Doing Business in Ethiopia

Doing Business In Ethiopia Market Overview Market Challenges Market Opportunities Market Entry Strategy
Market Overview Return to top Ethiopia ranks 111th out of 183 countries in the World Bank’s Ease of Doing Business report 2012. Ethiopia’s population of approximately 84 million makes it one of the largest markets in Africa. Gross Domestic Product (GDP) per capita was about $376 in the fiscal year (FY) 2010/2011 (Ethiopia’s fiscal year ends on July 7), but overall GDP growth for the past five years has averaged 11% annually, according to Ethiopian Government figures.
The World Bank and the International Monetary Fund estimated FY 2010/2011’s growth at 7.5%, while GOE stated it was 11.4%. Nominal GDP was $31.7 billion in FY 2010/11. Agriculture accounted for 41% of GDP and employed over 80% of the population. Approximately 85% of Ethiopia’s population lives in rural areas. Year-on-year inflation peaked at 64% in July 2008, declined to the single digits in 2009 and 2010, but crept upwards to 14.5% in December 2010, 17.7% in January 2011, 38.15% in June 2011 and peaked at 40.6% in August 2011, driven mainly by a sharp increase in food prices. Year-on-year inflation declined to 39.3% in November 2011 and 32% in January 2012. Real interest rates are negative, as the minimum bank deposit rate of 5%, bond yield of 5.5%, treasury bills yield of less than 2%, and simple average rate of 12.25% are far lower than inflation.
The GOE depreciated the Birr by over 90% against the U.S. Dollar between November 2007 and February 2012, with the value of a Birr declining from 11.6 U.S. cents to 5.8 U.S. cents during that period. Prime Minister Meles Zenawi announced in February 2011 that no major currency devaluations would take place in the next five years. Ethiopia generally suffers trade deficits, though that trend was somewhat relaxed last year. In FY 2010/2011, exports totaled $2.75 billion, while imports totaled $8.25 billion for a trade deficit of $5.5 billion, compared to $6.4 billion in FY 2011/12.
Ethiopia’s major exports include coffee, oil seeds, gold, chat, flowers, pulses, and live animals. Coffee is the leading export, constituting 30.6%% of total exports by value in FY 2010/11 followed by gold, which comprised 17% of total exports. The country’s main imports include petroleum products, machinery, metal products, agricultural and industrial chemicals, fertilizers, medical and pharmaceutical products, and food grains. The major sources of Ethiopian imports in FY 2010/11 were: China (15.6%), Saudi Arabia (9%), India (7.2%), UAE (7%), Japan (5.4%), Italy (4.5%), Turkey(3.5%), and United States (3.4%). The U.S. was the eighth largest import source, providing mainly grain and aircraft to Ethiopia. Ethiopia’s top five export destinations in FY 2010/11 were: Switzerland (17%), Germany (11.5%), China (9.1%), Somalia (8.2%), and the Netherlands (6%). The U.S. was Ethiopia’s eight largest export destination (4.4%), mainly through purchases of coffee, oil seeds, and textiles/garments.
For calendar year 2011, Ethiopia’s imports from the United States totaled $690 million, with Boeing aircraft accounting for nearly two-thirds of the total. Ethiopian exports to the United States in 2011 totaled $144.4 million for a bilateral trade deficit of $545.5 million. U.S. businesses in Ethiopia are primarily involved in the following industries: soft drinks, aircraft sales, construction equipment, equity investments, real estate, agricultural machinery, farming, and engineering services. Chinese companies are active in Ethiopia’s infrastructure sectors, while Indian and Saudi Arabian firms are mainly involved in the agricultural sectors. Dutch companies play a prominent role in the horticulture sector.


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