Gulf states are significant actors in the Horn of Africa. Not only, then, do the Gulf states view the Bab-el-Mandeb strait and the Horn region as a strategic space relevant to both the containment of Iranian influences and intra-Arabian competition, they also actively engage Horn actors through a sizeable array of financial and economic instruments to secure these interests. Nonetheless, Gulf engagement in the Horn is fraught with differing accounts regarding investments and the impact on the ground, such as announced agricultural land grabs compared to operational assets on the ground.‍[115] Interpretations stressing the importance of extraversion in the reception of monetary flows in the Horn may also frame the dynamic as a means of political finance obscuring the associated foreign policy aims.‍[116] Such claims may cast doubt on the effectiveness of the economic foreign policy tools, but Gulf largesse and the impact of such ample availability of funding on the ground (whether intentional or not) is a significant factor facing cash-strapped Horn governments. Gulf investments in the Horn thus cannot be fully understood without taking perspectives from recipient countries into consideration.

The reflections presented here take perceptions in Ethiopia as a critical case, and are largely derived from fieldwork in Addis Ababa and Dire Dawa (Ethiopia) throughout December 2017.‍[117] The relevance of Ethiopia stems from three factors. Firstly, Ethiopia appears to be amongst the largest recipients of Gulf investment amongst Horn governments, seeing significant investments coming into primary (agriculture), secondary (industry) and tertiary (services) sectors. Secondly, Ethiopia, despite long historic and cultural ties with the Gulf, has not been considered predominantly in the context of long-standing intra-Islamic disputes. The country’s largely Christian-dominated heritage is interpreted instead through ambivalent narratives in Islamic tradition,‍[118] and its Muslim communities are predominantly Sufi (lacking strong political Muslim Brotherhood or Salafi factions). More recently, Ethiopia has remained neutral in the GCC crisis and is a recipient of investments from both sides of the divide. Lastly, frequently touted as a regional hegemon,‍[119] Ethiopia both strongly influences and is strongly influenced by developments in the wider Horn region, considering trade and kinship ties spanning multiple states. Although Ethiopia thus has a range of traits shared with other Horn states, it should be reiterated that the significant ethnic, religious and economic differences with other Horn states may strongly shape Ethiopian relations with Gulf states. Dynamics from one case thus may indicate considerations elsewhere, but cannot be extrapolated to other states without taking into account the influence of the different (local) dynamics.

5.1 Gulf largesse in a cash-strapped economy

Following the ouster of the Derg regime, the Ethiopian People’s Revolutionary Front (EPRDF) claimed power in Ethiopia based on a platform of self-determination for Ethiopia’s nations and nationalities. Influenced by Stalinist interpretations of ethnic representation through ethnic federation, the party sought to define and mobilise ethnic groupings in a top-down fashion in an attempt to legitimate itself in contrast to previous centrally/Amhara-led regimes.‍[120] Although the EPRDF’s ethnic federalism formally gave considerable autonomy to newly created regions and more than 80 officially recognised nations and nationalities, the space for locally derived ideas, institutions and governance remained limited by the party’s revolutionary developmental ideology and the dominant role of a predominantly Tigrayan elite in the security apparatus and business sector. Democratic governance was thus severely limited by the frequent use of instruments of co-option and coercion, affecting the regime’s domestic legitimacy.‍[121] Instead of increasing the space for bottom-up ethnic representation and influence, the regime sought to build support for its rule through developmentalism. As a consequence, its main claim to domestic and international legitimacy is based on its performance in delivering a stable environment conducive to persistently high economic growth.‍[122] Subsequently, the ability to showcase a record of economic growth and poverty reduction has come to be seen as a matter of domestic security, reflected in Ethiopia’s tendency to securitise key export assets (export routes to Djibouti, special economic zones, and so on), nontransparent but persistently positive economic accounting, and the role of the military dominated Ethiopian Metals and Engineering Company (METEC) in the country’s development.‍[123]

