The most recent Deloitte report on the macroeconomic outlook for East Africa, titled “Resilience through tough times,” revealed that, the Russia-Ukraine conflict is expected to have an adverse influence on Ethiopia’s economy as well as that of the continent of Africa through disruptions to agricultural production and supply chains.
Given that food costs a greater percentage of household income for the poor in Africa, the rise in food prices has fueled inflationary pressures, which could worsen malnutrition and poverty.
The report’s key economic indicators and forecasts for Ethiopia are listed below.
- Ethiopia’s GDP grew by 6.3% in 2021, higher than the projected 4.0% growth, supported by recovery in the key sectors. The GDP growth is expected to slow down to 3.8% in 2022.
- The ETB averaged ETB 43.8/USD in 2021 in line with government’s efforts to control inflation. The ETB is expected to depreciate further to ETB 55.4/USD in 2022 as a widening trade deficit will negatively impact foreign-currency inflows.
- The fiscal deficit to GDP ratio increased from 3% in 2020 to 4.8% in 2021, compared to the forecast of 6.3% of GDP. The ratio is expected to widen to 5.2% in 2022 owing to higher defense and rehabilitation expenditure.
- Ethiopia’s foreign exchange reserves stood at USD 3.3bn (1.9 months of import cover) in 2021. This is a 3.2% increase from the projected USD 3.2bn. The forecast for 2022 is an increase to USD3.5b (2.0 months of import cover).
- Ethiopia attracted USD 2.4bn worth of Foreign Direct Investment (FDI) inflows in the first nine months of the fiscal year 2021/2022, an 18.8% increase compared to a similar period in the previous fiscal year.
Ethiopia’s energy costs and food inflation in 2022 have risen significantly as a result of negative spillovers from the Russia-Ukraine conflict. The internal military conflict, as well as rising healthcare and election costs, also contributed to this, according to the report.
The report went on to say that Kenya, Uganda, Tanzania, and Ethiopia imported goods from Russia worth a total of USD 660 million in 2020, demonstrating the region’s reliance on Russian trade.
Wheat, fertilizers, and newsprint were the most heavily imported Russian products. Wheat, on the other hand, was the most important, accounting for 50.2% of total Russian imports in 2020.
Ethiopia’s total wheat imports from Russia and Ukraine in 2020 were USD 52.6 million.
Ethiopia had a much higher reliance on Ukraine, with its imports totaling USD 269 million in 2020. Compared to what Kenya imported from Ukraine in the same year, this was USD 199 million more, reads the report.
This shocked many contemporary Ethiopian economists to learn that Eastern Europe, particularly Russia and Ukraine, had a significant impact on the country’s agricultural and food markets, not only through supplies but also agricultural inputs like fertilizer and oil.
The Ethiopian government has implemented various ways to mitigate the supply chain disruptions from the Russia Ukraine war said the report, which includes:
- Allocation of ETB267bn worth of loans to the private sector in the 2021/2022 budget with 34% of the beneficiaries in the agriculture sector; and
- Implementation of a nation-wide wheat planting campaign in a bid to increase local wheat output by 70% by the end of 2022.
In addition, the report states that the Ethiopian government has increased domestic wheat production, with a forecast of 2.4 million tons in 2022 compared to 1.2 million tons in 2021, in an effort to alleviate drought and lessen supply chain disruptions linked to the conflict in Russia and Ukraine.
The report also emphasized the government’s effort to control the country’s high inflation by issuing Franco Valuta on April 8, 2022, allowing imports of essential food commodities to take place without the need for foreign exchange permits.
In general, Deloitte predicted that Ethiopia’s inflation to rise to 28.8% in 2022, owing to the country’s weak manufacturing and agricultural sectors, reliance on imported food, rising fuel costs, and ongoing currency depreciation.
The opinions expresses here in the post "Russia-Ukraine Conflict has a Deep Negative Impact on Ethiopia's Economy, Says Deloitte" are those of the individua's contributor(s) and do not necessarily reflect the views of Business Info Ethiopia , BIE Intelligence PLC, its publisher, editor, or any of its other contributors.