2013 Index of Economic Freedom

Ethiopia

overall score49.4
world rank146
Rule of Law

Property Rights30.0

Freedom From Corruption27.0

Limited Government

Government Spending89.6

Fiscal Freedom74.2

Regulatory Efficiency

Business Freedom52.4

Labor Freedom46.9

Monetary Freedom64.7

Open Markets

Trade Freedom64.0

Investment Freedom25.0

Financial Freedom20.0

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Quick Facts
  • Population:
    • 86.8 million
  • GDP (PPP):
    • $94.9 billion
    • 7.5% growth
    • 9.7% 5-year compound annual growth
    • $1,093 per capita
  • Unemployment:
  • Inflation (CPI):
    • 18.1%
  • FDI Inflow:
    • $206.1 million
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Ethiopia’s economic freedom score is 49.4, making its economy the 146th freest in the 2013 Index. Its overall score is 2.6 points lower than last year, reflecting declines in six of the 10 economic freedoms including business freedom, labor freedom, monetary freedom, and trade freedom. Ethiopia is ranked 32nd out of 46 countries in the Sub-Saharan Africa region, and its overall score is below the regional average.

Registering the sixth largest reduction in economic freedom in the 2013 Index, Ethiopia has fallen into the category of economically “repressed.” The foundations of economic freedom are quite fragile, particularly because of pervasive corruption and a deficient judicial system.

Regulatory efficiency remains poor, creating an unfavorable climate for entrepreneurial activity. The informal economy provides most jobs for the relatively unskilled labor force. Existing policies aimed at promoting and sustaining open markets have been undercut by a lack of effective implementation. Much more determined efforts at reform, particularly in the investment and financial sectors, are needed to lay the groundwork for sustained and broad-based development.

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Background

Long-term incumbent Prime Minister Meles Zenawi died on August 20, 2012, after a long illness and has been succeeded by Haile Mariam Desalegn. His Ethiopian People’s Revolutionary Democratic Front and allied parties hold all but two seats in parliament as a result of elections in 2010 that outside observers claimed fell short of international standards. Following war with Eritrea in the 1990s, a U.N. peacekeeping mission was established on the border. The mission was terminated in 2008, but relations between the two countries remain strained. In 2012, Ethiopia sent forces into Eritrea after European tourists were killed by terrorists that Ethiopia charges were trained in Eritrea. Ethiopia invaded Somalia in support of Somalia’s Transitional Federal Government in 2006 and withdrew in 2009 following a peace deal. Some Ethiopian troops still operate in Somalia combating the terrorist group al-Shabaab. Agriculture contributes over 40 percent of GDP, accounts for over 70 percent of exports, and employs about 80 percent of the population.

Rule of LawView Methodology

Property Rights 30.0 Create a Graph using this measurement

Freedom From Corruption 27.0 Create a Graph using this measurement

Property and contractual rights are recognized, but enforcement is weak. The judicial system is underdeveloped and vulnerable to political interference. A highly restrictive land-tenure policy makes it difficult to register property. State- and party-owned businesses receive preferential access to land leases and credit. Corruption further undermines the foundations of economic freedom.

Limited GovernmentView Methodology

The top income and corporate tax rates are 35 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. The overall tax burden is equal to 11.2 percent of GDP. Government spending is 18.6 percent of total domestic output, and the deficit has increased. Public debt has increased to 37.3 percent of GDP. Fiscal policies to increase domestic revenue and reduce borrowing have helped to shore up accounts.

Regulatory EfficiencyView Methodology

Establishing a business has become less time-consuming, but other regulatory requirements remain burdensome and opaque, increasing the overall cost of conducting business. The minimum capital required to start a business is over three times the average annual income. The underdeveloped labor market continues to hinder employment growth, trapping much of the labor force in informal economic activity. Monetary stability has been weak.

Open MarketsView Methodology

The trade-weighted average tariff rate is relatively high at 10.5 percent, and myriad non-tariff barriers further raise the cost of trade. The investment regime, lacking transparency and efficiency, remains unfavorable to dynamic investment growth. The government strongly influences lending and funds state-led development projects by forcing private banks to purchase treasury bills. Foreign ownership in the banking sector remains prohibited.

Country's Score Over Time

Bar Graph of Ethiopia Economic Freedom Scores Over a Time Period

Country Comparisons

Bar Graphs comparing Ethiopia to other economic country groups

Regional Ranking

rank country overall change
1Mauritius76.9-0.1
2Botswana70.61.0
3Rwanda64.1-0.8
4Cape Verde63.70.2
5Madagascar62-0.4
6South Africa61.8-0.9
7Ghana61.30.6
8Uganda61.1-0.8
9Namibia60.3-1.6
10Burkina Faso59.9-0.7
11The Gambia58.80.0
12Zambia58.70.4
13Tanzania57.90.9
14Gabon57.81.4
15Benin57.61.9
16Swaziland57.20.0
17Mali56.40.6
18Kenya55.9-1.6
19Senegal55.50.1
20Malawi55.3-1.1
21Nigeria55.1-1.2
22Mozambique 55-2.1
23Seychelles54.91.9
24Côte d'Ivoire 54.1-0.2
25Djibouti53.90.0
26Niger53.9-0.4
27Cameroon52.30.5
28Mauritania52.3-0.7
29Guinea51.20.4
30Guinea-Bissau51.11.0
31Central African Republic50.40.1
32Ethiopia49.4-2.6
33Liberia49.30.7
34Burundi490.9
35Togo48.80.5
36Sierra Leone48.3-0.8
37São Tomé and Príncipe 48-2.2
38Lesotho47.91.3
39Comoros47.51.8
40Angola47.30.6
41Chad45.20.4
42Republic of Congo 43.5-0.3
43Equatorial Guinea42.3-0.5
44Democratic Republic of Congo39.6-1.5
45Eritrea36.30.1
46Zimbabwe28.62.3
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