Federal Democratic Republic of Ethiopia

Assessment Report of the

Homegrown Economic Reform (HGER) Agenda
(2019-2022)

Policy Studies Institute (PSI)

Addis Ababa
Table of Contents
Table of Contents .............................................................................................................................. ii
List of Tables ................................................................................................................................... iii
List of Figures.................................................................................................................................. iii
Executive Summary.......................................................................................................................... iv
1. Review of Macro-Financial Reforms (July 2019 – June 2022) ................................................. 1
1.1. Public sector finance and SOE reforms ................................................................................. 1
1.2. Monetary and Financial Sector Reforms ............................................................................... 7
1.3. Assessment of the reform in terms of achieving its objectives ............................................. 12
1.4. Concluding remarks............................................................................................................. 16
2. Review of Structural Reforms (July 2019 – June 2022) .......................................................... 17
2.1. Ease of doing business reform ............................................................................................. 17
2.2. Logistics sector reform ........................................................................................................ 21
2.3. Power sector reform ............................................................................................................ 27
3. Review of Sectoral Reforms (July 2019 – July 2022) .............................................................. 31
3.1. Agriculture Sector Reform (July 2019 – July 2022) ............................................................ 31
3.2. Manufacturing Sector Reform (July 2019 – July 2022) ....................................................... 33
3.3. Tourism Sector Reform (July 2019– July 2022) .................................................................. 35
3.4. Mining Sector Reform (July 2019 – July 2022) ................................................................... 36
3.5. ICT Sector Reform (July 2019– July 2022).......................................................................... 36
Annexes ........................................................................................................................................... 39
ANNEX I. MACRO-FINANCIAL REFORM MEASURES .................................................................... 39
Annex 1 Mapping macro-financial reform objectives with the outputs of public sector finance and SOE
reforms ...................................................................................................................................................... 39
Annex 2 Public Sector Domestic Debt Outstanding by Instrument (millions of ETB) ............................. 39
Annex 3 Domestic Financing from the Banking System (millions of ETB) ............................................. 39
Annex 4 Total tax revenue as a percentage of GDP .................................................................................. 40
Annex 5 Direct and indirect tax revenue (as a percentage of GDP) .......................................................... 40
Annex 6 Activities undertaken in debt management by the Ministry of Finance...................................... 40
Annex 7 Projected exchange rate path of the Ethiopian Birr against the US dollar .................................. 41
Annex 8 Trends of official and parallel exchange rate .............................................................................. 42
Annex 9 Trends in the Real Effective Exchange Rate (REER) ................................................................. 42
Annex 10 Exports of major commodities in Ethiopia ............................................................................... 43
Annex 11 Velocity of Broad Money ........................................................................................................ 43
Annex 12 Annual Growth in reserve money and Broad Money .............................................................. 43
Annex 13 Monthly Growth in reserve money and Broad Money ............................................................. 44
Annex 14 Inflation in Ethiopia and Selected African Countries (percent) ................................................ 44
Annex 15 Market share (%) of the commercial banking sector as of 2022 ............................................... 44
Annex 16 Indicators for measuring financial stability .............................................................................. 45
Annex 17 Indicators of Financial Stability and Access, Planned and Achieved ....................................... 45
Annex 18 Growth in Deposits and Loan Outstanding ............................................................................... 46
Annex 19 Number of People per Branch ................................................................................................. 46
ANNEX II. SECTORAL REFORM MEASURES ................................................................................... 47
Annex A.1. Revised or developed policies and legal frameworks in the agriculture sector...................... 47
Annex A.2. Reform Measures in the manufacturing sector ...................................................................... 49
Annex A.3. Reform Measures in the Tourism sector ................................................................................ 51
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 Annex A.4. Reform Measures in the Mining sector .................................................................................. 52
Annex A.5. Reform Measures in the ICT sector ....................................................................................... 53
Annex B. Appendix Tables ....................................................................................................................... 55
Annex C. Appendix Figures ...................................................................................................................... 57

List of Tables
Table 1: Fiscal Deficit (Millions of ETB, % of GDP): Budget versus Achieved ............................................3
Table 2: Debt sustainability indicators (in percent)........................................................................................13
Table 3 Highlights of accomplishments in improving Ethiopia’s Ease of Doing Business ...........................18
Table 4 Review of performance in the logistic sector ....................................................................................23
Table 5 Reform measures/Goals and activities in the power sector ...............................................................27
Table 6 The Power sector targets and achievements ......................................................................................28

List of Figures
Figure 1: Exports of goods and non-factor services and private transfers (Billions of USD) ..........................9
Figure 2: Money Multiplier ............................................................................................................................10
Figure 3: Year-on-Year Inflation (percent) ....................................................................................................13

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Executive Summary

Macro-Financial Reform (July 2019 – June 2022)

The Government of Ethiopia implemented the macro-financial reforms of HGER with the objective of debt
distress reduction and price stabilization, improving access to finance, and reduction of financial sector
vulnerability. Faced with two major challenges of COVID-19 and internal conflicts in the country, the
government made concerted efforts in making policy and legal changes that would help achieve these
objectives. Furthermore, these policy and legal changes have both short- and long-term impacts that would
extend beyond the HGER plan and thus the effects of some of these changes are yet to be seen.

Encouraging developments were seen in debt distress reduction and stabilization due to the improvements
made in public debt management and a boost in the values of exports of goods and services. Total public debt
stock as a percentage of GDP was 45.2 percent of GDP at the end of the 2021/22 fiscal year from 56.1 percent
of GDP in the 2018/19 fiscal year. Furthermore, the HGER period saw increased foreign exchange earnings
from exports of goods and non-factor services and from private transfers. Exports of goods increased by 16
percent mainly due to increased exports of gold, coffee, flower, and chat. These changes led to improvements
in external debt sustainability indicators. Both external debt to GDP and debt service to export ratios dropped
from 28.2 percent and 26.7 percent in 2018/19 to 22.0 percent and 20.4 percent in 2021/22. While these
positive changes are signals for improvements in the level of debt distress, these small changes are not
significant enough to improve the DSA rates. The GOE should note that debt-carrying capacity is also subject
to change and fast growth in exports is critical for meaningful improvements in the DSA risk rating in the
long run.

Looking at the financial inclusion indicators, there is an increase in deposits, credit to the private sector, and
a decrease in the number of people per branch, suggesting that access to finance improved over the HGER
period. Outstanding deposits reached 1.7 trillion in the last fiscal year of the HGER period (i.e., 2021/22)
from ETB 899.6 billion in 2018/2019 with an average growth rate of 25 percent. Furthermore, outstanding
loans grew by an average of 23 percent over the reform period from ETB 840.9 billion in 2018/19 to ETB
1.6 trillion in 2021/22. This achievement was recorded partly because of the recent currency demonetization,
repealing of NBE bills, NBE’s provision of a three-year credit line to CBE, and injection of liquidity into the
hotel and tourism sectors through commercial banks to counteract the impact of COVID-19.

There are, however, challenges in stabilizing the economy by lowering inflation. General annual inflation
was 15 percent in 2018/19 and the 2021/22 fiscal year annual general inflation rate was 34 percent. This is
much higher than the government’s targets of single-digit inflation. Particularly worrying is the high inflation
rate of food items since it has an adverse consequence on the poor. Food inflation was 20 percent in 2018/19
and increased to 38 percent in 2021/22. Despite a decline in food inflation during June 2022 from its highest
level of 44 percent in May, it was a record high in the previous months starting August 2021 (38 percent) to
the end of the HGER period. The reversal of the tight monetary policy envisaged in HGER contributed to the
high inflation rate. Price expectations and supply disruptions (partly due to conflict) have played roles in
explaining inflation from the supply side. Coupled with broad money growth, exchange rate pass-through to
prices might also have a potential impact on inflation.

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Structural Reforms (July 2019 – June 2022)
The structural reforms under the HGER agenda aim to remove bottlenecks that constrain businesses and
create an enabling environment for the active participation of the private sector. Under this area, the reforms
focus on speeding up ease doing business reforms and improving the performances of the Logistics and the
Energy Sectors, thereby promoting economic growth and job creation.

Ease of Doing Business Reforms: Ethiopia’s business environment is not conducive for starting and
operating businesses, and it is a serious bottleneck for the growth of the private sector. Duly recognizing this
problem, the HGER agenda underlined speeding up ongoing reforms of easing constraints to doing business
as one major area of its structural reforms. Accordingly, several reform measures toward improving Ethiopia’s
ease of doing business have been implemented. Among others, the main reform measures include improving
the different components of the ease of doing business such as starting a business, dealing with construction
permits, paying taxes, trading across borders, getting electricity, getting credit, and registering property.
Important improvements have been made to the different components of the World Bank’s measure of ease
of doing business.1 If these reform measures are widely communicated and fully implemented, Ethiopia’s
ease of doing business ranking is likely to improve in a meaningful way. The report also forwarded policy
recommendations that can be used to further improve Ethiopia’s ease of doing business.

Logistics Sector Reforms: Poor logistics has been identified as one of the key factors that undermine
Ethiopia’s international competitiveness, and it is a major bottleneck for furthering economic growth and
development. Acknowledging that inefficient logistics is becoming a series bottleneck for Ethiopia’s
international competitiveness, reforming the logistics sector should be considered as one major structural
reform area. The HGER agenda has identified the bureaucratic customs processes, inefficient logistics
services, under-developed transport systems, inadequate terminal facilities, limited utilization of ICT
systems, and inefficient regulatory framework as major challenges observed in the logistics sector (FDRE,
2019). To ensure the efficiency of the logistics services, the HGER proposed reforms in three key areas
enhancing the competitiveness and efficiency of the logistics sector, digitalizing logistics and related services,
and improving coordination between the different actors in the sector. With the Logistics Transformation
Office of EMAA taking the lead, reform measures that aim to build the sector’s enforcement capacity, reduce
logistic transit time and cost, and provide efficient, reliable, and simplified service have been implemented.
As a result of the reform measures, it was possible to improve the implementation capacity of the sector,
reduce the trade cost and transit time, and improve the efficiency of the logistics service in the country.

Structural Reforms in the Power Sector: As Ethiopia continues to industrialize, its electric power demand
continues to grow. Despite this, the power sector is still characterized by low access, low quality and
reliability, poor financial performance, and weak institutional and regulatory frameworks. To effectively
address these structural problems, the power sector is one of the prioritized areas that is covered under the
structural reforms of the HGER agenda. Among others, the major structural reforms implemented in the
power sector include strengthening financial stability, improving institutional capacity, ensuring universal
access, and creating an enabling policy and regulatory framework.

1
The World Bank Group discontinued the Doing Business report as of September 2021 and is planning to launch a
new approach, tentatively known as the Business Enabling Environment (BEE), to assess the business and investment
climate in economies worldwide.
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Sectoral Reforms (July 2019 – June 2022)
Agricultural Sector Reform: Major reform measures in the sector include putting in place legal frameworks
towards establishing a strong and functional institutional system that promotes efficient utilization of
production resources (including revision of the sectoral policy), access to agricultural inputs (including a
national fertilizer supply chain enhancement strategy, developing a seed policy and supporting directives, and
removal of duties and taxes on mechanization technologies) and agriculture-focused financial services, and
integration of smallholder farmers into agricultural value chains. Significant achievements have been
recorded in mechanization, wheat intensification, horticulture, and crop production related to the promotion
of cluster farming. Irrigation development is another reform activity that resulted in the development of small-
scale irrigation schemes and the distribution of irrigation materials and equipment. Achievements in
agricultural import substitution through irrigated wheat production and agricultural export improvement
(with the highest coffee export earnings in history) were also recorded during the reform period. Major
challenges are the lack of separate planning and reporting for HGER interventions in the agriculture sector
and consequently difficulties in tracking expected results.
Manufacturing Sector Reform: The major reforms under the HGER agenda implemented in the
manufacturing sector are: revision of policies and regulations and formulation of new ones; development of
the manufacturing incentive strategy; formulation of export development and promotion strategy (now being
finalized); and digitization of service provision through developing an Industry Information System (IIS) that
facilitates access to relevant data from key stakeholders. The manufacturing incentive management is
integrated into the IIS. Major challenges concerning the implementation of the manufacturing sector reforms
include a lack of awareness and conviction about the need to have a separate plan for the implementation of
the HGER agenda, weak institutional networking and inter-sectoral collaborations, the Covid-19 pandemic,
and removal of Ethiopia from AGOA trade privilege.
Tourism Sector Reform: Recently developed tourist attraction parks in Addis Ababa (Entoto, Unity, and
Friendship Parks) are flagship projects that showcased Ethiopia’s historical, cultural, and ecological
attractions. The Ministry of Tourism (MoT) has taken action in preserving and protecting immovable heritage
sites and movable heritages. The MoT has also performed activities on capacity building and awareness
creation on the principles of tourist sites and wildlife protection, tourism marketing and digital promotion,
and hospitality activities. New strategies for stopover tourism, Meetings, Incentives, Conferences and
Exhibitions (MICE) tourism, and domestic tourism are prepared and implemented. Moreover, the
development of a tourism fundraising procedure to guide efforts of pooling resources for investments in
developing and protecting tourism sites and infrastructure. The main challenges that seriously obstruct
reforms in the tourism sector throughout the three years life span of HGER are the Covid-19 pandemic and
armed conflicts in the country.
Mining Sector Reform: The reform measures in the mining sector under the HGER agenda introduce
formalizing and supporting Artisanal and Small-scale Mining (ASM) and hence reducing the incentives for
informality, illegal and contraband activities in the mining sector. This is supported by policy and legal
framework reforms, including the preparation and implementation of policy documents along with improving
the regulatory framework key to creating a conducive and enabling environment for private sector
participation and operations in the mining sector. The enhancement of a community development fund has
been started to ensure local society benefits from mining activities. The reform measures also emphasized
the importance of improving the value addition of mineral resources through the establishment of mineral

vi
refineries. Major implementation challenges are security problems in mining areas and lack of access to
finance, technologies, infrastructure, and logistics to support ASM.
ICT Sector Reform: The reform measures in the ICT sector include promoting the use of ICT for modernizing
the civil service and public services, promoting e-commerce and digitization of the financial and logistic
sectors, expanding ICT infrastructure, promoting the export of IT-enabled services, and promoting pro-
innovation ICT regulatory and business environment. The Ministry of Innovation and Technology (MInT)
has completed some legal and policy reforms that support the development of the sector (e.g., e-transaction
proclamations and digital policies). Furthermore, the implementation of e-services at various government
offices has been completed. Lack of coordination between key stakeholders responsible for the ICT sector
reforms and budget constraints have been indicated as major challenges that affected the timely
implementation of ICT sector reform measures.

