Ethiopia Economy: the past, present, and future and Opportunities

ethiopia economy -

Ethiopia economy growth is playing a great role in the world. Ethiopia is a country that is categorized under developing or emerging countries that have low-income in the economy. The estimated population size in Ethiopia in 2020 is about 108 million and this number puts the country in the second populous country in Africa. Ethiopia is a one-party state with a planned economy. Ethiopia is one of the fastest-growing countries among the 188 IMF member countries. This growth was driven by government investment in infrastructure, as well as sustained progress in the agricultural service sectors.

Ethiopia economy is based on agriculture, industry, and services. About 70% of Ethiopia’s population is still employed in the agricultural sector, but services are better than agriculture as the first in order of important sources of GDP. The economic activities that are included in the main industries are food processing, beverages, textile, leather chemical, metal processing, and cement production.

Ethiopia Economy

Ethiopia is one of the countries that have relations with other foreign countries, this relation has benefited the country economically in exporting and importing goods.
Ethiopia is one of the countries that is trying to focus on the economy heavily.

There are different projects Ethiopia is working on, to mention the projects: power production and distribution, roads, rails, airports, and industrial parks. The major or main economic sectors are owned by the government, these economic sectors that are owned by the state are telecommunications, banking and insurance, and power distribution. Under Ethiopia’s constitution, the state owns all land and provides long-term leases to tenants. Title rights in urban areas, particularly Addis Abeba, are poorly regulated and subject to corruption.

Ethiopia follows a mixed type of economy and a transition economy type. This type of economy is managed by mainly the government and partly by the people, but in the case of Ethiopia, many businesses are owned by the government and distributed to the markets that are more close to the people to serve. The enrollment of the country’s network system is supplied and distributed by the government only until now.

Ethiopia has the lowest income compared to other African countries and the rest of the world. The country Ethiopia is working hard to eliminate extreme poverty, still, Ethiopia remains one of the poorest countries in the world this is the result of rapid population growth and a low starting base. The result of changes in the rainfall caused by the worldwide weather pattern will cause the worst drought in 30 years by creating food insecurity for millions of peoples living in Ethiopia.

Ethiopia Economy Growth

Around the 5th–8th century, the coffee plant was introduced into the Arab world from Ethiopia. Coffea arabica, the most highly regarded species, is native to the southwestern highlands of Ethiopia. Long before the cultivation of coffee, however, other food crops like finger millet, teff, sorghum, lablab bean, and castor bean were domesticated and cultivated in Ethiopia.

Following the overthrow of the Ethiopian monarchy, a Marxist military government nationalized all companies and land, expelled foreign investors, and pursued an extensive military expenditure. The Ethiopian economy significantly deteriorated due to the civil war and famines of the 1970s and 1980s. Since 1991, the Ethiopian government has embarked on a program of economic reform, including privatization of state enterprises and rationalization of government regulation. While the process is still ongoing, the reforms have attracted much needed foreign direct investment.
In 2015, Ethiopia has 2,700 millionaires, a number that has more than doubled since 2007.

Their fortunes are mainly built-in niches of economic rents (banks, mines, etc.) without investing in structural and strategic sectors (industrial production, infrastructure, etc.) and should in no way promote economic development or represent a source of competition for Western multinationals.
The Ethiopian government is stepping up its efforts to attract foreign investors, particularly in the textile sector. They can now import their machines without customs duties, benefit from a tax exemption for ten years, rents much lower than market prices and almost free water and electricity. Major brands have established themselves in the country, such as Decathlon, H&M, and Huajian. These companies also benefit from a cheap labor force, with a monthly salary of around 35 euros.

Finally, trade agreements between Ethiopia and the European Union allow them to export duty-free. Sectors of Economic Activities in Ethiopia Agriculture, Forestry and Fishing Agriculture is the main economic activity and many other economic activities depend on it including marketing, processing and exporting of agricultural products. The agriculture sector suffers from poor cultivation practices and drought. But the action of Ethiopia’s government and the other donor countries have strengthened Ethiopia’s agriculture to recover quickly from difficult conditions.

