The Ethiopian ICT Sector

This article has been published in the Outsourcing Destination Guide Ethiopia.

Location, History, and International Relations

The Federal Democratic Republic of Ethiopia, located in the northeastern part of the African Continent, commonly known as the Horn of Africa, is a landlocked nation that holds a strategic position, serving as a transit country for the greater region and sharing borders with several neighboring countries, including Eritrea, Somalia, Djibouti, Kenya, Sudan, and South Sudan.

Ethiopia stands out as the oldest inde- pendent African country and one of the cradles of civilization. From ancient origins that stretch back to the empire of legendary King Menelik I, son of the Queen of Sheba and Solomon, to the modern era, Ethiopia is a country with a rich and diverse history worth exploring.

Today’s Ethiopia is a federal parliamentary republic with a bicameral legislature and judicial system that has state and federal courts. The current Prime Minister is Abiy Ahmed, and Sahle-Work Zewde serves as the country’s first female President.

Ethiopia’s state capital and largest city is Addis Ababa, situated in the geographical center of the country, with a population of approximately 5.46 million residents. The city is the seat of the African Union and became a global diplomatic hub due to its hosting of international organizations, historical role as an uncolonized nation, strategic location for the region and a gateway to the Middle East and Europe, and its active role in regional peace and security initiatives.

Furthermore, it is the country’s economic center and serves as the greater region’s transportation and travel hub, housing the headquarters of Ethiopian Airlines, Africa’s leading airline.

The country participates in several international organizations, like the AU, the NonAligned Movement, and is a founding member of the United Nations (UN).

(AU 2023, CIA World Factbook 2023, U.S. Department of State 2023, UN 2023, World Data 2023, WTO 2020).

Demographics, Language, and Religion

With a total landmass of 1.1 million square kilometers, Ethiopia ranks as the 27th largest country in the world, and its population of over 123 million makes it the second most populous nation in Africa and the 13th globally (World Bank 2023 / UN 2023).

Despite its vast size, the population density is relatively low compared to many other African countries. However, this density varies significantly across regions, urban and rural areas. It is a multi-ethnic and multi-religious country (mostly Christian and Muslim, as well as a few smaller groups) (USDOS 2019). Ethiopia is also a multilingual nation, with over a dozen languages all enjoying equal recognition by the constitution. English, the most widely spoken foreign language, is taught in all secondary and tertiary educational institutions, and all federal laws are also published in English

Economy

Ethiopia is classified as a low-income economy mainly based on agriculture; however, the country has been diversifying its economy in recent years, with an increasing focus on industrialization and services, especially within the ICT sector. From 2010 to 2020, Ethiopia experienced strong gross domestic product (GDP) performance, averaging a rate of 9.4% annually.

Unfortunately, these growth rates were subsequently slowed down by COVID, increased inflation due to the ramifications caused by the war in Ukraine, and regional conflicts in the country's northern areas. Moreover, the Horn of Africa region endured the worst drought on record between October and December 2022, further impeding the postpandemic recovery. Nevertheless, GDP growth rates and forecasts for 2023 onwards remain stable above 6.1%, gradually rebounding to pre-pandemic levels (NASA 2022, World Bank 2023).

According to the World Bank, Ethiopia's GDP is estimated to reach around $156.08 billion in 2023, up from $ 126.2 in 2022, with expectations to rise to $ 280.98 by 2028. Regarding purchasing power parity (PPP), Ethiopia's GDP stood at approximately $ 445.82 billion in 2022, making it the fifth-largest economy in Africa.

Ethiopia uses the Birr as its currency, which converts to Euro at a rate of 1 Birr (ETB) = 0,016 EUR (as of may 2024). GDP per capita rose from around $ 974 in 2021 to $ 1,480 in 2023, although it remains below the country's target. However, the upward trend remains consistent, aligning with Ethiopia's goal of achieving low middle-income status by 2025 (Statista 2023, World Bank 2022/23, IMF 2021/23).

Key Economic Sectors

Ethiopia has recently been making substantial strides in its key economic sectors by implementing the Homegrown Economic Reforms Agenda: A Path to Prosperity (HERA), launched in 2019, which builds on the achievements of the past decade's infrastructure and human capital developments. Its primary objective is the preservation of the economy's overall growth by creating a supporting environment for private investment and structural transformation. The agenda stands on three key pillars:

1. Macro-Financial Reforms aim to reduce risks associated with public debt, lower vulnerabilities, alleviate inflation, and promote investment, exports, and growth in general.