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1. Review of Macro-Financial Reforms (July 2019 – June 2022)

The Government of Ethiopia (GOE) designed the macro-financial reforms of the Home-Grown Economic
Reforms (HGER) to stabilize the economy, address financial sector vulnerabilities, and improve access to
finance. These broad reform ideas were translated into objectives linked to policy actions. These objectives
include price stability, debt sustainability, reduction of financial sector vulnerability, and improved access to
finance for the private sector. Implementing these reforms successfully and achieving these objectives
requires systematic coordination of fiscal, monetary, financial, and capital market reforms. This review
identified two broad reform areas. The first set of reforms — i.e., public sector finance and State-Owned
Enterprises (SOE) reforms — aimed at maintaining a prudent fiscal policy, enhancing domestic resource
mobilization and efficiency of public expenditure and investments, and improving debt management. The
second reform area — the monetary-financial reforms — was designed to address foreign exchange shortage,
strengthen the monetary policy framework, reduce financial sector vulnerabilities, and improve access to
finance. This review summarizes the major developments of the HGER in the three years that elapsed from
July 2019 – June 2022.

In general, the HGER reform measures were off to a good start but were quickly challenged by several shocks
that led to a delay and in certain cases a reversal of reforms. The first shock came less than a year after the
HGER was announced. The first case of COVID-19 was discovered in Ethiopia in March 2020 and soon
spread to reach death levels of more than 7,500 people to date. The pass-through effect and the slowdown in
certain economic sectors coupled with an increased need for government expenditure led to the relaxation of
prudent fiscal and monetary measures. Late in November 2020, the conflict in the northern part of Ethiopia
erupted and this presented the second major economic shock that resulted in a lower level of tax collection
and the need for increased government expenditure. This also led to delay or reversal of measures in the
reform program. We look at each reform measure in this context.
1.1. Public sector finance and SOE reforms

The reforms that aim for strengthening public sector finance and SOEs have the objectives of price stability
and debt distress reduction. The Ministry of Finance (MOF) identified reform outputs to achieve these
objectives. The major reform outputs include maintaining a prudent fiscal policy, enhancing domestic
resource mobilization, improving debt management, and improving the efficiency and governance of public
finance systems, and the efficiency of SOEs. Annex 1 presents the mapping of these reform outputs with the
overall objectives of the macro-financial reform.

Maintaining a prudent fiscal policy

Maintaining a prudent fiscal policy has the potential role of reducing inflationary pressures and sustaining
economic growth. The fiscal deficit in Ethiopia was 2.5 percent of GDP in the 2018/19 fiscal year, which
was below the Maastricht Fiscal Criteria2 of 3 percent of GDP. The HGER, therefore, considered no further
consolidation and did not put specific targets for the budget deficit3. Hence, we have relied on the targets set
in the three-year arrangement under the Extended Credit Facility (ECF) and Extended Fund Facility (EFF)

2 The Maastricht Fiscal criteria are a set of fiscal criteria that specify the level of government deficit and debt levels not to exceed

3% and 60% of GDP respectively. The criteria are used by the EU for fiscal convergence among its members.
3
Federal Democratic Republic of Ethiopia (2019), A Homegrown Economic Reform Agenda: A Pathway to Prosperity
1
between the Government of Ethiopia and IMF in May 20204. Moreover, the government also has an annual
budget with specific targets for the budget deficit that is used to review performance.

The focus of this review will be on the modes of financing such as the provision of credit by the National
Bank of Ethiopia (NBE) to cover government expenditure in the form of direct advances, which is not in line
with the objectives of price stability. The law requires NBE to provide the government with credit and
advances to finance the budget deficits5. The NBE’s monetary financing of government expenditure is known
to lead to inflationary pressure. Another source of financing for the government is treasury bills. The MOF
uses treasury bill auctions to finance the central government budget deficits, and the market is for short-term
financing needs. Pre-2019, NBE auctions treasury bills at a fixed interest rate ranging from 0.8 (for the 28
days) to 5 percent (for the 364 days). With the inflation rate averaging 14 percent between 2004 and 2019,
the negative-real interest meant the treasury bills market was not attracting voluntary participants6. Until
2019, NBE sold treasury bills to private and public social security funds and the Development Bank of
Ethiopia (DBE).

The GOE undertook two policy changes to address gaps in government financing that contributed to
inflationary pressure. In December 2019, MOF took steps to limit direct advances and converted the stock of
debt from direct advance into a 25-year bond with a 10-year grace period. Furthermore, the government
introduced a market-based auction for treasury bills, and the stock of treasury bills was converted to a three-
year treasury note. This measure of limiting direct advance aimed to stabilize the price level by reducing the
direct credit from NBE while creating simultaneously other sources of funds from the market-based treasury
bills, which have no inflationary effect, to finance the government’s budget deficit.

The specific targets set out on the three-year arrangement plans (i.e., ECF & EFF) were to bring the fiscal
deficit from 2.5 percent of GDP in 2019/20 to 1.9 by the end of HGER (i.e., 2021/22). Taking the government
figures at face value, the fiscal deficit as a percentage of GDP was above the targets under the three-year
arrangement of reducing the fiscal deficit to GDP. As shown in Table 1, fiscal deficits were 2.8 percent in
2019/20, 3.4 percent in 2020/21 and 4.2 percent in 2021/22. The ratio in the first year of the reform program
(i.e. 2.8 percent) was lower than the 3 percent criteria, yet it was higher than the 2.5 percent target under the
ECF & EFF arrangements for that fiscal year. While the achieved fiscal deficit was higher in 2019/20 than
ECF & EFF plans, the GOE planned to maintain the fiscal deficit ratio with respect to the budget at 2.1
percent. The gap was due to the unexpected/revised budget in the fiscal year. Budget utilization was 133
percent of the budget in 2019/20 (with deficits of ETB 70 Billion in the budget, and 93 Billion in the actual
performance). In both the 2020/21 and 2021/22 fiscal years, actual deficits as a percent of GDP were higher
than both the budget and ECF/EFF targets. The actual deficit was 3.4 percent in 2020/21, higher than budget
targets (2.8 percent) and ECF/EFF targets (1.9 percent). For the 2021/22 fiscal year, the actual deficit was
4.2 percent of GDP, higher than the target set out in ECF & EFF plans. This is also higher than previous
fiscal years and the budget planned during the same year. Furthermore, in this last year of the reform period,
unlike the previous years, there was higher dependence on domestic finance than external finance.

4
IMF Country Report No. 20/150, International Monetary Fund. May 2020
5
Monetary and Banking Proclamation No. 591/2008, The National Bank of Ethiopia Establishment (as amended).
6
Chauffour, J.-P., & Gobezie, M. A. (2019b). Exiting Financial Repression: The Case of Ethiopia. World Bank, Washington, DC.
https://doi.org/10.1596/1813-9450-9082

2
Table 1: Fiscal Deficit (Millions of ETB, % of GDP): Budget versus Achieved7

Fiscal Achieved vs Budget ECF and EFF As % of GDP As % of GDP

Year Deficit Budget Achieved (%) Plan (Budget) (Achieved)
Financing 70,327.9 93,277.4 132.6 2.5 2.1 2.8
2019/20 External (net) 31,964.7 59,528.8 186.2 - 0.9 1.8
Domestic (net) 38,363.3 42,104.0 109.8 - 1.1 1.2
Financing 121,266.4 149,299.3 123.1 1.9 2.8 3.4
2020/21 External (net) 34,865.8 21,808.3 62.5 - 0.8 0.5
Domestic (net) 86,400.7 108,684.9 125.8 - 2.0 2.5
Financing 201,217.8 259,632.7 129.0 1.9 3.3 4.2
2021/22 External (net) 11,056.3 3,295.5 29.8 - 0.2 0.1
Domestic (net) 190,161.5 262,431.0 138.0 - 3.1 4.3
Source: MOF and authors’ calculation

By way of summary, fiscal performance during the HGER period reveals that the objective of contributing
to price stability following prudent fiscal policy has veered off its plan. All the three fiscal years witnessed
an increased expenditure with high budget deficits than what is recommended. This was mainly due to two
major challenges the GOE faced that transpired in the country following the onset of the HGER reform. The
GOE responded to the challenges posed by COVID-19, which resulted in a reduction in tax revenues because
of reduced economic activity, and increased expenditures as the government responded to COVID-19.
Furthermore, internal conflict in the country led to an unexpected public expenditure in times of reduced
revenue leading to an increased deficit. Taking into account these major factors, the increase in fiscal deficit
was moderate.

The government has set a direction to phase out direct advances from NBE. The government converted the
outstanding debt from direct advances into a 25-year government bond with a 10-year grace period to signal
the government’s commitment. As a result, the outstanding debt from direct advances dropped from ETB
187 billion (7 percent of GDP) in June 2019 to ETB 31 billion (i.e., close to 1 percent of GDP) by the end of
June 2020. While this decline shows commitments of the GOE, direct advances from NBE reverted in the
following two years—it increased to ETB 83.5 Billion (1.9 percent of GDP) in June 2021 and to ETB 160
billion (2.6 percent of GDP) in June 2022 (Annex 2). This shows the magnitude of the reversal of the targets
set out in the HGER. This reverse might show the government’s pressure to face the challenges mentioned
above, especially internal conflict in the last two years of the reform period. Although most of the financing
of the deficit was done through Treasury Bills, the increase in the direct advances contributed to the persistent
inflation we observe in the country today.

The conversion of the outstanding debt from direct advances is only relevant to signaling the government’s
intent. For price stability, the critical factor is how the government has been financing the deficit since the
government launched HGER. In the first years of HGER implementation, the net domestic financing from
the banking system declined from 0.4 percent of GDP (2018/19) to 0.15 percent of GDP (2019/20). While
this decline was not significant enough, the figure increased to 1.2 percent of GDP (2020/21) and 3.4 percent

7
In 2021/22, unlike other years, deficit financed from domestic (net) sources is greater than the total deficit. This is
because the government has unused resources of ETB 6 billion.
3
of GDP at the end of the reform period (2021/22) (Annex 3). This might have a potential impact on an increase
in money supply and hence a potential challenge for price stability. Yet, as mentioned above, there are good
signals in terms of converting direct advances to T-bills for domestic financing. By June 2020, of the total
net changes in these two instruments, direct advances constituted 58 percent while the T-bills cover the
remaining. In the following two years, there was a shift from direct advances to T-bills financing. The share
of net changes in direct advance declined to 35 percent in June 2021 and 28 percent in June 2022 (Annex 2).

Recognizing the positive steps taken to phase out direct finances, specifying the terms under which the NBE
finances the government will put the gains on a solid foundation, as observed in other countries. Ethiopia
needs to put in place a binding and formal procedure for the NBE financing of the government. Such an
approach will partly address the question of the independence of the central bank, which will send a clear
signal indicating the commitment to price stability and help mitigate the entrenched inflation expectations
that contributed to the observed realized inflation.

Enhancing domestic resources mobilization

Ethiopia has been reforming tax policy and administration since the early 2000s. The government introduced
the value-added tax, modernized the tax administration system, introduced an IT system to keep a central
database of taxpayers and associated information, and implemented mandatory use of electronic sales registry
machines. The earlier changes have contributed to an increase in tax revenue explained as a percentage of
GDP. MOF introduced a number of tax policy reforms in the second half of the HGER reform period. Among
the main reforms include customs duty reform, a surtax reform, excise tax, and ad hoc exemptions for basic
food items.

