Four months after the Ethiopian government declared victory, conflict continues to escalate in northwestern Tigray state, jeopardizing prospects for economic recovery and the country’s diplomatic relations.

US Secretary of State Antony Blinken on Wednesday called for an international investigation into the fighting between the former Popular Front for the Liberation of Tigray (TPLF) in power in the region and the Ethiopian National Defense Forces (ENDF) and its allies. .

Meanwhile, Berhane Kidanemariam, deputy chief of mission at the Ethiopian embassy in Washington, resigned in protest against what he called the “genocidal war”. He accused Prime Minister Abiy Ahmed, winner of the 2019 Nobel Peace Prize, of leading Ethiopia down a “dark path to destruction and disintegration”.

According to a recent UN update, more than 2.2 million people have been displaced and allegations of human rights violations by the security forces have drawn international condemnation. The European Union, meanwhile, suspended $ 109 million in aid to the country, and the United States withheld $ 130 million in budget aid until humanitarian access to the Tigray region. be granted.

Abiy told the African Union council on Tuesday that the Ethiopian government had taken “concrete steps to address alleged human rights violations” and pledged to work with United Nations agencies.

Economic headwinds

The continuation of the conflict constitutes an additional obstacle to an economy ravaged by the Covid-19 pandemic. The IMF projects GDP growth of 0% in real terms in 2021.

Ethiopia’s Ministry of Trade and Industry estimates that the closure of factories and mining sites in Tigray since early November has cost the Ethiopian economy around $ 20 million per month, while communication failures continue to mask the the extent of damage to industry in the state itself.

However, Abiy appears to favor a military solution to the conflict, despite growing fears that it will spill over beyond the region.

“The Ethiopian federal government is unlikely to make any major concessions in the coming months as the conflict continues to fuel ethno-nationalist tensions in other parts of Ethiopia and threatens to erode prospects for economic recovery of the country ”, Robert Besseling, CEO of Pangea-Risk. , noted in a report last week, calling the ongoing conflict a “latent civil war”.

Besseling told CNBC by email on Thursday that growing insecurity was the biggest threat to Ethiopia’s economic recovery and affordability of debt. Like a number of countries in sub-Saharan Africa, Ethiopia has borrowed heavily from China. The lack of transparency surrounding these deals could lead to further problems for the country as it seeks to restructure its debt within the common framework of the G-20.

Learn more about Chinese loan financing in Africa here.

On Wednesday, Moody’s placed Ethiopia’s B2 credit rating – meaning it is considered speculative and high-risk – on review for downgrade. It reflects the rating agency’s concerns about the Ethiopian authorities’ obligation to engage with private creditors on an equal footing.

Irmgard Erasmus, senior financial economist at NKC African Economics, pointed out that Ethiopia’s access to finance was deteriorating. “(This) comes as the reputation risk has escalated (following the Tigray offensive) which is limiting budget support from international stakeholders.”

Besseling suggested that even if Ethiopia successfully restructured its bilateral and multilateral lending, economic disruption and increased security spending would pose longer-term threats, but added that “the prospect of a restructuring of the trade credit seems unlikely at this time.

The fighting in Tigray has prompted several companies to suspend operations in the region, including European and Asian textile, agribusiness and manufacturing companies. The Pangea-Risk report noted that security-related spending had contributed to a “significant deterioration in Ethiopia’s fiscal balance and foreign exchange reserves”.

“Bilateral relations are also under strain, as indicated by a recent deterioration in relations with Germany, which could use development aid as a lever to advance peace as Ethiopia is a major beneficiary of the German development aid, “Besseling added.

Assembly under international pressure

Blinken accused security forces of “ethnic cleansing” in Tigray, citing “very credible” reports of atrocities and human rights violations. He called on Eritrean forces and troops from the neighboring Ethiopian region of Amhara – allies of the Ethiopian National Defense Force – to withdraw from the state.

Amhara spokesman Gizachew Muluneh on Thursday rejected the allegations, telling AFP that reports of mass displacement and ethnic cleansing were “propaganda”.

Eritrea has repeatedly denied any military presence across the border, but Human Rights Watch on Friday accused the country’s forces of carrying out massacres against civilians in the historic city of Aksum, Tigray region, and called for an international investigation into war crimes and crimes against humanity. .

On February 26, the Ethiopian government announced that it would thoroughly investigate the events in Aksum and said it was “ready to work with international human rights experts.”

One of the fugitive leaders of the TPLF, Getachew Reda, took to Twitter on Thursday to seize the international spotlight and accuse the Abiy regime of having stepped up atrocities in recent weeks.

“Calls by US Secretary of State Antony Blinken for an international investigation or potential sanctions (which US senators and the European Commission have launched) are unlikely to have major direct economic consequences,” Virag Forizs told CNBC, African economist at Capital Economics. Thusday.

“But investor sentiment could deteriorate, increasing pressure on the balance of payments and increasing the risk of default.”