Ethiopia is the second most populous country in Africa after Nigeria, with a growing population of over 120 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 2022 relating to drought in the southern and eastern lowlands, political tensions and unrest in parts of the country, armed conflict in the north, lingering effects of the COVID-19 pandemic, and Russia’s war in Ukraine. Ethiopia’s macroeconomic position was characterized by over 30 percent inflation, an acute foreign exchange shortage, a 3.4 percent budget deficit to GDP ratio, and plummeting credit ratings. The IMF estimated GDP growth at 3.8 percent in 2022, which was a significant drop from 6.3 percent in 2021 and double-digit growth for much of the past decade. In 2022, the government re-tendered a partial privatization of state-owned telecoms monopoly Ethio Telecom, released a request for comments to issue a third telecoms license, and launched Ethiopian Investment Holdings, a sovereign wealth fund with the mandate to manage future privatization offerings. In 2022, the government also established the Capital Markets Authority to prepare the legal framework for establishing a stock market and committed to banking liberalization in the near term.
Russia’s illegal invasion of Ukraine and the resulting global supply chain disruptions exacerbated galloping inflation in Ethiopia, which was 32 percent year-on-year in March 2023 according to the Ethiopian Central Statistics Agency. The World Bank estimated 10 million Ethiopians could fall into poverty in 2022 as a result of inflation.
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 although they are not fully implemented.
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), further hindered by an overvalued Ethiopian birr. 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.
The largest source of foreign direct investment (FDI) in Ethiopia is the People’s Republic of China (PRC), followed by Saudi Arabia and Turkey. Insecurity and political instability associated with various ethnic conflicts – particularly the conflict in northern Ethiopia and ongoing violence in Oromia – have negatively affected the investment climate and dissuaded FDI.
|TI Corruption Perceptions Index||2022||94 of 180||https://www.transparency.org/en/countries/ethiopia|
|Global Innovation Index||2021||117 of 132||https://www.globalinnovationindex.org/gii-2018-report#|
|U.S. FDI in partner country (M USD, stock positions)||2022||N/A||https://apps.bea.gov/international/factsheet/factsheet.html#411|
|World Bank GNI per capita||2021||$940||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD