Quick thought: Is there hope for the Horn of Africa?

More than half of the ten fastest growing economies in the world are in Africa. Undoubtedly, many of these countries are still poor, but things are changing. Over the next decades, African nations will be the ones to surge in the same way that the Asian Tigers have risen over the last few decades. The growth of many African nations has resulted in the name African Lions being used to describe these rising economies. Africa is a vast continent and closely watching all of its economies would be a monumental task. Therefore as trends appear and policies change it is only natural to focus on some economies more than others. I like to keep an eye on at least one economy in each of Sub-Saharan Africa’s regions. For the last quarter of 2018, I will be closely monitoring Ethiopia (Horn of Africa), Rwanda (Central Africa), South Africa and Guinea ( West Africa).

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Ethiopia has been on my radar for a while for numerous reasons. In the past, Ethiopia was the poster child for charities advertising Africa’s poverty, however this has certainly changed. Over the last decade, Ethiopia has seen growth rates upward of 10%. With their large population, Ethiopia has the potential to become a manufacturing giant. The East African nation has leveraged the Chinese model of Special Economic Zones (SEZs) and industrial parks that have already created jobs and wealth for the local communities. The key in Ethiopia is that it is the government that is committed to growth.

In 2015, Ethiopia opened the first light rail system in all of Sub-Saharan Africa, showing its commitment to improving the daily lives of its citizens. Furthermore, a large degree of Ethiopia’s success comes from the business environment that has been created for companies. One law in particular I would love to see adopted in other parts of Africa, is that new businesses in Ethiopia do not pay any tax in their first five years of operation. Although I would question the fact that they still have large state run corporations, they appear to be run well, as if they were private. Ethiopian airlines is the flagship example, as it is now the biggest airline in Africa and  is looking to compete internationally.

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However, Ethiopia has one huge problem, they are landlocked and have had limited access to ports. Ethiopian neighboring states with coastlines are Eritrea, Somalia and Djibouti. Due to violence and conflict in the region, Ethiopia has for the last two decades relied mainly on ports in the tiny nation of Djibouti for much of their exports. Somalia is plagued by violence and instability and Ethiopia and Eritrea have been in a border dispute for almost two decades.

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However, in April Ethiopia found itself with a new prime minister in Abiy Ahmed. He has since introduced sweeping transformations including releasing opposition and journalists and opening up the state-run economy. However, the reform that has received the most media attention has been his decision to concede the contested town of Badme to Eritrea ending the two decade border conflict. Ahmed honorably put his ego aside to create a new found friendship which could allow Ethiopia access to the Eritrean coastline further enhancing its opportunity to adopt a Chinese model and become an exporting powerhouse.

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Prime Minister Abiy Ahmed brings hope not only to these two nations but to the wider region which is suffering from severe instability. There will be many hurdles to overcome in the process, most notably the fact that it is likely that a small group within the Tigrayan People’s Liberation Front, a party within Abiy’s coalition would like him dead. He already survived an assassination attempt earlier this year, and this may be amongst the reasons why he is speeding up on the reforms. Furthermore, Dr Abiy has his hands full in handling the foreign currency crisis which sets only another barrier to creating a revamped economy.

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Abiy is doing his best to connect with the Ethiopian diaspora and to encourage them to come home, as that will bring back both capital and skills. Abiy certainly has a long list of objectives, however, one item I would like to see high up on his agenda, as soon as the fundamental political issues are solved, is the creation of an Ethiopian stock exchange. I do believe that a market for raising funds will spur on a huge wave of rapidly growing businesses in Africa’s second largest country. This is certainly a space to watch in the next five to ten years. Ultimately, only time will tell how this plays out, but the situation in the horn of Africa is certainly looking optimistic.


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