In September 2021, MOF updated the old customs tariff book and changed customs duty brackets from 0%,
5%, 10%, 20%, 30%, and 35% to 0%, 5%, 15%, 25%, and 35%. This change was aimed at harmonizing the
tariff book of the country with that of the World Customs Organization(WCO) and enhancing local
manufacturers’ competitiveness by imposing higher duty rates on final products and lower duty rates on key
raw materials of imports. Although this reform was projected to be revenue neutral and hence will have a
marginal effect on overall customs duty collections, it is expected to affect the tax revenue indirectly by
increasing the domestic production capacity and productivity. Likewise, MOF implemented reforms on
surtax payments on imports. Imported items with a customs duty rate of 15% and below which are considered
raw materials or key imports are now exempt from surtax payment. However, imports with a customs duty
of 25% and 35% (except garments and textile products considered final consumer products) continue to be
subject to a 10% surtax, which in fact has been projected to reduce the surtax revenue. The MOF also
introduced a new Excise Tax Proclamation8. This reform changed the tax base for locally produced goods
from the ‘production cost’ to ‘ex-factory prices’. The tax base for imported goods remained the same (i.e.,
CIF value plus customs duty payable). The reform also introduced a number of administrative measures
aimed to ease taxpayer permits, empowering the tax authority to follow up and monitor local excisable goods
manufacturers. While the focus of these reforms and (hence this review) is on the reforms made on foreign
trade taxes, MoF’s Tax Policy Directorate also has plans to introduce reforms in domestic taxes such as Value
Added Taxes and in some important direct income taxes such as agriculture income tax.

8
Proclamation No. 1186/2020
4
Along with the tax policy measures mentioned above, the government also implemented important tax
administration measures aimed at easing the compliance burden on taxpayers, reducing the administrative
costs to the tax authorities, and boosting revenue for the government. The tax exemption approval process
that regional government entities and investment bureaus handle has been centralized and requests are
directly submitted at MOF to ensure the effectiveness of tax exemption privileges. It is expected and there
are signs that the centralized process reduces the volume and cost of approved exemptions.

The Ministry of Revenue (MOR) has also improved its tax audit capacity to reach more taxpayers. As a result,
large SOEs, which were not taxed previously due to limited internal capacity, are now addressed and
embraced into the tax net. MOR also implemented the electronic single window system, a one-stop window
where users can directly make various requests, and brought many customers to the system. Other
administrative measures taken by MOR include on-the-job training for tax officials, taxpayers’ consultation,
and enhancing awareness creation and public recognition for most tax-compliant taxpayers where certificates
of recognition for the most tax-compliant taxpayers at all levels are granted, which are among the noticeable
measures.

Given that a significant part of the economy is under the informal sector, which is not taxable, formalizing
the informal economic activities and bringing the informal sector into the tax net requires strong political
commitment and investment in both infrastructure and manpower development. In this process of broadening
the tax base, there is a need for tax administration authorities in regional states and City administration to
form harmonies with the federal tax administration authority (MOR) and support each other as new tax
potential is available at the regional and City administration level.

Reforms regarding modernizing the tax system and digitalizing transactions are underway. Yet, these reforms
require large expenditure on infrastructure development as well as coordinated collaboration among the
stakeholders such as financial institutions (commercial banks, national bank of Ethiopia), Ethio-telecom,
MOF, Ministry of Trade and Regional Integration (MoTRI), and others.

These policy and administrative reforms have their own roles in the recent nominal increase in tax revenues.
The annual average growth rate of tax revenue from 2016/17-2018/19 was 12.1 percent from ETB 191 billion
in 2016/17 to ETB 268 billion in 2018/19. This average annual growth rate improved to 18 percent from
2019/20-2021/22 from ETB 268 billion in 2019/20 to ETB 437 billion in 2021/22.

Despite these reforms and growth in tax revenue in nominal terms, the tax-to-GDP ratio declined since 2015.
This decline in tax to GDP ratio is worrisome because improving tax collection is at the heart of correcting
the macroeconomic imbalance that the country is facing. With increased tax revenue, the government can
finance its developmental responsibilities without overburdening the economy with debt and non-
conventional modes of financing deficit, such as direct advances from the NBE. The tax-to-GDP ratio was
12.4 percent in 2014/15, which has been declining over the years. The ratio declined from 9.2 percent at the
start of the HGER to 7.1 percent at the end of the reform (Annex 4). This is significantly lower than the sub-
Saharan African average of about 16 percent of GDP. However, the HGER agenda put the direction of
reversing the declining tax to GDP, and the ECF and EFF targeted to raise the tax to GDP ratio to 12.7 percent

5
of GDP. This deviation requires immediate attention9. Furthermore, looking at the components, both direct
and indirect taxes as a share of GDP declined from 4.3 percent and 5.7 percent in 2018/19 to 3.4 percent and
3.7 percent in 2021/22 (Annex 5). Addressing the decline in tax to GDP ratio also requires a dynamic look at
the tax base, buoyancy, and implementation. It is important to highlight an area that has progressed well in
the reform period to do with consolidating tax expenditure. Leakages of revenue through ineffective tax
incentives that are misused and not well-targeted have led to the wastage of incentives and resources. The
MOF has taken steps to address this issue during the reform period.

Improving Debt Management

The Ethiopian government issued a regulation on the financial administration of the federal government in
2010, which calls for a debt management strategy to be developed by the MOF. Accordingly, Ethiopia
formulated a debt management strategy in 2012. This Medium-Term Debt Strategy connects borrowing with
macroeconomic policy, assists the government in maintaining sustainable debt levels, at low cost and low
risk, and encourages the establishment of local debt markets. The debt management strategy aims to guide
the government to borrow the appropriate amount at the right time and limit the negative impact of
unsustainable debt on the economy. The MOF updated the debt management strategy for 2016 to 2020. The
strategy is a formal step to manage debt accumulation. By so doing, it helps the country to avoid
macroeconomic instability and debt overhang.

As part of the HGER, the Debt Management Directorate of MOF is working with a new medium-term debt
strategy developed for the next five years in collaboration with the World Bank and the International
Monetary Fund. The new strategy will incorporate the new T-bills market, capital market development,
Public-Private Partnership, and common framework. The strategy aims to revise the composition of the
government debt portfolio through a cost-risk tradeoff. It also aims to incorporate the debt of SOEs and
contingent liabilities arising from PPPs, which provides a broader picture of the public sector's debt portfolio.

The MOF also restructured existing debts to lessen short-term obligations, reduce immediate foreign currency
obligations, mobilize budget support, and strengthen Government Finance Statistics (GFS) data compilation.
As a result, the external debt to GDP ratio declined from 28.2 percent in 2018/19 to 22 percent of GDP at the
end of the reform period. Similarly, the domestic debt to GDP ratio declined from 27.9 percent in 2018/19 to
23.2 percent of GDP at the end of the reform period. A summary of some of these major activities
implemented and their output by the MOF is presented in Annex 6.

SOEs reforms underway

As part of the reform, outdated SOE legal frameworks were revised to reflect the current economic context.
Among the SOE sector reforms is the enactment of the new public Enterprises’ privatization proclamation
(No. 1206/2020) which replaces the old proclamation (No. 146/1998) enacted to enhance the transparency
and efficiency of public enterprise’s privatization process. MOF has established a permanent SOE oversight
and pre-privatization unit to strengthen and institutionalize SOE reforms and sustain the benefits out of the
reform. SOEs are adopting the International Financial Reporting System (IFRS).

9
The team is undertaking a deeper study on the determinants of the tax-to-GDP ratio at a granular level to recommend
actionable policy interventions.
6
The government has also taken actions to liberalize the telecom market with the sale of licenses for private
operators and partially privatizing Ethio-telecom to improve market competitiveness and enhance the quality
of telecom services. To lead and regulate the telecom sector, Ethiopian Communication Authority (ECA) has
been established by proclamation 1148/2019. Likewise, the privatization of the asset of the Sugar Corporation
is in progress and aimed to strengthen sugar production potential by attracting private sector capital and
expertise into the market that has been monopolized by the government. Ten out of the 13 sugar estates have
been identified to be privatized and the process of privatization is underway. Moreover, there was a strong
recommendation for the government to promote private sector participation in the logistics sector and the
Ethiopian Shipping Lines and Logistics Enterprise (ESLLE) to expand the availability of value-added
services as well as improve efficiency and quality of service. However, the asset value of ESLSE is very low
and not feasible for sale. It has been rather believed by the government to liberalize the sector while keeping
the ownership under the government noting both its strategic importance and potential for value addition to
the logistics sector. The general direction of the government at present seems limited to restructuring and
transforming the enterprise to improve its governance and revamp its business model to compete in the
prevailing market. There are also reforms currently being undertaken in other SOE’s such as Ethiopian
Railway Corporation (ERC), Ethiopian Electric Power (EEP), and Industrial Parks Development Corporation
(IPDC).

1.2. Monetary and Financial Sector Reforms

Addressing forex imbalances

To address the foreign exchange imbalances, the NBE planned to speed up the depreciation of the Birr vis-
à-vis USD towards adjusting the real exchange rate to its equilibrium value. The projected exchange rate by
NBE showed that the nominal exchange rate would be 34.7 by the end of June 2020, 40.9 by Jun 2021, and
45.8 by Jun 2022. Furthermore, the parallel exchange rate was projected to be 41.6, 44.9, and 47.1 for the
same period10. The ultimate objective of the bank is to remove the spread between the official and parallel
exchange rates by Jun 2024 where both exchange rates will stand at 52 ETB/USD (Annex 7). Furthermore,
NBE also planned to build up foreign exchange reserves to serve as a buffer to supply the market as the
foreign exchange allocation system moves towards a market-based one. NBE has increased the crawling rate
of the Birr visa-a-vis the USD. The average exchange rate (Birr to USD) depreciated by 55 percent from ETB
31.3/USD in 2019/20 to ETB 48.6/USD in 2021/22, higher than what was targeted. Furthermore, the
exchange rate roadmap set out by the NBE assumed tightened monetary policy that would result in a
stabilization of prices to a single digit by June 2021. This has however not materialized as indicated above
with reserve money increasing significantly partly to finance the government budget. Accordingly, inflation
has also increased significantly. These developments have derailed the exchange rate unification goal. Other
measures outlined in the roadmap hinged on the unification of the exchange rate including the development
of a viable foreign exchange market by complementing it through auctions by the NBE, supporting price
formation, and moving towards a controlled more market-determined rate. Due to the failure to achieve a
unified exchange rate these elements of the roadmap could not be implemented.

The real exchange rate, among other factors, determines the competitiveness of the country's exports and the
sustainability of its balance of payments. It is a crucial aspect of an industrial policy in countries that achieved

10
Building Blocks for Exchange Rate Reform Roadmap. National Bank of Ethiopia. April 2020
7
successful structural transformation (Rodrick (2008) and Guzman et al. (2018))11,12. In line with this
argument, the effective real exchange rate depreciated by 36 percent from 2019/20-2021/22. However, the
parallel market premium increased by 8 percentage points in the same period from 30.6 percent in 2018/19
to 32.9 percent in 2021/22 because of the historically highest parallel exchange rate in the HGER period
(Annex 8 and Annex 9). The two major shocks (COVID-19 and internal conflicts) played a role in further
reducing the supply of foreign exchange and destabilizing the parallel market as demand outpaces supply in
both markets. The COVID-19 pandemic had pass-through effects, particularly on certain export commodities
like textiles, coffee, and oilseeds. The biggest impact came on the travel and tourism sectors which declined
sharply due to pandemic mitigating measures that reduced travel. Internal conflict on the other hand affected
loans, grants, and FDI receipts further exacerbating the shortage of foreign exchange in the system. The
shocks pushed parallel market rates upwards resulting in increased premiums. Therefore, the significant
depreciation of the Birr vis-à-vis USD did not result in the desired depreciation of the real exchange rate
because part of the depreciation passes through to domestic prices as evidenced by the increased role of the
non-food inflation, thus partially blunting the initial depreciation. Furthermore, expansionary monetary
policy has brought demand push inflation that further reduces the impact of the initial depreciation.

Foreign exchange earnings from exports of goods saw an average 16 percent increase over the HGER period,
which is more than the average growth in the previous 7 years (Figure 1). This was mainly due to increased
exports of gold, coffee, flower, and chat, which grew by 273%, 25%, 31%, and 9% respectively during the
same period (Annex 10). The sudden increase in the value of export of gold was mainly attributed to the
relatively higher price in the international market, and the adjustment made by NBE’s purchasing price of
gold, which has witnessed a 30 percent upsurge since last year to incentivize miners and discourage the
contraband export of gold. Forex earnings from the export of non-factor services and private transfers (i.e.
from private individuals) also grew by 10 percent and 1 percent respectively. However, they grew by 16
percent and 6 percent during the three years before the reform period (i.e. 2016/17-2018/19). The slower
growth during the reform period was due to a negative growth rate in these two accounts (-5.3 percent and -
19.2 percent, respectively). In the 2019/20 fiscal year, this slower growth was mainly because of COVID-19.

Given the negative domestic impacts of COVID-19 that followed the HGER and the internal conflict in the
country, the performance of the export sector is encouraging. However, unless the country manages to
diversify its exports, the current increase in the export of goods might not be a sustainable source of forex
earnings. This follows from the supply constraint of low productivity and production coupled with a low
marketable surplus for agricultural exports.

