Developed by Italian statistician Corrado Gini in 1912, the Gini index is a critical tool for measuring income inequality within a nation by analyzing the distribution of income among its population.
The index, ranging from 0 to 1, indicates perfect equality at 0 and perfect inequality at 1.
Ethiopia has just celebrated the one-year mark since it adopted market-oriented reforms – to be financed by the IMF and World Bank in a four-year implementation period. The principal actors have given their verdict on the progress so far. National Bank of Ethiopia Governor Mamo E. Mihretu maintains that “the results in all macroeconomic contexts have greatly exceeded our expectations.” The IMF concurs, pointing to “macroeconomic indicators that have performed better than expected.” For its part, the World Bank states “the reform agenda has already delivered early gains.” Lastly, the Ethiopian government is enthused by how quickly the economy has seemed to respond to reforms.
So it is natural to ask: Should we be feeling so triumphal, or is there a sting in the tail?
Before answering this question, it is useful to put things in perspective. True, when Prime Minister Abiy Ahmed assumed office back in April 2018, he inherited an economy with a large resource gap, a financial and foreign exchange crunch, official settlements dead end, unsustainable external debt, chronic unemployment, and high inflation. So his government unveiled in August 2019 what it called “Home-grown Economic Reform” as a remedy to cure macroeconomic pathologies. However, before long, the new government was embroiled in a succession of new crises – the Covid-19 pandemic, bloody insurrection, drought, and hostile international climate. But in July 2024, from what appeared to be an economic no man’s land, the government took an adventurous flight to the uncharted world of “comprehensive macroeconomic reforms,” where the shadows of the usual suspects loom large.
In returning to the original question, though, a cry of caution can be heard from history, which is littered with false hopes and dawns, as well as miserable failures of maladapted reforms. And it is inevitable that our current reform program provokes an uncomfortable sense of déjà vu, of a repeat of the 1980s, with its action items strikingly similar to those listed under the widely discredited “Washington-Consensus” free-market ideology. Oh, and Ethiopia itself had adopted a brainchild of the latter – Structural Adjustment Programs (SAPs) – back in October 1992. OK, the EPRDF regime implemented the neo-liberal policies only selectively and halfheartedly. But no bitter regrets there; SAPs brought nothing but untold suffering even in those African countries that faithfully followed them. Why? The Washington-Consensus rules were treated as the Ten Commandments, disregarding structural, institutional, and cultural contexts.
But can we take a deeper look at the publicly disclosed data and logic? Yes, we can, even if the quality of our data leaves a lot to be desired. For those who never trust official statistics, the Nobel laureate Paul Krugman offers encouraging words: “All economic data are best viewed as a peculiarly boring genre of science fiction.” That is to say, a lot of educated guesswork is involved, especially with regard to GDP and inflation, as are measurement lags. As a result, these guesstimates are sometimes not very informative, and can thus distort policy decisions. What if the books are cooked? Here, too, one can only engage in even more guesswork, without offering any direct evidence. The point is that we have to work with the available data.
Let us take as final, for the sake of argument, the IMF-reported data for fiscal year 2024/25. Real GDP would grow by 7.2% this past year, defying major headwinds. OK, but this cannot be traced to exports responding to a weaker currency, which requires at least two years for it to be a probable proposition. Neither can fiscal or monetary policies be a plausible explanation, as they were both tightened. But it is sort of a moot point because macroeconomic policy is only one among many internal and external determinants of economic growth, and in any case isolating its causal effect is extremely difficult – even more so in our economy. In addition, it is well known that real variables react to policy changes with long lags. To really understand underlying trends in growth, we need at least five to ten years of data. Remember that the EPRDF regime, untroubled by radical policy departures, had no problem reporting almost “double-digit” average growth rate over a twelve-year period. But, alas! that turned out to be a house built on sand, and our development problems remained a hard nut to crack.
The IMF numbers then tell us that inflation is estimated to have plunged to 16.6% per annum, slashing some ten percentage points from the previous year. Maybe, but this also belittles the latest macro policy shift as a contributing factor. First, monetary policy tightening typically takes 18 to 24 months to have a significant effect on inflation even in advanced economies. Second, most of the actual and planned fiscal policy actions – like squeezing subsidies, raising/introducing taxes, increasing administered prices, and propelling governmental service fees – are inflationary at least in the short to medium term. Third, the move from managed- to free-floating exchange rate regime has been a driver of both actual and expected inflation.
The simultaneousness of solid growth and plunging inflation also poses a particular problem for the NBE in claiming credit for the latter. True, there is a plausible credit channel for monetary policy in Ethiopia. But monetary tightening is supposed to reduce inflation by slowing down the economy, and yet we appear to have the best of both worlds. Add in the relatively small formal financial sector and the NBE’s still work-in-progress monetary policy framework, and it almost beggars belief that activist monetary policy could cause monumental disinflation so quickly and painlessly.
