UAE initiative promises much-needed relief for cash-starved Ethiopia

At the end of Sheikh Mohammed's visit, the UAE pledged $3 billion in aid and investment to Ethiopia.
Friday 22/06/2018
Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al-Nahyan (L) meets with Ethiopian Prime Minister Abiy Ahmed Ali  during an official visit to Addis Ababa, on June 15. (Crown Prince Court)
Timely visit. Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al-Nahyan (L) meets with Ethiopian Prime Minister Abiy Ahmed Ali  during an official visit to Addis Ababa, on June 15. (Crown Prince Court)

Abu Dhabi Crown Prince Sheikh Mohammed bin Zayed al-Nahyan's visit to Addis Ababa was timely. Ethiopia has become party to many problems, including a dispute over the Nile and its basin, issues in the Horn of Africa and those related to Ethiopia’s strategic position with respect to Yemen.

Undoing crises requires that one approaches them through their causes rather than their consequences and that is precisely the approach taken by the United Arab Emirates. The Arabs, unfortunately, have limited knowledge about the insides of Ethiopia but the Ethiopians have an excellent knowledge of the Arabs. This is why arriving at the right solutions, especially in the case of the waters of the Nile, has become difficult.

At the end of Sheikh Mohammed's visit, the UAE pledged $3 billion in aid and investment to Ethiopia, which will positively affect Ethiopia’s low foreign currency reserves.

The UAE initiative was a smart move because it was not carried out in the spirit of just a formal gesture towards yet another country lacking the capacity to attract foreign investment either because of poor infrastructure or of flagrant corruption.

International Monetary Fund data indicate that, from 2004-07, Ethiopia’s economy grew at an annual rate of 10%, the highest worldwide. In 2015, the World Bank classified Ethiopia among the countries with fast-growing economies. Ethiopia’s GDP that year jumped 11%.

The Ethiopian economy, however, soon faced a tremendous challenge because of an error in fixing priorities. While the country had built an excellent investment infrastructure, it decided to raise wages at significant rates, thus initiating an inflation cycle.

By the end of 2012, inflation in Ethiopia was 22%. When the economy was growing fast, growth did not trickle down to people’s incomes, which had remained among the lowest in the world. Most of the economic gains went into creating the appropriate infrastructure with an attention to building dedicated zones for light industries. So many such zones have been created that Ethiopia leads Africa in light industries.

Another problem that afflicts Ethiopia’s economy relates to arable land. By constitutional right, the state owns all public land but the general population has the right to lease that land. So those who can afford it rushed to lease from the state much of the available land. The state, however, needed to take some of the land back for infrastructure projects and agricultural production dropped.

Because of rampant inflation, the state was unable to develop needed irrigation infrastructure to deal with chronic drought. Basically, the state chose to develop the service sector at the expense of the agricultural sector despite that the latter employs 85% of the labour force and is crucial to the country’s economy.

These factors have put a damper on Ethiopia’s dream of a water paradise, hence the importance of the Grand Renaissance Dam project.

There are 14 spring rivers in Ethiopia and one of them is a tributary of the Nile. Ethiopia has the largest water reserves in Africa and produces 89% of its electricity from environmentally friendly hydroelectric turbines. To get hard currency, Ethiopia sells some of its electricity. All urban zones and 10% of rural areas in Ethiopia are electrified. Ethiopia controls about 81% of the Nile’s waters collected in lakes on the Blue Nile or in Subat and Otbara Rivers.

Ever since the 1959 Nile Agreement between Egypt and Sudan by which both countries claimed exclusive rights to the waters of the Nile, Egypt has used both its friendly relations with former Ethiopian Emperor Haile Selassie’s regime and its weight in Africa to undermine Ethiopia’s Nile projects.

Returning to Abu Dhabi’s initiative, the adopted approach considers the real causes of the crisis between Ethiopia and Egypt and the objective realities of the Ethiopian economy.

In fact, Ethiopia has no vital need for augmenting its electricity production through the construction of the biggest hydroelectric power plant in Africa, a project that will lessen Egypt’s and Sudan’s shares of the Nile waters.

Ethiopia need not fix its inflation problem and get more hard currency by selling more electricity while causing damage to Egypt. Ethiopia’s financial worries can be managed through more foreign investments in the country and this is where the UAE’s initiative comes in.

UAE founder, Sheikh Zayed bin Sultan al-Nahyan had left a deeply rooted tradition of generosity and goodwill towards all. Thus, the UAE was willing to help Ethiopia find opportunities and bring about satisfactory solutions to the Nile crisis.