Ethiopia - Country Commercial Guide
Market Challenges

Learn about barriers to market entry and local requirements, i.e., things to be aware of when entering the market for this country.

Last published date: 2022-07-21

While Ethiopia offers several opportunities, the market also has challenges. The government is engaged in a gradual process of economic reform and liberalization, and the state remains heavily involved in most economic sectors. The Government of Ethiopia (GOE) retains control over the utilities sector, and prohibits foreign ownership of banking, insurance, and financial services. State-owned enterprises (SOEs) dominate the economic landscape, reducing room for the private sector to flourish.  

Foreign exchange shortages, largely the result of weak export performance and high demand for foreign currency, notably for GOE infrastructure priority projects, will continue to present difficulties for firms in Ethiopia. Businesses can usually expect delays in foreign exchange supply extending up to a year, and it is especially common to expect slow-downs and down-time in manufacturing. The acute foreign exchange shortage remains the leading challenge for U.S. suppliers, for which there is no quick fix. 

Electricity demand continues to outpace supply as new hydropower dams struggle to produce at full capacity. Power transmission lines and distribution facilities are inadequate to the demand. The GOE is investing significantly in the construction of large-scale hydroelectric generation projects, with the objective of doubling the current near 4000 MW power supply. If successfully completed, these projects could meet domestic electricity demand and produce a significant surplus of power for export.  

The GOE is open to proposals for power development projects using Independent Power Purchase (IPP) agreements for the sale of power from renewable energy resources (geothermal, solar, wind and biomass). USAID Power Africa supported the development of a regulatory framework for IPP agreements. The first 150 MW IPP geothermal power generation project agreement has been signed with the U.S. company, Corbetti, under a BOOT (build, own, operate, and transfer) agreement. The PPA sets out the commercial terms for a project of up to 150 MW split into two phases of 50 MW and 100 MW. The Government of Ethiopia has also signed a Power Purchase Agreement (PPA) with developers to build a second 150 MW IPP, at Tulu Moye. 

The Ethiopian economy has grown at a rapid pace over past decade until 1029, but in addition to foreign exchange scarcities, the economy remains vulnerable to periodic droughts and commodity price volatility that impacts the demand and price of Ethiopia’s primary export commodities. The price of coffee, one-third of Ethiopia’s exports, has a pronounced impact on Ethiopia’s export earnings. 

Government procedures and paperwork are usually bureaucratic and time-consuming, although some improvements have been made in recent years. The World Economic Forum (WEF) has identified burdensome customs administrative procedures, the high cost of logistics, and access to credit and foreign exchange as major challenges to small and medium-sized enterprises (SMEs) in Ethiopia. While the customs clearance process is still very slow, the GOE is committed to improving its Ease of Doing Business (EODB).  

March 25, 2021, the Ethiopian parliament approved the new commercial code to amend the 1960 commercial code which had remained unchanged for the past fifty years. There were many factors that necessitated the revision of the repealed Commercial Code including the demand for responsible corporate management. The new Commercial Code has repealed Articles under Parts I, II and V of the Commercial Code Proclamation No. 166/1960.