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

By Sarah Miller , Jimmy Graham | June 15, 2021

Preface

In most low- and middle-income countries, refugees and forced migrants face a range of legal, administrative, and practical barriers that prevent their economic inclusion. Removing these barriers would enable displaced people to become more self-reliant and to more fully contribute to their host communities.

Such efforts are even more important as the world looks to economically recover from COVID-19. While the pandemic has created unprecedented challenges for low- and middle-income countries around the world, it has also highlighted the importance of expanding economic inclusion. Refugees and forced migrants can, and do, play a crucial role within labor markets. Given the opportunity, they can help their host countries recover from this crisis.

This case study is part of the “Let Them Work” initiative, a three-year program of work led by the Center for Global Development (CGD) and Refugees International and funded by the IKEA Foundation and the Western Union Foundation. The initiative aims to expand labor market access for refugees and forced migrants by identifying their barriers to economic inclusion and providing recommendations to host governments, donors, and the private sector for how to overcome them. The primary focus is on refugees and forced migrants in Colombia, Peru, Kenya, and Ethiopia, with other work taking place at the global level.

Executive Summary

Ethiopia has hosted substantial refugee populations since the 1980s. Due to the protracted nature of the conflicts in the refugees’ countries of origin, it is unlikely that most of them will be able to return home any time soon.¹ In this context, it is imperative for the Ethiopian government to seek long-term solutions to hosting refugees, moving away from its long-standing system that restricts most refugees to camps with limited economic activity and toward a system that allows for greater refugee economic inclusion (defined as the achievement of income commensurate with one’s skills and decent work). Such a system would improve the lives of refugees, reduce reliance on aid, and boost economic activity in hosting regions.

However, progress toward economic inclusion must now be made alongside an ongoing diplomatic and humanitarian response to the country’s devastating internal conflict within the region of Tigray. As a result of this conflict, millions have been displaced to other parts of Ethiopia or into neighboring Sudan. Ethiopian forces, paramilitaries, and Eritrean troops have been responsible for serious abuses of human rights, including reported massacres, atrocities, widespread kidnapping and looting, food shortages, and lack of medical access. Humanitarian access remains severely limited, and Eritrean troops have been active among multiple camps of mostly Eritrean refugees in Tigray, in some cases terrorizing, raping, kidnapping, or killing them.

In this context, it is a top priority to maintain a robust diplomatic and humanitarian response focused on curbing abuses and violence and meeting basic needs, but there must also be a continued emphasis on facilitating development and economic inclusion for refugees elsewhere in the country. Ethiopia is home to about 800,000 refugees. Prior to the crisis in Tigray, about 150,000 refugees were in the northern regions of Tigray and Afar, and most of the remaining 650,000 were in the regions of Somali, Gambella, Benishangul-Gumuz, and Addis Ababa.² For refugees outside the main zone of conflict, there are still opportunities to build on recent progress and create an environment that leads to better economic outcomes for refugees and host communities alike.

Unfortunately, many challenges and barriers stand in the way of refugee economic inclusion in the country. Some of these challenges are related to the overall economic and political situation in the country. For one, even prior to the outbreak of violence in Tigray, political unrest and violence, linked to an ongoing democratic transition, had been spreading in various regions throughout the country. Second, like all other countries in the world, Ethiopia has been grappling with the outbreak of COVID-19, which has devastated health systems and the economy alike. Third, even prior to the pandemic, the country faced high rates of poverty and unemployment. Fourth, Ethiopia has been struggling with a variety of natural disasters, including locusts, floods, and droughts. And fifth, as a result of many of these challenges, the country hosts some 1.8 million internally displaced people, who struggle much like refugees to meet basic needs and achieve positive economic outcomes.³

In addition to these broader contextual challenges, refugees face several other barriers that prevent their progress toward economic inclusion, including these:

