The Impact of the War in Northern Ethiopia on Micro, Small and Medium-Sized Enterprises (MSMEs) and Marginal Economic Actors (MEAs)

In late 2022, the CIPE East Africa Regional Office commissioned research on the impact of war in northern Ethiopia on Micro, Small, and Medium-Sized Enterprises (MSMEs) and Marginal Economic Actors (MEAs) as part of the Empowering Marginal Economic Actors through Policy from the Bottom-Up (EMEA) program.

The outbreak of conflict on November 4, 2020 in Ethiopia’s Tigray region has fueled a large-scale humanitarian crisis. The war has had a heavy economic and humanitarian toll which has spread beyond Tigray into the neighboring Afar and Amhara regions. To understand the impact of the war on the local business community, and particularly on marginal economic actors and MSMEs in the three regions, CIPE consultants conducted research in the conflict-affected regions.

According to the research findings, the war has not only impacted the economies of the Afar, Amhara, and Tigray regions but the economy of the overall country at both the macro and micro levels. The war in northern Ethiopia greatly affected the macroeconomic performance of the country and contributed to a decline in GDP growth, the expansion of the fiscal deficit, and a considerable increase in the price of food items. Additionally, the war has affected multiple dimensions of the businesses of MSMEs and marginal economic actors. This has manifested through the destruction of assets, shortage of inputs, and market inaccessibility. Additional challenges identified by marginal economic actors include the blocking of banking and telecom services, lack of transportation, and the spread of disinformation during the war.

The findings of the research are captured in a research brief whose objective is to inform local governments, policymakers, and the donor community about the level of damage caused by the war. The brief also puts forward possible recommendations for how to provide assistance to micro and small enterprises impacted by the war.

The research brief advocates for the following actions to help MSMEs and MEAs in the three regions overcome the economic woes they face in the aftermath of the conflict.

1. Pushing for a negotiated political settlement

2. Ensuring local government structures are in place in the conflict-affected regions (Amhara, Afar, and Tigray)

3. Revising the national MSME strategy and focusing on recovery

4. Creating a national economic recovery fund

5. Establishing a business development facility

6. Introducing supply chain interventions in order to support the recovery of the local economy.

The EMEA program aims to empower marginalized groups and communities to participate effectively in and benefit from economic development and trade, and to strengthen the ability of the private sector to engage effectively in Ethiopia’s private sector. It is implemented by a consortium of partners led by CIPE, comprising Initiative Africa (IA) and the Pan African Chamber of Commerce and Industry (PACCI), with financial support from the Swedish International Development Cooperation Agency (Sida).