Ethiopia is projecting double-digit economic growth following the government's decision to liberalize foreign exchange controls, a bold reform that has attracted renewed investor interest despite the country's recent turbulence.
The National Bank of Ethiopia announced the end of strict currency controls in July 2025, allowing the birr to float against major currencies and removing restrictions that had throttled foreign investment for years. The initial devaluation was sharp—the birr lost roughly 30 percent of its value—but authorities say the pain is temporary.
"We had to make a choice between controlled stagnation and liberalized growth," said Mamo Mihretu, governor of the National Bank of Ethiopia. "The old system protected no one. It created black markets, discouraged investment, and trapped us in a low-growth equilibrium."
The reforms extend beyond currency. Ethiopia has opened several previously state-dominated sectors to private investment, including telecommunications and financial services. The government has also streamlined business registration and committed to reducing bureaucratic barriers.
Early results suggest investor interest is real. United Arab Emirates-based firms have announced investments in logistics and agriculture. China, already Ethiopia's largest trading partner, has expanded manufacturing commitments. European investors are exploring renewable energy projects, capitalizing on Ethiopia's abundant hydroelectric potential.
But skepticism is warranted. Ethiopia has had a difficult few years. The Tigray war, which ended in 2022, killed hundreds of thousands and displaced millions. Ethnic conflicts continue in other regions. Infrastructure remains inadequate despite Chinese-built railways and industrial parks. Corruption persists.
"Forex liberalization is necessary but not sufficient," said Dr. Alemayehu Geda, an economist at Addis Ababa University. "Investors need more than currency convertibility. They need rule of law, contract enforcement, political stability, and transparent regulation. We're still building those foundations."
The government's growth projections—some estimates suggest 10 to 12 percent GDP growth by 2027—assume continued reform momentum and political stability. Both are uncertain. Prime Minister Abiy Ahmed's government faces domestic pressure from groups marginalized during the Tigray conflict and skepticism from international partners.
Comparisons to other African reform experiences offer mixed lessons. Rwanda liberalized successfully by pairing economic reforms with strong governance and low corruption. Nigeria has repeatedly attempted forex reforms only to see them collapse under pressure from political elites benefiting from controlled rates.
Ethiopia's path will likely fall somewhere between. The country has significant advantages—Africa's second-largest population, a young workforce, strategic location, and untapped agricultural and energy resources. But translating potential into prosperity requires sustained political will.
The International Monetary Fund has expressed cautious support, approving a restructuring program contingent on continued reforms. Debt relief negotiations are ongoing, critical for a country whose external debt burden has constrained development spending.
For ordinary Ethiopians, the reforms bring both hope and hardship. Inflation has spiked as import costs rise with the devalued birr. Food and fuel prices have climbed. The government has promised social protection programs, but delivery remains uneven.
"We've made this bet before—liberalize, attract investment, grow our way to prosperity," said Tigranna Asefa, a business owner in Addis Ababa. "It works if the government follows through. If they don't, we're just poorer with a weaker currency."
54 countries, 2,000 languages, 1.4 billion people. Ethiopia is making its bet. The question is whether the government can deliver.
