Ethiopia’s economy is in transition. Coming off a decade of double-digit growth, fueled primarily by public infrastructure projects funded through debt, the Government of Ethiopia (GOE) has tightened its belt, reducing inefficient government expenditures and attempting to get its accounts in order at bloated state-owned enterprises (SOEs). Just in the last year, the GOE has also introduced a new and more liberal investment code, started the privatization process for the telecommunications monopoly, and eliminated numerous burdensome regulations. The IMF put the growth of the Ethiopian economy at 9 percent for FY2018/19, driven by manufacturing and services. While recent growth estimates have been revised downward due to the COVID-19 pandemic, growth prospects for Ethiopia remain better than those for most Sub-Saharan African nations. Ethiopia is the second most populous country in Africa after Nigeria, with a population of over 110 million, approximately two-thirds of whom are under age 30. Low-cost labor, a national airline with well over 100 passenger connections, and growing consumer markets are key elements attracting foreign investment.
The Government of Ethiopia (GOE) in September of 2019 unveiled its “Homegrown Economic Reform Plan” as a codified roadmap to implement sweeping macro, structural, and sectoral reform, with a focus on enhancing the role of the private sector in the economy and attracting more foreign direct investment. The ambitious three-year plan prioritizes growth in five sectors, namely mining, ICT, agriculture, tourism, and manufacturing. In December of 2019, the IMF approved a three-year, 2.9 billion U.S. dollar program to support the reform agenda. The program seeks to reduce public sector borrowing, rein in inflation, and reform the exchange rate regime.
The challenges remain vast. Ethiopia’s imports in the last three years have experienced a slight decline in large part due to a reduction in public investment programs and a dire foreign exchange shortage. Export performance remains weak, declining due to falling primary commodity prices and an overvalued exchange rate. The acute foreign exchange shortage (the Ethiopian birr is not a freely convertible currency) and the absence of capital markets are choking private sector growth. Companies often face long lead-times importing goods and dispatching exports due to logistical bottlenecks, high land-transportation costs, and bureaucratic delays. Ethiopia is not a signatory of major intellectual property rights treaties.
All land in Ethiopia is administered by the government and private ownership does not exist. “Land-use rights” have been registered in most populated areas. The GOE retains the right to expropriate land for the “common good,” which it defines to include expropriation for commercial farms, industrial zones, and infrastructure development. Successful investors in Ethiopia conduct thorough due diligence on land titles at both the regional and federal levels and undertake consultations with local communities regarding the proposed use of the land.
The largest volume of foreign direct investment (FDI) in Ethiopia comes from China, followed by Saudi Arabia and Turkey. Political instability associated with various ethnic conflicts could negatively impact the investment climate and lower future FDI inflow.
|TI Corruption Perceptions Index||2019||96 of 180||https://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2020||159 of 190||http://www.doingbusiness.org/rankings|
|Global Innovation Index||2019||111 of 129||https://www.globalinnovationindex.org/
|U.S. FDI in partner country (M USD, stock positions)||2018||$676||http://www.investethiopia.gov.et/|
|World Bank GNI per capita||2018||$790||http://data.worldbank.org/
2. Bilateral Investment Agreements and Taxation Treaties
Ethiopia is a member of the Multilateral Investment Guarantee Agency (MIGA) and it has bilateral investment and protection agreements with Algeria, Austria, China, Denmark, Egypt, Germany, Finland, France, Iran, Israel, Italy, Kuwait, Libya, Malaysia, the Netherlands, Sudan, Sweden, Switzerland, Tunisia, Turkey and Yemen. Other bilateral investment agreements have been signed but are not in force with Belgium/Luxemburg, Brazil, Equatorial Guinea, India, Morocco, Nigeria, South Africa, Spain, the United Kingdom, and the United Arab Emirates. Ethiopia signed a protection of investment and property acquisition agreement with Djibouti. A Treaty of Amity and Economic Relations, which entered into force in 1953, governs economic and consular relations with the United States.
