Discusses key economic indicators and trade statistics, which countries are dominant in the market, the U.S. market share, the political situation if relevant, the top reasons why U.S. companies should consider exporting to this country, and other issues that affect trade, e.g., terrorism, currency devaluations, trade agreements.
Last Published: 6/21/2017

Ethiopia has its own unique calendar year. The Ethiopian calendar has 13 months, 12 months with 30 days each and one month of 5 or 6 days depending on whether the year is a leap year or not. The Ethiopian calendar year begins on 11th September, which is the Ethiopian New Year, and ends on 10th September. The government fiscal year starts on 8th July and ends on 7th July. Both Ethiopian calendar and fiscal years fall in two Gregorian calendar years. This is important for U.S. companies organizing their visits to Ethiopia. Companies should avoid the Ethiopian New Year as many government officials, offices and key private sector companies are not available. Companies should be aware of the Ethiopian fiscal year when approaching the government to finance goods and services to ensure funding and appropriate approval timeline.
 
Ethiopia has a large domestic market of close to 100 million people, making it the second most populous country in Africa after Nigeria. Over the last decade, Ethiopia has had one of the fastest growing economies in the world, with average annual growth rates ranging from 7% to 12% (depending on data sources). In 2015/16, the Government of Ethiopia (GOE) announced that real Gross Domestic Product (GDP) expanded by 8 percent.  In an October 2016 consultation press release, the International Monetary Fund (IMF) estimated Ethiopia’s GDP growth at 6.5% and projected a 7.3% -7.5% % growth rate over the medium term.

While the economy is growing rapidly, presenting many opportunities, there are also hurdles to doing business in Ethiopia. The 2017 World Bank’s Ease of Doing Business report (EODB) ranked Ethiopia 159th out of 189 countries; a drop of 11 rankings from that of last year.

The World Economic Forum (WEF) identified burdensome customs administrative procedures, the high cost of logistics, and access to credit and foreign exchange as major challenges to small and medium-sized enterprises (SMEs) in Ethiopia.

According to the United Nations Development Program (UNDP’s) 2015 Human Development Index (HDI), Ethiopia is one of the top 10 countries that has realized the most gains, particularly between 2010 and 2015.  This report applauded Ethiopia’s achievement in improving life expectancy at birth, education, and Gross National Income per capita. It also noted that strong economic growth over the past decade has enabled Ethiopia to lift close to 10% of the population out of poverty.

The agriculture sector has historically been the engine of the Ethiopian economy, but it has recently given way to the service sector. The National Bank of Ethiopia (NBE) notes agriculture, industry and services have contributed 36.7%, 16.7% and 47.3%, respectively, to GDP in 2015/2016. The agricultural sector’s share of GDP shrank by more than 25% between 2005 and 2016, while the service sector’s share grew by 27% during the same period. The construction industry, particularly roads, railways, dams and homes, is the main driver of growth in the industrial sector, contributing more than half of the sector’s growth. Service sector growth is mainly dominated by expansion in communication and transport services, hotel and restaurant businesses, as well as wholesale and retail trading.

In December 2016, Moody’s reaffirmed Ethiopia’s credit worthiness at ‘B+’, while S&P and Fitch gave Ethiopia a ‘B’. These ratings reflect Ethiopia’s stable outlook and prospects for continued economic growth in the short and medium-term, and are on par with neighboring Kenya and Uganda. Since August 2011, Ethiopia has managed to contain yearly inflation at a single digit through strict monetary and fiscal policy. However, in 2015/2016, Ethiopia was hit by El Nino related drought, which drove food prices up and had more than over 7.7 million people seeking food aid. In June, 2016, Ethiopian inflation stood at 9.7 percent. The 2017 Standard Bank Africa report forecasted an average inflation of 8.9% year on year (y/y) in 2017 and 7.9% y/y in 2018.