The economic activities that are based on agriculture make the main economic activity which is agriculture the highest-ranking economic activity in the country among the rest. The main exported goods are almost entirely agricultural commodities, among all; coffee is the largest foreign exchange earner and next to that flower industry follows.

Ethiopia economy and Forestry

Forestry is another economic activity that is highly useful for construction since Ethiopia is one of the developing countries. This forestry helps the country in the use of construction and manufacturing and also as an energy source.

The other sector is fishing, this economic activity is effectual because all the fisheries in the country are freshwater because Ethiopia has no marine coastline. This economic activity has become more wanted and increased in production since 2007. It should be taken into consideration that this economic activity is a very small part of the economy yet it has high quality in production.

Textile Industry and Ethiopia Economy

This economic activity is another type that supports the Ethiopia economy. Like many pieces of research shows there is low productivity in this particular economic activity due to the low payment for the employees and most of the income in this activity comes from the export of resources and this country imports the finished product which leads to the higher importing expense than production. Some factories have replaced all their employees on average every 12 months, this study is taken from the New York University in the 2019 report.

The report states:” Rather than the docile and cheap labor force promoted in Ethiopia, foreign-based suppliers have met employees who are unhappy with their pay and living conditions and who want to protest more and more by stopping work or even quitting. In their eagerness to create a “made in Ethiopia” brand, the government, global brands, and foreign manufacturers did not anticipate that the base salary was simply too low for workers to make a living from.”

Minerals and Mining and Ethiopia Economy

This is the smallest sector in Ethiopia. It is believed that there are coal, opal, gemstone, kaolin, iron ore, soda ash and tantalum deposited in the country’s crust but only gold is mined in significant quantities. The gold mining amounted to some 3.4 tons in the year 2001.

The salt is also extracted from the salt beds in the Afar depression, as well as from salt springs in Dire and Afder districts in the south. This particular economic sector is mainly used only inside the country and only a negligible amount is exported. On August 30, 2012, it was announced that British firm Nyota Minerals was about to become the first foreign company to receive a mining license to extract gold from an estimated resource of 52 tonnes in western Ethiopia.

Energy and the Ethiopia Economy

The main energy sources in Ethiopia are waterpower and forests. Hydropower drives about 90 percent of the country’s electricity. This can show that electricity like agriculture is dependent on abundant rainfall. The deforestation of the highlands of the country highly affects the electricity, agriculture, and construction of the country which are the main economic activities in the country.

Since Ethiopia has many urban cities in the country there should be a supply of energy for the vehicles, but there is no mineral and mining project that discovers petroleum so it is a must to import petroleum from other petroleum-producing countries that lead the country into a loan. It has been found that there is a huge amount of oil in the Gambela Region in the process of finding gas. The discovered amount of oil is said to be more than any other region in the world.

Ethiopia Economy Manufacturing

Most of the factories in the country are owned by the government and the production became higher since the 1990s. Nowadays manufacturing factories are starting to be owned by private enterprises. Industry parks are being built in most of the country that can increase the production and manufacturing rate of the country that can enhance the economic activities.

Transport and the Ethiopia Economy

The country of Ethiopia has one of the best and successful airways. This transportation through the air is helping the economies of the country by gaining a huge amount of money and creating a great positive image in the eyes of other countries. Ethiopia focuses on the construction of roads since it is a developing country. The background of the growth and civilization of a country is a road.

Road and the Ethiopia Economy

As of 2016, there are 113,066 kilometers (70,256 mi) all-weather roads. The size is increasing and supporting the Ethiopia economy.

Air

Ethiopian Airlines is Africa’s largest and most profitable airline. It serves 123 destinations and has a fleet size of over 100 aircraft. Other than airline business, Ethiopia has begun to produce electricity from the air which put another way in growing the country’s economy.