Policy barriers. Currently, Ethiopian law dictates that most refugees, with relatively few exceptions, must live in the designated camps throughout the country, and very few refugees have been granted the right to work. Thus, most refugees lack freedom of movement and can only work informally in the limited markets in and around camps. Although most refugees worked in agriculture or pastoralism prior to being displaced, few have access to land. Moreover, unclear regulations inhibit refugees’ access to financial services, and the few refugees that live outside camps have trouble accessing government services.
Political barriers. A range of political forces in Ethiopia prevent or slow the removal of policy barriers. For example, the Agency for Refugee and Returnee Affairs (ARRA), Ethiopia’s agency in charge of refugee management, faces disincentives to facilitating refugee economic inclusion, as doing so could negatively impact its relevance as an organization. Moreover, tensions related to a wide range of issues—including ethnic balance, competition over jobs and resources, crime, and perceived inequity in service delivery—limit political will to allow for greater refugee inclusion. In addition, national crises such as the outbreak of COVID-19 and the violence in Tigray have distracted from the refugee policy agenda.
Security barriers. Intense ongoing conflict in the Tigray region may preclude the possibility of greater refugee economic inclusion in that region in the short term. Furthermore, violent conflicts in other regions may affect refugees’ willingness and ability to work outside camps.
Discrimination. Some employers discriminate against refugees in hiring, and others may be unwilling to work with refugees for fear of community backlash.
Economic barriers. Many refugees live in host areas with limited economic opportunities. These economies have underdeveloped value chains, a lack of arable land, weak financial systems, and poor infrastructure. Refugees in urban areas, and especially in Addis Ababa, face labor markets with high rates of unemployment. In addition, most refugees have low levels of education and limited assets and social capital. Compounding these challenges, COVID-19 has caused a slowdown in economic growth that has further limited economic opportunities and also reduced support from international organizations on livelihoods activities.
Lack of coordination and appropriate government structures. The government and its development and humanitarian partners have created a coordination structure as a part of the UN-supported Comprehensive Refugee Response Framework (CRRF), which is designed to assist refugees and host communities and develop refugee self-reliance. The coordination structure of the CRRF aims to manage interactions between various NGOs, international actors, and government agencies, but it is not currently operating. As a result, many government actors are not involved in the CRRF process of moving away from the camp-based approach to managing refugees; refugees, hosts, and the private sector have limited input into this process; there is a lack of strategic vision for carrying out the CRRF; and there is no clear platform for donor advocacy with the government.
Refugee aspirations. Many refugees are unwilling to relocate from camps for work opportunities, and few are willing to relocate for industrial park jobs.

Fortunately, progress is being made on many of these dimensions—albeit somewhat slowly. Regarding the policy barriers, the Ethiopian government has begun to create pledges and implement policy changes to create more economic and social rights for refugees. For example, in 2017, Ethiopia agreed to be a pilot country for the CRRF, an approach to supporting refugees and host communities led by the United Nations refugee agency (the United Nations High Commissioner for Refugees, or UNHCR) that aims to create conditions for greater refugee self-reliance—by reducing encampment and increasing access to local economies and labor markets—while also providing increased support to hosting countries, expanding opportunities for resettlement, and fostering conditions for voluntary return.⁴

As part of this process, in 2019, the government issued a proclamation expanding refugees’ rights to work, move freely, and access education. It has already begun to take steps to implement these changes by extending over 2,000 work permits to refugees (with plans to distribute thousands more) and expanding the number of freedom-of-movement permits from 19,633 in 2018 to 35,340 in 2019.⁵ However, most refugees have not benefited from these changes, and the status quo is still largely intact.

Efforts are also being made to address the political barriers. To reduce the political tensions that surround economic inclusion, donors are focusing on increasing efforts to ensure that support for refugees is accompanied by adequate assistance to refugee hosting communities. Donors are also implementing programs that mitigate sources of tensions between refugees and hosts. Moreover, to create greater political will for change, the World Bank and other funding partners created the Jobs Compact, a funding mechanism designed to finance Ethiopia’s development priorities in exchange for policy progress related to refugee support and inclusion. It is believed that this funding has been the driving force behind the government’s policy changes, but even with this funding, there is still a great deal of political reluctance to move quickly on policy changes.

