Ethiopia has had a few tough years. In 2020, conflict arose between the Ethiopian federal government and the Tigray People’s Liberation Front (TPLF). TPLF, the primary political party representing the northern Tigray region, alleged delays and irregularities in municipal elections. The allegations ultimately led to the invasion of Tigray by federal troops. The outbreak of the war has been devastating for the Ethiopian economy. The country’s GDP growth declined to as low as 3.8 percent from a decade-long average of 11 percent. It is also facing a monthly loss of USD 20 million in monthly export revenue by 2021.
The war between Tigray and the Ethiopian federal government came to an end through a permanent truce agreed upon in November 2022. But further risks of political destabilization ensure that economic damages from the war remain unresolved. Since April 2023, the Ethiopian federal army has fought on and off against Fano, an ethnic militia in the Amhara region. This has sparked concerns about the outbreak of another full-scale civil war. Fano, and many ethnic Amhara that support it, have objected to the federal government’s demand that they disarm. The objection is exacerbated by the fact that Fano supported the federal government’s war in Tigray with little compensation in return.
A railway in conflict
The threat of continued military conflict has been particularly damaging to the prospect of a major infrastructure project: the Addis Ababa–Djibouti railway. The railway was constructed between 2011 and 2016. China Export-import Bank provided USD 2.4 billion in loans out of the USD 4 billion in total investment. The loan stipulated an interest of 3.421 percent, with a six-year grace period and 15 years of maturity.
The long-term security for the railway will require the feuding ethnic groups in Ethiopia to agree upon the value of this transport link to all parties.
The large investment and quick repayment schedule for the railway were based on highly optimistic predictions about the railway’s revenues. The railway had the potential to become a central focus of Ethiopia’s rapidly growing economy at the time of its construction. Before its inauguration, the railway was predicted to bring in USD 100 million in yearly revenues. This was thought possible because the railway serves to replace the old Ethio-Djibouti Railway. Both railways serve as the main transport link between Ethiopia and the port at Djibouti, which handles 95 percent of the former’s international trade.
A gloomy future?
As Ethiopia plunged into civil war, the predicted revenues for the railway quickly proved to be overly optimistic. As of 2021, the latest year for which accurate data is available, the railway generated approximately USD 86 million in yearly revenues from passenger and freight trains. This is against approximately USD 70 million in yearly operating costs. With actual revenues below the USD 100 million predictions, it is becoming difficult for the Ethiopian government to adhere to the original 15-year repayment plan. The difficulty is compounded by increased military expenditures during the civil war.
Moreover, the underperformance of the railway can be attributed to the continued economic uncertainties in Ethiopia’s commercial environment in the aftermath of the war. In January 2022, the US, in response to the war in Tigray, terminated Ethiopia’s participation in the African Growth and Opportunity Act (AGOA). AGOA exempts African exports from import duty in the US. Ethiopia’s exclusion from AGOA reduces the incentives for foreign direct investment into the Ethiopian manufacturing sector vis-à-vis other African countries. Ethiopia’s garment industry is valued at more than USD 140 million in export volume in 2021 and centered around many Chinese-built industrial areas near the railway. The policy change threatens the very existence of this industry.
The end of the Tigray war is not likely to immediately increase volumes on the railway. Recent reports of ethnic conflicts among the Tigray, Amhara, and the ruling Oromos will continue to make foreign investors hesitant to put their money in Ethiopia. This is especially true for export-generating industries such as apparel. The suppressed exports would prove detrimental to increasing the shipment volume. Both manufactured goods as well as merchants moving to and fro Ethiopia to peddle them will be reduced. The suppressed volume will only further hurt the revenue and repayment of the loans that financed the railway.
What needs to be done
Turning around the commercial fortunes of the railway will, first and foremost, require a concerted security-based approach to boost its attractiveness as a transport link. The ethnic tensions among the Oromos, Amharas, and Tigrays are likely to persist in the coming years without significant mediation efforts. Considering this reality, the railway needs a long-term plan for protection from any potential damage and operational disruptions stemming from these ethnic conflicts. The railway can bring in passengers and freight only by reassuring the general public that travel on it is safe.
In the short term, more armed presence can help deter any ethnic violence from damaging the railway. As Africa’s fifth largest army with 150,000 soldiers, the Ethiopian army can devote some manpower to the task of protecting the railway. Considering the need for long-term security for the railway’s commercial viability, China would also likely be open to funding more visible armed protection for the railway. With cooperation between the two countries, the railway’s security can be enhanced.
However, long-term security for the railway will require the feuding ethnic groups in Ethiopia to agree upon the value of this transport link to all parties. The railway facilitates trade even for parts of Ethiopia via onward road connections in Addis Ababa and other stations along the railway. The railway’s value for trade will be increased further if its long-delayed extension to northern Ethiopia is completed. Concrete economic incentives should bring all ethnic groups to the negotiating table to keep this vital trade link open. With all parties underwriting the protection of the railway, Ethiopia may regain some of its appeal as a destination for establishing export-oriented manufacturing industries.
As a major conduit for Ethiopia’s external trade, the Addis Ababa–Djibouti railway is particularly vulnerable to changes in Ethiopia’s commercial environment. The railway was opened to much fanfare and optimism at a time of peace and rapid economic growth in Ethiopia. Much has changed in the years since, as the country struggles to maintain internal stability. While ethnic conflicts that underlie instability cannot be resolved overnight, security for the railway can be boosted to ensure it remains a vital transport link. As the railway performance recovers through increased security, it can serve as one bright spot in Ethiopia’s prospects for peace and development.
Xiaochen Su, Ph.D. is an educational and business risk consultant based in Japan. He previously worked in Tanzania for a US-based non-profit.