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Select Economic and Financial Indicators2014201520162017e2018f
Real GDP (% change)10.310.48.09.08.5
GDP (USD bn)55.564.772.579.787.3
Inflation (average)7.410.17.37.211.5
Fiscal Balance (% GDP)-2.6-1.9-2.4-3.4-2.5
Broad Money (% change, end period)26.924.220.428.820.1
Population (mn)88.3589.7691.2092.6694.14
Exports (USD bn)6.56.05.35.66.5
Imports (USD bn)15.719.619.518.519.5
Current Account Balance (% GDP)-6.4-10.2-9.1-8.2-7.7
FX Reserves (USD bn, end period)2.03.33.62.93.4
Exchange Rate (average)19.6820.7021.8924.0427.86

Economic Outlook

Economic Outlook

Real GDP: Following the adoption of restrictive fiscal and monetary policies, economic growth is likely to moderate from the 9% level reached in 2017. The slowdown in growth would stem from a moderation in infrastructure projects which would weigh construction GDP growth (16% of GDP). Furthermore, dry spells in certain regions of southern Ethiopia pose downside to growth in the agriculture sector. However headline growth print is likely to remain strong on account of strong foreign direct investment in infrastructure and industrial projects. In all, we see growth sliding to 8.5% for 2018.

Inflation: We see inflation moving into double-digit levels in 2018 largely on account of pass-through effects of the 15% ETB devaluation in October 2017. Though the NBE tightened monetary policy with a reduction in the target for base money growth to 16% from 22%, we see the re-occurrence of a drought in southern Ethiopia and higher fuel prices, given Ethiopia’s net oil import status, as posing upside to inflation. We expect inflation to average 11.5% (2017e: 7.2%).

Fiscal balance: After an expansionary fiscal stance to ward off the effect of the 2016 drought and increased spending on defence spending, the government guides to a restrictive fiscal posture over 2018. This comes via the adoption of strict borrowing policies to finance capital expenditures and mild improvements in export receipts as improved rainfall bolster coffee and vegetable production. We estimate that the fiscal deficit should below statutory limits to 2.5% of GDP (2017e: 3.4%) as improving revenues and lower construction activity result in a normalization of fiscal spending in 2018.

Current account: Improving commodity prices look set to bolster coffee receipts (27% of total exports) while gold exports should benefit from higher prices. Though, as a net oil importer, rising crude oil prices are likely to cascade into higher oil imports over 2018, cutback on construction related imports with completion of major irrigation projects and fiscal consolidation points to a measured rise in overall imports.  In all though the current account deficit is likely to remain elevated, we see scope for higher exports to drive modest improvements 2018 to a deficit of 7.7% (2017: 8.2%).

Risks

Key risks to outlook are a severe drought which could result in a sizable decline in commodity exports and lead to a terms of trade shock. Given thin FX reserve levels, (less than 2months of import cover), Ethiopia’s ability to withstand a sharp deterioration in the external sector is greatly constrained. In addition, Ethiopia’s political and security situation remains tense with a state of emergency currently in force and ethnic unrest across several states.

FX, FI and Commodity Information

FX, FI and Commodity Information

Exchange rate structure

RegimeCrawl-like arrangement
TargetNo target
Type of interventionVia Central bank
Convertible currency?No
Market participantsn/a
Source: Bloomberg, IMF, and Ecobank Research

FX

FX ProductsSpotForwardsNon-deliverable ForwardsOptionsSwaps
On offerYesNoNoNoNo
Daily trading volume (USD mn)n/an/a
Average trade size (USD mn)n/a
Average spreadn/a
Trading hoursLimited
Settlement cycleT+2
FX Market StructureThe NBE is the largest provider of FX, which it supplies according to plans established at the start of each fiscal year which take into account supply and demand estimates.
Non-resident FX RegulationsSpotForwardsNon-deliverable ForwardsOptionsSwaps
Trade and FDI flowImport permits require clearance certificate from NBEn/a
Financial flowTax certification requirements for repatriation of investment income
Resident FX RegulationsSpotForwardsNon-deliverable ForwardsOptionsSwaps
Trade and FDI flowRestrictions on repayment of legal external loans and supplies and foreign partner creditsn/a
Financial flow
Source: Bloomberg, IMF, and Ecobank Research

FI

Primary MarketTreasury billsTreasury notesTreasury bondsCentral Bank billsOMOs
IssuerGovernmentn/a
End useGovernment financingn/aGovernment & infrastructure financing
Maturity structure28- to 364-days10- yrs
CouponZeroFixed
Coupon paymentsn/aAnnual
Secondary Market
Daily trading volumeLimited tradingn/a
Average trade sizeLimited trading
Settlement cyclen/a
Ecobank local affiliate contact details:
Ecobank Ethiopia Representative Office, SAMI Building, Gerdi Road, Yerer Ber Area, Addis Ababa
Tel: +251 116 291 101 / Cell: +251 934 169 784 / Fax: +251 116 291 425
Source: Bloomberg, IMF, and Ecobank Research