There has been a robust international response to addressing economic barriers to refugee economic inclusion, such as the creation of irrigable land for use by refugees and hosts and the implementation of a large number of skills trainings and other livelihoods programs. Various international organizations also have plans to invest in public works programs in hosting areas and to subsidize private-sector investment around camps. Of course, as with the other barriers, there are still many challenges to creating economic opportunities in hosting areas.

This paper’s analysis of the gaps in economic outcomes between refugees and hosts illustrates just how far refugees are from achieving economic inclusion. It shows that, on average, per capita household consumption is 109.4 percent higher for hosts than refugees (US$3.29 per day for hosts and US$1.57 per day for refugees). Similarly, there is a 37.6 percentage point difference in refugee and host employment rates (21.2 percent for refugees and 58.7 percent for hosts). The economic effects of COVID-19 have likely widened these gaps.

Achieving greater economic inclusion would lead to a wide range of benefits. For refugees, it would mean higher incomes, which would likely lead to lower rates of poverty, greater food security, less reliance on negative coping mechanisms such as prostitution, and increased self-reliance. For hosts, greater refugee inclusion would likely amplify any of the benefits of hosting that have already been observed, including the large growth of markets and consumer demand around camps, which has led to new employment opportunities and increased revenues for businesses, the provision of new services by both the private sector and international organizations, and refugees’ contributions to the economy as workers and employers.

With greater economic inclusion, refugees can contribute more fully to the economy, more livelihoods-focused programs that benefit both refugees and hosts may be implemented, private-sector investment may increase, and consumer demand may further rise due to increased refugee incomes. Given the economic distress caused by COVID-19, these benefits are needed now more than ever.

It is likely, however, that not all hosts will benefit from these changes, as some may lose work opportunities due to increased competition, and greater inclusion may also spark social tensions in some regions. However, research from other contexts shows the economic benefits of greater inclusion, and it is likely that the benefits for hosts would outweigh any negative effects.⁶ Still, for those hosts that are harmed by the changes, international organizations should be ready to provide economic support.

Governments, donors, international organizations, NGOs, and the private sector can take a wide range of actions to facilitate greater economic inclusion—but these actors must also maintain a focus on the crisis unfolding in Tigray. The United States and European countries have already taken steps to curtail economic support and security assistance to Ethiopia. World Bank funding may now also be in jeopardy. If the Ethiopian government continues to commit war-related atrocities in Tigray, other donors should be prepared to follow suit and suspend similar aid packages for the government of Ethiopia. However, this does not include humanitarian funding, which must continue unabated. Once the situation improves, the structural reforms noted below should be implemented to improve refugee access to the labor market.

Action recommendations for the government of Ethiopia:

Revitalize and improve the CRRF coordination structure. A functioning CRRF coordination structure is crucial to organizing effective approaches to improving economic inclusion. This structure already exists but is not being utilized. Moving forward, ARRA should revitalize the CRRF structure. This would involve reinitiating regular meetings of the steering committee and actively recruiting the participation of its members, including line ministries, other government agencies, NGOs, donors, development banks, and private-sector actors.
Encourage regional policy solutions. Each hosting region of the country faces unique barriers and opportunities. Therefore, to maximize economic inclusion and minimize tensions between refugees and host communities, the Ethiopian government (and specifically ARRA) should tailor refugee policies to each region and continue moving ahead with progressive implementation.
Decentralize ARRA’s decision-making power. The government of Ethiopia, led by the Office of the Prime Minister, should decentralize ARRA’s decision-making power to regional levels. In the past, the centralized nature of ARRA may have been more appropriate, but now ARRA requires a more flexible and regional approach, as the refugee landscape grows increasingly complex—with a proliferating number of actors, rapid changes in programming and new policies responding to COVID-19, and the increasing need for regionally tailored solutions.
Standardize refugee work and residence permits. The government (and ARRA, specifically) should grant the same work permits to refugees as to other foreigners. Doing so would prevent confusion and reluctance among potential employers, allowing refugees to easily switch from their “joint project” employers (i.e., employers found through government-sanctioned livelihoods programs involving the provision of work permits) to other businesses.
Issue directives to ensure that refugees have access to services promised in the 2019 Proclamation. With refugees beginning to live and work outside camps, it is imperative that they have access to the same basic services as Ethiopian citizens, such as healthcare and education. These basic services and protections have been granted in the 2019 Proclamation, but little has been done thus far to ensure effective implementation. Therefore, ARRA should create directives, issued to relevant ministries, outlining refugees’ rights to services and labor protections.

