27 Aug 2018
Ethiopia: Market Profile
- Picture: Ethiopia factsheet
- Graph: Ethiopia real GDP and inflation
- Graph: Ethiopia GDP by sector (2016)
- Graph: Ethiopia unemployment rate
- Graph: Ethiopia current account balance
- Graph: Ethiopia merchandise trade
- Graph: Ethiopia major export commodities (2016)
- Graph: Ethiopia major export markets (2016)
- Graph: Ethiopia major import commodities (2016)
- Graph: Ethiopia major import markets (2016)
- Graph: Ethiopia trade in services
- Graph: Ethiopia FDI stock
- Graph: Ethiopia FDI flow
- Graph: Ethiopia short term political risk index
- Graph: Ethiopia long term political risk index
- Graph: Ethiopia short term economic risk index
- Graph: Ethiopia long term economic risk index
- Graph: Ethiopia vs global and regional averages
Ethiopia’s location gives it strategic dominance as a jumping off point in the Horn of Africa, close to the Middle East and its markets. Landlocked, it borders Eritrea, Somalia, Kenya, South Sudan, and Sudan - its tiny neighbour, Djibouti, is also its main port. Ethiopia’s huge population of about 102 million (2016) makes it the second most populous nation in Africa, after Nigeria. Although it is the fastest growing economy in the region, it is also one of the poorest, with a per capita income of USD783. Ethiopia’s government aims to reach lower-middle-income status by 2025. Its economy experienced strong, broad-based growth averaging 10.3% a year from 2005/06 to 2015/16, compared to a regional average of 5.4%. According to official statistics, Ethiopia’s gross domestic product (GDP) is estimated to have rebounded to 10.9% in FY2017. The expansion of agriculture, construction and services accounted for most of this, with modest manufacturing growth. Private consumption and public investment explain demand-side growth, the latter assuming an increasingly important role. The government is implementing the second phase of its Growth and Transformation Plan (GTP II). GTP II, which will run to 2019/20, aims to continue work on physical infrastructure through public investment projects, and to transform Ethiopia into a manufacturing hub. Growth targets are an annual average GDP growth of 11%; in line with manufacturing strategy, it also hopes the industrial sector will grow by an average of 20%, creating jobs. Ethiopia’s main challenges are sustaining its positive economic growth and accelerating poverty reduction. Important measures were taken to address persistent birr overvaluation, large external imbalances, foreign exchange shortages, and rising external debt. Inflation remained in single digits on average in FY2017, but accelerated to 15.6% by February 2018.
Sources: World Bank, BMI Research
2. Major Economic/Political Events and Upcoming Elections
Ruling Ethiopian People's Revolutionary Democratic Front (EPRDF) won an overwhelming victory in general election.
Millions of people have faced dire food shortages after Ethiopia suffers its worst drought in decades.
Britain, the EU and the World Bank announced a project to create 100,000 jobs in Ethiopia. A third of the jobs were for Eritrean refugees to whom the Ethiopian government granted full employment rights.
Government declared a six-month state of emergency.
Economic growth declined to 8% from a previous annual average of 10%.
Government again temporarily blocked internet to prevent national exam papers leaking online, have done so in 2016.
Prime Minister Desalegn resigned, state of emergency declared.
Abiy Ahmed, leader of the Oromo ethnic group party in the ruling Ethiopian People Revolutionary Democratic Front, took over as prime minister.
Source: BBC country profile – Timeline
3. Major Economic Indicators
e = estimate, f = forecast
Sources: IMF, World Bank
4. External Trade
4.1 Merchandise Trade
Sources: WTO, Trade Map, BMI Research
4.2 Trade in Services
5. Trade Policies
- The Ethiopian government maintains control of key sectors, particularly services. There have been some success stories in the services sector - most notably Ethiopian Airlines, which, despite being state-owned, is responsible for generating most of the country's foreign exchange earnings. The National Bank of Ethiopia (NBE) administers a strict foreign currency control regime, and the Ethiopian birr is not freely convertible. As a result, while larger firms, state-owned enterprises (SOEs) and enterprises owned by the ruling party are less likely to face major problems in obtaining foreign exchange, less well-connected and smaller importers often face delays in arranging trade-related payments.
- Import tariffs: Ethiopia's average import tariff rate of 10% is the third highest in the East Africa region. The Ethiopian government has traditionally applied high tariffs on imports to protect certain local industries such as textiles and leather, as well as to generate revenue.