11
Guzman, Ocampo, Stiglitz (2018), "Real exchange rate policies for economic development," World Development,
Volume 110, Pages 51-62
12
Dani, Rodrick (2008), “The Real Exchange Rate and Economic Growth,” Brookings Papers on Economic Activity
2008(2):365-412

8
Figure 1: Exports of goods and non-factor services and private transfers (Billions of USD)
7,000
6,000
5,000
Billion USD

4,000 Exports of
3,000 goods
Exports of non-
2,000
factor services
1,000 Private
- transfers
…

…
10

11

12

13

14

15

16

17

18

19

20

21
20

20

20

20

20

20

20

20

20

20

20

20
Source: Drawn with data from NBE

Although the HGER period showed a boost in foreign exchange earnings, this was offset by increased imports
of goods, mainly driven by imports of fuel, semi-finished goods (especially fertilizers), and durable and non-
durable consumer goods. As a result, the total forex payments grew from USD 13.9 billion in 2019/20 to
USD 18.1 billion in 2021/22. Combined with a declining official transfer and capital account balance in the
reform period, Ethiopia’s balance of payments deficit was USD 2.1 billion at the end of the reform period,
the highest in the last 10 years. The two major shocks (COVID-19 and internal conflicts) have severely
affected the balance of payments. The impact of COVID-19 has mostly been pass-through impacting
nontraditional exports, private transfers, and travel and tourism following the months of the first case in
March 2020. The conflict, on the other hand, affected loans and grants, and FDI in the capital account resulted
in an increased deficit. This puts pressure on the country’s available forex reserve, which was already low
pre-HGER period.

Strengthening the monetary policy framework

Treasury bills and government bonds were being financed by pension funds, NBE (directly, and indirectly
through DBE), and other SOEs at less than the market rate before December 2019. NBE has also been
financing government spending through direct advances. As a result, the market for indirect monetary
instruments is underdeveloped. That leaves NBE with monetary aggregates as the main instruments of
monetary policy. Hence, NBE conducts monetary policy by setting the growth of broad money to line with
nominal GDP growth13. Because NBE does not directly control broad money growth, it uses reserve money
as its operational instrument. This suggests that the effectiveness of this policy depends on the stability of the
relationship between (a) reserve money and broad money and (b) broad money and prices (and other
macroeconomic variables).

13
NBE (2009). NBE’s Monetary Policy Framework, Economic Research and Monetary Policy Process.

9
Figure 2: Money Multiplier
6.0

4.0

2.0

- M2 growth / M0 growth
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
(2.0) M2 / M0

(4.0)

(6.0)

(8.0)

Source: Drawn based on data from NBE

Data over the last several years shows that both relationships are far from stable. As can be seen from Figure
2, the money multiplier has doubled within a decade (2011/12 - 2021/22). Similarly, the velocity of money
has been very volatile (Annex 11). It is this fact that necessitates reforming and strengthening the monetary
policy framework of the country which includes building the analytical capacity of NBE to help the transition
from the current quantitative monetary policy framework to a more forward-looking price-based monetary
policy framework over the medium term (as envisioned in the monetary policy roadmap). In addition, it
requires introducing new indirect instruments intricately linked with outcomes of interest. Although not
explicitly mentioned, the plan of NBE envisioned following a prudent monetary policy (limited money
growth) while introducing the above-mentioned instruments.

The NBE has developed a new monetary policy framework that moves monetary policy from a quantity
(reserve money) based one to a price (interest rate) based one. A number of liquidity management instruments
have been developed including directives on the overnight facility and lending and deposit auctions. The
NBE has planned to anchor the policy rate over the medium term. The NBE has succeeded in launching the
T-bills auction and approved an open market operation directive. However, the liquidity of the T-bill market
is not sufficient for the required open market operations. This is due to a narrow investor base and limited
awareness of participants. NBE also revised the monetary policy framework of the country. It has also decided
to implement a hybrid monetary policy framework during the transition period. This is to use both quantity-
based and interest rate based monetary policy. The plan for reserve money growth in the fiscal year 2019/20
was 12.5 percent. However, actual growth (22.4 percent) has much exceeded the plan. Actual reserve money
growth (7.2 percent) was below what was planned (12 percent) for the fiscal year 2020/21. However, it grew
by 37 percent in 2021/22. The possible explanation for the deviation of reserve money growth from the target
is the liquidity support NBE provided to commercial banks to combat the economic impact of COVID-19,
and due to the unplanned expenditure outlays that came about by the internal conflict in the country. Broad
money, in the fiscal year 2019/20, grew by 17 percent. It also grew by 30 percent in 2020/21 and 27 percent
in 2021/22. The trend for these growth rates was not consistent to reserve money growth (Annex 12 and
Annex 13), which might indicate that targeting reserve money growth is not an efficient way to conduct
monetary policy. Moving towards an interest rate based monetary policy is commendable, however, a few
challenges remain regarding its viability. One is that an inflation rate of more than 30 percent will keep real

10
interest rates in negative territory. Secondly, operationalizing the central bank liquidity management
instruments will require sufficient liquidity in the system to share with T-Bills.

Another aspect of strengthening the monetary policy framework is decreasing the role of NBE as a financier
of government deficit. Reducing fiscal dominance provides NBE with the flexibility to deploy indirect
instruments to achieve price stability. The plan by the MOF was to completely phase out direct advances by
NBE in the mid-to-long term. Although it did not have specific quantitative targets during the HGER period,
NBE planned to reduce direct advances to the government. As discussed in section 2.2, although the decline
in direct advances to ETB 31 billion in 2020 from ETB 187 billion at the end of the previous fiscal year might
show commitments of the government, pushed by COVID-19 and internal conflict in the country, direct
advances reverted in the following two years. It was ETB 160 billion in June 2022 (Annex 2).

Reforming public financial institutions and dealing with vulnerabilities at public banks

Excessive borrowing of SOEs from public banks (i.e. Commercial Bank of Ethiopia (CBE)), and delays and
cost overruns of public projects undertaken by the SOEs posed a challenge to public banks' balance sheets
(especially CBE). Furthermore, modernizing the operations of public banks is overdue. Since no specific
targets were put in the plans regarding the health of the balance sheet of public banks by the relevant
government organization (e.g. NBE), assessing the status of outputs and whether activities are being
undertaken and goals are being met per the plan might be a difficult exercise. As a result, this review
summarizes the main activities undertaken.

Modernizing the operations of CBE and DBE to the level of industry best practices was one of the objectives
of the reform. A study was conducted to design a plan for modernizing the operation of CBE and DBE. In
addition, an asset quality review has been undertaken by CBE to account for potential risks to the SOE loans.
To upgrade NBE's financial regulatory framework to international standards, NBE has planned to move from
the Basel I supervision approach to Basel II and III. In addition, regulation for establishing a deposit insurance
scheme has been approved by the council of ministers. Furthermore, Liabilities & Assets Management
Corporation (LAMC) was formed to reduce (eliminate) the risk of SOE loans that are not being serviced in
the financial sector. The aim is to generate resources, including from the privatization proceeds, to rebuild
the health of the Commercial Bank of Ethiopia’s balance sheet.

Enhancing financial sector development and developing capital markets

The long-term finance needs of the public and private sectors have been borne by commercial banks and
required financial repression to facilitate. Financial repression has resulted in macro-imbalances and a fair
allocation of financial resources requires institutions including capital markets. In addition to launching a T-
bills market in 2019, a background study for the inter-bank money market was conducted and key challenges
have been identified to implement the market (which the bank is resolving in collaboration with development
partners). The House of Peoples Representatives of Ethiopia passed a proclamation on the formation of
capital markets (bonds, stocks/equities, and derivatives) on July 2021 with the objectives of “supporting the
development of the national economy through mobilizing capital, promoting financial innovation, and
sharing investment risks”14. The proclamation entails the establishment of capital market authority and the

14
FEDERAL NEGARIT GAZETTE, 2021. Capital Market Proclamation No. 1248 /2021, Addis Ababa: FEDERAL NEGARIT
GAZETTE
11
establishment of a Securities Exchange. Furthermore, to support the development of mobile banking to
promote financial inclusion, directives on mobile money issuers and agents were issued. Mobile money issuer
and agent licenses were granted. A National Digital Finance Strategy has also been prepared and approved
by the Council of Ministers. The established institutions are in the process of commencing operation but it
would take time to see the bulk of long-term financing needs addressed through them.

1.3. Assessment of the reform in terms of achieving its objectives

Reducing debt distress

Total public debt stock as a percentage of GDP declined to 45.2 percent of GDP at the end of the 2021/22
fiscal year from 56.1 percent of GDP in the 2018/19 fiscal year. However, in nominal terms total public
sector debt stock stood at USD 57.34 billion in 2021/22 which was slightly higher than the total public debt
stock of USD 53.8 billion in 2018/19, out of which external debt stock was USD 27.9 billion in 2021/22 and
USD 27.08 billion in 2018/19.

Debt restructuring for both external and domestic debts has been accomplished during the HGER period.
Among others, the USD 2.5 billion principal and interest payment restructuring that postponed payments for
five years by commercial creditors under the 1st external debt restructuring scheme, a debt resolution
framework that aims at restructuring SOEs debt of close to ETB 780 billion for highly indebted SOEs
including EEP, ERC, EEG/METEC, CIC, ESC and EEU, and domestic central government debts
restructuring by converting short-term bills to long-term notes and bonds are the notable actions taken to
reduce debt distress.

The Government of Ethiopia targeted to reduce the Joint IMF-World Bank Debt Sustainability Analysis
(DSA) rating from high to moderate. There has been commendable economic growth in Ethiopia. However,
growth has been in non-tradable sectors, such as the construction sub-sector. This by no means implies the
performance of the export sector was dismal—there are promising changes in the export sector. Furthermore,
while the tax-to-GDP ratio has been declining as the growth rate of nominal tax revenue is less than the
growth rate of nominal GDP, there has been above 18 percent average annual growth in nominal tax revenue
collection during the reform period. These progresses have had a positive impact on some of the debt
sustainability indicators. Table 2 presents these indicators along with EFF/ECF projections and DSA
thresholds. The external debt to GDP ratio was declining from 28.2 percent in June 2018/19 to 22.0 percent
in June 2021/22. Similarly, debt service to exports of goods and non-factor services also dropped from its
pre-reform period of 26.7 in 2018/19 to 20.4 percent at the end of the reform period.

However, in terms of the goals to be achieved, there is a long way to go before the debt service to export ratio
and PV of external debt to export ratio fall below the 15 percent and 180 percent of the DSA threshold. The
IMF and the World Bank put these threshold ratios for countries with the medium composite index measuring
debt carrying capacity. Furthermore, the ratios for Ethiopia are above the EFF/ECF projections.

12
Table 2: Debt sustainability indicators (in percent)
Sustainability Indicators 2018/19 2019/20 2020/21 2021/22 DSA Threshold
External Debt to GDP 28.2 26.8 26.5 22.0 40
Domestic Debt to GDP 27.9 24.4 24.2 23.2
Total Public Debt to GDP 56.1 51.2 50.7 45.2 55
External Debt to Exports of Goods and Non-factor Service 355.5 376.5 347.5 267.0 180
Debt Service to Exports of Goods and Non-factor services 26.7 26.1 22.4 20.4 15
Debt Service to Total Revenue 18.3 17.7 17.9 20.7 18
Debt Service to Tax Revenue 21.3 20.2 20.5 23.7
Source: IMF, MOF, and authors' calculation

Price Stability

The GOE envisioned single-digit inflation in the last decade and throughout the HGER period. Therefore,
one of the goals set in the HGER program was overcoming this challenge by reducing inflation to a single-
digit level. Reforms of monetary policy and limited reserve money growth were targeted to achieve this goal.
However, driven by both domestic and external factors, Ethiopia experienced high inflation over the HGER
period. Actual data shows that inflation exceeded the plan by a significant margin. The general annual
inflation was 15 percent in 2018/19 and 2021/22 FY annual general inflation rate was 34 percent. Particularly
worrying is the high inflation rate of food items since it has an adverse consequence on the poor. Food
inflation was 20 percent in 2018/19 and increased to 38 percent in 2021/22. Despite a decline in food inflation
during June 2022 from its highest level of 44 percent in May, it was a record high in the previous months
starting August 2021 (38 percent) to the end of the HGER period. Controlling inflation is still a challenge for
achieving the price stability objective of HGER.