Real interest rates are largely negative.  The minimum bank deposit rate of 5.00%, bond yield of 3.67%, and Treasury bill yield of 3.67% are lower than the inflation rate. Only the real average lending rate is positive, standing at 11.88 percent.

The NBE controls the exchange rate and has officially devalued the Birr by approximately 97% against the U.S. dollar between January 2009 and January 2016. As of April 2017, the official exchange rate stood at 22.84 Birr per dollar. The Birr has continued to follow a steady depreciation, with the NBE following a controlled floating exchange rate policy. The parallel black market exchange rate for the same period was approximately 26.80 Birr per dollar, a premium of 17% over the official rate.

Ethiopia faces a growing trade deficit with total imports steadily increasing on average by 12.5% per year between 2004/05 and 2015/16. The rise in imports has aggravated the trade deficit, which ballooned from $3.6 billion in 2010/11 to $13.85 billion in 2015/2016. Ethiopia’s total exports were $2.87 billion in 2015/2016, while imports for the same period expanded to $16.72 billion.

A large trade deficit, lower commodity prices coupled with ambitious government projects, which enjoy priority in allocation of foreign currency, highly limited the private sector access to foreign exchange.

According to the NBE annual report, 35% of total imports ($4.8 billion) was spent on capital goods and 27% ($3.7 billion) on consumer goods. According to the U.S. Department of Commerce Trade Winds Africa summary, Ethiopia’s imports from the US have increased throughout the past few years, representing approximately a fivefold increase from 2009 to 2015. However, in monetary value, U.S. exports to Ethiopia in 2016 were $827 million accounting for only 7% of Ethiopia’s total imports.
In 2015/2016, Ethiopia's major exports included coffee (28%), oil seeds (17%), gold (10%), chat (9%), and meat and pulses (7%).  Ethiopia’s total export earnings by value declined by 8.5% in 2015/2016 from the previous year. A fall in global commodity prices is the main reason for this drop.

Major destinations for Ethiopia's exports in 2015/2016 were: Asia 37% (China accounted for 32%), Europe 34% (Switzerland accounted for 29%) and Africa 21% (Somalia, accounted for 58%). In FY 2015/2016, Ethiopia’s exports to the US represented 7% of total exports, registering a 1% increase from the previous year.  Ethiopia primarily exports coffee, leather, and leather products to the United States.

The vast majority of Ethiopia’s imports come from Asia (63%) followed by Europe (25%), Africa (21%) and the United States (8%).  Imports from China accounted for 38%, followed by India (7%).  Italy, Turkey and Germany are the three major sources of Ethiopia’s imports from Europe, jointly accounting for 8% of Ethiopia’s total imports. U.S. exports to Ethiopia are primarily aircraft sales, construction equipment, equity investments, real estate, agricultural machinery, farming, and engineering services. Aircraft and aviation parts represented a majority of total U.S. exports to Ethiopia.

Many U.S. companies based in the United Arab Emirates (UAE) do business in Ethiopia, using Dubai as an intermediary export platform due to proximity and availability of reliable air shipping and air services. Please refer to the following table of US -Ethiopia bilateral trade figures.
 
Table 1:  U.S.  – Ethiopia Bilateral Trade
Unit: U.S. Dollars

Ethiopia Imports from U.S. - Exports to U.S.
YearEthiopia imports from the U.S.Ethiopia exports to the U.S.
2009    266,866,655112,911,249
2010    773,159,838127,946,985
2011    689,890,633144,417,834
2012 1,274,672,068183,126,469
2013    688,507,736193,566,884
2014 1,668,507,736207,209,040
2015 1,554,718,478310,269,077
2016    827,291,280236,183,914
Source: Department of Commerce, Trade Policy Information Systems
 
According to Ernst and Young, Foreign Direct Investment (FDI) from the US to Ethiopia reached $4 billion in 2013/14. It should be noted that this figure represents projects planned but not necessary implemented. Other sources reported, however, that Ethiopia’s fast-growing economy attracted only $2.2 billion in U.S. FDI in 2014/15.

