Ethiopia, a nation of vast resources and resilient people, has made headlines in recent years not only for its ambitious economic growth but also for the daunting crises threatening to reverse its progress. Ethiopian economy, once among the fastest-growing economies in Africa, with a decade of remarkable annual growth averaging 9.5%, saw a slowdown in progress in recent years due to ongoing internal conflicts, political instability, and economic hardship. This article examines the paradox of Ethiopia’s abundant resources locked in dead capital, while a volatile civil war and crippling inflation deepen the country’s challenges — and explores how a strategic focus on capital reform could serve as a foundation for both stability and long-term prosperity.
Ethiopia’s Economic Landscape: Growth Hindered by Conflict
At the heart of Ethiopia’s economic potential are its vast resources: 74.3 million hectares of agricultural land, Africa’s second-largest population, and an abundance of mineral wealth, including gold and precious stones. These resources, combined with a traditionally resilient and industrious population, positioned Ethiopia as a model of African economic success through much of the early 2000s. But this success has been undermined by recent crises:
Civil War: The conflict that began in the northern Tigray region has spread across the country, inflaming ethnic tensions, displacing millions, and diverting government resources from economic development to military expenditure.
Economic Instability: GDP growth has slowed to 6.4%, with inflation soaring to 28.3%, exacerbating poverty levels. Urban unemployment has climbed to 19.1%, while over 23% of Ethiopians live below the poverty line, creating a fragile socio-economic environment.
Food Insecurity and Inflation: Ethiopia’s once-promising agricultural sector is now facing severe disruptions due to both internal displacement and erratic weather patterns. Prices for basic goods are skyrocketing, impacting the most vulnerable and pushing a once-growing middle class into poverty. This crisis of stability, driven by both economic and social turmoil, underscores Ethiopia’s need for structural reforms — particularly reforms that could help it unlock and mobilize its substantial “dead capital.”
The Capital Conundrum: Why Ethiopia’s Resources Remain Dormant
Ethiopia’s wealth is vast, but much of it remains “dead capital” — assets that cannot be leveraged within the formal economy. This includes untitled farmland, unregistered urban properties, and millions of informal small businesses. Such “dead” assets, estimated to be worth trillions of birr, represent an immense opportunity to transform Ethiopia’s economy. Yet, these resources remain out of reach due to systemic barriers:
Land Ownership Constraints
Despite its agricultural base, Ethiopia’s land ownership laws restrict most farmers to usufruct rights under Article 40 of the Constitution, meaning they can use but not own, sell, or mortgage their land. For the 12 million smallholder farmers who depend on these lands, this limitation is crippling. Without formal titles, farmers cannot use land as collateral to access credit, invest in modern equipment, or scale their operations. This “dead capital” costs Ethiopia roughly 300 billion birr annually in lost productivity, and with an estimated 1.5 trillion birr in unregistered farmland, the potential for economic growth remains stalled.
Urban Informality and Lost Revenue
Ethiopia’s cities, particularly Addis Ababa, face similar issues. Around 60% of properties in the capital lack formal registration, meaning billions of birr remain untapped within the informal real estate market. In addition to lost potential for credit and investment, the government loses approximately 50 billion birr each year in uncollected taxes. During times of fiscal strain, these missing revenues are a significant loss, preventing funds from reaching essential services, including those required to aid displaced communities and support war-torn regions.
Bureaucratic Barriers and Financial Exclusion
Entering the formal economy in Ethiopia can be a daunting process, with complex bureaucracy and prohibitive costs. The average business registration takes 32 days and costs more than 130% of the per capita income, pushing millions of small businesses into the informal sector. While informal operations help sustain livelihoods, they limit access to financing, with only 12% of small businesses having formal credit. In a country where the informal sector represents about 40% of GDP, a lack of formalization undermines revenue collection and stifles growth. Formalizing businesses and easing bureaucratic barriers could unlock billions in capital and facilitate the expansion of Ethiopia’s tax base — revenues that are now critical to economic stability amid conflict.
The Implications of Conflict on Economic Development
The ongoing conflict has intensified these capital constraints. Government resources have been diverted to military efforts, displacing funds meant for infrastructure, healthcare, and education. Internal displacement, estimated at over 2 million people, has devastated agricultural productivity, pushing food prices up by 30% and creating widespread food insecurity. Political instability has also damaged foreign investment, which was once a major driver of Ethiopia’s economic growth.
Social cohesion, vital for building a robust economy, has fractured under ethnic tensions. As trust erodes, the social contract — a key element in driving formalization and growth — becomes harder to restore. In this context, many Ethiopians rely on community-based networks rather than formal institutions, reinforcing informal structures and further trapping capital.
Success Stories and Emerging Solutions: Signs of Progress Amid Crisis
Despite these challenges, some recent initiatives show Ethiopia’s potential for transformation, offering glimmers of hope even amid conflict.
Land Certification Programs: The Land Investment for Transformation (LIFT) program has brought real change to rural land management. By issuing certificates to over 7 million farmers, the program has not only reduced land disputes but also encouraged farmers to invest more in their land, increasing productivity and food security. Programs like these could be expanded, even amid conflict, to stabilize rural economies and enhance food production.
