Ethiopia on the Brink: The Politics of Abundance in an Economy of Scarcity 

March 20, 2026

Yonas Biru, PhD¹ 

Abstract 

The problem in Ethiopia’s economy stems from PM Abiy’s philosophy of economic abundance, which assumes  that  resource  constraints  can  be  overcome  through  positive  thinking,  ambition,  and  state-led  mobilization  rather than disciplined prioritization. This philosophy manifests itself in four patterns: !irst, the simultaneous  pursuit  of  multiple  capital-intensive  mega-projects  despite  limited  resources;  second,  poor  prioritization  in  policy decisions; third, the allocation of resources toward recurrent expenditure at the expense of productive  capital investment; and fourth, the ambition to leapfrog from a largely agrarian base to urban focused and a  digital,  service-led economy without First  building  the  necessary foundations. This  approach  stands in  sharp  contrast to the economics of scarcity, which has underpinned successful development strategies over the last  three centuries through sequencing, prioritization, and resource discipline. 

This  paper  argues  that  the  country’s  core  challenge  is  a  misalignment  between  political  ambition  and  the  nation’s scarce resource base, as well as the institutional foundations required to sustain it. Compounding this  is  a  constitutional  crisis:  Ethiopia’s economic  trajectory is  shaped  by  the  PM’s  discretion, in  deFiance  of  the  constitutional order that empowers the legislative branch with oversight authority. The absence of protected  property  rights  represents  another foundational fault line,  shifting  the nexus  of  competition from  economic  productivity to political access. These dynamics render conFlict and instability endogenous to the structure of  economic governance. 

The analysis is organized around four diagnostic pillars. First, misallocation: resources have been diverted  from agriculture and industry toward speculative construction and mega-projects, undermining the productive  base and contributing  to a shrinking middle class. Second, institutional weakness:  the erosion of property  rights  and  the marginalization  of constitutional checks  and  balances foster  political entrepreneurship while  crowding out genuine productive enterprise. Third, macroeconomic constraint: foreign exchange shortages,  Fiscal strain, and the state-owned enterprise–bank–sovereign nexus increasingly constrict policy space. Fourth, rising debt burdens and the nation’s inability  to service international loans have prompted the world’s most  reputable global creditworthiness rating agencies to classify the country “junk.” 

Drawing on comparative experiences from China, Vietnam, and South Korea and integrating macroeconomic  data with micro-level evidence the analysis moves beyond surface indicators to diagnose deeper structural and  institutional fault  lines. It  goes further  and  presents  a  counterfactual  analysis. The  question is: What if  the  resources  the  government  spent  on  corridor  development  had  been  directed  elsewhere—toward  expanding  electric  transmission  and  scaling  irrigation  through  electrically  powered  pumping  systems?  This  is  not  a  speculative exercise. Ethiopia’s own data provides a clear answer: Irrigated farmlands and powerlines, not the  corridors, hold the key to Ethiopia’s future. 

The  article  concludes: Ethiopia’s  choice  is  not  between  ambition  and  prudence,  but  between  continuing  a  politically driven momentum model and transitioning toward a strategy grounded in productivity, anchored in  a suitable institutional framework, and capable of maintaining solvency in its external accounts. The stakes are  nothing less than whether Ethiopia’s ambition proves its salvation or its undoing. 

¹ Prepared with ChatGPT and DeepSeek research and editing aid

I.  Introduction 

Ethiopia’s economic performance is a study in contradiction—reminiscent of the ancient Indian parable  of  the  blind  men  and  the  elephant.  Each  man,  touching  a  different  part  of  the  beast,  described  a  completely  different  animal:  one  believed  the  leg  was  a  tree,  another  argued it  was  a  wall,  and  yet  another, who touched the tusk, insisted it was a smooth, slippery rock. 

Depending  on  where  one  looks,  and  how  deeply  one  probes,  the  Ethiopian  economy  reveals  vastly  different “truths.” Consider two superficial ways of seeing it. One is to gaze at the new skyline of Addis  Ababa. Some see it as an awe-inspiring transformation; others, whose properties were confiscated and  homes  demolished  without  compensation,  see  it  as  a  monument  to  property  rights  violations  and  injustice.  Another is  to listen  to  the  Prime Minister,  who  narrates  a  story  of  “Ethiopia  on  the  Rise,”  complete with a “Digital Ethiopia 2030” strategy that promises to leapfrog the country from a largely  agrarian economy to a high-tech, service-oriented nation. 

But there is a third way: to examine the nuts, bolts, and load-bearing pillars of the economy itself. What  this inspection reveals is not a robust structure, but one stuck in a low-equilibrium trap, or worse, a  system fraught with fault lines and deep structural cracks. Contrary to the government’s rosy narrative,  a palpable risk exists that a confluence of pressures along these fractures could bring the entire edifice  to the brink of collapse. The following data reveal a concerning downward trajectory. 

           Ethiopia: Key Development Indicators On PM Abiy’s Watch (2018-2025) 

Year	Manufacturing    (% of GDP)	Gov. Education  Expenditure        (% of GDP)	Health  Expenditure      (% of GDP)	Multidimensional  Poverty                       (% of population)	Foreign Direct  Investment (FDI)    (% of GDP)	Expenditure on  Agriculture as %  of Government  Expenditure
2015-2017	6.5	5.8	3.62	65	5.2	6.5
2018	5.9	5.2	3.30	67	4.0	6.0
2022	4.8	3.7	2.85	71	3.0	4.5
2025	4.4	2.3	3.00	72	2.7	3.0

  Source: World Bank, WHO and Cepheuscapital.com 

The  [irst  row  of  the  table  shows  the  average  for  2015,  2016,  and  2017—three  years  before  Prime  Minister Abiy took of[ice. The economic situation has deteriorated across every variable beginning in  2018. Government expenditure on education, which averaged 5.8% of GDP in the three years prior to  2018, has fallen to 2.3% in 2025. A nation where education funding is declining precipitously, and where  over  90%  of  high  school  students  fail  the  national  exam  required  to  advance  to  university,  cannot  credibly  speak of  building a digital economy. Meanwhile, manufacturing’s  share  of GDP  has dropped  from an average of 6.5% before 2018 to 4.4% in 2025, re[lecting a weakening of the industrial sector. 

Further, the population living under multidimensional poverty increased from 65% before 2018, to 72% in 2025. Meanwhile, the nation spent billions to beautify its cities and used its meager resources to build  a palace with its own satellite city at an estimated cost of over $15 billion—complete with a waterfall, 

arti[icial lakes, a zoo, and luxury villas. This is not economic transformation. It is the cannibalization of  productive sectors in favor of show-and-tell urban grandeur.  

On the government’s capacity side, the proclamation of transforming Ethiopia into a digital economy  falters when confronted with the government’s 2025/2026 budget. One of the most striking features  of  the  budget is  the  consequential  shift  from  developmental  spending  to  survival  spending.  This is  re[lected in the declining share of capital expenditure and the rapid growth of recurrent spending. 

At the peak of Ethiopia’s investment-led development model, public spending was heavily tilted toward  capital formation. According to the World Bank, capital expenditure accounted for about 59.3 percent  of total government spending in 2013/14, underscoring the dominance of infrastructure investment .  IMF  data  for  the  same  period  corroborate  this  pattern,  showing  capital  spending at  roughly 10–11  percent  of GDP  compared  to about  7–8  percent  for  recurrent expenditure. Together,  these  sources  confirm that the early–mid 2010s marked the high point of Ethiopia’s state-led investment push. This  allocation pattern was broadly consistent with the budget priorities of China, Vietnam, and South Korea  during their early stages of development. 

Things  change  rapidly  after  PM  Aby  took  power.  In  2025/26  [iscal  year,  recurrent  expenditure  constitutes 61.4% of the national budget, while capital expenditure stands at 21.5%, making recurrent  spending  nearly  three  times  larger  than  developmental  investment.  This  re[lects  mounting  [iscal  pressures, including rising war costs, growing debt, persistent in[lation, and the [iscal consequences of  steep exchange rate devaluation. 

The economic strain is visible in the government’s resource for Sustainable Development Goals (SDGs)  amount to only Birr 14 billion, or 0.1% percent of the budget. In a country with enormous development  needs, such a low commitment  to SDGs is deeply concerning because it signals a gradual erosion of  Ethiopia’s long-term development capacity. 

Simply put, the budget arithmetic does not support the government’s optimistic claims. What emerges  instead is the Prime Minister’s impulsive strategy, shifting from one show-and-tell priority to another— from skyline megaprojects to the rhetoric of a digital economy. Yet both visions remain fundamentally  misaligned with the underlying structure and operational realities of the economy. 

It is not without reason that the 2025 joint IMF–World Bank Debt Sustainability Analysis warned that  Ethiopia  faces severe economic, political, and humanitarian challenges alongside unsustainable debt  levels—conditions  that  underscore  the  country’s  mounting  macroeconomic  fragility.  In  a  separate  report, the IMF noted that “key downside risks include security risks and social unrest.” 

The Ethiopian government is aware of the mounting economic stress that has limited its tax base. Yet,  instead of addressing it, it has increasingly resorted to predatory and extra-legal methods of revenue  extraction. It is leasing the same land to multiple parties. As reported in the March 15, 2026, issue of  Capital News, the Oromo regional government passed a law requiring legitimate land leaseholders to renegotiate their contracts under far higher terms than originally agreed. Authorities have threatened  con[iscation and auction of properties if owners refuse to comply. 

