Ethiopia and Eritrea declare an end to war and this could mean a lot for their economies

Ethiopia and Eritrea declare an end to war  and this could mean a lot for their economies

  • Ethiopian Prime Minister Abiy Ahmed and Eritrean President Isaias Afwerki signed an agreement on Monday ending a long-standing war between their two countries.
  • Several deals between Ethiopia and Eritrea were announced over the weekend ahead of the official rapprochement, including Ethiopia’s access to an Eritrean port and the reopening of embassies in both countries.
  • The news could help Ethiopia as it grows as a East African manufacturing hub, opening up a new market in Eritrea and shoring up trade routes for its exports.
Yonas Tadesse | AFP | Getty Images
Eritrean Foreign Minister Osman Saleh Mohammed (C) walks with Ethiopian Prime Minister Abiy Ahmed (L), shaking hands with dignitaries as an Eritrean delegation for peace talks arrives in Ethiopian capital Addis Ababa on June 26, 2018.

(cnbc)—The leaders of Ethiopia and Eritrea declared the end of a two decades-long war on Monday, and announced a raft of agreements which could boost economic growth in the East Africa region.

“The state of war has come to an end,” tweeted Fitsum Arega on Monday, the chief of staff to Ethiopian Prime Minister Abiy Ahmed.

Abiy and Eritrean President Isaias Afwerki signed a Joint Declaration of Peace and Friendship which included the agreement that “Transport, trade and telecommunication ties will be resumed; diplomatic ties and activities renewed,” according to a tweet by Eritrean Minister of Information Yemane Meskel.

Abiy arrived in the Eritrean capital of Asmara on Sunday. After talks with his counterpart Afwerki, a series of deals were announced, including Ethiopia’s access to an unnamed Eritrean port on the Red Sea, the reopening of embassies in both countries and the restoration of telephone lines that have been severed for two decades.

According to Reuters, the prices of Ethiopian dollar-denominated bonds hit their highest in 10 weeks on Monday, following news of the rapprochement. The news agency also reported thousands of Eritreans cheering Abiy’s arrival on Sunday, waving the flags of both countries.

Meanwhile, U.N. Secretary General Antonio Gutteres is to meet with Abiy in the Ethiopian capital of Addis Ababa on Monday, sources told Reuters.

The news comes as Ethiopia continues its emergence as a regional manufacturing hub. The landlocked country on the Horn of Africa has seen double-digit economic growth as recently as 2017 thanks to its state-led development model which has espoused the mass opening of industrial parks.

According to Jared Jeffery, political analyst for Ethiopia at NKC African Economics, warmer relations will benefit Ethiopia’s economy on multiple fronts.

The rapprochement “will give Ethiopia access to the underdeveloped Eritrean market,” he told CNBC via email. This, in combination with Red Sea port access allowing Ethiopia more scope to ship its goods – as well as bargaining leverage with other ports it uses – will benefit its trade.

Ethiopia struggles with foreign exchange and this is just one more step to partly alleviate the situation,” Jeffery added.

Ethiopia is Africa’s second-most populous country with over 100 million inhabitants, and is banking on economic growth to create jobs for its youthful society.

Eritrea, a former province of Ethiopia, achieved independence in 1993. But, relations between the two countries have been marred by conflict for decades. The weekend meeting between Abiy and Afwerki was the first of its kind since a post-independence war from 1998 to 2000 which killed approximately 80,000.

Abiy’s overtures to Eritrea began last month. As part of an olive branch to end the war, he announced that flag carrier Ethiopian Airlines would resume flights to the country. Abiy himself has been in power for a matter of months, pushing a reformist agenda after his predecessor Hailemariam Desalegn resigned in February amid mass protests.

Pariah state Eritrea is considered one of the world’s most secretive countries. Its system of indefinite military conscription has caused many young men to leave the country, forming a significant proportion of African migrants crossing the Mediterranean to Europe.

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