Ethiopia: Economy

The current government has embarked on a cautious program of economic reform, including privatization of state enterprises and rationalization of government regulation. While the process is still ongoing, the government is continuously offloading public enterprises while at the same time creating others, such as sugar corporations, keeping the government heavily involved in the economy. The government is implementing its ambitious Growth and Transformation Plan (2010-2011 through 2014-2015), which aims to achieve an average growth rate of 11.2% and meet all millennium development goals. GDP growth for the past 5 years has averaged 11% annually, according to Ethiopian Government figures, though the World Bank and the International Monetary Fund have estimated GDP growth to be in the range of 7%-8%.


The Ethiopian economy is primarily based on agriculture, which contributes 41% to GDP and more than 75% of exports, and employs 80% of the population. The major agricultural export crop is coffee, providing approximately 30.6% of Ethiopia's foreign exchange earnings in 2010-2011, down from 65% a decade ago because of the increase in other exports. Other traditional major agricultural exports are finished leather goods, pulses, oilseeds, and the traditional "khat," a leafy narcotic that is chewed. Cut flowers and gold exports have become major export items in recent years. Gold was Ethiopia's second-largest export in 2010-2011, earning 17% of export proceeds. Ethiopia's agriculture is plagued by periodic drought, soil degradation caused by inappropriate agricultural practices and overgrazing, deforestation, high population density, undeveloped water resources, and poor transport infrastructure. Commercial agriculture by large foreign firms has expanded, though this expansion has been marked by controversy over allegations of forced resettlements and adverse environmental impacts. Potential exists for self-sufficiency in grains and for export development in livestock, flowers, grains, oilseeds, sugar, vegetables, and fruits.


Gold, marble, limestone, and small amounts of tantalum are mined in Ethiopia. Other resources with potential for commercial development include large potash deposits, natural gas, iron ore, and possibly oil and geothermal energy. Although Ethiopia has good hydroelectric resources, which power most of its manufacturing sector, it is totally dependent on imports for oil. In recent years, there have been positive developments in harnessing hydropower potential through construction of mega dams that could increase Ethiopia’s current electricity production capacity of 2,000 megawatts to 10,000 megawatts by 2014-2015, generating sufficient power for Ethiopia to sell excess supply to its neighbors. A landlocked country, Ethiopia has relied on the port of Djibouti since the 1998-2000 border war with Eritrea. Ethiopia is connected with the port of Djibouti by road, and projects are ongoing to construct railway lines. Of the 49,000 kilometers of all-weather roads in Ethiopia, 15% are asphalt. Mountainous terrain and the lack of good roads and sufficient vehicles make land transportation difficult and expensive. Ethiopian Airlines serves 17 domestic airfields and has 64 international destinations.


Dependent on a few vulnerable crops for its foreign exchange earnings and reliant on imported oil and capital goods, Ethiopia often suffers from severe foreign exchange shortages. The largely subsistence economy is incapable of meeting the budget requirements for drought relief, an ambitious development plan, and indispensable imports such as oil. The financing gap has largely been covered through foreign assistance and loans.

Sources:

CIA World Factbook (April 2012)

U.S. Dept. of State Country Background Notes ( April 2012)