Figure 3: Year-on-Year Inflation (percent)

60.0
50.0
40.0
30.0 Food
20.0 Non-Food
10.0
General
0.0
Jun/10
Dec/10
Jun/11
Dec/11
Jun/12
Dec/12
Jun/13
Dec/13
Jun/14
Dec/14
Jun/15
Dec/15
Jun/16
Dec/16
Jun/17
Dec/17
Jun/18
Dec/18
Jun/19
Dec/19
Jun/20
Dec/20
Jun/21
Dec/21
Jun/22

-10.0

Source: Drawn with data from CSA

Although identifying a causal link between the pushing factors of inflation is a difficult exercise and is beyond
this review, we highlight some potential external and domestic factors for the increasing trends of inflation
in recent times. A potential source of inflation is international commodity price shocks (such as what
happened in 2008 and 2011-see Annex 14). However, apart from the supply disruption due to the Ukraine
war which started in February 2022 (see below), a look at commodity price trends over the last few years—
i.e. 2016-2021 that includes two years of HGER period— does not suggest that it is the main driver of
inflation in Ethiopia. To see the minimal role played by an international price shock is to examine the close
association between price trends in Ethiopia, with that of neighboring countries, Sub-Saharan countries, and
13
World price trends. As shown in Annex 14, the inflation in Ethiopia tracks its neighboring countries,
especially in periods of large international commodity shocks in 2008 and 2011. The recent departure in the
inflation trend in Ethiopia suggests that international commodity shocks are not major causes for the high
inflation we observe in Ethiopia. This by no means suggests Ethiopia’s inflation was not affected by the
international commodity prices—including the recent war in Ukraine, which broke out in Feb 2022 and had
a major shock to selected commodity prices. The World Bank’s latest Commodity Markets Outlook shows
that the war has disrupted the production and trade of several commodities, particularly those where Russia
and Ukraine are key exporters, including energy, fertilizers, and grains15.

The growth of broad money supply that began in 2016 (see section 1.2 above) along with a recently declining
GDP growth that started in 2017 might be a potential pushing cause of the recent inflation. Furthermore, the
depreciation of the exchange rate, passing through imported items, might also play a role in increasing prices.
The official exchange rate (i.e. Birr-to-USD) depreciated by 73 percent from 2018/19 (ETB 28.1/USD) to
2021/22 (ETB 48.6/USD). Furthermore, the depreciation of the parallel market rate mirrors the trend in the
official exchange rate. Unless the depreciation is coupled with sterilization (limiting money supply), it is
bound to pass through domestic prices. This pass-through and the money growth, at least in part, explain the
current price trend.

Recent supply-side evidence suggests that although food production is increasing the share of marketable
surplus is still stagnant (causing supply shortages while demand has been increasing). Furthermore, the
geographic dispersion of prices has been widening while market integration has declined since 2015. These
suggest geographic factors like supply disruptions (partly due to conflict) have a role in explaining inflation
rather than just demand-side factors.

Financial Stability

The Commercial Bank of Ethiopia (CBE) plays a significant role in the Ethiopian financial sector. As of June
2022, it accounted for 59 percent of total assets, 52 percent of total outstanding credit, and 52 percent of
outstanding deposits in the Ethiopian commercial banking sector (Annex 15). Due to significant lending by
CBE to state-owned enterprises and cost overruns and delays or projects undertaken by these firms, the bank
is significantly exposed to risk. During the HGER period, NBE amended the Banking Business Proclamation
that allowed for the inclusion of digital service providers (Fintechs) as financial institutions and approved
directives on digital financial service providers and issuers. A regulation was approved for the establishment
and operation of deposit insurance. Other reforms include the establishment of full-fledged interest-free banks
and the issuance of directives on consumer protection.

Measuring financial stability is not as straightforward as measuring price stability. Therefore, several
measures are proposed in the industry to understand the health of the financial system (see Annex 16). In this
review, we use capital adequacy ratio, liquidity ratio, and non-performing loans.

The banking sector’s capital adequacy has been much higher than what the NBE planned to achieve over the
first and a half years (Annex 17). This shows that the banking system’s capital is sufficient to withstand losses

15
Commodity Markets Outlook: The Impact of the War in Ukraine on Commodity Markets. A World Bank Report.
World Bank Group. April 2022.
14
within expected risk parameters. The banking system’s share of non-performing loans is smaller than the
threshold (5 percent) and it declined until 2020. This indicates that banks’ loan portfolios are healthy and
banks are unlikely to face liquidity or solvency issues. But note that in banking systems like Ethiopia’s where
the banking system is dominated by state-owned banks and their loan portfolio is mainly comprised of lending
to other state-owned enterprises with implicit and/or explicit guarantee of the government, the share of non-
performing loans is not a good measure of the health of the banking system. Sufficient liquidity is necessary
for the banking system to be able to accommodate sudden cash outflows. At the beginning of the HGER plan
period, the banking system’s liquidity was at the border of what is deemed sufficient. Over the first 1 and a
half years, the liquidity of the system has improved in line with the plan. This shows that reform measures
are achieving their intended goal. One dimension of the banking sector falling short is customers’ satisfaction
and effectiveness and efficiency of service. The rating of the banking system in terms of customer satisfaction
falls significantly below the target set in the HGER plan. In addition, the performance has not improved over
the first 1 and a half years of HGER.

Financial Access

Outstanding deposits reached 1.7 trillion in the last fiscal year of the HGER period (i.e., 2021/22) from ETB
899.6 billion in 2018/2019 with an average growth rate of 25 percent. Furthermore, outstanding loans grew
by an average of 23 percent over the reform period from ETB 840.9 billion in 2018/19 to ETB 1.6 trillion in
2021/22. Compared to the three years before the HGER period, we also see similar growth rates; however,
they started from a very low base (Annex 18). This achievement was recorded partly because of the recent
currency demonetization, repealing of NBE bills, and NBE’s provision of a three-year credit line to CBE and
injection of liquidity into the hotel and tourism sectors through commercial banks to counteract the impact
of COVID-19.

Financial access indicators for the usage of financial services cover types and values of services per number
of populations. For banks, for instance, usage indicators include the number of deposit and loan accounts per
1000 adults and the value of deposits and loans per 1000 adults. The NBE does not have a quantified plan
regarding the number of access points. Data from its quarterly publications show that the number of bank
branches per person has continued to increase over the last year and a half. Specifically, the number of people
per branch decreased by 1702 between June 2019 and June 2021(Annex 19). Another indicator for access to
finance is the number of transaction accounts per 1000 adults, which was 90 in 2020 lower than the plan
during the fiscal year (148).

The use of financial services has increased significantly over the last year and a half. The number of accounts
per 1000 adults increased from 129.3 in the first half of the 2019/20 fiscal year to 147.9 in the first half of the
fiscal year 2020/21. The expansion of transaction accounts is much larger than planned under the auspices of
the HGER. Though the expansion of accounts is an encouraging sign of improved financial access, it is clear
that at least some of this is due to the demonetization that was undertaken in mid-2020, the limit on the
number of transactions and cash withdrawals that are put into effect during the period discussed above. It
will be helpful to assess how active these newly opened accounts are. Another major factor for increased
access is the expansion of the use of digital finance. Bank interoperability was put into effect allowing
transactions between banks easier and reducing the need to hold cash balances. In addition, the payment

15
systems have improved with the expansion of various payment modalities like telebirr and other mobile
services.

1.4. Concluding remarks

The GOE implemented HGER against the backdrop of difficult economic problems in the country—two
major factors transpired in the country following the onset of the HGER. The emergence of COVID-19 and
internal conflicts in the county have made the implementation of HGER challenging. Both of these factors,
coupled with other international factors (e.g. Ukraine war) had the effect of changing resource allocation and
the efforts in the implementation of the reforms themselves resulting in the reversal of certain measures.
Furthermore, some of the reforms have envisaged longer-term impacts than the time HGER is planned for
and thus the effect of some of the measures is yet to be seen.

With this note in mind and the many economic variables involved, there has been some progress towards
achieving the objective set in the HGER plans in the area of debt distress reduction and debt sustainability
although there are gaps for improvement. Both external debt to GDP and external debt to exports declined
over the reform period, mainly due to an improvement in exports of goods and services on the one hand and
a reduction of external commercial loans and debt restructuring on the other hand. However, there is a long
way to go before the breached debt service to export ratio and PV of external debt to export ratio reach the
15 percent and 180 percent DSA thresholds respectively. On the other hand, inflation has been and is still a
challenge and thus the objective of stabilizing prices was not achieved, even worsened over the HGER period.
A closer look at international commodity price trends over the last few years does not suggest that it is the
main driver of inflation in Ethiopia. The exchange rate pass-through effect and the money supply growth, at
least in part, explain the current price trend as the demand side factors. It is, therefore, imperative to monitor
and assess the causes of current inflation from the domestic perspective. The financial sector is stable and
there is an encouraging advance toward financial inclusion over the HGER periods. Moreover, there is a need
to adequately appreciate the impact of the shocks to first, work towards mitigating their impacts and develop
a pathway to continue the implementation of the reform measures. The measures are still relevant to achieve
sustainable job creation and growth.

16
2. Review of Structural Reforms (July 2019 – June 2022)

The structural reform pillar of the HGER agenda aims to remove bottlenecks that constrain businesses and
enhance institutional capacity. Accordingly, this section presents an assessment of the implementation of
structural reforms of the HGER program by the HGER implementing institutions. Specifically, it assesses the
performances of Ease of Doing Business reforms coordinated by the Ethiopian Investment Commission
(EIC), Logistics Sector Reforms implemented by the Logistics Transformation Office (LTO) of the Ethiopian
Maritime Affairs Authority (EMAA), and Structural reforms of the Power Sector implemented by the
Ministry of Water, Irrigation, and Energy (MoWIE). After reviewing the performance of the reform
implementation and the challenges encountered in the process, an effort is made to provide reform area-
specific policy recommendations.

2.1. Ease of doing business reform

Under the structural reform pillar, the HGER considers the ease of doing business as a major reform area.
Specifically, this reform area focuses on addressing challenges related to business licensing and registration
procedures, logistics and power service provisions, policy and regulatory government support institutions,
support systems for industrial parks, and tax and customs administration. While the overall goal of these
reform measures is to create a conducive environment for starting and running businesses in Ethiopia, the
specific objectives include improving Ethiopia’s doing business ranking and the associated scores.16 In
addition, these reform measures and the resulting improvements will have important implications in attracting
Foreign Direct Investment (FDI), promoting domestic investment, and helping businesses to flourish.

2.1.1. Ease of doing Business Reforms: Performance Review and Challenges

The Ethiopian Investment Commission (EIC) is one of the institutions mandated to lead and coordinate the
implementation of these ease-of-doing-business reform measures under the HGER agenda. Accordingly, in
the period following the launch of the HGER agenda, several reform measures have been taken to address
the challenges of starting a business, obtaining construction permits, paying taxes, getting credit, registering
property, and getting electric power. In addition, investment laws and proclamations have been amended and
several consultation meetings have been held with key stakeholders to enhance coordination among the
relevant stakeholders.17

The overall performance of Ethiopia in ease of doing business score and rank is poor. However, its score has
shown slight improvement, rising from 48 to 49 in the 2019/2020 and 2020/2021 fiscal years. This increment,
however, does not improve Ethiopia’s rank in the global context and also when compared to other sub-
Saharan African countries, e.g., Rwanda, Kenya, Egypt, Uganda, and Ghana. Among the critical areas,
Ethiopia has poor performance in protecting minority investors, getting credit, starting a business, and trading

16 Ethiopia was ranked 159th with a score of 48 in the 2019/2020 fiscal year. However, the score has shown subtle
improvement in 2020/2021 and increased to 49.
17
In order to enhance and properly implement the ease of doing business reforms, 11 legislations in Ethiopia were
revised and amended over the past three years. These are: Commercial Code, Commercial Registration and Business
Licensing, Movable Property Security Right Proclamation, amendment of the Value Added Tax (VAT) proclamation,
Alternative Dispute Resolution Proclamation, Electronic Transaction Proclamation, Capital market proclamation, New
York Convention Ratification proclamation, Electronic Single Window Regulation, Building Risk Directive, and Court
Case Management Directive. These reforms are expected to produce significant change in reducing the structural
bottlenecks that hamper the vibrant growth of private sector.
17
across borders. On the other hand, Ethiopia has a relatively better performance in enforcing contracts and
paying taxes.

Table 3 below provides the major accomplishments in improving the components of ease of doing business.

Table 3 Highlights of accomplishments in improving Ethiopia’s Ease of Doing Business

Components Accomplishments
Starting - Introduced a single standardized application form and business process for multiple services with
a business the aim of reducing the number of procedures to start a business. As a result, the number of
procedures has been reduced from 11 to 10 and the number of days from 32 to 17 days.
- Improved services by reducing the number of business types that required the quality verification
certificate from 1352 to 10 and reducing the number of business licensing categories from 1352 to
519.
- Endorsed the one-center service provision to announce a company name in a newspaper, business
address verification/lease agreement, by-laws and MoU, and TIN and VAT registrations during the
establishment of a business.
- Launched an online trade registration and license service to make investment registration and
licensing service more efficient, effective, and accessible.
- Abolished the requirement to publicize the establishment of companies and cancellation of business
licenses and commercial registration in a newspaper.
- Removed the rule that imposes cancellation of registration as a penalty for failure to obtain a
business license within one year of commercial registration.
- Removed the rule prohibiting investors from obtaining certificates of registration and business
licenses via proxy.
- Permitted foreign investors to sell their own products produced in Ethiopia through electronic
commerce.
- Developed and revised the investment proclamation, regulation, guidelines, and operating manuals
and made them investor-friendly. It also introduced a policy shift from a positive to a negative
listing approach to restricting FDI. Moreover, the EIC approved the Industrial Park designation and
issued the ex-pat employees labor law directive.
Dealing - Launched an online application for construction permits in Addis Ababa City Administration which
with reduced the planning and consulting time from 3 days to 45 minutes and the approval time from 3
construction weeks to 3 days.
permits - It was possible to reduce the cost of dealing with construction permits by 1.8 percentage points of
warehouse value and the number of construction permit procedures by 2 procedures (from 15 to
13).
- Reduced the service provision time by introducing a risk-based inspection and enforcing final
inspection/quality control system at headquarters, sub-city, and woreda levels. To achieve this, the
Ministry of Construction and EIC printed and circulated the new building risk-level directive,
provided training, and increased the number of staff. As a result, the building quality control index
(0-15) has risen from 11 in 2020 to 13 in 2021.
- Ethiopia’s score in dealing with construction permits increased from 52.8 points in 2019 to 59.7
points in 2021.
Paying taxes - Operationalized the VAT quarterly (instead of monthly) filing and payment procedure for small
and medium taxpayers. This eased the burden of paying taxes, mainly for smaller taxpayers with
annual turnovers below 70 million ETB as they are now expected to file and pay their VAT
quarterly.
- Increased the coverage of e-filing/payment and taxpayer outreach: 81% of LTO, 80% of MTO and
46% of STO taxpayers e-filed in December 2020, while 51% of LTO, 27% of MTO and 4% of
STO taxpayers have made e-payments in December 2020. The system challenges have also been
addressed. For example, it ensured user-friendliness, fully automated tax payments through a bank,
and removed the requirement to bring the slip to the tax office. In addition, it introduced an e-
invoicing system by issuing an e-receipt directive to implement an e-transaction proclamation.