We also recall that the main point of our currency regime change was to get the overrated birr to come to terms with its real worth. The IMF reckons it now has, after losing more than 100% of its value against the US dollar. However, the parallel market has reportedly been trading at a premium of around 15% over the last five months. Indeed, it was premature – both in real time and hindsight – for the NBE to express feelings of vindication when the parallel-market premium initially fell to nearly zero. And if the reemerging threats or crackdowns on black market traders are anything to go by, things may even turn full circle. The truth is that flexible exchange-rate policy is no guarantee of elimination of the parallel-market spread. Even if the exchange rates are unified, the parallel market for US dollars can still persist for various reasons.
The IMF’s July country report then shows that merchandise export revenues have more than doubled, due mainly to strong receipts for coffee and gold. Great, but the pertinent question is how much of this is in response to exchange rate realignment. Focusing on our main export item, coffee, it is true that exchange rate affects participants across the supply chain, including our coffee producers who get paid in birr. However, the current bonanza is mostly due to an unprecedented rise in global coffee prices, which doubled over the past two years. And any observed volume growth is best explained by pre-existing “green legacy” initiatives and quality-improving efforts by the government to divert production from domestic to export markets. The thing is, primary export commodities like coffee are vulnerable to wild price swings, and their export supply and world demand are not that price responsive – at least in a structural sense. To imagine that a more competitive real exchange rate will materially expand them to solve our hard-currency or balance-of-payments conundrums is really stretching it. Even if our commodity export boom were here to stay, that in itself, while welcome, runs the risk at least of pushing industrialization to the back burner, if not locking us in the primary sector.
The IMF also eulogized an “over-performance in the accumulation of international reserves,” which would now cover around 1.7 months of prospective imports, up from less than one month the previous year. But wait, it turns out that the main reason for the current leap in official reserve holdings in general and in foreign-currency reserves in particular is, first, the financial injection by none other than the IMF/World Bank to execute the reform program and, second, the same exceptional price increase for our export commodities, including gold which has gained around three-quarters of its value over the past five years, leading overall to a net currency inflow (a surplus) on our balance of payments account. But if the multilateral program funding ceased and the current commodity boom was reversed, would anyone want to bet against a further weakening of the birr or a rapid reserve loss?
So the effects of reforms are not clearly visible in these data, at least yet. Identification is complicated further by inconsistencies among multiple policy objectives and/or targets. For example, removal (even if phased) of state subsidies and dishing out taxes left, right, and center (cases in point are a VAT on fuel and a 2.5% tax on loss-making businesses) are in conflict with the objectives of controlling inflation, motivating private investment, and enhancing social protection. And how can one reconcile cutting federal spending and escalating taxes – all in the name of “fiscal adjustment” (read austerity) – with the need to boost economic growth and fight disturbing unemployment (about which the IMF report is deafeningly silent)? Yet another telling example is the levy of a 10% tax on interest income from bank deposits, when the latter’s return was already low and highly negative in real terms, just flying in the face of “getting prices right.” In fact, this aggravates financial repression, crippling mobilization of private domestic savings and their allocation to productive investment, with a domino effect on the balance of trade.
The bottom line: Reported numbers would have us believe that almost everything is hunky-dory in our economy one year into a major policy shift, but there is more to these numbers than meets the eye. And annual changes are too noisy to take an unequivocal position over the beneficial effects of macroeconomic policy reforms, whose workings are extraordinarily complex and unpredictable. The added incompatibilities of some reform measures and goals do not help. But to really talk about the success and failure of economic reforms, we would ideally like to wait until the implementation period has come to pass.
So what should the authorities do? We do not want to be too harsh on them, for a government, almost by definition, craves for or seizes on favorable economic statistics. But they should be more cautious in their claims about the virtues of free-market reforms and humble enough to recognize that not all economic problems will be market-reformed away – and some can even get worse.
Economic and Business Analyst based in Addis Ababa. He can be reached at matias.assefa@gmail.com
During my recent visit to Rwanda, I was impressed by how effectively the country has established itself as not just a tourist destination but also a burgeoning hub for investment and entrepreneurship in Africa. I had heard many positive things prior to my trip: that it is clean, orderly, peaceful, and surprisingly well-organized. Experiencing it firsthand left a stronger impression than I had anticipated.
Nicknamed “the land of a thousand hills,” Rwanda truly lives up to its poetic branding. The country’s stunning landscape is complemented by well-maintained infrastructure: clean streets, impressive roads, an efficient drainage system, and surprisingly smooth traffic management. Kigali, the capital, ranks among the cleanest cities I have visited in Africa.
