The City of London has watched with growing unease as Abiy Ahmed swept to a crushing electoral victory in Ethiopia. Yet for investors, the real story is not the ballot box but the battlefield. The Prime Minister’s renewed mandate raises the spectre of a resurgent conflict in the Horn of Africa. Gilt yields on Ethiopian sovereign bonds have already spiked, reflecting a market that prices in risk with brutal efficiency.
Britain’s diplomatic push for peace talks is laudable but may prove little more than a stopgap. The Horn has long been a theatre for proxy wars and resource struggles. Capital flight is already underway as foreign investors weigh the cost of exposure to a region on the brink. The Bank of England, meanwhile, watches from afar, concerned not just for stability but for the inflationary pressure of disrupted supply chains.
For the fiscally prudent observer, this is a textbook case of political risk. The PM’s victory speech may have focused on unity, but the market hears only the drums of war. The bottom line: Ethiopia’s fragile economy cannot sustain another bout of conflict. The road to peace is paved with austerity, not ceremony. And until the guns fall silent, the City will remain sceptical of any promises made in Addis Ababa.
