Ethiopia and BRICS
Written by Tyler Alexander; Edited by Andrew Ma
Published on October 31st, 2024
Introduction
On January 1st, 2024, Ethiopia officially joined BRICS, after being invited in August 2023. BRICS (named after its founding members: Brazil, Russia, India, China, and South Africa) is an intergovernmental organization that can be broadly understood as a political and economic counterweight to Western-dominated organizations like the OECD, the International Monetary Fund, and the World Bank. Membership promises stronger economic ties with other member states and a coveted spot in a group that seeks to shift the global balance of power toward the developing world. It’s an attractive proposition, and according to Russian President Vladimir Putin, 34 countries have expressed an interest in joining.
Ethiopia’s year-to-year inflation rate.
Importantly for Ethiopia, joining BRICS means likely access to the New Development Bank (NDB), BRICS’ multilateral development arm run by developing countries, for developing countries. While developing nations receive the vast majority of the IMF and World Bank’s funds, they do not hold the majority of decision-making power, since both organizations use a vote system weighted by GDP and capital contributions. By contrast, the NDB’s founding members make equal financial contributions and have an equal voice in the decision-making process. Furthermore, the NDB has committed to a higher risk appetite, signaling that it is willing to lend money to countries traditionally passed over by the risk-averse legacy development banks.
To many international observers, Ethiopia was not an obvious candidate for BRICS membership. Ethiopia is by far the poorest and least developed member of the bloc. It was not even the obvious choice for a sub-Saharan African representative: Nigeria was arguably better suited for the role with its larger population and economy, but it has not applied, according to its foreign minister.
The Ethiopian economy is beset with numerous crises: the inflation rate was a punishing 30.2% in 2023, down from 33.9% in 2022. Ethiopia owes $28.2 billion in foreign debts, but persistent foreign currency shortages are making it difficult to service them. The government ran a fiscal deficit in 2022, as defense expenditures increased and revenue collection fell.
Further compounding Ethiopia’s economic woes are the damages from its recent civil war. From 2020 to 2022, the government fought in a brutal, internecine conflict with rebel paramilitaries in the northern region of Tigray. The conflict has killed hundreds of thousands of civilians, internally displaced millions of Ethiopians, and created a famine under which almost half of Tigray’s population is thought to suffer. Beyond the unimaginable human toll, the war inflicted an estimated $20 billion of damages to Ethiopia’s infrastructure and agriculture.
In December 2023, Ethiopia became the third African country in as many years to default when it failed to make a $33 million coupon payment on a Eurobond (a bond issued in foreign currency, in this case USD) it had issued. It was but another indicator of Ethiopia’s poor fiscal health. As Gurjit Singh, the former Indian ambassador to Ethiopia, so pithily put it, “This was not what BRICS was originally looking for in its members.”
Port of Berbera: Ethiopia’s bid for Red Sea access
What Will Ethiopia Gain?
Joining BRICS is a huge break for Ethiopia, one that it desperately needs while it sets its house in order. There is, of course, the promise of stronger economic ties to the world’s wealthiest emerging economies. Ethiopia already has good relations with South Africa, Russia, India, and China (to whom half its foreign debt is owed). Ethiopia’s accession may go a long way in legitimizing it for foreign direct investment: if BRICS has faith in it, why shouldn’t the rest of the world?
BRICS membership may also serve useful geopolitical ends for Ethiopia. Ethiopia has been fighting for access to the sea ever since Eritrea broke away in 1993 and left Ethiopia a landlocked country. On January 1st, 2024, the same day it officially became a BRICS member, Ethiopia struck a deal with the breakaway state of Somaliland: in return for Ethiopian access to the port of Berbera, Somaliland would receive a stake in Ethiopian Airlines, and the promise that Ethiopia would take steps to recognize Somaliland as a sovereign country. Somalia vehemently condemned this deal as a violation of its own sovereignty. Prior to this, Ethiopia had signed a memorandum of understanding (MoU) with DP World – an Emirati company – agreeing to develop the port of Berbera and the transportation corridor leading there from Ethiopia, with the hopes of turning the port into a commercial hub for East Africa. Ethiopia and the UAE are now both members of BRICS (the UAE having joined the same day), with a strong mutual interest in developing commercial infrastructure around the Red Sea. The UAE could also intervene if tensions with Somalia ratchet up.
However, what Ethiopia desires above all else is access to external financing. It has been pushing hard to become a member of the New Development Bank, which, while not presently fully operational, could provide valuable financing for the war-ravaged nation. Western countries, while still supportive of humanitarian efforts in Ethiopia, have begun to cut back their economic ties. In 2022, the Biden-Harris Administration, citing “gross violations of internationally recognized human rights… by the Government of Ethiopia and other parties amid the widening conflict in northern Ethiopia,” suspended Ethiopia from the African Growth and Opportunities Act (AGOA), which allowed duty-free access to U.S markets for certain goods. This suspension was met with outrage, as 45.3% of Ethiopian exports to America were covered by AGOA. Perhaps Ethiopia’s turn towards BRICS can be seen as a signal to the West that it can go elsewhere if it refuses to play ball.
Furthermore, financing via the NDB may be less stringent than financing from the IMF. Ethiopia struck a $3.4 billion financing deal with the IMF in July 2024, but had to float its currency as part of the deal. As a result, the Ethiopian birr fell 30% against the dollar—something that analysts worry may aggravate Ethiopia’s already-high inflation. Financing from the NDB may not have such requisites.
What Will BRICS Gain?
The Addis Ababa metro. Investments in physical infrastructure have helped Ethiopia’s growth.
With all this said, how exactly does BRICS benefit from taking on liability-laden Ethiopia as a member? Simply put, Ethiopia shows enormous growth potential in the coming decades. In spite of its current economic predicament, Ethiopia’s GDP is growing at a very healthy rate. Between 2004 and 2023, Ethiopia’s output grew an average 9.55% per year. In 2023, Ethiopia’s GDP grew by 7.2%, better than any of its neighbors and among the highest growth in the whole world. Much of Ethiopia’s GDP growth can be attributed to its population growth. Ethiopia is the second most populous country in Africa at 126 million people, having nearly doubled from a population of 67 million in 2000. Ethiopia’s population growth, while declining, has remained between 2.5% and 3% for the past 24 years, during a time when populations are stagnating or even declining around the world. Perhaps BRICS has recognized Ethiopia’s potential for growth and has chosen to partner with Ethiopia in the hopes that it can grow into the role of a regional or even global power.
Furthermore, Ethiopia has proven itself to be economically resilient. Ethiopia is finally making progress on a debt restructuring deal with the IMF, after years of delay caused by the pandemic and the conflict in Tigray. Inflation, while high, has declined from its peak in 2022. Perhaps BRICS reckons that with greater patience and risk appetite, it can help Ethiopia overcome these problems.
Conclusion
Crucially, Ethiopia’s accession should not be seen as turning its back on the West. Ethiopia remains strongly linked with the US and the EU: the US has sent $243 million in humanitarian aid to Ethiopia for the 2024 fiscal year, as of April 2024. Ethiopia continues to work closely with the IMF to secure financing and service its debts. Rather, BRICS should be seen as a complementary avenue for Ethiopia, and not an alternative one.
Whether Ethiopia can leverage its newfound connections to solve its economic crises, and whether BRICS will ultimately profit from taking a chance on Ethiopia, remains to be seen. Regardless, joining BRICS is a big opportunity for Ethiopia at a crucial time in its history, one that it would do well not to squander.
