Ethiopia Comes to a Crossroads on Economic Reform

Apr 3, 2019 | 10:00 GMT

A picture taken on March 13, 2019, shows the construction of a number of new buildings in Addis Ababa.

A picture taken on March 13, 2019, shows the construction of a number of new buildings in Addis Ababa. Ethiopia's developmental state strategy has brought the country's economy this far, but Prime Minister Abiy Ahmed will have to change tack if the nation is to push on to bigger and better things.



  • Ethiopia is unlikely to totally abandon its developmental state economic model, which gives the state a leading role in fostering development but has also burdened local banks, led to increases in foreign debt levels and suppressed the private sector.
  • While Prime Minister Abiy Ahmed is likely to make some progress toward liberalizing the economy, he and his allies will encounter resistance from a bureaucracy that favors growth fueled by the state rather than the private sector.
  • If Addis Ababa fails in its gamble to switch to an economy driven by more private sector growth and consumption, it might not be able to capitalize on a wave of investment interest in East Africa to make the leap to the next level of economic development.


After a year in office, Ethiopia's ambitious Prime Minister Abiy Ahmed has made considerable progress on multiple fronts by striking a peace deal with Eritrea, ousting entrenched elites, reforming the security sector and opening up the political system. But after promising to open up several key economic sectors, foreign investors are eager to see more progress. Nevertheless, Abiy and his allies are taking a careful approach to easing state control over key sectors as part of a larger bid to move the economy away from state-controlled growth to one of private sector-led growth. But while many in Ethiopia have hailed the developmental state model as an overall economic success, it has not come without its costs. For starters, government spending has kept inflation rates high. At the same time, authorities have effectively turned domestic lenders into piggy banks by obliging them to contribute portions of their deposits to the Development Bank...

Keep Reading

Register to read three free articles

Proceed to sign up

Register Now

Already have an account?

Sign In