Action recommendations for donors, NGOs, and international organizations:

Suspend security and economic assistance to the Ethiopian government until such time as government-led atrocities in Tigray have ended. Donors should withhold these forms of support to the central government in line with recent steps taken by the United States and European Union. Where possible, they should reroute humanitarian and recovery aid away from the central government and towards local governments, NGOs, civil society and other actors not involved in the conflict in Tigray.
Ongoing assistance to refugees, IDPs and host communities should be linked to policy progress and improved outcomes. The World Bank and other multilateral and bilateral donors should facilitate policy implementation and progress through continued funding conditionality. Following the example of the Jobs Compact, donors should continue to work together to tie funding to policy progress and implementation. To ensure that funding is incentivizing meaningful changes on the ground, donors should tie disbursements not only to initial policy changes but also to specific outcomes that indicate progress for refugees.
Directly involve regional and local governments and line ministries in the CRRF process—and demonstrate benefits to them. Ideally, regional and local governments and line ministries would be involved in the CRRF process through the coordination structure. However, if this structure remains inactive, NGOs, donors, and international organizations should work to directly involve various government actors in their programming by consulting with these agencies during planning phases and involving them in implementation.
Focus on programming that mitigates refugee-host tensions. In some regions of the country—most notably Gambella in western Ethiopia—tensions between refugees and hosts have led to insecurity and have reduced the feasibility of successful refugee economic inclusion. International organizations should scale up efforts to reduce tensions and improve relations between hosts and refugees, which could include more equitable service delivery or programs that address sources of tensions, such as deforestation. This will be especially important as the millions fleeing Tigray seek refuge in other regions.
Prioritize women in livelihoods programming. Refugee women typically face greater challenges than refugee men. In most hosting regions, refugee women have much lower rates of employment, and this gap has likely been exacerbated by the disproportionate effects of COVID-19. Similarly, host women face lower rates of employment than host men and have been more severely impacted by the pandemic. Thus, additional livelihoods support should be provided to both refugee and host women, and these programs should also be tailored to the specific challenges that women face.
Coordinate and respond to internal displacement. The crisis in Tigray and heightening tensions in other regions have only intensified the need for assistance and protection for internally displaced persons (IDPs) in Ethiopia. Many regions remain very poor and cannot sustain new and older caseloads of IDPs. The international community must incorporate the internally displaced in their planning and programming as a complement to refugee and host community projects and initiatives.
Pursue improvements to standards in the informal economy. International actors tend to focus more heavily on the formal economy, even though large numbers of refugees (and hosts, for that matter) tend to work informally. Ethiopia has a large informal economy, and the international community should more fully consider how to design programs that improve working conditions in the informal sector. Whether working in the formal or informal sector, refugees and hosts need job stability and improved implementation and enforcement of safety conditions at work.
Rigorously evaluate livelihoods approaches. Livelihoods programs designed to help individuals achieve decent work and increase their income can have remarkable impacts, but these programs are highly inconsistent in their effectiveness. Funding should therefore be used to rigorously evaluate these programs—ideally using experimental methods—in order to ensure they are having their intended impact.
Maintain a focus on protection and humanitarian support even as economic inclusion accelerates—but shift these services to local providers. With limited economic opportunities around camps, it will likely take a long time for economies to grow and for economic inclusion to be achieved, even if policy progress accelerates rapidly. In the meantime, refugees will continue to need support. To align with the CRRF approach and create more effective systems in hosting areas, donors and international organizations should sustain protection and humanitarian efforts even as they increasingly aim to integrate services and distribute support through local providers.

