Ethiopian economist says Ethiopian war crashing economy like a car without brakes

Luxury cars like a recent late model Mercedes Benz on sale on the Ezega internet site are selling at record prices of millions of birr.

The Addis Ababa newspaper, The Reporter, this week discussed an unusual paradox being seen in the collapsing Ethiopian economy due to the rapid birr devaluation and instability due to the ongoing war.  Simply put the wealthy are grabbing up high value assets while the poor and middle class are struggling just to meet daily needs. Amin Abdella (PhD) long time researcher as well as sectorial director at the Ethiopian Economics Association described how those with access to wealth in the form of foreign currency are buying up cars, buildings, real estate to liquidate their birr. He called it a “property craze”. This may explain why many wealthy Amhara in the country still support Abiy Ahmed as they are partaking of this temporary bonanza and do not yet comprehend it cannot last. The failure of the Ethiopian government under Abiy Ahmed to seek peace is continuing to devastate poor and middle income families..

Whilst the cost of living has reached record increases approaching 50% for many needs of daily living over the past two years causing the poor and middle class to struggle in paying rents, buying foods, fuel for their vehicles, and other essentials. Meanwhile the wealthy who have foreign currency assets are buying up real estate, cars, and other assets to the extent that it is driving inflation even higher. This abandonment of the birr is making the economy even worse. Even if the war stops today it will take years to recover the economy.

To make things worse, experts say investors’ disinterest in keeping their money in birr is already wreaking havoc on the whole economy.

“The price bubble does not stop at property. It has a domino effect on other services and goods,” … “The economy is in its worst shape and is now like a car that has lost its brakes.”

Abiy Ahmed foreign debt threatening Ethiopia says leading Addis newspaper

Even business interests previously supporting Abiy Ahmed can no longer hide the economic disaster building in Ethiopia as reported in Addis Fortune today

The largest threat to the average Ethiopian outside of Tigray and Oromo is growing worse everyday. The threat is not military defeat in the ongoing war with Tigray and Oromo elements but the poor economic leadership of Abiy Ahmed and his Prosperity Party. Blind allegiance to Chinese economic policy is driving Ethiopia and other African countries to dependence and irreconcilable debt. The uncontrolled spending allowed by unprecedented borrowing well beyond recognized levels of GDP (gross domestic product) has reached a point where many economists say Ethiopia can never repay. The exact amount of military spending by Ethiopia over the past year exceeds $2.5 billion while the normal budget for the whole government is only $2 billion. 

Today’s headline in  the Addis Ababa newspaper, Addis Fortune, is “External Loans Spell Trouble”. This news source well known for being progovernment and rarely giving any criticism harder than a light mention today goes farther. Reporting that major Ethiopian infrastructure projects requiring more than $2 billion in loan funding are on hold and international grants are down 64 percent. Ethiopia’s main financial backer China has frozen further lending pending discussions with Abiy Ahmed who so far has refused to meet with China and others in cooperation with the International Monetary Fund.

Well researched economic studies on the impact of Chinese involvement in resource poor countries in Africa including Ethiopia have shown the following consequences: 

The influx of inexpensive Chinese products is also stifling Africa’s ability to produce similar goods. African governments welcome Chinese loans, which are usually used for infrastructure projects, but there are signs these loans are contributing to a debt problem in an increasing number of countries. Most Chinese aid to Africa consists of the concessionary component of these loans. Small Chinese traders have flocked to Africa, competing head-to-head with African counterparts. This has led to growing antagonism with African market traders, although African consumers welcome the competition.

While well established unbiased analysts hold Ethiopia’s growth rate this year is really -2%, Eyob Tekaleign, Minister of Finance has continued to lie boasting of GDP(gross domestic product) growth and economic growth greater than before the Tigray conflict began in November 2020. In an obvious misuse of statistics Tekaleign has used the deflated value of the birr rather than international currency to fake growth. A decrease in value of the birr vs the dollar by 40% does not mean the birr grew! The truth is found in an inflation rate that will most certainly reach 50% within the next few months, the government having to stop wheat and fuel subsidies, and international rating of Ethiopian government bonds at the “junk level”. 

The removal of Ethiopia from the AGOA treaty giving free trade for African imports to the USA may cost $1 billion in foreign currency to Ethiopia. Additionally more sanctions are coming from the European Union. Hundreds of millions of dollars and euros in grants have been also been stopped. Ethiopian Airlines once the cash cow of foreign currency has suffered loses in excess of $190 million this past year and is facing sanctions from Western democracies for violating treaty agreement against civilian airlines carry military hardware and fighters.

While many Ethiopian government supporters claim Ethiopia is escaping colonialism under Abiy Ahmed what is really happening is the opposite. Ethiopia is joining many other African countries who have given away rights to resources and exclusivity in infrastructure by agreeing to impossible loans thus surrendering their autonomy to Chinese interests.