Navigating the Political Risk Landscape in Ethiopia

Background

Ethiopia, a nation with a rich history and strategic geopolitical location, faces significant political risks that threaten its stability and security. Once hailed as a success story of African development, the country is now experiencing a deepening crisis characterized by conflict, displacement, and humanitarian distress. While Ethiopia holds substantial potential due to its youthful population and growing economy, several political risks impact investment, trade, and stability. A critical analysis of these risks is essential for assessing Ethiopia’s investment potential.

The Tigray Conflict: A Catalyst for Instability

The war in Tigray, which began in November 2020, has devastated the region, creating a humanitarian crisis affecting 5.2 million people (Humanitarian Needs Overview, 2022). According to Holt (2021) the conflict in Tigray has devastated the region and created a humanitarian crisis. Over 2.6 million people have been displaced (UNHCR, 2022), with reports of human rights abuses including extrajudicial killings and forced displacement (Amnesty International, 2022). The Ethiopian government has faced allegations of rights violations (Human Rights Watch, 2023). Despite a cessation of hostilities, peace remains fragile (CFR’s Global Conflict Tracker, 2023). In 2025, 28.6 million Ethiopians (22.05% of the population) require humanitarian aid (UNOCHA, 2025), reflecting the ongoing crisis.

Ethnic Tensions and National Unity

Ethiopia’s ethnic diversity, with over 80 groups, has been a historical strength but also a source of division. The conflict in Tigray has amplified tensions, while unrest persists in various regions, threatening national unity. The Abiy Ahmed regime’s failure to address these tensions has contributed to the conflict and has raised questions about the country’s ability to maintain national unity (Killion, 2022). Ethnic conflicts and tensions are ongoing in various parts of the country which create political risks for investment and development.

Human Rights Concerns

Human rights abuses, including arbitrary arrests and forced displacement, have drawn international condemnation (Human Rights Watch, 2023). The International Community has expressed concern about the situation, with the United Nations High Commissioner for Human Rights, Michelle Bachelet, calling for an urgent inquiry into the human rights situation in Tigray (Bachelet, 2022). These may amount to war crimes, crimes against humanity and genocide. Calls for impartial and international investigations were consistently rejected by the Ethiopian government. The continuing human rights abuses further destabilize the nation, exacerbating political opposition and unrest.

Economic Challenges

Ethiopia’s economy faces inflation, food price increases, and debt burdens (World Bank, 2022). The conflict has severely impacted the tourism sector (United Nations World Tourism Organization, 2022). Inflation reached 17% in December 2024, with projections expected to reach 20% by the end of this quarter, 2025 (Trading Economics, 2025). Long-term forecasts indicate a stabilization at 13% by 2026. These economic pressures fuel social discontent and conflict.

Security Challenges

Ethiopia’s security environment is highly fragile, with multiple conflicts ongoing in different parts of the country. The conflict in Tigray has been marked by the involvement of other regional actors, raising concerns about the country’s security and the security of its neighbors (BBC News, 2022). The instability has also led to a significant increase in human trafficking, with thousands of people, particularly women and children, being smuggled into neighboring countries (International Organization for Migration, 2022). According to Human Rights Watch (2025), the human rights situation in Ethiopia remained severe, as government forces, militias, and non-state armed groups carried out significant abuses in conflict-affected regions and other parts of the country.

Regional Instability and Geopolitical Risks

Ethiopia’s location in the Horn of Africa places it at the center of geopolitical tensions. Disputes over the Grand Ethiopian Renaissance Dam (GERD) with Egypt and Sudan, alongside strained relations with Somalia, add to political uncertainty (International Crisis Group, 2023). Negotiations on GERD remain unresolved, with Ethiopia asserting its right to utilize the Nile while Egypt and Sudan demand legally binding agreements (Yihdego & Rieu-Clarke, 2022). Meanwhile, regional conflicts, such as the ongoing civil war in Sudan, indirectly impact Ethiopia’s stability by exacerbating refugee flows and cross-border tensions (UNOCHA, 2024). The presence of external actors, including Eritrea’s military involvement in Ethiopia and border tensions with Sudan, further complicates regional dynamics (BBC News, 2023).

Conclusions and Mitigation Strategies 

In conclusion, Ethiopia’s political crisis is deeply entrenched, shaped by a complex interplay of ethnic tensions, governance challenges, and economic instability. While the country presents significant opportunities for investment and development, the associated political risks cannot be overlooked. A thorough risk assessment, proactive mitigation strategies, and a long-term perspective are essential for investors and businesses operating in Ethiopia’s evolving landscape.

Mitigating Ethiopia’s political risks requires reconciliation, economic reforms, regional cooperation, and international support. Inclusive dialogue between the government and opposition groups, particularly the TPLF (Tigray Peoples Liberation Front), is crucial for peace and rebuilding trust among communities. Protecting human rights and upholding the rule of law are essential to reducing tensions and fostering political stability.

Economic reforms that promote growth, reduce poverty, and strengthen institutions can help address economic fragility. Regional cooperation, particularly through the African Union and key international actors, is vital for security and stability. Enhanced intelligence sharing and capacity-building initiatives can further bolster resilience against internal and external threats.

International support in the form of humanitarian aid, economic assistance, and diplomatic engagement is crucial. Businesses and investors should conduct thorough risk assessments, engage stakeholders, diversify investments, and implement strong security measures. By adopting these strategies, Ethiopia can navigate its challenges, foster stability, and unlock its economic and social potential.

In addition to strengthening democracy and ensuring the effective implementation of the current constitution, alternative approaches to addressing the deep-rooted challenges in Ethiopia’s nation-building process should be explored. Potential solutions may include adopting a more flexible federal structure or considering confederal arrangements to accommodate the country’s diverse political, ethnic, and regional dynamics.

References

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Bachelet, M. (2022). High Commissioner for Human Rights[online]. Available at: https://www.ohchr.org/ (Accessed: 26 February 2025).

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BBC News. (2022). Ethiopia-Tigray conflict: Thousands displaced as fighting continues[online]. Available at: https://www.bbc.com/ (Accessed: 26 February 2025).

Council on Foreign Relations (CFR) (2023). Conflict in Ethiopia. Global Conflict Tracker[online]. Available at: https://www.cfr.org/global-conflict-     tracker/conflict/conflict-ethiopia?utm_source=chatgpt.com  (Accessed: 24 February 2025).

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Humanitarian Needs Overview. (2022). Ethiopia Humanitarian Needs Overview[online]. Available at: https://reliefweb.int/ (Accessed: 26 February 2025).

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Killion, J. (2022). Ethiopia’s Ethnic Tensions Explained. The Conversation[online]. Available at: https://theconversation.com/ (Accessed: 23 February 2025).

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United Nations Office for the Coordination of Humanitarian Affairs UNOCHA. (2024). Sudan Crisis and Its Regional Impact[online]. Available at: https://www.unocha.org/publications/report/sudan/sudan-crisis-and-its-regional-impact  [Accessed 28 February 2025].

United Nations High Commissioner for Refugees (UNHCR) (2022). Ethiopia’s Tigray Refugee Crisis Explained[online]. Available at: https://www.unrefugees.org/news/ethiopias-tigray-refugee-crisis-explained/  (Accessed: 24 February 2025).

United Nations World Tourism Organization. (2022). Impact of Conflict on Tourism in Ethiopia[online]. Available at:https://www.unwto.org/ (Accessed: 25 February 2025).

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Yihdego, Z. & Rieu-Clarke, A. (2022). The Grand Ethiopian Renaissance Dam and the Nile Basin: Legal and Political Dimensions. Cambridge: Cambridge University Press. Available at: https://doi.org/10.1017/9781108569645 [Accessed 28 February 2025].