18
 - Reduced the time to install cash register machines to 3 days max and built effective service and
reform communications platforms, including a dynamic website.
- Endorsed law that allows replacing cash registration machines with software that provides a similar
service. This saves 7 days and ETB 8,000 to ETB 10,000.
- Reduced the hours spent paying taxes from 306 in 2018 to 292 in 2021 and number of tax Payments
(per year) reduced from 29 to 27. However, there has not been improvements in the time it takes
to get VAT refunds (48.69 weeks) between 2019 and 2020. The impact of the 50% reduction in
VAT withholding (from 15% to 7.5%) is yet to be seen.
- Launched the Electronic Single Windows system in 28 government institutions, including tax and
tax-free rights, licensing, and other assurance services.

Getting - Introduced a digital device to monitor power outages. The system is deployed in all three districts
electricity (North, South, and East districts) of Addis Ababa in the 2020/21 budget year.
- Reduced unnecessary processes required to obtain electrical connections. Specifically, the number
of days to get electricity was reduced from 95 days in 2020 to 80 days in 2021.

Registering - Digitized the property ownership certificate to reduce the number of days, operating procedures,
property and payments required for the registration process.
- Improved the quality of its land administration system by publishing the official list of documents
required for property registration.
- Combined the different payments into one and applying cadastral information system. As a result,
the number of procedures required to register a property in Ethiopia reduced from 7 to 6 and the
number of days it takes reduced from 52 to 51 days. As a result, Ethiopia’s Quality (0-30) score in
registering property increased from 5.5 in 2020 to 11 in 2021.

Trading - Launched the Electronic Single Windows (eSW) system, a one-stop service system
across - Improved the procedures by allowing pre-arrival clearance and approving the policy of deferred
borders payment system.
- Reduced charges imposed on imported and exported products.
- Permission to allow foreign investors to sell their own products produced in Ethiopia through
electronic commerce
- Introduced free trade zone draft proclamation and related incentives regulation. After approval by
the council of ministers it was sent to the HPR for approval. The first special economic zone in the
country was inaugurated in Dire-Dawa and this is hoped to increase FDI inflows and improving
export system.

Getting - Reformed the loan supply system. Specifically, the movable property security right proclamation
credit has been ratified and operationalized with the aim of increasing access to credit.
- Expanding access to credit information system. By operationalizing the Credit Information System
that allows online service to MFI lenders and capital good financing companies, it was possible to
increase access to credit information.
- Increased information on the borrower's registration system from 0.4% to more than 5%. As a result
of the above, Ethiopia’s Strength of legal rights (0-12) increased from 3 to 8 and the Depth of credit
info (0-8) scored increased from 0 to 6.
Resolving - Introduced the revised Commercial Code that is expected to improve the investment environment
Insolvency in several ways. Among others, the revised Commercial Code has rules that facilitate bankruptcy
and reorganization procedures and reduce the timeframe for resolving insolvency to 15 years.

Challenges and Limitations in the implementation process

Reforming the ease of doing business requires efforts of different stakeholders integrated and synergized. As
a result, the EIC had to work collaboratively with other government offices. However, EIC indicated that it

19
encountered challenges in undertaking structural reform measures by coordinating, synergizing, and
monitoring the accountabilities of the different institutions that can contribute to improvements in Ethiopia’s
ease of doing business ranking. Moreover, EIC pointed out contradicting rules and directives and/or differing
interpretations of the law practiced by different government entities. In general, the lack of consultation
among government entities when drafting and implementing new rules, regulations, directives, or policies
has also been another challenge.

Furthermore, corruption has been creating challenges in implementing reform activities as well as enjoying
the reform gains.

The limited number of reforms in terms of ease of paying taxes and trading across borders (customs) and/or
problems in widely communicating reforms undertaken in these areas can be indicated as one limitation. In
the case of the former, the major reforms reported are the introduction of the electronic single window system,
e-payment/e-filing system, and reducing the frequency of VAT-filling. Noting is reported, for example, in
terms of improving the time it takes to get VAT refunds. Moreover, ensuring full coverage of incorporated
medium taxpayers under the e-filling and e-payment system has not been achieved

The numbers also tell us that EIC’s target of increasing Ethiopia’s doing business (DB) score from 48 points
in 2019/20 to 49 points by the end of the 2013 EC fiscal year (2020/21) is not ambitious enough. This target
is also not consistent with the country’s vision of making Ethiopia among the top 100 countries in the EDB
ranking. A one-point increase in Ethiopia’s DB score would not improve its global ranking significantly. For
instance, to get to the top 120 performers or join its neighbors, Ethiopia needs to increase its DB score to
around 60 points from its current level of 48 points.

In general, however, with some of the reform measures still underway, there has been important progress in
terms of improving Ethiopia’s business environment. Important improvements have been made to the
different components of the World Bank’s measure of ease of doing business. If these reform measures are
widely communicated and fully implemented, Ethiopia’s ease of doing business ranking is likely to improve
in a meaningful way.18

2.1.2. Policy Recommendations

It is already evident that Ethiopia’s score and rank of ease of doing business are poor, and there is ample room
for potential improvements. Therefore, Ethiopia needs to design and implement the following policy
recommendations to achieve higher scores and ranking in regional and global contexts.

Robust coordination among government offices and further empowering the EIC: There is a need
to establish smooth and robust coordination among government offices. Weak coordination among different
government institutions and differing interpretations of the law were some of the challenges pointed out by
the EIC in undertaking the structural reforms related to ease of doing business. For example, the EIC
mentioned legislation by MoR requiring a lease agreement for TIN, while the EIC abolished the lease
agreement requirement for obtaining an investment permit. In general, since improving the ease of doing
business involves different stakeholders, the EIC cannot be solely responsible for the success and failures of

18
The World Bank Group discontinued the Doing Business report as of September 2021 and is planning to launch a
new approach, tentatively known as the Business Enabling Environment (BEE), to assess the business and investment
climate in economies worldwide.
20
implementing these reform measures and improving Ethiopia’s ease of doing business ranking. Moreover,
given its role in implementing these reform measures, the EIC needs to be further empowered to strictly
coordinate, synergize and monitor the accountabilities of the different institutions that can contribute to
Ethiopia’s ease of doing business ranking.

Benchmarking best practices from peers: The fact that Ethiopia has a relatively poorer ease of doing
business performance compared to other sub-Saharan African countries suggests that there is ample room for
Ethiopia to make improvements. Moreover, the existence of well-performing sub-Saharan African countries
means a great opportunity for Ethiopia to learn from the experiences of its close neighbors. Below are some
examples of where Ethiopia can make further improvements in its EDB performance by taking simple lessons
from other sub-Saharan African countries.

While Ethiopia has reduced the number of procedures and days and cut fees to start a business, it is still
behind other African countries. For example, Nigeria made starting a business easier by reducing the number
of days from 20 in 2018 to 7 in 2020 and improving the online platforms. Nigeria also made starting a business
easier by no longer requiring on-site inspections for business premises registration.

Implement automated systems to monitor and report power outages like many other African countries, e.g.,
Egypt, Kenya, Rwanda, and Uganda. This system clarifies any possible failures in motors, pumps,
transformers, control devices, or any electrical-type equipment. In addition, by adopting Uganda’s
experiences, Ethiopia needs to improve the monitoring and regulation of power outages by improving its
calculations of the annual system average interruption duration index (SAIDI) and system average
interruption frequency index (SAIFI). These indices are one of the electric utility industry reliability
measures, including outage duration, frequency outages, system availability, and response time. Lower values
in these indices indicate lower interruptions in business operations due to power outages. Ethiopia should
also make getting electricity faster by enhancing the review process and increasing equipment availability
for new electricity connections.

Although there are indications that some of the above reform measures are also available in Ethiopia, they
are either not well communicated, put into use widely, or made fully operational.

Strengthen the digital tax filing and payment system: It is important to strengthen the electronic filing
and payment system by increasing network infrastructures, enhancing the functionality of the system, and
providing information and training to business owners. It is also important to develop an online case
management system to process value-added tax cash refunds following Côte d’Ivoire’s experiences. Given
that the time it takes to get VAT refunds has not improved in Ethiopia and that it is one of the areas susceptible
to tax fraud, this is an area that deserves policymakers' attention.

Combat Corruption: Taking serious measures against corruption is important to make sure that businesses
enjoy the outcomes of the reform measures and that the reform efforts bear fruit. The recent move by the
government to intensify the anti-corruption campaign is a good start and a clear indication that the problem
has become rampant.

2.2. Logistics sector reform

Ethiopia's logistic sector is characterized by bureaucratic customs processes, inefficient logistics services,
underdeveloped transport systems, inadequate terminal facilities, limited ICT systems, and an inefficient
21
regulatory framework. These inefficiencies increase the costs for businesses involved in trading across
borders, delays in exporting and importing, and generally reduce the country's international competitiveness.
As a result, improving Ethiopia's weak logistics sector performance is one of the major structural reform
areas of the HGER agenda aimed at promoting Ethiopia’s economic growth and development.

Objectives and targets

HGER proposed historic and fundamental reforms in three key areas to improve the overall functionality of
the sector. The first reform area aims to enhance the logistics sector's competitiveness and efficiency. The
Logistic Transformation Office (LTO) has set three distinct goals (see

Table 4). It first aims to: one) build the sector's enforcement capacity, two) reduce logistic transit time and
cost by 10%, and three) provide efficient, reliable, and simplified services.

The second reform area in the reform of the logistics sectors is focused on the digitalization of logistics and
related services. The LTO plans to enhance its ICT service to increase the efficiency of the logistics sector
and expand the study of Logistic Information Systems to make a common information system for all import
and export products.

The third major reform area aims to enhance coordination across the logistics sector actors. Several actors
and institutions are involved in the logistics sector. As a result, the sector is also affected by multiple
regulations and such as maritime transport, road transport, rail, ports, customs, finance, etc. This reform is
therefore aimed at establishing a robust coordination structure among key players in the logistics sector and
enhancing its operational efficiency.

2.2.1. Logistics Sector Reforms: Performance Review and Challenges

Improving service delivery by integrating rail transport with road transport and freight centers

There have been achievements in strengthening the sector’s service delivery by integrating rail transport with
road transport and freight centers. The major achievements in this regard include:

• Exporting 26,316 TEU containers of goods using the Modjo and Endode centers. The coverage of
railway export containers increased from 2.6% to 24.2%. Specifically, by the end of the 2021/22
Ethiopian budget year, 14,579 20-feet containers for export have been transported through the
railway line, higher than the previous year’s export of 11,737 20-feet containers.
• The 200 flat wagons that were purchased earlier were brought to work, increasing the capacity of the
railway service that goes to the Djibouti port 3-fold.
• Work has begun on a project that links Awash Depot to the Djibouti railway line. As a result, in the
2020/21 Ethiopian budget year, from a total of 1,284,381 metric tons of imported fertilizer, 111,770
metric tons have been transported by rail.
• Moreover, the monthly frequency of train travel has increased from 5 to 20 and the capacity is
increased from 12,950 metric tons to 51,800 metric tons.

Performance of the Logistics Sector Reforms in Reducing Trade Cost

22
 • By using rail transport for imported and exported containers and dry bulk transport, it was possible
to reduce the logistic cost by ETB 1,833,388,390 and save USD 35,567,315 in foreign currency.
• By applying the containerization of the export logistics service, 5,691,262.5 USD has been saved.
Moreover, by using rail transportation it was possible to reduce the time that was required to transport
the same volume of goods by 24,835 vehicles, on average, by 1.5 days each.
• Moreover, the Vessel anchorage time was reduced from 9 days to 1.4 days, on average; berth time
for a given ship was reduced from 24 days to 10.3 days; and due to improvements made in Djibouti
port operation, the time needed for loading a rail has been reduced from 3 days to 1 day.