Ethiopian foreign policy has historically stemmed from a siege mentality referencing the threat of Islamic encirclement. Ethiopia’s foreign policy was redefined in 2002. The new policy sought to move away from the encirclement conception, but largely maintained the idea of external forays and interventions as a function of internal imperatives.‍[124] Following the definition of domestic poverty as the main threat, relations with Gulf regimes were reframed to incorporate “the key role these countries can play in our economic development, and focus on seeking development, finance, investment, and markets for our products”.‍[125] Reflecting predominance of economic incentives, Ethiopian officials have largely refrained from commenting on potentially divisive issues, such as Yemen or the (domestically sensitive) (mis)treatment of Ethiopian migrants in the Gulf.‍[126] Career perspectives in the foreign service became related to diplomats’ ability to secure foreign investment, reflecting the prominent role accorded to foreign investment in the key legitimating metric of the regime: development of the country and the reduction of poverty. A prime example is Mulatu Teshome, who was elevated to the position of president of Ethiopia in 2013 from his role as ambassador to Turkey (held next to other ambassadorships to, amongst others, China), which he had used to position himself as the main channel for the entry and allocation of Turkish investments in Ethiopia, efforts which are highly valued domestically.‍[127]

The pressure to attract foreign funding is further compounded by the persistently negative balance of payments that Ethiopia, like other Horn countries, has maintained in recent years. Foreign currency reserves were at a negative USD 7.2 billion by the end of 2016, and the current account deficit at USD 7.4 billion in July of that year (driven by a sizeable trade deficit), indicating significant strains on the country’s foreign currency reserves.‍[128] Although a negative balance on the current account does not by definition impair growth, the limited availability of hard currencies has limited economic growth in Ethiopia by making the importation of key goods and services difficult (gaining access to hard currency can take up to a year for entrepreneurs), risks the country to default on loans and might jeopardize the significant infrastructural development spending (such as the Grand Ethiopian Renaissance Dam).‍[129] Stringent currency controls have been put in place and a crackdown on both popular and elite-level informal currency markets is in effect, yet the central government remains in a weak financial position.‍[130] Sizeable Gulf loans and deposits (in the range of several billions) have been key to the continued solvability of state finances and the relatively stable exchange rate of the birr.‍[131] Similar loans from Saudi Arabia have been important in helping the Al-Bashir government bridge the sanctions regime imposed on Sudan and substantial financial support played an important role in drawing Eritrea into the Saudi-led coalition.‍[132] Eritrea also depends on Dubai as a central hub in its offshore financial network to discretely facilitate various payments. Hard currency drawn from the Eritrean diaspora are moved through banks in Dubai to facilitate procurement of goods and weapons and to finance the armed groups Eritrea supports in the Horn.‍[133]

The developmentalist narrative may frame the public motivation for courting Gulf investment, but the attracted funds are also important to maintaining the political settlement. Although the Ethiopian state is highly centralised, its ability to economically reward selected actors is limited. because most economically viable assets have already been captured by firmly entrenched elites, and the capacity to maintain economically non-viable assets is relatively limited and requires a careful balancing act by the EPRDF politburo between different ethnic, regional and linguistic interests.‍[134] Given the myriad of ethnic and regional elites co-opted into the political settlement and such limited working capital for co-option and patronage, the maintenance of settlements stability is a careful balancing act.‍[135] This challenge has been further intensified owing to the sustained protests and elite schisms in the last three years.‍[136] Additional patronage demands have put a strain on resources, in part due to the heightened turnover of elites in the regional parties. The highly centralised and personalised channels through which Gulf investments enter Ethiopia allow a limited set of elites significant discretion in allocating funds.‍[137] Other significant investment flows (e.g., Chinese, Indian, European) are more tightly controlled by the investors and thus allow far less discretion in their allocation or are more fragmented across a wider set of small investors or personalized channels. Additionally, as Gulf investments have frequently run into delays to become operational, such investments have had relatively low visibility, both domestically and internationally. This could make it easier to divert funds to suit particularistic needs.

