The Challenge for Ethiopia’s New Leader: Unleash the Economy

Ethiopia’s new leader faces a critical decision on whether to open up parts of the Horn of Africa nation’s booming economy after making moves to reduce the stake of the military, former Prime Minister Hailemariam Desalegn said.

Premier Abiy Ahmed inherited what the International Monetary Fund ranks as Africa’s fastest-growing economy when he took office in early April. But he also confronts the biggest challenges to the ruling coalition’s power in a quarter-century as sporadic unrest against its authoritarian rule and inter-communal violence threaten the federal structure of Ethiopia, a U.S. ally in its battle against Islamist militants in the region.

Photographer: Zacharias Abubeker/AFP via Getty Images

Hailemariam said he last year introduced a proposal to the ruling coalition’s 180-member decision-making council to partially liberalize all but the financial sector of the economy, including the state telecommunications monopoly EthioTelecom.

While the debate isn’t finished, Hailemariam said he’s laid the foundations for partial liberalization. “I am sure Abiy is going to complete it,” he said in an interview in the capital, Addis Ababa.

Military Role

Hailemariam quit as prime minister in February after failing to end protests in the Amhara and Oromia regions that began almost three years ago amid demands for the state-planned economy to provide greater inclusiveness. Abiy has already made some cuts to the role of Ethiopia’s military — one of Africa’s largest — in the economy. The army has been involved in projects including the $6.4 billion Grand Ethiopian Renaissance Dam.

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Photographer: Michael Nagle/Bloomberg

Abiy took office three months after Hailemariam appointed Deputy Prime Minister Demeke Mekonnen as chairman of the military-industrial conglomerate Metals & Engineering Corp. Since then, Metec has had a key sugar project contract canceled and a deal to build a fertilizer complex is under review.

Only the country’s second head of state since the then-rebel Ethiopian People’s Revolutionary Democratic Front seized control in 1991, Hailemariam’s six-year reign saw foreign direct investment surge from less than $1 billion to more than $4 billion, mostly in manufacturing. PVH Corp., the parent company of Tommy Hilfiger and Calvin Klein, and China’s Huajian Group have factories in Ethiopia.

Corners of Opposition

The earlier, closely guarded discussions on liberalization were met positively by the majority, “but there are some corners who somehow oppose it,” Hailemariam said. “In the majority, I hope they will endorse it.”

An worker sorts cut roses in a flower factory in Ziway.

Photographer: William Davison/Bloomberg

Abiy’s term began halfway through Ethiopia’s five-year Growth and Transformation Plan, which emphasizes large-scale infrastructure and export-focused manufacturing. He’ll have an opportunity to address unspecified “imbalances” during an interim evaluation, Hailemariam said.

Abiy will have a “very deep influence” on the next plan to be implemented from 2020, though “a big directional shift” is unlikely because “you don’t fix something which is not broken,” he said.

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