Ethiopia’s economic stagnation under EPRDF policy stemmed from the start of the Ethiopian millennium. Agricultural-led industrialization prioritizes agricultural development to reduce poverty levels and generate industrial capital. The approach had two parts: promoting exports and supporting domestic industries, which are connected to each other in agriculture and industry. To encourage a market-oriented economy, the government has deregulated the investment framework through official declarations. The investment code has been revised twice since 1992, expanding opportunities for foreign investors. GTPs I and II were designed with the objective of achieving Ethiopia’s national vision of becoming a middle-income nation by the year 2025.
The governmental body implemented a series of policy amendments and strategic plans in order to facilitate economic reforms within the country. The commencement of the construction of the Grand Ethiopian Renaissance Dam (GERD) has sparked a sense of initiation and national engagement, as well as elicited the support of nations beyond Ethiopia, prompting introspection among even those who think the marginalized segments of society within the country. At this juncture, the Ethiopian investment has become blurred, necessitating significant government intervention to sustain in its breakeven level with those various challenges. It is of paramount importance for the government to prioritize investing on peace over economic investment as the former constitutes the highest privilege.
The economic development of a nation is adversely impacted by the fragility of its peace condition, manifested in multiple ways. These include the restraint of foreign direct investment that arises from apprehensions associated with the unstable peace condition, the reduction in foreign aid support as a result of the violation of civilian rights that frequently accompany ongoing conflicts, the suboptimal output levels of manufacturing enterprises that emanate from the overall disruption of the enabling factors, and even the reduction in remittances that is exploited as a tool by political adversaries. The phenomenon of investment reduction occurred prior to the upward trend observed during the reform period, specifically from 2015 to 2017. Expectations were high that the investments would experience a resurgence during this time. Regrettably, the initial optimism deteriorated into despair. Upon examination of investment patterns, it becomes evident that they closely align with levels of peace and security. Therefore, allocating resources towards peace and security initiatives yields a secure environment, regardless of location or terrain.
The occurrence of investment shrinkage during a period of transformation is reminiscent. The overwhelming nature of the government reform at the time was accompanied by riot-induced destruction of numerous investments in and around Addis Ababa. In order to address the current economic fluctuations, it is recommended that the government take measures to solidify peace and security. This will enable factories to resume operations, irrespective of their operational capacity. The aforementioned approach facilitates the restoration of historical operations such as production, employment, tax, and investment trends. It further empowers establishments to optimize their operational capacity even in the absence of any governmental support. Secondly, the peril of passive investment is pronounced in the manner in which the government manages it, as it poses a significant threat to the forthcoming settlement of the national debt. The railway project represents a salient instance where both the light railway and cross-country railway systems remain inactive for a protracted duration. The Ethiopian Government has recognized the strategic potential of the transport sector in sustaining the nation’s positive economic growth trajectory. Nonetheless, the government is endeavoring to address the issue by means of vehicular investment that entails a consideration of opportunity costs. The cross-country railway performs a fundamental role in addressing the transport requirements of this landlocked economy. The act of idling railways (Woldya to Djibouti, a $4bill investment)) and trying to resort through vehicular transport has been further aggravated by the surge in fuel expenses whilst a notable reliance of the country on imports.
There exist numerous industrial projects, both privately and state-owned, that have yet to be transitioned to the production phase as a consequence of protracted delays in their implementation. An illustrative example can be observed through the analysis of the top 20 industrial projects (investment cost of Birr20.26 billion) executed by the Development Bank of Ethiopia (sole investment financing institution); It is notable that not more than 64% of the projects were executed within the stipulated timeline.
It should be also imperative for the government to prioritize the regulation and mitigation of capital flight and asset withdrawal, while the framed economic policy is home grown economy. According to empirical evidence, capital flight from Ethiopia is primarily attributed to factors such as political instability, corruption, and debt-generating inflows. The phenomenon of illegal capital flight is pervasive in many African countries. Let consider the case of Ethiopia, Transparency International’s study in September 2018 on illicit financial flows reveals that the annual outflow of capital from the country constitutes an estimated 11% to 29% of its total trade, 40% to 97% of foreign aid, or 10% to 30% of the government’s yearly revenue. Ethiopia is confronted with a distinctive challenge that is characterized by an aggressive escalation of illicit financial flow, whilst simultaneously grappling with a high level of indebtedness. Consequently, exerting control over the illicit outflow of capital has become a pressing apprehension in current times. In conclusion, there is a pressing need for extensive attention to be directed towards the national economy. This is owed to the presence of an alarmingly high rate of unemployment, an enormous gap in foreign exchange demand, as well as a surplus of resources laying idle. A substantial portion of investments (both governmental and private) that have yet to transformed productive stage shall commence to productive stage as prior. The aforesaid matters will be addressed upon the government’s initial investment in prioritizing peace and security as an integral obligation. Unless peace is immediately upheld, the present homegrown economic strategy will prove to be a mirage.
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