Policy continuity has characterised the rule of Prime Minister Hailemariam Desalegn, after taking over from the late Meles Zenawi in 2012, and this will remain the case following the 2015 general election landslide victory. The governing Ethiopian People's Revolutionary Democratic Front will retain control, but ethno-religious divisions and social unrest will become an increasing source of tension over the coming years.
Ethiopia will be among the fastest growing economies in Sub-Saharan Africa over the next few years, but growth will be slower than the double-digit rates experienced over the last decade. Heavy public investment into infrastructure and agriculture combined with an increasingly buoyant consumer segment will be the main drivers.
Inflation in Ethiopia has moderated in recent years since reaching a peak of 40.6% year-on-year (y-o-y) in August 2011; however we expect inflation to rise over the coming quarters, hovering broadly between 10.0 and 11.0% year-on-year. The view is based primarily on rising food prices due to subdued agricultural production in the wake of droughts in 2015.
Ethiopia will sustain a current account deficit in the region of 10.3% of GDP between 2016 and 2020, driven by a gaping trade deficit. Demand for capital goods imports will outweigh growth in Ethiopia's coffee exports.
Major Forecast Changes:
We have revised our current account forecasts to reflect a substantial widening of the deficit as demand for capital goods imports surges. We now expect the current account deficit to widen to 12.2% of GDP in 2016 and will remain in deficit over our 10-year forecast period.
While inflation has slowed markedly from the high levels witnessed in 2011/12, inflation will continue to represent a key risk to macroeconomic stability. Food price inflation in particular will remain a concern, with unpredictable weather a constant threat.
As is the case for many African nations, Ethiopia is highly susceptible to volatility in global markets, particularly commodity prices (notably coffee and gold), which can in turn pose both upside and downside risks to export revenues and headline growth.
Public sector debt levels have risen dramatically since the implementation of government's Growth and Transformation Plan and the need for government financing will increase. Government financing needs will rise as public sector investment continues under Ethiopia's aggressive growth strategy.
|e/f= BMI estimate/forecast. Source: National Sources/BMI|
|Nominal GDP, USDbn||53.2||61.7||70.1||78.5|
|Real GDP growth, % y-o-y||10.3||8.1||7.8||7.6|
|Consumer price inflation, % y-o-y, eop||7.1||11.8||10.0||8.5|
|Exchange rate ETB/USD, eop||20.20||21.15||22.20||23.30|
|Budget balance, % of GDP||-2.6||-2.5||-2.6||-2.8|
|Current account balance, % of GDP||-7.2||-10.5||-12.2||-10.6|
The Ethiopia Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Ethiopia. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.
An influential new analysis of Ethiopia's economic, political and financial prospects through end-2019, just published by award-winning forecasters, BMI Research.
- Forecast the pace and stability of Ethiopia's economic and industry growth through end-2019.
- Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
- Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
- Contextualise Ethiopia's country risks against regional peers using BMI's country comparative Risk Index system.
- Evaluate external threats to doing business in Ethiopia, including currency volatility, the commodity price boom and protectionist policies.
BMI provides our fully independent 5-year forecasts for Ethiopia through end-2019 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.
Economic Outlook Contents
The Ethiopia Country Risk Report features BMI's forecasts with supporting analysis for 2015 through to end-2019, set against government views and BMI's evaluation of global and regional prospects.
Key Areas Covered:
- Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
- BMI's comprehensive Risk Index system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.
- Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
- Balance of Payments - trade and investment, current and capital account.
- Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
- Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
- Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
- Foreign Direct Investment - approvals, inflows and climate.
- External Debt - debt profile (short and long-term plus public and private sector obligations).
- Global Assumptions - forecasts for each year to end-2019 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.
- Rely upon BMI's 100% independent forecast scenarios for Ethiopia and underlying assumptions - we take no advertising and are privately-owned.
- Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on Ethiopia, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
- Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.
What are the political risks to doing business in Ethiopia over the next 5-years?
BMI's Ethiopia country Risk Index evaluates the short- and medium-term threats to political stability.
Political Outlook Contents
- SWOT Analysis for the Ethiopia Market - Political Strengths, Weaknesses, Opportunities and Threats facing Ethiopia.
- Political Stability and Risk Assessment - BMI's Risk Index assesses explicit short- and long-term risks to political stability; latest positioning and trends for Ethiopia's risk are compared with regional and global averages.
- Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.
- Long-Term Political Outlook BMI examines the structural risks to the stability of Ethiopia’s political system and the dominant public policy issues likely to affect decision-makers, and outlines scenarios for how the state could evolve in the medium to long term.
- Benchmark Ethiopia's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
- Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
- Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.
What are the current operational risks and difficulties associated with doing business in Ethiopia?
The Operational Risk section gives an evaluation of current risks and difficulties associated with operating in the market. It also provides a brief overview of the regional Operational Risk Index which benchmarks Ethiopia against its neighbours.
Operational Risk Contents
The chapter provides a summary of the main threats in the country, within:
- Labour Market Risk (Education; Availability of Labour; and Labour Costs)
- Logistics Risk (Market Size and Utilities; Quality and Extent of the Transport Governance)
- Trade and Investment Risk (Economic Openness; Government Intervention; and Legal Risks)
- Crime and Security Risk (Crime; Terrorism; and Interstate Conflict risks).
The report also drills down in greater depth to address key issues in one of the following segments most critical to the market:
- Transport network, economic openness, cost and availability of labour, crime risks, bureaucratic environment, market size and utilities, and interstate conflict.
- Assess your company’s exposure to country specific operational and business risks, using BMI’s insight on the current dangers of operating in the market.
- Evaluate Ethiopia’s risk profile against its regional peers, helping you understand the market’s strengths and weaknesses in relation to other countries.