This is a great read. I like that fact that Ethiopia is not blindly following any outsider’s prescription, but actively seek the pragmatic solutions that work for now, and here. It’s also surprising for a major country like this, it has no direct land access. Do you think the tension with coastal neighbours will fuel armed conflicts in the future?
I am concerned by Abiy Ahmed's recent statements of using force to get port access. Right now Ethiopia mainly flows goods thru Djibouti and pays Djibouti $1.5B in port-fees... Ethiopia is short on foreign exchange so I am not sure how long the nation can tolerate this (or pay this).
In addition, when Abiy signed a peace deal with its neighbor Eritrea in 2018, Ethiopia was supposed to get tax free port access, but Eritrean Ruler Isaias never gave it to Ethiopia.
Ethiopia is trying to get tax free port access to Kenya, Sudan, Somalia, Djibouti, and Eritrea but no help so far... It is quite concerning tbh.
Just a follow up. Ethiopia got port access from Somaliland, in return Ethiopia had to sell shares of its state owned enterprises to Somaliland and acknowledge the government as sovereign.
This enraged the Somali government. Djibouti is also upset since it used to rake in $1B from giving Ethiopia port access. But this is better than the alternative of going to war with Eritrea. Hopefully this can be resolved diplomatically.
Somalia doesn't want to give up Somaliland. Somalia has 30B barrels of oil offshore and losing Somaliland means losing half of that. Somalia would rather fight a war than lose Somaliland.
Many African countries don't want to continue the precedent of secession. First Eritrea with Ethiopia, then South Sudan from Sudan.
Ghana doesn't want Western Togoland
Senegal doesn't want Casamance
Algeria doesn't want Kabyleland
Mali nor Niger wants Azawad
Angola doesn't want a seperate Cabinda
I could go on but African states typically don't want to open up more cans of worms especially if they have their own secessionist movements.
I think that Ethiopia can defeat Somalia in a war and thus force the Somalis to accept Somaliland’s secession, no? Similar to what India did with Pakistan in 1971 in forcing them to accept Bangladesh’s secession.
I get that African leaders don’t want to open this can of worms, but still, a lot of times whether a secessionist movement succeeds or fails depends on military force. If Ethiopian troops will be in Mogadishu, will Somalis still refuse to recognize Somaliland’s independence for the sake of Somaliland’s oil?
Seems like if Ethiopia was smarter, they'd have let Eritrea refuse to join Ethiopia in the first place in exchange for Eritrea giving up Assab to Ethiopia. Way too late now for such a deal, of course.
Well I wouldn't say stupid. Ethiopia was tired of the bloodshed, was bankrupt, and had insane rebellions in the 80s. When the Tigrays overthrew the communist Derg and took over Ethiopia, they wanted to shore up legitimacy with a new constitution. If they disrespected Eritrea's 99% vote for secession then it would have let to a longer, bloody war, that probably would have required a perennial occupation.
If your point is that they shouldn't have let separate provinces vote in the first place, I think that would have led to more rebellions.
Ideally, it would have been better for Ethiopia to have coastal access to the sea, but no Eritrean wants to be part of Ethiopia. Most Eritreans I know would take Isaias Afwerki anyday of the week because they are aware of what is happening in the Tigray, Amhara, and Oromo regions.
Right now, President Abiy Ahmed doesn't want any more secession, so he's willing to do whatever it takes to keep the country united.
I meant stupid in the immediate post-WWII time period, not in the early 1990s. Obviously when 99% of Eritrea’s population supports secession from Ethiopia in the early 1990s, keeping any part of Eritrea would not have been feasible for Ethiopia. But getting a small strip of Eritrea while allowing the rest of Eritrea to go its own way might have perhaps been doable in the late 1940s.
BTW, I would presume that any break up of Ethiopia would be very bad for the economy in that region, Yes?
Ah, if you are saying that Selassie should have just gotten some coastal access instead of all of Eritrea, that definitely would have helped. But hindsight is 2020.