2. Structural Reforms focus on bottle- necks that stunt private sector growth through easing business constraints, facilitating trade and tariff barriers, and improving the efficiency of public institutions and services, such as logistics and telecommunication.

3. Sectoral Reforms target the resolution of market failures as well as the alleviation of regulatory and investment constraints to unlock new growth opportunities across all sectors.

Through the comprehensive HERA, alongside other initiatives, the country is fostering rapid growth, reducing poverty, and advancing human development to attract more investments and promote sustainability. Furthermore, by prioritizing local production and reducing dependence on international markets, the Government seeks to strengthen all sectors, retain capital within the country, and improve long-term sustainability and economic security.

The Agricultural Sector is by far Ethiopia's most significant economic sector, accounting for approximately 38% of GDP and employing nearly 80% of the population. Renowned as the largest coffee producer in Africa, Ethiopia is strategically advancing its agricultural exports, including sesame, livestock, oilseeds, pulses, flowers, vegetables, and fruits under the new agenda. Consequently, efforts are being directed towards reducing agricultural imports like wheat, rice, vegetable oils, and fertilizers, with the overarching goal of promoting self-sufficiency, bolstering domestic agriculture, cutting costs, promoting AgriTech / ICT-Agriculture synergies, and generating employment opportunities.

The Industrial Sector accounts for around 23% of GDP and is responsible for key industrial exports of the Ethiopian economy, encompassing textiles, garments, processed food, beverages, and various leather products. There is also a nascent manufacturing sector, which has been gaining prominence in recent years, producing cement, steel, and a variety of chemicals.

To support this growth, industrial parks and economic zones have been established, offering attractive incentives for both domestic and foreign investors. Among these endeavors, the Industrial Parks Development Corporation (IPDC), established in 2014, stands out. Its primary objective is to nurture the manufacturing industry, accelerate economic transformation, and attract both foreign and domestic investors (IPDC 2023).

Other notable entities are the Hawassa Industrial Park (HIP), which specializes in garment, apparel, and textile manufacturing, and the Kilinto Industrial Park, which specializes in Pharmaceuticals. Since the HIP launched in 2016, it has already created around 20,000 jobs, with an estimated potential of reaching 60,000 upon full completion, underscoring the Government's dedication to promote sustainable industrial growth and economic development (DCES 2022).

The Services Sector contributes around 37% to the country's GDP and is experiencing remarkable growth in recent years, particularly in areas such as ICT & telecommunications, transport, finance, trade, and tourism. The HERA places significant emphasis on the services sector, seeking to accelerate its expansion and overall economic contribution. Especially, the finance sector, with the banking and micro-finance services it provides, plays a crucial role in delivering financial services to both businesses and individuals, thereby stimulating economic activities throughout the country (Statista 2023b).

Ethiopia maintains a relatively open trade policy, actively promoting export-oriented industries. The trade sector plays a vital role in supporting other sectors facilitating import and export activities. Agricultural and industrial goods are the main exports, while imports primarily include machinery, petroleum products, and vehicles. Under the HERA, efforts are directed to reduce tariff barriers and taxes on imports to stimulate international trade and boost competitiveness. Governance improvements are focused on streamlining trade procedures, simplifying customs processes, and adopting digital platforms to ensure transparency and efficiency.

To further improve logistics, there's a strong emphasis on infrastructure development and leveraging ICT innovations for better coordination and improved supply chain efficiency. All these measures aim to create a conductive and favorable trade environment, attract investments, and drive sustainable economic development in Ethiopia.

The transport and tourism subsectors are also gaining increased attention, with the Government investing in campaigns like Origins Ethiopia, 13 Months of Sunshine, and Visit Ethiopia 2020 to promote tourism. They all showcase the country's diverse and beautiful natural landscapes, cultural heritage, and historical sites, particularly the nine cultural and two natural UNESCO Heritage sites. The campaigns are also part of the HERA and are heavily supported by infrastructure development, marketing efforts, and improved services to attract more tourists, create employment opportunities, and generate revenue for local communities.

Although frequently overlooked, the informal sector also accounts for a significant portion of the Ethiopian economy and plays a vital role in providing employment and income generation. The industry encompasses small-scale traders, farmers, and craftsmen, making up 83% of non-agricultural employment. It particularly benefits urban areas, providing job opportunities for individuals with limited formal education.

Read more about the University, and about the ICT sector in Ethiopia: https://www.outsourcing-destinations.org/portfolio/outsourcing-destination-guide-ethiopia/