There is no double taxation treaty between the United States and Ethiopia. Ethiopia has such taxation treaties with fourteen countries, including Italy, Kuwait, Romania, Russia, Tunisia, Yemen, Israel, South Africa, Sudan, and the United Kingdom.
5. Protection of Property Rights
The constitution recognizes and protects ownership of private property, however all land in Ethiopia belongs to “the people” and is administered by the government. Private ownership does not exist, but land-use rights have been registered in most populated areas. As land is public property, it cannot be mortgaged. Confusion with respect to the registration of urban land-use rights, particularly in Addis Ababa, is common. Allegations of corruption in the allocation of urban land to private investors by government agencies are a major source of popular discontent. The government retains the right to expropriate land for the common good, which it defines as including expropriation for commercial farms, industrial zones, and infrastructure development. While the government claims to allocate only sparsely settled or empty land to investors, some people have been resettled. In particular, traditional grazing land has often been defined as empty and expropriated, leading to resentment, protests and, in some cases, conflict. In addition, leasehold regulations vary in form and practice by region. Successful investors in Ethiopia conduct thorough due diligence on land titles at both regional and federal levels, and conduct consultations with local communities regarding the proposed use of the land before investing.
We encourage potential investors to ensure their needs are communicated clearly to the host government. It is important for investors to understand who had land-use rights preceding them, and to research the attitude of local communities to an investor’s use of that land, particularly in the region of Oromia, where conflict between international investors and local communities has occurred.
The 2020 World Bank Doing Business Report has ranked Ethiopia 142 out of 190 economies in registering property, as it takes on average 52 days to register property.
Intellectual Property Rights
The Ethiopian Intellectual Property Office (EIPO) oversees intellectual property rights (IPR) issues. Ethiopia is has not completed its WTO accession and consequently is not party to the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS). Ethiopia is not yet a signatory to a number of major IPR treaties, such as the Paris Convention for the Protection of Industrial Property, the World Intellectual Property Organization (WIPO) Copyright Treaty, the Berne Convention for Literary and Artistic Works, the Madrid System for the International Registration of Marks, or the Patent Cooperation Treaty. Ethiopia recently ratified the Marrakesh Treaty to facilitate access to published works for persons who are blind, visually impaired, or otherwise print disabled. The government has expressed its intention to accede to the Berne Convention, the Paris Convention, and the Madrid Protocol. EIPO is primarily tasked with protecting Ethiopian patents and copyrights and fighting software piracy. Historically, however, the EIPO has struggled with a lack of qualified staff and small budgets; further, the institution does not have law enforcement authority. Abuse of U.S. trademarks is rampant, particularly in the hospitality and retail sectors. The government does not publicly track counterfeit goods seizures, and no estimates are available. Ethiopia is not included in the United States Trade Representative (USTR) Special 301 Report or Notorious Markets List.
EIPO contact and office information is available at http://www.eipo.gov.et/
For additional information about treaty obligations and points of contact at IP offices, please see WIPO’s country profiles from this page: http://www.wipo.int/directory/en/details.jsp?country_code=ET
Embassy POC: Economic Officer, USEmbassyPolEconExternal@state.gov
6. Financial Sector
Capital Markets and Portfolio Investment
Ethiopia has a limited and undeveloped financial sector, and investment is largely closed off to foreign firms. Liquidity at many banks is limited, and commercial banks often require 100 percent collateral, making access to credit one of the greatest hindrances to growth in the country. Ethiopia has the largest economy in Africa without a securities market, and sales/purchases of debt are heavily regulated.
The IMF, as part of its Extended Credit Facility and Extended Fund Facility, in December of 2019 approved a three-year, 2.9 billion U.S. dollar program to support Ethiopia’s economic reform agenda. The program seeks to reduce public sector borrowing, rein in inflation, and reform the exchange rate regime. In preparation for the program, Ethiopia rescheduled much of its external debt with significant bilateral lenders.
The Ethiopian government has announced, as part of its overall economic reform effort, its intention to liberalize the financial sector. The government has already made good progress by allowing non-financial Ethiopian firms to participate in mobile money activities, introducing Treasury-bill auctions with market pricing, and reducing forced lending to the government on the part of the commercial banks. Still, the creation of a stock market and the fuller participation of foreign financial firms in the sector likely remain years away.
