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: 10/30/2019

Ethiopia has a large domestic market of over 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 2018, Ethiopia’s real Gross Domestic Product (GDP) expanded by 7.7 percent, and is expected to grow by 8.5% in 2019, according to the World Bank.

The business climate is undergoing significant changes with broad policy reforms implemented under the new leadership of Prime Minister Abiy Ahmed. Government plans to privatize leading state-owned enterprises signal a significant shift toward market based reforms and a new flexibility with respect to economic policymaking. The acute foreign exchange shortage remains the leading challenge for U.S. suppliers, for which there is no quick fix.

While the economy is growing rapidly, presenting many opportunities, there are also hurdles to doing business in Ethiopia. The 2019 World Bank’s Ease of Doing Business report (EODB) ranked Ethiopia 159th out of 190 countries; an improvement of two positions from that of 2018. The new leadership has a focused target to improve the country’s ease of doing business ranking and has formed an interministerial committee led by the Prime Minister to improve specific areas of the ease of doing business. The World Economic Forum (WEF) has 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.

The agriculture sector has historically been the engine of the Ethiopian economy, but it has recently given way to the expansion of the service sector. The National Bank of Ethiopia (NBE) notes agriculture, industry and services have contributed 35%, 27% and 39% to GDP respectively during the 2017/18 Ethiopian fiscal year as opposed to 36.3%, 26% and 38.8%, to GDP in 2016/2017. The agriculture sector’s share of GDP shrank by more than 25% between 2005 and 2018, while the service sector’s share grew by 27% during the same period. The construction industry, particularly roads, railways, dams, industrial parks 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 dominated by expansion in communication and transport services, hotel and restaurant businesses, as well as wholesale and retail trading.

In March 2019, Moody’s reaffirmed Ethiopia’s credit worthiness at ‘B 1 stable,’ while S&P and Fitch maintained their original rating of ‘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. As a result of the 15% currency devaluation of October 2017 inflation rose to double digit levels during the final quarter of 2017 and the first half of 2018. In the spring 2019, Ethiopian inflation stood at 12.9 percent.

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 annual inflation rate of approximately 13 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. In October 2017, the National Bank of Ethiopia (NBE) devalued the birr by 15 percent relative to the U.S. dollar, thereby reducing overvaluation and enhancing competitiveness. As of May 2019, the official exchange rate stood at 28.71 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 39.00 Birr per dollar, a premium of 36% over the official rate.

Ethiopia faces a growing trade deficit with total imports steadily increasing on average by 12.5% per year during the previous 10 years. The rise in imports has exacerbated the trade deficit, which ballooned from $3.6 billion in 2010 to $14 billion deficit in 2016/2017. Concerned by the widening trade balance, the Government of Ethiopia works to suppress imports and took other macro economic measures in recent year, which has resulted in a slight narrowing of the trade deficit to $12.41 billion in 2017/18. Ethiopia’s total merchandise exports were $2.84 billion in 2017/2018, while imports for the same period were $15.28 billion, a 3% decrease from the previous year.

The Ethiopian birr is a not a convertible currency, and private sector allocation to foreign exchange (U.S. dollars) is determined by the the National Bank of Ethiopia (NBE). The NBE operates within the context of a large trade deficit and the need to meet sovereign debt obligations stemming from government infrastructure projects funded by foreign debt, which enjoy priority in allocation of foreign currency.

According to the NBE annual report, 34.5 % of total imports ($5.27 billion) was spent on capital goods and 31% ($4.7 billion) on consumer goods. U.S. exports to Ethiopia in 2018 amounted to $1,310,886,716, a 49% increase from that of last year, accounting for 9.4% of Ethiopia’s total imports. Ethiopia’s imports from the United States have increased steadily throughout the past decade, representing approximately a fivefold increase from 2007 to 2017.

