Ethiopia Economic Outlook

  • Real GDP growth slowed to 8.0% in 2015/161 from 10.4% last year and is projected to remain stable at 8.1% in 2016/17 and 2017/18.
  • Public protests disrupted the nation in 2016 in the Oromia and Amhara regions, with the protestors citing concerns about political and economic marginalisation. The authorities declared a six-month state of emergency in October 2016, enacting a variety of measures to restore peace.
  • Ethiopia’s national development plans place emphasis on promoting export-led industrialisation with a focus on light manufacturing. However, the contribution of the industrial sector to GDP, employment and exports remains low.

Real GDP grew by 8.0% in 2015/16, a slowdown from the 10.4% registered in 2014/15. The services and industry sectors led growth during this period. Growth in the agriculture sector was negatively affected by the El Niñoinduced drought. For 2016/17 and 2017/18, investments in energy and transport infrastructure; on-going reforms to spur industrialisation, such as the development of industrial parks; and continued progression in services are expected to lead growth. Agriculture is projected to rebound and grow steadily.

Headline inflation is projected to remain consistent with the central bank’s (National Bank of Ethiopia’s [NBE]) price stability objective of single digit inflation in 2016/17. Inflationary pressures are expected to fall due to subdued food prices. Import-intensive public infrastructure investments are expected to continue in the near term as the government sustains the implementation of energy and road transport infrastructure projects to improve the businessenabling environment. The current account deficit is projected to remain in double digits in the short term as export earnings continue to account for about 30% of imports. Uncertainty about international commodity prices and weak global demand are key downside risks.

The 2004 Industrial Development Strategy guides Ethiopia’s ambition of achieving agriculturaland export-led industrialisation. However, the share of the industrial sector in GDP remains low, averaging 12.2% between 2006/07 and 2015/16. The expansion in industry has been led by construction, while the contribution of manufacturing to GDP remains small at 5.4% in 2015/16. The second Growth and Transformation Plans (GTP II) 2015/16–2019/20 prioritises export-led industrialisation. The approach to promoting industrialisation under GTP II is consistent with the Inclusive and Sustainable Industrial Development (ISID) framework. Ethiopia, as one of the three pilot countries under this framework, has developed a Programme for Country Partnership (PCP) in collaboration with other partners, including the United Nations Industrial Development Organization (UNIDO). The PCP is a vehicle for implementing the ISID framework. The Micro and Small Enterprises Development Strategy (2011) was developed to increase the contribution of Ethiopia’s entrepreneurs to the country’s industrialisation ambitions. This strategy focuses on improving the business-enabling environment, access to finance and market linkages. Measures to promote private sector development have also been implemented such as privatisation of state-owned enterprises, business regulatory reforms and infrastructure development.