Ethiopia's soaring inflation places heavy burden on working class

The country's once-booming economy has been hit by the pandemic, drought and wars in Tigray and Ukraine

A man walks with a box on his head in a market in Addis Ababa, Ethiopia. AFP

Ethiopia is in the midst of a financial crisis as the Horn of Africa country reels from skyrocketing inflation and an economic slowdown.

After a decade of dynamic growth during the 2010s, Africa's second most populous country has suffered multiple shocks, including the Covid-19 pandemic, a record drought, a two-year war in its northernmost region of Tigray and the global impact of Russia's invasion of Ukraine.

Annual average inflation is expected to hit 30 per cent this year, up from 26 per cent last year, driven by an increase in food costs.

“Everything is increasing except our wages,” says Zerihun, 30, a father of two and a porter at the Merkato market in capital Addis Ababa.

“Because of the cost of living, life is very difficult … life has become expensive,” says Sintayeh Tadelle, 29, another porter at Merkato who has two sons aged 12 and 6 and “no savings”.

Were it not for handouts from the Addis Ababa municipal government, including uniforms, books and school meals, his family would struggle to survive, he says.

The porters at Merkato, considered Africa's largest open-air market, earn five birr (nine US cents) for loading or unloading a crate.

On average, a good day brings in less than $5 in wages.

“The economy is slow, so there's less work and my pay is less,” says Zerihun.

Packed with thousands of stalls stocking everything from clothing to industrial machinery, the busy lanes of Merkato teem with buyers, sellers, touts and day labourers.

But regulars say business has taken a sharp hit this year as inflation dampens customer appetite for spending.

“Business is very cold, not only here but in all sectors,” says Hamat Redi, manager of a shop selling televisions and washing machines.

A few doors down, shopkeeper Sisai Desalegn complains about a nationwide shortage of foreign currency that makes it difficult for him to import the sound equipment and solar panels sold in his store.

“Because of the shortage, we are not getting enough foreign exchange from the bank to import goods,” he says.

“We estimate that our business has lost 40 per cent in two years.”

The shopkeeper says the downturn has forced him to sell everything at the cost price. Without profits, he has reduced his daily expenses.

“It's very difficult to make do with what you have,” he says.

Because of the war in Tigray his former customers — traders and farmers from the north — are no longer coming to the market.

The slowdown in trade with the north has also seen fewer lorries turning up at Merkato, meaning less work for porters.

The conflict put pressure on government finances and hit key sectors such as agriculture and industry.

It also scared away investors and foreign partners, contributing to a shortage of foreign currency in an importing nation.

A peace deal signed last month between the federal government and Tigrayan rebels has raised hopes of an economic recovery.

“I hope the peace agreement will make the situation better in the future,” says Zerihun.

But Ethiopia's economy hit roadblocks before the war began in November 2020, with the Covid-19 pandemic triggering a sharp slowdown.

Growth, which averaged 9.7 per cent between 2010 and 2018, fell to 6.1 per cent in 2020 and is forecast to drop below 4 per cent this year, the International Monetary Fund says.

The drought ravaging the Horn of Africa has weighed on agriculture — a key employer in the largely rural nation — and contributed to the explosion in food prices, with the conflict in Ukraine also affecting the cost of living.

The causes behind the crisis may be manifold and complex, but the impact is easy to see, Zerihun says.

“Eventually, all this affects low-income people like us,” he says.