Africa-Press-Ethiopia<\/p>\n
Home to seven million inhabitants, Ethiopia’s Tigray region has been unstable since November of 2020 following the first military operation to root out Tigray People’s Liberation Front (TPLF) rebels. Although armed operations are technically over, economic instability persists. How has this affected Ethiopia\u2019s overall economy?<\/p>\n
Ethiopia is going through its worst economic shock in decades due to the combined impact of Covid-19 and the conflict in Tigray. But nonetheless, the economy was still on pace to grow in 2020.<\/p>\n
The Tigray conflict emerged when the TPLF leadership contested Prime Minister Abiy Ahmed\u2019s authority. He responded by removing the TPLF from power in Tigray.<\/p>\n
According to the World Bank, Ethiopia\u2019s economy grew at an average 9.8% rate from 2008 to 2019. The effects of the Covid-19 pandemic on the economy, coupled with the conflict in the northern Tigray region, lowered growth projections.<\/p>\n
The IMF also predicted a major slowdown for 2020, with growth dropping to 1.9%, which would be the lowest rate of growth for Ethiopia since since 2003. The World Bank\u2019s estimates are rosier, with a growth rate of 6.3% for the 2020 fiscal year.<\/p>\n
Ratings agency Fitch says: \u201cWe do expect more of a hit to growth in FY21 than FY20, but forecast a return to growth rates in the 6%-7% range over the medium term.<\/p>\n
Manufacturing and losses
\nTigray is home to an important portion of the country\u2019s manufacturing and mining activity. The conflict in Tigray has had a ripple effect on the rest of Ethiopia.<\/p>\n
The region hosts 5,120 small, medium, and large manufacturing enterprises, according to a paper published in December 2020, entitled The State of Manufacturing Infrastructure and Business Environment in Tigrai: Challenges and Recommended Policies.<\/p>\n
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\nThere is one industrial park close to the regional capital, Mekelle, that specialises in textiles. Another is in the works: the Baeker Integrated Agro-Industrial Park.<\/p>\n
In the aftermath of the conflict, Indian company SCM Knit Tex, which operates in Mekelle, noted that the Tigray factory did not suffer damage because the industrial park was protected by the federal army.<\/p>\n
Several international investors are also present in the region, including Velocity Apparelz (UAE), DBL (Bangladesh) and Indochine Apparel (China). Management sources close foreign companies, who asked not to be named, confirmed damages to their factories though did not elaborate on details to The Africa Report.<\/p>\n
Others have been more vocal, such as Alaa Al Saqati, head of the Egyptian Industrial Zone in Ethiopia. He said in late 2020 that Egyptian investments in Tigray Region were around $10m. Speaking to The Africa Report on his behalf, Doaa Mansour confirmed losses of $2m.<\/p>\n
Saqati will be representing a group of Egyptian investors seeking compensation for their losses. Mansour adds: \u201cWe are going to arbitration for the losses. We invested in furniture manufacturing and also electric transformers. As there is no activity, our clients are not paying us.\u201d<\/p>\n
Though no law firm has yet been chosen and the process is still ongoing, Ethiopia ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in February of 2020. The commissioner of the Ethiopian Investment Commission, Lelise Neme, stated in December 2020 that it had begun \u201cefforts towards resolving problems faced by investors in the Tigray region and get them back to operation very soon\u201d.<\/p>\n
Even in an unstable situation, the country has attractive advantages: one of the lowest wages in the world for textile manufacturing ($26\/month in 2019), 8-10 years of income-tax exemptions, no taxes on most exports and land leases with zero charges over a period of 60 to 80 years.<\/p>\n
The country\u2019s preferential trade agreements with the US (African Growth and Opportunities Act) and the EU (Everything But Arms) have been incentives for textile manufacturers, mainly from South-East Asia. This \u201csaves 9.6% in costs that would be paid if clothes were made in India\u201d says Arul Saravanan, chief marketing officer of SCM Garments.<\/p>\n
Soil rich for agriculture and mining
\nPrior to Prime Minister Abiy\u2019s rise to power in 2018, Ethiopia had been following a developmental state model. Economic planning through the government\u2019s Growth and Transformation Plans: GTP I (2010-2015) and GTP II (2015-2020) targeted a transition to an export-oriented and industry-based economy.<\/p>\n
The Tigray Region is the second-largest producer of sesame seeds in the country. According to data from the trade and industry ministry, \u201cabout 44% of the national sesame seed production comes from Amhara Region, followed by Tigray (31%)\u201d.<\/p>\n
In 2018, oily seeds \u2013 such as sesame\u2013 accounted for $363m in exports for Ethiopia, ranking it as the world\u2019s third-largest producer. But since November, there has been \u201csupply disruption as a result of the fighting in the region\u201d, the Ethiopian Commodity Exchange reported in January.<\/p>\n
Tigray\u2019s mineral resources have also attracted foreign investment to explore for \u201cgold, base metals, industrial minerals, coal, gemstones, and other ores and minerals,\u201d according to a study entitled Mining Sector Challenges in Developing Countries, Tigray, Ethiopia and Inspirational Success Stories from Australia.<\/p>\n