2021 Index of Economic Freedom

Ethiopia

OVERALL SCORE51.7
WORLD RANK151
Rule of Law

Property Rights23.2

Judicial Effectiveness33.8

Government Integrity31.5

Government Size

Tax Burden78.2

Government Spending91.9

Fiscal Health79.6

Regulatory Efficiency

Business Freedom47.5

Labor Freedom57.4

Monetary Freedom60.6

Open Markets

Trade Freedom61.4

Investment Freedom35.0

Financial Freedom20.0

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Quick Facts
  • Population:
    • 112.1 million
  • GDP (PPP):
    • $243.6 billion
    • 9.0% growth
    • 9.1% 5-year compound annual growth
    • $2,312 per capita
  • Unemployment:
    • 2.1%
  • Inflation (CPI):
    • 15.8%
  • FDI Inflow:
    • $2.5 billion

Ethiopia’s economic freedom score is 51.7, making its economy the 151st freest in the 2021 Index. Its overall score has decreased by 1.9 points, primarily because of declines in property rights and judicial effectiveness. Ethiopia is ranked 35th among 47 countries in the Sub-Saharan Africa region, and its overall score is below the regional and world averages.

This year marked a dramatic reversal of the Ethiopian economy’s slow climb in the ranks of the mostly unfree. The rule of law, especially property rights, suffered from increased political instability and land disputes. For Ethiopia to achieve greater economic freedom, the government will have to revitalize its multiparty democracy and strengthen institutions that respect human rights and the administration of justice.

IMPACT OF COVID-19: As of December 1, 2020, 1,709 deaths had been attributed to the pandemic in Ethiopia, and economic growth was forecast to decline to 1.9 percent for the year.

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Background

A military junta deposed Emperor Haile Selassie in 1974 and established a socialist state. The Ethiopian People’s Revolutionary Democratic Front overthrew the junta in 1991, replacing it with a repressive one-party system. Protests by Ethiopia’s marginalized Oromo tribe in 2018 led to the surprise rise to power of Prime Minister Abiy Ahmed, who launched an ambitious reform agenda. In 2019, most of the ruling coalition merged to become the Prosperity Party. Abiy’s regime must contend with ethnic violence and secessionist sentiment in parts of Ethiopia, and parliamentary elections have been postponed until after the COVID-19 pandemic has been contained. The agriculture-based economy’s strong growth has reduced poverty, but high unemployment, severe poverty, and a large debt burden remain persistent challenges.

Rule of LawView Methodology

Property Rights 23.2 Create a Graph using this measurement

Judicial Effectiveness 33.8 Create a Graph using this measurement

Government Integrity 31.5 Create a Graph using this measurement

Ownership of land remains in the hands of the state with use rights granted to landholders. The judiciary is officially independent, but its judgments rarely deviate from government policy. Government officials and state institutions reportedly enjoy preferential access to credit, land leases, and jobs. The prime minister’s anticorruption task force may have contributed to Ethiopia’s improved performance in Transparency International’s 2019 Corruption Perceptions Index.

Government SizeView Methodology

The top individual income tax rate is 35 percent, and the top corporate tax rate is 30 percent. The overall tax burden equals 7.5 percent of total domestic income. Government spending has amounted to 16.5 percent of total output (GDP) over the past three years, and budget deficits have averaged 2.9 percent of GDP. Public debt is equivalent to 57.6 percent of GDP.

Regulatory EfficiencyView Methodology

Ethiopia’s business environment has become even more repressed. Dealing with construction permits has become more complicated and now takes longer as well. Aside from agriculture, the largest employer is the government. The government is partially privatizing the state-owned airline and has begun to open the state-subsidized electricity sector to private companies.

Open MarketsView Methodology

Ethiopia has one preferential trade agreement in force. The trade-weighted average tariff rate is 11.8 percent, and nontariff barriers further undermine the freedom to trade. Ethiopia is not a member of the World Trade Organization. The state has allowed the private sector to participate in banking but restricts foreign ownership. Less than 40 percent of adult Ethiopians have access to an account with a formal banking institution.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Mauritius772.1
2Rwanda68.3-2.6
3Botswana67.6-2.0
4Seychelles66.32.0
5Cabo Verde63.80.2
6Namibia62.61.7
7Côte d'Ivoire61.72.0
8Tanzania61.3-0.4
9South Africa59.70.9
10Benin59.64.4
11Ghana59.2-0.2
12The Gambia58.82.5
13Nigeria58.71.5
14Uganda58.6-0.9
15Gabon58.11.4
16Senegal580.0
17Madagascar57.7-2.8
18Togo57.53.4
19Niger57.32.6
20Guinea56.50.0
21Burkina Faso56.5-0.2
22Djibouti56.23.3
23Mauritania56.10.8
24São Tomé and Príncipe55.9-0.3
25Comoros55.72.0
26Mali55.6-0.3
27Eswatini55.1-0.2
28Kenya54.9-0.4
29Guinea-Bissau54.91.6
30Angola54.22.0
31Lesotho53.5-1.0
32Cameroon53.4-0.2
33Malawi530.2
34Sierra Leone51.73.7
35Ethiopia51.7-1.9
36Mozambique51.61.1
37Republic of Congo50.78.9
38Chad50.40.2
39Zambia50.4-3.1
40Burundi49.90.9
41Equatorial Guinea49.20.9
42Liberia49.20.2
43Democratic Republic of Congo49-0.5
44Central African Republic48.8-1.9
45Eritrea42.33.8
46Zimbabwe39.5-3.6
47Sudan39.1-5.9
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