- Export taxes or restrictions: The Ethiopian government has banned exports of raw cotton due to a rise in demand from local textile and garment manufacturers. Domestic demand for the product is expected to surpass supply, and without a ban, domestic cotton producers would be forced to import cotton, increasing their business costs.
- Capital controls: The NBE has repeatedly intervened in devaluing the Ethiopian birr since the end of 2008. Ethiopia, therefore, has a shortage of foreign exchange, and importers encounter difficulty in acquiring foreign capital, particularly those that import goods to be sold domestically. The NBE must approve all foreign currency transactions, and importers need to apply for an import permit and obtain a letter of credit for the total value of the imports before orders can be made.
- Ethiopia is currently not a member of any customs unions, but it is scheduled to join the World Trade Organization (WTO) in November 2018 after it agreed to open up its economy in phases according to the agreement. Ethiopia is also a member of the Common Market for Eastern and Southern Africa (COMESA), and is in the final negotiation stages to join COMESA's Free Trade Area.
Sources: WTO – Trade Policy Review, BMI Research
6. Trade Agreement
6.1 Trade Updates
In March 2018, 44 out of 54 African countries (including Ethiopia) signed a framework establishing the African Continental Free Trade Area, with the goal of creating a single continental market for goods and services, with free movement of business persons and investments. However, signing the agreement is only the first step as a minimum of 22 countries must ratify it. National legislative bodies must approve and sanction the framework formally, showing full commitment to its implementation.
6.2 Multinational Trade Agreements
- Ethiopia-Sudan Free Trade Agreement: Trade with Sudan accounts for a small share of Ethiopia's total trade.
- COMESA: Provides investors a guarantee with regard to the standard of goods. It also provides more market opportunities for domestic industries and access to less expensive regional products. Ethiopia played a significant role in establishing COMESA, but it is still not part of its FTA.
- Ethiopia–Egypt Free Trade Agreement: A removal of trade barriers would benefit investors to some extent.
Signed but not ratified
- Africa Free Trade Zone: COMESA-EAC-SADC: Better market access creates economies of scale, which is a boon for Africa’s small producers, particularly in the agriculture space. Combined with appropriate industrial policies, this contributes to a diversified industrial sector, with stronger industrial linkages and growth in value addition. The African Continental FTA would ease access to markets within the FTA zone and end problems due to several of the member countries in the FTA belonging to multiple regional groups. Signing the agreement is only the first step, as a minimum of 22 countries must ratify it. National legislative bodies must approve and sanction the framework formally, showing full commitment to its implementation.
Sources: WTO Regional Trade Agreements database
7. Investment Policy
7.1 Foreign Direct Investment
7.2 Foreign Direct Investment Policy
- Attracting foreign investment is a key objective for the Ethiopian government, embedded within its current (2016-2020) five-year Growth and Transformation Plan. The government is seeking to attract investment in the high-priority sectors of heavy and light manufacturing, agribusiness, textiles, sugar, chemicals, pharmaceuticals, and mineral and metals processing. The government is taking steps to streamline the investment process by developing a more efficient 'one-stop-shop' facility for foreign investors.
- Industrial parks will be particularly beneficial to the manufacturing sector, with tax and duty incentives set by the government to accompany investments in the textile and garment industry, leather and leather products, sugar and sugar-related products, cement, metal and engineering, chemicals, pharmaceuticals and agro-processing. Incentives for developers include a tax holiday of as long as 15 years and duty-free privileges, with further advantages for building done outside the capital. Incentives for manufacturers include tax exemptions of 10 years if they export all their products from a site not in Addis Ababa.
- SOEs dominate major sectors of the economy and preference is given to them for investment, access to credit, foreign exchange, land, procurement contracts and import duties.
Traditionally, very few SOEs release detailed financial statements, which makes it difficult to scrutinise their financial data. Corporate governance of SOEs is monitored by a board of directors composed of senior government officials and politically connected individuals.
There is an inadequate level of transparency in the structure of SOEs. That said, the Ministry of Public Enterprises has begun streamlining governance and financial management of SOEs, as well as improving transparency.
- Ethiopia's foreign equity ownership restrictions are above average for the region, particularly in the service industries. A comparatively large number of sectors are dominated by government monopolies, including telecommunications, defence, financial services, media, transportation, and retail. Notable additional sectors dominated by publicly owned enterprises include the electricity and airport operation industries. Those monopolies, together with a perceived difficulty of obtaining required operating licenses (or a sector being entirely closed off), make it difficult for foreign companies to invest.