In part 2, Selassie didn't just want Eritrea, he also wanted Somalia and Djibouti since they were all claimed by his Solomonic Empire since the medieval times.
He wasn't thinking about strategy for coastal access, he was thinking about reviving the glory of his monarchy.
A break up of Ethiopia would be catastrophic. Ethiopia, despite its wars is booming compared to most of Africa. Having Ethiopia become a Yugoslavia would be disastrous. Immediately Somalia would try to claim the Ogaden region of what's left over, and then Somalia would have its expansionist fervor again. Eritrea would also probably declare war on the Tigrays since Isaias hates them.
Would Eritrea try to outright conquer Tigray, simply turn Tigray into a puppet/client state, or simply make Tigray an abandoned wasteland?
And Yeah, I’m inclined to agree with you about national breakups. Yugoslavia’s breakup was very violent, as was British India’s. The USSR’s was mostly peaceful initially, but we are now getting a huge dose of delayed violence. Austria-Hungary’s breakup was also somewhat violent.
I suspect that the Somalis in Ogaden in Ethiopia live better than Somalis in rump Somalia do, no? Though I wonder how the Ogaden Somalis compare to the Somalis in Somaliland.
Somalia was interested in a national unification project, not only at Ethiopia’s expense, but also at Kenya’s expense (the Shifta War) in the 1960s, but Somalis never appear to have been anywhere near as good of nation-builders as, say, Germans or Italians were.
Not floating the currency is probably having a significant impact on manufacturing. The official exchange rate is half the black market rate. This means goods manufactured in Ethiopia are sold for 2x what they should be and manufacturing supplies imported into Ethiopia cost 2x what they should.
The difference goes into subsidizing imports, which then compete with Ethiopian manufacturers in the domestic market.
Black market rate as of Feb 29 is 118 Birr to 1 dollar while official is 56 Birr to 1 dollar.
Correct, Ethiopia's currency isn't competitive, and this is done to make imports cheap.
Ethiopia despite having better agricultural yields than most of Africa, still has room to increase food yields to reduce dependency on Wheat and Rice imports. If Ethiopia can push agriculture up more then it wouldn't have to care about food imports., Then it can start shifting to the Japan-Taiwan-South Korea-China-Vietnam-Bangladesh export model of purposely undervaluing your currency so firms have cheap loans and have cheap clothes and aircraft parts to sell more to global markets.
If Ethiopia can secure port access, Ethiopia can achieve even faster growth than it already does.
Hi Kyle, appreciate your posts! I believe I mentioned this when I spoke about Ethiopia's overvalued exchange rate.
The Official rate is stronger than the black market rate making it overvalued.
"Too High Exchange Rate: Export led manufacturing hasn’t come into fruition mainly due to their overvaluing exchange rate with the birr. Ethiopia still imports a lot of food & energy, so the government artificially makes the exchange rate strong to buy food and energy relatively affordably. But to have export led growth, you need a lower exchange rate to undercut firms from other countries. Ethiopia has a lot of exchange controls which make its currency overvalued so Ethiopia isn’t making billions of foreign currency from selling toys or clothes.
If you calculate the Real Effective Exchange Rate of the Ethiopian birr compared to the Bangladeshi Taka , or Vietnamese dong, you’ll find out that Ethiopia’s currency is relatively overvalued compared to the two currencies. This means that Bangladesh and Vietnam both have a competitive edge over Ethiopia for exporting goods by offering cheaper prices."
Even if you use the black market rate, Ethiopia reaches almost parity with Bangladesh, but is still weaker than Vietnam (which purposely devalues its currency to expand exports).
Do you think the Nile dam project is viable? How much will this help with household and industrial electrification if it is successful? Would it permit Ethiopia to cut fuel imports? Would this be important to Ethiopia's balance of payments? Kenya is a leader in geothermal power. Does Ethiopia have much geothermal power generation potential?
Where did he get that Ethiopia's energy consumption is 13 TwH? It says he is looking at Our World in Data but I am looking at the same source. It's says Ethiopia's energy consumption is 105 TwH... Bangladesh's is 499 TwH.
Also, My Ethiopian friends who work in Ethiopia would sharply disagree with you. Half the country doesn't even half access to electricity, and still Ethiopian demand still outstrips supply. Electricity is a problem in Ethiopia.
In 2021, Ethiopia's total electricity consumption 105 Twh. It's electricity supply is only 15.42 Twh.
Secondly,. building a Dam isn't just to provide electricity but also export electricity to neighboring countries. Exporting electricity would help Ethiopia gain more foreign currency. Ethiopia has a foreign exchange issue, hence why it defaulted in Christmas 2023.
In the paragraph after the export portfolio, I already wrote "Ethnic conflicts persist, notably in Tigray, Amhara, and Oromo regions. Disputes with Egypt over the Grand Ethiopian Renaissance Dam and security concerns with Somalia also persist."
I am happy to go more in depth on each of these conflicts in a separate article. The Dam will be in my Egypt series, the Somaliland port issue will be in the Somalia series, and I will go over the Tigray, Amhara, and Oromo conflicts when it is over.
I also have a quick blurb on Tigray in my Eritrea article:
This is a great read. I like that fact that Ethiopia is not blindly following any outsider’s prescription, but actively seek the pragmatic solutions that work for now, and here. It’s also surprising for a major country like this, it has no direct land access. Do you think the tension with coastal neighbours will fuel armed conflicts in the future?
I am concerned by Abiy Ahmed's recent statements of using force to get port access. Right now Ethiopia mainly flows goods thru Djibouti and pays Djibouti $1.5B in port-fees... Ethiopia is short on foreign exchange so I am not sure how long the nation can tolerate this (or pay this).
In addition, when Abiy signed a peace deal with its neighbor Eritrea in 2018, Ethiopia was supposed to get tax free port access, but Eritrean Ruler Isaias never gave it to Ethiopia.
Ethiopia is trying to get tax free port access to Kenya, Sudan, Somalia, Djibouti, and Eritrea but no help so far... It is quite concerning tbh.
https://www.economist.com/middle-east-and-africa/2023/11/02/ethiopias-prime-minister-wants-a-red-sea-harbour
Thank you. It’s indeed quite concerning. Sounds like a make or break point for this country’s future growth. Fingers crossed
Just a follow up. Ethiopia got port access from Somaliland, in return Ethiopia had to sell shares of its state owned enterprises to Somaliland and acknowledge the government as sovereign.
This enraged the Somali government. Djibouti is also upset since it used to rake in $1B from giving Ethiopia port access. But this is better than the alternative of going to war with Eritrea. Hopefully this can be resolved diplomatically.
https://www.aljazeera.com/features/2024/1/4/ambiguous-ethiopia-port-deal-fuels-uncertainty-over-somaliland-statehood
Given just how dysfunctional rump Somalia is, wouldn't recognizing the much more functional Somaliland actually make a lot of sense?
Somalia doesn't want to give up Somaliland. Somalia has 30B barrels of oil offshore and losing Somaliland means losing half of that. Somalia would rather fight a war than lose Somaliland.
Many African countries don't want to continue the precedent of secession. First Eritrea with Ethiopia, then South Sudan from Sudan.
Ghana doesn't want Western Togoland
Senegal doesn't want Casamance
Algeria doesn't want Kabyleland
Mali nor Niger wants Azawad
Angola doesn't want a seperate Cabinda
I could go on but African states typically don't want to open up more cans of worms especially if they have their own secessionist movements.
I think that Ethiopia can defeat Somalia in a war and thus force the Somalis to accept Somaliland’s secession, no? Similar to what India did with Pakistan in 1971 in forcing them to accept Bangladesh’s secession.
I get that African leaders don’t want to open this can of worms, but still, a lot of times whether a secessionist movement succeeds or fails depends on military force. If Ethiopian troops will be in Mogadishu, will Somalis still refuse to recognize Somaliland’s independence for the sake of Somaliland’s oil?
Sounds like a great idea!
