Africa's second most populous country is reeling from skyrocketing inflation

Addis Ababa (AFP) - “Everything is increasing except our wages,” Ethiopian porter Zerihun told AFP, summing up the financial crisis facing the Horn of Africa nation as it 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 the invasion of Ukraine.

Annual average inflation is expected to hit 30 percent in 2022 (compared to 26 percent last year), driven by an increase in food costs.

“Groceries, food, rent, all prices have gone up,” said Zerihun, a 30-year-old father of two working at the sprawling Merkato market in the capital Addis Ababa.

“Because of the cost of living, life is very difficult… life has become expensive,” said his colleague Sintayeh Tadelle, who has two sons aged 12 and six 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, the 29-year-old porter told AFP.

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 than five dollars in wages.

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

- ‘Very difficult’ -

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.

Inflation has dampened customers' appetite for spending

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,” said Hamat Redi, manager of a shop selling televisions and washing machines.

A few doors down, shopkeeper Sisai Desalegn complained about a nationwide shortage of foreign currency, making 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 told AFP.

“We estimate that our business has lost 40 percent in two years,” Desalegn said, adding that the downturn has forced him to sell everything at the purchase price, putting profits out of reach.

As a result, he has reduced his daily expenses.

“It’s very difficult to make do with what you have,” he said, underlining that the war in Tigray meant his former customers – traders and farmers from the north – were no longer coming to the market.

The slowdown in trade with the north has also seen fewer trucks turning up at Merkato, meaning less work for porters like Zerihun and Sintayeh.

- Multiple causes -

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

The Covid-19 pandemic triggered a sharp economic slowdown in Ethiopia

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,” said 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 percent between 2010 and 2018, fell to 6.1 percent in 2020 and is forecast to drop below four percent this year, according to the International Monetary Fund.

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, according to Zerihun.

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