1.Political and Economic

Ethiopia is a federal democratic republic with its separate regions demarcated on ethnic lines. The Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) has held power since it overthrew the Derg military regime in 1991. The EPRDF established the current constitution in 1994 and held the first multiparty election in 1995. The next elections will be in 2015.

Under Prime Minister Hailemariam Desalegn, government has become less centralised than it was under the late PM Meles Zenawi. There has been a greater role for collective decision-making in cabinet, and a more prominent role for parliament in scrutinising the government’s performance.

The country continues to be a relative ‘island of stability’ in the volatile Horn of Africa (though religious, ethnic and political tensions do exist). This has helped it to enjoy impressive economic growth over the past decade.

There is, however, insecurity in parts of Ethiopia’s Somali Region, particularly in the Ogaden. In the western Gambella and Benishangul-Gumuz Regions, competition over land and other resources can lead to occasional inter-communal clashes.

Information on political risk, including political demonstrations, is available in the FCO Travel Advice.

Ethiopia is one of the fastest growing economies in the world. According to the World Bank, Ethiopia’s GDP growth was 7% for the past decade and 9.7% for 2012/13, its preliminary estimate for 2014/15 is 7.5%.

Ethiopia’s first sovereign credit rating of ‘B’, as assessed by Fitch Ratings, reflects the balance between some of its weaker structural features such as a low level of development and weak private sector, indicating vulnerability to shocks, and strong economic performance and improved public and external debt ratios since debt relief under HIPC (Heavily Indebted Poor Countries) in 2005-2007.

Ethiopia is highly dependent on primary agricultural commodity exports such as coffee, oilseeds and pulses and livestock products, which are very sensitive to terms-of-trade shocks. The Government is now focusing on the manufacturing sector to bring structural transformation to the economy. However, this sector currently constitutes only a small percentage of GDP and exports.

The current account deficit may further deteriorate due to the heavy import requirements of the major infrastructure projects under Ethiopia’s “Growth and Transformation Plan” (GTP). As a result, importers (including UK manufacturing companies) may face foreign exchange shortages. The government is committed to establishing a ‘one stop shop’ service for foreign investors, but this has not yet fully materialised. There is still limited capacity in the civil service to execute policies and programmes.

Though the government has and is investing heavily in infrastructure, due to the lack of direct access to the sea importing capital goods can be slow and expensive. Djibouti port is the main access point for import and export by sea. It is not yet sufficiently equipped and maintained to handle the import/export volumes at present (let alone those projected for the future). There have been attempts by the Government to overcome the strain, such as through a dry hub in the Eastern part of the country.

The Government has also invested in the Berbera port redevelopment in Somaliland and is working with the Kenyan Government to develop a dedicated transit route to Lamu. The long delays for importing and exporting goods and high freight costs are the one of the main problems faced by foreign investors in Ethiopia.

 

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