Rail

Ethiopia has back to the railway business again, it has stopped working for many years and started again as city transportation, across a country and as a commodity transporting. This transportation system by railway is much cheaper than any other transportation system. The first light rail in Africa was opened in Addis Abeba in 2015. Surveys show that the operation of the Ethio-Djibouti railway begun in 2017. Presently, two other electric railways are under construction: Awash-Woldiya and Woldiya-Mekelle.

Telecommunications

Ethiopia’s telecommunication system is provided by the state-owned monopoly, EthioTelecom, formerly known by the name Ethiopian Telecommunication Corporation. But in recent days Ethiopia is getting into an agreement to introduce or provide a new telecommunication system in the country.

Tourism and the Ethiopia Economy

Ethiopia is best known for its historical places that are favorable and admired. The culture is also another practice that plays a great role in a tourist attraction. This economic sector is connected or interrelated with other economic sectors because it is dependent on the sustainable growth of them.

But from all other sectors, the transportation and communication sector is the backbone of tourism. There are other business centers that are growing under tourism both as a country level and as a private level, for example, the hotel business is one of economic activity that is based on the presence of tourism. This specific economic sector is directly related to the peace and security performance of the country.

This is directly related to the safety of the country. Ethiopia is a remarkably safest country compared to other African countries. Serious or violent crime is rare in the country, especially for travelers it’s extremely rare. Outside the capital city, Addis Abeba, the risk is petty crime drops still further. Tourism plays a great role in creating an image in every individual.

Ethiopia is also benefited by this sector by putting great treasure of the country in the world Guinness book. Traditional and religious ceremonies are also another major factor in developing the tourism of the country. Unique traditions and cultures attract tourists to the country which is beneficial for foreign exchange. Ethiopia was ranked the “World’s Best Tourist Destination” by the European Council on Tourism and Trade in 2015.

Macroeconomic trends of the Ethiopia Economy

The current GDP (USD) per capita of Ethiopia shrank by 43% in the 1990s. The Ethiopia economy saw continuous real GDP growth of at least 5% since 2004. While the GDP growth has remained high, based on high saving and high investment, compared to other countries Ethiopia’s per capita income is still among the lowest in the world. Ethiopia issued a second state-led Growth and Transformation development plan in mid- 2015, which determine the relative importance of industrialization and urbanization. Ethiopia has achieved a high single-digit growth rate for the last ten years through government-led infrastructure expansion and commercial agriculture development.

Ethiopia Economy and Power

According to the research made in the year 2015, the industrial production rate of the country is 8.5% estimated, the electric production of the country is 6.632 billion kilowatt-hour and the sources for the electric production are fossil fuel (8.3% of the total installed capacity), hydropower (88.2% of the total installed capacity) and other renewable resources (3.6% of the total installed capacity), the electric consumption of the country is 5.227 billion kilowatt-hours, from the produced electric energy 400 million kilowatt-hours is exported to other countries, there is no electric energy source that is imported to the country so Ethiopia uses electric energy from the produced energy inside the country.

Ethiopia has no oil production site so the production of oil in the country is 0 bbl/day since Ethiopia does not produce oil; the amount that the country exports is 0 bbl/day, but Ethiopia needs oil consumption so it imports refined oil 51,960 bbl/day. Ethiopia’s current account balance is estimated about -3.78 billion US dollar since Ethiopia is categorized under the developing countries it needs loans from the developed countries to support the economy, this left Ethiopia in debt with 15.55 billion US dollar in amount.

Ethiopia economy challenges

The World Bank is helping to fight poverty and improve living standards in Ethiopia. Goals include promoting rapid economic growth and improving service delivery. The WBG, with United Nations Development Program and one bilateral donor, is one of the rotating co-chairs of the Development Assistance Group (DAG), the main forum for donor coordination in Ethiopia.

Through DAG there are efforts to make progress on the implementations of commitments the Paris and Accra Declarations, including joint economic and sector work (much of the WBG’s major analytical work has already been prepared with its partners) and joint missions. Much of the collective effort is focused on furthering harmonization through major multi-donor programs and policy areas of importance.

