Kotebe University of Education

Faculty of Business and Economics

Department of Management
Course: Macroeconomics ( ECON 2031 )

Title: The Ethiopia’s Macroeconomic Situation; from the

perspective of International Trade
Section A Group 2 Memebers

1. Biruk Messele FBE/UW23218/13

2. Abeba Hone FBE/UW23192/13
3. Hana Awraris FBE/UW23242/13
4. Fekadabe Yiregu FBE/UW24631/13
5. Dires Ayalew FBE/UW23227/13
6. Atsede Tezera FBE/UW23221/13

Submitted to: Instructor Yonas A.

September 2023

Addis Ababa, Ethiopia

Introduction

For Ethiopia, the over-arching aim of trade integration to the global economy is to exploit the
opportunities to transform its economy from a largely a peasant agricultural economy to a modern
economy. There are three aspects to this transformation- from a subsistence peasant agriculture to a
market based agriculture, from a past centralized command economy to a market economy and from
a more inward oriented to an outward oriented trade regime. Thus, trade is one aspect of the
transformation and a means to it, rather than an end itself. For Ethiopia, a country with a large and
diverse resource base and potential, greater participation in world trade would provide additional
opportunities to transform its resources to address the challenging issues of economic growth and
poverty reduction.

This paper aims to discuss the trade system in Ethiopia by reviewing and compiling articles, reports
and researches and findings from different public agencies, ministries, the private sector and
academics. Their comments and suggestions have been incorporated into this study. It incorporates
the sector evolutions from the ancient and the contribution to the ever growing demand of peoples in
relation to the geography of the Horn of Africa. In particular, the Location, Environment, Natural
resource of Ethiopia in relation to the Import/Export contribution to GDP

1. Trade in Ethiopia

The Ethiopian economy is linked to the economies of its trading partners in many aspects -- and to
mention some -- its industries, service sectors, levels of income, employment, living standards and
technology cannot be seen in isolation from the international economy. Although the linkage can
take different forms, international trade is one aspect where the Ethiopian economy participates in
world trade as a supplier of its products to the rest of the world and a consumer of products from the
rest of the world. This dimension of economic integration that involves the flow of goods and
services across nations, complex as it is, can, however, result in uneven effects among nations and
among sectors within a given nation. After World War TI, exports and imports as a share of national
output reached unprecedented levels for many industrial countries with a declining market share in
world trade for many developing countries. "The share of intra-African trade in the continent's total
trade with the world is not only small but has been declining over the last decade. In 1975, intra-
African trade reached a record level of 7.5% of the continent's total trade. However, this high rate
declined steadily until it hit its lowest level at 3.7% in 1978. The latest estimates show that intra-
African trade has been around 4 per cent" [Ethiopian Chamber of Commerce 1986: 9].

Ethiopia has a large domestic market of over 110 million people, making it the second most
populous country in Africa after Nigeria. Over the last decade, Ethiopia has had one of the fastest
growing economies in the world, with average annual growth rate of 9.4%. In 2019/ 2020, Ethiopia’s
real Gross Domestic Product (GDP) slowed down to 6.1% due to COVID-19, and growth is
expected to remain close to 6.4 % in 2021 due to Covid-19, according to the World Bank.

2. Current Trends
Ethiopia's economy is based on agriculture, which accounts for 46% of GDP and 85% of total
employment. The major trade sector practiced in Ethiopia is Tourism, Manufacturing, Livestock and
Meat, Agriculture (Coffee & Spices, Oil Seeds, and Vegetables) with deteriorated export capacity
and huge import from abroad.

Due to its large population and rapid economic growth, Ethiopia has the potential to be among
Africa’s biggest domestic markets and its strategic location in the Horn of Africa at the junction
between Asia, the Middle East and Africa presents further prospective market opportunities.

2.1. Ethiopia's Import/Exports

Ethiopia has a large domestic market of over 110 million people, making it the second most
populous country in Africa after Nigeria. Over the last decade, Ethiopia has had one of the fastest
growing economies in the world, with average annual growth rate of 9.4%. In 2019/ 2020, Ethiopia’s
real Gross Domestic Product (GDP) slowed down to 6.1% due to COVID-19, and growth is
expected to remain close to 6.4 % in 2021 due to Covid-19, according to the World Bank.

The top trade partners of Ethiopia are China, Saudi Arabia, Germany, United States, United Arab
Emirates, Israel and India.

2.1.1 Ethiopia’s Major Export

Include coffee, gold, leather products, beeswax, canned vegetables, tea, sugar, cotton, and oilseeds.
Purchasing approximately 22 percent of Ethiopia's exports in 1997, Germany is Ethiopia's largest
trading partner. Along with many other countries of EU— such as Italy, France, and the United
Kingdom—Germany has steadily increased its quantity of Ethiopian imports. In 1992, for instance,
the countries of the EU purchased approximately Br203.3 million worth of Ethiopian exports,
whereas this figure increased dramatically to Br1,351.5 million in 1996. Similarly, the United States
has increased its quantity of Ethiopian imports from Br19.6 million in 1992 to Br169.9 million in
1996. Ethiopia's largest trading partner in Africa is Djibouti, a neighboring country through which
Ethiopia must conduct all of its importing and exporting since Ethiopia is landlocked and thus lacks
a port of its own.

