Issue 236: Power & Policy

The European Union has restarted budget support to Ethiopia, unlocking more than €140 million for energy, connectivity, healthcare, and business climate reforms. The decision was announced by EU Commissioner for International Partnerships Jozef Síkela during the EU-Ethiopia Business Forum in Addis Ababa, alongside a wider package that includes a €150 million Digital Economy Package and €130 million in European Investment Bank lending for agribusiness and rural finance.

The move marks a major thaw in relations after the EU suspended budgetary financing in 2021 amid the Tigray war and the resulting humanitarian crisis. Fighting formally stopped after the Pretoria peace agreement in late 2022, but tensions over implementation have persisted, making the resumption of financing both economically important and politically loaded.

For Ethiopia, the timing is critical. Since July 2024, the country has been implementing a broad macroeconomic reform program supported by the IMF’s $3.4 billion Extended Credit Facility. Reforms have aimed to correct macroeconomic imbalances, improve foreign exchange availability, strengthen exports, and stabilize inflation, even as they introduce short-term adjustment pressures.

The EU’s re-engagement also builds on a long-standing partnership. For over five decades, the EU has been one of Ethiopia’s largest development partners, supporting reforms in infrastructure, agriculture, health, and governance. EU investment stock in Ethiopia stands at around €3.51 billion across nearly 300 companies, with the European Investment Bank first investing in the country as early as 1982.

Ethiopia is also Europe's biggest trading partner in the Horn of Africa, with exports such as coffee, cut flowers, and agricultural products benefiting from preferential access under initiatives like Everything But Arms. European firms have played a significant role in Ethiopia’s horticulture industry, manufacturing parks, and logistics chains, helping integrate the country into global value chains while also shaping labor and environmental standards.

The EU’s return is not simply about €140 million. It is about confidence. Budget support is one of the most politically sensitive forms of development finance because it channels funds through government systems rather than isolated projects. Its resumption suggests that Brussels sees enough progress in Ethiopia’s reform program to re-engage directly, even as political and security risks remain unresolved.

That matters because Ethiopia is trying to rebuild credibility with lenders, investors, and development partners after years of war, debt distress, foreign exchange shortages, inflation, and tight public finances. The country’s reform trajectory has already attracted renewed backing from institutions like the IMF and World Bank, signaling a gradual reintegration into the global financial system.

The IMF program, World Bank support, debt restructuring talks, and now renewed EU financing all point to Ethiopia’s attempt to reposition itself as a credible destination for investment and development cooperation. For a government seeking to stabilize the macroeconomy while funding infrastructure, social services, and reconstruction, this is a critical alignment.

But the implications go beyond fiscal relief. The EU package is closely aligned with Ethiopia’s reform priorities: energy access, digital infrastructure, private sector growth, agribusiness, rural finance, and trade. The €150 million digital package is designed to support fiber expansion, youth skills, and governance reforms, while EIB lending targets both agribusinesses and rural households.

This makes the announcement part of a larger bet: that Ethiopia’s next growth phase will be driven less by state-led expansion alone and more by private capital, digital connectivity, rural finance, and export-oriented production. The EU’s emphasis on trade also reflects a strategic interest in strengthening supply chains and deepening economic ties in a region that is increasingly central to both migration policy and geopolitical competition.

Still, the optimism comes with hard limits. Ethiopia’s reform agenda has imposed real short-term pain through currency adjustment, price pressures, and fiscal tightening. Investor confidence remains vulnerable to security conditions, regulatory uncertainty, bureaucratic friction, and unresolved debt issues.

There is also a political dilemma. Resuming budget support signals normalization, but Ethiopia’s post-war settlement remains fragile. If tensions in the north escalate or governance concerns intensify, European financing could again become contingent on political developments. The EU appears to be betting that engagement will support reform and stability more effectively than continued distance.

The immediate benefit is fiscal space and renewed external confidence. Ethiopia gains additional concessional resources at a time when hard currency constraints, public investment needs, and social spending pressures remain high. The broader benefit is reputational. When the EU resumes budget support, it sends a signal to other partners and investors that Ethiopia’s reform trajectory is once again credible.

But turning this signal into impact will depend on execution. Budget support must translate into visible improvements in electricity access, connectivity, healthcare, and the business environment. Digital and rural finance packages must reach firms and households rather than remain within institutional pipelines. Private sector engagement must move beyond forums and announcements into predictable policy, efficient regulation, and accessible finance.

For Ethiopia, the larger task is to avoid treating renewed external financing as validation alone. It is a window. The country still has to demonstrate that reforms can deliver growth without deepening inequality, attract investment without eroding accountability, and normalize diplomacy without ignoring unresolved political tensions.

The EU’s return is therefore both a milestone and a test. It shows Ethiopia is regaining access to the partnerships and financing it lost during the war years. Compounding that trust into sustained recovery will need both implementation discipline and a bit of fortune.

A new report by the International Atomic Energy Agency has unveiled the development of AI and its accelerating influence on energy consumption. The rapid expansion of artificial intelligence is triggering a parallel surge in energy demand, infrastructure investment, and global competition. While the technology narrative is often framed around innovation, the more consequential story lies in who can power it and who cannot.

Artificial intelligence is driving a sharp increase in global electricity demand, led by the rapid expansion of data centers. These facilities now consume close to 500 TWh annually, accounting for more than 1.5% of global electricity demand, and are expected to grow significantly as new capacity comes online. Major technology firms are investing at unprecedented levels, with capital expenditure surpassing $400 billion in 2025 and set to rise further.