Chinese companies, supported by Chinese export trade and project finance agencies, are active in Ethiopia and aggressively pursue projects in the infrastructure and textile sectors.  Indian and Saudi Arabian firms are mainly involved in the agricultural sector. Many Indian companies have also begun to invest in the government-sponsored industrial textile parks.  Dutch companies play a prominent role in the floricultural industry and Turkish companies are increasingly engaged in manufacturing, particularly textiles and garments, as well as in construction.

Ethiopia held parliamentary elections on May 24, 2015, with 58 political parties participating in the electoral process. The ruling party, the Ethiopian Peoples’ Revolutionary Democratic Party (EPRDF), and its affiliates won all of the 547 parliamentary seats in national and regional elections. The EPRDF and its allies have been in power since 1991. The next parliamentary elections are to take place in 2020.

Ethiopia’s economic development vision is encapsulated in the government’s Growth and Transformation Plan (GTP). The growth objectives of the first phase, GTP I (2011-2015), were revised to formulate GTP II. GTP II (covering 2016-2020) was approved by parliament in December 2015. GTP II lays out a plan for dramatic structural transformation, shifting from an agrarian economy to one more geared towards manufacturing and services, with the overarching goal of making Ethiopia a middle income country by 2025.  GTP II envisages 11% average annual economic growth with an improved trade balance and higher foreign reserves. The GOE is also committed to building a climate resilient green economy and reaching U.N. sustainable development goals. Ethiopia will focus on mitigating greenhouse gas emissions by expanding electric power generation from renewable sources for domestic and regional markets.

The private sector is expected to play an increased role in the economy under GTP II, despite public investment remaining strong. The GOE reaffirmed its commitment during the Corporate Council on Africa (CCA) Summit, held in February 2016, to put in place an enabling business environment and a framework designed to attract more foreign businesses and investment.

The GOE has investment incentives aimed at attracting FDI, particularly export-oriented projects. U.S. companies that invest in Ethiopia can take advantage of tariff and duty free incentives through Ethiopia’s eligibility for the African Growth & Opportunity Act (AGOA) trade preference program, now extended until 2025, and Ethiopia’s membership in the regional bloc, Common Market for Eastern and Southern Africa (COMESA).
On April 5, 2016, the Ethiopian Parliament ratified a bill that approved Ethiopia’s membership to the African Trade Insurance Agency (ATI). Ethiopia has also secured funding with soft loans from the African Development Bank to cover the $7.5 million required for ATI subscription.  ATI provides specialized services that cover political and trade risks. ATI will also enable Ethiopian insurance and other companies to benefit from the sale of goods on a letter of credit, while limiting trade and political risks related to losses due to nationalization, breach of concession agreements, import or export embargoes, inconvertibility or transfer risks, political violence, terrorism, confiscation, license cancellation and sabotage. ATI membership can help Ethiopia attract much-needed foreign direct investment, especially given that the insurance industry is closed to foreign companies. In 2013, ATI came up with a new service package that insures banks’ lending activities so that they can extend loans to SMEs without requiring the latter to avail collaterals.  In 2015, ATI supported $1.7 billion worth of insured trade and investments within member countries.  

