of certain considerations. Just nearby, in Djibouti, where Ethiopia is influential, the Arab country was kicked out of a lucrative sea port concession. Thus, it is doubtful it is giving the new money totally out of the goodness of its heart.

Rafiq Raji

Twitter: @DrRafiqRaji

• The author, Dr Rafiq Raji, is an adjunct researcher of the NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation. This article was specifically written for the NTU-SBF Centre for African Studies