5.2 The other side of the Riyal

Despite the relevance of Gulf economic support to the continuity and stability in the Horn, the funds provided have not been viewed unequivocally positively by its recipients. One of the main criticisms is the relatively poor suitability of investment projects developed and their lack of sensitivity towards the sociopolitical context of the Horn region, including sub-state inequalities. In many cases, the regional policies of Gulf actors do not sufficiently take into account realities in the Horn. Such deficiencies arise as a consequence of two factors. Firstly, overall understanding amongst Gulf actors of the ethnic profiles, economic activities and trade relations between Horn communities may be limited in some cases (again, central Sudan with its close ties to the Gulf may prove an exception). Qatar’s Ahmed bin Abdallah Al Mahmoud, the country’s Deputy Prime Minister for many years, for example, was rumoured to have had scant knowledge of Sudan’s many conflicts when he took up the role of lead negotiator in the Darfur crisis.‍[138] While it is not unusual for mediators to need considerable time to familiarize themselves with complex dossiers, in foreign policy contexts where there is little institutional support to rapidly remedy this, important blindspots may lead to grave consequences. Considerations to invest in certain regions and economic sectors often stem from state-based logic and do not take into account spillover to communities that may extend across state borders (see box 5).‍[139] Similarly, Gulf activity in Ethiopia is driven more by immediate concerns or opportunities than any longer-term strategic vision of the larger region’s development. Given the asymmetric relations between the regions, this lack of attention is not surprising in light of the asymmetric relations between the regions. This limited stake in the region permits the Gulf states to view the Horn region mainly in terms of short-term Middle Eastern security concerns. This implies that the aims of Emirati, Saudi and Qatari policy are not necessarily tied to the long-term internal stability of the Horn region, unless it clearly impinges on the stability of the wider Red Sea region.

A second issue impeding a balanced approach to the Horn is the highly hierarchical organisational structure of the Gulf states, which appears to allow for a substantial gap between political decision makers and ministry staff. While sufficient expertise to address the above mentioned policy concerns may exist within the organisation, the extent to which information and policy considerations can flow upward and reach the highly exclusionary circles of political decision making is questionable. One concern has been the frequent lack of availability or visibility of a Gulf counterpart on policy issues that is both informed and politically influential.‍[141] Additional concerns arise over the experts contracted in policy-making bodies. While arguments can be made regarding reliance on expats to facilitate national policymaking, of particular concern is the involvement of experts from third countries with stakes in the process. For example, the employment of Egyptian personnel in ministries and the offices of the ruler of many Gulf states undoubtedly deepens the understanding of Horn politics, but has also raised a sense of suspicion amongst Ethiopian policy makers given the long and chequered history between Egypt and Ethiopia. Similar rumours exist in Ethiopia regarding potential conflicts of interest surround the Qatari mediation efforts in Darfur: the Qataris are mentioned as employing Sudanese staff, relying on expertise from the Eritrean Ministry of Foreign Affairs, and of foreign experts advising both rebel and government factions.‍[142] Such rumours are raising the level of suspicion with which Gulf initiatives are received in the Horn.

Additional concerns arise when development of physical assets gets under way. Considering that the main asset of Horn states is its arable land, a significant share of Gulf investments aims to capitalise on agricultural opportunities.‍[143] In an attempt to court external investment, the Ethiopian government has been known to offer large plots and to facilitate its development by taking responsibility for land clearance to ensure that development can begin.‍[144] Land clearance frequently involves the forceful displacement of the local population.‍[145] This issue is not unique to the Horn context, but its significance in Ethiopia should not be underestimated. The tensions generated through the coercive role such land sales demand from the central government in peripheral regions coincide with existing tensions stemming from the de facto dominance of the federal government over the regional states. Moreover, displaced populations are rarely allowed to work on the newly settled farms.‍[146] Instead, employees from different ethno-regional groups fill many of the local vacancies. Although some interviewees indicated that land clearance practices may be changing, as compensation is more frequently being granted, many of those who gave up their land find developing a new livelihood difficult as land prices rise and developing new farmland can prove challenging.‍[147]

