Ethiopia went to the polls on Monday in what the government billed as a test of democratic maturity, but critics and international observers described as an exercise managed by the state. The election, the first since Prime Minister Abiy Ahmed came to power in 2018, took place under a state of emergency imposed last November. Mobile internet was cut in several regions, and opposition parties complained of harassment and vote rigging.
The United Kingdom, which sees Ethiopia as a key ally in the volatile Horn of Africa, has been pushing for a more inclusive process. But the Treasury’s patience has limits: aid to Ethiopia has been cut by 30 per cent over concerns about human rights abuses in the Tigray conflict. The City’s view is that stability in Ethiopia is a prerequisite for the kind of foreign direct investment the country desperately needs. Without it, the risk of capital flight rises, much like the yield on its eurobonds, which have already lost a fifth of their value this year.
For the Chancellor, the arithmetic is simple: democracy is expensive, and London’s ledger shows diminishing returns. The Bank of England may not be directly exposed, but the contagion of a failed state in a region already bristling with conflict is a risk no prudent manager would ignore. The market, meanwhile, is pricing in a prolonged period of uncertainty. The Ethiopian birr has fallen 15 per cent against the dollar in the past quarter, and inflation is running at over 20 per cent. These are not the metrics of a healthy economy, and they will not be fixed by a single election.
Prime Minister Abiy, who won the Nobel Peace Prize in 2019 but has since plunged the country into a brutal civil war, faces the most serious challenge to his authority since taking office. The Tigray People’s Liberation Front, which the government designated a terrorist organisation, is expected to hold its own parallel elections later this year. The result is a bifurcated political landscape that makes the UK’s push for democracy look like a hedge fund manager trying to value a startup with no financials.
The irony is not lost on the bond traders. For years, London has been a favoured destination for Ethiopian diaspora money, funding everything from real estate in Addis Ababa to the green coffee trade. That flow is now threatened. The Bank of England’s latest figures show a 40 per cent drop in remittances from the UK to Ethiopia since the war began. The cost of borrowing has risen sharply, with the spread on Ethiopian sovereign debt blowing out to over 1,000 basis points. A default is not priced in but is no longer unthinkable.
The UK Foreign Office, for its part, insists that a stable Ethiopia is in Britain’s national interest. But the Treasury is counting the cost. The logic of fiscal responsibility dictates that you do not throw good money after bad. And yet, the alternative is a failed state on the edge of the Red Sea, a crucial maritime route for global trade. The market hates uncertainty, but it also hates a vacuum. If the UK wants to maintain its influence in the region, it will have to pay the premium.
In the meantime, the ballot boxes are being counted. The official result is not expected for several days, but the market has already made its judgement. The FTSE 250 is down, and the pound is weaker against the dollar. The mood in the Square Mile is one of cautious pessimism. As one trader put it, ‘Ethiopia is not a buy-and-hold story. It’s a trade best left to the experts, and the experts are staying out.’
For the average Briton, the connection may seem distant. But the cost of instability in the world’s second most populous country in Africa will eventually be felt in higher commodity prices and tighter borders. And in Westminster, the debate over aid will only intensify, with MPs questioning why British taxpayers should bankroll a government that jails journalists and blocks the internet. The Treasury’s bottom line is clear: if Ethiopia wants London’s money, it must offer more than promises. It must deliver a democracy that works on paper and in practice.
