Ethiotime1
Ethiopia has a large domestic market with a total population of over 120 million people (2023), making it the second most populous country in Africa after Nigeria. Over the 15 years prior to 2019, Ethiopia’s economy had one of the fastest growth rates in the world, averaging 9.5% per year, driven in part by significant public infrastructure investments. Abiy Ahmed’s appointment to the office of Prime Minister in 2018 signaled a new push toward liberalizing Ethiopia’s economy through improving the investment climate and privatizing leading state-owned enterprises in several sectors, including telecoms, shipping and logistics, power, rail, and sugar. This momentum came to a halt with the double onset of the COVID-19 pandemic and a prolonged civil conflict. However, with these events now in the rearview mirror, the country is showing signs of a move toward recovery and reconstruction. Key sectors, including telecoms and banking continue to move in a more open market direction.
In 2022, Ethiopia had a real gross domestic product (GDP) of 6%, which was greater than the 4% average for East Africa. Agriculture has historically been the driver of the Ethiopian economy but recently the service sector has grown to become the largest contributor to GDP. According to the National Bank of Ethiopia (NBE), services, agriculture, and industry accounted for 40%, 32%, and 29% of GDP respectively, during the 2021/22 Ethiopian fiscal year. Service sector growth is dominated by expansion in communication and transport services, hotel and restaurant businesses, as well as wholesale and retail trading. Growth in the industrial sector is particularly due to investments in roads, railways, dams, industrial parks, and housing.
While we expect further economic liberalization, the country still faces several issues that dampen foreign trade and investment, the largest being high inflation rates and a scarcity of foreign exchange reserves.
In September 2023, Moody’s downgraded Ethiopia’s credit rating from Caa2 to Caa3. Fitch and S&P also recently downgraded their ratings – Fitch in December 2022 from CCC to CCC- and S&P from CCC+ to CCC. The negative ratings, which have a significant effect on the country’s borrowing costs, are due to heightened political instability and the Government of Ethiopia (GOE)’s participation in the G20 Common Framework debt relief initiative. During 2022, the year-on-year inflation rate gathered momentum and rose due to price increases in both food and non-food items, peaking in May 2022, at an annualized rate of 38%. Real interest rates in Ethiopia remain largely negative. The minimum bank deposit rate of 7%, bond yield of 4%, and treasury bill yield of 9.46% are lower than the annual average inflation rate of 33%.
The Ethiopian birr is a non-convertible currency, and allocation of foreign exchange (e.g., U.S. dollars) to the private sector is determined by the 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 enjoys priority for scarce foreign currency. The birr has continued to follow a steady depreciation, with the NBE following a crawling peg exchange rate policy. The shortage of available dollars has led to a black-market exchange rate close to double the official rate.
| Year | Exchange rate (1 US dollar to ETB) | % change |
| 2018 | 27.43 | – |
| 2019 | 29.07 | 5.8 |
| 2020 | 34.93 | 18.3 |
| 2021 | 43.73 | 22.4 |
| 2022 | 51.76 | 16.8 |
| 2023 | 54.35 | 4.8 |
Source: World Bank and Commercial Bank of Ethiopia
A second phase of Ethiopia’s Homegrown Economic Reform Agenda, first introduced in 2019, is under development according to the Ministry of Planning and Development. This forthcoming initiative is expected to include liberalizing the banking sector, readjusting the exchange rate to strengthen the birr’s market-based valuation, and eventually introduce a liberalized foreign currency market.
Ethiopia’s trade deficit has been widening, with total imports rising by more than 12% annually on average during the last 11 years. The trade deficit grew to $14 billion in 2022 from nearly $11 billion in 2021, with total imports reaching $18 billion due in part to rising imports of consumer goods, fuel, and semifinished goods. According to an annual NBE report, 42% of total import spending ($7.6 billion) was on consumer goods and 17% ($3 billion) was on capital goods.
Ethiopia’s imports from the United States have increased steadily throughout the past decade. In 2022, Ethiopia imported over $1 billion worth of goods from the United States, with transportation equipment—primarily in aviation—comprising the largest segment, followed by construction equipment, agricultural machinery, and engineering services. 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 passenger services. Please refer to the tables below for U.S./Ethiopia bilateral trade figures.
| Year | U.S. Exports to Ethiopia | U.S. Imports from Ethiopia |
| 2018 | $1,308,252,189 | $444,834,941 |
| 2019 | $1,010,790,000 | $571,540,000 |
| 2020 | $910,940,000 | $524,530,000 |
| 2021 | $575, 000,000 | $601,824,561 |
| 2022 | $1,084,000,000 | $718,000,000 |
Source: Department of Commerce, Global trade Atlas and National Bank of Ethiopia
In 2021—the most recent year in which United Nations COMTRADE data is available—Ethiopia’s major goods exports included coffee (27%), gold (15%), oil seeds (9%), vegetables (7%), flowers (5%) and legumes (5%). The top five destinations for Ethiopian exports in 2021 were United Arab Emirates (18%), the United States (14%), Somalia (9%), China (7%), and Germany (6%). By region, Ethiopia’s goods exports went to Asia (48%), Europe (21%), the Americas (15%), and Africa (15%).