In the meantime, the Prime Minister falsely propagates “industrialization and productivity-led growth,  human capital development, and agricultural modernization and rural transformation” as his economic  priority agenda. The government’s mantra  that  “if  you can imagine it,  you can make it happen” has  gradually given way to a Ponzi-like economic narrative: “if you can imagine it, you can fake it.” 

The economic fault lines, cracks, and declining trends in key areas are embedded in the foundational  philosophy of  the Prime Minister’s development paradigm,  the operational architecture and guiding  principles of his policies, and most consequentially, his disregard of the constitutional order. The seeds  of  con[lict  between  the  government’s  optimistic  narrative  and  the  sobering hard  reality  re[lect  the  politics of positive thinking about abundance colliding with the stark realities of scarcity. It is to this  conundrum that I now turn. 

II.  Flawed Developmental Philosophy and Misguided Policy Framework 

History  offers  abundant  lessons  from  countries  that  have  achieved  economic  prosperity,  political  stability, and sustained peace. There are equally many examples of nations whose pursuit of such goals  remains as elusive as a desert mirage. The divergence between successful and struggling economies is  rarely accidental. It reflects the economic philosophies that guide policy, and the choices governments  make in allocating scarce resources and setting development priorities. 

For  more  than  three  centuries,  modern  economic  thought  has  been  grounded  in  the  principle  of  resource  scarcity.  The  means  of  production,  human  and  physical  capital,  technology,  and  natural  resources, are limited, while human wants are virtually unlimited. This reality forces governments to  develop  policies  that  encourage  efficient  allocation  of  economic  resources  in  both  the  public  and  private sectors. 

Development  policies,  therefore,  revolve  around  prioritization,  trade-offs,  and  the  sequencing  of  investment.  This  discipline  guided  many  of  the  most  successful  development  experiences  of  the  nineteenth  and  twentieth  centuries,  including  those  of  China,  South  Korea,  Singapore,  and  more  recently Vietnam and India. 

In  contrast,  Ethiopia’s  current  economic  discourse  often  treats  scarcity  as  a  psychological  barrier  rather than a structural constraint. Influenced partly by narratives of positive thinking and prosperity  theology,  this  perspective  suggests  that  imagination  and  belief  can  unlock  dormant  national  capabilities.  Within  this  framework,  scarcity-based  thinking  is  portrayed  as  an  obstacle  to  bold  development ambitions and lack of faith in the power of the Almighty.

III.  The Imperative Comparative 

Economic development can be compared to the growth patterns of two very different trees: the oak  and the eucalyptus. The oak grows slowly, patiently building deep and resilient roots before rising to  great heights. For years its progress is modest, sometimes barely noticeable. Yet over time it becomes  tall, with wide and dense branches, strong, stable, and enduring. 

The eucalyptus, by contrast, grows rapidly and reaches impressive heights in a short period. But its  roots  are  shallow, and its  branches  are  sparce.  It consumes  enormous  amounts  of  water,  and  the  ecosystem around it  often  struggles  to  survive. What appears  spectacular in  the  short  term  proves fragile in the long run. 

Successful  economies  tend  to  grow  like  oaks,  gradually  building  strong  foundations.  Fragile  development  strategies  often  resemble  the  rapid  but  unsustainable  growth  of  eucalyptus.  In  such  environments, the best-case scenario is stagnation; the worst case is deterioration or even collapse. 

This  essay  examines  the  tension  between  two  different  development  paradigms:  the  discipline  of  scarcity-based  economic  policy  and  the  politics  of  abundance  that  promises  rapid  transformation  through vision and ambition while bypassing the slow and grinding process of wealth creation. 

Obviously,  there  is  nothing  inherently  wrong  with  having  a  bold  economic  vision.  The  issue  in  contention  is  whether  the  vision  is  supported  with  robust  policy  grounded  in  reality  or  guided  by  delusional imagination divorced from the constraints of economic scarcity.  

When China launched its economic reforms in 1978 under Deng Xiaoping, it was still a predominantly  agrarian  society.  Its  leadership  adopted  a  bold  vision  to  transform  the  country  into  the  world’s  manufacturing hub.  

China’s  sequencing  began  with  agricultural  reform  after  1978,  freeing  labor  for  industry.  Special  Economic  Zones  attracted  foreign  investment,  export  manufacturing  expanded.  In  1978,  China  accounted for roughly 2–3 percent of global manufacturing value added. By the time it joined the World  Trade Organization in 2001, it had already built the foundation of the largest manufacturing sector in  the world. Today, China accounts for roughly 29–30 percent of global manufacturing output.  

Vietnam’s  Đopi  Mới reforms,  launched  in  1986,  provide  another  clear  example  of  scarcity-driven  development rooted in careful sequencing. After decades of war and central planning, Vietnam faced  severe  food  shortages,  in[lation,  and  economic  isolation.  The  [irst  phase  of  reform  focused  on  agriculture. Agricultural productivity rose rapidly,  transforming Vietnam  from a  food-de[icit country  into  one  of  the  world’s  largest  rice  exporters  within  a  decade.  Rising  rural  incomes  also  created  domestic demand and released surplus labor for industrial employment.

The second phase concentrated on export-oriented manufacturing. Beginning in the 1990s, Vietnam  established export processing zones, liberalized foreign investment rules, and integrated gradually into  global  trade networks. Foreign manufacturers, particularly  from East Asia, relocated labor-intensive  production to Vietnam, taking advantage of competitive wages and a stable policy environment. 

A third stage followed in the 2000s and 2010s as Vietnam invested heavily in infrastructure, logistics,  and  industrial  zones  while  negotiating  a  series  of  major  trade  agreements.  Global  [irms  expanded  production in electronics, garments, footwear, and furniture.  

The transformation illustrates how disciplined policy sequencing can convert scarcity into sustained  economic growth. Today, manufacturing accounts  for 24-25% of its GDP, representing 85-90% of its  $370 billion annual export revenue.  

What  separates  Ethiopia  from  China and  Vietnam  is  not  a  difference  in  ambition.  Rather,  it  is  its  economic policy that is guided not by experts but by self-anointed evangelical prophets who see God as  their econometrician and believe “if you can imagine it, God can make it happen.” 

I have seen  this dynamic  [irsthand.  In early 2021,  I served brie[ly as  the interim chair  of  the Prime  Minister’s economic advisory council. I resigned after [ive months. The council formally still exists, but  the prime minister has never convened it.  In contrast, his of[ice is open to a stream of self-anointed  evangelical prophets and spiritual advisers who claim divine insight into national affairs.  

III.1. It Is the Middle Class, Stupid! 

A  strong middle  class is  a  central  pillar  of  a  stable  and  growing  economy,  both  as  a  driver  and  an  outcome of development. The middle class matters because it is the engine of consumption. Its demand  supports  business  expansion  and  job  creation.  It  is  also  the  primary  source  of  human  capital,  entrepreneurship, innovation, and productivity. 

Equally important, the middle class plays a critical role in strengthening the rule of law, property rights,  and accountable governance, which are essential  for long-term economic development and political  stability.  A  broad  middle  class  also  generates  a  reliable  tax  base,  enabling  governments  to  finance  infrastructure, education, and social services that sustain economic growth. 

In  successful  late-industrializing  economies,  the  expansion  of  the  middle  class  preceded  large  construction  booms  and  technological  advancement.  In  China,  large-scale  urban  construction  and  major  technological innovation  did  not  take  off  until  the early  2000s and  2010s,  respectively, after  more than two decades of rapid income growth had begun to create a broad urban middle class capable  of sustaining housing markets and consumer demand. 

Similarly,  in  South  Korea  and  Vietnam,  the  rise  of  the  middle  class  preceded  large-scale  urban  construction booms. Rising incomes created the demand necessary to support real estate expansion.

The  Ethiopian  experience  shows  signs  of  the  opposite  trajectory.  Instead  of  expanding,  several  indicators suggest  that  the economic  foundations of  the middle class are weakening. Manufacturing (historically  the largest generator of stable urban middle-class employment) has declined in  recent  years. Government expenditure on education, the primary engine of upward mobility and knowledge based  development,  has  also  fallen  sharply.  Foreign  direct  investment,  which  often  introduces  technology, managerial skills, and higher-paying jobs, has likewise declined as a share of GDP. 

In Ethiopia, while large-scale condominium programs and urban construction projects have expanded  rapidly,  the  middle  class  that  would  typically  sustain  such  growth  has  been  shrinking.  Persistent  inflation,  stagnant  wages,  and  limited  private-sector  expansion  have  pushed  much  of  the  nascent  middle class toward poverty. 

Highly  educated  professionals  illustrate  the  problem.  In  most  countries,  occupations  such  as  physicians,  university  professors,  and  teachers  are  firmly  within  the  middle  class.  They  possess  advanced education, earn salaries above national averages, and enjoy stability to cover housing, food,  healthcare, and education for their families. In Ethiopia, however, the situation is different. 

Medical doctors often earn only $70–$100 per month, struggling to cover basic living costs in urban  centers. University professors face similarly low salaries that barely keep pace with inflation and rising  housing  costs.  Teachers,  despite  their  professional  training  and  responsibilities,  earn  wages  insufficient to cover basic daily needs, so much so that in some schools they receive meals alongside  their students during the school day. 

Ethiopia’s vanity projects and technological ambitions are therefore running far ahead of middle-class  income growth, creating the appearance of progress while masking a deeper erosion of the productive  foundations of the economy. Historically, no country that has shrunk the middle class and fostered a  political entrepreneurial oligarchy network has ever developed. Ethiopia will not be the first. 