Mobile Banking Revolution: Digital financial services have proven invaluable in reaching underserved populations, particularly during times of displacement and disruption. The Commercial Bank of Ethiopia’s CBEBirr platform, with its 12 million users and rural penetration rate of 70%, demonstrates the potential of digital banking to offer critical financial services. CBEBirr allows displaced citizens and rural communities to securely access savings, receive remittances, and obtain small loans, all of which are crucial in maintaining livelihoods amid instability.
Localized Business Formalization Efforts: In the Oromia region, a targeted effort to formalize businesses registered 50,000 enterprises in 2022-2023, raising tax revenue by 35% and employment by 40%. By stabilizing localized economies and fostering formal employment, such programs offer a blueprint for building resilience and restoring confidence in the formal economy.
Charting a Path Forward: Unlocking Capital for Stability and Growth
Unlocking Ethiopia’s dead capital requires addressing both economic and social issues, especially in the context of conflict. The following strategies represent a comprehensive plan to mobilize resources, rebuild trust, and drive stability:
Land Rights Reform
Ethiopia must transition from a system of usufruct rights to transferable land certificates, allowing farmers to own, mortgage, and invest in their land. Expanding digital land registries and establishing automated systems for title transfers could empower millions of farmers to access credit, stabilize food production, and invest in long-term agricultural growth. A robust land certification system would be especially valuable for communities affected by displacement, as formal ownership could provide them with security and support resettlement efforts.
Simplifying Bureaucracy and Encouraging Formalization
Simplifying business registration and licensing processes can reduce the reliance on informal economies. Introducing mobile-first platforms and one-stop service centers, especially in conflict-prone areas, would make formalization accessible, even in unstable conditions. Streamlining these processes could quickly formalize enterprises, particularly those established by displaced populations, creating a pathway to resilience for local economies.
Expanding Financial Inclusion
In conflict-affected regions, mobile banking and microfinance offer critical solutions for financial access. Digital credit systems and alternative financing can enable small businesses to survive disruptions, access credit, and rebuild. Furthermore, strengthening microfinance and rural banking infrastructure could expand Ethiopia’s financial inclusion, making resources accessible for those most affected by the economic impact of conflict.
Strengthening Social Trust and the Rule of Law
In times of instability, trust between citizens and the government is essential for economic recovery. Transparent land registration, consistent enforcement of laws, and accessible conflict resolution mechanisms can help rebuild this trust. A reinvigorated social contract, including reliable property rights and fair, consistent enforcement, would incentivize citizens to engage more fully in the formal economy, strengthening national unity and economic participation.
Projected Impacts of Reform in a Conflict Context
While the timeline for realizing the benefits of reform may be extended due to the ongoing conflict, the potential impacts remain significant. Short-term (1-2 years): Reforms could lead to a 15% increase in formal business registration, a 20% boost in credit access, and a 30% improvement in tax compliance, enhancing government revenues essential for managing conflict. Medium-term (3-5 years): Increased financial inclusion, expanded foreign investment, and a 35% rise in formal employment could create stability, especially in regions that have been disproportionately affected by the conflict. Long-term (5-10 years): A projected reduction in poverty rates by 60% and financial inclusion reaching 70% would lay a foundation for resilience, creating a pathway to peace and economic stability.
Ethiopia’s Path to Stability Through Economic Transformation
In the face of deepening crises, Ethiopia stands at a critical juncture. Unlocking its “dead capital” and implementing comprehensive reforms could be the key to both economic revitalization and social stabilization. Land rights reform, streamlined business formalization, expanded financial inclusion, and rebuilding the social contract offer a strategic foundation upon which Ethiopia can build a more stable and prosperous future. By formalizing property rights, simplifying business registration, and creating accessible financial services, Ethiopia can mobilize its vast but dormant assets, driving growth in both urban and rural economies. However, the success of these reforms depends heavily on Ethiopia’s ability to foster a stable, inclusive, and resilient national environment. Government efforts must be aligned with local leaders, community organizations, and international partners to create systems that ensure citizens — from urban entrepreneurs to displaced rural farmers — have opportunities to thrive within a formal economy. Transparent governance and consistent rule of law are essential to rebuilding trust in formal institutions, while robust financial systems can provide the stability needed for economic participation even in times of conflict.
A Vision for Ethiopia’s Economic Renaissance
If Ethiopia can mobilize its resources effectively, it holds the potential to not only stabilize its economy but also create a new era of prosperity that benefits all its citizens. By addressing its structural economic challenges head-on, Ethiopia can transition from a system dominated by informal, locked assets to one that fully utilizes its human and natural resources. While the journey will be arduous, particularly amid civil unrest and economic strain, Ethiopia’s potential remains immense. Through sustained reform and resilient governance, Ethiopia can lay the groundwork for a diversified, inclusive economy capable of weathering both current and future challenges. Such transformation could set a precedent for economic resilience across Africa, showcasing how nations can harness their resources, rebuild social trust, and secure a
future of peace and shared prosperity. The path to this future will require commitment, collaboration, and courage — but by converting dead capital into dynamic assets and fostering an inclusive economy, Ethiopia has the opportunity to not only recover from its current crises but to emerge as a beacon of growth and stability in East Africa.
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