Is Ethiopia a Low Income Country? An In-Depth Look at Ethiopia's Economy

• by Abraham Marca Mérida
• Feb, 13 2024

Ethiopia's Economic Indicators

Ethiopia, with a population of over 110 million, is the second-most populous country in Africa. Despite its rich cultural heritage and abundant natural resources, Ethiopia has long been associated with poverty and economic struggles. According to the World Bank, Ethiopia's Gross National Income (GNI) per capita stood at $850 in 2021, placing it in the low income category. This figure is significantly lower than the global average and highlights the nation's economic challenges.

However, it's important to note that Ethiopia has made significant strides in recent years. The country has experienced rapid economic growth, with an average annual GDP growth rate of around 9% between 2010 and 2019. This growth has been driven by investments in infrastructure, agriculture, and manufacturing. The government has also implemented policies aimed at attracting foreign investment and promoting exports.

Despite these positive developments, Ethiopia still faces significant economic hurdles. The country's economy is heavily dependent on agriculture, which employs over 70% of the population. However, agricultural productivity remains low due to factors such as limited access to modern farming techniques, inadequate infrastructure, and frequent droughts. As a result, many Ethiopians continue to live in poverty, with limited access to basic services such as healthcare and education.

Poverty and Human Development in Ethiopia

Poverty remains a pervasive issue in Ethiopia. According to the United Nations Development Programme (UNDP), about 24% of Ethiopians live below the national poverty line. This means that nearly a quarter of the population struggles to meet their basic needs, such as food, shelter, and clothing. Poverty is particularly acute in rural areas, where access to essential services and economic opportunities is limited.

Ethiopia also faces challenges in terms of human development. The country ranks 173 out of 189 countries on the Human Development Index (HDI), which measures key dimensions of human development such as life expectancy, education, and standard of living. Ethiopia's HDI value for 2019 was 0.485, which is below the average for countries in the low human development group.

"Ethiopia has made commendable progress in reducing poverty and improving living standards over the past two decades. However, sustaining this progress requires continued efforts to address the root causes of poverty, such as limited access to education, healthcare, and economic opportunities." - Dr. Abebe Aemro Selassie, Director of the African Department at the International Monetary Fund (IMF)

The Ethiopian government has recognized the need to address these challenges and has implemented various initiatives aimed at reducing poverty and promoting human development. For example, the government has invested in education, with a focus on increasing enrollment rates and improving the quality of education. It has also launched programs to expand access to healthcare, particularly in rural areas.

Recent Economic Developments and Outlook

Despite the challenges, there are reasons for optimism about Ethiopia's economic future. The government has launched ambitious development plans, such as the Growth and Transformation Plan (GTP) II, which aims to transform Ethiopia into a middle-income country by 2025. The plan focuses on industrialization, infrastructure development, and export promotion.

Ethiopia has also made significant progress in attracting foreign investment. The country has established industrial parks and special economic zones to encourage investment in manufacturing and other sectors. Major international companies, such as PVH Corp (Calvin Klein, Tommy Hilfiger) and H&M, have set up operations in Ethiopia, drawn by the country's low labor costs and strategic location.

However, Ethiopia's economy has not been immune to the impact of the COVID-19 pandemic. Like many countries around the world, Ethiopia has experienced economic disruptions due to lockdowns, reduced trade, and decreased foreign investment. The IMF projects that Ethiopia's GDP growth rate will slow to 2.0% in 2021, down from 6.1% in 2020.

Despite these short-term challenges, the long-term outlook for Ethiopia's economy remains positive. The government's commitment to economic reforms, infrastructure development, and human capital investment bodes well for the country's future. As Ethiopia continues to attract foreign investment and develop its manufacturing and service sectors, there is potential for significant economic growth and poverty reduction in the coming years.

In conclusion, while Ethiopia currently falls into the category of a low income country, it has made significant progress in recent decades. The government's focus on economic growth, poverty reduction, and human development has yielded positive results, although challenges persist. With continued efforts to address these challenges and capitalize on the country's potential, Ethiopia has the opportunity to transform its economy and improve the lives of its citizens in the years to come.