A new truce is likely in the coming months, but a definitive end to the conflict is elusive
MNCs operating in Ethiopia should closely monitor developments in the conflict and review their market assumptions and goals given a muted demand outlook. To help local partners facing FX shortages, firms should consider offering financial support—for example, through extended payment terms. MNCs selling to the public sector should not expect the government’s recently passed budget to be fulfilled as planned, and therefore expect muted demand and payment delays from customers. While fighting has not yet reached Addis Ababa, a significant escalation in fighting could reach the capital, necessitating contingency plans by MNCs and their local partners.
- In late August, fighting between the Ethiopian government and the Tigrayan People’s Liberation Front (TPLF) resumed, breaking five months of relative quiet following a truce in March.
- Of particular concern in the Tigray war is the participation of the Eritrean army alongside Ethiopian forces, as well as reports that Sudan is covertly sending arms to the TPLF.
- The outbreak of fighting occurs amid a context of increasing tensions and clashes between the Ethiopian government and various ethnic groups, such as the TPLF but also the Oromo Liberation Army (OLA).
The outbreak of fighting is a significant setback in the conflict and adds to the already-complicated security situation in Ethiopia. Meanwhile, the prospect of the civil war spilling over into other countries would severely delay an end to the conflict, and destabilize Ethiopia’s already-fragile neighbors, notably Sudan. However, fighting between Ethiopian forces and the TPLF is unlikely to be sustained; the humanitarian situation in Tigray is catastrophic, and a resumption of fighting would halt the little aid that is making its way into the region. Meanwhile, the Ethiopian government is facing international isolation, a slowdown in investment, and a lack of foreign aid, all of which will exacerbate the country’s macroeconomic problems and delay a much-needed IMF program. These factors increase the likelihood of a ceasefire in the next few weeks, although a definitive peace deal to end the war remains elusive. Until an agreement is reached, FX shortages will worsen and reform momentum will slow.
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