In 2017/2018, Ethiopia's major exports included coffee (29.5%), oil seeds (14.9%), pulses (9.5%), Chat (9.3%), cut flowers (8%), and gold (3.5%). Ethiopia’s total export earnings by value declined by 2.3% in 2017/2018 from the previous year. Depressed commodity prices are the leading cause of this drop in exports.

Major destinations for Ethiopia's exports in 2017/2018 were: Asia 39.8% (of which China accounted for 22.3%), Europe 28.7% and Africa 20.9%. In FY 2017/2018, the United States was Ethiopia’s leading export market representing 9.9% of total exports, registering a 2% 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 (64.2%) followed by Europe (19.3%), the United States (9.4%) followed by Africa (7%). Imports from China accounted for 39.3 (a drop of over 10% from the same period last year) followed by Kuwait (12.6%), India (10.1.8%), USA (9.4%) UAE ( 5.4%) Japan (5.3%), and Saudi Arabia (3.6%). U.S. exports to Ethiopia increased by 2.4%, a successive two years increase in a row. U.S. exports to Ethiopia are primarily aircraft sales, construction equipment, 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 U.S. -Ethiopia bilateral trade figures.

Table 1:  U.S. – Ethiopia Bilateral Trade
Unit: U.S. Dollars

YearU.S. Exports to EthiopiaU.S. Imports from Ethiopia
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
2017    877,000,000291,000,000
20181,310,886,716444,813,041

Source: Department of Commerce, Trade Policy Information Systems, Global trade Atlas and National Bank of Ethiopia

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.

The Ethiopian People’s Revolutionary Democratic Front (EPRDF), a coalition of four, ethnic based, regional parties, and its allies have been in power since 1991. In 2015, the EPRDF and its affiliates won all of the 547 parliamentary seats in national and regional elections. Prime Minister (PM) Abiy Ahmed came to power in April 2018 through a vote by the House of Peoples Representatives (the lower house of Parliament). The vote followed his selection in March 2018 as Chairman of the ruling EPRDF. The next parliamentary elections are scheduled to take place in May 2020.

The Government of Ethiopia’s economic development vision has been historically 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 (covering 2016-2020). 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 lower middle-income country by 2025. GTP II envisages 11% average annual economic growth with an improved trade balance and higher foreign reserves. Since PM Abiy’s rise to power, however, there has been a diminshed public commitment to the GTP II. 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 was intended to play an increased role in the economy under GTP II, and the new administration has signaled a waning commitment to the state-led approach to economic management with the Homegrown Economic Reform Plan.

The GOE has investment incentives aimed at attracting FDI, particularly export-oriented projects. U.S. companies that invest in Ethiopia benefit from 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 Africa Continental Free Trade Agreement (AfCFTA).

Political risk for international investors can be mitigated through products offered by the African Trade Insurance Agency (ATI), which Ethiopia joined in 2016. 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.

The top five reasons why U.S. companies should consider doing business in Ethiopia are:
•              Now is the moment for U.S. companies to pursue opportunities that have arisen following Ethiopia’s sweeping political and economic reforms, and to develop relationships with new leadership across the government. Ethiopia is now beginning to liberalize its economy and privatize many sectors, allowing U.S. firms to participate in areas previously closed to international participation.
•              Ethiopia is the second most populous country in Africa and has one of the fastest-growing economies in the world, which is resulting in an expanding middle class with more purchasing power.
•              U.S. products and services are highly respected among Ethiopians for their quality and dependability.
•              U.S. EXIM bank supports financing exports to Ethiopia, and has an expanded capacity to finance transactions beyond $10 million following the May 2018 seating of a quorum of its board. The Development Finance Corporation (DFC) which in October 2019 became the successor agency of OPIC, is also increasingly engaged in, and delivering project finance to, Ethiopia. With these financial tools, U.S. firms are now better equipped to pursue projects in Ethiopia.
•              Factors of production in Ethiopia such as land, labor, and energy costs are 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