Home | Ranking | Explore | Top 10 | Downloads | FAQs | About
Ethiopia's economy is 53.2 percent free, according to our 2008 assessment, which makes it the world's 124th freest economy. Its overall score is 1.2 percentage points lower than last year, partly reflecting declines in five areas. Ethiopia is ranked 26th out of 40 countries in the sub-Saharan Africa region, and its overall score is slightly worse than the regional average.
Ethiopia does not rank strongly in any category but does score moderately well in fiscal freedom, government size, and labor freedom. The top income and corporate tax rates are moderate, and overall tax revenue is not large as a percentage of GDP. Government expenditures are not high, and labor markets, unlike those in most of Europe and the rest of Africa, are lightly regulated.
A developing nation, Ethiopia does not score well in trade freedom, investment freedom, financial freedom, property rights, and freedom from corruption. The banking system is weak and subject to strong political pressure, as is the rule of law. Property rights cannot be guaranteed.
Background:
Ethiopia is one of sub-Saharan Africa's poorest countries. A military council, the Derg, deposed and killed Emperor Haile Selassie in 1974 and established a repressive socialist regime under Mengistu Haile Mariam. The Derg was overthrown in 1991. While Ethiopia is moving toward multi-party democracy, obstacles to progress are abundant, as demonstrated by the 2005 post-election crackdown on protestors.
Agriculture contributes over 45 percent of GDP, accounts for over 80 percent of exports, and employs over 80 percent of the population. The government remains involved in key economic sectors and reserves others for Ethiopians. Since its war with Eritrea, Ethiopia has depended heavily on Djibouti for access to foreign goods. The border remains heavily armed, and conflict could be renewed. Ethiopia invaded Somalia in support of Somalia's transitional federal government in December 2006.
Business Freedom - 58.3%
The overall freedom to start, operate, and close a business is restricted by Ethiopia's national regulatory environment. Starting a business takes an average of 16 days, compared to the world average of 43 days. Although the cost is high, obtaining a business license requires less than the world average of 19 procedures and 234 days. Regulation is generally regarded as fair but not always transparent. Bureaucracy is cumbersome, but closing a business is relatively easy.
Trade Freedom - 63%
Ethiopia's weighted average tariff rate was 13.5 percent in 2002. Restrictive foreign exchange controls, burdensome trade-related regulations and bureaucracy, import restrictions, and inadequate infrastructure add to the cost of trade. An additional 10 percentage points is deducted from Ethiopia's trade freedom score to account for these non-tariff barriers.
Fiscal Freedom - 77.2%
Ethiopia has burdensome tax rates. The top income tax rate is 35 percent, and the top corporate tax rate is 30 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. In the most recent year, overall tax revenue as a percentage of GDP was 12.6 percent.
Freedom from Government - 80.9%
Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equaled 25.2 percent of GDP. Despite a decade of privatization, state ownership and management still guide many sectors of the economy.
Monetary Freedom - 69.4%
Inflation is relatively high, averaging 10.6 percent between 2004 and 2006. Relatively unstable prices explain most of the monetary freedom score. The government influences prices through its regulation of state-owned enterprises and utilities, subsidizes and controls the prices of petroleum products, and controls the prices of pharmaceuticals and fertilizers. An additional 10 percentage points is deducted from Ethiopia's monetary freedom score to adjust for measures that distort domestic prices.
Investment Freedom - 40%
Despite efforts to liberalize foreign investment laws and streamline registration, official and unofficial barriers persist. Sectarian and ethnic violence (particularly on the Somali border) continues. Certain sectors remain off-limits. The Ethiopian Investment Commission provides a one-stop service that significantly cuts the cost of obtaining licenses.
An investment promotion authority has been established to lure foreign capital into certain sectors like textiles. Foreign exchange accounts, payments, and current transfers are subject to controls and restrictions, as are capital transactions. All investments must be approved and certified by the government.
Financial Freedom - 20%
Ethiopia's financial sector is small and significantly government-influenced. The central bank is not independent, and the government strongly influences lending, controls interest rates, and owns the largest bank (Commercial Bank of Ethiopia), which accounts for two-thirds of outstanding credit. Six local private banks have appeared since the mid-1990s and have increased their share of total deposits, loans, and credit, but foreign banks remain barred.
The state-run bank faced collapse several years ago, but its over 50 percent of non-performing loans has since been reduced to just over 25 percent. Foreign firms may not invest in banking or insurance. One of the insurance sector's nine companies is state-owned. There is no stock market, but the private sale of equity is common.
Property Rights - 30%
Enforcement of property rights is weak. The judicial system is underdeveloped, poorly staffed, and inexperienced despite efforts to strengthen its capacity. Property and contractual rights are recognized, but judges lack an understanding of commercial issues.
An international arbitration body's decision may not be fully accepted and implemented by Ethiopian authorities. A highly restrictive land-tenure policy makes it very difficult to register property. Private ownership of land is prohibited; land must be leased from the state.
Freedom from Corruption - 24%
Corruption is perceived as widespread. Ethiopia ranks 130th out of 163 countries in Transparency International's Corruption Perceptions Index for 2006. Despite legal restrictions on corruption, officials have been accused of manipulating the privatization process, and state-owned and party-owned businesses receive preferential access to land leases and credit.
Labor Freedom - 69.5%
Burdensome employment regulations hinder employment opportunities and productivity growth. The non-salary cost of employing a worker is very low, but dismissing a redundant employee is relatively costly. The difficulty of laying off a worker creates a risk aversion for companies that would otherwise hire more people and grow. Restrictions on the number of work hours are rigid.
Ethiopia
Rank: 124
Regional Rank: 26 of 40
Printer-Friendly Version (PDF)
English
Spanish
Quick Facts
Population:
71.3 million
GDP (PPP):
$75.1 billion
10.3% growth in 2005
5.1% 5-yr. comp. ann. growth
$1,055 per capita
Unemployment:
n/a
Inflation (CPI):
6.8%
FDI (net inflow):
$205.0 million
Official Development Assistance:
$1.3 billion (53.2% from the U.S.)
External Debt:
$6.3 billion
Exports:
$1.9 billion
Primarily coffee, gold, leather products, live animals, oilseeds
Imports:
$4.9 billion
Primarily food and live animals, petroleum and petroleum products, chemicals, machinery, motor vehicles, cereals, textiles
RSS Feeds | Careers | Directions | Site Map | Privacy Policy | Copyright
All Rights Reserved ©2008 The Heritage Foundation
No comments:
Post a Comment