Economic performance and outlook: Ethiopia is steadily recovering from the 2015/16 and 2017 droughts, with continued expansion of services and industry and a rebound in agriculture. At 39.3%, services accounted for the largest share of GDP in 2016/17, 39.3%, driven by trade, transport, and communications, although this share decreased from 47.3% in 2015/16. Industry’s share of GDP increased from 16.7% in 2015/16 to 25.6% in 2016/17, driven by construction, electricity, and manufacturing. Implementation of the export-led industrialization strategy supported growth in industry. Although agriculture’s share of GDP stagnated at 36%, the sector’s growth rate increased from 2.3% in 2015/16 to 6.7% in 2016/17 due to rising commodity prices, notably for coffee. Growth continues to be led by investment in line with stable public infrastructure spending and higher foreign direct investment (FDI). Real GDP growth during 2017/18–2018/19 will be led by greater agricultural productivity and strong industrial growth.
Macroeconomic evolution: The government pursued a contractionary fiscal policy stance in 2016/17, prioritizing spending in pro-poor and growth-enhancing sectors, including education, health, agriculture, and roads. Capital expenditure accounted for a large share of the budget, though it decreased from 51% in 2015/16 to 46% in 2016/17. The 2016/17 budget deficit was 1 percentage point lower than programmed; the ratio of tax revenue to GDP remained low, at 12.9%. Revenue enhancing measures are expected to increase tax collection. The monetary policy stance has been consistent with the Central Bank’s objective of maintaining low and stable inflation, which was below the 8% target in 2016/17. The Central Bank is implementing a contractionary monetary policy to address inflationary pressures due to rising food prices. In October 2017, the birr was devalued 15% to boost exports. Merchandise exports increased 1.4%, while imports decreased 5.5%, reducing the current account deficit. Remittances remained stable at $4.4 billion (6% of GDP) in 2016/17; FDI increased 27.6%, to $4.2 billion.
Tailwinds: The economic outlook is positive due to the sustained implementation of the government’s export-led industrialization strategy and investors’ positive outlooks. Industrialization has been prioritized, notably through the development of industrial parks and other enablers, such as the 656 km Addis Ababa–Djibouti electric railway, to ease the cost of doing business. Investment in energy, such as the 6,450 MW Grand Ethiopian Renaissance Dam, is expected to boost energy exports. These initiatives are likely to reduce the structural trade deficit and foreign exchange shortages while supporting industrialization and job creation. Ethiopia was ranked as the second largest FDI host economy among the least developed countries in 2016, supported by its large market and affordable labor force.
Headwinds: Major downside risks include weak exports, climate change, and youth unemployment. Exports account for less than 20% of imports, leading to persistent trade deficits and foreign exchange shortages. The most recent debt sustainability analysis in 2016 indicates that Ethiopia’s moderate risk of external debt distress is vulnerable to export performance. The development of industrial parks and devaluation of the birr are expected to increase manufacturing exports, which account for about 20% of total exports, thereby mitigating this risk. The negative effects of climate change have led to interventions to build resilience by focusing on drought-prone regions, in line with the Growth Transformation Plan II (2015/16–2019/20) and Climate Resilient Green Economy Strategy. Youth unemployment requires urgent attention; more than 70% of the population is under age 30. Although the unemployment rate among young people ages 15–29 was low in 2013, 6.8%, the urban youth unemployment rate (23.3%) was higher than the total urban unemployment rate (16.5%). The government established a $493 million Revolving Fund for Ethiopian Youth in 2016/17 to support youth entrepreneurship and job creation.
Guide to Buying Bonds
Procedures for market participation
All eligible investors in government securities must apply directly to the National Bank of Ethiopia (NBE). They must also have account with the Central Depository which is managed directly by the NBE.
Interest income and capital gains arising from debt securities are tax-exempt.
Openness to international investors
The government of Ethiopia understands the importance of the private sector for the economic development of the country. For this reason, it has promulgated some laws with the objective of increasing foreign direct investment. The 2012 Investment Proclamation and the multiple revisions of the Investment Code are two of these legislation (Ethiopia Investment Guide, 2013). The 2012 law enables any foreign investor to own a house in Ethiopia.
The NBE strictly monitors the movements of foreign currencies. Due to the shortage of foreign currency, there is a black market for foreign currency.
Non-residents can open foreign currency accounts. Residents can only hold foreign currency for 45 days before they have to exchange it at a bank.
Restrictions on Foreign exchange and profit repatriation
Foreign investors can freely remit profits, dividends, principal and interest on foreign loans, fees related to technology transfers and proceeds from the liquidation of a business with few restrictions. However, foreign exchange reserves are relatively low and as a result, foreign investors have experienced difficulty obtaining foreign currency.
In May 2014, Ethiopia received its 1st rating from the 3 major credit rating agencies (Moody's, S&P and Fitch), in preparation of the 1st international issue of the country. Moody's assigned B1 while S&P and Fitch gave it"B.
List of Primary Dealers
There are no Primary Dealers in Ethiopia.
Documents & Resources
Documents - Ministry of Finance
- Ethiopia Growth Transformation Plan Ethiopia- Draft (1.05 MB)
- Eth_MTDS-2013-17.pdf (0.99 MB)