Ethiopia’s location gives it strategic dominance as a jumping off point in the Horn of Africa, close to the Middle East and its markets. Ethiopia is landlocked, bordering Eritrea, Somalia, Kenya, South Sudan, and Sudan, and has been using neighboring Djibouti's main port for the last two decades. However, with the recent peace agreement with Eritrea, Ethiopia is set to resume accessing the Eritrean ports of Assab and Massawa for its international trade.
With more than 112 million people (2019), Ethiopia is the second most populous nation in Africa after Nigeria, and the fastest growing economy in the region. However, it is also one of the poorest, with a per capita income of $850. Ethiopia aims to reach lower-middle-income status by 2025.
Ethiopia’s economy experienced strong, broad-based growth averaging 9.4% a year from 2010/11 to 2019/20, Ethiopia’s real gross domestic product (GDP) growth slowed down to 6.1% in 2019/20 due to COVID-19 (cornaviruspandemic. Industry, mainly construction, and services accounted for most of the growth. Agriculture was not affected by the COVID-19 pandemic and its contribution to growth slightly improved in 2019/20 compared to the previous year. Private consumption and public investment explain demand-side growth, the latter assuming an increasingly important role.
The consistent higher economic growth brought with it positive trends in poverty reduction in both urban and rural areas. The share of the population living below the national poverty line decreased from 30% in 2011 to 24% in 2016. The government has launched a new 10-year perspective plan which will run from 2020/21 to 2029/30. The plan aims to sustain the remarkable economic growth achieved under the Growth and Transformation Plans, while putting more emphasis on the private sector.
Ethiopia’s main challenges are sustaining its positive economic growth and accelerating poverty reduction, which both require significant progress in job creation, as well as improved governance. The government is devoting a high share of its budget to pro-poor programs and investments. Large scale donor support will continue to provide a vital contribution in the near-term to finance the cost of pro-poor programs. Key challenges are related to:
- Like the rest of the world, Ethiopia has been experiencing the unprecedented social and economic impact of the COVID-19 pandemic. The COVID-19 shock is expected to be transitory with potential recovery possible in 2021, but the overall adverse economic impact on Ethiopia will be substantial. The economic impact of COVID-19 includes the increased price of basic foods, rising unemployment, slowdown in growth, and increase in poverty.
- Ethiopia has been experiencing the worst locust invasion in decades. This may undermine development gains and threaten the food security and livelihoods of millions of Ethiopians.
- Political disruption, associated with social unrest, could negatively impact growth through lower foreign direct investment, tourism and exports.
- Limited competitiveness, which constrains the development of manufacturing, the creation of jobs and the increase of exports.
- An underdeveloped private sector, which would limit the country’s trade competitiveness and resilience to shocks. The government aims to expand the role of the private sector through foreign investment and industrial parks to make Ethiopia’s growth momentum more sustainable.
Last Updated: Mar 18, 2021