Ethiopia is making a bold infrastructure bet: becoming Africa's digital gateway despite being landlocked.
Ethio Telecom recently signed an agreement with Sudatel Group and Djibouti Telecom to develop a cross-border optical fiber network linking Red Sea submarine cables to inland African markets. The project positions Ethiopia as a transit hub for international data traffic flowing between coastal landing points and the continental interior.
According to a report by Addis Standard, the fiber corridor will connect undersea cables terminating in Djibouti and potentially Sudan with Ethiopia's domestic network, creating a digital highway for data traveling to landlocked markets across East Africa and the Horn.
The strategic logic mirrors physical infrastructure development. Just as Ethiopia depends on Djibouti's port for maritime trade, it now seeks to become the digital crossroads for data transiting the region. The country's geographic position, connecting the Red Sea coast to interior markets in South Sudan, Kenya, and potentially Uganda, offers natural advantages.
Frehiwot Tamru, the CEO of Ethio Telecom, has described the project as transforming Ethiopia from a digital end-user to a digital service provider, generating transit revenue from international data traffic.
But the fiscal implications are complicated by Ethiopia's federal structure or more accurately, by the gap between formal federalism and actual fiscal practice.
National infrastructure projects like this typically generate revenue flowing to the federal government. Regional states, meanwhile, remain responsible for expensive services like education, healthcare, and welfare, funded primarily through federal block grants distributed at executive discretion.
Dr. Abebe Selassie, an economist at Addis Ababa University who studies fiscal federalism, explains the tension. "Major infrastructure generates federal revenue. Regional governments deliver services to citizens. But the resource-sharing mechanism is opaque and politically determined, not formula-based."
The concern extends beyond Ethiopia. Across Africa, governments are investing heavily in digital infrastructure: data centers, fiber networks, satellite connectivity. These projects promise economic transformation, but the critical question is: transformation for whom? If transit revenue flows to central governments while service delivery remains underfunded at regional or local levels, infrastructure development can actually deepen inequality.
Ethiopia's recent economic reforms, including IMF-backed tax and VAT changes, property tax rollouts, and centralized revenue collection, have strengthened federal fiscal capacity. But regional states haven't seen equivalent increases in budgetary autonomy or revenue-sharing.
"The fiber network is genuinely good news," wrote an Ethiopian policy analyst commenting on the agreement. "But projects like this don't automatically benefit ordinary people. Under the current fiscal system, transit revenue goes to the government first. Whether it reaches regions or funds services depends entirely on political decisions."
The question applies beyond Ethiopia. Kenya's undersea cables dramatically reduced internet costs and spurred the tech sector, but those gains concentrated in Nairobi while rural connectivity lagged. Rwanda's fiber network revolution showcased the government's efficiency but raised questions about whether authoritarian efficiency serves citizens better than democratic inefficiency.
Infrastructure development is neither inherently good nor bad. Its impact depends entirely on governance structures: how revenue is shared, how decisions are made, whether citizens have voice in priorities, and whether investments serve elite interests or broad-based development.
Tigist Assefa, a telecommunications policy researcher in Addis Ababa, argues that Ethiopia needs institutional safeguards alongside infrastructure investment. "We need a rule-based fiscal equalization system, not discretionary grants. We need transparent revenue-sharing formulas. We need regional governments empowered to deliver services funded by their share of national infrastructure returns."
The fiber network agreement represents genuine progress. Connecting Ethiopia to international data flows reduces costs, attracts investment, and positions the country strategically in Africa's digital economy. But whether those benefits reach Ethiopian citizens beyond the capital depends on questions the fiber optic cables themselves cannot answer.
Fifty-four countries, 2,000 languages, 1.4 billion people and an infrastructure revolution whose benefits depend entirely on who controls the revenue it generates.
