Ethiopia Economy & Development

By | February 2, 2021

Ethiopia Economy & Development

Ethiopia Economy & Development

Ethiopia Economy & Development

Estimated GDP (purchasing power parity): $ 204 billion (estimated 2018)

Per capita income (purchasing power parity): US $ 2,022 (estimated 2018)

Human Development Rank (HDI): 173 of 189 (2018)

Proportion of poverty (national poverty line): 23.5% (estimated 2015)

Distribution of income (Gini coefficient): 33.6 (2011)

Economic Transformation Index (BTI): 115 of 137 (2020)

Economic structure and economic situation

Ethiopia has traditionally been a country of agriculture and cattle breeding, but through massive efforts in the last few decades it has been increasingly transforming into a country with emerging service and industrial sectors.

The Ethiopian government describes the economic system it has shaped as a market economy, but has long considered complete liberalization of the market to be premature. Correspondingly, a number of reform steps have been taken (privatization, price release, approval of private companies, including in the banking and insurance sector), but the government continues to exert a dominant influence on the economy through state monopoly companies (including air transport, telecommunications, energy supply) and party-affiliated groups of companies out.

The far-reaching reforms under Prime Minister Dr. Abiy Ahmed also include plans to partially or fully privatize state-owned companies such as Ethiopian Airlines, Ethiopia’s only telecommunications provider Ethio Telecom, and other state-owned companies. Both local and foreign investors are welcome.

In the Index of Economic Freedom of 2019, Ethiopia ranks 137th out of 180 in the world. In the Ibrahim Index of African Governance, which deals with sustainable economic opportunities, Ethiopia is currently 35th out of 54th. The World Bank offers a good overview of further economic data and analyzes.

Field work in the Simien Mountains

Field work in the Simien Mountains

According to computerannals, Ethiopia is a country located in Eastern Africa. The Ethiopian economic situation is developing well overall. Economic growth of around 7-9% (depending on the source) was recorded in 2019. The country’s economy has thus been one of the fastest growing in the world in recent years. Economic experts expect good economic development in the future too, but warn of high debt, rising inflation and the negative effects of domestic political turbulence on foreign investments.

Economic sectors

Agriculture and animal husbandry are important economic factors

Agriculture and animal husbandry are important economic factors

The economy of Ethiopia is characterized by agriculture. The agricultural sector is the largest sector and employs over 70% of the population. It has a share of almost 36% of the gross domestic product (GDP) and consists mainly of small-scale subsistence farming, shifting cultivation and pastoralism. The main crops are various types of millet (e.g. teff), sorghum, maize and wheat.

Ethiopia has millions of hectares of grassland and woodland, fertile soil and, in many parts of the country, a climate that allows several harvest cycles a year. The main difficulty is the appropriate use of the land. The government’s goal is management that can feed the growing population and bring in foreign currency through exports, but there are many challenges.

The country is known for leasing large areas to foreign investors on particularly good terms. This is however not without controversy and is also known as “land grabbing” referred to sometimes as “land grabbing” or “Conquest”: The investors who get the land from the government to produce using modernster equipment, irrigation systems and pesticides tons of food, Cut flowersand other products for export. The people who used to farm this land work as employees or day laborers on the farms. Since the low wages are not enough to make a living, they are fed with food that the government finances with the help of foreign exchange brought in through exports.

Livestock farming is also of considerable economic importance. Ethiopia has the largest number of livestock in Africa.

Services contribute 42% to GDP. The retail sector has the largest share, followed by public administration and banking.

The industrial sector is developing relatively quickly, now contributing over 22% of GDP. So far it has largely been light industry (food, textiles, leather processing). The GDP growth rate remains very high, but GDP per capita (PPP) in Ethiopia is among the lowest in the world.

The mining sector has not yet played a major macroeconomic role in Ethiopia, but it is developing noticeably. Gold is one of the main sources of foreign exchange, iron and tantalum as well as various industrial minerals are also gaining in importance.