Change and Continuity in the Political Economy of Ethiopia

Nathan Belete*

“Economists must not only know their economic models, but also understand politics, interests, conflicts, passions – the essence of collective life. For a brief period of time you could make changes by decree; but to let them persist, you have to build coalitions and bring people around. You have to be a politician.” (Buscaglia, 2004: 43). This expression depicts that politics and economics are two sides of a coin where one cannot be fully understood without the other making them co-constitutive. This conception of politics and economy leads to the concept of political economy. Political economy in simple terms is the relationship between politics and economics where one affects the other and vice versa.

This relation is expressed in socially wasteful manners in Africa, where political power often is a route to personal as well as clients’ enrichment under questionable manners. This is attributed to the neopatrimonial nature of the African economy which is characterized by patron-client networks for wealth/resource distribution (Francisco, 2010). This is no exception to Ethiopia where under the Ethiopian People’s Revolutionary Democratic Front (EPRDF), with the rise in importance of the developmental state, politicians had an undue say in determining the distribution of wealth (read as rents) and punishments also.

With the coming of the 2018 reforms, there were signs of liberalization across the country. This was warmly received by the people who were hopeful about the change. However, despite the liberalization, problems have mounted and there seems to be frustration among the people. These, I believe, are due to fallible policies and the continuity of some traits of the EPRDF as a result Ethiopia is now nowhere near a post-developmental state. Rather, I believe it has taken a few steps back due to internal and external instability—the war in the northern part of Ethiopia and the war in Ukrain, the COVID-19 pandemic and policy change by the government towards liberalization of a fragile market. What needs to be done is to get back to the developmental state model and at the same time address the problems that plagued the EPRDF and now the Prosperity Party (PP) due to some traits of continuity.

EPRDF and the Developmental State

The developmental state is “a state that intervenes and guides the direction and pace of economic level” (Caldentey, 2008; 28). This was the modus operandi when it came to the political economy of Ethiopia during the EPRDF, where it drove and dominated the national economy (Fantini, 2013). Through the developmental state Ethiopia showed an incredible economic growth, its GDP growth was just over 10% for over a decade, poverty had been reduced from 44% to 30%. Although at high, unemployment was addressed where it decreased from 3.5% to 2.3% over the same years. However such economic growth came at the expense of democratization. This was done through the securitisation of development, as a result the saying “development before democracy” came with no surprise.

On top of that, mismanagement of the development policies and misuse of public property by public enterprises resulted in the wastage of billions of dollars. One such example is the Grand Ethiopian Renaissance Dam (GERD) where, at its opening ceremony, it was announced that it would be completed in 7 years and was entrusted to METEC, as the Metals and Engineering Corporation was popularly known as. People contributed money to the construction out of their own pockets, but 7 years after the start of the project was far from finished, despite the government’s attempt to cover it up, created frustration and anger amongst the people. Such acts were carried by politicians along multiple ethnic lines across the country, however public anger was centered around the ethnic Tigryans as they held the top political positions. These coupled with high levels of unemployment led to a series of protests across the country beginning from 2015 to 2018.

A Move Away from the Developmental State

The protests resulted in the coming to power of Abiy Ahmed in April of 2018. This was considered a huge step by many in the liberalization of the economy as well as the politics of the country. The reform saw changes from the release of political prisoners to privatizing telecommunications. This move by the government was highly welcomed. Additionally acts such as apprehending heads of public enterprises such as METEC’s Kinfe Dagnew gave hope to the people that there is indeed a wind of change coming to Ethiopia.

In the Ten Years Development Plan, it is stipulated that there will be a move towards a pragmatic market-based economy where much emphasis is given to the private sector. This move towards liberalization and privatization of the economy has been taking place in the telecommunications and sugar corporation. The same could be said about the investment climate in Ethiopia since 2018. The government has highly encouraged private sector investment to drive the growth and decrease unemployment in the country. This move has definitely been working for the country as in the 2020/21 fiscal year the country generated $3.9 billion which was a billion more than the previous year.

Despite such changes the government was to face its first real test with the COVID-19 pandemic and then the conflict with the Tigray People’s Liberation Front (TPLF). The pandemic severely impacted the fast growing but at the same time fragile, Ethiopian economy especially in the urban areas. In a report by the World Bank, 42% of registered businesses were closed in Addis Ababa, there was an 8% job loss across the country and only 2% of the firms in the country were able to hire. These were especially felt by the lower class of the country who were dependent on a hand to mouth lifestyle. To make matters worse, the government was having a fall out with the TPLF where in early November exploded into full out war further worsening the economic situation. The war between the government and the TPLF seems to be far from over, the perceived 3 weeks “operation” has now taken more than a year. The conflict has resulted in huge infrastructural damage and has spread beyond one region. These factors, added to the worsening of the economy with the soaring of prices, are taking a toll on the people.

Change or Continuity?