- Ethiopia is experiencing FX shortages as heavy government infrastructure requires FX for associated imports.
- While the birr usually operates on a managed float regime, weakening against the dollar by around 5%-6% a year, it has long been highlighted that the currency was relatively overvalued.
- All foreign currency transactions must be approved by the NBE.
- Businesses are likely to experience delays in foreign exchange supply for up to a year, and it is especially common to expect slowdowns and down-time in the manufacturing sector.
- Investments are affected by the shortages as this causes manufacturing to slow down; growth potential to decrease; maintenance and spare parts replacements to become challenging; and raw material availability for the textile and construction industries to become affected.
Sources: WTO - Trade Policy Review, The International Trade Administration (ITA), US Department of Commerce, BMI Research
7.3 Free Trade Zones and Investment Incentives
|Free Trade Zone/Incentive Programme||Main Incentives Available|
|State-owned special economic zones (SEZs) in operation include Bole-Lemi I and Addis Industrial Park, located near Addis Ababa, as well as Hawassa Industrial Park in the south, Kombolcha and Mekelle||Benefits for apparel industry, including tax exemptions, duty-free privileges and fewer bureaucratic procedures|
|SEZs under construction across the country and due to open operations during the course of 2018-19 include Bole Lemi II, Kilinto, Dire Dawa, Adama, Bahir Dar, Jimma, Areti, Debre Birhan and Air Lines Logistics Park||Benefits for the textile, leather, sugar, cement, metal, chemical, pharmaceutical and agro-processing industries, including tax exemptions, duty-free privileges and fewer bureaucratic procedures|
|Private industrial zones include Dukem, Sendafa, Ayka Addis, Hujian Industrial Zone, George Shoe||Incentives for the manufacturing sector|
Sources: US Department of Commerce, BMI Research
8. Taxation – 2018
- Value Added Tax: 15%
- Corporate Income Tax: 30%
Source: PwC Taxes at a Glance 2018
8.1 Important Updates to Taxation Information
- The government has introduced exemptions for export oriented agribusiness and manufacturing activities.
|Type of Tax||Tax Rate and Base|
|Resident company: Corporate Income Tax||30% on profits|
|Turnover Tax||2% and 10% on goods and services|
|Excise Tax||35-100% on specified goods manufactured in Ethiopia and on imports|
|Customs Duties||0-35% on imports|
|Social Security Contributions (all employers)||11% on gross salaries|
|VAT/GST (standard)||15% on sale of goods and services|
9. Foreign Worker Requirements
9.1 Localisation Requirements
Companies encounter few barriers when hiring expatriate workers. All foreigners wishing to engage in employment in Ethiopia are required to obtain a work permit, which will be granted if the employer can prove the job cannot be performed by a local recruit.
9.2 Foreign Worker Permits
Workers can apply for a permit from within Ethiopia or their country of residence and must obtain clearance before starting work. With regard to family members, spouses and children are entitled to stay in the country on special passes, the validity of which depends on the corresponding work permit.
9.3 Visa/Travel Restrictions
Only citizens of Djibouti and Kenya can travel visa-free to Ethiopia. 40 countries that include South Africa, the US, Canada, Australia, India and China are issued a visa on arrival that is valid for up to three months. Most other African, Middle Eastern and Latin American countries require visas before arrival.
9.4 Religious/Cultural Barriers
The constitution and most laws protect religious freedom; however, there have been reports of societal abuses and discrimination based on religious affiliation. Most of the population (44%) practices Ethiopian Orthodoxy, while 34% are Sunni Muslim and 19% belong to Christian Evangelical and Pentecostal groups. Ethiopia's female labour force participation rate, at 78% of the female population aged 15 and older, is comparatively higher than the majority of the East African nations. Thus foreign women employed in Ethiopia should not experience any barriers or discrimination in the workplace.
