The 2004 GDP was $10.1 billion, and the 2024 GDP was $192.1 billion. Growth was 1,900%. If a similar growth rate is achieved in the next 20 years, the GDP will be $3.6 trillion by 2044! That’s 120% bigger than Africa’s entire GDP today.

With about 123 million people (2022), Ethiopia is the second most populous nation in Africa after Nigeria and one of the fastest-growing economies in the region, with an estimated 6.4% growth in FY2021/22. However, it remains among the poorest, with a per capita gross national income of $1,020. Ethiopia aims to reach lower-middle-income status by 2025.

Ethiopia’s strong growth rate builds on a longer-term record of growth over the past 15 years, during which the country’s economy grew at an average of nearly 10% per year, one of the highest rates in the world. Among other factors, growth was led by capital accumulation, in particular through public infrastructure investments. Ethiopia’s actual gross domestic product (GDP) growth slowed down from FY2019/20 to FY2021/22 due to multiple shocks, including COVID-19, with growth in industry and services easing to single digits. However, agriculture, where over 70% of the population is employed, was not significantly affected by the COVID-19 pandemic, and its contribution to growth slightly improved compared to previous years.

The consistently high economic growth over the last decade resulted in positive poverty reduction trends in urban and rural areas. The share of the population living below the national poverty line decreased from 30% in 2011 to 24% in 2016, and human development indicators improved as well. However, gains are modest compared to other countries that saw fast growth, and inequality has increased in recent years. Furthermore, conflicts in various parts of Ethiopia risk undermining the country’s economic and social development progress. 

The government has launched a 10-year Development Plan based on its 2019 Home-Grown Economic Reform Agenda from 2020/21 to 2029/30. The plan aims to sustain the high growth achieved under the Growth and Transformation Plans of the previous decade while facilitating the shift towards a more private-sector-driven economy. It also aims to foster efficiency and introduce competition in vital growth-enabling sectors (energy, logistics, and telecom), improve the business climate, and address macroeconomic imbalances.

Development Challenges

Ethiopia seeks to chart a development path that is sustainable and inclusive, accelerating poverty reduction and boosting shared prosperity. Significant progress in job creation and improved governance will be needed to ensure that growth is equitable across society. Achieving these objectives will require addressing key challenges, including the following:

  • It addresses macroeconomic distortions that constrain private sector development, structural transformation, and the generation of jobs.
  • It reduces the incidence of conflict, which has substantially impacted lives, livelihoods, and infrastructure. Canceling hostilities in the North in November 2022 is an essential step in this direction.
  • They are overcoming the effects of the COVID-19 pandemic. Like the rest of the world, Ethiopia has been experiencing the pandemic’s unprecedented social and economic impact. While exports and foreign direct investment rebounded in 2020/21, and jobs have been recovering, some lasting scars will likely remain. Urban employment levels have not recovered fully, some households and firms continue to report income losses, and poverty is estimated to have increased.
  • They are addressing food insecurity, which is growing due to adverse weather events, locust invasion, conflict, and global conditions leading to high food price inflation. Frequent severe weather events alongside long-term impacts of climate change undermine agriculture, pastoral livelihoods, and food security. The 2022 drought is the worst in forty years, severely affecting millions in the southern and eastern parts of the country. More than 20 million people will face severe food insecurity in 2023.
  • They are improving human capital. Ethiopia’s Human Capital Index is at a low 0.38 (2020), meaning that a child born in Ethiopia today will be 38% as productive as s/he could be if s/he enjoyed complete education and total health. This is lower than the average for the Sub-Saharan Africa region but slightly higher for low-income countries. Learning poverty stands at 90%, and 37% of children under five years of age are stunted.
  • We are generating good jobs. The country’s growing workforce (roughly 2 million persons reaching working age per year) puts pressure on the labor market’s absorption capacity, necessitating improving current jobs while creating sufficient new jobs.

GDP data: IMF
Graph: Visual Capitalist

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