Committee: Economic and Financial Affairs Council - C2
Agenda: Economic Resonance during COVID-19
Goals: Overcome the economic crisis impact
Delegate of: Federal Democratic Republic of Ethiopia
Represented by: _______
COVID-19 crisis has created extraordinary circumstances which have an impact on various areas. The Ethiopian government moved swiftly to implement containment measures, first responses have been the scattering national policy initiatives leading to severe limitations with regards to freedom of movement and an overall increased concentration of power in the hands of the executive branches which largely turned to govern by decree in order to legislate the lockdowns. As an extraordinary step, the government pardoned more than 4,000 prisoners to prevent the spread of the virus through the prison system.
The lockdown measures put in place by the Ethiopian government are rapidly causing the unraveling of an economic crisis which has the potential to be of bigger proportions than the recession of 2008. The paralyzation of most economic activities translates into a simultaneous business and employment crisis. The unemployment Rate in Ethiopia has increased to 2.08%. National Bank of Ethiopia set aside a 15-billion-birr ($450 million) liquidity facility for private banks to support their clients, especially businesses adversely affected by Covid-19. Ethiopia’s financial sector is in its infancy, dominated by the state-owned Commercial Bank of Ethiopia (CBE), with about 57% of deposits and 45% of profits from the total of 18 lenders.
Furthermore, due to the difference in loaning abilities between countries, there is a risk of an asymmetric financial crisis that would disrupt Ethiopia’s integrated monetary and economic cohesion for decades to come. Ethiopia has a substantial amount of debt: external debt and domestic debt account for approximately 30% and 27% of the GDP, respectively. Servicing external debt was already a stretch for the government’s budget prior to the pandemic. The constraints on the country’s balance sheet have been exacerbated in the last few months. Unless crushing debt payments are delayed, the International Monetary Fund (IMF)’s emergency funding of $411 million and the World Bank’s $82.6 million are a drop in the bucket.
The country’s foreign exchange is weak and poses a significant near-term challenge to its economy. Already, the exchange rate has fallen to 33.53 Birr/$1 at the end of April 2020, representing a 15-17% depreciation from the same time last year, according to conversations with the Ethiopian Ministry of Finance officials. The country’s foreign exchange status can be attributed to its poor-performing sectors, particularly its national airline, agricultural exports, hospitality sector, and production targets.
Ethiopian Airlines, the country’s largest foreign exchange earner, saw a decline in revenue of over $550 million between January and April 2020. This is particularly worrisome as the airline supports over 1 million jobs and contributed over 5% of Ethiopia’s GDP in 2019.
Ethiopia’s agriculture exports— 60% of total exports in 2019 have also been dealt a major blow as demand slows in major European and North American trading partners. The agriculture sector is the largest employer in the country and generates significant foreign exchange for Ethiopia, particularly coffee and oil seeds. According to Deloitte, Ethiopia’s agricultural exports as of April 2020 were only at 20% of their usual volume, translating into a year-to-date (YTD) loss of about $132 million. In addition, a significant amount of Ethiopia’s cropland and pastures have been impacted by a locust invasion, pushing over one million people into hunger.
Ethiopia’s hospitality sector has collapsed as travel bans have gone into effect around the world. The collateral damage is significant as hospitality accounts for over 8% of the total employment in the country. At the same time, Ethiopia’s manufacturing sector—a key focus of the government in recent years—has weakened due to the disruption in supply chains worldwide. Ethiopia’s textile and apparel industries, in particular, have been affected by supply shortfalls in China, as well as the slowdown in demand in Europe and North America.
However, numerous governments are promoting measures aimed at alleviating the situation for businesses and employees. Using peacebuilding networks of the project’s boundary partners, and collaborating with the EU funded Resilience Building and Creation of Economic Opportunities in Ethiopia project (RESET II) and Woreda Administrations. SEEK (SELAM EKISIL) project is raising awareness of Covid-19 and cholera as well as distributing sanitary items, personal protective equipment (PPE), and hand washing containers to households, health facilities, and local markets. With a small grant from SIPED II, the land rehabilitation effort aimed to restore 310 hectares to improve local livelihoods. Based on past experience and the area’s topography, the project used “level soil bund construction” to reduce soil erosion, degradation and deforestation.