III.2. Ethiopia Consuming its Future on the Altar of Today 

Ethiopia’s  economic  growth is  frequently  described  as  rapid  or  transformational.  Yet  a  closer look  reveals a  fundamental structural constraint: the country’s  fiscal composition and industrial capacity  are not aligned to support a genuine takeoff. Nearly three-quarters of public spending is absorbed by  recurrent costs, leaving only about a quarter for capital investment. This includes the federal recurrent  budget (~61%) and regional transfers (~16% of total expenditure), of which roughly 80% is spent on  wages  for  teachers,  health  workers,  and  local  administration.  After  accounting  for  this,  effective  recurrent and capital expenditures account for 74% and 24%, respectively, of total public expenditure. 

Comparisons with historical takeoff economies illustrate the challenge. China in the 1990s allocated an  average of 62% of government expenditure to recurrent costs and 38% to capital. South Korea, during  its  1960s–1980s  industrialization,  maintained  ~65%  recurrent  and  ~35%  capital  allocation.  Importantly, these countries combined a more balanced fiscal structure with an already larger, more export-oriented industrial base, enabling them to channel public and private resources effectively into  productive investment. 

Importantly, Ethiopia’s industrial  sector is  far  smaller  than  those  of  China  or  Vietnam  during  their  respective  takeoff  periods,  In  current  Ethiopia,  manufacturing  accounts  for  only  ~10%  of  GDP,  compared with ~30–35% for China in the 1990s and ~18–20% for Vietnam in the 2000s. 

Education spending, a critical pillar of human capital, also highlights structural constraints. Ethiopia  allocates  roughly 2–3%  of GDP. In contrast, Vietnam invested 4–5%  of GDP in education during its  takeoff phase, while China steadily rose toward ~4% of GDP. Importantly, in Ethiopia, the recurrent heavy  education  budget  is  largely  absorbed  by  teacher  wages,  leaving  limited  resources  for infrastructure,  vocational  training,  or  quality  improvements  that  could  support  industrial  development. 

These numbers illustrate a central point: Ethiopia’s per-capita income may resemble early China or  Vietnam, but its industrial base lags  far behind, limiting the effectiveness of both public and private  investment. Even if Ethiopia were to match takeoff-era investment ratios, the lack of manufacturing  capacity and export-oriented production reduces the likelihood of translating spending into sustained  structural transformation. 

In short, Ethiopia’s fiscal and structural configuration remains heavily skewed toward consumption,  with a small industrial sector and limited private investment. The Ethiopian government argues that  the present generation must sacrifice to spur development for the next. The truth is that Ethiopia is  spending its meager resources on vanity projects to feed the egocentric caprice of its Prime Minister. If  the  country  fails  to  reorient  its  priorities—by  expanding  productive  capacity,  fostering  industrial  clusters,  and  scaling  export-oriented manufacturing—it  risks  replicating  the  appearance  of  growth  without achieving the productivity gains and structural transformation that define a genuine economic  takeoff. 

III.3. Diaspora Investment: Squandered Capital and Government Theft  

A striking feature of Ethiopia’s recent development pattern is the misallocation of diaspora capital. In  many  successful  economies,  diaspora  investors  have  played  a  pivotal  role  in  financing  productive  sectors,  generating  exports,  creating  jobs,  and  fostering  technological  learning.  Acting  as  bridges  between  domestic  economies  and  global  production  networks,  they  have  often  been  catalysts  for  economic transformation. 

The diaspora of China, for instance, played a decisive role in the country’s industrial takeoff. During the  1980s and 1990s, overseas Chinese investors from Hong Kong, Singapore, and Southeast Asia financed  thousands of  factories. An estimated 60–70 percent of China’s early  foreign direct investment came  from diaspora investors, helping build the export-oriented manufacturing clusters that powered the  country’s growth.

Similarly, the diaspora of India played a central role in building the country’s technology and startup  ecosystem. Professionals in the United States financed and mentored startups, while returnees helped  establish  venture  capital  firms  and  technology  companies  that  helped  transform  Bangalore  into  a  global information technology hub. 

In  Ethiopia,  however,  diaspora  investment  has  largely  bypassed  such  productive  sectors,  flowing  instead  into  urban  real  estate,  focusing  on  high-rise  apartments,  condominiums,  and  prestige  construction projects. This pattern did not emerge purely from market forces; it has been shaped by  government policies that encourage diaspora participation in highly visible construction initiatives. 

Diaspora  investors  who  financed  condominium  developments  and  urban  property  with  dollars  or  euros  have  often  seen  their  returns  eroded  by  repeated  currency  devaluations  and  cumulative  inflation. 

In many cases, divestment is not a practical option. Capital-gains taxes on property sales, transfer fees,  and  stringent  foreign-exchange  controls  significantly  reduce  the  recoverable  value  of  these  investments. Even when assets are sold, converting the proceeds into sharply appreciated dollars or  euros and repatriating the funds is both costly and heavily regulated. In this sense, Ethiopia’s diaspora  capital has not been mobilized  for structural  transformation but squandered in construction-driven  vanity  projects. Diaspora  investment  was  actually  government  theft  through  exorbitant  tax  and  currency devaluation.  

Let us examine what the rate of return for a typical diaspora investment in Ethiopian real estate looks  like. Assume you purchased a condominium in Ethiopia in January 2019 for 2,000,000 birr. At the time,  the official exchange rate was approximately 28.53 birr per US dollar, while the parallel (black-market)  rate was roughly 37 birr per dollar. Because many diaspora investors obtain birr through the parallel  market, let us assume that rate applies. At 37 birr per dollar, purchasing the condominium required approximately $54,054. 

Now assume that today the condominium can be sold for 8,000,000 birr. On paper, this appears to be  an excellent investment: the property price has quadrupled in nominal birr terms. However, selling the  property involves several taxes and transaction costs. The combined burden of capital-gains tax, stamp  duty, and other transaction charges amounts to roughly 36 percent of the sale price. This would equal  2,880,000 birr in taxes and fees. 

After taxes, you would receive 5,120,000 birr. The next step is converting this amount back into US  dollars to repatriate it. Assume the effective exchange rate available in the market today is roughly 155  birr  per  dollar. Converting  the  proceeds  yields approximately  $33,032.  Compared with  the  original  investment of $54,054, you incur a loss of about $21,022 (approximately –39 percent). 

For comparison, consider what would have happened if the same $54,054 had been invested in a broad  U.S. stock market index such as the S&P 500 at the beginning of 2019 and left invested until today. Over that  period, including  dividends,  the index  roughly  doubled.  The investment  would  therefore  have  grown  to approximately $115,000–$125,000 before  taxes. Even after paying U.S. capital-gains  taxes (typically 15–20 percent on long-term gains) the investor would still retain roughly $100,000 or more. 

III.4. Macro Bias, Micro Consequences: The Toll on Private Enterprise 

The  macroeconomic  distortions  documented  in  the  preceding  sections  are  not  abstract  statistical  phenomena.  They  translate into  tangible  consequences  for  the individuals  and  firms  that  form  the  bedrock of a functioning private sector. The bias against productive enterprise embedded in Ethiopia’s  economic governance manifests most visibly at the micro level: in the experiences of diaspora investors  who return with capital and hope only to flee with losses; in the collapse of startups that could have  grown into regional competitors; and in the impoverishment of professionals whose labor should be  the nation’s greatest asset. This section traces the transmission mechanism from macro bias to micro  reality, documenting the toll on those who dare to build. 

The  government’s  fixation  on  construction  and  corridor  development  is  not  merely  a  misguided  priority; it actively undermines private-sector growth. By funneling scarce foreign exchange, financing,  and  bureaucratic  support into  high-profile  real  estate  and infrastructure  projects,  the  state  diverts  resources  from  manufacturing,  agro-processing,  and  technology  ventures—the  very  sectors  that  generate jobs, exports, and long-term industrial capacity. The opportunity cost is borne not by the state  but  by  the  entrepreneurs  and  investors  who  find  themselves  competing  for  resources  against  a  government that simultaneously acts as regulator, competitor, and gatekeeper. 

Several  cases  illustrate  this  pattern.  The  founder  of  Thur  Bio-Tech,  an  agro-technology  startup,  relocated part of his operations to Rwanda after struggling with financing and administrative hurdles  at  home.  In  contrast,  Rwandan  authorities  processed  his  permits  within  weeks  and  even  helped  arrange  collateral-free  credit.  Similarly,  a  foreign  investment  deal  with  an  Ethiopian  e-commerce  startup collapsed after months of delays at the Ethiopian Investment Commission—delays that proved  fatal to the transaction. These are not isolated incidents but symptoms of a systemic failure to facilitate  the needs of investors in productive sectors. 

The  consequences  of  the  government’s  misguided  policy  of  corridor  development  are  increasingly  visible in the capital. A telling example is Addis Ababa’s struggling hotel sector, where several hotels  are being converted into hospitals. In a capital-scarce economy, converting a hotel—a substantial fixed  asset—into a hospital represents an extraordinarily costly adjustment. It reflects not organic market  evolution but distress: hotels built to accommodate a projected tourism boom now sit empty, and their  conversion into medical facilities is a desperate repurposing rather than a strategic transition. 

