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Submitted by Melaku on
I actually penned an article ( a couple of weeks ago examining this topic with respect to Ethiopia and addressed to prospective investors in that country. Ethiopia's financial sector is currently not open to foreign entities at all so the impacts of the credit crunch are negligible if at all present. Decreases in the prices of commodities and pullbacks in FDI are the most glaring vulnerabilities which I believe arise from this crisis. But in both of these cases, I believe the potential for downside movement is limited for Ethiopia. In fact, isn't there the potential for some upside in terms of the impact on one of the biggest problems with the Ethiopian economy right now? I'm speaking of the worrying rate of inflation here. If global oil prices stay at this level, it can only help to ameliorate inflationary trends especially given that the government has recently removed all fuel subsidies. Even a potential reduction in FDI may help to pull back the exceptionally high rates of real estate appreciation which I believe also contribute to inflation in some measure. Furthermore, if there are cutbacks in foreign aid in addition, then the forced deceleration of government spending will inevitably decrease the supply of money in the financial system. The silver lining I see for Ethiopia in the clouds of the current global slowdown may be over optimistic in some sense but is it not at least plausible?