Conflict Recovery Could Require USD 44 Billion In Five Years, Study Reveals

Gov’t conducting new damage assessment

A new study reveals that the amount of investment required for Ethiopia to recover from the devastation of the two-year northern war could be upwards of USD 44 billion.

The study was conducted by experts at the International Food Policy Research Institute (IFPRI), International Livestock Research Institute (ILRI), and Ethiopian Policy Studies Institute (PSI). The researchers presented their papers during a conference under the theme ‘Rebuilding Livelihoods in Conflict-Affected Communities in Ethiopia’ organized at the ILRI campus in Addis Ababa’s Gurd Shola neighborhood on May 29, 2024.

Several research papers on the depth of the consequences of conflict in Ethiopia, including effects on the economy, casualties, livelihoods, and communities, were presented. Experts presented estimates for damages computed for the period between 2020 and 2022, which does not include estimates for damages caused by conflicts that have erupted since in the Amhara and Oromia regions.

The research took into account destruction, disruptions, diversions, and dissaving, and economic loss calculations were conducted based on Computable General Equilibrium (GCE).

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The data reveals that, based on reported damage, Ethiopia lost 7.5 percent of its GDP to the conflict. Another scenario, which is calculated based on reported damage in addition to upward adjustments, estimates that the losses may have been as high as 12 percent of GDP.

Private consumption dropped by 8.3 percent or 15.3 percent, depending on the method used for calculation.

Experts said that in the Tigray, Amhara and Afar regions, the destruction of human, physical and natural resources, disruption of normal order of businesses including movement of goods and people, and provision of services due to breakdown of infrastructure and insecurity had reached an all-time high in recent years.

They also presented a ‘moderate’ recovery trajectory forecasted with the assumption that Ethiopia would recover within five years (by the end of the 2026/27 fiscal year) and an ‘accelerated’ recovery trajectory that would see recovery within three years between 2022/23 and 2024/25. However, since the time frame for the second trajectory is already lapsing, experts have opted to estimate recovery costs using the moderate trajectory.

It reveals that if the impact of the conflict is taken to be 12 percent of GDP, it would take no less than USD 44 billion in investments before the end of 2027 to recover to pre-war levels. Assuming damages were 7.5 percent of GDP, investment over the five-year period would need to be near USD 30 billion.

The figures are not far off from initial assessments from the Ministry of Finance, which estimated recovery costs at USD 28 billion a year ago.

Last week, Ahmed Shide, minister of Finance, told Parliament that the government is conducting a new damage assessment.

“The assessment we conducted before did not include all parts of the conflict areas. There are also damages incurred due to continued conflict after the northern conflict ended. Hence, we’re currently conducting a new assessment. It’s essential in order to roll out an equitable and just recovery plan,” he told lawmakers.

Tigray regional officials have been complaining that the Ministry’s initial assessment did not cover the region well, and have since announced the regional administration is conducting its own door-to-door assessment.

Ahmed also said the nationwide recovery works will not start until the assessment is completed by next year.

But in November 2022, Redwan Hussien, former security advisor to the Prime Minister and federal government representative during the peace talks that ended the fighting, said Ethiopia required USD 20 billion to reconstruct schools, health centers, and other infrastructure in the Afar, Amhara, and Tigray regions.

Alemayehu Seyoum (PhD) is a senior research fellow and program head at the IFPRI. He was among those who conducted the research and presented it during the conference.

“Shocks have for so long significantly defined the growth process of Ethiopia. Knowing how much burden they impose and how long it will stay is very important,” said Alemayehu. “Obviously, the conflict has direct and indirect costs. The data for the direct cost is based on government-collected information while the indirect cost is unobserved.”

Alemayehu stresses that for the recovery to go smoothly, considerable investments are required to boost productive capacity, recovery and reconstruction, and productivity at the same time.

However, he believes that the bulk of these investments may have to be financed using domestic resources, underscoring the need for coherent and extensive effort to attract foreign direct investment and increase support from development partners.

Points of observation on the two recovery plans include more efficient use of resources in the public sector, including rationing government recurrent expenditure, and peace and security stability.