From Displacement to Development: How Ethiopia Can Create Shared Growth by Facilitating Economic Inclusion for Refugees



Ethiopia is currently in crisis. The northern region of Tigray remains in conflict, with millions displaced, lacking sufficient humanitarian support, and facing a range of human rights violations.

Some 60,000 people have fled to neighboring Sudan and millions more are internally displaced in Tigray and neighboring regions. The crisis is also exacerbating tensions in other parts of Ethiopia and beyond, and has the potential to reshape the region’s political, economic, and security dynamics.

Against this backdrop, Ethiopia has also been a place of refuge for some 800,000 refugees coming from outside its borders. It has hosted substantial refugee populations since the 1980s and maintained an open-door policy for refugees for years, allowing entry to all asylum seekers. Over the past decade, it has faced a large spike in arrivals, with tens of thousands of new refugees entering the country every year (see figure 1). In addition to those seeking refuge from elsewhere, at the end of 2019, Ethiopia was home to some 1.8 million internally displaced persons (IDPs). This figure has dramatically increased since the Tigray crisis broke in late 2020, with an estimated 1.7 million people displaced from Tigray alone as of March 27, 2021.

Due to the protracted nature of the conflicts in the refugees’ countries of origin, it is unlikely that most of refugees will be able to return home any time soon.9 In this context, it is imperative for the Ethiopian government to seek long-term solutions to hosting refugees by moving from their long-standing system, which restricts most refugees to camps with limited economic activity, to a system that allows for greater economic inclusion of refugees (see box 1).
Despite a range of economic, political, and security challenges in the recent past—including longstanding ethnic tensions and widespread internal displacement, as well as high rates of poverty and urban unemployment—Ethiopia has made substantial progress toward greater economic inclusion for refugees. In recent years, prior to the outbreak of violence in Tigray, the country had received international attention for beginning to move toward more progressive policies and initiatives that promote refugee access to the labor market, including increased freedom of movement and access to formal employment.

However, even before the crisis in Tigray, significant work remained in the shift toward the creation and implementation of progressive policies. Most refugees are still required to live in camps and cannot legally work. Because of these restrictions, coupled with a range of other factors, refugees have much higher rates of poverty and lower rates of employment than Ethiopians in their host communities. An array of barriers stand in the way of overcoming these difficulties and allowing refugees to achieve greater economic inclusion (see box 1) and self-reliance. Moreover, each hosting region of the country faces specific barriers and opportunities for economic inclusion, implying the need to tailor solutions to each context.

Greater progress on refugee economic inclusion would bring a wide range of benefits, including higher incomes and standards of living for refugees, higher incomes and employment rates for host communities, economic development in some of the country’s most impoverished areas, and reduced tensions between host communities and refugees. By working together, the Ethiopian government, international organizations, donors, and the private sector can help these benefits come to fruition.

However, policymakers and international organizations cannot ignore the dire humanitarian and human rights crisis that has unfolded in the region of Tigray. Abuses have occurred by Ethiopian troops, Eritrean troops, the Tigray People’s Liberation Front (TPLF), and other armed actors, and diplomatic and humanitarian responses are desperately needed. International actors must now reevaluate how to protect fragile progress, and position long-term priorities and investments around the economic inclusion of refugees—a critical need for refugees who have been in Ethiopia for years— amid an unfolding humanitarian disaster.

Some donor states have gone so far to signal to Ethiopia that it is risking important relationships.
The EU, for example, suspended some $107 million dollars in budget support to Ethiopia in December 2020, insisting that Ethiopia would not receive any funding until humanitarian access was granted to Tigray. It also required Ethiopia to ensure that civilians were able to seek refuge in neighboring countries, work to stop hate speech and ethnically targeted acts against Tigrayans, take steps to monitor human rights violations in Tigray, and reestablish communication lines and media access in Tigray.

Similarly, in May 2021, the United States announced visa restrictions and limitations on economic and security assistance to Ethiopia until the government takes steps to resolve the conflict in Tigray. The Biden administration is also targeting World Bank and International Monetary Fund programs in Ethiopia, with the intention of forcing change in Ethiopia’s behavior in Tigray.11 Withholding economic and security funding sends a message to Ethiopia that it is risking important relationships by continuing its behavior in Tigray. Yet international actors must continue to provide urgent life-saving humanitarian assistance in Tigray and elsewhere in Ethiopia, and also respond to other ongoing crises, including needs created by COVID-19. Specifically, refugees and IDPs must be included in Ethiopia’s vaccine rollout.

Recognizing that the humanitarian dimensions of the crisis in Tigray continue to unfold and affect opportunities for refugees in the country, this case study focuses on how to maintain progress on the economic inclusion of refugees in Ethiopia. It explores the issue of refugee economic inclusion in detail by providing in-depth analysis of the barriers to economic inclusion for refugees in Ethiopia, the extent of the gaps in economic inclusion between refugees and hosts communities, the benefits of greater inclusion, and recommendations for achieving greater inclusion. As background to these analyses, the following section provides context on the economic, political, internal displacement, COVID-19, and refugee situation in the country.