The Age of Choice: Ethiopia in the new aid landscape

Research reports and studies
January 2013
Annalisa Prizzon; Andrew Rodgerson

This study looks at the Ethiopian government's aid management strategy and priorities in terms of the types of aid they would like to receive from traditional and non-traditional providers. 

Economic and political context

Strengths:

  • Ethiopia – a low-income country – is of geostrategic importance for western donors. It is a diplomatic hub in the region and hosts large US military bases.
  • It is one of the fastest growing non-oil producing economies and is among the countries with the fastest improving Human Development Index (HDI) rankings.

Weaknesses:

  • ODA still accounts for 62.3% of central government expenditure despite an overall decline in aid dependency.  
  • Ethiopia is a relatively closed economy as it does not attract private capital in the form of FDI or remittances. It also does not have access to international financial markets.
  • Government priorities for terms and conditions of development assistance.
  • Ethiopia aims to increase the resources it receives from external and domestic sources in order to fund its development goals.
  • The aim is to align assistance with the country’s national development strategy, as well as to create rapidly disbursed, flexible, highly concessional and large-sized funds.
  • The government’s preferred aid modalities are budget support and pooled funds.

Arenas for negotiations

  • Platforms for coordination between the government and traditional donors are sector working groups, co-chaired by the respective line ministry and a donor, and a biannual high-level forum, even though negotiations tend to take place on a bilateral basis.
  • Some non-traditional sovereign donors are part of the Development Assistance Group, most notably India and Turkey, although they do not actively participate in it. Other emerging donors, such as China, do not seem to be interested in joining the group, and the Ethiopian government has not expressed any interest in their participation.

Outcomes – Did the government achieve its goals?

  • Ethiopia seems to do comparably well in achieving its priorities for the terms and conditions of development assistance: the government has been able to increase and diversify its development finance sources. China’s presence in Ethiopia has helped the country gain leverage in negotiations with other donor countries.
  • The government has strong ownership of its development agenda.
  • The country pursues its goals actively, for example by rejecting loans at fully concessional rates because these come with time-consuming negotiation processes and burdensome safeguards.