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- GDP (PPP):
- $121.4 billion
- 9.7% growth
- 10.1% 5-year compound annual growth
- $1,366 per capita
- Inflation (CPI):
- FDI Inflow:
Ethiopia’s economic freedom score is 51.5, making its economy the 149th freest in the 2015 Index. Its overall score is 1.5 points higher than last year, reflecting considerable improvements in monetary freedom, freedom from corruption, and labor freedom. Ethiopia is ranked 37th out of 46 countries in the Sub-Saharan Africa region, and its overall score continues to be below the regional average.
With a large domestic market and promising economic prospects, Ethiopia has the potential to become a regional economic powerhouse, but persistent state intervention in the relatively closed economy has suppressed the growth of economic freedom over the past five years. Since 2011, Ethiopia’s economic freedom has expanded by a modest 1.0 point.
Overall, the institutional basis of economic freedom in Ethiopia is still weak. A nominally independent judiciary continues to follow government policy advice, and corruption remains endemic. The government has made significant investments in major development projects, including the Grand Renaissance Dam, but restricts foreign investment in major industries and keeps important sectors of the economy closed to global trade and investment.
Prime Minister Hailemariam Desalegn’s Ethiopian People’s Revolutionary Democratic Front and allied parties hold all but two seats in parliament. Elections are scheduled for 2015. Desalegn served a one-year term as the elected chairman of the African Union. In May 2014, Ethiopia, Kenya, Burundi, and Rwanda agreed to send troops to South Sudan to prevent renewed fighting between government troops and rebel forces. After years of unilateral intervention to secure border buffer zones in Somalia, Ethiopia joined the African Union’s peacekeeping mission there in 2014. Border tensions continue between Ethiopia and Eritrea. Ethiopia has had 10 years of steady economic growth, but not enough to reduce poverty. Its per capita income remains among the world’s lowest. Ethiopia is a leading coffee producer. Its economy is largely based on agriculture and is vulnerable to droughts and external shocks.
Corruption is a significant problem in Ethiopia. State institutions are dominated by ruling EPRDF officials who reportedly receive preferential access to credit, land leases, and jobs. Under the government’s “villagization” program, hundreds of thousands of indigenous people have been forcibly relocated to new villages with inadequate infrastructure so that the state can lease their lands to commercial agricultural foreign investors.
Ethiopia’s top individual income tax rate is 35 percent, and its top corporate tax rate remains at 30 percent. Other taxes include a value-added tax and a tax on capital gains. The overall tax burden equals 11.6 percent of the domestic economy, and government spending accounts for 16.9 percent of gross domestic product. Public debt equals 22 percent of annual production.
Inconsistent enforcement of regulations often impedes business activity and undermines economic development. The minimum capital requirement for launching a business is higher than the level of average annual income. Much of the labor force is employed in the informal sector. Monetary stability has been weak, and subsidies for the government’s state-led development model are hindering private-sector growth.
Ethiopia has a 10.3 percent average tariff rate. It is not a member of the WTO, and government procurement processes can favor domestic companies. Foreign investment is heavily regulated. There is no constitutional right to own land. The small financial sector continues to evolve and is largely dominated by banks. The capital market remains underdeveloped, and there is no stock exchange.