Features of the Ethiopian Economy: An overview

Ethiopia is a country, which is richly endowed with huge manpower, arable land and natural resources. However, much of its potential is not yet exploited. To start with, out of the sixty percent of its landmass which is known to have the potential for agricultural development, only 15 percent is said to have been developed. Although its contribution to the national economy is very limited, the country's livestock wealth is the 2^nd largest in Africa. The mineral resources' potential is also high, much of it yet to be exploited. A few of them are gold, platinum, marble, tantalite, copper, potash, soda-ash, zinc, nickel, iron, and natural gas.

The Ethiopian economy remains heavily dependent on agriculture, which accounts for about 50 percent of the GDP. An estimated 85% of the population gains its livelihood directly or indirectly from agricultural production. Coffee exports accounts for more than 65 percent of foreign exchange earnings, while processed and semi-processed hides and skins are the second important foreign exchange earners.

The level of development of the manufacturing sector in Ethiopia is at its infancy; and the country's industrial base is very low. The share of intermediate and capital goods industry is very insignificant. The industrial sector is heavily dependent on imports of semi-processed goods, raw materials, spare -parts and fuel. In addition to imported inputs, the factories depend upon backward and subsistence agriculture for their raw material demand.

It is only fourteen years since Ethiopia began moving from a state run economy to the market economy. The country is in the process of taking various reform measures.

The industries include food processing and beverages, automotive industries which include production of components and parts, textile and textile products and garments, leather and leather products, fertilizers (mini-Plant) and chemicals, drugs and pharmaceuticals are some among others.

With regard to the foreign direct investment (FDI) alone indicates that from 1992 - 2005, a total of 11,760 foreign and domestic investment projects with aggregate capital of 129 billion Birr have been issued with investment licenses of these more than 4 thousand projects are under operation and implementation.

Besides, the foreign currency inflow has helped to facilitate transfer of technology and skills, earn & save foreign exchange and create backward and forward linkage effects in the economy.

The "service" sector which consists of Trade, Transport and Communications, Banking, Insurance and Real State, Public Administration and Defense, Education, Health and Domestic and other personal services has increased.

• Policies, Strategies and Programs Introduced by the Government.
  • The New Economic Policy
  • Development Strategy

Based on the new economic policy, the government formulated a long-term economic development strategy-Agriculture -Led -Industrialization (ADLI) which is geared towards the transformation of the backward economic structure. It is a two-pronged strategy, incorporating on one side the external sector (export -led part) and on the other the internal sector which shows the forward and the backward -linkages between agriculture and industry. In the connection, (1) agriculture will supply commodities for exports, domestic food supply and industrial output; and (2) expand market for domestic manufactures. The mining sector is expected to give an impetus to the development of the export sector.

The country's development strategy is supported by an economic reform programme developed in cooperation with the World Bank and the International Monetary Fund (IMF) and on a series of structural adjustment programmes since 1992.

Major gains have been made from the reform programme, particularly as a result of liberalization, low inflation, fiscal discipline and low government borrowing, infrastructure improvement and the growth of the private sector.

The government has initiated a privatization programe since 1995/96. Since this period of time, 85% of 909 factories have been privatized. However the number of manufacturing industries at the verge of the EPRDF led government was 283 operating only 20% of their manufacturing capacity compared with 70% currently.