Action recommendations for the private sector:

Invest in refugee-hosting areas. The most effective way for the private sector to support refugees in Ethiopia is through investment in hosting areas. Investment will create two key benefits. The first is job creation, directly supporting refugees and hosts. The second is a demonstration of the benefits to host communities of greater economic integration for refugees—and the associated perks. This demonstration can improve host-refugee relations while also building buy-in from government actors for further progress on the CRRF agenda. Given the untapped market potential of camps, investments could also yield substantial returns for companies. As with other actors, private sector investors should avoid funding the government to avoid resources being used in the Tigray conflict.
Hire refugees. The private sector can support the process of economic integration by directly hiring refugees for jobs that provide decent work in decent conditions. This would be an especially suitable option for companies that do not see an investment opportunity in camps but could benefit from the large supply of labor that refugee populations represent. To overcome the fact that many refugees do not have the right to work, companies should work with international organizations and NGOs to establish government-sanctioned joint projects (such as hiring programs for refugees that complete job trainings), which would allow refugees to obtain work permits.
Improve access to financing. Refugees come with skills and ambitions, and research shows that one of the best ways to benefit from these skills and ambitions is to improve their access to formal lending instruments. Financial institutions (including microfinance organizations) can improve refugees’ access to lending by setting up new branches or operations in and around camps and adjusting their procedures to allow refugees to open bank accounts with the documentation that the government provides.

Ethiopia is facing a wide range of difficulties—from the pandemic, to internal conflict, to long-standing economic problems—which can distract from the issue of refugee economic inclusion. However, accelerating progress on this front can bring benefits to refugees and hosts alike and mitigate existing challenges. Given the importance of refugee economic inclusion for the country, the government and its partners must shift attention back to making progress on this agenda.

Endnotes

¹ UNHCR, Ethiopia Country Refugee Response Plan, 2020-2021, https://reliefweb.int/sites/reliefweb.int/files/resources/73571.pdf

² UNHCR, “Operational Portal: Ethiopia,” accessed October 2020, https://data2.unhcr.org/en/country/eth

³ IDMC, “Ethiopia,” accessed April 2021, https://www.internal-displacement.org/countries/ethiopia

⁴ UNHCR, “Comprehensive Refugee Response Framework,” accessed October 2020, https://www.unhcr.org/en-us/comprehensive-refugee-response-framework-crrf.html

⁵ Based on information given by ARRA at an NGO roundtable organized by ReDSS; UNHCR, Ethiopia: 2019 Summary Pledge Progress Report, July 2020, https://data2.unhcr.org/en/documents/details/78981

⁶ Michael Clemens, Cindy Huang, and Jimmy Graham, “The Economic and Fiscal Effects of Granting Refugees Formal Labor Market Access,” CGD Working Paper 496, October 2018, https://www.cgdev.org/publication/economic-and-fiscal-effects-granting-refugees-formal-labor-market-access

Acknowledgements

The authors are grateful to Helen Dempster, Thomas Ginn, Martha Guerrero, Hardin Lang, Eric Schwartz, and others for their invaluable feedback.

PHOTO CAPTION: Hanan Seif Hassan (left), a 32-year-old refugee from Yemen, prepares samosas in a cooking course at Nefas Silk Polytechnic College in Addis Ababa, Ethiopia on September 3, 2019. This course is part of a program for refugees and the host community to train together to improve job prospects. Photo Credit: © UNHCR/Eduardo Soteras Jalil.