Nosmot Gbadamosi
Last week, the Ethiopian Central Bank announced a major relaxation of foreign exchange controls in a bid to further liberalize the economy, attract foreign direct investment, and make it easier to do business in Ethiopia. The move comes shortly after Prime Minister Abiy Ahmed said that the country is projected to grow 10.2 percent this fiscal year.
Ethiopia was one of Africa’s fastest-growing economies, with average annual growth of around 11 percent, until 2020, when a two-year civil war broke out in its northern Tigray region. The war cost more than $28 billion in damages and economic losses, and more than 1 million people in northern Ethiopia still rely on humanitarian aid.
The country’s current economic rebound has been driven by reforms demanded by the International Monetary Fund, leading to stronger performances in agriculture, mining, and exports. An extensive reform program, which launched in July 2024, floated the birr, Ethiopia’s currency, and opened up key industries such as banking, telecommunications, and real estate to foreign competition.
The decision to let the market—rather than the state—determine the birr’s exchange rate severely devalued Ethiopia’s currency, leading to higher inflation rates and cost of living. Yet these reforms, as expected, boosted Ethiopian exports.
For instance, in its 2024-2025 fiscal year, Addis Ababa reported coffee export earnings of more than $2.6 billion, up from $1.43 billion the previous year—a major boost for a country that relies on coffee for around 30 percent of its export revenue.
Ethiopia secured this export growth despite its longtime suspension from the African Growth and Opportunity Act, the trade agreement that gives many African countries duty-free access to the U.S. market.
Although Washington removed Ethiopia from AGOA in 2022 due to human rights concerns related to the Tigray civil war, the United States remains a top destination for Ethiopian coffee. And while it faces 10 percent tariffs from the Trump administration, Ethiopia has pivoted to diversify its coffee exports in Asian and Gulf markets, specifically targeting growth in China.
Ethiopia’s economic performance is also being driven by surging gold exports, though this may be a temporary boon. Gold shipments increased from 4 to 37 tons in the last fiscal year, accounting for 42 percent of export revenue. Gold prices have hit record highs due to investor demand for safe assets amid global tariff threats from the Trump administration.
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Still, Ethiopia has yet to finalize debt restructuring under the G-20 Common Framework. Last year, Addis Ababa reached an agreement with foreign governments to restructure $8.4 billion in loans, with $3.5 billion in debt relief.
But private holders of Ethiopia’s $1 billion bond said earlier this month that they were prepared to sue after official bilateral lenders, led by China and France, blocked a preliminary agreement and required bondholders to take similar losses.
The overall picture is that Ethiopia is experiencing green shoots of economic recovery, but volatile geopolitical winds could undermine these gains—not least another military confrontation.
In the past week, reports have come out alleging Ethiopian involvement in Sudan’s civil war between the paramilitary Rapid Support Forces, RSF, and the Sudanese military. A Reuters investigation found that Ethiopia is hosting secret training facilities for the RSF near its border with Sudan.
Analysts suggest that by backing RSF fighters, Ethiopia is seeking to counter Egypt, a close ally of the Sudanese military. Ethiopia and Egypt are currently in an ongoing dispute over the Grand Ethiopian Renaissance Dam on the Blue Nile, which Cairo says threatens its water supply.
Support for the RSF would also align Ethiopia with the United Arab Emirates, which reportedly arms the RSF. The UAE has significant influence in the Horn of Africa and potential sway over coastal access points, strengthening Abiy’s bid to secure direct access to the Red Sea.
At the same time, rising military tensions with Eritrea—as well as fresh fighting in the Tigray, Amhara, and Oromia regions—also threaten to disrupt Ethiopia’s economic trajectory.
Foreign Policy’s Africa Brief