The NBE began offering, in December of 2019, a limited number of 28-day and 91-day Treasury bills at market-determined interest rates. The move was part of an effort to expand the NBE’s monetary policy tools and finance the government in a more sustainable way. Previously, the NBE had only sold Treasury bills at below-market interest rates, and the only buyers were public sector enterprises, primarily the Public Social Security Agency and the Development Bank of Ethiopia.
Ethiopia issued its first Eurobond in December of 2014, raising 1 billion U.S. dollars at a rate of 6.625 percent. The 10-year bond was oversubscribed, indicating continued market interest in high-growth sub-Saharan African markets. According to the Ministry of Finance, the bond proceeds are being used to finance industrial parks, the sugar industry, and power transmission infrastructure. Due to its increasing external debt load and the terms of its IMF program, the Ethiopian government has committed to refrain from non-concessional financing for new projects and to shift ongoing projects to concessional financing when possible.
The Ethiopian Commodity Exchange (ECX), launched in 2008, trades commodities such as coffee, sesame seeds, maize, wheat, mung beans, chickpeas, soybeans, and green beans. The government launched ECX to increase transparency in commodity pricing, alleviate food shortages, and encourage the commercialization of agriculture. Critics allege that ECX policies and pricing structures are inefficient compared to direct sales at prevailing market rates, triggering an amendment to the ECX law in July 2017 that eliminated a number of criticized regulations, and permitted the trading of financial instruments at a future date.
Money and Banking System
Ethiopia has 18 commercial banks, two of which are state-owned banks, and 16 of which are privately owned banks. The Development Bank of Ethiopia, a state-owned bank, provides loans to investors in priority sectors, notably agriculture and manufacturing. By regional standards, the 16 private commercial banks are not large (either by total assets or total lending), and their service offerings are not sophisticated. Mobile money and digital finance, for instance, remain limited in Ethiopia. Foreign banks are not permitted to provide financial services in Ethiopia, however, since April 2007, Ethiopia has allowed some foreign banks to open liaison offices in Addis Ababa to facilitate credit to companies from their countries of origins. Chinese, German, Kenyan, Turkish, and South African banks have opened liaison offices in Ethiopia, but the market remains completely closed to foreign retail banks. Foreigners of Ethiopian origin are now allowed to hold shares in financial institutions.
Based on recently made available data, the state-owned Commercial Bank of Ethiopia mobilizes more than 60 percent of total bank deposits, bank loans, and foreign exchange. The NBE controls the bank’s minimum deposit rate, which now stands at 7 percent, while loan interest rates are allowed to float. Real deposit interest rates have been negative in recent years, mainly due to inflation. The government of Ethiopia in November of 2019 rescinded the so-called “27 percent Rule,” which mandated forced, below inflation rate lending by the commercial banks to the NBE.
Foreign Exchange and Remittances
All foreign currency transactions must be approved by the NBE. Ethiopia’s national currency (the Ethiopian birr) is not freely convertible. The GOE removed in September 2018 the limit on holding foreign currency accounts faced by non-resident Ethiopians and non-resident foreign nationals of Ethiopian origin.
Foreign exchange reserves started to become depleted in 2012 and have remained at critically low levels since then. At present, gross reserves stand at about 4 billion U.S. dollars, covering approximately 2 months of imports. According to the IMF, heavy government infrastructure investment, along with debt servicing and a large trade imbalance, have all fueled the intense demand for foreign exchange. In addition, the decrease in foreign exchange reserves has been exacerbated by weaker-than-expected earnings from coffee exports and low international commodity prices for other important exports such as oil seeds. Businesses encounter delays of six months to two years in obtaining foreign exchange, and they must deposit the full equivalent in Ethiopian birr in their accounts to begin the process to obtain foreign exchange. Slowdowns in manufacturing due to foreign exchange shortages are common, and high-profile local businesses have closed their doors altogether due to the inability to import required goods in a timely fashion.