The situation led the then-Ministry of Federal and Pastoral Development Affairs, the current Ministry of Peace and USAID to select the area for a project to build community-government engagement to reduce land degradation through the SIPED II program. Funded by USAID and implemented by Pact, SIPED II is increasing the resiliency of Ethiopian communities to manage and respond to conflict.
While liquidity has been made available to the banks, the impact of such measures can only be assessed in terms of their positive effects on the businesses they were intended to reach. It is also critical to engage and encourage private sector creditors to participate in debt relief efforts. The government plans to sell 40% of the state-controlled telecommunications monopoly as it moves to open up the industry to international operators for the first time. The government should press ahead in these efforts to bring about much-needed investment, job growth, critical revenue in the government treasury, and much-anticipated mobile money efficiencies for customers.
The Ethiopian government has considered subsidizing with the Development Assistance Group (DAG) $1.6 billion of emergency funding to help keep them afloat during this crisis. The U.S. Embassy has a variety of funding opportunities available to Ethiopians and has granted $4.3 million to 300 projects that benefited more than 7 million people in all regions of Ethiopia. The government is also currently formulating a 10-year prospective development plan with the UN for the period 2019/20 to 2029/30 which is fully aligned to the 2030 agenda and SDGs. The World Food Programme (WFP) supports this goal through a range of lifesaving and resilience-building activities, targeted at vulnerable populations experiencing acute and chronic food needs (including refugees and IDPs) and those at risk of malnutrition.
I think the government should see this as an opportunity to investment in public goods such as welfare, education, research and healthcare, thereby came up with Recovery Action Plan: A Green Deal based on disinvestment on carbon-intensive sectors and investment in carbon-neutrality of production, transportation and delivery of energy and goods. The economic crisis resulting from the current health crisis must not become an excuse to delay the action on climate and environmental sustainability – this would only create even more severe problems in the future both for the economy and public health. Instead, Ethiopians must see the synergies between the massive investments that will be necessary to boost the economy and the urgently needed investments in the green transition. When thousands of Ethiopians lose their jobs due to COVID-19, let us make sure the new jobs we stimulate are green jobs, for example by investing in energy renovation of buildings and electrification of the transportation system.
To finance this plan, new resources need to be at disposal of the Union. The Multiannual Financial Framework (MFF) needs to be bigger than the currently negotiated proposals. New forms of autonomous resources for the country should be developed while envisaging the possibility to use a new common financial instrument, directly managed by the Union and targeted on the member’s states’ implementation of the objectives and the measures as set out in the Action Plan.
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In Ethiopia: more than 4,000 prisoners to be released for fear of coronavirus ▷ Africa BuzzFeed
• Ethiopia - unemployment rate 1999-2020 | Statista
National Bank of Ethiopia to inject $450 million as liquidity for private banks | Nasdaq
Financing for Ethiopia’s development - Ethiopia Insight (ethiopia-insight.com)
Ethiopia Battles the Pandemic and Its Economic Consequences | Center for Strategic and International Studies (csis.org)
RESET Plus: Innovation Fund for Resilience in Ethiopia - ICCO EN (icco-cooperation.org)
Keeping it local: How the SEEK project (Ethiopia) has helped boost the local economy and contributed to peace in cross-border areas during COVID-19 | EU Emergency Trust Fund for Africa (europa.eu)
Restoring farmland and livelihoods builds peace in Ethiopia | Pact (pactworld.org)
Africa News: Ethiopia to Open Telecoms Industry to Investors - Bloomberg
Ethiopia Requests $1.6b Emergency Funding (addisfortune.news)
Funding Opportunities | U.S. Embassy in Ethiopia
https://ethiopia.un.org/en/sdgs
Ethiopia | World Food Programme (wfp.org)