Sources: Government websites, BMI Research
10.1 Sovereign Credit Ratings
|Rating (Outlook)||Rating Date|
|Standard & Poor's||B (Stable)||09/05/2014|
Sources: Moody's, Standard & Poor's, Fitch Ratings
10.2 Competitiveness and Efficiency Indicators
|Ease of Doing Business Index ||159/189||159/190||161/190|
|Ease of Paying Taxes Index||113/189||90/189||133/190|
|Logistics Performance Index ||126/160||N/A||N/A|
|Corruption Perception Index||108/176||107/180||N/A|
|IMD World Competitiveness||N/A||N/A||N/A|
Sources: World Bank, IMD, Transparency International
10.3 BMI Risk Indices
|Economic Risk Index Rank||129/202|
|Short-Term Economic Risk Score||39.0||41.3||42.3|
|Long-Term Economic Risk Score||42.7||45.7||47.0|
|Political Risk Index Rank||181/202|
|Short-Term Political Risk Score||47.5||47.5||46.3|
|Long-Term Political Risk Score||38.7||38.7||41.7|
|Operational Risk Index Rank||161/201|
|Operational Risk Score||37.9||34.4||34.9|
Source: BMI Research
10.4 BMI Risk Summary
The ruling Ethiopian People's Revolutionary Democratic Front will maintain control in the wake of its 2015 landslide general election victory, therefore, ensuring broad-based policy continuity. However, political risks will remain heightened, with increasing social tensions raising the prospect of an uptick in domestic unrest, while a behind-closed-doors power struggle among the political elite could threaten policy-making.
Ethiopia is one of the most attractive markets in East Africa on account of its promising economic outlook driven by infrastructure-led investments, a large pool of available labour and abundant natural resources. However, the country remains exposed to regional insecurity in the Horn of Africa and aggressive rebel factions. Investors also face risks stemming from Ethiopia's internal crime and security environment, which reflects elevated crime rates and the low police force capability.
100 = Lowest risk, 0 = Highest risk
Source: BMI Research
10.5 BMI Operational Risk Index
|Operational Risk||Labour Market Risk||Trade and Investment Risk||Logistics Risk||Crime and Security Risk|
|East Africa Average||32.2||40.7||33.2||31.1||23.7|
|East Africa Position (out of 11)||5||4||6||3||4|
|SSA Position (out of 48)||21||12||33||14||27|
|Global Position (out of 201)||161||140||173||149||166|
100 = Lowest risk, 0 = Highest risk
Source: BMI Operational Risk Index
|Country||Operational Risk Index||Labour Market Risk Index||Trade and Investment Risk Index||Logistics Risk Index||Crime and Secruity Risk Index|
|Emerging Markets Averages||46.8||48.0||47.5||45.8||46.1|
|Global Markets Averages||49.8||49.8||50.0||49.3||49.9|
Higher score = Lower risk
Source: BMI Operational Risk Index
11. Hong Kong Connection
11.1 Hong Kong’s Trade with Ethiopia
|2017||Growth rate (%)|
|Number of Ethiopian residents visiting Hong Kong||896||23.9|
|Number of Ethiopians residing in Hong Kong||N/A||N/A|
Sources: Hong Kong Tourism Board, BMI Research
|2017||Growth rate (%)|
|Number of African residents visiting Hong Kong||142,512||-11.6|
Sources: Hong Kong Tourism Board, BMI Research
11.2 Commercial Presence in Hong Kong
|2016||Growth rate (%)|
|Number of Ethiopian companies in Hong Kong||N/A||N/A|
|- Regional headquarters|
|- Regional offices|
|- Local offices|
Source: Hong Kong Census & Statistics Department
11.3 Treaties and Agreements between Hong Kong and Ethiopia
China-Ethiopia Bilateral Investment Treatie (BIT)
11.4 Chamber of Commerce (or Related Organisations) in Hong Kong
Ethiopian Consulate in Hong Kong
Address: Unit 24, 3/F, Block B, Focal Industrial Center, 21 Man Lok Street, Hunghom, Kowloon, Hong Kong
Hours of Business: Monday to Friday 10:00 a.m. - 5:00 p.m.
Honorary Consul: Dr. Dennis Ng Wang-pun, BBS, MH
Tel: (852) 2363 0200
Fax: (852) 2363 2776
11.5 Visa Requirements for Hong Kong Residents
Holders of Hong Kong SAR, BN(O) and Macao SAR passports may obtain tourist visa valid for up to 3 months on arrival at Addis Ababa (Bole) International airport, at a cost of approximately USD52 for 1 month and USDS72 for 3 months (euros, US dollars and Ethiopian birr are all accepted). To get a visa on arrival, travellers need to also have two passport photographs. Furthermore, in June 2018, Ethiopia launched an 'e-visa'. This allows Hong Kong Residents to easily apply for (currently, with more visa catergories set to follow) tourist visas. For single entry with validity up to 30 days, the fee for the e-visa is USD52 and for single entry with validity up to 90 days, the fee is USD72. All other categories of visitors must get either a visa from the Ethiopian Embassy closest to their place of legal residence before travelling.
Source: Main Department for Immigration and Nationality Affairs, Ethiopia