2014 Index of Economic Freedom

Ethiopia

overall score50.0
world rank151
Rule of Law

Property Rights30.0

Freedom From Corruption27.0

Limited Government

Government Spending89.9

Fiscal Freedom77.5

Regulatory Efficiency

Business Freedom57.8

Labor Freedom54.7

Monetary Freedom59.0

Open Markets

Trade Freedom64.2

Investment Freedom20.0

Financial Freedom20.0

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Quick Facts
  • Population:
    • 86.8 million
  • GDP (PPP):
    • $103.3 billion
    • 7.0% growth
    • 8.7% 5-year compound annual growth
    • $1,191 per capita
  • Unemployment:
  • Inflation (CPI):
    • 22.8%
  • FDI Inflow:
    • $970.4 million
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Ethiopia’s economic freedom score is 50.0, making its economy the 151st freest in the 2014 Index. Its overall score is 0.6 point higher than last year due to improvements in five of the 10 economic freedoms, including business freedom, labor freedom, and fiscal freedom. Ethiopia is ranked 35th out of 46 countries in the Sub-Saharan Africa region, and its overall score continues to be below the regional average.

Over the 20-year history of the Index, Ethiopia has advanced its economic freedom score by over 7 points. The country has recorded improvements in half of the 10 economic freedoms, including trade freedom, fiscal freedom, and investment freedom, scores for which have advanced by 10 points or more. Over the past decade, Ethiopia has fluctuated within the lower ranks of the “mostly unfree” economies.

Reflecting the lack of progress in structural and institutional reforms, Ethiopia continues to underperform in many areas critical to advancing overall economic freedom. The quality and efficiency of government services have been poor and are further undermined by the weak rule of law and pervasive corruption. Monetary stability has been hampered by state distortions in prices.

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Background

Long-term Prime Minister Meles Zenawi died in August 2012 and was succeeded by Haile Mariam Desalegn. The Ethiopian People’s Revolutionary Democratic Front and allied parties hold all but two seats in parliament. In 2008, the U.N. terminated the peacekeeping mission it had established after war with Eritrea in the 1990s. Ethiopia invaded Somalia in support of Somalia’s Transitional Federal Government in 2006 and withdrew in 2009. In 2012, Ethiopia sent forces into Eritrea after European tourists were killed by terrorists that Ethiopia claims were trained in Eritrea. Agriculture accounts for 46 percent of GDP and 85 percent of total employment. Although GDP growth is high and the economy has been growing steadily for the past 10 years, per capita income remains among the world’s lowest. Construction of the Grand Renaissance Dam on the Nile to develop electricity has increased tensions with Egypt.

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

Corruption is a significant problem in Ethiopia. The underdeveloped judiciary is officially independent, but its judgments rarely deviate from government policy. All land is owned by the state but can be leased for up to 99 years. Property and contractual rights are recognized, but enforcement is weak. State-owned and party-owned businesses receive preferential access to land leases and credit.

Limited GovernmentView Methodology

Ethiopia’s top individual income tax rate is 35 percent. The top corporate tax rate has fallen to 30 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. The overall tax burden is 11.3 percent of gross domestic income. Public expenditures are 18 percent of gross domestic output. Government debt has remained low since Ethiopia benefited from Heavily Indebted Poor Country debt relief in 2006.

Regulatory EfficiencyView Methodology

Incorporating a business has become less time-consuming, but other regulatory requirements increase the overall cost of conducting business. The minimum capital required to start a business is about twice the average annual income. The underdeveloped labor market traps much of the labor force in informal economic activity. Monetary stability has been weak, and subsidies for the state-led development model hinder private-sector growth.

Open MarketsView Methodology

Ethiopia has a 10.4 percent average tariff rate, and it can take several weeks to import goods. Investment in several sectors of the economy is restricted by the government. 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 is still 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
1Mauritius76.5-0.4
2Botswana721.4
3Cape Verde66.12.4
4Rwanda64.70.6
5Ghana64.22.9
6South Africa62.50.7
7Madagascar61.7-0.3
8Swaziland61.24.0
9Zambia60.41.7
10Uganda59.9-1.2
11The Gambia59.50.7
12Namibia59.4-0.9
13Burkina Faso58.9-1.0
14Gabon57.80.0
15Tanzania57.8-0.1
16Côte d'Ivoire 57.73.6
17Kenya57.11.2
18Benin57.1-0.5
19Seychelles56.21.3
20Djibouti55.92.0
21Mali55.5-0.9
22Malawi55.40.1
23Senegal55.4-0.1
24Niger55.11.2
25Mozambique 550.0
26Nigeria54.3-0.8
27Guinea53.52.3
28Mauritania53.20.9
29Cameroon52.60.3
30Liberia52.43.1
31Burundi51.42.4
32Comoros51.43.9
33Guinea-Bissau51.30.2
34Sierra Leone50.52.2
35Ethiopia500.6
36Togo49.91.1
37Lesotho49.51.6
38São Tomé and Príncipe 48.80.8
39Angola47.70.4
40Central African Republic46.7-3.7
41Chad44.5-0.7
42Equatorial Guinea44.42.1
43Republic of Congo 43.70.2
44Democratic Republic of Congo40.61.0
45Eritrea38.52.2
46Zimbabwe35.56.9
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