Joining BRICS - a new ray of hope for Ethiopia's economy?

Beset by economic hardships, Ethiopia's first days as a new member of BRICS were not easy.

The weakening global economy, the consequences of the Covid-19 pandemic, climate change, the special military campaign in Ukraine and the conflict in the Middle East are affecting Ethiopia. (Source: DW)

Just before the New Year 2024, bad news came to Ethiopia when the government in Addis Ababakhi could not pay the interest of 33 million USD on international government bonds.

In late 2023, Ethiopia’s finance ministry said it had attempted to renegotiate the terms of the bond ahead of the interest payment deadline. However, the parties failed to reach an agreement on extending interest payments and splitting payments on the country’s $1 billion bond debt, which is due to mature in December 2024.

The African nation is currently in talks with the International Monetary Fund (IMF) on a bailout package to shore up the country's recession.

Will the economy get back on track?

In August 2023, the BRICS group of leading emerging economies announced that it had admitted five new members: Egypt, Iran, the United Arab Emirates (UAE), Saudi Arabia and Ethiopia on January 1, 2024.

At that time, Ethiopian Prime Minister Abiy Ahmed happily shared: "This is an important moment for Ethiopia, BRICS leaders have approved our membership. Ethiopia is ready to cooperate with all parties for a prosperous and inclusive world order."

Joining BRICS offers a glimmer of hope in Ethiopia. Ethiopian Finance Minister Ahmed Shide told Chinese state broadcaster CGTN that the move was an important diplomatic gain for the country.

“Ethiopia will continue to cooperate with traditional partners. But the country will also significantly improve relations with new partners – such as the BRICS countries – whose economies are growing rapidly,” he affirmed.

"The decision to admit Ethiopia as a new member of BRICS came as a surprise!" - DW wrote.

In predictions about potential candidates to join the group, Ethiopia is rarely mentioned. Instead, there are "big names" such as Saudi Arabia, UAE, Iran, Argentina, Algeria...

Susanne Stollreiter, head of the Friedrich Ebert Foundation (FES) in the capital Addis Ababa, said the country had factors that played a decisive role in joining BRICS. Ethiopia is important from a geopolitical point of view. The country has the second largest population in Africa, so the economy has strong potential for future growth.

International media also assessed that since the early 2000s, Ethiopia has achieved an impressive annual GDP growth rate (averaging over 10%), making the country one of the countries with the highest growth rates in the world.

Thanks to its “unprecedented” growth and growing strategic importance in the region, Ethiopia has become an emerging “giant” in East Africa. The country has developed strong economic ties with China in recent years. Meanwhile, Indian companies are actively buying land in Ethiopia.

But first, says Susanne Stollreiter, the country must address its economic problems. Ethiopia is on the brink of default, short of foreign currency and running high on inflation. This is hurting its people.

The weakening world economy, the consequences of the Covid-19 pandemic, climate change, the special military campaign in Ukraine and the conflict in the Middle East are affecting Ethiopia.

Analyst Stollreiter hopes Ethiopia's efforts to connect with the world will get its economy back on track by expanding trade and boosting ties with trading and investment partners.

Financial support from BRICS

One of the founding ideas of BRICS is to counter Western dominance in international finance. Nearly 10 years ago, they started the New Development Bank (NDB) as an alternative to international institutions including the World Bank and the IMF. As the NDB grows, Ethiopia could benefit from new forms of financing.

This could help the African country escape its dependence on meeting Western-imposed conditions for receiving credit from the IMF and completely change the situation, said Lukas Kupfernagel, head of the Ethiopia office of the Konrad Adenauer Foundation (KAS).

Meanwhile, Mr. Seife Tadelle Kidane from the University of South Africa also believes that the NDB has the ability to push BRICS forward. With the financial support of this bank, countries can build infrastructure to promote growth and stability.

But he also warned: "There is no such generosity in international politics and economics. Every country is looking out for itself. Ethiopia should be flexible."

Source