Furthermore, for the success of the structural reform that focuses on enhancing the logistics sector's
competitiveness and efficiency, the Logistic Transformation Office (LTO) has set three distinct goals and

Table 4 below summarizes the goals, targets and achievements in detail.

Table 4 Review of performance in the logistic sector

Goal Achievements
Goal 1: Building the Implementation Capacity
- NLC is established and become fully operational, held eleven formal
Target 1: Establishing the and one special meetings; approved Eight studies on Interventions/
National Logistic Council (NLC) programs for study by LTO and other local and international consultants
and transferring the council to full
and gave direction for implementation. These included dry bulk
implementation
importation, FOB directive revision, the opening of multimodal
transport, containerization program, Free Trade zone, Ethiopia logistics
Transit cost and time studies as compared to East African countries and
domestic Logistics Performance Index (LPI) of Ethiopia for the year
2020 and 2021 based on WB indicators. The LPI’s are published
implying an improvement in logistics performance.
- Experienced personnel/consultants are hired from academia and
Target 2: Enhance Logistic practitioners in the sector through funding from the World Bank, WFP,
transformation Offices’ (LTO)
and Flying Swans (a Dutch company) in partnership with EMA; Full-
implementation capacity
fledged LTO is operational, undertook several activities mainly
designing and implementing the National Logistics Strategy (NLS)
interventions and programs with concerned stakeholders, among others.
- Association established with elected board members, necessary staff
Target 3: Establishing the recruited for its office and is operational; participated in various
Ethiopian Logistics Community
workshops, meetings, dialogues related to NLS implementations,
of Practice (ELCOP) also known
as Ethiopia Logistics sectoral studies and validations representing the private sector.
Association (ELSA)
- TWG set up composed of public and private logistics sector operators
Target 4: Organizing Technical and stakeholders; Participated in technical forums and think tank
working group (TWG)
meetings during program design and implementations.
- Training offered to capacitate the team, discussions and awareness
creation activities were undertaken
Goal 2: Reducing Logistic Transit Time and Cost by 10%

23
 - Major export logistic gaps were identified, export support package
Targe 1: Developing the Export produced, and round of professional discussion has been held. Based on
Logistics Support Package and the result of the performance evaluation, the implementation scheme
Starting Operation updated, special surveillance systems were introduced, and additional
program improvement measures were taken.
- The rate of export containerization at the end of 2020/21 fiscal year was
Target 2: Strengthening the 48%, missing the 52% target set for the fiscal year by 4 percentage
Export Containerization System
points.
and increasing its coverage from
48% to 70% in 2021/22 fiscal - After learning through research and gap identification, the export
year containerization execution has been increased to 64.8% at the end of the
2021/22 budget year.
- Operation and upgrading the export containerization program with
special focus to cereal and oilseeds exports and making all coffee
exports to be wrapped by containers has been improved. Noticeable
achievement was recorded in the containerization of coffee exports, i.e.,
more than 95%. To scale up the export containerization system, a
performance evaluation is conducted on the implementation of the
containerization system.
- Assessment on livestock export logistics completed and validated by
Target 3: Deploying Livestock LTO. A study was conducted on this program and under implementation
Logistic Export System/program by MoA with a financial and professional support of WB. Based on a
survey, a detailed program has been developed to set up a retention
facility for livestock at Djibouti port. The port agreed and provided area
at the new port of Djibouti.
- Technical team formed, pre-feasibility study and feasibility study have
Target 4: Developing Modern been completed by a Dutch company for the setup of cool port facilities
and Effective Logistics System at Modjo Dry port (cool port Addis) through Ethio-Netherlands
for Perishable Goods cooperation and it is in progress. Mobilization of financial resource for
the development of cool logistics infrastructure from the two parties
(Ethiopia and Netherland) is in process.
- Parallel to the study, trial shipment was made in exporting two 40-foot
avocado containers weighing 48m/tones from the Amhara region to
England have been successful.
- Technical working group set up at the national level for cold chain
activities and is well progressing.
Goal 3: Providing Efficient, Reliable, & Simplified Service
- Directive prepared, reviewed and approved by the NLC to strengthen
Target 1: Liberalize the sector to the multi-modal transport system and increase its coverage as well as
private actors gradually opening up the forwarding service to the international
market; manuals and other formats prepared for its implementation.
The plan to invite domestic private companies to start multimodal
operating service by the end of 2022 is progressing well.
- Ethiopia’s trade logistics project, which transforms the Modjo dry port
to green logistics hub facility undertaken through WB financing is well
progressing and reached 38.5% of its completion.
- FOB Procedure/Directive (1990 and 1992) has been revised and
implemented.
- Draft directive submitted to MoTL to open up the dry port services to
both domestics and international operators. It is at its final stage for
approval.

24
 Target 2: Improve the - The number of required documents reduced from 6 to one/two
functionality of the Customs and documents (Single window)
Supervising Office; improving the
Custom Procedure and reduce the - Integration of the logistics service through intermodal facility (rail
number of required documents; transport with road transport) and freight centers is enhanced.
- Construction of heavy track terminals at two Djibouti gateways (Galafi
and Dewalle) is completed and fully functional.
Target 3: Digitalize logistics and - A comprehensive single-window service/online service is
related services implemented/ operational; 16 organizations joined the system and 22
are in process to join this platform.
- The study of Logistic information system/logistics digitalization
strategy meant for all import and export has been developed and under
review for implementation.
- At Djibouti port, the port and custom service payment system is
changed from manual to an online system.
- Under the Trade logistics Project/Modjo Green Logistics Hub; the
procurement of Terminal Operating System and integration
platform/facility is in process.
- A study is being conducted to avail Port community system/IMS
platform in the Ethio-Djibuti corridor.

Challenges and Limitations in the implementation process

The logistics sector reform is complex and thus reform has faced several challenges. The followings are some
of the challenges the sector has faced in implementing the reform program.

• Lack of financial resources for the implementation of the strategic initiatives that the office has
planned to undertake.
• The difficulty of coordinating different governmental and non-governmental bodies causes delays in
implementing reform measures that the office has been undertaking.
• The COVID-19 pandemic and its containment measures imposed a substantial impact on the logistic
sector reform implementation process.
• The conflict in Ethiopia has constrained the reform in the logistic sector.
• The Ukraine-Russia war has hampered the performance of the logistics sector reform.

Although the Logistics Transformation Office (LTO) has done a lot of work in terms of advancing the HGER
agenda, assessing its performance in implementing the HGER has been difficult. This is mainly because the
LTO, despite its commendable achievements in implementing a list of reform measures that can help to
advance the sector, did not have a specific HGER plan and corresponding time-bound targets that guide its
reform implementation. This made it difficult to make a reasonable and focused assessment of the office’s
performance in implementing the HGER agenda.

For example, in the cases of livestock and perishable goods export logistics, the office needs to develop key
performance indicators and set specific and measurable targets to allow for monitoring its performance.
Moreover, even if some of the documents provided by the office indicated that the office has a target of
reducing the country’s logistics cost by 25 percent, detailed information is lacking to assess whether this
target is achieved or not.

25
The LTO has indicated undertaking detailed research on the containerization program and identified the main
reasons for the lower performance in containerization to be shortages of empty containers, problems with the
weight limits of land vehicles, lower train frequency, exporters’ low interest in getting off their tradition, lack
of information and understanding the benefit of export containerization. Because of the above-mentioned
constraints, the export containerization performance has been lower than the target set by the LTO. However,
the office has not indicated specific/concrete solutions to address the identified challenges and improve the
performance of export containerization in the future.

2.2.2. Policy recommendations

Enhancing the efficiency and cost-effectiveness of the logistics sector is important to reap the benefits of
Ethiopia’s high hopes in the manufacturing sector and boost its export competitiveness. These will require a
menu of actions and reforms.

Fastening the logistic reform: The government has announced a historic reform in the logistics sector to
improve the overall functionality, but implementation is lagging and there is a need to speed up the process.
For example, key supporting regulations and the empowerment of regulators are needed to functionally
liberalize dry port activities, including warehousing, cold storage, and packaging functions.

Government must prioritize the remaining steps of this reform area as the remaining actions may face
pushback from special interests. In the absence of prioritization, such opposition may effectively undermine
the benefits of actions taken to date.

Strengthening digitization and e-commerce: Logistics has been in the midst of a tech-driven revolution.
Building robust digital capabilities can allow cargo visibility/traceability, doing business online, and
increasing efficiency. Introducing an electronic document management tool would reduce, as much as
possible, the time of transfer of a document between instances, the number of instances, and the supervisory
authorities needed themselves.

Improve and refine the Single Window mechanism: Integrate this functionality into the general
information base of public services. Reduce the barrier to entry for small businesses. Conduct training to
explain the work of new systems and increase information literacy. Furthermore, it is important to:

• Introduce an electronic queuing mechanism to speed up the time of crossing border points by road;
• Develop a mechanism for closer interaction with customs authorities in trading countries;
• Introduce a mechanism for smart consolidation of goods in warehouses, thereby reducing the idle
time for loading/unloading;
• Improve the accuracy of tracking cargo in space.

Building human capital in the logistics area: It is important to increase the attractiveness of the industry
for young professionals and competent personnel. Technical positions should be filled based on expertise
instead of political appointments. Moreover, sufficient compensation should be provided to retain top talent
in permanent positions that are needed for continued problem-solving and innovation.

26
 2.3. Power sector reform

As Ethiopia continues to industrialize, its electric power demand continues to grow. Despite this, the power
sector is still characterized by low access19; low quality and reliability characterized by significant
interruptions and fluctuations; poor financial performance due to huge accumulated debt, improper tariff
setting, operational and administrative inefficiency, and weak institutional and regulatory frameworks.
Consequently, the power sector is considered a key structural reform area under the HGER agenda. The
aforementioned challenges necessitate the development of a comprehensive Power Sector Reform Roadmap
(PSRR), which is in line with the Homegrown Economic Reform (HGER) Agenda.

2.3.1. Power Sector Structural Reforms: Performance Review and Challenges

Ethiopia’s renewable generation capacity reached over 4,800 MW at the end of June 2022, which is
dominated by hydropower. The contribution of solar, wind, and geothermal energy is less than 10%.
Substantial investments have been made in the transmission and distribution of the grid network, covering
about 70% of towns and villages in the country. However, the power sector falls short of effective and reliable
service delivery. In 2022, the electricity access rate in the country is about 48%, where more than 60 million
people have no access to electricity. To improve access to and reliability of electricity in the country, the
Ethiopian government has put effort into reforming the sector. Table 5 and Table 6 summarize the key reform
goals, activities, and achievements in the power sector reform.

Table 5 Reform measures/Goals and activities in the power sector

Reform measure/ Targets/Activities

Goals
Ensuring universal The National Electrification Program (NEP 2:0) in 2019 adopts an integrated approach to
access to electricity achieve universal access with 96% through grid connections and 4% through off-grid
solutions by 2030.
The existing regulatory frameworks that hamper investments in off-grid connections are
under revision and new guidelines are under preparation.
Strengthening power The Ethiopian Electric Power (EEP) and Ethiopian Electric Utility (EEU) are the main
sector institutions and institutions in the power sector, and they suffer from a lack of efficiency and capacity.
regulatory The reform aims to modernize corporate governance and improve the operational
frameworks efficiency of power sector institutions, including through ownership, organizational, and
management restructuring and innovations.
Implementing a The reform in the power sector focuses on cost recovery through tariff revisions,
sustainable financing implementing differentiated tariff rates between households and commercial/industrial
model for the power users, and improving management efficiency and increased participation of the private
sector sector to enhance the power sector's financial sustainability.
In this regard the 4-year tariff adjustment has been implemented from 2018 to 2021.

Encourage Public Private Partnership Regulation updated to strongly involve independent power
independent power producers (IPPs)
producers (IPPs) and Vertical unbundling of EEP and horizontal unbundling of EEU is important which can be
implemented in phased approach.

19
Currently, electric access is only 36% from the grid and 12% from off-grid.
27
 public-private
partnerships (PPPs)

Table 6 The Power sector targets and achievements

GOAL Objective July 2020- June 2021 July 2021- June 2022
Target Performance % Target Achievements %
Universal access Increase number of 387 364 94 425 204 48
electrified villages/ rural
town
Install 12 solar mini-grids 12 8 85 4 2 50
for off-grid electrification
Improve customer 100000 413,485 41 100000 364,466 36
connection
Complete 25 new solar 100 100 100
mini-grid tender
preparation and
negotiation
Improve grid and off-grid 52 46 88 58 48 82.7
connection coverage
Financial Increase average tariff to 0.048 0.043 90 0.06 0.042 70
sustainability cost reflective level
Increase revenue from 33.14 28.6 87 43.4 37.1 85.5
electric power sales (EEP
and EEU) in billion birr
Implement Utility Debt 100 95 95 5 5 100
restructuring
Reduce transmission and 18 19.5 92
distribution technical
losses (needs further
study)
Operational Undertake further power
Performance sector reform study (needs
Improvement government decision)*
Full implementation of 100 99 99 1 1 100
ERP in EEU
Launch digital payment 30 30 100
system
Reduce SAIFI 130 112 83 74
Reduce SAIDI 365 280 195 69
Improve customer 70 67 95 72 58 80.5
satisfaction level
Note: Some of the reform measures require government approval e.g. Unbundling of the utilities; further tariff
adjustment and regulatory framework. SAIFI stands for System Average Interruption Frequency Index (SAIFI), while
SAIDI stands for System Average Interruption Duration Index.