The top five reasons why U.S. companies should consider doing business in Ethiopia are:
  • Ethiopia is the second most populous country in Africa and has one of the fastest-growing economies in the world, which should result in an expanding middle class with more purchasing power.
  • U.S. products and services are highly respected among most Ethiopians for their quality and dependability.
  • The GOE is engaged in massive infrastructure expansion projects that create attractive business opportunities for U.S. companies in the full value chain.
  • In 2016, the U.S. EXIM bank approved Ethiopia for long term financing. Armed with U.S. EXIM financing, there are tremendous opportunities for U.S. companies’ participation in Ethiopia’s mega infrastructure projects. EXIM can extend up to $10 Million until it has a fully functional board.
Factors of production in Ethiopia such as land, labor, and energy costs are comparatively low compared to other countries in Africa and around the world. Ethiopia has its own unique calendar year. The Ethiopian calendar has 13 months, 12 months with 30 days each and one month of 5 or 6 days depending on whether the year is a leap year or not. The Ethiopian calendar year begins on 11th September, which is the Ethiopian New Year, and ends on 10th September. The government fiscal year starts on 8th July and ends on 7th July. Both Ethiopian calendar and fiscal years fall in two Gregorian calendar years. This is important for U.S. companies organizing their visits to Ethiopia. Companies should avoid the Ethiopian New Year as many government officials, offices and key private sector companies are not available. Companies should be aware of the Ethiopian fiscal year when approaching the government to finance goods and services to ensure funding and appropriate approval timeline.
 
Ethiopia has a large domestic market of close to 100 million people, making it the second most populous country in Africa after Nigeria. Over the last decade, Ethiopia has had one of the fastest growing economies in the world, with average annual growth rates ranging from 7% to 12% (depending on data sources). In 2015/16, the Government of Ethiopia (GOE) announced that real Gross Domestic Product (GDP) expanded by 8 percent.  In an October 2016 consultation press release, the International Monetary Fund (IMF) estimated Ethiopia’s GDP growth at 6.5% and projected a 7.3% -7.5% % growth rate over the medium term.

While the economy is growing rapidly, presenting many opportunities, there are also hurdles to doing business in Ethiopia. The 2017 World Bank’s Ease of Doing Business report (EODB) ranked Ethiopia 159th out of 189 countries; a drop of 11 rankings from that of last year.

The World Economic Forum (WEF) identified burdensome customs administrative procedures, the high cost of logistics, and access to credit and foreign exchange as major challenges to small and medium-sized enterprises (SMEs) in Ethiopia.

According to the United Nations Development Program (UNDP’s) 2015 Human Development Index (HDI), Ethiopia is one of the top 10 countries that has realized the most gains, particularly between 2010 and 2015.  This report applauded Ethiopia’s achievement in improving life expectancy at birth, education, and Gross National Income per capita. It also noted that strong economic growth over the past decade has enabled Ethiopia to lift close to 10% of the population out of poverty.

The agriculture sector has historically been the engine of the Ethiopian economy, but it has recently given way to the service sector. The National Bank of Ethiopia (NBE) notes agriculture, industry and services have contributed 36.7%, 16.7% and 47.3%, respectively, to GDP in 2015/2016. The agricultural sector’s share of GDP shrank by more than 25% between 2005 and 2016, while the service sector’s share grew by 27% during the same period. The construction industry, particularly roads, railways, dams and homes, is the main driver of growth in the industrial sector, contributing more than half of the sector’s growth. Service sector growth is mainly dominated by expansion in communication and transport services, hotel and restaurant businesses, as well as wholesale and retail trading.

In December 2016, Moody’s reaffirmed Ethiopia’s credit worthiness at ‘B+’, while S&P and Fitch gave Ethiopia a ‘B’. These ratings reflect Ethiopia’s stable outlook and prospects for continued economic growth in the short and medium-term, and are on par with neighboring Kenya and Uganda. Since August 2011, Ethiopia has managed to contain yearly inflation at a single digit through strict monetary and fiscal policy. However, in 2015/2016, Ethiopia was hit by El Nino related drought, which drove food prices up and had more than over 7.7 million people seeking food aid. In June, 2016, Ethiopian inflation stood at 9.7 percent. The 2017 Standard Bank Africa report forecasted an average inflation of 8.9% year on year (y/y) in 2017 and 7.9% y/y in 2018.

Real interest rates are largely negative.  The minimum bank deposit rate of 5.00%, bond yield of 3.67%, and Treasury bill yield of 3.67% are lower than the inflation rate. Only the real average lending rate is positive, standing at 11.88 percent.