Due to the foreign exchange shortage, companies have experienced delays of up to two years in the repatriation of larger volumes of profits. Local sourcing of inputs and partnering with export-oriented partners are strategies employed by the private sector to address the foreign exchange shortage, but access to foreign exchange remains a problem that limits growth, interferes with maintenance and spare parts replacement, and inhibits imports of adequate raw materials.
The foreign exchange shortage distorts the economy in a number of other ways: it fuels the contraband trade through Somaliland because the Ethiopian birr is an unofficial currency there and can be used for the purchase of products from around the world. Exporters, who have priority access to foreign exchange, sell their allocations to importers at inflated rates, creating a black-market for dollars that is roughly 30 to 40 percent over the official rate. Other exporters use their foreign exchange earnings to import consumer goods with high margins, rather than re-investing profits in their core businesses. Meanwhile, the lack of access to foreign exchange impacts the ability of American citizens living in Ethiopia to pay their taxes, or for students to pay school fees abroad.
The Ethiopian birr has depreciated significantly against the U.S. dollar over the past ten years, primarily through a series of controlled steps, including a 20 percent devaluation in September 2010 and a 15 percent devaluation in October 2017. The NBE increased the devaluation rate of the Ethiopian birr starting in November of 2019, and it has continued to be devalued at a more rapid rate since that time, as per the terms of the IMF program. The official exchange rate was approximately 33.60 Ethiopian birr per dollar as of May 2020. The illegal parallel market exchange rate for the same time was approximately 42 Ethiopian birr per dollar.
Following the 15 percent devaluation of the Ethiopian birr, the NBE increased the minimum saving interest rate from four percent to seven percent, and limited the outstanding loan growth rate in commercial banks to 16.5 percent, which limits their loan provision for businesses other than those in the export and manufacturing sectors. Moreover, banks were instructed to transfer 30 percent of their foreign exchange earnings to the account of NBE so the regulator can use the foreign exchange to meet the strategic needs of the country, including payments to procure petroleum, wheat, and sugar, as well as to cover transportation costs of imported items.
Ethiopia’s Financial Intelligence Unit monitors suspicious currency transfers, including large transactions exceeding 200,000 Ethiopian birr (roughly equivalent to U.S. reporting requirements for currency transfers exceeding 10,000 U.S. dollars). Ethiopia citizens are not allowed to hold or open an account in foreign exchange. Ethiopian residents entering the country from abroad should declare their foreign currency in excess of 1,000 U.S. dollars and non-residents in excess of 3,000 U.S. dollars. Residents are not allowed to hold foreign currency for more than 30 days after acquisition. A maximum of 1000 Ethiopian birr in cash can be carried out of the country.
Ethiopia’s Investment Proclamation allows all registered foreign investors, whether or not they receive incentives, to remit profits and dividends, principal and interest on foreign loans, and fees related to technology transfer. Foreign investors may remit proceeds from the sale or liquidation of assets, from the transfer of shares or of partial ownership of an enterprise, and funds required for debt servicing or other international payments. The right of expatriate employees to remit their salaries is granted by NBE foreign exchange regulations. In practice, however, foreign companies and individuals have experienced difficulties obtaining foreign currency to remit dividends, profits, or salaries.
Sovereign Wealth Funds
Ethiopia has no sovereign wealth funds.
The Federal Ethics and Anti-Corruption Commission (FEACC) is charged with preventing corruption and is accountable to the Office of the Prime Minister. The Commission provides ethics training and education to prevent corruption. The Federal Police Commission is responsible for investigating corruption crimes and the Federal Attorney General handles corruption prosecutions.
The Attorney General’s Office opened in February a new and consolidated Anti-Corruption Directorate to recover stolen assets and fight corruption. The Directorate is empowered to enter into mutual legal assistance treaties (MLAT’s) and otherwise coordinate with foreign nations to fight corruption.
