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: 2020-07-20

While Ethiopia offers a number of 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. SOEs actively encourage joint venture and equity partnerships with foreign companies.

The state-owned telecommunications company, Ethio Telecom, is undergoing significant reforms with plans to partially privatize, and an independent telecom regulatory agency, the Ethiopian Communication Authority (ECA) was established in 2019. Two new private service providers are expected to be announced in 2020 following the auctioning of telecom licenses to new mobile network operators.

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.

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 is supporting 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

Government of Ethiopia has 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 the past decade, but the economy remains constrained by foreign exchange scarcity, as well as 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. While the customs clearance process is still very slow, the GOE is committed to improving its World Bank’s Ease of Doing Business (EODB) ranking and is currently enacting a redrafted Commercial Code, which had remained unchanged for the past fifty years (as of mid 2020 the redrafted commercial code had been awaiting parliamentary approval, after receiving approval from the Council of Ministers). Areas targeted for revision include the business tax code and the registration process.