The result of these reforms is that investment has continued to flow into Ethiopia despite the sovereign default.
The challenges ahead
However, although the sovereign default did not unduly deter investors, there are still challenges facing Ethiopia.
Crucially for a country largely reliant on imports, Ethiopia’s foreign currency reserves are quite limited.
Much work remains to be done to reform the internal structures of the Ethiopian economy with the slow progress of implementing promised reforms acting as a brake on economic growth.
It is possible that the programme of reforms will pick up speed, but that will require both economic and political stability.
Unfortunately, neither can be guaranteed with Ethiopia still vulnerable to external shocks.
A resumption of the Tigray War is the biggest threat to this stability, with the last incidence of conflict resulting in investors and development partners freezing their budgetary support.
Still, the fundamental resilience of Ethiopia, and other emerging markets, should not be underestimated.
Ethiopia’s sheer potential makes it a shining light, despite the risks and the recent setbacks, and in many respects this reflects the wider picture across emerging markets.
The situation in Ethiopia may yet evolve in a way that discourages investment in the short-term. In the long-term, however, the future for investment in Ethiopia as well as other emerging markets looks promising.
Nicholas J Pascal is a partner at Vedder Price