The Federal Police is mandated with investigating corruption crimes committed by public officials as well as “Public Organizations.” The latter are defined as any organ in the private sector that administers money, property, or any other resources for public purposes. Examples of such organizations include share companies, real estate agencies, banks, insurance companies, cooperatives, labor unions, professional associations, and others.
Transparency International’s 2019 Corruption Perceptions Index, which measures perceived levels of public sector corruption, rated Ethiopia’s corruption at 37 (the score indicates the perceived level of public sector corruption on a scale of zero to 100, with the former indicating highly corrupt and the latter indicating very clean). Its comparative rank in 2019 was 96 out of 180 countries, an improvement from its rank of 114 out of 180 countries in 2018. The American Chamber of Commerce in Ethiopia recently polled its members and asked what the leading business climate challenges were; transparency and governance ranked as the 4th leading business climate challenge, ahead of licensing and registration and public procurement.
Ethiopian and foreign businesses routinely encounter corruption in tax collection, customs clearance, and land administration. Many past procurement deals for major government contracts, especially in the power generation, telecommunications, and construction sectors were widely viewed as corrupt.
PM Abiy Ahmed has launched a corruption clean-up that has resulted in several hundred arrests. In connection with the embezzlement schemes involving hundreds of millions of U.S. dollars, particularly with government procurement irregularities, the government arrested and charged in September 2018 over 40 mid- and senior-level Metal Engineering Technology Corporation (METEC) officials. In addition, the PM transferred the management of large government projects from METEC (which is widely viewed by the public as corrupt) to other government organizations. Similarly, the government arrested 59 officials and business people suspected of corruption in April of 2019. The officials are primarily from the following government institutions: Public Procurement & Property Disposal Service, Food & Drug Administration Agency, Pharmaceuticals Fund & Supply Agency, and the Ethiopian Water Works Construction Enterprise. A former Communications Minister was charged with corruption and mismanagement of public companies in May; he was sentenced to six years in jail.
Ethiopia is not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Ethiopia is a signatory to the African Union Convention on Preventing and Combating Corruption. Ethiopia is also member of the East African Association of Anti-Corruption Authorities. Ethiopia signed the UN Anticorruption Convention in 2003, which was eventually ratified in November 2007. It is a criminal offense to give or receive bribes, and bribes are not tax deductible.
Resources to Report Corruption
Contacts at government agency or agencies are responsible for combating corruption:
Federal Police Commission
Addis Ababa +251 11 861-9595
+251 11 861-9595
Contact at “watchdog” organization:
Addis Ababa +251 11 827-9746
+251 11 827-9746
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source*||USG or international statistical source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) (M USD)||2018/19||$93.3 B||2018||$84.36B||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country (M USD, stock positions)||2019||$676||2018||N/A||http://www.investethiopia.gov.et/|
|Host country’s FDI in the United States (M USD, stock positions)||N/A||N/A||N/A||N/A||http://bea.gov/international/
|Total inbound stock of FDI as % host GDP||2018/19||11.3%||2018||26.4%||www.worldbank.org/en/country|
*National Bank of Ethiopia and Ethiopian Investment Commission
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars*, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$10,496||100%||Total Outward***||N/A||N/A|
|“0” reflects amounts rounded to +/- USD 500,000.|
Data regarding inward direct investment are not available for Ethiopia via IMF’s Coordinated Direct Investment Survey (CDIS) site (http://data.imf.org/CDIS) , the above data is from the Ethiopian Investment Commission. *The yearly average exchange rate is used for each year from 1992-2018 to convert the amount of FDI from domestic currency into U.S. dollars.
*The yearly average exchange rate is used for each year from 1992-2018 to convert the amount of FDI from domestic currency into U.S. dollars. *** Total Outward investment data are not available.
*** Total Outward investment data are not available.
|Data regarding the equity/debt breakdown of portfolio investment assets are not available for Ethiopia via the IMF’s Coordinated Portfolio Investment Survey (CPIS) and are not available for external publication from the Government of Ethiopia.|
14. Contact for More Information
U.S. Embassy main number is +251 011 130 6000.
Economic Officer, USEmbassyPolEconExternal@state.gov