This growth remains highly concentrated. Data centers continue to cluster in regions with reliable electricity, advanced digital infrastructure, and skilled labor, primarily the United States, Europe, and China. The result is a reinforcing cycle where energy availability, digital capability, and capital investment converge to accelerate AI adoption in already advanced economies.

The economic promise is substantial. Productivity gains driven by automation and improved efficiency could lift global growth rates, with estimates suggesting gains of up to nearly one percentage point annually in some economies. Yet these gains depend heavily on underlying infrastructure and institutional capacity, making their distribution uneven.

The implications for developing economies like Ethiopia are both immediate and structural. AI is often framed as a tool for leapfrogging, but its deployment depends on systems that remain underdeveloped in much of the Global South.

Infrastructure sits at the center of the constraint. AI systems require reliable electricity, high-quality digital connectivity, and access to large datasets. Global coverage of enabling technologies such as smart meters and digitally connected systems is still incomplete, with significant gaps in developing markets.

In Ethiopia, where electricity access and reliability remain uneven, these limitations are already binding. The ample availability of hydroelectric power generation, boosted in September by the completion of the Grand Ethiopian Renaissance Dam point to opportunity. However, electricity access rates hovering around half of the population point to significant distribution hurdles.

Energy systems are also entering a new phase of strain. In regions hosting dense clusters of data centers, these facilities can account for as much as 20–30% of local electricity demand, forcing rapid grid expansion and placing pressure on existing infrastructure. Even without hosting large-scale facilities, countries like Ethiopia are affected indirectly as global demand tightens supply chains for critical components such as transformers, chips, and energy equipment. The result is higher costs and more complex pathways to expanding domestic capacity.

The distribution of benefits adds another layer. Productivity gains linked to AI are strongest in knowledge-intensive sectors such as finance, ICT, and professional services, areas that remain a smaller share of Ethiopia’s economic structure. Without shifts in this composition, much of the upside will continue to accrue elsewhere.

Underlying all of this is a capability gap. Energy firms globally already identify the lack of digital skills as the single largest barrier to adopting AI technologies. In developing economies, this is compounded by limited access to talent, financing, and institutional support. Policy frameworks are still evolving even in advanced markets, leaving countries like Ethiopia navigating an uncertain and fast-moving landscape.

Taken together, these dynamics point to a broader pattern. AI itself is not the constraint. The systems required to support it are.

The question for Ethiopia is not whether to engage with AI, but how to do so within existing constraints.

Progress will depend heavily on strengthening foundational systems. Expanding electricity generation, improving grid reliability, and deepening digital infrastructure will shape how far the country can participate in AI-driven transformation. Without these, even well-designed digital initiatives will struggle to move beyond pilot stages.

A more selective approach to adoption may prove more effective. Competing in capital-intensive areas such as large-scale data centers is unlikely in the near term. Greater impact lies in applying AI to sectors like agriculture, energy management, and logistics, where efficiency gains can translate more directly into economic value.

Human capital will remain central. Building digital and technical skills is not simply a long-term ambition but a prerequisite for meaningful adoption. Without it, the gap between access and effective use will persist.

Coordination across policy, finance, and infrastructure will also shape outcomes. As global competition for energy, technology, and investment intensifies, countries that align these elements are more likely to attract and deploy resources effectively.

AI’s expansion is not slowing. The infrastructure supporting it is scaling rapidly, and the geography of its benefits is already taking shape. For Ethiopia, the window to position itself remains open, but it might depend less on adopting the technology itself and more on building the systems that make its use possible.

Context switching kills your focus. Every time you stop coding to type a Slack reply, write a ticket, or draft a PR description, it takes 23 minutes to get back in the zone.

Wispr Flow lets you dictate all of it without leaving your editor. Speak your response, your ticket, your commit message — Flow formats it and you're back to coding. Works system-wide inside Cursor, VS Code, Warp, Slack, Linear, and every app.

4x faster than typing. 89% of messages sent with zero edits. Used by engineering teams at OpenAI, Vercel, and Clay.

Start flowing free

Ethiopia is ramping up efforts to secure climate finance and advance green development as global partners unveil a new resilience investment program at the opening of the Climate Investment Funds (CIF) Global Knowledge Exchange, which runs from April 27 to 30, 2026, in Addis Ababa. Read more.

The Ethiopian Federal Police announced that Tians Ethiopia Business Share Company and its top executives have been convicted of operating an illegal pyramid sales scheme for years and engaging in money laundering, resulting in heavy prison sentences and financial penalties. Read more.

Tsedey Bank signed a strategic partnership with Zentide E-commerce to integrate Zentide’s online marketplace with Tsedey Bank’s financial services, with all platform transactions processed through the bank. Read more.

The total number of shareholders across industries and sectors remains below half a million, according to the head of the Ethiopian Capital Market Authority (ECMA). Director-General Hana Tehelku warned that despite growing registrations and increasing investor numbers, engagement and awareness remain lacking. Read more.

Ethiopia’s construction industry is struggling with chronic delays, budget overruns and quality defects because major projects are still awarded largely on the basis of the lowest bid rather than best value, according to the Ethiopian Consulting Engineers and Architects Association. Read more.

The Ethiopian Capital Market Authority has finalized a long-awaited directive on Collective Investment Schemes, a move expected to open new investment channels for ordinary Ethiopians and deepen the country’s still-early capital market. Read more.