2017 Index of Economic Freedom

Ethiopia

overall score52.7
world rank142
Rule of Law

Property Rights32.6

Government Integrity37.6

Judicial Effectiveness29.6

Government Size

Government Spending90.3

Tax Burden77.1

Fiscal Health86.5

Regulatory Efficiency

Business Freedom50.0

Labor Freedom57.2

Monetary Freedom65.7

Open Markets

Trade Freedom65.1

Investment Freedom20.0

Financial Freedom20.0

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Quick Facts
  • Population:
    • 93.0 million
  • GDP (PPP):
    • $161.6 billion
    • 10.2% growth
    • 10.1% 5-year compound annual growth
    • $1,801 per capita
  • Unemployment:
    • 5.5%
  • Inflation (CPI):
    • 10.1%
  • FDI Inflow:
    • $2.2 billion
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Despite the global economic downturn, Ethiopia’s economy has recorded annual economic expansion of around 10 percent over the past five years, facilitated by improved infrastructure and more effective mining and farming techniques. However, growth remains highly vulnerable to external shocks.

Progress toward greater economic freedom has been uneven. Ethiopia underperforms in many key areas that are critical to long-term economic development. The business and investment regime is burdensome and opaque. The poor quality and efficiency of government services are made worse by weak rule of law and pervasive corruption. State distortions in prices and interest rates undermine monetary stability.

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Background

Prime Minister Hailemariam Desalegn’s political coalition claimed all 547 seats in May 2015 parliamentary elections held in an atmosphere of government intimidation. Little remains of democracy since the passage of laws that repress political opposition, tighten control of civil society, suppress independent media, and control online activity. Demonstrations by the marginalized Oromo tribe against government plans to expand the capital city of Addis Ababa into Oromo lands flared again in late 2015 and into 2016, with security personnel allegedly killing hundreds of protesters. Ethiopia’s long-running border dispute with Eritrea led to a sharp military engagement between the two countries in June 2016. Strong economic growth has reduced the percentage of the population living in poverty.

Rule of LawView Methodology

Property Rights 32.6 Create a Graph using this measurement

Government Integrity 37.6 Create a Graph using this measurement

Judicial Effectiveness 29.6 Create a Graph using this measurement

The state retains ownership of all land, with use rights for landholders. The judiciary is officially independent, but its judgments rarely deviate from government policy. Corruption remains a significant problem. Ruling Ethiopian People’s Revolutionary Democratic Front officials who dominate state institutions reportedly enjoy preferential access to credit, land leases, and jobs. Lower-level officials solicit bribes in return for processing documents.

Government SizeView Methodology

The top individual income tax rate is 35 percent, and the top corporate tax rate is 30 percent. Other taxes include a value-added tax and a capital gains tax. The overall tax burden equals 12.7 percent of total domestic income. Government spending has amounted to 18 percent of total output (GDP) over the past three years, and budget deficits have averaged 2.3 percent of GDP. Public debt is equivalent to 48.6 percent of GDP.

Regulatory EfficiencyView Methodology

Establishing a business has become less time-consuming, but other regulatory requirements remain opaque, increasing the cost of conducting business. The underdeveloped labor market hinders employment growth, trapping much of the labor force in the informal economy. The IMF has recommended that indirect subsidies be replaced with direct transfers to increase efficiency in addressing the needs of the most vulnerable households.

Open MarketsView Methodology

Trade is moderately important to Ethiopia’s economy; the value of exports and imports taken together equals 37 percent of GDP. The average applied tariff rate is 10.0 percent. Ethiopia is not a member of the World Trade Organization. All land belongs to the state. The government influences lending and funds state-led development projects. The state has allowed the private sector to participate in banking but restricts foreign ownership.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Mauritius74.70.0
2Botswana70.1-1.0
3Rwanda67.64.5
4Côte d'Ivoire 633.0
5Namibia62.50.6
6South Africa62.30.4
7Seychelles61.8-0.4
8Swaziland61.11.4
9Uganda60.91.6
10Burkina Faso59.60.5
11Benin59.2-0.1
12Mali58.62.1
13Gabon58.6-0.4
14Tanzania58.60.1
15Madagascar57.4-3.7
16Nigeria57.1-0.4
17Cabo Verde56.9-9.6
18Democratic Republic of Congo56.410.0
19Ghana56.2-6.8
20Guinea-Bissau56.14.3
21Senegal55.9-2.2
22Comoros55.83.4
23Zambia55.8-3.0
24São Tomé and Príncipe 55.4-1.3
25Mauritania54.4-0.4
26Lesotho53.93.3
27Kenya53.5-4.0
28The Gambia53.4-3.7
29Togo53.2-0.4
30Burundi53.2-0.7
31Ethiopia52.71.2
32Sierra Leone52.60.3
33Malawi52.20.4
34Cameroon51.8-2.4
35Central African Republic51.86.6
36Niger50.8-3.5
37Mozambique 49.9-3.3
38Liberia49.1-3.1
39Chad492.7
40Sudan48.8N/A
41Angola48.5-0.4
42Guinea47.6-5.7
43Djibouti46.7-9.3
44Equatorial Guinea451.3
45Zimbabwe445.8
46Eritrea42.2-0.5
47Republic of Congo 40-2.8
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