The majority of Ethiopia’s imports come from Asia (61%, with 40% originating from China) followed by Europe (25%), and the Americas (8%, the vast majority (89%) originating from the United States), and other countries in Africa (7%).
Table 3: U.S./Ethiopia Bilateral Trade for 2022 by Sector (USD)
| Top U.S. Exports to Ethiopia (Million) | Top U.S. Imports from Ethiopia (Million) | |||
| Product | Value | Product | Value | |
| 1 | Transportation Equipment | $494 | Apparel and accessories | $349 |
| 2 | Agricultural Products | $290 | Agricultural products | $214 |
| 3 | Processed Foods | $85 | Good returned | $83 |
| 4 | Other Special classification provisions | $46 | Processed Foods | $27 |
| 5 | Machinery, Except electrical | $43 | Transportation Equipment | $10 |
Source: Department of Commerce, Global trade Atlas
Chinese companies, supported by the Government of the People’s Republic of China’s 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 government-sponsored industrial parks. Dutch companies play a prominent role in the floriculture industry and Turkish and Chinese companies are increasingly engaged in manufacturing, particularly textiles and garments, as well as in construction. The GOE offers investment incentives with the goal of attracting FDI, particularly for projects with an export focus. By making investments in designated priority industries, American businesses operating in Ethiopia can take advantage of tariff and duty-free benefits. Ethiopia lost its trade preferences under the Africa Growth Opportunity Act (AGOA) in 2021 in response to U.S. government concerns of human rights violations. The GOE is making efforts to have AGOA preferences returned in 2024.
Logistics costs comprise approximately 22-27% of final costs for many products. Shipping and freight costs are approximately 60 percent higher than in neighboring countries. As a landlocked country, Ethiopia relies heavily on the port of neighboring Djibouti for the import and export of goods. Other ports, such as Port Sudan in Sudan, Berbera in Somalia and Assab and Massawa in Eritrea are used to a far lesser degree – but this may change as the GOE has signaled a desire to reduce its dependence on Djibouti’s port.
Ethiopia has built seven inland ports in Modjo, Kallity, Semera, Mekelle, Dire Dawa, Gelan, and Kombolcha with an installed handling capacity of 22,000 containers. The dry ports, notably Modjo, approximately 70 kilometers from Addis Ababa, serve as intermediate logistics destinations for cargo. Most goods are transported by trucks from the neighboring ports to Addis Ababa and other parts of Ethiopia. Ethiopia’s state-owned companies dominate the truck transportation market, though the overall number of trucks is presently insufficient to meet demand.
A Chinese-led infrastructure project to revamp Ethiopia’s rail system, which connects Djibouti’s port to Addis Ababa began operations in 2018. The new electric railway reduces transport time from Djibouti to the Modjo dry port. Cargo capacity on the rail network is 3,500 to 4,000 tons of freight per train, with the Ethiopian Railway Corporation (ERC) anticipating 6 to 7 million tons of cargo per year in its first few years of operation and increasing to 10 million tons in the mid-term.
The Ethiopian Shipping and Logistics Service Enterprise (ESLSE) claimed the new rail system has significantly enhanced its logistics capacity by reducing freight costs as well as shortening cargo delivery delays from more than three days to just 10 hours. ESLSE promotes the use of the operational rail cargo transport system claiming that it will reduce cargo transportation cost by 20%. However, due to myriad and ongoing implementation issues associated with the new railway, the majority of goods continue to be transported by truck.
The construction of the Lamu-Garissa-Iolo road linking Kenya to Ethiopia now provides significantly improved access for landlocked Ethiopia to the Port of Mombasa. The road corridor will also be key in supporting the Lamu Port-South Sudan-Ethiopia-Transport (LAPSSET) corridor.
Political Environment
The Ethiopian People’s Revolutionary Democratic Front (EPRDF), a coalition of four ethnic based, regional parties, and its allies held power from 1991 until its dissolution in 2019. In 2015, the EPRDF and its affiliates won all of the 547 parliamentary seats in national and regional elections. Current 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. Following his appointment as chairman of the EPRDF and Prime Minister of Ethiopia, the executive committee of the EPRDF decided by majority vote to dismantle that party structure and form a new party without ethnic affiliation, the Prosperity Party (PP), in December 2019. Most members of the former EPRDF joined the newly formed PP.
With the spread of COVID-19, the August 2020 election was first postponed to June 5, 2021, and then again to June 21, 2021. When Ethiopia’s sixth general election was held at that point, the leading Prosperity Party won 510 of the 547 House of Parliament seats that allowed the Party to form a ruling government for the next five years. About 80% of Ethiopian municipalities were able to vote in June 2021, 37 million voters were registered, with 90% turn out on Election Day.For additional information on the political and economic environment of the country, please visit the U.S. Department of State Countries & Areas website.
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