The Impact of COVID-19 Pandemic on Ethiopia’s Economy: Two Perspectives

By Asayehgn Desta, Sarlo Distinguished Professor of Sustainable Development
Tigrai Online Nov. 3, 2020

As the coronavirus started surging like a tidal wave throughout Ethiopia, The Ethiopian policy makers began preaching that staying at home, hand washing, mask-wearing, and maintaining social distancing would slow down the spread of the disease.   

Based on an illusion that the above policies would be fully implemented and thereby start rekindling Ethiopia’s economy, Prime Minister Abiy of Ethiopia (hereafter refereed to Abiy), in his briefing to the House of Peoples’ Representatives on October 19, 2020, boldly asserted that Ethiopia’s real GDP has increased by 6.1 percent in 2020.

Using the same data published by the Ethiopian Government, however, the International Monetary Fund (October 2020) reported that Ethiopia’s real Gross Domestic Product increased by only 1.9 percent in 2020 (October 2020).  

The Abiy’s Government and the International Monetary Fund (IMF) both rightly agree that Ethiopia’s economy has declined as the Ethiopian people underwent the coronavirus health crisis. Nonetheless, while Abiy implicitly assumes that Ethiopia’s GDP is recovering and the economic growth rate might reach its level from before the pre-COVID-19 baseline stage, the IMF report indicates that Ethiopia’s economy is still sliding downward and that its trajectory indicates that Ethiopia will record an economic growth rate of zero in 2021 (IMF, October 2020).   

Given these two irreconcilable perspectives, the aim of this paper is to trace Ethiopia’s economic status during the COVID-19 pandemic period. In simple terms, the study attempts to trace Ethiopia’s COVID-19 pandemic status, using the alphabetic-shaped analytical framework known as the V, W, U, K, and L curves.  

The V-shaped curve denotes a steep decline of the GDP followed by a quick recovery phase. The W-shaped curve, also known as a “double dip recession,” indicates sequential waves of downturn, then upturn, then another contraction of the GDP due to another wave of the outbreak of coronavirus. The U-shaped curve reflects that the GDP will bottom out in a recession for a long period before economic recovery emerges. The K-shaped curve indicates that after a recession, the economy faces different magnitudes during the same period. That is, while some sectors undergo recovery, others simultaneously face decline. Lastly, the least desired by any country is to see its economy undergoing the L-shaped curve, which demonstrates a long period of downturn (economic depression) without recovery of the GDP.     

As stated above, the V-shaped recessionary curve implies a steep drop followed by a sharp, rapid recovery of economic growth. Faced with an economic recession (a consecutive decline of the GDP for two quarters), responsible governments spend sufficient amounts on stimulus packages, offer direct payment to citizens, give loan guarantees and tax relief to businesses to mitigate the substantial economic decline, and make the economy bounce back to its pre-pandemic baseline. For example, during the recent COVID-19 episode, countries such as Denmark, Norway, South Korea, Taiwan, and Vietnam undertook public health mitigation efforts and used appropriate stimulus packages to save lives and livelihoods, and thereby were able to minimize economic loss (Bjorklund and Ewing, October 14, 2020).

Mapping out Ethiopia’s economy using the V-shaped curve, one can’t help but notice that the Ethiopian government has attempted to use monetary intervention, fiscal stimulus packages, price ceilings on essential items, lower interest rates, IMF support (through Rapid Financing Instruments), and other multilateral assistances to reinvigorate Ethiopia’s economic loss  induced by the coronavirus pandemic. However, since Ethiopia was faced with a fragile economic environment and poor health infrastructure prior to COVID-19, the allocated funds were insufficient to prop up businesses and customers.

Moreover, in Ethiopia, resistance persists to the stringent health-related preventive measures, such as stay-at-home and social distancing, that were imposed during the spread of the viral coronavirus, because the measures by and large emerged from the characteristics of industrialized countries and were not adapted to appropriately fit the Ethiopian condition (see Mobarak and Bernett-Howel, April 10, 2020).  For example, the “stay-at-home” policy couldn’t be practically implemented in the Ethiopian context because most people in Ethiopia work in the informal sector of the economy and depend on cash from daily hands-on-labor to feed their families. As Weldesdilassie and Woldehanna (2020) persuasively put it, four or five family members in Ethiopia live in a single room. Therefore, implementing blunt lockdown and social distance policies to curtail the spread of the COVID-19 virus is likely to cause disastrous damage to the Ethiopian economy.  

