Ethiopia

Country Summary

Macroeconomic performance

Real GDP growth slowed in 2017/18, due partly to civil unrest, political uncertainty, and policy adjustments that involved fiscal consolidation to stabilize the public debt. On the supply side, GDP growth was driven by services (8.8% growth) and industry (12.2%), facilitated by the development of energy, industrial parks, and transport infrastructure. On the demand side, private consumption and investment continued to drive growth, along with the government’s stable spending on public infrastructure and strong foreign direct investment inflows.

With a public debt–to-GDP ratio of 61.8% at the end of June 2018, Ethiopia remains at high risk of debt distress, according to a 2018 debt sustainability analysis. A tax transformation program is under way to strengthen tax policy and administrative efficiency.

A reduced trade deficit and strong growth in remittances helped improve the current account deficit from 8.1% of GDP in 2016/17 to 6.0% in 2017/18. Gross official reserves remained low, at 2.5 months of imports in 2016/17 and 2.1 months in 2017/18.

Tailwinds and headwinds

Real GDP growth is projected to recover from 7.7% in 2017/18 to 8.2% in 2018/19 and 2019/20, supported by industry and service sector expansion and agricultural sector recovery. Industrial growth will be boosted by ongoing industrial zone development, and agriculture will benefit from investments in fertilizer, irrigation, and improved seeds. Public investment will remain moderate, reflecting efforts to stabilize the public debt. The impending privatization of the state-owned railway, maritime, air transport, logistics, electricity, and telecommunications sectors is expected to boost private investment and mitigate the reduction in public spending.

Ethiopia’s rising incomes, 94 million people, emerging consumer goods market, and increasing urbanization

provide economic opportunities. Its export-led industrialization strategy includes developing industrial zones across the country and business enablers for energy, transport, and trade logistics. Abundant low-cost and trainable labor presents a comparative advantage in export-oriented light manufacturing, notably in leather, textiles, and agro-processing. The country’s strategic location eases access to lucrative markets in the Middle East and Europe. And investments in renewable energy will generate up to $1 billion in exports by 2020. Political reforms and normalized relations with neighboring Eritrea should boost prosperity and stabilize the region.

Political reforms implemented in the last few months led to stabilization of the Ethiopian economy and restored overall calm in the country. The reforms focused mainly on institutionalizing democracy and rule of law and expanding the political space. But these achievements are not without risks. There are disruptions of economic activities in some parts of the country, displacements of people in large numbers, and skirmishes that could affect overall economic performance in the short to the medium term.

Despite reducing the extreme poverty rate from about 46% in 1995 to 23.5% in 2016, Ethiopia still has more than 25 million poor people. Demographic dynamics and a low initial level of development make poverty reduction challenging. Promoting inclusive growth through deep structural transformation becomes essential.

Only 60% of the population has access to electricity, 65.7% of households have access to potable water, and paved road density is among the lowest in Sub-Saharan Africa. The leading exports are coffee, oil seeds, and pulses, and manufacturing accounts for less than 10% of GDP. Private sector development faces limited financial access, foreign currency shortages, and a costly and weak business regulatory environment. And frequent droughts driven by climate change have major fiscal and humanitarian consequences.

Source: African Economic Outlook 2019

Fixed Income

N/A

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.

Taxation

Interest income and capital gains arising from debt securities are tax-exempt.

Settlement cycle

N/A

Market restrictions

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.

Capital controls

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.

Credit rating

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

Documents - Central Bank

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