Country Risk Rating

A very uncertain political and economic outlook and a business environment with many troublesome weaknesses can have a significant impact on corporate payment behavior. Corporate default probability is high. - Source: Coface

Business Climate Rating

The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.



  • Large market
  • Aviation hub
  • Remarkable track record in growth and poverty reduction (27%)
  • Public investment in infrastructure development
  • Hydroelectric, mining (phosphate, hydrocarbons), and tourism potential




  • Agriculture (70% of employment, but 40% of GDP) is not very productive and is sensitive to weather conditions and changes in world commodity prices
  • Low manufacturing value-added: 6% of GDP
  • Landlocked country: 95% of exports pass through Djibouti
  • Low foreign exchange reserves, lack of foreign exchange, import restrictions
  • Persistent challenges in the business environment and governance
  • Underdeveloped banking system
  • Insufficient power supply
  • Unstable regional environment and high ethno-political tensions


Current Trends

Waiting for investment to recover

In 2020, the COVID-19 crisis, coupled with a locust invasion and the worsening security situation, put an end to the strong growth of the Ethiopian economy. In 2021, the security risk will persist, as will the health and locust threats, and it will probably be necessary to wait until after the elections to see a resumption of activity in the second half of the year. Investment (more than a third of GDP) has come to a halt. Public investment (more than a third of public expenditure), which is focused on infrastructure (roads and railways linking the country to the ports of neighboring countries, power lines) held up better than the private component, which is dominated by foreign investors, who are more sensitive to rising risks. However, work will resume and other projects will be launched under the third Growth and Transformation Plan (2021-2025) and privatisations (sugar, metals, rail, electricity, banking), supported by a law passed in 2018 facilitating public-private partnerships. Construction of the gas pipeline linking the Ogaden fields to the port of Djibouti is continuing. Development of industrial parks will resume as Chinese companies set up, especially in the clothing and footwear sectors. Development of agri-food special economic zones will also continue. However, the pace will likely be slower than it was before the crisis because of persistent risks. Growth in the construction sector had already fallen from 30% in 2015 to 15% in 2019. Household consumption (65% of GDP), which was flat in 2020, may grow moderately in 2021, provided that agriculture (nearly 70% of employment and 80% of the population, with coffee, legumes, teff, potatoes, and sugar cane) is not hit once again by problems. However, consumption will remain constrained by high inflation and the absence of tourism, which had grown strongly until 2019 (9% of GDP and employment). Exports (8% of GDP) were hurt by the lack of tourism and the fall in activity of Ethiopian Airlines (although freight showed resilience), which together account for 40% of exports. In addition, sales of cut flowers and clothing items declined. Finally, coffee shipments (between a quarter and a third of exported goods) suffered from reduced production caused by security problems and population displacement. This year, the improvement should mainly come from goods, while air transport and tourism will be slow to recover.

External aid is essential

Despite its small size, the support plan, with its additional expenditure (defense, security, food aid, health, agriculture, elections), resulted in a slight increase in the public deficit. It is financed by domestic (commercial banks, all state-owned, central bank) and external sources. Multilateral and bilateral creditors are preferred for external financing, with the authorities holding off on borrowing from private creditors (25% of external debt). The debt, which is mainly denominated in foreign currencies, has increased. However, its profile, with an average maturity of nearly 15 years, half of it domestic, lessens the risk of debt distress. In addition to the suspension of debt service by G20 creditor countries under the DSSI at least until June 2021, the country should benefit from new arrangements for a debt owed to China (30% of the external outstanding debt and 42% of its service). Once the crisis is over, consolidation should resume under the IMF's Extended Credit Facility (2020-2022).

Burdened by a substantial trade deficit (15% of GDP), the current account deficit remains large. Nevertheless, it is expected to narrow slightly with the easing of the import bill thanks to lower oil prices and slacker demand for capital goods and intermediate products. Conversely, exports are expected to fall by a smaller amount. The suspension of interest payments on the external debt should reduce the income deficit. With FDI on the decline, official loans will be even more necessary. The current account deficit, along with political problems, put pressure on the birr, which depreciated by almost 20% in 2020, although not enough to curb the parallel market and reduce overvaluation estimated at 25% by the IMF. Foreign exchange reserves, which cover about two months of imports, will remain low, fuelling chronic foreign exchange shortages.

High-risk elections

Ethiopia is a mosaic of ethnic groups. Hostilities sometimes break out between these groups, especially the two largest, namely the Oromo and the Amhara groups. Tensions frequently arise between the central government and the regional states. In 2020, the central government forcibly regained control of Tigray from the rebel Tigray People’s Liberation Front (TPLF). Abiy Ahmed, an Oromo who has been prime minister since 2018, has embarked on a drive to open up the state-run economy and one-party system and reduce ethnic regionalism, which has fuelled demands (including for self-determination) and opposition and caused the regime to tighten its grip. The first-ever free and transparent legislative and regional elections were postponed because of COVID-19 and will be held in 2021. The Prosperity Party, which was created at the initiative of Mr. Abiy and which replaced the Ethiopian People's Revolutionary Democratic Front, a coalition of regional parties that had held power since 1991, could win. The Prosperity Party includes the Oromo, Amhara, and Southern People’s parties as well as five other regional parties. A federalist party is still a long way off. Internationally, the filling of the Renaissance Dam on the Nile is a source of potential conflict with Egypt and Sudan. Finally, the favored relationship with China for 20 years has given way to an opening towards the West.


Coface (02/2021)