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- GDP (PPP):
- $144.6 billion
- 10.3% growth
- 10.2% 5-year compound annual growth
- $1,589 per capita
- Inflation (CPI):
- FDI Inflow:
Ethiopia is Africa’s second most populous country and has one of its fastest growing economies. Economic expansion of around 10 percent over the past five years has been facilitated by improved infrastructure and more effective mining and farming techniques, but growth remains highly vulnerable to external shocks.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 51.5 (no change)
- Economic Freedom Status: Mostly Unfree
- Global Ranking: 148th
- Regional Ranking: 37th in Sub-Saharan Africa
- Notable Successes: Trade Freedom and Management of Public Finance
- Concerns: Property Rights, Corruption, and Regulatory Efficiency
- Overall Score Change Since 2012: –0.5
Weak rule of law and lack of effective implementation undercut policies aimed at promoting open markets. Endless red tape and an underdeveloped financial sector continue to deter investors and prevent the emergence of vibrant entrepreneurial activity. The informal economy provides most jobs for the relatively unskilled labor force.
Prime Minister Hailemariam Desalegn’s Ethiopian People’s Revolutionary Democratic Front (EPRDF) and its allies claimed all 547 seats in the May 2015 parliamentary elections. Little remains of democracy since the passage of laws that repress political opposition, tighten control of civil society, and suppress independent media. Ethiopia joined the African Union’s peacekeeping mission in Somalia in 2014 and has been at odds with Eritrea ever since the latter declared its independence from Ethiopia in 1993. Economic growth has reduced the percentage of the population living in poverty by 33 percent since 2000, but per capita income remains among the world’s lowest, and many young people leave to seek opportunity elsewhere. The economy is based largely on agriculture and remains vulnerable to droughts and external shocks.
Corruption remains a significant problem. Ruling EPRDF 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. The judiciary is officially independent, but its judgments rarely deviate from government policy. All land ownership remains in the hands of the state with usage rights granted to landholders.
Ethiopia’s top individual income tax rate is 35 percent, and its top corporate tax rate is still 30 percent. Other taxes include a value-added tax and a capital gains tax. The overall tax burden equals 12.4 percent of GDP. Government spending amounts to 17.8 percent of total domestic output, and the deficit has increased. Public debt amounts to about 22 percent of GDP.
Burdensome and opaque regulatory requirements still increase the overall cost of conducting business. The underdeveloped labor market continues to trap much of the labor force in the informal sector. The World Bank says that the Ethiopian birr is overvalued, and the IMF warns of the risks of crowding out private-sector activity. Several subsidized parastatals have had to resort to non-concessional foreign loans to stay afloat.
Ethiopia has a 10 percent average tariff rate. It is not a member of the World Trade Organization. Foreigners may not invest in financial services, and many other regulations interfere with foreign investment. All land is owned by the government. The state strongly influences lending and funds state-led development projects by forcing private banks to purchase treasury bills. Foreign ownership of banks remains prohibited.