However, Rwanda’s true success lies in its effective branding as a serious business destination. This is a model from which other African countries can learn.
A Brand That Works
While at a coffee shop in Kigali, I spoke with an Ethiopian businessman who has lived and invested in Rwanda for six years. I asked him what advice he would give to fellow Ethiopians or any foreigners considering business opportunities there. His response was straightforward: “Rwanda works because the people and the government want it to work.”
He commended the government for creating a supportive environment for business, especially for foreign investors. He emphasized that branding goes beyond glossy tourism videos and marketing slogans; it is embedded in the country’s policies, systems, and national mindset.
What Makes Rwanda Attractive to Investors?
Here are some key features that make Rwanda an appealing destination for entrepreneurs:
1. Ease of Doing Business: Rwanda consistently ranks among the top African nations in the World Bank’s Ease of Doing Business Index. You can register your business and obtain a Tax Identification Number (TIN) online from anywhere in the world. In most cases, registration takes less than six hours.
2. Open Investment Policies: Foreigners can own 100% of their businesses in Rwanda, making it an attractive option for international investors. Moreover, investors can repatriate profits and dividends without restrictions. There are no limitations on foreign land ownership for business purposes, allowing non-nationals to buy land and property. Rwanda also offers special economic zones (SEZs) that provide tax incentives and improved infrastructure to support business growth.
3. Strategic Market Access: As a member of the East African Community (EAC), Rwanda offers duty-free access to a regional market of over 300 million people. If your product is certified as made in Rwanda, you may qualify for tax reductions or duty-free status when exporting within the EAC bloc. Cross-border trade with neighboring countries such as Uganda, Tanzania, and the DRC is also actively encouraged.
4. Priority Sectors: Investors are encouraged to explore opportunities across various sectors, including agriculture and agribusiness, manufacturing and light industry, construction and real estate, tourism and hospitality, ICT and innovation, healthcare and education, as well as retail, logistics, and consultancy. To attract and support investment in these high-priority areas, the government offers incentives such as VAT exemptions, capital gains tax waivers, and expedited licensing processes.
Planning a Business Visit to Rwanda? Here’s What You Need to Know
If you’re considering Rwanda as your next investment destination, you don’t have to navigate the process alone. There are consultants and support firms in Kigali that specialize in assisting foreign investors. These professionals can help you:
Arrange business meetings with government or private sector entities
Secure permits or registrations
Find affordable guest houses, local guides, interpreters, and vehicles
Here is a rough estimate of the costs for a one-month visit, based on informal discussions and local insights (please note that these figures are approximate and may vary depending on actual service providers and individual preferences):
Furnished guest house: Approximately $600 per month
Transport (with driver): Around $500 per month
Support personnel (guide/facilitator): Estimated at $400 per week
Food and personal expenses: Varies by lifestyle, but a general range is $200–$400 per month
These estimates should serve as a general guideline and may differ from official market rates.
For most African countries, including Ethiopia, visas are issued on arrival or can be applied for online via the Rwanda Immigration website. The process is relatively fast and user-friendly.
A Realistic View: It’s Not All Red Carpets
Conducting business anywhere comes with challenges, and Rwanda is no exception. There are bureaucratic hurdles, competition, and the usual effort required to understand local laws and culture. However, what sets Rwanda apart is that the system is not designed to frustrate you. Instead, you’ll find individuals in both government and civil society who are genuinely interested in seeing your business thrive. This level of support is rare. Whether you’re an investor, a startup founder, or an established entrepreneur, Rwanda is worth serious consideration. While the path may not be perfect, it is certainly possible and increasingly promising.
Final Thoughts:
I am truly impressed by how beautifully Rwanda has been branded. It’s a country I’ve always wanted to visit, and being there felt like coming home. I enjoyed exploring the local markets and couldn’t resist buying traditional clothes reminiscent of those found in Ethiopian markets. The houses and streets also felt familiar, much like some of the Ethiopian cities I’ve visited.
This experience reminded me that, as Africans, we share so much in common: culture, spirit, and values, and we are stronger when we come together.
Sending love and deep gratitude to all Rwandans who made my stay absolutely wonderful.
Mihiret Fekadu is a Senior Media and Communications Consultant
Last month, I had a minor fender-bender. A jolting reminder of Addis Ababa’s chaotic traffic, but thankfully, nothing more. No one was hurt, and the damage to my car was, by all accounts, manageable. While the incident itself was thankfully inconsequential, the journey that followed became a profound lesson on a system in crisis. As a law-abiding citizen, my first instinct was to reach out to the institution designed for this very moment – my insurance company. For years, I had been a loyal customer, faithfully paying a premium of nearly one hundred thousand Birr, building a history with no claims. I was, in their terms, a profitable and low-risk client. I believed in the promise of protection, the entire premise that we collectively pay into a pool of risk so that the individual is spared catastrophe.
