Ethiopia flag Ethiopia: Economic and Political Overview

The economic context of Ethiopia

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Africa's second most populous country (more than 114 million people) Ethiopia has experienced sustained growth of around 10% per year on average over the past decade. Main drivers of growth are agricultural production and services, sustained by foreign development aid. However, due to the COVID-19 pandemic, the locust invasion and the conflict in the Tigray region, the economic growth slowed down to reach an estimated 2% GDP in 2021, down from 9% in 2019. Coface expects the GDP growth to accelerate moderately to 4% in 2022, thanks to the easing Covid-19 restrictions and the ongoing recovery of key trading partners. Downside risks include the persistence of the conflict and rising external debt levels (Focus Economics).

Ethiopia's strong economic growth was halted by the coronavirus crisis, a locust infestation and an increasingly violent conflict. The support plan implemented in response to the crisis, and in 2021 increased conflict-related expenditures and debt service, lead to the deterioration of public finances. Public deficit widened from -2.8% GDP in 2020 to -3% GDP in 2021, and is expected to further increase to -3.5% GDP in 2022 (Coface). As the conflict is affecting relations with major external creditors, the deficit will be financed mainly through domestic sources (Coface). Public debt increased from an estimated 55.4% GDP in 2020 to 57.1% GDP in 2021 (IMF). It is expected to reach 60% GDP in 2022 (Coface). The depreciation of the birr will weigh on external public debt. In high risk of debt distress, Ethiopia requested to G20 and Paris Club creditors to benefit from a debt operation under the G20 Common Framework. The country benefited from a suspension of debt service payments but despite the reforms announced, the debt restructuring process is taking time. Driven by rising food prices and the depreciation of the birr and exacerbated by the conflict, inflation soared to 25.2% in 2021 (IMF). Coface forecasts the inflation to decrease to 22% in 2022, remaining well above the central bank’s single-digit target. The authorities are pursuing the Homegrown Economic Reform Plan, which consists of a mix of macroeconomic, structural and sectorial policies, to address vulnerabilities and tackle structural bottlenecks inhibiting private sector activity. Also, numerous projects will be launched under the third Growth and Transformation Plan 2021-2025. According to the IMF, in the medium term, macroeconomic and structural reforms should lead to a reduction in public debt, lower external vulnerabilities, and stronger growth, investment and exports. Nevertheless, this outlook can be challenged by downside risks, in particular from domestic opposition to reforms, rising protectionism worldwide, weaker-than-expected global growth, and climate-related shocks.

Although GDP per capita has doubled over the last 10 years before the COVID-19 pandemic, it remains one of the lowest in the world. Demographic dynamics and a low initial level of development make poverty reduction challenging. Life expectancy at birth is only 64 years and the average duration of schooling is 2.4 years. According to the World Bank, the unemployment rate in 2020 was 2.8% of total labour force. The conflict in the Tigray region caused massive internal displacement and increased famine, putting the country on the brink of a humanitarian disaster (WFP).

 
Main Indicators 20202021 (e)2022 (e)2023 (e)2024 (e)
GDP (billions USD) 96.6199.27111.18126.19140.05
GDP (Constant Prices, Annual % Change) 6.16.33.85.36.2
GDP per Capita (USD) 994996111
General Government Gross Debt (in % of GDP) 53.753.046.440.437.4
Inflation Rate (%) 20.426.833.628.621.1
Current Account (billions USD) -4.44-3.17-4.75-5.61-4.97
Current Account (in % of GDP) -4.6-3.2-4.3-4.4-3.6

Source: IMF – World Economic Outlook Database, October 2021

Note: (e) Estimated Data

Main Sectors of Industry

Ethiopia has one of the largest livestock herds in Africa and a strong hydraulic energy potential, estimated at 45,000 megawatts. It is the 5th largest coffee producer in the world (by volume) and the 7th largest coffee exporter (in value); the 3rd producer of oilseeds; the 11th producer of dry beans (FAO, 2020). The agricultural sector contributes to more than a third of Ethiopia’s GDP (35.5%), but is considered the foundation of the country's economy as it employs more than two thirds of the workforce. The main agricultural products are cereals, coffee, oilseed, cotton, sugarcane, vegetables, khat, cut flowers, hides, cattle, sheep, goats and seafood. However, the country is plagued by periodic drought, soil degradation and deforestation. Also, the agricultural sector is hindered by high levels of taxation and poor infrastructure, which makes it problematic and expensive to deliver goods to markets. The government has been making sustained efforts to add value to its agricultural products and is planning to develop large agro-industrial parks across the country.

The industrial sector gives a modest contribution to the country’s GDP (23.1%) and occupation (9% of the workforce). The main industries are food processing, beverages, textiles, leather, garments, chemicals, metals processing and cement. The manufacturing sector still has a low impact on total exports, but is expected to grow in the coming years. Recently, a large number of companies outsourced their textile production from Asia to Ethiopia.

The tertiary sector leads Ethiopia’s foreign exchange earnings, primarily thanks to the state-run Ethiopian Airlines. It accounted for 36.8% of GDP in 2020 and is estimated to employ 24% of the workforce (World Bank). Tourism and telecommunications are growing at a steady pace and are expected to play a major role in the country’s growth process. Though the Ethiopian government is in the process of privatizing many of the state-owned businesses and moving toward a market economy, the public sector still holds a predominant role in the economy, with sectors such as telecommunications, financial and insurance services, air and land transportation, and retail considered as strategic and thus expected to remain out of the privatization process in the foreseeable future. Besides, under the country’s constitution, the state owns all land and only provides long-term leases to tenants.
 
The COVID-19 pandemic particularly hit the sectors of tourism, air transport, hospitability and manufacturing. The farming sector suffered from a locust infestation and coffee shipments suffered from reduced production caused by security problems and population displacement.

 
Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 66.6 9.3 24.0
Value Added (in % of GDP) 35.5 23.1 36.8
Value Added (Annual % Change) 4.0 9.6 5.3

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.

 

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Indicator of Economic Freedom

Definition:

The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

Score:
51,7/100
World Rank:
151
Regional Rank:
35

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 
 

Country Risk

See the country risk analysis provided by Coface.
 

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Sources of General Economic Information

Ministries
Ministry of Finance
Ministry of Trade and Industry
Ministry of Agriculture
Ministry of Mines
Statistical Office
Central Statistical Agency Of Ethiopia
Central Bank
National Bank of Ethiopia (NBE)
Stock Exchange
Ethiopian Commodity Exchange
Economic Portals
Addis Fortune
 

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Latest Update: November 2022