The Horn of Africa giant has had a whirlwind 2018. A leadership change in Addis Ababa paved the way for Abiy Ahmed to become prime minister. Energetic, young and ambitious, the new head of state is pursuing a whole host of projects, ranging from a broad ethnic reconciliation campaign to temper internal instability to the brokering of a peace deal with erstwhile foe Eritrea. The economic front has also been full of activity, as Abiy has promised to reform the country's top-heavy economy by partially privatizing major state-owned companies like EthioTelecom, Ethiopian Airlines and others. As Ethiopia enters a new year full of new challenges, here's a look back at some of the articles that dominated Stratfor's coverage of the rising giant in 2018.
Ethiopia's Promise and Peril
The only African country to escape European colonization, Ethiopia is a regional giant that has long exerted an influence in the lands on its periphery. Part of Ethiopia's strength stems from the geographical benefits that its heartland enjoys, as well as the fact that its highlands form a "power core," a population area that forms an entity much larger than a city and doesn't conform to state boundaries.
The [Ethiopian] highlands have provided the peoples of this core with protection in the form of mountains, sheltering the fertile lowlands from invaders from elsewhere. Even in the more exposed northeast, a harsh desert helps to shield the inhabitants of the Ethiopian core. Protection from invaders is not the only benefit that geography has bestowed upon residents; rich soil has also made agriculture viable, while relative elevation has prevented the spread of diseases, such as malaria, that would have killed many and hurt economic activity.
Together, these geographic features delineate a relatively compact core and have helped make Ethiopia an African power since ancient times in spite of shifting political systems. In fact, Addis Ababa has succeeded in consistently exerting its power beyond its borders, thereby attracting the interest of great powers over the centuries.
Read the full article: Understanding East Africa's Power Politics, One Core at a Time.
Ethiopia is a multiethnic country whose communities have long experienced tensions. Starting in 2016, members of the large Oromo and Amhara ethnic groups, who represent 35 and 27 percent of the population, respectively, began agitating for more power from Tigrayans, who have controlled the country for decades despite only accounting for 6 percent of Ethiopia's people. Unable to control the unrest with an iron fist, Ethiopia's ruling party, the EPRDF, tried a new approach, inviting Abiy, an Oromo leader, to become prime minister in April. One month before — when the country was still embroiled in conflict — Stratfor noted the difficult task that any new leader would face in attempting to calm Ethiopia's ethnic divisions.
Regardless of who is placed at the top of the government — be it an Oromo figure or a politician from a tiny and powerless minority group — that selection is unlikely to be able to quell the overall protest movement. No matter the ethnic background of the new prime minister, many protesters will see him as a Tigrayan puppet who owes allegiance to the political system. And this will likely prove true, because the Tigrayans will not willingly surrender their hold on the military or other levers of state control. The government's six-month state of emergency — under which the government has enhanced powers to crack down on dissent — underscores the continued control of hard-line Tigrayan elites. Consequently, the next prime minister will likely have a weak hand when it comes to pushing for deep reforms.
Ethiopia's inability to manage its ethnic diversity has been the long-running source of its instability. Until the elites of the controlling Tigrayan minority see no other route, political reconciliation with the agitating ethnic groups will remain off the table. And the destabilizing protests outside the capital will continue to be a headache for the government.
Read the full article: The Long-Running Headache of Minority Rule in Ethiopia.
Abiy Takes Charge
After coming to power, Abiy moved rapidly to address Ethiopia's myriad issues by departing from the staid policies of the EPRDF's previous leaders. Abiy made overtures to non-Tigray communities and, even more crucially, neighboring states in a bid to ensure the country fulfilled one of its core imperatives: securing access to the sea.
