To what extent has COVID-19 affected Ethiopians in terms of reduction of remittances and how can this setback be mitigated?

Temperature checking in Addis Ababa, Ethiopia. Source: AP Photo / Mulugeta Ayene

Since its emergence, the COVID-19 pandemic has greatly impacted the global economy and most health systems. Most countries have suffered important setbacks since the start of the crisis. Sub-Saharan countries, although data seems to show that the health crisis has not affected them as much as other epidemics have (and are currently doing), namely Ebola and AIDS, are set to suffer from the economic consequences of the pandemic.

One the most significant impact that the pandemic is having on Sub-Saharan countries is the important reduction of remittances, that is, the reduction of the amount of money sent by nationals working in a foreign country to citizens staying in the country of origin. A recent report by the World Bank states that Sub-Saharan Africa will see its remittances reduced by 9% in 2020 and 6% in 2021. That is, while in 2019 remittances represented 2,771% of the GDP of Sub-Saharan Africa, a 9% reduction of remittances is meant to lower its share to 2,522% of the GDP. This is the highest reduction since 2008, when the percentage of remittances lowered 9,55% between 2007 and 2008.

Ethiopia is not an exception. The second most populated African country is already enduring the economic consequences of the COVID-19 crisis. Although the contribution of remittances to the country’s GDP represents a percentage almost five times lower compared to Sub-Saharan Africa as a whole (0,553% versus 2,771%), data shows how the reduction of remittances is already affecting the economy of the biggest country of the Horn of Africa.

Therefore, this raises the following question: to what extent will the reduction of remittances, prompted by the COVID-19 crisis, affect the economy of Ethiopia? More specifically, what will the impact on young Ethiopians be?

The number of Ethiopians living abroad remains unknown. Most sources estimate that, throughout the past decade, between two and three million Ethiopians have been living abroad. That is, between 2,25% and 3,5% Ethiopians are currently living abroad, which is a remarkable amount.

Data regarding unemployment rates in Ethiopia highly differs depending on the source. While the World Bank reports a current unemployment rate of 2,082% (and a youth unemployment rate of 3,255%), other sources, such as the Central Statistical Agency of Ethiopia, report much higher rates (at least in urban regions). Such unemployment rates amount to around 20%, being higher for women and young Ethiopians.

As the other Sub-Saharan countries, Ethiopia’s demographics show that Ethiopia is a very young country. A recent report by the United Nations states that 70% of the Ethiopian population is younger than 35 and that around 30% of the population is between 15 and 29. In such a populated and young country, the unemployment rates in Ethiopia are concerning, especially among young people.

Ethiopia faces high rates of unemployment. Source: Addis Fortune

Such high unemployment rates logically induce a higher risk of poverty, notably among women and young people. Remittances, and therefore emigration, play a huge part in reducing the risk of poverty. However, the COVID-19 pandemic has hindered the opportunities of international migration, thus decreasing the chances of receiving more international remittances.

Countries must adapt to this new environment. This will be a particularly difficult challenge for a country like Ethiopia, especially due to the factors mentioned above. The Ethiopian government, as well as businesses and organizations, must implement measures to try to mitigate as much as possible the negative effects. Several proposals can be implemented.

The first proposal is to accelerate the access to the market of telecommunications operators and providers of financial services. Currently, in Ethiopia, there is only one telecommunications operator, Ethio telecom, which is owned by the state. The businesses that work on money transfers, commonly known as “remittance service providers” (RSPs), all rely on Ethio telecom. Such a lack of diversity complicates the development of the telecommunications sector. The Ethiopian government recently announced the opening of the telecommunications market to private companies, but the increased need of remittances due to the current crisis should speed-up the opening process.

Closely related to the first proposal, the second one calls the Government to reduce transfer fees and to keep increasing the maximum amount of money transfer limits. Even if it is temporary, a measure focused on making the sending of remittances cheaper and easier could, to a certain degree, compensate for the losses produced by the current crisis.

Although it is not necessarily related to remittances, the Ethiopian government should also promote innovation and entrepreneurship among Ethiopians, regardless of their age, gender and country of residence. Considered to be a “multi-faceted and sophisticated response to the problem of youth people unemployment” (European Commission, 2014, p. 26) by the European Commission, increasing competences and skills among young Ethiopians could greatly contribute to the country’s growth and to reduce the high unemployment rates, especially among young people. Such addition to Ethiopia’s education system would also increase the competences among Ethiopian emigrants, which would, subsequently, facilitate the increase of remittances sent to their home country.

Ethiopia is one of the youngest countries in the world. Source: Trevor Cole

The COVID-19 health crisis may not have struck Ethiopia and other African countries as much as Europe or North America, however the economic consequences will have a profound impact worldwide. Ethiopia will see its international remittances considerably decreased, a serious problem for a developing country. To alleviate the negative repercussions of the reduction of remittances, the Ethiopian government must implement measures focused on facilitating the transfer of money from abroad.

Sources:

European Centre for Disease Prevention and Control. COVID-19 situation as of week 50 2020: https://www.ecdc.europa.eu/en/geographical-distribution-2019-ncov-cases

World Bank Group, Knomad. Phase II, COVID-19 Crisis Through a Migration Lens: https://www.knomad.org/sites/default/files/2020-10/Migration%20%26%20Development%20Brief%2033.pdf

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