FI primary market information

FI primary market information

Ethiopia Debt2014201520162017e2018f
Government debt (% GDP)46.360.057.959.759.1
Sub-Sahara average44.552.656.155.655.8
External debt (official creditors, % GDP)25.234.934.034.233.1
Sub-Sahara average25.530.231.932.933.2
External public debt stock (USD bn)14.022.524.727.328.9
Share of total sub-Sahara debt (%)5.68.68.48.28.1
Source: IMF and World Bank

Banking Sector Information

Banking Sector Information

Ethiopia’s financial sector is made up of The National Bank of Ethiopia (the regulatory body), 18 banks (two stated-owned and 16 private), 17 insurance companies, 31 microfinance institutions (with around 300 branches) and 2,833 saving and credit unions and cooperatives. The country’s banking sector is unique in Middle Africa owing to the dominance of two state-owned banks – Commercial Bank of Ethiopia (CBE) and Development Bank of Ethiopia (DBE) – which together hold two-thirds of banking assets.  The dominance of state-owned banks enables the government to set the trend in the banking sector, especially in terms of funding large-scale investment in government-led infrastructure projects.

Despite the dominance of state-owned banks, private banks have doubled their presence from 8 in 2007 to 16 in 2014. These new entrants have fuelled an aggressive expansion drive in the retail branch network, which rose from 463 branches in 2007 to 3,187 branches at end-June 2016. Banks opened 494 new branches in 2015/16, of which 363 were private banks (60.5% of the network) the balance state-owned banks. This improved the bank branch to population ratio from 1:33,448 people to 1:28,932 in 2015/16. The unusually strong branch expansion reflects government efforts to extend financial services to the country’s large population and to boost deposit mobilization.

Foreign banks are not permitted to provide financial services in Ethiopia and the market is closed to foreign retail banks. Ethiopia has allowed some foreign banks to open liaison offices in Addis in order to facilitate credit to companies from their countries of origins; these include Chinese, German, Kenyan, Turkish and South African banks.

Customer deposits drive balance sheet activity

As in most Middle African markets, Ethiopia’s banks rely on customer deposits to fund their balance sheet activities. The entry of new banks into the sector and the aggressive branch expansion drive have greatly increased the banking sector’s deposit base, with customer deposits accounting for 93% of total funding liabilities in 2016.

Savings deposits are unusually high in Ethiopia, making up around half of all customer deposits, double the average of 23% in Middle Africa. Around 90% of deposits are made into current and savings accounts (CASA), the cheapest source of funding for banks. Ethiopia’s three state-owned banks account for around 60% of total deposits, reflecting their strong franchise and distribution capabilities. Thanks to the rapid expansion of the bank branch network into rural areas, Ethiopia’s savings rate has risen from 9.5% of GDP in 2009 to 20.65% of GDP in 2016.

Lending is focused on strategic sectors

Lending by Ethiopian banks is concentrated on sectors identified by the government as critical to the country’s long-term economic development. As a result, the sectors which received the highest level of credit in 2015/2016 were industry 29%, followed by domestic trade (17.1 %), housing & construction (15.5%), agriculture (15.2%) and international trade (10.8%). Lending has grown rapidly in recent years, with total loans & advances doubling from USD6.3bn in 2013 to USD12.5bn in 2016. At end-June 2016 the two state-owned banks accounted for 65% of total loans, led by Commercial Bank of Ethiopia (CBE) with a 52.6% market share, with the balance held by 16 private banks.

Private enterprises and individuals made up more than half of the loan and advances issued in Ethiopia, worth an estimated USD7.4bn in 2016. In contrast, public enterprises and government were worth a combined USD4.5bn that year.

Banking assets are highly concentrated

Given the dominance of the state-owned banks, Ethiopia’s banking sector is one of the most highly concentrated in Middle Africa. In 2011 the National Bank of Ethiopia raised the minimum capital requirement for all banks operating in Ethiopia from Birr75 million (USD3.75mn) to Birr500 million (USD25mn), with the measure to be implemented by end-2016. This move was broadly in line with Middle Africa’s other financial sectors where regulators have sought to increase capital buffers to the strengthen banks against future crises. This should help boost the financial stability of Ethiopia’s banking sector, enhance the role of several undercapitalized private sector banks and reduce concentration risk in the sector.

Commodity and trade information

Commodity and trade information

Hydrocarbon & mineral production

Ethiopia has diverse mineral resources, including gold, diamonds, tantalum, niobium, phosphate, potash and iron ore, few of which have been exploited. Ethiopia is a small gold producer, with estimated output of 3 tonnes in 2016, along with 1 tonne of silver and small quantities of diamonds. Elenilto Minerals & Mining hold concessions of the Kenticha mine and plan to produce 600 tonnes per year of coltan & tantalum. Several mining companies are negotiating with the Ethiopian government for licences to mine the country’s estimated 5.35mn tonnes of potash reserves.