The initial response was deceptively smooth. A polite customer service agent outlined the required steps: obtain a police report and await an assessment from their engineer. It felt reassuringly standard. I was wrong. The first gatekeeper was the assessor. His job is to determine the cost of repairs. But it quickly became clear that his assessment was less about the damage to my car and more about the undiscussed “fee” required to ensure his report accurately reflected that damage. A nudge, a tip, an “incentive” – whatever you call it – was necessary to be “convinced” that a damaged part needed replacement, not just a cheap patch-up. The principle of indemnity – of being restored to one’s original state – felt less like a right and more like a privilege to be bargained for.
This was merely the prelude. The real battle commenced with the claims department. If the assessor’s game was one of subtle implication, the claims officers were openly and wearisomely skeptical. The tone was not of a service provider assisting a client in a moment of need, but of a suspicious official guarding the treasury from a clever thief. Every interaction was laced with an underlying accusation, as if my claim was an attempted heist rather than the fulfillment of a paid agreement. The paperwork seemed designed to be complex, the follow-ups required an extraordinary patience, and the progress was freezing. Each phone call became an exercise in pleading, a humbling experience of begging for the very service I had financed for years. A full month after the incident, my car remains a silent testament to this paralysis, a symbol of the “protection” that never materializes.
In sharing this frustrating experience with friends, I was met not with surprise, but with knowing nods and unanimous validation. Two of them stated that this exact reality is why they opt for only the legally mandatory third-party insurance. Their logic is a damning indictment of the entire sector: if the outcome of paying a substantial premium is ultimately the same – having to fight, pay out of pocket, and endure immense stress – then the rational choice is to self-insure. Why pay a large sum annually for the mere illusion of support, only to be met with resistance when you need it most? My minor accident, rather than showcasing the value of insurance, served to perfectly validate their cynical but pragmatic approach. It seems the safer bet is to simply save your money and pray you avoid a major disaster.
This collective sentiment points to a deep, systemic failure within Ethiopia’s insurance industry. The prevailing model appears overwhelmingly traditional and adversarial, where companies compete fiercely to win premiums but are culturally and operationally engineered to shy away when a claim is due. The market is filled with players who seem to mimic each other’s worst practices, sticking to conventions that prioritize premium collection over customer satisfaction. Profit is seemingly derived not from intelligent risk management and efficient service, but from the deliberate complication and delay of rightful payouts. This stands in stark contrast to insurance sectors in other parts of the world, where disruption and innovation are the norms. Companies there compete on the speed of claims settlement, the ease of digital processes, and the quality of customer support. A claim is seen as a critical moment of truth – an opportunity to prove value and cement loyalty. In Ethiopia, the sector feels devoid of such innovation, clinging to an old- school ethos of client relationships that is fundamentally broken.
The broader implication of this failure is a tragic erosion of trust and a significant opportunity cost for the nation’s economic resilience. When a population cannot rely on the fundamental concept of insurance, the principle of shared risk collapses. People are forced into vulnerability, leaving themselves, their families, and their assets exposed to genuine catastrophe without a safety net. This distrust stifles economic growth, discourages investment, and perpetuates a cycle of financial insecurity. My minor accident was a wake-up call that extended far beyond the dented metal. It revealed a broken promise and a sector in desperate need of a paradigm shift – one that views the policyholder not as an adversary to be managed, but as a client to be served.
The National Bank of Ethiopia (NBE), as the sector’s regulator, holds the pivotal authority to catalyze a cure for this systemic malaise by moving beyond setting capital requirements and enforcing a paradigm of customer-centric governance. This necessitates mandating transparent, standardized claims processes with strict service-level agreements (SLAs), instituting rigorous independent audits of claims handling, and introducing public metrics on claim settlement ratios and customer satisfaction to foster genuine competition on service quality rather than just premium collection. By wielding its regulatory power to penalize bad faith tactics and incentivize innovation – such as promoting digital filing and automated assessments – the NBE can transform its role from a passive overseer into an active architect of a resilient, trustworthy insurance market that finally serves the Ethiopian public, thereby restoring the very foundation of shared risk it is meant to protect. Until that shift occurs, for a growing number of Ethiopians, the most rational insurance policy will remain a personal savings account and a great deal of hope.
William Brooks – A freelance consultant with interests in business and politics in East Africa reachable at willybrooks87@gmail.com
Capital is the longest-established private English newspaper in Ethiopia
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