Business Monitor International


Ethiopia Country Risk Report

Published 26 March 2014 | Annually

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Ethiopia Country Risk Report
  • Prime Minister Meles Zenawi's death did not have the politically destabilising effect many anticipated, and his successor Hailemariam Desalegn's adherence to the status quo should see policy continuity right until the elections in 2015. Even so, we expect ethno-religious divisions and social unrest to be a source of tension over the coming months.

  • Ethiopia will be among the fastest growing economies in Sub-Saharan Africa over the next few years and we are forecasting average growth of 6.0% annually between 2014 and 2017. Growth will be driven by heavy public investment into infrastructure and agriculture, and an increasingly buoyant consumer segment.

  • Inflation in Ethiopia has slowed markedly in recent years since reaching a peak of 40.6% year-on-year (y-o-y) in August 2011 and we expect inflation to remain relatively stable over the coming quarters, hovering broadly between 7.0 and 9.0% year-on-year. The view is based primarily on a relatively benign outlook for food prices due to favourable agricultural production prospects in the months ahead.

  • Despite robust growth in current transfers, mainly in the form of remittance flows, Ethiopia will sustain a current account deficit in the region of 5.0-8.0% of GDP between 2014 and 2018, driven by a gaping trade deficit.

Major Forecast Changes:

  • No major forecast changes

Key Risks To Outlook:

  • Despite the relatively smooth handover of power following Meles Zenawi's death, political risks will remain heightened. Increasing social tensions raise the prospect of an uptick in domestic unrest, while a behind-close-doors power struggle among the political elite could threaten policy-making.

  • As is the case for many African nations, Ethiopia is highly susceptible to volatility in global markets, particularly commodity prices (notably coffee and gold), which can in turn pose both upside and downside risks to export revenues and headline growth.

  • While inflation has slowed markedly from the high levels witnessed...

Table of Contents

Executive Summary
5
Core Views
5
Major Forecast Changes
5
Key Risks To Outlook
5
Chapter 1: Political Outlook
7
SWOT Analysis
7
BMI Political Risk Ratings
7
Political Outlook
8
Status Quo Preserved, But Outlook Muddied By PM's Death
8
Long-Term Political Outlook
9
More Armed Conflict Likely This Decade
9
TABLE: POLITICAL OVERVIEW
10
Chapter 2: Economic Outlook
13
SWOT Analysis
13
BMI Economic Risk Ratings
13
Economic Growth
14
Growth To Remain Strong, But Below Trend
14
TABLE: ECONOMIC ACTIVITY
14
Balance Of Payments
16
Structural Weakness Drives Persistent Current Account Deficit
16
TABLE: CURRENT ACCOUNT
16
Monetary Policy
18
Modest Disinflation In 2013, But Risks Abound
18
TABLE: MONETARY POLICY
19
Fiscal Policy
20
Stable Fiscal Shortfall Over The Medium-Term
20
TABLE: FISCAL POLICY
20
Chapter 3: 10-Year Forecast
23
The Ethiopian Economy To 2022
23
Robust Economic Expansion Over 2013-2022
23
TABLE: LONG-TERM MACROECONOMIC FORECASTS
23
Chapter 4: Business Environment
25
SWOT Analysis
25
BMI Business Environment Risk Ratings
25
Business Environment
26
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS
26
TABLE: BMI LEGAL FRAMEWORK RATING
27
TABLE: LABOUR FORCE QUALITY
28
TABLE: AFRICA - ANNUAL FDI INFLOWS
29
TABLE: TRADE AND INVESTMENT RATINGS
30
TABLE: TOP EXPORT DESTINATIONS (US$MN)
31
Operational Risk
32
Chapter 5: BMI Global Assumptions
33
Global Outlook
33
Past The Major Obstacles To Recovery
33
TABLE: GLOBAL ASSUMPTIONS
33
TABLE: DEVELOPED STATES, REAL GDP GROWTH FORECASTS
34
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS (%)
34
TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS
35

The Ethiopia Country Risk Report helps businesses with market assessment, strategic planning and decision making to promote growth and profitability in Ethiopia. It is an essential tool for CEOs, Chairmen, Finance Directors/CFOs, Managing Directors, Marketing/Sales Directors with commercial interests in this emerging market.

An influential new analysis of Ethiopia's economic, political and financial prospects through end-2019, just published by award-winning forecasters, Business Monitor International (BMI).

Key Uses

  • Forecast the pace and stability of Ethiopia's economic and industry growth through end-2019.
  • Identify and evaluate adverse political and economic trends, to facilitate risk mitigation.
  • Assess the critical shortcomings of the operating environment that pose hidden barriers and costs to corporate profitability.
  • Contextualise Ethiopia's country risks against regional peers using BMI's country comparative Risk Index system.
  • Evaluate external threats to doing business in Ethiopia, including currency volatility, the commodity price boom and protectionist policies.