Individually,  these  cases  may  appear  anecdotal.  Taken  together,  however,  they  reveal  a  broader  pattern:  Ethiopia’s  economic  governance  increasingly  discourages  precisely  the  kind  of  productive  investment—manufacturing, agro-processing, and technology—that drives structural transformation. 

The regulatory environment, captured by vested interests and oriented toward politically connected  sectors, systematically disadvantages those who seek to build productive enterprises. 

Recent data from the World Bank, UNCTAD, and the Ethiopian Investment Commission underscore the  cost of this imbalance. Foreign direct investment inflows have declined from roughly 3.4% of GDP in  2018  to  around  2.7%  in  2025,  reflecting  an  investment  climate  where  regulatory  uncertainty  and  bureaucratic inertia discourage the private investment needed for sustainable growth. This decline is  not merely a cyclical  fluctuation; it is the measurable consequence of a system that has lost sight of  what private enterprise requires to flourish. 

III.5. Mobilizing Diaspora and Local Knowledge Base 

The experience of China, Vietnam, India, and  Japan demonstrates that successful late industrializers  rarely  rely  solely  on  the  vision  of  a  single  leader.  Reformers  such  as  Deng  Xiaoping  of  China  institutionalized  consultation  with  technocrats,  academics,  and  diaspora  professionals,  creating  a  broad “epistemic community” that informed national policy debates. 

Vietnam  followed  a  similar  path  after  launching  the  Đổi  Mới  reforms,  actively  engaging  overseas  Vietnamese  professionals—often  known  as  Viet  Kieu—to  help  rebuild  institutions,  modernize  industries, and connect the country to global markets. 

Beyond individual entrepreneurs, the Vietnamese government deliberately institutionalized diaspora  engagement.  Policies  adopted  in  the  1990s  and  2000s  eased  investment  restrictions  for  overseas  Vietnamese,  allowed  dual  residency  privileges,  and  encouraged  foreign-trained  scientists  to  teach,  conduct  research,  or  advise  ministries.  This  deliberate  integration  of  diaspora  expertise  helped  Vietnam accelerate export-oriented industrialization and become a major global manufacturing hub  for electronics, textiles, and machinery. 

By contrast, Ethiopia’s Prime Minister, Abiy Ahmed, has often alienated experts and, at times, appeared  dismissive of those with global professional experience. On one occasion, he remarked that economists  are poor and questioned why Ethiopia should rely on their advice if they could not make themselves  rich. 

Let me share a personal experience to drive the point home. In May 2020, I received a call from the  Prime  Minister  thanking  me  for  facilitating  the  involvement  of  the  late  Rev. Jesse  Jackson  in  the  diplomatic tensions surrounding the Nile River dispute. At the time the United States government was  pressuring Ethiopia to make concessions to Egypt. The Reverend’s letter to the US Congressional Black  Caucus and the UN Security Council prove helpful.  

I took the opportunity to inform the Prime Minister about the enormous opportunity Ethiopia had to  expand its manufacturing sector. At the time, the United States and other advanced economies were  beginning to diversify their supply chains away from China. Several Asian countries, including Vietnam, India, and Indonesia, had formed high-level committees led by their presidents or prime ministers to  promote themselves as destinations for manufacturing relocation. 

I proposed that Ethiopia establish a small working group of six experts, three from the diaspora and  three from within the country convened by the Prime Minister, to prepare a strategic proposal. 

The Prime Minister responded that Ethiopia did not need to promote itself. He believed Ethiopia has  very low labor costs, therefore, investors would come on their own. Little did he knew that labor cost  is not even among  the  top  five  factors influencing  foreign investment decisions.  Investors prioritize  factors  such  as  the  rule  of law  and  contract  enforcement; infrastructure  quality, including  efficient  transport, logistics, and reliable energy systems; government capacity to implement policy effectively;  the presence of industrial ecosystems and supplier networks;  tax policy and investment incentives;  technology and innovation systems; and transparent government–investor relations. 

The purpose of the proposed initiative was precisely to identify what Ethiopia could realistically offer  and how it would address institutional and infrastructure constraints. Then Minister of Foreign Affairs,  Dr. Gedu Andargachew appealed to the Prime Minister to consider the proposal all to no avail.  

In  the  years  that  followed,  Vietnam  emerged  as  one  of  the  largest  beneficiaries  of  supply-chain  diversification, attracting roughly $100 billion in new manufacturing investment. India secured more  than $50 billion, while Thailand, Indonesia, and Malaysia together captured an estimated $60 billion.  The relocation process is still ongoing. 

III.6. Violation of Property Rights: The Toll on Investment 

A central mechanism that allows societies to manage scarcity productively is the protection of property  rights. Scarcity is the starting point of economics, but property rights are the foundation of prosperity.  When individuals and  businesses  can  securely own,  use, and  transfer  property,  they gain  powerful  incentives to invest, innovate, and accumulate capital. 

Where property rights are weak or ambiguous, economic activity becomes subordinated to political  discretion.  Instead  of investing  to  expand  productivity, individuals  devote  their  energy  to  securing  political favors or protecting assets from arbitrary interference. The result is misallocation of resources  and economic stagnation. 

China’s  extraordinary  economic  transformation  was  triggered  in  part  by  market-oriented  reforms  beginning in 1978 under Deng Xiaoping. These reforms did not immediately establish Western-style  private  property  rights,  but  they  gradually  introduced  institutional  changes to  legalize  private  enterprise. Over  time,  these  evolving  institutional  arrangements  created  stronger  protections  for  property and profit, unleashing powerful forces of savings, investment, and entrepreneurship that laid  the foundation for decades of rapid economic growth.

Rather  than  promoting  development  policies  that  gradually  expand  the  government’s  tax  base  to  finance  development  programs,  Ethiopia  increasingly  relies  on  confiscating  private  properties,  demolishing businesses and residences, and leasing the land to the highest bidders to mobilize funds  for the Prime Minister’s high-profile vanity projects. 

A  diaspora  investor  who  had  acquired  prime  real  estate  through  a  lease  to  build  a  mixed-use  development (retail, office, and residential) discovered his plot had been leased to another developer  who was building a café and green space as part of the Prime Minister’s riverside development project. 

When the diaspora investor contacted the city administration for an explanation, he was told he would  be allowed to choose another plot in the city center as compensation. The catch was that there were  more than two dozen similar cases, and he would have to wait his turn for a replacement property. 

Even worse, as reported by Capital News, the Oromo regional government has breached longstanding  land lease agreements that were enshrined in binding legal contracts. Leaseholders were required to  renegotiate the terms of their contracts or face seizure of their property. 

In  the  absence  of  secure  property-rights  protection,  markets  tend  to  be  captured  by  politically  connected  actors  rather  than  productive  entrepreneurs.  When  contracts  are  weakly  enforced  and  assets can be expropriated or arbitrarily reallocated, business entrepreneurs—who rely on predictable  rules  to  invest,  innovate,  and  take  risks—are  systematically  crowded  out.  In  their  place,  “political  entrepreneurs” leverage state connections to secure preferential access to land, credit, licenses, and  legal protection, allowing  them  to dominate key sectors regardless of efficiency or competitiveness.  This dynamic ensures that capital flows not to the most efficient or innovative, but to those who are  politically connected, deepening the economy’s structural decay. 

The implications extend beyond individual investment decisions. Weak or uncertain property rights  reduce  the  willingness  of  firms  to  engage  in  export-oriented  production,  which  in  turn  constrains  foreign-exchange generation. This links institutional weakness directly to macroeconomic imbalance,  reinforcing one of the central constraints in the Ethiopian economy. 

III.7. The Corruption Paradox: From Crackdown to Complicity 

No assessment of Ethiopia’s structural economic weaknesses would be complete without examining  the role of corruption.  In November 2022, Prime Minister Abiy Ahmed established a seven-member  National Anti-Corruption Committee to coordinate a sweeping campaign against illicit practices. At the  launch,  he  described  corruption  as  a  national  “pest”  threatening  both  governance  and  economic  progress. The PM acknowledged bribes were transacted not under the proverbial table, but through  Banks.  

The anti-corruption committee, which included senior officials such as the Minister of Justice and the  head  of  the  National  Intelligence  and  Security  Service,  was  tasked  with  investigating  organized corruption  networks  at  high  levels. Reports  prepared  by  the  committee  identified  several  senior  officials close to the Prime Minister as central figures in organized corruption, yet the findings were  shelved  rather  than  acted  upon.  In  public  remarks,  the  Prime  Minister  later  publicly  appealed  to  corrupt  officials  to  channel  resources  illicitly  accumulated  into  “productive”  uses,  such  as  starting  businesses.  

A  striking  illustration  occurred  in  Addis  Ababa,  where  the  city’s  Mayor (arguably  the  third  most  powerful political figure in the country) was reported to have received 40 million birr in her personal  bank  account. When  questioned,  she  claimed  she  did  not  know  who  deposited it  and  said  she  had  distributed the money to poor residents. No formal investigation followed. Instead, the journalist who  exposed the story was briefly imprisoned before being released following public outrage.  

From an economic perspective, this is highly consequential. Investor confidence is undermined, capital  is  misallocated,  and  productive  investment  in  manufacturing,  exports,  and  technology-intensive  sectors is discouraged.  

III.8. Political Instability: Endogenous to Econommic Governance 

A central but underappreciated driver of Ethiopia’s fragility is the link between the absence of well defined and credibly enforced property rights and political instability. Weak property rights encourage  rent-seeking;  rent-seeking  heightens  competition  for  state  control;  and  that  competition,  in  turn,  manifests as political instability and insecurity. Far from being exogenous shocks, episodes of conflict  and instability are thus endogenous to the structure of economic governance. 

