Crackdown on protests threatens Ethiopia’s economic boom

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Foreign investors, notably from China, have this year ploughed $2.5bn into an economy that has experienced double-digit annual growth over most of the past decade. But behind the façade, cracks are appearing in the model that helped Ethiopia become one of Africa’s star economic performers.

The consequence for the authoritarian government, which derives much of its legitimacy since taking power 25 years ago from delivering development in the absence of many basic freedoms, is unprecedented uncertainty, analysts say.

Ethiopia is in the third month of a state of emergency imposed to quell demonstrations against the regime, with hundreds of people killed in a brutal crackdown on protests that began more than a year ago. Foreign-owned businesses, particularly in textiles and flower farming, have been targeted in attacks that have caused tens of millions of dollars of damage.

“By sacrificing rule-of-law and predictability to achieve short-term stability, the Ethiopian government has damaged its reputation by reinforcing the perception that it is more authoritarian than democratic,” said a western diplomat who engages with foreign companies.

For visitors to Addis Ababa, the most noticeable impact of the crackdown is the complete lack of mobile internet and severe disruption to online services. Deloitte, the global advisory firm, has estimated the shutdown is costing the economy $500,000 a day.

“We have some foreign tourists staying but far fewer than usual,” says the manager at an Addis Ababa hotel who asked not to be named. “And there are practically no western business travellers. The Chinese are still coming though.”

The Ethiopian economy is still growing strongly — by 8 per cent this financial year according to official data. Although three percentage points lower than previously forecast it has come against the backdrop of a bad drought.

David Cowan, Citi’s chief Africa economist, believes the reality is worse and questions an IMF prediction that foreign direct investment will be $4.45bn in 2016-17, nearly $1bn more than its previous estimate.

“I don’t see where the increase in FDI is going to come from,” he says. “I don’t see it from the multinationals, many of which are in a consolidating mode.”

Many are also pessimistic about how the country can create enough jobs when non-Ethiopians continue to be banned from investing in the banking, telecom and retail sectors.

“Successful economies have deep and diverse private sectors and Ethiopia’s just isn’t there,” said one investor, who asked not to be named. “It’s doing some things well but the gaps in its strategy — both economic and political — are glaring and I don’t see any inclination to address them.”

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