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10 Years of Changes in Ethiopia. What Do the Numbers Tell Us?
By Tsegamlak Solomon | Sun Apr 03 2022
RENEW is celebrating our 10th year of operating in Ethiopia. Read our March blog here: Photo Journey: Ethiopia Then & Now. A Tribute to a Cooking Pot
In the spirit of continuing our celebration of RENEW’s 10th year in Ethiopia, we have compiled the economic developments of the country when we opened in 2012 (or the year just prior) and the current year (or the most recent reported). The following information is based on data provided by the National Bank of Ethiopia. Figures may vary slightly from other publically reported sources.
Ethiopia is currently home to the second largest population in Africa (next to Nigeria) and the 12th largest population in the world. The natural rate of population increase is 2.1%, which makes the country one of the fastest-growing populations in the world. Ethiopia is also one of the youngest countries in the world with a median age of 18 years old. As a result, the government has positioned Ethiopia to be a destination for labor-intensive manufacturing sectors like textile. However, the textile sector’s future is uncertain due to the recent suspension of Ethiopia’s status as an AGOA country and other factors. Because of the suspension, Ethiopia currently does not have duty-free access to the U.S. market for certain goods and services manufactured in Ethiopia, such as textiles. The government is putting all its efforts into finding alternative markets, one of which is the African Continental Free Trade Area.
During the past decade, Ethiopia has recorded one of the fastest rates of economic growth in the world. Although the country’s development has slowed down during the past couple of years due to the outbreak of COVID-19 and internal conflicts, the country still managed to grow at the rate of 6.3% in 2021 according to reports from the country’s central bank.
The main drivers of GDP growth for the past 10 years have been public capital investments and population growth. In 2020/21 alone, the construction industry registered 6.6% expansion with a 72.2% share in industrial output of which construction of roads, railways, dams and residential houses played a significant role.
The overall economic growth in Ethiopia is highly associated with the performance of the agriculture and service sectors. However, the Ethiopian economy, which previously was highly dominated by the agricultural and service sectors, is showing progress towards industrialization. The share of agriculture in the GDP is specifically declining, whereas, the share of the industrial sector almost tripled within the past 10 years.
The GDP per capita, which is a proxy to measure wealth, has tripled in the last 10 years. However, due to recent sanctions and the war in Ukraine, food inflation has recently spiked, a factor which is putting significant economic strain on the poor.
Ethiopia’s balance of trade shows consistent deficits mainly attributed to the imbalance in merchandise trade. Small production and quality of exportable goods and logistic difficulties are major contributors to this issue.
Focusing on merchandise trade, the main export items from Ethiopia are coffee, gold, flower and oilseeds, although the share of oilseed exports is expected to decline significantly as a result of the war in the northern part of the country which is the agricultural center for oilseeds. The major destination for Ethiopian products is Europe with 41.3% of Ethiopia's total export of goods, with Switzerland being the major destination with 45.4% of the total export to Europe. Asia is the second largest destination with 31% of the total export of goods, of which Saudi Arabia holds the major share with 18.7% of the total exports to Asia, followed by U.A.E, India and Japan. Exports of goods to Africa currently represent only 17.4% of the total export. This, however, is expected to increase following the operationalization of the African Continental Free Trade Area. Ethiopia’s exports to the Americas constitute 9.4% of total exports of which 7.6% is destined for the U.S., which is expected to be significantly impacted as a result of Ethiopia’s suspension from AGOA.
The main import items to Ethiopia on the other hand are consumer goods, accounting for 38.5% of the total imports, capital goods accounting for 27.2%, and fuel, which accounted for 13.6%. The imports mainly originate from Asia with 61.3% of the total imports originating from the continent. China and India are the major contributors with 22.86% and 12.32%, respectively. European-originated items represent 22% of the total imports, of which 2.8% is from Ukraine, which is expected to be affected by the recent Russia-Ukraine war.
Inflation in Ethiopia has soared during the second half of 2021. This is mainly attributed to the war in the northern part of the country and the widening difference in the foreign exchange market between the official exchange rate and the parallel market. Read RENEW’s blog about the different measures taken by the government during the past nine months in order to control inflation.
In 2017, the central bank raised the minimum interest rate on savings and time deposits from 5% to 7%, leaving the lending interest rate on loans and advances to be determined by commercial banks freely. However, the skyrocketing inflation has kept the real rate of interest at -16.6% on savings and -10.35% on lending.
The ETB has largely been controlled by the Ethiopian central bank. While the exchange rate has generally devalued, the parallel/black market rate, which often represents a more accurate real rate, is much higher today, near a 25% difference from the formal market. This is largely due to a weak manufacturing base and export market for the country. The government has also drained foreign reserves to pay for the Grand Ethiopian Renaissance Dam. As a result, the country has only 2.2 months of foreign currency reserve.
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