The Ethiopia Country Risk Report by Business Monitor International (BMI) includes three major sections: Economic Outlook, Political Outlook and Operational Risk.

Economic Outlook:

How will the Ethiopia' economic policy-making and performance impact on corporate profitability over 2015-2019?

BMI provides our fully independent 5-year forecasts for Ethiopia through end-2019 for more than 50 economic and key industry indicators. We evaluate growth, and also forecast the impact of economic management.

Economic Outlook Contents

The Ethiopia Country Risk Report features BMI's forecasts with supporting analysis for 2015 through to end-2019, set against government views and BMI's evaluation of global and regional prospects.

Key Areas Covered:

Data:

  • Full 10-year forecasts with data - for key macroeconomic variables including GDP (real growth and per capita), population, inflation, current account balance and the exchange rate.
  • BMI's comprehensive Risk Index system - rates each country worldwide for economic and political risk, and rates the business environment, within a global and regional context.

Written Analysis:

  • Economic Activity - real GDP growth, employment, inflation, consumption (retail sales and confidence).
  • Balance of Payments - trade and investment, current and capital account.
  • Monetary Policy - interest rate trends (bank lending and deposit rates) and inflation (producer price and consumer price).
  • Exchange Rate Policy - currency controls, foreign investment flows, exchange rates and foreign exchange reserves.
  • Fiscal Policy - macroeconomic strategy and policies, government finance and tax reforms.
  • Foreign Direct Investment - approvals, inflows and climate.
  • External Debt - debt profile (short and long-term plus public and private sector obligations).
  • Global Assumptions - forecasts for each year to end-2019 covering: major commodities, growth in key regions, inflation, and interest and exchange rates, in the United States, Japan, China and the eurozone.

Key Benefits

  • Rely upon BMI's 100% independent forecast scenarios for Ethiopia and underlying assumptions - we take no advertising and are privately-owned.
  • Exploit the benefits of BMI's comprehensive and reliable macroeconomic database on Ethiopia, sourced and fully maintained by BMI from an extensive network of private sector, government and multilateral contacts.
  • Gain key insights into the current and future direction of government economic policy, which could significantly affect your company's business prospects, from BMI's team of analysts and economists.

Political Outlook:

What are the political risks to doing business in Ethiopia over the next 5-years?

BMI's Ethiopia country Risk Index evaluates the short- and medium-term threats to political stability.

Political Outlook Contents

  • SWOT Analysis for the Ethiopia Market - Political Strengths, Weaknesses, Opportunities and Threats facing Ethiopia.
  • Political Stability and Risk Assessment - BMI's Risk Index assesses explicit short- and long-term risks to political stability; latest positioning and trends for Ethiopia's risk are compared with regional and global averages.
  • Current Administration and Policy-making BMI assesses the threats to the continuity of economic policy, and likely changes to the business operating environment.
  • Long-Term Political Outlook BMI examines the structural risks to the stability of Ethiopia’s political system and the dominant public policy issues likely to affect decision-makers, and outlines scenarios for how the state could evolve in the medium to long term.

Key Benefits

  • Benchmark Ethiopia's risk profile against its neighbours, the global and regional average, allowing easy comparison of risks between key business markets.
  • Identify, evaluate and anticipate political and security risks to the business environment, and to your company's current operations and future plans.
  • Gain valuable insights into government and policy-making, through BMI's specialist team of analysts and economists, and their network of private and public sector sources.

Operational Risk

What are the current operational risks and difficulties associated with doing business in Ethiopia?

The Operational Risk section gives an evaluation of current risks and difficulties associated with operating in the market. It also provides a brief overview of the regional Operational Risk Index which benchmarks Ethiopia against its neighbours.

Operational Risk Contents

The chapter provides a summary of the main threats in the country, within:

  • Labour Market Risk (Education; Availability of Labour; and Labour Costs)
  • Logistics Risk (Market Size and Utilities; Quality and Extent of the Transport Governance)
  • Trade and Investment Risk (Economic Openness; Government Intervention; and Legal Risks)
  • Crime and Security Risk (Crime; Terrorism; and Interstate Conflict risks).

The report also drills down in greater depth to address key issues in one of the following segments most critical to the market:

  • Transport network, economic openness, cost and availability of labour, crime risks, bureaucratic environment, market size and utilities, and interstate conflict.
  • Assess your company’s exposure to country specific operational and business risks, using BMI’s insight on the current dangers of operating in the market.
  • Evaluate Ethiopia’s risk profile against its regional peers, helping you understand the market’s strengths and weaknesses in relation to other countries.

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Testimonials

The sections that I find most interesting and useful are the macroeconomic data and forecasts for the country, top export destinations and economic activity. The indicators/analysis of these areas helps us orient our thinking, our assumptions and, consequently, our decisions in the commercial area.

Country Manager, DHL Express