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Ethiopia

Executive Summary

Ethiopia is the second most populous country in Africa after Nigeria, with a growing population of over 110 million, approximately two-thirds of whom are under age 30. A reform-minded government, low-cost labor, a national airline with over 100 passenger connections, and growing consumer markets are key elements attracting foreign investment.

Ethiopia faced several economic challenges in 2021 related to the COVID-19 pandemic, a drought in the southern and eastern lowlands, political tension and unrest in parts of the country, and an ongoing conflict in the north. Ethiopia’s macroeconomic position was characterized by over 30 percent inflation, meager foreign exchange reserves, a large budget deficit, and plummeting credit ratings. The IMF estimated GDP growth at 2.0 percent in 2021, a significant drop from 6.0 percent in 2020 and double-digit growth for much of the past decade. During 2021, the Government of Ethiopia (GOE) made the first revisions in over 60 years to the commercial code, awarded a spectrum license to a private telecom operator, and took initial steps toward privatization of other state-owned sectors, including the telecom and sugar industries.

Ethiopia is a signatory of the Paris Agreement on Climate Change, and it has a climate resilience green economy strategy (CRGES) to build a green and resilient economy. Ethiopia has also formulated climate-resilient sectoral policies and strategies to provide specific strategic interventions in areas such as agriculture, forestry, transport, health, urban development, and housing.

In 2020-21, the GOE provided liquidity to private banks to mitigate the impact of COVID-19 on businesses, to facilitate debt restructuring and to prevent bankruptcies and it also injected liquidity into the hotel and tourism sector through commercial banks. The GOE planned to allocate roughly $1 billion U.S. dollars during the same period for medical equipment purchases, healthcare worker salaries, quarantine and isolation facilities, and the procurement of disinfectants and personal protective equipment.

The challenges of doing business in Ethiopia remain daunting. Companies often face long lead-times importing goods and dispatching exports due to logistical bottlenecks, corruption, high land-transportation costs, and bureaucratic delays. An acute foreign exchange shortage (the Ethiopian birr is not a freely convertible currency) impedes companies’ ability to repatriate profits and obtain investment inputs. The lack of a capital market hinders private sector growth. Export performance remains weak, as the country struggles to develop exports beyond primary commodities (coffee, gold, and oil seeds) and the Ethiopian birr remains overvalued. Ethiopia is not a signatory of major intellectual property rights treaties such as the Paris Convention for the Protection of Industrial Property and the Madrid System for the International Registration of Marks.

Insecurity and political instability associated with various ethnic conflicts – particularly the conflict in northern Ethiopia – have negatively impacted the investment climate and dissuaded foreign direct investment (FDI).

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2021 87 of 180 https://www.transparency.org/en/countries/ethiopia 
Global Innovation Index 2020 126 of 131 https://www.globalinnovationindex.org/gii-2018-report#  
U.S. FDI in partner country (M USD, stock positions) 2021 N/A https://apps.bea.gov/international/factsheet/factsheet.html#411 
World Bank GNI per capita 2020 $890 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD  

1. Openness To, and Restrictions Upon, Foreign Investment

9. Corruption

The Federal Ethics and Anticorruption Proclamation number 1236/2020 aims to combat corruption involving government officials and organizations, religious organizations, political parties, and international organizations. The Federal Ethics and Anti-Corruption Commission (FEACC) is accountable to parliament and charged with preventing corruption among government officials by providing ethics training and education. MOJ is responsible for investigating corruption crimes and prosecutions. The Office of the Ombudsman is responsible for ensuring good governance and preventing administrative abuses by public offices.

Transparency International’s 2022 Corruption Perceptions Index, which measures perceived levels of public sector corruption, rated Ethiopia’s corruption at 39 (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 2021 was 87 out of 180 countries, a seven-point improvement from its 2020 rank. In 2020 the American Chamber of Commerce in Ethiopia 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. Allegations of corruption in the allocation of urban land to private investors by government agencies are a major source of popular discontent in Ethiopia.

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.

10. Political and Security Environment

Ethnic conflict – often sparked by historical grievances or resource competition, including land disputes – has resulted in varying levels of violence across Ethiopia. According to the 2022 Global Humanitarian Overview, there were an estimated 4.2 million Internally Displaced Persons (IDPs) in Ethiopia at the end of 2021, with high levels of need also identified among non-displaced people living in conflict-affected areas. The primary cause of displacements was conflict and insecurity, followed by drought and seasonal floods and flash flooding.

Most significantly, in early November 2020, a conflict broke out between a regional political party in the Tigray Region and the federal government. The conflict quickly enlarged, with Eritrean troops present in parts of Tigray Region, and Amhara Region forces controlling much of Western Tigray. The conflict in northern Ethiopia has led to many deaths, widespread displacements, extensive destruction of infrastructure, widespread gross human rights violations, gender-based violence, a vast reduction in public services, and widespread hunger.

Insecurity, often driven by ethnic tensions, persists in many other areas, notably in the southern and western Oromia Region; eastern Southern Nations, Nationalities, and People’s Region; and in the Hararges on the border of the Somali Region. In western Oromia, the Oromo Liberation Army-Shane and other unidentified armed groups have intensified attacks against public and local government officials; this violence has spilled over into other parts of Oromia. In far western Ethiopia, ethnic violence and clashes in Benishangul-Gumuz Region have continued throughout 2021 and into early 2022, leaving hundreds dead and hundreds of thousands displaced. Amhara has experienced altercations in 2022 between regional security forces and youth militias.

When Prime Minister Abiy came to power in 2018, political space opened significantly, although it has since regressed especially after the government declared a State of Emergency in November 2021. While the State of Emergency was lifted in February 2022, during its implementation thousands of people, mostly of Tigrayan ethnicity, were arbitrarily detained and freedom of the press was significantly curtailed. Constitutional rights, including freedoms of assembly and expression, are generally supported at the level of the federal government, though the protection of these rights remains uneven, especially at regional and local levels. While opposition parties mostly operate freely, authorities, especially at the sub-national level, have employed politically motivated procedural roadblocks to hinder opposition parties’ efforts to hold meetings or other party activities; this was especially true in the run-up to the June 2021 general election.

The space for media and civil society groups has generally become freer following reforms instituted by Prime Minister Abiy. Still, journalism in the country remains undeveloped, social media is often rife with unfounded rumors, and government officials occasionally react with heavy-handedness, especially to news they feel might spur social unrest, resulting in self-censorship. Civil society reforms have spurred an expansion of the sector, though many civil society groups continue to struggle with capacity and resource issues.

Investment Climate Statements
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