Challenges involved in moving from land acquisition to developing an operational asset are not unique to domestic entrepreneurs. Foreign investors face significant hurdles and delays in developing on-the-ground operations, undermining developmentalist claims to legitimacy after the initial displacement.‍[148] Gulf investors in particular have been known to face implementation delays, feeding discussions regarding the discrepancy between announced large-scale investments and lacklustre activity on the assets.‍[149] Such discrepancies can in part be attributed to difficulties related to a lack of infrastructure, an unclear regulatory environment requiring longer due diligence and other interactions with state bodies as well as the limited experience of many Gulf investors in developing such large-scale agricultural projects. Nonetheless, the return on investment is frequently not the main driver of Gulf investments in the region, and the cheap and long land leases provided by the Ethiopian state do not increase the pressure to develop the plot or prevent land speculation.‍[150] Many assets are therefore not in operation, which delays expected hard currency income through export earnings, and leads to a heavy burden of nonperforming loans with the Ethiopian state. Because the investment policy provides for government support in start-up financing (up to 70 percent of the initial investment, depending on the type of investment), the lack of returns on a several such investments have left the Ethiopian Development Bank under substantial strain.‍[151]

Another frequently cited concern relates to proselytization efforts accompanying Gulf investments.‍[152] Significant Salafi currents, associated with the Saudi export of its Wahhabi interpretation, can be identified within the Ethiopia´s traditionally Sufi Muslim community. The rise in Salafi interpretations was to some extent supported by Saudi Arabian funding, flowing mainly through personal connections and Saudi NGOs such as the Muslim World League and the Islamic Relief Fund.‍[153] These funds facilitated the construction and operation of mosques and religious schools (as well as social and economic relief projects) in the Ethiopian regions such as Oromia. Developments like these gained a further impetus with the return of Ethiopian students from Wahhabi institutions in Saudi Arabia (such as Medina University), which has further strengthened the presence of Salafi strands in Ethiopia.‍[154] The ensuing rise in the salience and demands for political space from the Muslim community prompted the federal government to intervene in 2011. Although the heavy-handed approach prompted substantial conflict in the regions, they appear to have been relatively effective at stemming foreign funding.‍[155] The changes made to the composition of the Ethiopian Islamic Affairs Council have interfered with many of the personal channels through which funding entered the country.‍[156] Further controls on Islamic NGO activity and stringent reporting requirements for Ethiopian banks on suspicious bank transfers have effectively cut most other funding channels.‍[157] Nonetheless, proper auditing of financial streams remains difficult because the Ethiopian state’s capacity is limited and a lack of clarity persists whether Gulf investors own or merely manage the funds they invest.

Central governmental attempts to control Islamist influences from the Gulf can easily backfire and fan ethno-regional tensions (e.g. in Oromia), as the case from neighbouring Djibouti illustrates. The state inherited a strictly secular governance model and tradition from French colonial rule. In an attempt to accommodate the return of Islamist and Islamic scholars from their education in Gulf states, the Djiboutian government sought to establish strictly controlled religious institutions in order to avoid the emergence of politicised religious movements outside state control. Nonetheless, returning scholars managed to effectively dominate the newly formed institutions at the expense of traditional Islamic leaders. Utilising the state’s attempt to control religious institutions, Islamist leaders have been able to break with secular traditions and bring religious narratives and actors into the political sphere.‍[158]

Lastly, although most Ethiopian foreign policy thinking is based on overcoming internal tensions, a resurgence of Gulf engagement in the Horn appears to be reintroducing the historically rooted conceptions of Islamic encirclement into foreign policy considerations.‍[159] The emergence of Gulf military bases in major ports, Eritrea moving out of isolation through its Gulf alliance and the Gulf’s influence in Somalia are underlining both Ethiopia’s vulnerability to its periphery, its reliance on port access and Ethiopia’s reduced leverage because of substantial Gulf funding. The fault lines imported from the Gulf are currently relatively separate from conflict dimensions in the Horn, but there is no guarantee they will remain so in the future.