After weathering COVID-19 disruption remarkably well, Ethiopia’s outlook is becoming more uncertain. Despite supportive global conditions, the escalating Tigray conflict and squeezed public finances will cause growth to slow to 4.9% YOY in 2021.
While growth drivers such as public infrastructure investment, continued expansion of manufacturing, and liberalization of the telecom industry will provide opportunities for businesses, the Tigray conflict’s highly uncertain trajectory warrants ample caution. The private sector must also contend with persistently high inflation and chronic FOREX shortages that will squeeze margins through 2022.
Businesses should focus efforts on Addis Ababa, ensure their assumptions and targets reflect the economy’s slower growth dynamics, and consider offering financial support to local partners facing operational disruption. Executive teams need to monitor changes in the market as they finalize their 2022 strategic plans, particularly in these three key areas:
- Ethiopia will continue to deliver opportunities for businesses because performance will remain strong by Sub-Saharan Africa standards. However, the economy will not regain its pre-pandemic momentum because of escalating rural insecurity, faltering FDI, and substantial fiscal pressures.
- Double-digit inflation will curtail customer spending power, and steady depreciation of the birr will drive up the cost of imported products. Meanwhile, chronic FOREX shortages will persist, creating difficulties for companies trying to repatriate earnings, and raising risk of payment delays from customers and local partners.
- While consumers across all segments will prioritize essential spending, purchases of durable products will be less resilient. Lower-income consumer groups and those living in rural areas are more likely to limit spending and may defer discretionary purchases. However, higher-income households in Addis Ababa will be less directly affected.
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