Awol K. Allo is a lecturer at the Keele University School of Law. Below he writes about Ethiopia's recent transformations and the government's announcement to mend relations with Eritrea. The opinions expressed in this article are solely those of the author.

(CNN) Ethiopia is undergoing remarkable political transformation never seen in the country's recent history.

Since coming to power just over two months ago, the new Prime Minister Abiy Ahmed, has taken a series of radical steps that are transforming the political map and restoring trust in public authority.

On Tuesday (June 5), the government made three major and politically consequential announcements: it lifted the state of emergency imposed shortly after former Prime Minister Hailemariam Desalegn resigned, announced plans to liberalize the economy and declared it was ready to fully comply with and implement the Algiers Agreement that ended Africa's most deadly conflict.

Reforms at home

Perhaps the most popular Ethiopian leader to date, the Prime Minister's performance over the last two months has been stellar.

Awol K. Allo

Since his inauguration , the Prime Minister has toured the country, listening to the people's grievances. He has reassured the public that his government is ready to take concrete steps towards democratic opening and national reconciliation.

His government has released thousands of political prisoners, met with the political opposition and civil society to discuss reform, invited previously exiled political parties to return to their country, and embarked on major institutional reforms, including the security and the justice sectors.

In just 66 days, the Prime Minister has turned a new page in Ethiopian history, restoring hope and optimism in the direction the country is taking.

The concrete and symbolic steps being taken on both national and regional levels show that the Ethiopian leadership is making impressive strides towards the party's promise to widen the democratic public space and foster national reconciliation.

A deadly war

In 1998, Ethiopia and Eritrea fought one of Africa's senseless and deadliest war, which killed an estimated 100,000 people , ripping the social fabric that tied these culturally and economically interconnected peoples together.

In 2000, the two countries signed the Algiers Peace Agreement , which was designed not just to end the military hostilities and the killings but also to repair the socio-economic fabric ruptured by the war.

Yet, 16 years on, the countries are still at a 'no peace, no war' situation, with thousands of soldiers still manning the border regions.

Although both countries presented territorial disputes as an official justification for the war, the real reason behind the war is far more complex and has uniquely regional historical and cultural roots.

Ethiopia invoked technical and bureaucratic justifications to derail the implementation of the boundary commission's decision and ultimately frustrated the process, setting the scene for the intractable stalemate.

The Eritrean government used Ethiopia's refusal to relinquish sovereign Eritrean territory and the subsequent militarization of the border to justify its own repressive rules at home.

The regime maintained compulsory military service, and pursued politically and economically that forced an estimated 3% of its people to flee the country.

Over the last 16 years, the Eritrean government demanded Ethiopia's full compliance with the Boundary Commission's decision as a condition for normalizing relations.

Now that Ethiopia has satisfied Eritrea's demands, putting the ball firmly within Eritrea's court, the Eritrean regime cannot use these excuses to prolong the conflict and maintain the persistent repressions at home.

Given the transformational changes taking shape in Ethiopia and the concrete steps the new leadership have taken in the domestic arena, there is no reason to doubt the sincerity of the government.

After all, this announcement is a continuation of the promise Prime Minister Ahmed made during his inaugural speech two months ago.

Ethiopia's announcement to comply fully with the Boundary Commission's decision will mark a new chapter in the relations between the two countries and will be consequential for regional peace and stability.

Fastest growing economy

Another major announcement by the new government center around plans to liberalize the economy, including decisions to privatize fully or partially lucrative state enterprises such as aviation, energy, telecommunication, and manufacturing.

Under the plan, foreign and domestic investors can buy minority stakes in sectors that were previously deemed off limits to private enterprise.

This announcement represents a major policy shift by the government as the new leadership seeks a new direction for the economy while maintaining the interventionist aspects of the developmental state policy.

Since the 2005 disputed National Election, the ruling party and its leadership embraced the 'Democratic developmental state' economic model and used this phrase to describe the ruling party's ideology and to criticize the neo-liberal economic model.

Over the last decade, Ethiopia registered impressive economic performance. Although there are reasons to suspect the credibility of the data and the real extent of the growth, it was among the fastest growing economies in the world, averaging double-digit economic growth and cutting poverty by half.

However, the developmental state model as practiced by the previous government is not merely an economic policy.

It is a politico-economic whole underpinned by a project of social engineering and political control, leading to massive land grab and the expulsion of hundreds of thousands of people from their ancestral lands without appropriate consultation or compensation.

While the policy shift does not constitute a wholesale abnegation of the developmental state model, it certainly represents a significant departure from the previous approach.

According to the press statement, the government will continue to participate in economic activities to ensure increased spending on infrastructure investments and other socially rewarding projects.

However, as the government seeks to widen the political space and empower citizens, the authoritarian economic model practiced by the previous governments needs to undergo a renewal.

Many of Ethiopia's public enterprises have been neither efficient nor profitable and their privatization is long overdue. Several sectors under public ownership such as telecommunication and electricity can benefit from private sector investment and dynamism.

Serious risks

While Ethiopia's economy certainly needed a new direction, the government must be cautious and must move with extreme care in rolling out these policies, particularly in opening up certain sectors to foreign investment.

For example, it is not clear why the government seeks to partly privatize the Ethiopian Airlines, the most efficient, profitable, and reliable African airline.

The carrier, which has dominated the African sky by acquiring several under performing airlines, is considered a national treasure, which has a significance far greater than revenue generation.

The government must undertake a thorough impact assessment sector by sector, and industry by industry, if necessary, to minimize the devastating effects of opening up capital strapped markets to foreign competition.

Finally, Ethiopia's new leadership is making remarkable progress on several fronts, but faces serious risks from within which could jeopardize the progress made over the last two months.

It is important that regional powers and Western governments support the transition in this country whose stability is critical for the entire Horn of Africa region.