2.1.2. Ethiopia's major imports

Include food and live animals, petroleum and petroleum products, chemicals, machinery, civil and
military aircraft, transport and industrial capital goods, agricultural machinery and equipment, and
motor vehicles. Ethiopia's imports have followed the same pattern as its exports in the 1990s, with
the percentage of imports from the countries of the EU and the United States steadily increasing. In
1991, imports worth Br364.7 million were purchased from the countries of the EU, while this figure
increased to Br2,006.7 million in 1995. In the same year, a similar value (Br2,300.7 million) of
imports came from various countries of Asia and the Middle East, including Japan, Saudi Arabia,
and China. With imports to Ethiopia equaling Br146.8 million in 1995, Djibouti is Ethiopia's
number-one regional exporter, while Kenya is second.
 2.1.3. Ethiopia's balance of trade
Trade (expressed in billions of US$): Ethiopia
Ethiopia's balance of trade deficit can be
Year Exports Imports largely explained by the unequal terms of
1975 0.240 0.313 trade between agricultural commodities (the
country's major exports) and capital goods
1980 0.425 0.716 (Ethiopia's major imports). International
markets accord a higher price to commodities
1985 0.333 0.993
that are manufactured—or "value-added"—
1990 0.298 1.081 than to those that are in their raw form.
Recognizing the uneven terms of
1995 0.423 1.145
international trade, many countries, including
1998 0.560 N/A Ethiopia, pursued policies of protectionism
throughout the 1960s and 1970s to develop
national industrial capacity or import-substitution. In many cases, where the state pursued policies
of complete industrial control, they failed miserably.

2.2. Barriers in Ethiopia’s Trade

There are several problems with Ethiopia’s trade: It is a land-locked country competes with Djibouti,
Eritrea and Somalia in high imports and low exports, it produces low quality goods with a high cost
of production, capital formation is inefficient and government policy is antiquated.

among the most frequently reported obstacles to doing trade in Ethiopia are

 Ethiopia’s central bank administers a strict foreign currency control regime and the local
currency (Birr) is not freely convertible. While larger firms, state-owned enterprises, and
enterprises owned by the ruling party do not typically face major problems obtaining foreign
exchange
 a lack of transparency in the government procurement system, including canceling tenders,
 poor infrastructure, such as power, road, water supply
 bureaucratic procedures, lack of coordination, inefficiency in government agencies and
systems,
 Ethiopian and foreign investors alike complain about patronage networks and de facto
preferences shown to businesses owned by the government or associates of the ruling party,
including preferential access to bank credit, foreign exchange, land, procurement contracts,
and favorable import duties.
 Bribery and Corruption: In 2017, Ethiopia ranked 107 out of 180 countries in the
Transparency International’s corruption perception Index (CPI),
3. Solution

Trade enhances the development of country through reduction of poverty, increasing the
accumulation of fixed capital, creation of employment opportunity, increasing the revenue of
government. This requires creating conducive business environment. thus
Enhance industrial bases: in order to maximize the quality of products with minimum production
cost and attract foreign companies

Promote export-oriented goods: as our country, Ethiopia has showing deficit in the import/export
trade the government should have to initiate local industries to export products, attract international
companies and create conducive environment that empower small business firms

Give appropriate incentives to exports: there is a great need for creating a favorable business
environment in Ethiopia

The government should facilitate the financial means, supply adequate foreign currency and
encourage entrepreneurs to engage in trade activities.

Improve quality of goods: the improvements of quality of goods are highly dependable on the
availability of adequate infrastructure, advancement of technology and modernization of the
agricultural process.

Adopt proper trade policies: The government needs to implement policies that can attract foreign
investment to develop or enhance basic industries that can promote capital growth and economic
diversification.

Different stakeholders of the sector including government organizations have to work hand in hand
to support the sector. If there is integration between the stakeholders of the sector, the development
of the sector will be enhanced.

It is suggested to recruit skilled and knowledgeable manpower in the government organizations and
enhance training and skills that employees have the capacity to deliver the services and addresses the
demand of the sector

3.1. Opportunities

The economy is expected to maintain the rapid growth it has experienced over past 10 years. This is
because Ethiopia has:

Factors of production in Ethiopia such as land, labor, and energy costs are low relative to African
and other global markets.

Ethiopia is now beginning to liberalize its economy and privatize many sectors, allowing
International firms to participate in areas previously closed to international participation.

The country should focus on promoting products and services where it has competitive advantage.

With over 70% of the population under the age of 30, and has one of the fastest-growing economies
in the world, which is resulting in an expanding middle class with greater purchasing power.

An established regional aviation hub – Addis Ababa has become a regional air transportation hub,
ideal for expanding trade links
Large natural resources potential which offer opportunities for expansion of agriculture, fisheries
and hydroelectric power generation

4. Conclusion

Ethiopia’s supply side constraints include political instability, low connectivity, a power generation
crisis and difficult labor relation. In addition, geographic constraints such as high transit costs,
delays at border crossing by red tape, waiting for transportation and lack of temporary storage at
crossings has in total a negative effect on trade.

The state of the export sector in Ethiopia, which is dominated by agricultural products that are highly
income and price inelastic in the international market, coupled with weak import-competing
production has resulted in the unfavorable terms of trade and implies dismal prospects in the future

Ethiopia faces a growing trade deficit with total imports increasing on average by 12.5% per year
during the previous 10 years. The rise in the trade deficit has been driven by rising imports, which
ballooned from $3.6 billion in 2010 to $12.5 billion in 2017, the peak of Ethiopia’s trade deficit.
Concerned by the widening trade balance, the Government of Ethiopia (GOE) works to suppress
imports and has undertaken other macroeconomic measures in recent years, which has resulted in a
narrowing of the trade deficit to $12.3 billion in 2018 and to $11.6 billion in 2019.
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Alfonso Llanes, Mar 20, 2018, what should Nepal do to develop foreign trade and to minimize trade
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