2018 Index of Economic Freedom

Ethiopia

overall score52.8
world rank142
Rule of Law

Property Rights31.1

Government Integrity37.7

Judicial Effectiveness37.6

Government Size

Government Spending90.6

Tax Burden76.5

Fiscal Health85.5

Regulatory Efficiency

Business Freedom40.2

Labor Freedom51.3

Monetary Freedom67.1

Open Markets

Trade Freedom60.7

Investment Freedom35.0

Financial Freedom20.0

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Quick Facts
  • Population:
    • 91.2 million
  • GDP (PPP):
    • $177.5 billion
    • 10.2% growth
    • 9.5% 5-year compound annual growth
    • $1,946 per capita
  • Unemployment:
    • 5.7%
  • Inflation (CPI):
    • 7.3%
  • FDI Inflow:
    • $3.2 billion
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Ethiopia’s economic freedom score is 52.8, making its economy the 142nd freest in the 2018 Index. Its overall score has increased by 0.1 point, with an increase in investment freedom (which nonetheless remains poor) and improvements in judicial effectiveness and monetary freedom offsetting declines in business freedom, labor freedom, and trade freedom. Ethiopia is ranked 27th among 47 countries in the Sub-Saharan Africa region, and its overall score is below the regional and world averages.

The government’s plan to transform the country from an agriculture-based economy into a manufacturing hub hinges on improved transport and energy infrastructure and greater agricultural-sector productivity. To achieve these goals, reforms are needed to improve the burdensome and opaque business and investment regime. 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

Haile Selassie ruled Ethiopia for decades until a military junta deposed him in 1974 and established a socialist state. Prime Minister Hailemariam Desalegn’s authoritarian political coalition imposed a repressive state of emergency from October 2016 until August 2017, but the government promises political reforms. Demonstrations by the Oromo tribe against expansion of capital city Addis Ababa into Oromo lands flared in 2016. Security personnel allegedly killed hundreds of protesters. Ethiopia has a long-running border dispute with Eritrea. A large, almost complete Nile River dam aimed at nearly tripling electricity generation capacity has stirred tensions with Egypt. The agriculture-based economy’s strong growth in the past decade has reduced the percentage of the population living in poverty.

Rule of LawView Methodology

Property Rights 31.1 Create a Graph using this measurement

Government Integrity 37.7 Create a Graph using this measurement

Judicial Effectiveness 37.6 Create a Graph using this measurement

All land in Ethiopia belongs to “the people” and is administered by the government. Private ownership does not exist, but land-use rights have been registered in most populated areas. The judiciary is officially independent, but its judgments rarely deviate from government policy. Despite legislative improvements, actual enforcement of corruption-related laws remains limited, and corruption remains a significant problem.

Government SizeView Methodology

The top individual income tax rate is 35 percent, and the top corporate tax rate is 30 percent. Other taxes include value-added and capital gains taxes. The overall tax burden equals 15.1 percent of total domestic income. Over the past three years, government spending has amounted to 17.7 percent of total output (GDP), and budget deficits have averaged 2.3 percent of GDP. Public debt is equivalent to 54.9 percent of GDP.

Regulatory EfficiencyView Methodology

Despite recent incremental improvements regarding the ease of starting a business, dealing with construction permits, and getting electricity, opaque regulatory requirements still increase the cost of doing business. The undeveloped labor market hinders employment growth, trapping much of the labor force in the informal economy. Among other enterprises, the government owns the national airline and a petroleum company.

Open MarketsView Methodology

Trade is moderately important to Ethiopia’s economy; the combined value of exports and imports equals 36 percent of GDP. The average applied tariff rate is 12.1 percent. Nontariff barriers impede trade. Government openness to foreign investment is below average. The government strongly influences lending and funds state-led development projects by forcing private banks to purchase treasury bills. Foreign ownership of banks is still prohibited.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Mauritius75.10.4
2Botswana69.9-0.2
3Rwanda69.11.5
4South Africa630.7
5Uganda621.1
6Côte d'Ivoire 62-1.0
7Seychelles61.6-0.2
8Burkina Faso600.4
9Cabo Verde603.1
10Tanzania59.91.3
11Namibia58.5-4.0
12Nigeria58.51.4
13Gabon58-0.6
14Mali57.6-1.0
15Guinea-Bissau56.90.8
16Madagascar56.8-0.6
17Benin56.7-2.5
18Comoros56.20.4
19Ghana56-0.2
20Swaziland55.9-5.2
21Senegal55.7-0.2
22Kenya54.71.2
23Zambia54.3-1.5
24Mauritania54-0.4
25Lesotho53.90.0
26São Tomé and Príncipe 53.6-1.8
27Ethiopia52.80.1
28The Gambia52.3-1.1
29Guinea52.24.6
30Democratic Republic of Congo52.1-4.3
31Malawi52-0.2
32Cameroon51.90.1
33Sierra Leone51.8-0.8
34Burundi50.9-2.3
35Liberia50.91.8
36Niger49.5-1.3
37Sudan49.40.6
38Chad49.30.3
39Central African Republic49.2-2.6
40Angola48.60.1
41Togo47.8-5.4
42Mozambique 46.3-3.6
43Djibouti45.1-1.6
44Zimbabwe440.0
45Equatorial Guinea42-3.0
46Eritrea41.7-0.5
47Republic of Congo 38.9-1.1
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