Ethiopia

Executive Summary

Over the last year, Ethiopia has undertaken unprecedented economic and political reforms.  The new Ethiopian government, led by Prime Minister (PM) Abiy Ahmed, who was sworn in on April 2, 2018, announced at the outset its plan to democratize the country, reform the economy, and increase private sector participation.  Early in his tenure, PM Abiy addressed some of the public’s numerous longstanding grievances, including: ending the State of Emergency imposed by the government prior to his ascension; closing a notorious detention center; releasing thousands of detained individuals; restoring mobile internet throughout the country; retiring members of the political “old guard,” who were perceived as in the way of reform; and, reframing the government’s posture towards opposition parties.

On the economic front, the new administration is working to partially or wholly privatize major state-owned enterprises (SOEs) in the telecom, aviation, power, sugar, railway, and industrial parks sectors.  In addition, the Government of Ethiopia (GOE) lifted a restriction on the logistics sector and enacted a law that allows Public Private Partnerships (PPP) to gradually open up some sectors of the economy to foreign investors.  Ethiopia’s rapprochement with Eritrea could possibly open up alternative ports for trade. Furthermore, the country recently ratified the African Continental Free Trade Area Agreement and eased visa requirements for African Union member countries with the goal of enhancing regional trade and tourism and attracting foreign direct investment (FDI).  The GOE announced its commitment to modernize the financial sector, improve the ease of doing business, and enhance macroeconomic and fiscal management.

Ethiopia’s economy is currently in transition.  Coming off a decade of double-digit growth, fueled primarily by public infrastructure projects funded through debt, the GOE has tightened its belt, reducing inefficient government expenditures, putting a moratorium on most new government mega-projects, and attempting to get its accounts in order at bloated state-owned enterprises (SOEs).  The IMF put the growth of the Ethiopian economy at 7.7 percent for FY2017/18 and is projecting an 8.5 percent annual growth rate for the medium term. Ethiopia is the second most populous country in Africa after Nigeria, with a population of over 100 million, approximately two-thirds of whom are under age 30. Low-cost labor, a national airline with 105 passenger connections, and growing consumer markets are key elements attracting foreign investment.

Ethiopia’s imports in the last year have experienced a slight decline in large part due to a reduction in public investment programs and a dire foreign exchange shortage.  Distressingly, 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 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.  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 state 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.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2018 114 of 180 https://www.transparency.org/country/ETH
World Bank’s Doing Business Report “Ease of Doing Business” 2019 159 of 190 http://www.doingbusiness.org/rankings
Global Innovation Index 2018 N/A https://www.globalinnovationindex.org/gii-2018-report#
U.S. FDI in partner country (M USD, stock positions) 2018 $600 http://www.investethiopia.gov.et/
World Bank GNI per capita 2017 $740 http://data.worldbank.org/indicator/NY.GNP.PCAP.CD
Investment Climate Statements
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