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Ethiopia plays Europe off China in bid to boost investment

This article is part of the occasional series EU in Africa.

ADDIS ABABA, Ethiopia — For the past fo..

This article is part of the occasional series EU in Africa.

ADDIS ABABA, Ethiopia — For the past four years, Welibuw Buzenehe watched as China built a new national sports stadium in the heart of the Ethiopian capital.

Located deep in Addis Ababas commercial center, the soon-to-be-finished structure towers some 40 meters above the ground, and will have a capacity of 62,000 people.

“China is building this city from the ground up,” said Welibuw, a local food seller in the area around the stadium. “Without China, not much would happen around here.”

The roughly $160 million construction project is one of many highly visible, Beijing-backed mega-projects — from hydropower dams to skyscrapers — that have helped make China Ethiopias largest trading partner.

“Western governments, led by the U.S., appear to like what Prime Minister Abiy is trying to achieve and they want to help him move forward with his reforms” — Zemedeneh Negatu, investor

But recently, efforts by Ethiopias firebrand prime minister, Abiy Ahmed, to modernize the economy, privatize state-owned companies and reduce the countrys debt burden are shifting the power dynamics in the country.

Abiy, analysts say, is positioning the country to leverage competition between the West and China to attract even greater investment — and reduce the countrys dependence on Beijing.

In December, Ethiopia received a $9 billion injection of financial aid from Western donors, the International Monetary Fund and the World Bank. The influx of cash could upend 15 years of Chinese dominance and spark unprecedented interest from Europe and America, investors, economists and political analysts say.

“The granting of this money sees the West countering China in a very tangible way, in one of the more politically and economically important and consequential countries in Africa,” said Zemedeneh Negatu, an Ethiopian-American investor and global chairman of the Fairfax Africa Fund.

Ethiopian Prime Minister Abiy Ahmed has attempted to modernize his countrys economy | Lysberg Solum/NTB scanpix/AFP via Getty Images

“Western governments, led by the U.S., appear to like what Prime Minister Abiy is trying to achieve and they want to help him move forward with his reforms.”

New potential

For Europe and America, Ethiopia — one of Africas fastest growing economies and the continents second most populous country after Nigeria — has become too big of a prize to ignore.

The IMFs disbursement was the first time in over a decade the Fund lent money to Ethiopia. The amount — $2.9 billion — also represents one of the highest levels of financial assistance that can be provided under the organizations lending rules.

Observers chalk up the bodys decision to approve the cash to the leadership of Ethiopias prime minister, who — despite criticism that he has not done enough to quell deadly fighting between Ethiopias ethnic groups — is seeking to embark the country on a new path.

A core part of Abiys agenda is an effort to overhaul the countrys economic model of heavy state investment, which economists widely agree has run out of steam.

As part of that push, the prime minister has surrounded himself with a tightly knit group of young, liberal-minded technocrats with international experience to raise private capital and privatize key sectors such as the telecommunications market.

“There are some that say we are adding more debt to the countrys already high debt. But borrowing from the IMF and the World Bank is like borrowing from ones mother” — Abiy Ahmed, Ethiopian prime minister

“A key objective of the governments economic reform agenda is to sustain Ethiopias growth by tackling emerging fiscal and current account deficits,” said Mamo Mihretu, Ethiopias chief trade negotiator and a senior adviser to the prime minister.

Abiys efforts havent gone unnoticed. In October, he won the Nobel Peace Prize for his efforts to end Ethiopias long-running war with Eritrea and to bring greater political and economic freedoms to a country that had suffered for decades under oppressive regimes.

The award appears to have gone a long way toward lionizing his image on the world stage. Despite hundreds dying in ethnic clashes and anti-government protests demanding more autonomy from the state since he came to power in April 2018, Abiy has become the poster child of a modern Africa full of economic potential.

The reforms are creating “opportunities for Western businesses to invest in Ethiopia,” even as they are altering Ethiopias relationship with China, said Abdulmena Mohammed Hamza, an economist specializing in banking at the Edinburgh Business School.

A changing relationship

Over the course of the last decade, Ethiopia has become increasingly dependent on Chinese investment.

The Export-Import Bank of China put up $2.9 billion of the $3.4 billion railway project connecting Ethiopia to Djibouti, providing the landlocked country access to ports. Chinese funds were also instrumental in the construction of Ethiopias first six-lane highway — an $800 million project — the metro system, and several skyscrapers dotting Addis Ababas skyline.

Beijing also accounts for nearly half of Ethiopias external debt and has lent at least $13.7 billion to Ethiopia between 2000 and 2018, data compiled by John Hopkins University School of Advanced International Studies shows.

But finance ministry figures show that Beijing has begun to taper the amount it lends to Ethiopia in recent years — from $1.47 billion in the 12 months from July 2014 to $630 million in 2017.

Beijing lent at least $13.7 billion to Ethiopia between 2000 and 2018 | AFP via Getty Images

Diplomats and observers of Ethiopias economy say that Beijing has grown frustrated after major investments such as the Djibouti railway line failed to generate sufficient revenues.

Chinas partial retreat has thrown into relief Ethiopias indebtedness to Beijing. Observers say upending that equation is perhaps the greatest motivation for Ethiopias opening up to the West.

Speaking at a conference in Addis Ababa in December, Abiy went as far as to say the terms of Chinese loans had damaged the Ethiopian economy.

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