The WBG has taken the lead in developing a set of multi-donor programs to reduce transaction costs, aligning support with the country’s decentralized model, and enhancing the predictability of aid. These instruments allow for large scale leveraging of the International Development Association (IDA) support. Such approaches are used in the Enhancing Shared Prosperity through Equitable Services, the Productive Safety Nets Program 4; the water supply, sanitation, and Hygiene Universal Access Program, the Sustainable Land Management Project II, and the Agricultural Growth Program II.

External Trade

About 26.4% of Ethiopia’s foreign exchange earnings were gained by the export crop of the major agricultural product which is coffee in 2013. At the beginning of 2014, oilseeds exports have been more important. Coffee is critical to the Ethiopian economy. More than 15 million people (25% of the population) derive their livelihood from the coffee sector. Other exports include live animals, leather and leather products, chemicals, gold, pulses, oilseeds, flowers, fruits and vegetables and khats (or qat), a leafy shrub which has psychotropic qualities when chewed.

Ethiopia has many export partners but there are some countries identified by the main export partners with the country Ethiopia. The main export partners are Sudan, Switzerland, China, Somalia, Netherlands, United States, Germany, and Saudi Arabia. From these main export partners of the country and from any other export partners, the country Ethiopia exports about 3.23 billion US Dollars and imports goods with 15.59 billion US Dollars. China, Saudi Arabia, India, Kuwait, and France are considered as the main import partners to the country of Ethiopia.

Cross-border trade by pastoralists is often informal and beyond state control and regulation. In East Africa, over 95% of cross-border trade is through unofficial channels and the unofficial trade of live cattle, camels, sheep, and goats from Ethiopia sold to Somalia, Kenya and Djibouti generate an estimated total value of between US$250 and US$300 million annually.

External trade and Ethiopia Economy

This trade helps lower food prices, increase food security, relieve border tensions and promote regional integration. However, there are also risks as the unregulated and undocumented nature of this trade runs risks, such as allowing the disease to spread more easily across national borders. Furthermore, the government of Ethiopia is purportedly unhappy with lost tax revenue and foreign exchange revenues. Recent initiatives have sought to document and regulate this trade.

Dependent on a few vulnerable crops for its foreign exchange earnings and reliant on imported oil, Ethiopia lacks sufficient foreign exchange. The financially conservative government has taken measures to solve this problem, including stringent import controls and sharply reduced subsidies on retail gasoline prices.

Nevertheless, the large subsistence economy is incapable of supporting high military expenditures, drought relief, an ambitious development plan, and
indispensable imports such as oil; it, therefore, depends on foreign assistance.
In December 1999, Ethiopia signed a $1.4 billion joint venture deal with the Malaysian oil company, Petronas, to develop a huge natural gas field in the Somali Region. By the year 2010, however, implementation failed to progress and Petronas sold its share to another oil company.

Conclusion

Ethiopia is one of the countries that have great potential in developing faster than any other country. Ethiopia has many resources that can benefit the country and can be exported to other countries. As all the essays told us, there are many more resources that are undiscovered till now. It is believed that the resources found in the country can make Ethiopia the greatest country in the world, it’s a matter of time until that happens.

Ethiopia is a country with precious resources inside it, the people living in Ethiopia is not understanding what they have in their hands. Yet they are migrating into other countries rather than working in their country together to change into a better one. The productive part of the people is still not working due to different reasons, a major action should be taken to overcome this laziness.

In my opinion, Ethiopia is not using the resources that the country has, almost all the resources are still buried in the crust without purpose. The working environment of the country and the working habit of the peoples of Ethiopia is poor, the government and related media shall do make something that can change this embarrassing work culture. The future of the country is relayed on the back of the new generations which adapts technology faster than before. The Ethiopia economy is an untouched topic yet.

Ethiopia economy data

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