III.9. Creditworthiness: From “Junk” to Default Territory, and the Spin That Follows 

Nations  that  register economic  success are  those  that genuinely address  their  challenges and  pivot  where necessary. In contrast, those that face intractable problems are those that recast failed policy as  success while the foundations crumble beneath them. The Ethiopian government’s positive spin on the  sharp decline in international lending is an example of the latter. 

The official narrative suggests that dwindling external loans reflect virtuous self-reliance. PM Abiy has  explicitly framed this as transformation, telling parliament in late 2025 that Ethiopia “has no problem  paying its debts” and noting that no commercial loans have been taken since his reform drive began. 

The reality is different and consequential. Loans are not low because Ethiopia has transcended the need  for them; they are low because no one is willing to lend to a country in default. Over the past two years,  all three major international credit rating agencies—Fitch Ratings, Moody’s, and S&P Global Ratings— have downgraded Ethiopia deep into speculative and default categories.  

The IMF and World Bank, in their joint Debt Sustainability Analysis published in mid-2025, deliver the  clearest rebuttal to the self-reliance narrative. Their assessment is stark: “Ethiopia’s debt is assessed  to be unsustainable.” The country is officially classified as being in “debt distress” — a clear signal that its earnings from exports are insufficient to keep up with what it owes foreign creditors. This is not a  statistical footnote; it is a verdict on economic mismanagement. 

One Ethiopian economist put it bluntly: “The more debt sustainability becomes a challenge, the more  Ethiopia’s private sector will be squeezed.” While government officials celebrate reduced borrowing,  businesses  face  a  tightening  credit  crunch,  and  the  economy’s  productive  potential  remains  constrained. 

The Diaspora Parallel: From Lifeline to Leverage—or Just More Spin? 

The  politics  of  economic  spin  extends  beyond  dried-up  international  loans  to  another  high-profile  front: diaspora remittances. Ethiopia has recently reported a sharp increase in remittance inflows, now  estimated  in  the  range  of  $6–$7  billion  annually.  The  government  frames  this  as  evidence  that  economic reforms are bearing fruit. 

Here too, however, the surface conceals a more complex reality. 

First,  the reported volume increase is largely  the result of a shift  from informal  to  formal channels, following  government  policies  that  criminalized  informal  transfers  through  the  black  market.  The  money is not new; it is simply being counted for the first time. 

Second,  and more  critically,  the majority  of  these  funds  continue  to  be  directed  toward  household  consumption—food,  housing,  education,  and  healthcare—rather  than  productive  investment.  This  pattern is itself a response to the economic crisis: diaspora communities have increased remittances  to help families offset declining income and inflationary burdens. In this sense, remittances function  less as an investment pipeline and more as a social safety net stretched across borders serving as a  lifeline, not a lever of investment. 

IV. From Spinning to Elevating Policy Failure as Destiny 

At the 39th African Union Summit, the Prime Minister announced that Ethiopia is projected to grow at  10.2 percent. He described the country’s long-term strategy as a transition from a low-income economy  to a  “globally  competitive economy”  driven  by industrialization,  productivity gains, and  quality job  creation. This is beyond a case of ambition blurring vision. It is a case of outlandish ambition giving  birth to a sanctified vision. 

Emphasizing  technological  transformation,  the PM highlighted initiatives under  the Digital Ethiopia  2030 strategy: expansion of digital infrastructure, the establishment of an AI institute and a planned AI  university,  and  strengthened  connectivity.  By  presenting  Ethiopia  as  a  future  hub  for  artificial  intelligence,  green  energy,  and  digital  identification  systems,  he  signaled  a  shift  away  from  the  traditional low-cost manufacturing model toward a high-tech, service-oriented economy.

Such statements sit uneasily beside the country’s current economic and institutional realities. Ethiopia  remains  decades  away  from  becoming  a  high-tech  service  economy—assuming,  of  course,  that  the  necessary investments in human capital and infrastructure are ever made. 

A useful comparison is India’s path to a high-tech service economy. India’s emergence as a global hub  for IT and software services between the 1980s and early 2000s did not occur by accident. It was the  result of sustained investments in human capital and deliberate policy support spanning decades. 

India invested heavily in science, technology, and engineering education. Elite institutions such as the  Indian Institutes of Technology (IITs) and the Indian Institutes of Information Technology (IIITs) were  established  to produce world-class engineers. Today, institutions such as  IIT-Delhi and  IIT-Bombay  rank among the world’s leading universities in computer science and engineering. 

The  same  strategic  attention  was  given  to  industry  support.  Government  initiatives  such  as  the  Software Technology Parks of India (STPI) program provided infrastructure, tax incentives, and export  facilitation for IT firms. By the early 2000s, India was producing hundreds of thousands of engineering  and IT graduates annually, supplying the workforce that fueled companies such as Infosys, TCS, and  Wipro. 

In other words, India built both the scale and quality of human capital necessary to sustain a high-tech,  export-oriented service economy. Ethiopia presents a stark contrast. 

The  Prime Minister  has  been  cutting  the  education  budget  even  as  he  promotes  a  high-technology  future. The nation’s flagship institution, Addis Ababa University, ranks roughly in the 800–900 band  globally.  More  troubling  still,  only  about  8  percent  of  high school  students  pass  the  national  exit  examination—the  threshold  required  to  enter  university.  Such  outcomes  dramatically  restrict  the  pipeline  of  students  who  could  eventually  become  engineers,  data  scientists,  or  technology  entrepreneurs. 

The implication is unavoidable: Ethiopia currently lacks the trained workforce required to sustain a  technology-driven service economy. Without a dramatic expansion in educational quality and human  capital formation, the country cannot realistically leap into a high-tech future. 

India’s  success  was  incremental,  long-term,  and  grounded  in  human  capital  investment.  Ethiopia’s  current discourse, by contrast, risks substituting political rhetoric for the difficult institutional work  required to build such foundations. 

In this sense, the PM’s “if you can imagine it, you can make it happen” rhetoric and the Digital Ethiopia  2030 declaration draw from the same prosperity gospel belief as his televised declaration that Ethiopia  would become one of the world’s two superpowers by 2050.

Vision is indispensable to development. But when vision is seduced by delusion, and detached  from  institutional capacity and human capital realities, it is akin to whistling against thunder. 

IV.1. Fiscal Illusions and Budget Realities: The Numbers Do Not Lie 

The  Prime  Minister’s  delusional  proclamations  become  evident  when  confronted  with  his  government’s budget. At first glance, the 2025/2026 federal government budget appears to represent  a dramatic fiscal expansion. Nominal spending rises from 1.4trn to 1.92trn Birr,  an increase of roughly  34 percent. 

During the same period, nominal GDP is projected to grow by 23.3 percent, from Birr 15,671 billion to  Birr  19,322  billion. The  ratio  of  these  two  figures implies a  tax  buoyancy  of approximately  2.6  (60  percent  divided  by  23.3  percent). Such a  sharp increase in  tax  buoyancy within a  single  fiscal  year  would be extraordinarily difficult to achieve without major tax reforms, substantial improvements in  compliance, or a rapid expansion of the tax base. 

The headline budget increase becomes far less impressive when viewed through the lens of currency  depreciation. Following the 2024 exchange-rate liberalization, the Ethiopian birr depreciated sharply.  As  a  result,  the  nominal  increase  in  the  budget  translates  into  far  less  purchasing  power  when  measured  in  U.S.  dollars.  This  matters  because  a  significant  portion  of  public  spending  is  import dependent. 

Official estimates suggest  that 15–20 percent of government expenditure relies directly on imports.  This  figure  excludes  large  undocumented  expenditures  associated  with  military  procurement— including fighter jets, drones, missiles, and armored vehicles. When defense imports are considered,  the true import dependency of public spending is likely substantially higher that 20%. 

When  currency  depreciation  is  combined  with  inflation,  the  fiscal  picture  becomes  even  more  constrained. Depreciation reduces the international purchasing power of government spending, while  inflation erodes its domestic purchasing power. 

The government projects inflation  for 2025/2026 in  the range of 9–12 percent, implying  that price  pressures are largely under control. Independent analysts and monetary economists, however, suggest  that Ethiopia’s underlying inflation rate may be closer to 30 percent, roughly three times the official  estimate. 

Under these conditions, what appears on paper as a dramatic fiscal expansion may in reality represent  a tightening of the government’s real spending capacity.

IV.2. The Hidden Debt Burden 

On  the debt side  of  the ledger, debt servicing already consumes  roughly 24 percent  of  the national  budget, exerting a major fiscal constraint on the economy. Unfortunately, this is not the full story. A  significant  portion  of  Ethiopia’s  debt  burden  lies  outside  the  treasury,  in  state-owned  enterprises  (SOEs) that borrow directly from state banks and foreign lenders—particularly Chinese policy banks— to finance large infrastructure projects. 

This  off-budget  borrowing  creates  substantial  contingent liabilities  for  the  state. When SOEs  fail  to  generate sufficient revenue to service their loans, the government is often forced to step in and assume  the  debt. It must  be  remembered  that in  2021,  the  government  established  the  Liability  and  Asset  Management  Corporation  (LAMC)  to  absorb  and  manage  distressed  SOE  liabilities.  Through  this  vehicle,  the  state  assumed  hundreds  of  billions  of  birr  in  debt  from  struggling  public  enterprises,  including  the  Ethiopian  Sugar  Corporation,  Ethiopian  Electric  Power,  and  the  Ethiopian  Railways  Corporation. 