In short, as stated above, since the limited federal stimulus funds that were disbursed by the government were not sufficient and most of the health-related preventive measures were not appropriately designed to fit Ethiopian culture, in retrospect, it is possible to argue that they have hardly helped Ethiopia’s economy to bounce back to its pre-COVID-19 period.

Actually, it needs to be underlined that though unintended, the containment measures implemented by the Ethiopian government caused aggravated unemployment, made the prices of basic commodities skyrocket, and have contributed to the disruption of families’ lives and children’s education.

Therefore, instead of leaving everything up to governments that have perpetuated “Pandemic fatigue,” it would be better to encourage civil societies, local communities, church and mosque centers, and civic centers to play major roles in effectively socializing their adherents to use locally produced face masks and counter the lingering effects of the coronavirus pandemic. In other words, to strengthen communities and build resilience in Ethiopia against the coronavirus and other potential epidemics, community awareness and mass mobilization processes need to be set as vital preconditions (See Desta and Berhe, 2020).  

To summarize, for the last eight months, because of the coronavirus rupture, Ethiopia’s economy is at a stand-still and helplessly floundering in a U-shaped recessionary curve. It is most likely that Ethiopia’s economy will take a very long time to recover, because in addition to COVID-19, the Abiy’s Government is not doing anything substantial to settle the massive political unrest or sensibly handle the rampant human rights violations in the country.

For example, in the midst of the COVID-19 pandemic, not concerned about the downtrodden masses, Abiy was seen relaxing and driving toys at his resort and retreat center while some Ethiopian communities were battling huge and voracious swarms of hungry desert locusts. As narrated by Cullinan (30 July, 2020), early assessment of Ethiopia indicates that “…desert locusts have caused the destruction of nearly 800 square miles of cropland and more than 5,000 square miles of pasturelands, as well as the loss of more than 350,000 metric tons of cereal – resulting in 1 million people in need of food aid.”   

Thus, it is reasonable to conclude that Abiy’s statement to Ethiopia’s House of Peoples’ Representatives that Ethiopia’s GDP during the upsurge of coronavirus in 2020 has increased by 6.1 percent is a political ploy. Given that there are wide discrepancies between Abiy’s report to Ethiopia’s House of Peoples’ Representatives and the report published by the IMF, it is possible to argue that Abiy is self-absorbed and lacks respect for his constituents — the Ethiopian people.

References:

Baldwin, R. and di Maruro, B. (2020). “Mitigating the COVID Economic crisis: Act Fast and DO whatever it Takes.  A CEPR Press VOXEU.org e Book.

Bjorklund, K. and Ewing, A. (October 14, 2020). “The Swedish Covid-19 Response is a Disaster. It shouldn’t be a Model for the Rest of the World.”

Cullinan, M. (30, July 2020). “ The Impact of desert locusts in the Horn and Eastern Africa.”  Action against Hunger. Accessed at https://reliefweb.int/report/somalia/qa-impact -desert-locusts-horn-and eastern-africa.   

Desta, A. and Berhe, H. (2020). “Establishing Sustainable Handwashing Water Strategies to Manage the Spread of COVID-19 in the Regional State of Tigray, Ethiopia.”  

International Monetary Fund (October 2020).   “Regional Economic Outlook: Sub-Saharan Africa A difficult Road to Recovery.” International Monetary Fund; World Economic and Financial Surveys.

Rodeck, D. (July 15, 2020). “Alphabetic Soup: Understanding the Shape of a COVID-19 Recession”. Forbes Advisor.  Accessed at //www.forbes.com/advisor/investing//covid-19-coronavarius-recession-shape/. Retrieved October 19, 2020.  

Trading Economics, (2020). “Ethiopia GDP Annual Growth Rate”. Accessed at https://trading economics.com/Ethiopia/gdp-growth-annual.” Retrieved October 21, 2020.

Weldesiassie, A. and Woldehanna, T. (April 2020). ”The Economic Implications of  COVID-19 in Ethiopia and policy Measures”. Policy Studies Institute (PSI).