The NBE controls the exchange rate and has officially devalued the Birr by approximately 97% against the U.S. dollar between January 2009 and January 2016. As of April 2017, the official exchange rate stood at 22.84 Birr per dollar. The Birr has continued to follow a steady depreciation, with the NBE following a controlled floating exchange rate policy. The parallel black market exchange rate for the same period was approximately 26.80 Birr per dollar, a premium of 17% over the official rate.

Ethiopia faces a growing trade deficit with total imports steadily increasing on average by 12.5% per year between 2004/05 and 2015/16. The rise in imports has aggravated the trade deficit, which ballooned from $3.6 billion in 2010/11 to $13.85 billion in 2015/2016. Ethiopia’s total exports were $2.87 billion in 2015/2016, while imports for the same period expanded to $16.72 billion.

A large trade deficit, lower commodity prices coupled with ambitious government projects, which enjoy priority in allocation of foreign currency, highly limited the private sector access to foreign exchange.

According to the NBE annual report, 35% of total imports ($4.8 billion) was spent on capital goods and 27% ($3.7 billion) on consumer goods. According to the U.S. Department of Commerce Trade Winds Africa summary, Ethiopia’s imports from the US have increased throughout the past few years, representing approximately a fivefold increase from 2009 to 2015. However, in monetary value, U.S. exports to Ethiopia in 2016 were $827 million accounting for only 7% of Ethiopia’s total imports.

In 2015/2016, Ethiopia's major exports included coffee (28%), oil seeds (17%), gold (10%), chat (9%), and meat and pulses (7%).  Ethiopia’s total export earnings by value declined by 8.5% in 2015/2016 from the previous year. A fall in global commodity prices is the main reason for this drop.
Major destinations for Ethiopia's exports in 2015/2016 were: Asia 37% (China accounted for 32%), Europe 34% (Switzerland accounted for 29%) and Africa 21% (Somalia, accounted for 58%). In FY 2015/2016, Ethiopia’s exports to the US represented 7% of total exports, registering a 1% increase from the previous year.  Ethiopia primarily exports coffee, leather, and leather products to the United States.

The vast majority of Ethiopia’s imports come from Asia (63%) followed by Europe (25%), Africa (21%) and the United States (8%).  Imports from China accounted for 38%, followed by India (7%).  Italy, Turkey and Germany are the three major sources of Ethiopia’s imports from Europe, jointly accounting for 8% of Ethiopia’s total imports. U.S. exports to Ethiopia are primarily aircraft sales, construction equipment, equity investments, real estate, agricultural machinery, farming, and engineering services. Aircraft and aviation parts represented a majority of total U.S. exports to Ethiopia.

Many U.S. companies based in the United Arab Emirates (UAE) do business in Ethiopia, using Dubai as an intermediary export platform due to proximity and availability of reliable air shipping and air services. Please refer to the following table of US -Ethiopia bilateral trade figures.
 
Table 1:  U.S.  – Ethiopia Bilateral Trade
Unit: U.S. Dollars
YearEthiopia imports from the U.SEthiopia exports to the U.S.
2009    266,866,655112,911,249
2010    773,159,838127,946,985
2011    689,890,633144,417,834
2012 1,274,672,068183,126,469
2013    688,507,736193,566,884
2014 1,668,507,736207,209,040
2015 1,554,718,478310,269,077
2016    827,291,280236,183,914
 
Source: Department of Commerce, Trade Policy Information Systems
 
According to Ernst and Young, Foreign Direct Investment (FDI) from the US to Ethiopia reached $4 billion in 2013/14. It should be noted that this figure represents projects planned but not necessary implemented. Other sources reported, however, that Ethiopia’s fast-growing economy attracted only $2.2 billion in U.S. FDI in 2014/15.