This  SOE–bank–sovereign  nexus  means  that  liabilities  that  initially  appear  as  corporate  debts  frequently end up as public obligations. While these debts may not appear directly in the annual budget,  they represent latent fiscal risks that can quickly migrate onto the government’s balance sheet when  projects  fail,  or  revenues  fall  short. The implication is clear: Ethiopia’s  fiscal  burden is  significantly  larger than official budget numbers suggest. 

IV.3. The GDP Headline Growth Narrative vs. Sector Performance 

The  government  projects  10.2  percent  GDP  growth.  Yet  its  own  economic  data  and  independent  assessments paint a more sobering picture. 

Government  statistics  show  long  term  capital  investment  (gross  capital  formation),  manufacturing  output  and  public  expenditures  on  health  and  education  have  declined  persistently  since  Prime  Minister Abiy took of[ice. At the same time, debt servicing costs have been rising. These trends typically  slow economic growth rather than accelerate it. 

Where Is the 10.2% GDP Growth Coming From? 

The  projected  GDP  growth  rate  for  Ethiopia  in  2025/2026  is  a  subject  of  significant  debate.  The  government’s official estimate stands at 10.2 percent, notably higher than the World Bank estimate of  7.2 percent and the United Nations estimate of 5.8 percent.  

This section addresses two key questions. First, regardless of whether the actual rate is closer to 5.8  percent or 10.2 percent, the primary question is which pillar(s) of the economy underpin the projected  GDP growth? Second, to what extent are government policies aligned with the growth requirements  of each pillar? 

The government’s narrative points to a booming tourism sector and rapidly transforming agricultural  and industrial sectors as the engine of growth. Each of these claims deserves closer examination. 

The Tourism Sector: A Misguided Development Strategy for Ethiopia? 

Tourism cannot plausibly be considered one of the primary attributable sectors to the projected high  growth. The Ethiopian government’s vision of tourism as a primary driver of national development is,  at best, a strategic miscalculation. While the country possesses undeniable historical and natural assets,  the notion that this sector can serve as a central engine for broad-based economic growth ignores both  Ethiopia’s specific constraints and the structural realities of the global tourism industry. 

The challenges are well-known: persistent security concerns, significant infrastructure deficits, and the  prohibitive  cost  of  international  destination  marketing.  There  are  also  more  challenges.  For  low income  countries, leveraging  tourism as a  primary engine  of growth is  notoriously  difficult—a  fact  underscored by the experience of nations with far stronger starting positions. 

For  comparison,  Kenya,  with  a  long-established  tourism  sector,  a  relatively  stable  political  environment, and better infrastructure—including roads, airports, and hospitals—generated roughly  $3.5 billion (3.9% GDP) in 2024 in  tourism  revenue. Egypt,  famed  for its pyramids and a preferred  destination  for European and Arab tourists, reached about $15.3 billion (3.9% of GDP) for the same  year. These  figures  illustrate  that  even  countries  with  decades  of  tourism  experience,  strong  infrastructure, and geopolitical advantages still generate revenue levels that, while significant, remain  modest relative to the size of their economies. 

Recent government reports suggest that Ethiopia’s tourism revenue jumped from roughly $1.1 billion  in  2024  to  over  $2.6  billion in  the  first  six months  of  2025, implying  a  potential  full-year  figure  of  around  $5  billion. The near  fivefold increase in  one  year  raises questions about data accuracy. The  Economist and other sources have documented the Ethiopian government’s tendencies to exaggerate  economic statistics.  

Even if the figures are taken at face value, tourism’s potential as a growth engine remains limited for  low-income developing countries. The data  from  the world’s  top  tourism earners  further illustrates  this point. An examination of  the  top 20 countries by international  tourism revenue reveals a clear  pattern:  they  are  almost  exclusively  high-income  nations  with  robust,  diversified  economies.  Even  tourism-dependent  economies  like  Thailand  (GDP  per  capita  $7,500)  and  Mexico  ($15,000)  have  achieved middle-income status and possess economic foundations far more diversified than Ethiopia’s.  They are the exceptions, not the rule.  

Ethiopian government officials often cite the Middle East as a potential source of tourists. In practice,  however, Middle Eastern  travelers overwhelmingly prefer destinations such as Egypt and Lebanon.  Geographic  proximity,  shared  language,  and  cultural  familiarity  make  these  countries  far  more  attractive. Beyond  these advantages, both nations provide world-class infrastructure, delivering  the  seamless, high-quality experience that international travelers expect, including reliable transportation,  consistent  power,  and  advanced  healthcare.  Ethiopia,  by  contrast,  currently  lacks  these  essential  conditions, making the Middle East market considerably harder to penetrate and less likely to generate  significant tourism revenue in the near term. 

Tourism  is  also  inherently  vulnerable  to  external  shocks.  During  global  recessions,  pandemics,  or  currency  fluctuations,  leisure  and  travel  are  often  the  first  expenses  consumers  cut.  This  volatility  makes tourism an unstable foundation for long-term national planning.  

Ethiopia’s geographic position compounds the problem: it is not close to major high-income markets.  In contrast, Mexico derives 55–65% of its tourists from the United States, and Thailand is integrated  into  the  high-income  Asian  travel  circuit  for  leisure  and  beach  tourism.  About  50%  of  Thailand’s  tourists come from Asia.  

Ethiopia’s distance from source markets translates into higher travel costs and stiffer competition from  closer, cheaper, and easier-to-reach destinations. 

Finally,  tourism  is  primarily  a  consumption-driven  sector,  generating  revenue  through  hotels,  restaurants,  and  tours. While  it  creates  jobs,  they  are  predominantly  low-skill  and  low-wage,  with  limited potential for productivity gains, technological spillovers, or scalable industrial growth. Unlike  manufacturing or high-value services, tourism does not foster innovation, build industrial capacity, or  generate the type of exports that can transform an economy. 

As a result, even if  tourism performs well, its contribution is unlikely  to offset structural deficits in  foreign exchange or employment generation at scale. This reinforces the need to prioritize sectors with  stronger linkages to productivity growth and export capacity. 

The Agricultural Sector: Trapped in Primitive Mode of Production 

Let us put political correctness aside, acknowledging the most honest analysis requires language that  cuts through academic caution. For centuries, farmers in Ethiopia have cultivated the same plots with  the  same  tools,  using  methods  that  predate  the  industrial  revolution.  The  plow  is  wooden.  The  fertilizer, for the most part is dung. The yield is whatever the rains allow. This is not subsistence as a  lifestyle choice; it is subsistence as a structural trap. This matters because the historical pathway to  industrialization runs through agriculture. 

The agricultural sector reveals a  fundamental contradiction at  the core of  the government’s growth  narrative.  Despite  official  claims  of  wheat  self-sufficiency,  trade  data  show  persistent  import  dependence. In 2024, Ethiopia imported roughly 1.4 million metric tons of wheat while exporting only  about  150,000  tons. Domestic  production—estimated  at  around  6.5 million  tons—continues  to  fall  short of consumption, which exceeds 7.8 million tons, implying an import requirement of roughly 1.3  million tons in 2025/26.

At the same time, more than 10 million Ethiopians face severe food insecurity, and funding shortages  forced  the  World  Food  Programme  to  suspend  malnutrition  treatment  for  approximately  650,000  women and children in 2025. A sector under such strain cannot plausibly anchor a 10.2% or even a  7.2% growth projection that the IMF and World Bank tout. 

More  concerning  is  that  while  the  government  has  emphasized  food  self-sufficiency  and  export  agriculture  as  symbols  of  sovereignty,  it  has  not  made  the  foundational  investments  required  to  transform agriculture into a driver of industrial growth. Critical inputs—functional irrigation systems,  widespread access to fertilizer, mechanization, and affordable agricultural credit—remain staples of  government propaganda, not lived realities for the farmers who need them. 

This gap is also reflected in public spending priorities. In the 2025/26 budget, Agriculture and Rural  Development  received  only  about  3  percent  of  total  expenditures.  This  amounts  64.5  billion  birr (US$41.6 million),  despite  the  sector  accounting  for  roughly  31–35  percent  of  GDP  and  employing  between  63  and  80  percent  of  the  population.  Irrigation,  fertilizer  and  mechanization  require  substantial resource commitment that the government has not met. This imbalance underscores the  limited strategic emphasis placed on agriculture as a foundation for structural transformation. 

Irrigation: The Gap Between Claims and Reality 

Government narratives have strongly emphasized the expansion of irrigated agriculture, particularly  wheat production. Official reports suggest that land equipped for irrigation reached between 2.9 and  3.07 million hectares by 2024. However, independent assessments point to a substantial gap between  reported figures and actual outcomes. 

A  2025  assessment  by  the  Policy  Studies  Institute  (PSI)  highlights  significant  discrepancies,  while  analysis by the U.S. Department of Agriculture’s Foreign Agricultural Service indicates that irrigated  wheat  area  did  not  increase  by  the  claimed  magnitude. This  is  consistent  with  subnational  implementation data:  for example, regional reports indicate  that of 214 planned irrigation projects,  only 92 were initiated and just 30 completed. 

These findings suggest that irrigation expansion has been incremental and uneven, falling short of what  is  required  to  reduce  reliance  on  rain-fed  agriculture,  mitigate  climate  risks,  and  enable  sustained  productivity growth. 

Mechanization: Limited and Fragmented Efforts 

There  is  no  evidence  of  a  coordinated,  nationwide  effort  capable  of  significantly  raising  labor  productivity  or  transforming  production  systems. The  picture  below  shows  the  gap  between  the  government’s propaganda and the reality of farming in Ethiopia. If the propaganda was true, Ethiopia  would be the highest mechanization user per hectare in the world.

The Industrial Sector: Manufacturing vs. Construction 

The industrial sector consists of manufacturing and construction. The manufacturing sector remains at  nascent stage. More alarming is that since the current Prime Minister took power it has declined as  percentage of GDP rather than increasing. In 2018, it was 5.8%. In 2022, it dropped to 4.9% and further  slid down  to 4.4% in 2025. The picture becomes even more worrying when compared with its East  African regional peers – about 15% in Uganda, 9% in Rwanda, 8% in Tanzania and 7.5% in Kenya. 

Factories  operate  at  50–60  percent  capacity,  hamstrung  by  foreign-exchange  shortages,  power  interruptions, and weak domestic demand. Export performance reflects the same weakness. Even after  years of industrial policy and major investment in industrial parks, Ethiopia’s manufacturing exports  remain extremely small relative to the size of the economy—smaller than the export earnings of single  industries  in  many  successful  industrializing  countries. Given  the  data,  it  is  hard  to  imagine  the  manufacturing sector accounting for the 10.2% GDP growth. 

In contrast, the construction sector currently drives GDP growth  through state-led projects like  the  corridor development, but its foundations are precarious. An estimated 65–70 percent of construction  materials are imported, exposing the sector to currency depreciation and foreign-exchange volatility.  Developers  face  16–20  percent  interest  rates,  soaring  input  costs,  and  softening  demand.  In  Addis  Ababa, projects are being stalled, descoped, or downgraded mid-construction. Luxury apartments and  offices are rising faster than the market can absorb, signaling a potential real-estate bubble. 

Another  notable  factor  is  that  most  government  financed  mega  construction  projects  are  built  by  Chinese contractors with what a local developer characterized as “scraps” left for domestic contractors.  Regardless of this, if this construction-driven growth reverses, Ethiopia’s economy would be far more  vulnerable than China’s during its slowdown, lacking a manufacturing or export base to cushion the shock.  Falling  property  values,  stalled  projects,  and  financial  stress  on  banks  and  developers  could  trigger a broader crisis. 

In sum, Ethiopia’s 10.2 percent growth narrative rests on a tourism sector still below pre-pandemic  levels, an agricultural sector reliant on food imports, a manufacturing sector stuck at low capacity, and  a  construction  boom  fueled  by debt and  speculation. The politics  of abundance  obscures  structural  scarcity:  when  growth  depends  on  construction  rather  than  productivity,  exports,  or  broad-based  employment, it risks becoming an illusion.  

V. The Counter Factual: Ethiopia’s Missed Opportunity 

The purpose of the article is not to lament about the corridor development, but to show the opportunity  cost  of  what  the  government chose  not  to  build.  At  a  time  when  Ethiopia  faces  mounting  foreign  exchange  shortages,  rising  fuel import  bills, and  persistent  food insecurity, a  fundamental  question  demands attention: Did the country invest its scarce resources in the right places? 

Over the past several years, the government has prioritized large-scale corridor development—urban  infrastructure  projects  designed  to  modernize  cities  and  signal  economic  transformation.  These  projects are visible, politically compelling, and symbolically powerful. But visibility is not the same as  productivity.  And  in  an  economy  constrained  by  foreign  exchange,  energy  access,  and  structural  inefficiencies, the opportunity cost of such investments is extraordinarily high. 

What if those same resources had been directed elsewhere—toward expanding electric transmission  grids and scaling irrigation through electrically powered pumping systems? 

This is not a speculative exercise. Ethiopia’s own data provides a clear answer. 

The country’s agricultural sector remains overwhelmingly rain-fed, with as little as 2–10 percent of  cultivated  land  under  irrigation. As  a  result,  productivity  is  low,  volatile,  and  highly  vulnerable  to  climate shocks. Yet where irrigation has been introduced, the results are transformative. In one large scale development program, yields increased from 70–80 quintals per hectare to as high as 250–350  quintals—a more than threefold jump. Similar evidence across regions consistently shows yield gains  of 50 percent or more. 

The implications of scaling such gains are profound. Expanding irrigation coverage from its current low  base  to  even  a  modest  share  of  farmland  could  increase  national  agricultural  output  by  15  to  30  percent—a magnitude consistent with cross-country evidence on irrigation-led productivity growth.  This is not marginal improvement; it is structural transformation. 

Crucially, the impact would not stop at the farm.

A more productive and stable agricultural sector would provide the foundation for industrialization.  Ethiopia’s  manufacturing  ambitions  have  long  been  constrained  by  inconsistent  access  to  raw  materials.  Agro-processing  industries—from  food  production  to  textiles—depend  on  reliable  agricultural supply chains. Irrigation would help create that reliability, enabling factories to operate at  scale and compete more effectively. 

The energy dimension makes this strategy even more compelling. Ethiopia has already invested heavily  in  hydropower  and  now  generates  more  electricity  than  it  can  fully  utilize  due  to  transmission  bottlenecks. In fact, while installed capacity exceeds 5,000 MW, actual utilization is far lower because  of limited grid access and distribution infrastructure. At the same time, roughly 70 million Ethiopians  still lack adequate electricity access, particularly in rural areas where irrigation potential is highest. 

Electrifying irrigation would therefore serve a dual purpose: unlocking agricultural productivity while  absorbing underutilized power. 

The cost advantage is decisive. Evidence from field projects shows that a single day’s diesel fuel cost  for irrigation can equal an entire month’s electricity bill. More systematic analysis finds that switching  from diesel to electric pumping can increase farm profitability by 58 to 98 percent. This is not just an  efficiency gain—it fundamentally changes the economics of farming. 

It also directly addresses one of Ethiopia’s most pressing macroeconomic vulnerabilities: fuel imports. 

In recent years, Ethiopia has spent approximately $4 to $5 billion annually on fuel imports, making it  one of the largest drains on foreign exchange. By comparison, coffee—the country’s largest export— generates roughly $1.2 to $1.5 billion per year. In other words, the fuel bill alone is three to four times  larger than Ethiopia’s top export earnings. In periods of global oil price shocks, even a modest increase  can add $1–2 billion to the import bill—effectively wiping out the country’s coffee revenues. 

Against  this  backdrop,  replacing  diesel-based irrigation  with  electric  systems  would  not  only  raise  agricultural productivity but also reduce fuel demand, easing pressure on the balance of payments. 

The scale of unrealized potential is significant. According to research by the International Food Policy  Research  Institute,  Ethiopia  has  the  capacity  to  expand  irrigated  agriculture  by  up  to  1.1  million  hectares, with grid electricity being the most cost-effective solution for nearly half of that potential.[7] Yet this opportunity remains largely untapped. 

To  be  clear,  urban  infrastructure  is  not  without  value.  Well-designed  cities  can  support  economic  activity, improve quality of life, and attract investment. But such benefits are long-term and indirect. In  contrast, investments in irrigation and electric transmission deliver immediate, measurable returns:  higher output, increased exports, lower fuel imports, and stronger rural incomes. 

It is not too late to recalibrate.

Redirecting future investment toward electric transmission and large-scale irrigation would not only  address immediate economic pressures but also lay the groundwork for long-term transformation. It  would  align  Ethiopia’s  development  strategy  with  its  comparative  advantages—land,  water,  and  renewable energy—while reducing its exposure to external shocks. 

In development, as in life, the most important decisions are often not about what to build, but about  what to build first. 

The agricultural fields and electric gridlines, not the corridors, hold the key to Ethiopia’s future. 

VI. Conclusion and Recommendations 

Ethiopia’s  current  economic  trajectory  is  defined  less  by  a  single  point  of  weakness  than  by  the  dangerous  synergy  of  multiple  structural  vulnerabilities.  Individually,  these  pressures  might  be  manageable,  but  if  a  confluence  of  two  or  more  hit  at  the  same time,  the  consequence  can  be  catastrophic,  or  even  existential,  depending  on  the  severity  of  the  crisis.  This  concluding  section  crystallizes the nation’s core structural fault lines and their transmission mechanisms, before outlining  a sequenced path forward. 

V.1. Structural Fault Lines and Transmission Mechanisms 

At the heart of Ethiopia’s fragility is a widening disconnect between a visible economic transformation  and  the  underlying  productive  capacity.  A  construction-led  boom  has  reshaped  urban  skylines,  yet  manufacturing remains stagnant and agriculture is trapped in low-productivity cycles. This imbalance  is critical because construction, while a short-term growth driver, cannot generate the export earnings,  technological  learning,  or  broad-based  employment  needed  for  sustainable  development. To  the  contrary it bears in it the risk of stagnation or even default. The Prime Minister’s $15.4 billion “Chaka  Project” was inspired  by Malaysia’s “Forest  City” that  has  become  a  cautionary  tale  of  speculative  excess that  has failed  to  deliver  on its  promises,  standing instead  as  a monument  to  the  risks  of  a  development strategy that mistakes constructing buildings for building an economy. 

A second fault line is the chronic foreign-exchange constraint. Ethiopia’s growth model depends heavily  on imported inputs—machinery, fuel, and construction materials—while exports remain too limited  to finance these needs sustainably. This creates a paradox where growth itself depends on access to  foreign exchange that the economy does not organically generate. 