Cement output is growing following heavy investment in new plants, giving Ethiopia an estimated 142,000 tonnes of installed capacity in 2016. That year Morocco’s OCP Group, the world’s largest phosphate exporter, signed an agreement with the Ethiopian government to build a USD3.7bn plant producing fertiliser from domestic phosphate deposits.

Ethiopia produces no hydrocarbons, but has estimated gas reserves of 4.6trn cubic feet which have yet to be exploited.

Soft commodity production

Ethiopia is a diverse producer of agricultural goods for domestic, regional and world markets. The country is Sub-Saharan Africa’s largest coffee producer with estimated output of 6.6mn 60-kg bags of Arabica coffee in 2016/17 (October-September). Arabica coffee is believed to have originated in Ethiopia, which is renowned for its high-quality Sidamo, Yirgachefee and Harar Arabica varieties. Ethiopian coffee is highly sought after in bulk and specialty markets, enabling it to command a premium on the New York terminal market. Most of Ethiopia’s coffee is sun-dried (naturals), representing 70% of total output, while the remaining 30% is washed. Most of Ethiopia’s coffee (85%) is marketed through the Ethiopia Commodity Exchange (ECX), with the balance sold via direct sales by cooperatives or plantations.

Ethiopia is also one of Sub-Saharan Africa’s largest producers of cereal. It is the largest producer of wheat (including the local variant, teff), with estimated production of 4.2mn tonnes in 2017, and the third largest producer of maize (after Nigeria & South Africa), with output of 6.7mn tonnes in 2017.

Ethiopia is a leading producer of horticultural goods and, along with Kenya, dominates production of vegetables and cut flowers. Ethiopia produced 1.9mn tonnes of sweet potatoes, 921,000 tonnes of potatoes, 878,000 tonnes of broad beans, 556,000 tonnes of vegetables, 484,000 tonnes of dried beans, 392,000 tonnes of cabbages & 350,000 tonnes of peas in 2016. Cut flowers are also a growth industry in Ethiopia, with output reaching 715mn cut flowers in 2016, including 49,000 tonnes of roses (all of which are exported). Ethiopia is also a large producer of sesame seeds with output of 268,000 tonnes in 2016, all of which is traded on the ECX.

Ethiopia is East Africa’s joint-largest producer of sugar (along with Kenya), which is dominated by the state-owned Ethiopian Sugar Corporation (ESC). Production has grown strongly in recent years, rising from 400,000 tonnes in 2012/13 to an estimated 600,000 tonnes in 2016/17. The government plans to boost production to over 1mn tonnes per year and is seeking foreign investment for several sugar refineries in the country’s industrial zones. Ethiopia is also East Africa’s second largest producer of cotton lint, after Tanzania, with output of 44,000 tonnes in 2016/17

Trade flows

Imports

Ethiopia’s imports totalled US19.1bn in 2016. Capital goods and industrial raw materials dominate import flows, reflecting the high level of economic, industrial and infrastructural development under way. Machinery, vehicles, aircraft & electronics were the largest imports, together worth US$7.6bn, reflecting rising demand for industrial equipment. Petroleum products were the next largest import, worth US$2.1bn in 2016, reflecting Ethiopia’s lack of crude oil refining capacity. There were also large imports of raw industrial materials, including US$2bn worth of iron & steel, US$667mn of plastics and US$545mn of fertilisers. Although Ethiopia is one of Sub-Saharan Africa’s largest grain producers, given the pace of population growth and periodic droughts the country’s food imports have surged in recent years. In 2016 the country imported US$724mn worth of wheat, US$171mn of rice (4.8% of Africa’s rice imports) & US$105mn of flour. Ethiopia is also Africa’s largest importer of palm oil, worth US$608mn in 2016, the equivalent of 16.6% of the continent’s palm oil imports.

Exports

Ethiopia’s exports totalled US$2.6bn in 2016, dominated by soft commodities. The largest export by value was coffee, worth US$725mn (around one-quarter of Africa’s coffee exports), half of which was exported to Germany, Saudi Arabia and the USA. Exports of vegetables, both dried and fresh, totalled US$527mn; most fresh vegetables were exported to neighbouring Djibouti and Somalia, while dried vegetable exports mostly went to Pakistan, India, Vietnam and Indonesia. Ethiopia also exported US$480mn worth of sesame seeds. Ethiopia’s exports of cut flowers were worth US$191mn in 2016, most of which went to the Netherlands’ wholesale flower auction prior to re-export to European markets. Other agricultural exports included US$94mn worth of meat, US$91mn worth of live animals and US$68mn worth of leather. Ethiopia’s only notable mineral export is gold, worth US$109mn in 2016, all of which went to Switzerland.

  • Flag
  • Population
    94.14M
  • Area
    1,104,300 sq km
  • Capital
    Addis Ababa
  • Largest city
    Addis Ababa
  • Official language
    Amharic and English
  • Major languages
    Amharic,English and Oromo
  • Currency
    Ethiopian birr

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