Chinese companies, supported by Chinese export trade and project finance agencies, are active in Ethiopia and aggressively pursue projects in the infrastructure and textile sectors.  Indian and Saudi Arabian firms are mainly involved in the agricultural sector. Many Indian companies have also begun to invest in the government-sponsored industrial textile parks.  Dutch companies play a prominent role in the floricultural industry and Turkish companies are increasingly engaged in manufacturing, particularly textiles and garments, as well as in construction.

Ethiopia held parliamentary elections on May 24, 2015, with 58 political parties participating in the electoral process. The ruling party, the Ethiopian Peoples’ Revolutionary Democratic Party (EPRDF), and its affiliates won all of the 547 parliamentary seats in national and regional elections. The EPRDF and its allies have been in power since 1991. The next parliamentary elections are to take place in 2020.

Ethiopia’s economic development vision is encapsulated in the government’s Growth and Transformation Plan (GTP). The growth objectives of the first phase, GTP I (2011-2015), were revised to formulate GTP II. GTP II (covering 2016-2020) was approved by parliament in December 2015. GTP II lays out a plan for dramatic structural transformation, shifting from an agrarian economy to one more geared towards manufacturing and services, with the overarching goal of making Ethiopia a middle income country by 2025.  GTP II envisages 11% average annual economic growth with an improved trade balance and higher foreign reserves. The GOE is also committed to building a climate resilient green economy and reaching U.N. sustainable development goals. Ethiopia will focus on mitigating greenhouse gas emissions by expanding electric power generation from renewable sources for domestic and regional markets.

The private sector is expected to play an increased role in the economy under GTP II, despite public investment remaining strong. The GOE reaffirmed its commitment during the Corporate Council on Africa (CCA) Summit, held in February 2016, to put in place an enabling business environment and a framework designed to attract more foreign businesses and investment.

The GOE has investment incentives aimed at attracting FDI, particularly export-oriented projects. U.S. companies that invest in Ethiopia can take advantage of tariff and duty free incentives through Ethiopia’s eligibility for the African Growth & Opportunity Act (AGOA) trade preference program, now extended until 2025, and Ethiopia’s membership in the regional bloc, Common Market for Eastern and Southern Africa (COMESA).

On April 5, 2016, the Ethiopian Parliament ratified a bill that approved Ethiopia’s membership to the African Trade Insurance Agency (ATI). Ethiopia has also secured funding with soft loans from the African Development Bank to cover the $7.5 million required for ATI subscription.  ATI provides specialized services that cover political and trade risks. ATI will also enable Ethiopian insurance and other companies to benefit from the sale of goods on a letter of credit, while limiting trade and political risks related to losses due to nationalization, breach of concession agreements, import or export embargoes, inconvertibility or transfer risks, political violence, terrorism, confiscation, license cancellation and sabotage. ATI membership can help Ethiopia attract much-needed foreign direct investment, especially given that the insurance industry is closed to foreign companies. In 2013, ATI came up with a new service package that insures banks’ lending activities so that they can extend loans to SMEs without requiring the latter to avail collaterals.  In 2015, ATI supported $1.7 billion worth of insured trade and investments within member countries.  

The top five reasons why U.S. companies should consider doing business in Ethiopia are:
  • Ethiopia is the second most populous country in Africa and has one of the fastest-growing economies in the world, which should result in an expanding middle class with more purchasing power.
  • U.S. products and services are highly respected among most Ethiopians for their quality and dependability.
  • The GOE is engaged in massive infrastructure expansion projects that create attractive business opportunities for U.S. companies in the full value chain.
  • In 2016, the U.S. EXIM bank approved Ethiopia for long term financing. Armed with U.S. EXIM financing, there are tremendous opportunities for U.S. companies’ participation in Ethiopia’s mega infrastructure projects. EXIM can extend up to $10 Million until it has a fully functional board.

Factors of production in Ethiopia such as land, labor, and energy costs are comparatively low compared to other countries in Africa and around the world.

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.



Ethiopia Trade Development and Promotion