A  third,  closely  related  vulnerability  is  the  erosion  of  investor  confidence,  rooted  in  policy  unpredictability,  administrative  discretion,  and  the  weakening  of  property-rights  protections.  Evidence  abounds—from  diaspora  real  estate  losses  to  stalled  investment  projects  and  declining  foreign direct investment—that capital is increasingly reluctant to commit to long-term, productivity enhancing  sectors.  Instead,  investment  is  diverted  toward  speculative,  short-term,  or  politically  insulated activities, further depleting the economy’s capacity for structural transformation.

A fourth pressure point is the tightening fiscal constraint. Soaring debt-service obligations, expanding  recurrent expenditures, and significant off-budget liabilities from state-owned enterprises are steadily  compressing  the  fiscal  space  for  development.  As  more  public  resources  are  absorbed  by  debt  repayment, public wages, and subsidies, fewer remain for investments in infrastructure, human capital,  and the productive sectors that could generate future revenue. 

The  central  risk  to  the  Ethiopian economy is  not any  one  of  these weaknesses in isolation,  but  the  mechanism through which they interact to produce a cascading crisis. 

A plausible  transmission sequence illustrates  this dynamic. A  foreign-exchange shock—triggered by  declining exports, reduced capital inflows, or tightening external financing—limits the ability to import  essential inputs. This immediately disrupts manufacturing and construction, leading to reduced output,  stalled projects, and job losses.  

At the same time, a parallel vulnerability in the real estate sector can amplify the shock. Despite a visible  construction boom, a significant share of high-end urban housing (particularly in Addis Ababa) remains  vacant, reflecting weak underlying demand. Yet  the government still pressures land leaseholders  to  develop high-rise properties or transfer land rights to those who can. This not only distorts the real  estate market, but risks pushing the glut toward a dangerous cliff.  

As  economic  conditions  soften  and  vacancies  rise,  the  resulting  real-estate  bust  would  crash  asset  prices, place immense stress on developers, and endanger banks with heavy exposure to real estate  lending.  Simultaneously,  declining  economic  activity  reduces  tax  revenues  while  debt-service  obligations remain fixed, intensifying fiscal pressure.  

The government, facing limited financing options, may resort to inflationary financing or distortionary  taxation,  further  eroding  private-sector  confidence.  This,  in  turn,  accelerates  capital  flight  and  suppresses new investment, deepening the foreign-exchange shortage that initiated the cycle. 

This sequence creates a self-reinforcing loop where pressures in  the external sector,  real economy,  financial  system,  and  fiscal  accounts  amplify  one  another. Under  such  conditions,  even  a moderate  shock  can  propagate  across  multiple  sectors,  transforming  structural  vulnerability  into  systemic  instability. 

Other  triggers,  such  as  external  price  shocks,  present  an  additional  danger.  Ethiopia’s  export  base  remains highly concentrated, with coffee and gold together accounting for an estimated 35% to 60%  of export revenues, depending on global prices and production levels. A decline in these prices would  significantly weaken  foreign-exchange earnings. Conversely, increases in global prices  for imported  goods—particularly  fuel,  fertilizer,  and  capital  equipment—would  further  strain  the  balance  of  payments. In both cases, external shocks can rapidly transmit through the same reinforcing channels  described above.

VI.2. Recommendations for the Path Forward 

Ethiopia’s challenges are serious but not insurmountable. The country’s structural vulnerabilities are  the result of policy choices and institutional erosion—not immutable constraints. This means they can  be reversed. However, the window for gradual adjustment is narrowing. Without decisive reform, the  interaction of existing fault lines risks shifting the economy from fragile stability to systemic crisis. 

Ethiopia needs transformative reform with a sense of urgency. This requires a fundamental shift: from  dictatorial  to  deliberative  decision-making,  and  from  reactive  crisis  management  to  a  coherent,  sequenced reform strategy grounded in institutional credibility and economic realism. The priorities  below  are  not  exhaustive,  but  they  directly  address  the  structural  and  institutional  constraints  identified in this analysis. 

Restore Constitutional Governance and Decision-Making Transparency 

Ethiopia’s economic decision making has become the caprice and absolute control of the Prime Minister  with no background in economics. This concentration of authority is not merely a political concern; it  is a core economic vulnerability. For example, wage bills represent another major recurrent cost in the  2025/2026  budget  to  the  tune  of  245bn Birr,  a  70%  increase  over the  previous  year.  This  raises  questions about  whether  this  reflects  mounting  public  sector  salary  pressures  or  funds  for  ghost  workers who serve as social media political activists.  

Restoring  the  oversight  authority  of  the  legislative  branch,  subjecting  public  expenditures  to  parliamentary approval and audit, and ensuring that lawful dissent within constitutional institutions  is  protected  are  foundational—not  optional—reforms.  Without this  baseline,  all  other  policy  interventions will lack both credibility and durability. 

Restore Credible Property Rights and Rule-Based Governance 

Sustained  economic  transformation  is  impossible  without  secure  property  rights.  Weak  or  inconsistently enforced  rights  discourage long-term investment, incentivize  rent-seeking, and erode  trust in formal institutions. Restoring credibility requires: (1) Enforcing contracts and halting arbitrary  land  reallocations;  (2)  Establishing  independent  commercial  courts  or  effective  dispute-resolution  mechanisms; and (3) Ensuring transparency in land administration and investment approvals. 

Absent these reforms, both domestic and foreign investment will remain skewed toward short-term,  politically insulated activities, limiting capital formation and structural transformation. 

Transition from Cadre-Led to Expert-Led Policymaking 

Economic  policy  design  and  implementation  must  be  anchored  in  technical  expertise  rather  than  political loyalty. This requires empowering qualified professionals in economic institutions, insulating  policy  processes  from  partisan  interference,  and  prioritizing  evidence-based  decision-making. 

Complex  macroeconomic  challenges—such  as  exchange-rate  management,  debt  sustainability,  and  industrial policy—cannot be effectively addressed through politically driven structures. 

Systemically Tackle the Culture of Corruption 

Corruption  has  evolved  from  isolated  incidents  into  a  systemic  feature  of  the  current  economic  environment. Therefore, it has eroded state legitimacy. If left unchecked it will choke the economy and  pose an existential threat. It demands urgent intervention, starting with independent anti-corruption  institutions  with  prosecutorial  power  and  protective  mechanisms  for  whistleblowers.  Equally  importantly, it is necessary to enforce accountability at senior levels, digitize public services to reduce  discretion, and increase transparency in public procurement and land allocation. 

Develop a Comprehensive Diaspora Strategy, Beginning with a Joint Commission 

The Ethiopian diaspora represents a critical source of capital, skills, and global market connections, yet  trust has been significantly eroded. Rebuilding this relationship should begin with the establishment  of an independent diaspora commission composed of diaspora representatives, government officials,  and  the  business  community  to  design  policies  that  build  trust,  lower  barriers  to  investment,  strengthen remittance flows, and facilitate knowledge transfer. 

Rebalance Public Expenditure Toward Productive Sectors 

A  central  distortion  in  Ethiopia’s  fiscal  structure  is  the  imbalance  between  recurrent  and  capital  expenditure. With recurrent spending consuming approximately 61% of the national budget—nearly  three times the allocation to capital investment (22%)—the  fiscal architecture has diverged sharply  from earlier development patterns. Correcting this requires ending the multiple wars that are draining  national resources and redirecting funds toward agriculture, manufacturing, and agro-processing. The  objective is not to abandon urbanization or services, but to anchor them in a productive base capable  of sustaining long-term growth. 

Address the Foreign-Exchange Constraint at Its Source 

Administrative  controls  cannot  substitute  for  structural  adjustment.  Ethiopia’s  chronic  foreign exchange shortage reflects a fundamental imbalance that must be resolved by expanding supply, not  rationing  demand.  This  requires  diversifying  exports  beyond  traditional  commodities,  creating  targeted incentives  for export-oriented industries, and adopting exchange-rate policies aligned with  competitiveness. 

Re-establish Fiscal Discipline and Transparency 

Fiscal  sustainability  depends  on  confronting  liabilities  that  extend  beyond  the  formal  budget.  Key  priorities  include  rationalizing  low-return  capital  projects,  restructuring  loss-making  state-owned  enterprises whose debts pose contingent [iscal risks, and fully incorporating off-budget liabilities into  public reporting. These measures are essential to restoring con[idence in macroeconomic management. 

Reinvest in Human Capital 

The sharp decline in education spending—from 5.2% of GDP in 2018 to 2.3% in 2025—undermines  the very foundation of long-term growth. A transition to higher-value economic activities is not feasible  without a skilled workforce. Priority actions include expanding access to quality secondary and tertiary  education,  strengthening  technical  and  vocational  training,  and  improving  learning  outcomes  to  rebuild the pipeline of skilled labor. 

Institutionalize Technocratic Policymaking 

Durable reform requires institutional capacity that transcends any single leader or administration. This  entails strengthening the autonomy of key economic institutions—including the central bank and fiscal  authorities—and  reducing  reliance  on  personality-driven  decision-making.  Development  outcomes  are  resilient  only when anchored in  strong institutions,  not in individuals.  Ethiopia’s  past  progress  underscores this principle; its future depends on whether it can be reestablished.

Editor’s Note : Views in the article do not necessarily reflect the views of borkena.com     

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