Seems like if Ethiopia was smarter, they'd have let Eritrea refuse to join Ethiopia in the first place in exchange for Eritrea giving up Assab to Ethiopia. Way too late now for such a deal, of course.
Well I wouldn't say stupid. Ethiopia was tired of the bloodshed, was bankrupt, and had insane rebellions in the 80s. When the Tigrays overthrew the communist Derg and took over Ethiopia, they wanted to shore up legitimacy with a new constitution. If they disrespected Eritrea's 99% vote for secession then it would have let to a longer, bloody war, that probably would have required a perennial occupation.
If your point is that they shouldn't have let separate provinces vote in the first place, I think that would have led to more rebellions.
Ideally, it would have been better for Ethiopia to have coastal access to the sea, but no Eritrean wants to be part of Ethiopia. Most Eritreans I know would take Isaias Afwerki anyday of the week because they are aware of what is happening in the Tigray, Amhara, and Oromo regions.
Right now, President Abiy Ahmed doesn't want any more secession, so he's willing to do whatever it takes to keep the country united.
I meant stupid in the immediate post-WWII time period, not in the early 1990s. Obviously when 99% of Eritrea’s population supports secession from Ethiopia in the early 1990s, keeping any part of Eritrea would not have been feasible for Ethiopia. But getting a small strip of Eritrea while allowing the rest of Eritrea to go its own way might have perhaps been doable in the late 1940s.
BTW, I would presume that any break up of Ethiopia would be very bad for the economy in that region, Yes?
Ah, if you are saying that Selassie should have just gotten some coastal access instead of all of Eritrea, that definitely would have helped. But hindsight is 2020.
In part 2, Selassie didn't just want Eritrea, he also wanted Somalia and Djibouti since they were all claimed by his Solomonic Empire since the medieval times.
He wasn't thinking about strategy for coastal access, he was thinking about reviving the glory of his monarchy.
A break up of Ethiopia would be catastrophic. Ethiopia, despite its wars is booming compared to most of Africa. Having Ethiopia become a Yugoslavia would be disastrous. Immediately Somalia would try to claim the Ogaden region of what's left over, and then Somalia would have its expansionist fervor again. Eritrea would also probably declare war on the Tigrays since Isaias hates them.
Would Eritrea try to outright conquer Tigray, simply turn Tigray into a puppet/client state, or simply make Tigray an abandoned wasteland?
And Yeah, I’m inclined to agree with you about national breakups. Yugoslavia’s breakup was very violent, as was British India’s. The USSR’s was mostly peaceful initially, but we are now getting a huge dose of delayed violence. Austria-Hungary’s breakup was also somewhat violent.
I suspect that the Somalis in Ogaden in Ethiopia live better than Somalis in rump Somalia do, no? Though I wonder how the Ogaden Somalis compare to the Somalis in Somaliland.
Somalia was interested in a national unification project, not only at Ethiopia’s expense, but also at Kenya’s expense (the Shifta War) in the 1960s, but Somalis never appear to have been anywhere near as good of nation-builders as, say, Germans or Italians were.
Not floating the currency is probably having a significant impact on manufacturing. The official exchange rate is half the black market rate. This means goods manufactured in Ethiopia are sold for 2x what they should be and manufacturing supplies imported into Ethiopia cost 2x what they should.
The difference goes into subsidizing imports, which then compete with Ethiopian manufacturers in the domestic market.
Spot on:
https://ethioblackmarket.com
Black market rate as of Feb 29 is 118 Birr to 1 dollar while official is 56 Birr to 1 dollar.
Correct, Ethiopia's currency isn't competitive, and this is done to make imports cheap.
Ethiopia despite having better agricultural yields than most of Africa, still has room to increase food yields to reduce dependency on Wheat and Rice imports. If Ethiopia can push agriculture up more then it wouldn't have to care about food imports., Then it can start shifting to the Japan-Taiwan-South Korea-China-Vietnam-Bangladesh export model of purposely undervaluing your currency so firms have cheap loans and have cheap clothes and aircraft parts to sell more to global markets.
