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.