Maggie Fick and Duncan Miriri

NAIROBI (Reuters – Ethiopia, which was among the most rapidly growing countries in the world when Prime Minister Abiy Mohamed took office in 2018, was one of its fastest growing. Investors loved his promises to make Africa’s remaining untapped market accessible.

But, the year-long war between rebellious elements from northern Tigray and the government has ruined government plans to modernise their economy and stopped some foreign investors.

Tigray’s parts are currently in crisis. The currency has seen its value plummet and the annual inflation rate has reached 35%.

Kevin Daly from abrdn, an investment firm based in London said that Ethiopia was not a place to invest at the moment. “The political environment is quite fragile and it is difficult to know how the country will end.

In its October World Economic Outlook, published by the International Monetary Fund (IMF), the International Monetary Fund (IMF), stated that the economy would grow only 2% in 2018, after having grown at least 10% since before the pandemic. This projection did not contain growth projections from 2022 to 2026 because of an “unusually large degree of uncertainty”.

The prime minister’s office and Ethiopia’s finance ministry did not reply to inquiries for comment. Eyob Tkalign Tolina, State Finance Minister, has accused the West of exaggerating war’s effects. According to the government, growth is expected at 8.7% in fiscal 2022. Eyob stated that Ethiopia is a strong country and was referring to a conflict in one region of the country but the rest is thriving,” he told India’s DD TV last month.

However, not everyone is on board.

Conflicts with neighboring Amhara and Tigray have ruined crops and caused crop damage. According to United Nations estimates, 9.4 million people now need food assistance in the three affected regions, as opposed to 4 million prior.

The inflation that is taking place in Addis Ababa’s capital city, Addis Ababa, is far from fighting.

Legesse Yadataa, an open-air trader, was depressed by the cost of Teff, a staple cereal. One kilogram of teff (2.2 lb), costing 50 Ethiopian Birr ($1.04) was 25% more than it did a year ago. It’s almost a third of the daily earnings he earns from his intermittent construction job.

He said, “Merchandisers continue increasing the prices because of war.” We don’t have enough food. Rent is becoming too expensive. This is life.

TREATORS DISAPPOINTED

Many Tigray-based businesses have been closed down by the fighting. Ethiopian businesses suspected of supporting the Tigray People’s Liberation Front have been targeted as well. This party controls the majority of the region.

Frans Van Schaik is the chief executive officer of Africa Asset Finance Company in New York. He stated that the company’s Ethiopian equipment leasing business lost nearly $1,000,000 in wartime. Ethio Lease’s tractor moved towards Sudan by GPS trackers before they lost contact.

He said that the next step was to have the central government take control of the cooperative, which was leasing out the equipment. The board was disbanded, their bank accounts frozen and new caretaker leaders installed.

“It’s an average casualty from war,” he stated.

Even companies that are not in the war zone were affected, however.

U.S. apparel company PVH Corp (NYSE :).. announced last month that they were closing down a plant south of Addis ababa following the United States’ decision to end duty-free access for Ethiopia from January 1. This was due to claims of Tigray rights abuses.

Requests for comments were not answered by the Ethiopian Investment Commission.

PRISE

Ethiopia is among three African nations to have applied to the G20 Common Framework for debt restructuring. It was created to permanently relieve poorer countries. However, progress in reducing external debt is slow. However, the government is not revealing the full amount of its debt. The World Bank estimated that $28.4 trillion was owed to the government last year.

(Graphic: Ethiopa debt and GDP, https://fingfx.thomsonreuters.com/gfx/mkt/byprjqdmbpe/Ethiopa%20debt%20and%20GDP.PNG)

Foreign investors had hoped Abiy’s economic reforms could ease currency shortages. They have only gotten worse since the outbreak of war. According to government data, Ethiopia’s reserves are $2.4 billion. This is enough for two months worth of imports, which is below what would normally be considered sufficient.

Ethiopia has been unable to access additional funding from the capital markets and other creditors due to war. In recent months, yields for its $1 Billion dollar bond rose well beyond 20%.

(Graphic: Ethiopia bond timeline, https://fingfx.thomsonreuters.com/gfx/mkt/lgpdwoeaqvo/Ethiopia%20bond%20timeline.PNG)

Anders Faergemann, a London-based emerging markets portfolio manager at PineBridge Investments, which holds the bond maturing in 2024, said a coupon payment was made last week. It was approximately $32,000,000.

Ethiopia’s credit rating is now in junk territory.

“We are not certain about the possibility of conflict escalating… we don’t feel comfortable purchasing Ethiopian debt at the current levels,” stated Yvette Babb from William Blair, a fund manager in the Netherlands.

LONG-TERM INVESTORS

Some investors continue to cultivate Ethiopia’s vast and expanding market, despite the risk, according to Patrick Heinisch (German emerging markets economist, Helaba Bank).

Spanish listed wind turbine manufacturer Siemens Gamesa said that it is business as usual after signing a January agreement to construct its first project with Ethiopian Electric Power.

An operating license was granted to Safaricom Kenya to increase foreign direct investment (FDI) to $1.9billion in the second quarter 2021, up from $750m in the first quarter.

Heinisch stated that FDI will provide a financial lifeline to the government. He also said that investors have more leverage if the other state-owned companies are privatized.