If Ethiopia can secure port access, Ethiopia can achieve even faster growth than it already does.
For those who want to get the black market rate for the last 2 years instead of the last 2 weeks I made this. Feedback welcome
https://docs.google.com/spreadsheets/d/1X53rcRhCwYrMW7M2a8007pe4iJhR6LjW_F-ZpXzYolo/edit#gid=353542580
What odds would you place on Ethiopia ever breaking up in the future?
"55 birr to USD in 2023"
The blackmarket rate was about 100 at this time. I think we should be using the real market rate rather than the government rate. What do you think?
I made this black market tracker here: https://docs.google.com/spreadsheets/d/1X53rcRhCwYrMW7M2a8007pe4iJhR6LjW_F-ZpXzYolo/edit#gid=353542580
Hi Kyle, appreciate your posts! I believe I mentioned this when I spoke about Ethiopia's overvalued exchange rate.
The Official rate is stronger than the black market rate making it overvalued.
"Too High Exchange Rate: Export led manufacturing hasn’t come into fruition mainly due to their overvaluing exchange rate with the birr. Ethiopia still imports a lot of food & energy, so the government artificially makes the exchange rate strong to buy food and energy relatively affordably. But to have export led growth, you need a lower exchange rate to undercut firms from other countries. Ethiopia has a lot of exchange controls which make its currency overvalued so Ethiopia isn’t making billions of foreign currency from selling toys or clothes.
If you calculate the Real Effective Exchange Rate of the Ethiopian birr compared to the Bangladeshi Taka , or Vietnamese dong, you’ll find out that Ethiopia’s currency is relatively overvalued compared to the two currencies. This means that Bangladesh and Vietnam both have a competitive edge over Ethiopia for exporting goods by offering cheaper prices."
Even if you use the black market rate, Ethiopia reaches almost parity with Bangladesh, but is still weaker than Vietnam (which purposely devalues its currency to expand exports).
Do you think the Nile dam project is viable? How much will this help with household and industrial electrification if it is successful? Would it permit Ethiopia to cut fuel imports? Would this be important to Ethiopia's balance of payments? Kenya is a leader in geothermal power. Does Ethiopia have much geothermal power generation potential?
@toddmoss has a great article on this. Cheap Ethiopian power increasingly used for bitcoin mining. https://toddmoss.substack.com/p/hype-go-up
My argument is that adding a dam wouldn't help. Africa's energy problem is not that there's not enough supply but that there's not enough demand.
I'm going to have to sharply disagree here.
Where did he get that Ethiopia's energy consumption is 13 TwH? It says he is looking at Our World in Data but I am looking at the same source. It's says Ethiopia's energy consumption is 105 TwH... Bangladesh's is 499 TwH.
Also, My Ethiopian friends who work in Ethiopia would sharply disagree with you. Half the country doesn't even half access to electricity, and still Ethiopian demand still outstrips supply. Electricity is a problem in Ethiopia.
In 2021, Ethiopia's total electricity consumption 105 Twh. It's electricity supply is only 15.42 Twh.
https://ourworldindata.org/energy/country/ethiopia
Secondly,. building a Dam isn't just to provide electricity but also export electricity to neighboring countries. Exporting electricity would help Ethiopia gain more foreign currency. Ethiopia has a foreign exchange issue, hence why it defaulted in Christmas 2023.
What about internal violence / security?
In the paragraph after the export portfolio, I already wrote "Ethnic conflicts persist, notably in Tigray, Amhara, and Oromo regions. Disputes with Egypt over the Grand Ethiopian Renaissance Dam and security concerns with Somalia also persist."
I am happy to go more in depth on each of these conflicts in a separate article. The Dam will be in my Egypt series, the Somaliland port issue will be in the Somalia series, and I will go over the Tigray, Amhara, and Oromo conflicts when it is over.
I also have a quick blurb on Tigray in my Eritrea article:
https://yawboadu.substack.com/p/a-quick-read-on-eritrea