Manufacturers, including metal and garments factories, are struggling to stay afloat as importing raw material has become very difficult due to disruptions of global sourcing. while importers are reporting losses as they are forced to suspend business travels to major suppliers in China, which accounts for a quarter of Ethiopia’s imports.

Tourism, which had around 10% share of GDP in 2018,  accounted for nearly half of all the country”s export revenue, driven by Addis Ababa which is the diplomatic capital of Africa and Ethiopian Airlines. The airline has been a source of immense pride for Ethiopians as it’s rapidly expanded to become Africa’s biggest airline over the last decade.

But like airlines around the world Ethiopian has been hit significantly by the crisis and has already reported $550 million in lost revenue over the last two months and furloughed some workers and laid off others, as it begins to focus on cargo to sustain the business through this period. In 2019, it posted annual revenues of $4.2 billion.

Ethiopia's newly elected prime minister Abiy Ahmed attends a rally during his visit to Ambo in the Oromiya region, Ethiopia April 11, 2018.
Presiding over change.
Image: Reuters/Tiksa Negeri

An urgent appeal for food assistance has reached a record high of 30 million people, according to Ethiopia’s Planning Commission and the agricultural sector has been impacted due to locust invasion which has managed to destroy 350,000 metric tons of crops. The government expects the agriculture sector is also likely to lose $838 million.

“Beyond its impact of health, it is crashing our economy. Exports of goods, especially by horticulture producers and garments from industrial parks, is falling unprecedentedly, causing economic distress,” said Ahmed Shide, Ethiopia’s finance minister. “It has also a huge impact on government revenues and remittance flows.”

Though Ethiopia is one of a few Sub Saharan Africa countries believed to be more susceptible to the spread of coronavirus early on, so far, with just 162 cases it has one of the lowest confirmed case loads, especially relative to its population size.

But analysts warn the economic impact will be much worse because many smaller businesses are yet to lay off the majority of employees and the collapse of the all important informal sector could reverse years of progress in reducing poverty.

In the meantime, prime minister Abiy has started to trying to raise $2.1 billion from international lenders and bilateral partners. This week, Germany, one of the most visible allies of Ethiopia’s ambitious developmental goals extended $130 million to help salvage the economy and allow the government to extend tax initiatives to businesses hit by the pandemic.

Debt relief

Abiy has been one of the most strident voices among elected political leaders in Africa to call for wealthy countries to either forgive or delay debt payments through op-eds in international media or speeches. Its debt-to-GDP ratio  around 62% at the end of its fiscal year in June 2018 is about the Sub Saharan Africa average of around 60% in 2018.

But the IMF and World Bank are concerned about the “risky” composition of the debt because the share of external debt owed to bilateral official and private creditors is nearly 60%.  The World Bank also notes Ethiopia’s public external debt service is up to 25.3% of national exports, which is the highest debt service-to-exports in Sub Saharan Africa.

Last month the World Bank stepped in with an $82 million in anti-pandemic support and this week the IMF approved $411 million in emergency assistance and approved Ethiopia’s request for a suspension of debt service payments of about $12 million to the IMF. The funds will be used to support low-cost lending and rescheduling loans to businesses whose incomes have been severely affected, says Fikadu Digafe Huriso, chief economist of the National Bank of Ethiopia.

Banks are now working under tight liquidity position as non-performing loans mount due to the economic slowdown. Businesses, through their associations, have been calling on the government to push for the extension of their loans.

“It will be important to encourage spending by ensuring the supply of adequate liquidity to the financial system,” says Fikadu. “This measure has to be supplemented by adequate foreign exchange resources to revitalize both imports and exports.”

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