Ethiopia’s Economic Surge: A New African Growth Story?
Ethiopia is experiencing a notable economic rebound, fueled by reforms and bolstered by significant growth projections. Recent policy shifts, including the relaxation of foreign exchange controls announced by the Ethiopian Central Bank, are designed to attract foreign direct investment and streamline business operations. Prime Minister Abiy Ahmed projects a remarkable 10.2 percent growth for the current fiscal year, signaling a potential turning point after a period of economic hardship.
From Civil War to Economic Recovery
The Ethiopian economy faced significant headwinds following a two-year civil war in the Tigray region, which resulted in over $28 billion in damages and economic losses. More than 1 million people in northern Ethiopia continue to rely on humanitarian aid. However, the country is now benefiting from reforms aligned with International Monetary Fund (IMF) recommendations, leading to stronger performances in agriculture, mining, and exports.
A comprehensive reform program launched in July 2024 included floating the birr, Ethiopia’s currency, and opening key sectors – banking, telecommunications, and real estate – to foreign competition. While the devaluation of the birr led to increased inflation, it also spurred a boost in Ethiopian exports.
Coffee and Gold: Driving Export Growth
Coffee exports have seen a substantial increase, with earnings exceeding $2.6 billion in the 2024-2025 fiscal year, up from $1.43 billion the previous year. Coffee remains a crucial export for Ethiopia, accounting for around 30 percent of its export revenue. Surging gold exports are also contributing to the economic recovery, increasing from 4 to 37 tons in the last fiscal year and representing 42 percent of export revenue.
Did you recognize? Ethiopia has maintained export growth despite its suspension from the African Growth and Opportunity Act (AGOA), demonstrating its ability to diversify trade partnerships.
Debt Restructuring and External Challenges
Despite the positive economic indicators, Ethiopia is still navigating complex debt restructuring negotiations under the G-20 Common Framework. An agreement was reached with foreign governments to restructure $8.4 billion in loans, providing $3.5 billion in debt relief. However, private bondholders are considering legal action after official lenders, including China and France, blocked a preliminary agreement requiring similar losses for bondholders.
China’s Expanding Role in Africa: A Zero-Tariff Policy
China has announced a transformative zero-tariff policy for imports from 53 African countries, starting May 1, 2026 (excluding Eswatini). This initiative, part of the Changsha Declaration and the Forum on China-Africa Cooperation (FOCAC), aims to deepen economic ties and boost African exports. A recent framework deal between China and South Africa further solidifies this commitment, including duty-free access to the Chinese market.
Geopolitical Implications, and U.S. Response
China’s growing economic influence in Africa is reshaping global power dynamics. While China has become Africa’s largest trading partner, some observers view this engagement with caution. Concerns exist regarding potential debt traps and the securitization of China’s presence as a threat to traditional Western interests. However, analysis suggests that the reality is more complex than often portrayed.
The U.S. Response has been mixed. Former President Trump levied tariffs on South African goods, effectively negating the benefits of AGOA. Recent deployments of U.S. Troops to Nigeria aim to support counterterrorism efforts and ease bilateral tensions following Trump’s rhetoric regarding alleged religious persecution.
Regional Security Concerns and Ethiopia’s Role
Ethiopia’s economic progress is occurring amidst regional security challenges. Reports allege Ethiopian involvement in Sudan’s civil war, with evidence of secret training facilities for the Rapid Support Forces (RSF) near the border. This support is seen as a countermeasure to Egypt, with whom Ethiopia has an ongoing dispute over the Grand Ethiopian Renaissance Dam.
Rising military tensions with Eritrea and renewed fighting in the Tigray, Amhara, and Oromia regions also pose threats to Ethiopia’s economic trajectory.
Pro Tip:
Businesses looking to invest in Ethiopia should carefully assess the political and security risks alongside the economic opportunities. Thorough due diligence and risk mitigation strategies are essential.
Upcoming Events
- Wednesday, Feb. 18: UN Security Council briefing on Libya; EU roundtable on trade opportunities in West Africa.
- Thursday, Feb. 19: Zambian President Hakainde Hichilema delivers a state of the nation address; UN Security Council briefing on Sudan.
- Saturday, Feb. 21, to Tuesday, Feb. 24: Health ministers from the Southern African Development Community convene in Sandton, South Africa, to discuss HIV and AIDS response.
FAQ
- What is the significance of China’s zero-tariff policy?
- It represents a major boost for African exports and a deepening of economic ties between China and the continent.
- What are the main drivers of Ethiopia’s economic recovery?
- Reforms aligned with IMF recommendations, increased agricultural and mining output, and a surge in exports are key factors.
- What are the main security concerns facing Ethiopia?
- Alleged involvement in Sudan’s civil war, tensions with Eritrea, and ongoing conflicts in various regions pose significant challenges.
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