Economic Analysis Of
Ethiopia
A Case Study

Submitted to:
Professor Chartier
In partial fulfillment of the MIB course
Global Economics

Hult International Business School

Submitted by:
Dajana Lisette Cudic
Md H Dhrubo
Paul Bertrand
Ding Wang
Stefanie Bartels
Aravindbabu Kumar

Boston, Massachusetts
December 8, 2014
Contents
EXECUTIVE SUMMARY 3
INTRODUCTION 4
TRENDS IN GROWTH, INFLATION, UNEMPLOYMENT AND DEBT 5
Growth Trends 5
Inflation Trends 5
Unemployment Trends 6
Debt Trends 6
CURRENT MONETARY, FISCAL AND SOCIAL POLICIES 6
Fiscal Policy 6
Monetary Policy 7
Social Policy 7
EXCHANGE RATE AND TRADE POLICIES 9
EXCHANGE RATE 9
TRADE POLICIES 10
COMPARATIVE INDICATORS OF ETHIOPIA 11
Income inequality Gini Coefficient 11
Government Effectiveness 11
Days to start a business 12
Human Development Index 12
ETHIOPIA’S STRENGHTS AND FACTORS AFFECTING STABILITY OF ITS ECONOMY 12
ETHIOPIA’S WEAKNESSES 13
Economic Aspect 13
Political Aspect 14
Social Aspect 14
Demographic Aspect 14
OPPORTUNITIES FOR GROWTH 15
THREATS TO ETHIOPIA’S ECONOMY 17
CONCLUSION 19
APPENDIX 21
Works Cited 39

EXECUTIVE SUMMARY

Ethiopia’s economic condition seems to be progressing. Its real GDP growth trend was positive at 9.7% in 2012/13 thanks to its reform where they introduced expansionary monetary policy, and its unemployment rate and public debt have been steadily declining since 1999 and 2002 respectively, the former being 17.5% in 2012 and the latter averaging 25.7% of GDP in 2013. Moreover, Ethiopia has seen a major improvement since its economic reform in 1992 where it introduced a deflationary fiscal policy that helped decrease its budget deficit.
Nevertheless, the inflation in the country is extremely volatile and its fixed exchange rate regime leads to overvaluation of the domestic currency, diminishing the country’s competitiveness. Even though there are no notable trade barriers on imports, the government protects its main local industries, such as textile products, coffee and leather goods.
Demographically, the total population of Ethiopia changed for 314% in the last 50 years. This trainable manpower is one of its biggest strengths and what makes the country competitive globally when it comes to labor-intensive industries. Nonetheless, this demographic boom brings along downsides as well, such as impeding implementation of social policies to reach the entirety of its population and the population’s low skills and education level fueling poverty.
Lastly, Ethiopia has to beware its country’s political instability which is hindering economic growth in the form of blocking foreign investment and causing domestic poverty, but with this, there are many opportunities to seize, such as developing its economy through the textile industry and agriculture by using its main strengths, one of which is a vast unskilled working force and cheap labor.
INTRODUCTION
The Federal Democratic Republic of Ethiopia is located in the Horn of Africa. It is not only the oldest independent African country, but also the second largest one, regarding its population (BBC).
Even though Ethiopia is rated as one of the poorest countries on the globe, it has high potential as one of the countries with the fastest growing economy. With a real GDP growth rate of 9.7% since 2011, it is located distinctly above the world’s average growth rate of 3.0% (International Monetary Fund).
The largest contributor to the GDP in Ethiopia is the agricultural sector. However, owing to governmental effort in strengthening the private sector, the industrial sector achieved remarkable growth as well. Moreover, high investments in the country’s education system lead to a large number of graduates per year. These graduates have high potential in leading Ethiopia’s economic growth (IHS).
Overall, the Federal Democratic Republic of Ethiopia is a promising country for foreign investment, although it faces hard challenges coming along with being among the poorest countries in the world. However, the