The country's political environment is looking more stable today than it has in recent years, thanks in large part to Abiy Ahmed, who became prime minister in April after months of protests in the country and increased infighting in the ruling coalition. Abiy is a new kind of Ethiopian leader: He is young compared to his predecessors, at 42 years old; he is also a member of the Oromo ethnic group, which has played a prominent role in protests since 2016, and a former military officer. And after the previous administration, backed by ethnic Tigray hard-liners, strove to crack down on dissent, Abiy is reaching out to different ethnic groups, ending draconian security measures, and promising free and fair elections in the years ahead. So far, rebel groups and other dissidents have warmed to his overtures, though Ethiopia's internal cohesion problems persist.
Abiy's efforts are notable for their speed, but his strategies for stabilizing his country and the region still follow Ethiopia's core imperatives. The prime minister, for example, has focused on normalizing relations between Ethiopia and its nemesis, Eritrea, in support of his country's need for port access. In fact, his government has also increased its stakes in ports in nearby Djibouti, Sudan and Somaliland — a semiautonomous region of Somalia — and promised to forge stronger ties with Somalia itself, all in the name of improved supply chain connectivity.
Read the full story: Where Is Ethiopia Headed? Signs Past and Present Point the Way.
In the last three decades, few bilateral relationships have been as hostile as the standoff between Ethiopia and Eritrea — erstwhile compatriots until the latter broke away in 1991. Often dubbed the "North Korea of Africa" for its reclusiveness and authoritarianism, Eritrea maintained a permanent war footing in expectations of a major conflict with Ethiopia. Upon coming the power, however, Abiy quickly moved to bury the hatchet with Asmara, gaining his own country access to port facilities and helping Eritrea open up to the rest of the world.
After making such swift and dramatic progress domestically, Abiy and his allies then turned to Ethiopia's external challenges, with the country's enmity toward Eritrea being key among them. The two sides fought a border war during 1998-2000 after the former province had broken away from Ethiopia in a decadeslong insurgency. That break left Addis Ababa without sea access and the markets beyond. Relations between the two have been acrimonious since the war, and Eritrea has rejected previous overtures from Ethiopia.
But Abiy and his allies have quickly changed the relationship. For over 20 years, security decisions on Eritrea had been handled by hard-liners within the powerful Tigray People's Liberation Front, who had major personal conflicts with the leadership in Asmara, Eritrea's capital. The new president sidelined these elites, showing reclusive Eritrean President Isaias Afwerki that he intended to be a serious partner for peace.
The recent docking of an Ethiopian commercial ship at the Eritrean port of Massawa — the first in over 20 years — is a clear sign that the rapprochement is real and not just political rhetoric. And repaired ties between Eritrea and Ethiopia will likely be an economic boon for both countries. Ethiopia will now have another country to import and export goods through.
Read the full story: Ethiopia's Ambitious Leader Reaches for the Stars.
On the domestic front, Abiy has worked hard to improve the economy amid plans to privatize some of the country's larger state companies, such as Ethio Telecom and Ethiopian Airlines. Even so, Ethiopia still faces a number of challenges, including liquidity problems and poor infrastructure — meaning Abiy's 2019 is likely to be as busy as his 2018.
Ethiopia's economy also has challenges that will give all investors pause for thought. Besides political risk, the biggest problem for investors is the country's liquidity woes — a reality that will continue into 2019 and beyond. Indeed, the emphasis on critical — but expensive — infrastructure projects like the Grand Ethiopian Renaissance Dam has created an acute foreign exchange shortage. To construct these projects, Ethiopia's central bank has forced private lenders to hand over their foreign currency holdings to enable the import of necessary construction materials. As a result, the amount of foreign currency has diminished to such an extent that Ethiopians are suffering from a shortage of imported medicine, while investors are also forced to wait long periods to exchange their birr for U.S. dollars.
The effects of Ethiopia's ongoing foreign currency crunch and the lack of foreseeable structural economic reforms could hinder the country's ambitions, deterring foreign investors. Nevertheless, the reopening of supply chains to coastal Eritrea, along with the prospect of privatization, have captured the imagination of many investors — suggesting that the promise of Ethiopia will be too good to ignore in the years to come.
Read the full story: Ethiopia Offers Investors a Tantalizing, If Tainted, Promise.