The post-2018 period has seen some changes that were unthinkable during the 27 years of the EPRDF. The opening up of the political sphere and the liberalization of the economy were far-fetched concepts that the Ethiopian people thought wouldn’t come. In the initial years after the reform the optimism in the people was high, a move away from the developmental state was warmly welcomed. The liberalization seemed to bring employment opportunities, transparency, equitable distribution of resources amongst the people and most of all increased development. Hopes were further raised as the EPRDF was ‘restructured’ as the Prosperity Party. The government launched urban projects such as the ‘beautifying’ Sheger projects which is aimed at creating jobs, regulating climate change and attracting tourists. In the rural areas the government alongside with other international donors is working on safety net programs such as the Productive Safety Net Program (PSNP).

To many these would seem that the era of the EPRDF’s tight control over the state has come to an end. However the reality is far from what was presented. Despite all the changes, the leadership still remains similar to that of the EPRDF with the exception of the TPLF. The individuals that benefited from the EPRDF regime are still benefiting from the current system. Unemployment is still an issue as thousands of students are graduating each year and come into a job market that is not yet capable of employment. Despite the construction of parks in urban areas the living standard is still at a low and prices are soaring through the roof. These issues were persistent even during the EPRDF regime. These show that there is both change and continuity within the post-2018 reform period.

Frustration amongst the People 

The reform that took place in 2018 seems decades ago, the road towards development is moving in the opposite direction. Ethiopia now finds itself in worse conditions than when the reform took place due to internal and external factors. Internally the country finds itself in an ongoing civil war and externally issues such as the war in Ukraine have created problems. On top of that, the COVID-19 pandemic has impacted the country’s economy. These events have increased costs of living and people are now frustrated with this increase, while most remain unemployed and in some cases losing their jobs. Inflation rate in the country is at 34.7% as of March and 43.4% in food items compared to 33% and 41% respectively for the previous month. With such rising prices the government is yet to take considerable measures to improve the conditions. Rather the responses given by the government are to consume foods such as bananas and bread or boiling vegetables. These responses have infuriated the public who are truly feeling the inflation on a daily basis as the inflation is mainly on food items such as edible oil.

The same people who have praised the government have now started to mock it for its responses and inaction to ameliorate the conditions in the country. Jokes on social media about the Prime Minister’s suggestion to eat bananas with bread have gone viral. Especially on the TikToK platform where many are making videos on the different ways of eating bananas, and a ceremonial ‘slaughtering’ of bananas in relation to the recent Easter and Eid al-Fitr holidays where it is customary to slaughter sheep or oxen.

However the government has not been totally ignorant of such concerns and did not remain inactive, it has been attempting to stabilize the market by importing and substituting other imports. For instance in order to address the shortage of edible oil the government has imported 150 million liters of cooking oil. To add to this, despite the shortage of wheat created due to the war in Ukraine, the Ethiopian government is attempting to make moves towards wheat self-sufficiency. However the extent to which it can satisfy the population is questionable as Ethiopia has a large and fast growing population which will increase demands.

Possible Solutions?

Despite the country growing at a positive rate, since the 2018 reforms the country has seen its lowest ratings in regards to GDP growth within the decade with rates as low as 6.1% in 2020. Ethiopia today finds itself in an economic crisis amid political tensions where each month people have to deal with increasing inflation that the government is struggling to solve. This can be attributed to the change and continuity that the government has brought.

Beginning with the change, liberalization of the economy is something that is to be appreciated as the private sector has the potential to advance the economy. However this is not the case for countries such as Ethiopia. The Ethiopian economy is full of market failures that cannot be filled by the private sector since those sections of the economy have high risk and low returns, as the late Prime Minister Meles Zenawi argued during a panel discussion at the World Economic Forum in 2012. Infrastructure, such as electricity and transportation, which is needed to transform a country’s economy has extremely low returns thus it is avoided by the private sector. For instance the GERD, when completed, will be able to provide foreign exchange as the country intends on exporting electricity. Additionally the electricity will also be used for domestic purposes for the manufacturing sector, thus through this and other infrastructural projects the government would be able to transform the economy. But if the government backs away from these infrastructural projects then it’s quite difficult to transform the Ethiopian economy. As a result the government should play a central role in transforming the economy.

On the side of the continuity, the PP is a rebaptised EPRDF and the same structure that plagued the EPRDF plagues PP. The individuals that were within the structure of the EPRDF are in the PP, thus making the incumbent party, in principle the same as the former one. Therefore, with such individuals it is unthinkable to bring about development, rather a vicious circle where protests and change of regime might repeat. As a result the government should try to address this issue by making sure that broader interests of the people by formulating broader development agendas that address the basic needs of the people and the economy as well. And in order to address the broader interests the government should focus on investing in welfare projects such as sanitation and housing to the lower class of the society. Additionally it should also focus on basic infrastructures such as transportation— building roads and public transportation, and electricity. These infrastructures would pull investment, both domestic and foreign, that would create jobs and address the issue of unemployment to some manageable degree.

* Nathan Belete is a Graduate from AAU in the field of Political Science and International Relations and currently doing post graduate studies in Peace and Security at the Institute for Peace and Security Studies (IPSS).

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