Country profile: Federal Democratic Republic of Ethiopia

Ethiopia’s diverse terrain determines regional variations in climate, natural vegetation, soil composition and settlement patterns. There are considerable differences between highland Ethiopia and lowland Ethiopia in the average monthly and annual temperatures. The extremes range from a mean annual temperature of 34.5° C in the Danakil depression at 180m below mean sea level (msl), to mountain slopes of over 4,000m above msl where minimum temperatures fall below 0° C. Precipitation is determined by differences in elevation and by seasonal shifts in monsoon winds. The highlands receive by far the most rainfall, most of it between mid-June and mid-September, while lower elevations receive much less. In general, relative humidity and rainfall decrease from south to north and vary from scant to negligible in the eastern and southeastern lowlands.

Ethiopia is a country of great geographical diversity.  The topographical differences result in different climatic zones which make Ethiopia an attractive country for different kinds of agricultural production systems. About 60% of the surface is suitable for agriculture. Also the amount of land which can be irrigated is large, but at the moment only a small part is actually utilized.

The geographical differences result in three climatic zones:

  • Cool zone, above 2400 meters, temperature range from freezing to 16°C
  • Temperate zone, 1500 – 2400 meters, temperature from 16 – 30°C
  • Hot zone, below 1500 meters, temperature ranges above 27°C

Ethiopia usually has to two different rainy seasons. The long rainy season, Kremt, takes place from mid-June to mid-September. During February to March some regions have a short rainy season, the Belg. The remaining months are mostly dry.

Water and land

Ethiopia has several major rivers and lakes, as well as significant groundwater resources and annual rainfall. However, rainfall across much of the country is both highly seasonal – with most of the rain falling in a single, short season – and highly variable and unpredictable, in both time and space. Consequently the country is facing droughts and floods. Some of the Rift Valley lakes are highly alkaline or saline or both, and sometimes contain high levels of toxic metals.

Addis Ababa – Ethiopia’s capital – is by far the largest urban centre. It is located in the middle of the country. Population and agricultural activity are concentrated in the central and northern areas of the country; the far south and east are only sparsely inhabited. Ethiopia is affected by land degradation that is caused mainly by population increases and the subsequent encroachment of agriculture into marginal areas.

Macroeconomics and infrastructure

The Ethiopian economy continues to grow strongly. In 2010, Ethiopia registered the same rapid economic growth as in the previous five years. Gross domestic product (GDP) growth in 2010 (2009/10) remained strong at 8.8% compared with the growth attained in 2009 (9.9%). The IMF projects a GDP growth of 7% in the financial year 2011/12. Growth is mainly driven by the service sector (13%), followed by the industrial (10.6%) and agricultural (7.6%) sectors, according to the government’s growth projection scenario for 2009/10. A credit cap imposed on private banks in 2010 limited the expansion of credit to the private sector. This monetary policy kept inflation at about 11% in 2010, rising to almost 40% (October 2011), and coming down in June 2012 to 21%. Ethiopia’s exports grew from USD476m in 2002/2003 to USD2.7bn in 2010/2011. The Netherlands is among the top 5 countries that import products from Ethiopia (especially horticulture produce). Despite this remarkable achievement, the growth in exports is not keeping pace with imports. The result is a large trade and balance of payments deficit.

The Ethiopian Government gives priority to investments in infrastructure, energy and aviation as well as in industry (metal, sugar etc). In the last 10 years the road network has improved greatly and the GSM network covers most rural areas. Ethiopia is endowed with a vast hydropower potential and could become one of the largest power exporters in Africa. At present hydropower is the main source of energy, although diesel power generators have also been allocated to various areas of the country. Urban access to electricity is high at 86%.

Ethiopia has a large domestic market with a total population of approximately 91m. With a population growth rate of 3.16%, it currently ranks 5th on the list of fastest growing nations. Its per capita income of USD380 is lower than the sub-Saharan African average.

Investment climate

From the perspective of the Ease to do Business index, in comparison with its neighbours (excluding Somalia), Ethiopia ranks 2nd after Kenya. The Ethiopian government welcomes foreign investment. It has developed a package of incentives under Regulation No. 84/2003 for domestic and foreign investors engaged in new enterprises and expansions, across a range of sectors. These incentives include customs duty exemption, income tax exemption, and remittance of funds and investment guarantee and protection. Dutch business support instruments are available for Ethiopia. The PSI programme in particular has been successful.

Ethiopia’s private sector is predominantly based on small-scale, informal and service oriented businesses. The private sector faces a number of challenges, including the judicial system, corporate governance, and the financial system. The government of Ethiopia attaches great importance to the development of the private sector and attempts to address these issues. For example, nowadays it takes only 28 days to establish a foreign-owned limited liability company (LLC) in the capital, Addis Ababa. This process is faster than the Investing Across Borders (IAB) regional average for sub-Saharan Africa and the IAB global average. In addition to the procedures that are applicable to domestic companies, the foreign company must authenticate its documents abroad. It must also submit an investment project proposal to the Ethiopian Investment Authority to obtain investment approval.

The Ethiopian constitution states that all land is owned by the State, but local and foreign companies seeking to acquire land are offered long-term leases. It should be noted that there are quite a number of public and semi-public companies involved in economic activities.

Ethiopia has signed a bilateral investment protection treaty with the Netherlands in 1993. A double taxation avoidance agreement with the Netherlands is being prepared.

Source

This article is largely extracted from the following to documents under the creative commons license:

Wageningeg University and Research (2012). Business opportunities for aquaculture in Ethiopia.
Ethiopian Investment Agency and Embassy of the Kingdom of the Netherlands. October 208. Investing in the Agricultural Sector of Ethiopia: A Guide for New Investors.  http://edepot.wur.nl/13. Accessed on December 12, 2014.