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Ethiopian Economy - Non-Agricultural

A largely illiterate and semi-skilled workforce suffers from low productivity levels. Ethiopia's adult literacy rate is estimated at 39%. Electricity demand continues to outpace supply as new hydropower dams struggle to produce at full capacity and power transmission lines and facilities are insufficient.

According to the World Health Organization (WHO), Ethiopia has the highest rate of traffic fatalities per vehicle in the world. Ethiopia has one of the lowest road densities in Africa. As of 2012/13 Ethiopia had 58,338 kilometers of all-weather roads, of which only 17.6% were asphalt. Roads are poorly maintained, inadequately marked, and poorly lighted. Road lighting is inadequate at best and nonexistent outside of cities. Excessive speed, unpredictable local driving habits, pedestrians and livestock in the roadway, and the lack of adherence to basic safety standards for vehicles are daily hazards. Many vehicles are unlicensed, and many drivers lack basic driver training or insurance. There have been reports of highway robbery, including carjackings, by armed bandits outside urban areas. Some incidents have been accompanied by violence.

The Government of the Federal Democratic Republic of Ethiopia has carried out far-reaching institutional and policy reforms to transform itself from a centrally planned, Marxist regime to the facilitator of a stable market economy. These reforms have underpinned efforts to reduce poverty and increase spending on agriculture, education, health, water, transport and telecommunications.

Since a year-on-year high of 40% in August 2011, inflation has stabilized, registering 8.8% in March 2014 following a concerted effort by the Ethiopian government to reduce the inflation rate through strict monetary and fiscal policy. Real interest rates are largely negative, as the minimum bank deposit rate of 5%, bond yield of 3.67%and treasury bills yield of 3.67% are lower than inflation. Only the real average lending rate is positive, standing at 11.88%.

Since 2007, Ethiopia has achieved strong economic growth, making it one of the highest performing economies in sub-Saharan Africa. Yet it remains one of the world’s poorest countries. About 29 per cent of the population lives below the national poverty line. Ethiopia ranks 174th out of 187 countries on the United Nations Development Program’s human development index, and average per capita incomes are less than half the current sub-Saharan average.

Ethiopia ranks among the ten fastest-growing economies in the world, averaging ten percent GDP growth over the five years 2008-2013. The Government of Ethiopia [GoE] publicly touts that Ethiopia has experienced double digit real GDP growth of over 11 percent in recent years. The GoE stated real GDP growth was 10 percent in 2009. Many institutions, including the World Bank and IMF, dispute the GoE's growth statistics, stating that Ethiopia's real GDP growth rate more likely ranged between six and seven percent last year. Inflation rates skyrocketed in recent years, peaking at 64 percent year-on-year in July 2008. Inflation has since fallen to 7 percent as of December 2009, primarily due to the GoE's 2008 imposed lending cap on all banks.

The country is implementing an ambitious five-year Growth and Transformation Plan that is aimed at turning Ethiopia into a middle-income country by 2025. Ethiopia is implementing its five-year Growth and Transformation Plan (GTP), which was approved by the Ethiopian Parliament in November 2010. The GTP envisages an annual Gross Domestic Product (GDP) growth base case scenario of 11% and a high case growth scenario of 14.9%.

Improving the quality of social services and infrastructure, ensuring macroeconomic stability, and enhancing productivity in agriculture and manufacturing are major objectives of the plan. Ethiopia will need massive inflows of foreign direct investment to even approach its ambitious GTP goals. The GTP puts a significant emphasis on developing local production so the country becomes less dependent on imported goods. Ethiopia continues to encourage investment in the export-oriented sectors of textiles/garments, leather/leather products, cut flowers, fruits and vegetables, and agro-processing areas.

The World Bank's Doing Business report for 2011 ranked Ethiopia at 111 out of 183 countries, losing ground from the 2010 ranking of 104. The country has particularly lost its rank in the areas of getting credit, getting electricity, registering property and starting a business.

The 2011 IMF Article IV consultation mission press release noted the continuation of strong growth in 2010/11: 11.4% by Ethiopian government estimates and 7.5% by IMF figures. However, high year-on-year inflation, caused by excessive monetary growth and imported food and fuel prices, continues to be the major challenge to a stable macroeconomic environment. The Article IV mission saw lower growth for 2011/12, at about 6 percent; the reduction was credited to high inflation, restrictions on private bank lending, and a more difficult business environment. Although the Ethiopian government has frequently promised to contain inflation to single digits, the year on year inflation has still remained high, plateauing at 39-40 percent at the end of the year.

By 2010 the government had embarked on a cautious program of economic reform, including privatization of state enterprises and rationalization of government regulation. While the process is still ongoing, so far the reforms have attracted only meager foreign investment, and the government remains heavily involved in the economy.

Gold, marble, limestone, and small amounts of tantalum are mined in Ethiopia. Other resources with potential for commercial development include large potash deposits, natural gas, iron ore, and possibly oil and geothermal energy. Although Ethiopia has good hydroelectric resources, which power most of its manufacturing sector, it is totally dependent on imports for oil. A landlocked country, Ethiopia has relied on the port of Djibouti since the 1998-2000 border war with Eritrea. Ethiopia is connected with the port of Djibouti by road and rail for international trade. Of the 23,812 kilometers of all-weather roads in Ethiopia, 15% are asphalt. Mountainous terrain and the lack of good roads and sufficient vehicles make land transportation difficult and expensive. However, the government-owned airline's reputation is excellent. Ethiopian Airlines serves 38 domestic airfields and has 42 international destinations.

Dependent on a few vulnerable crops for its foreign exchange earnings and reliant on imported oil, Ethiopia has suffered a severe lack of foreign exchange while simultaneously battling high inflation. The financially conservative government took measures to solve these problems, including stringent import controls, focused sectors for export development, eliminated subsidies on retail gasoline prices, and capped lending limits for banks. Nevertheless, the largely subsistence economy is incapable of meeting the budget requirements for drought relief, an ambitious development plan, and indispensable imports such as oil. The gap has largely been covered through foreign assistance inflows.

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