28
Challenges and Limitations in the implementation process

One of the biggest challenges in the power sector reform implementation is the slow achievement of the
National Electrification Program (NEP). As per the program, the government has a big stake to allocate
enough matching funds every year in parallel to the foreign currency component. In addition, the
organizational setup in the EEU and regional offices has been evaluated and restructured. Some of the reform
measures require approval from the government (Council of Ministers or the Prime Minister’s Office). For
example, during our interview with the sector, it was indicated that the unbundling of the utilities, further
tariff adjustments, and the introduction new regulatory framework and institutional restructuring require
strong government decisions for their implementation and are important steps toward implementing the
HGER agenda.

2.3.2. Policy Recommendations

Ethiopia faces significant challenges in expanding access to electricity and making it more reliable. As such,
stakeholders including the government, private sectors, and international development partners should
collaborate to accelerate the progress toward universal access to electricity in the country. The core of this
effort starts with governments’ commitment to having the right regulatory conditions and institutional setup
in place to attract investment in all areas of the sector, including generation, transmission infrastructure,
distribution, and operational management. Among others, the government needs to do the following:

Promoting Private Investment in Electrification

• Recognize that electrification is a long-term investment and a necessary input for long-term economic
transformation. It is crucial to find ways to finance the upfront costs of electrification, which will pay
for itself only in the long run. In this regard, electrification may be viewed as a time-consistent way
to save or invest for future generations.
• Amend the legal framework to attract the private sector to invest in all areas of the sector, including
generation, transmission infrastructure, distribution, and operational management. Approval of the
roadmap and establishment of the Power Sector Reform Office to implement the reform as per the
roadmap could spur investment in the electric sector. The formulation of a market-driven electric
power could improve the participation of the private sector in power sector investment.
• Study and recommend possible unbundling of the utilities (EEP and EEU) to create plain ground for
the private sector to be engaged in generation and distribution activities.
• Encourage development partners to play a role in fostering interaction between private investors and
the government such as providing technical assistance for electrification, planning to support building
up the right regulatory environment, institutional setup and providing concessional financing to risk
mitigation for drought, oil price shocks, and conflicts.

Expand access to electricity and strengthen reliability

• Invest in mini-grid and off-grid electrical sources that play a key role in achieving universal access.
• Take advantage of recent rapid technological advances to provide different forms of electricity
service to meet basic needs and strategically promote productive uses. Stand-alone solar solutions
provide services such as lighting, charging cell phones, and power for low-capacity appliances.
29
• Although access is important, reliability will be crucial if electricity provision be sustainable. Access
rate alone should not be the sole measure of progress because universal access may not deliver its
full promise if quality and reliability continue to be poor, with a significant strain on the country’s
economy.
• Design a national electrification strategy in a coordinated manner. Coordinate with other sectors to
take advantage of complementarities and the provision of complementary inputs to productive
economic activities. For example, coordinating with development initiatives (such as agriculture,
social services, industry, transport road infrastructure finance institutions, skills development, and
public service delivery etc.) could provide insight into where to prioritize the provision of electricity,
and thereby amplify its economic impact. Experiences elsewhere indicate that the centerpiece of
successful electrification rollout is the preparation and practical implementation in each country of a
national electrification strategy that addresses, in a systematic and coordinated manner, the
institutional, technical, and financial aspects of electrification.

30
3. Review of Sectoral Reforms (July 2019 – July 2022)

3.1. Agriculture Sector Reform (July 2019 – July 2022)

Agricultural growth remains an important driver of economic growth and poverty reduction due to its role as
a major source of employment and output for the Ethiopian economy. Although there has been agricultural
productivity improvement in the past few years, it is limited to some crops, with limited investments and
productivity improvements in a range of sub-sectors. Furthermore, yield growth remains insufficient to match
the growth of domestic demand for food and industrial inputs. Thus, increasing market-driven agricultural
production and productivity and enhancing agricultural value addition and access to domestic and
international markets will be required for agriculture to contribute to the structural transformation of the
economy. Cognizant of this fact, the agriculture sector is one of the sectors included under the sectoral
reforms of the HGER agenda. The sectoral reform agenda pertaining to the agriculture sector aims to unlock
new and existing growth potential and promote investment in the sector by addressing market failures and
regulatory and investment constraints in the sector.

3.1.1. Achievements and Challenges of the agricultural sector Reform Implementation

Major Achievements: The reform measures mainly include revising existing or developing new policies and
legal frameworks to realize the goal of the agriculture sector reform agenda stated in the HGER document.
Major achievements in this respect during the three years HGER implementation period include putting in
place legal frameworks towards establishing a strong and functional institutional system that promotes
efficient utilization of production resources, access to agricultural inputs and agriculture-focused financial
services, and integration of smallholder farmers into agricultural value chains. The details of these policies
and legal frameworks are presented in Annex A.1.
Specifically, the revision of the Agriculture and Rural Development Policy by looking at the policy pillar and
identifying gaps in existing policy (see Annex A.1.a). A draft revised Rural Lands Administration and Use
Proclamation has been submitted for review and approval to the Council of Ministers (see Annex A.1.b).
Developing a national fertilizer supply chain enhancement strategy, a seed policy and supporting directives,
and removal of duties and taxes on mechanization technologies are also among the reforms in legal
frameworks that aim to improve agricultural productivity through enhanced access to agricultural inputs and
technologies (see Annex A.1.c). Legal frameworks are also introduced to improve the supply and accessibility
of agricultural finance (see Annex A.1.d). A Contract Farming Law has been approved by the House of
Federation and directed to the House of Peoples Representatives for final approval (see Annex
A.1.e). Furthermore, observed achievements related to implementation of agricultural reform measures are:

31
 Piloting disbursement of a loan valuing more than 700 million Birr to 22,000
farmers using their landholding certificate.

Improved procurement and logistics system to improve supply of fertilizer and

improved certified seed varieties. In 2019/20, the quantity of mineral fertilizers and
improved seeds procured and distributed increased by 18% and 66%, respectively,
compared to the baseline year (i.e., 2018/19) (see Appendix Figure 1). However,
this upward trend was reversed in 2021/22, plausibly mainly due to the Russia-
Ukraine war.
Tax exemption on mechanization has made agricultural mechanization accessible
to farmers. Using the tax exemption, 1,092 importers imported around 1.2 million
mechanization technologies (mainly water pumps and cables, and tractors and their
accessories).
4.74 million ha (37 %) of the smallholder land cultivated through Agricultural
Commercialization Cluster (ACC). Crop production in ACC increased by 22%
between 2018/19 and 2021/22 (Appx. Figure 2). Crop productivity under ACC is
32% higher than national average (increase in yield for individual crops is presented
in Appendix Table 2).
Modernize livestock production through increasing vaccination by an average of
15.9% per year, and initiating heifer multiplication programs to improve access to
dairy genetics. The construction of livestock quarantine facilities in Millen and
Metema has been completed. A national poultry sub-sector transformation action
was initiated. The resulting production figures of livestock products are mixed.
While poultry meat, egg and milk production increased by 65%, 17% and 73%,
respectively, between 2021/22 and the baseline year, meat production from cattle,
sheep, goat and camel declines by 77% during the same period (see Appx. Figure
3).
The agricultural exports in 2021/22 reached to 3 billion USD, which is a 41%
increase compared to the agricultural exports in 2018/19 (i.e., at the baseline). This
is driven by a staggering 87% increase in coffee export within that period (see
Appx. Figure 4). With regard to agricultural import substitution, the domestic wheat
supply-demand gap is expected to shift from -15 million MT in 2019/20 to +2
million MT in 2022/23. However, the trend in import of other food items has not
yet been reversed (see Appx. Figure 5).

Challenges: The major challenges encountered in the implementation of the agriculture sector reform
measures are:

32
 ● The planned reform measures/activities have no detailed time schedule (monthly or quarterly) and
no separate monitoring, evaluation and reporting system.
● The deleterious Covid-19 pandemic and locust invasion.
● Delayed approval of the sectoral policy, the Rural Land Administration and Use Law, and the
Contract Agriculture Law.
● Poor coordination among the different stakeholders in the sector.
● Challenges related to the alignment of the human resource transformation plan with civil service
guidelines, and federal and regional reform alignment.
● Shortage of finance and foreign exchange for the purchase of agricultural inputs and mechanization
technologies.
● Lack of a strong private sector to deliver on contracts.

3.1.2. Policy Recommendations

The recommendations for the agriculture sector are:

● Use a separate system for planning of reform measures or initiatives and for tracking their
implementation and results.
● Approval and implementation of the revised agriculture and rural development policy to transform
the agriculture sector to a dynamic and sustainable accelerated production growth.
● Approval and implementation of the revised Rural Lands Administration and Use Proclamation to
strengthen security of land use, property and transfer rights as well as strengthen the legal
framework for the land transaction and communal land ownership. Furthermore, develop and
implement a legal framework for land consolidation.
● Develop systems and procedures with a clear strategy for promoting private sector investment in
fertilizer production and supply chain and veterinary service.
● Design and implement efficient mechanization services with clear enabling environment, legal and
regulatory framework to engage private sector and cooperatives
● Similar to ACC, design and implement livestock-based commercialization clusters.
● Commercialize public animal genetic improvement service with a clear model to semi-
commercialize public animal genetic improvement service with the appropriate legal and related
institutional framework to operationalize agreed upon model.
● Approval of the Contract Agriculture Law and implement it to promote contract agriculture among
farmers and pastoralists with commercial producers and off-takers.
● Develop and implement import substitution strategy to strategic agricultural products, and develop
and implement an agricultural commodities export strategy.
● Put in place operational modalities that support and encourage agriculture-focused finance and
insurance services.

3.2. Manufacturing Sector Reform (July 2019 – July 2022)

The industry sector is one of the most important drivers of growth and is usually touted as “the engine of
growth”. And experience shows that almost no country (except some small city-countries) has achieved a
high level of economic development without achieving a major breakthrough in its industrial sector,

33
particularly the manufacturing sector. Compared to other sectors, the industry sector has greater potential
for forward and backward linkages, specialization, technological innovation, and mass production. Building
a vibrant high-tech manufacturing sector is essential to establish an economy’s competitiveness in the
global market. Cognizant of the importance as well as the shortcomings of the manufacturing sector, the
HGER agenda recognizes the manufacturing sector as an engine for growth and transformation of the
economy through creating effective backward and forward linkages, providing comprehensive support to
MSMEs and enhancing the productivity of firms and workers. The principle that guides the manufacturing
industry sector reform is that there is a need to have coherent, sequenced and implementable reforms that
attract investors and ensure the competitiveness of the sector. There is also a need to ease bureaucracy
through digitization and making information available to all.

3.2.1. Achievements and Challenges of the manufacturing sector Reform

Implementation
Major Achievements: The Ministry of Industry (MoI), formerly known as the Ministry of Trade and
Industry (MoTI), has planned and executed interventions in four major areas. These are: (i) revising or
developing policy and legal frameworks (Annex A.2.1), (ii) developing the manufacturing incentive
mechanism (Annex A.2.2), (iii) digitization of service provision (Annex A.2.3), and (iv) strengthening
manufacturing sector support institutions (Annex A.2.4). The observed achievements associated with the
implementation of the reform measures are: increased revenue from export; job created; and improved
logistics of imported raw materials. The manufacturing sector has attracted 60% of Foreign Direct
Investment and created 230 thousand new job opportunities in 2020. The manufacturing output has
increased from 4.91 billion USD in 2018 to 5.12 billion USD in 2021. Moreover, export revenue from
manufactured products increased from around 453 million in 2018/19 to 495 million in 2021/22, which is
a 9.3% increase during the three years of the HGER implementation period (see Appx. Figure 6). Digitized
customs facilitation allowed imported raw materials to be transported straight from a customs post to
factories.

Challenges: major challenges encountered in the implementation of the manufacturing sector reform
measures are:

● Lack of awareness and conviction about the need to have a separate plan for the implementation of
HGER has had a detrimental effect on the commitment of the staff of the ministry towards the
implementation of the HGER plan. This challenge arises due to absence of orientation to the
Ministry about the need for a separate HGER plan.
● The Covid-19 pandemic has disrupted the global market. Furthermore, removal of Ethiopia from
AGOA trade privilege restricted textile manufacturers’ duty-free export access to the U.S. These
challenges forced the Ministry to divert its immediate focus for manufacturers to continue their
manufacturing and retain employees.
● Institutional coordinations and inter-sectoral collaborations towards implementing the reform
measures in the manufacturing sector are very weak. The ‘Ethiopia Tamirit’ initiative was launched
in May 2022 to address this challenge and boost competitiveness of the sector, but its impact is yet
to be assessed.
● Lack of access to finance as a working capital and importation of inputs or raw materials and spare
parts created challenges in implementing reform activities.

34
 ● Policy alignment, sequencing, coherence and consistency have been a challenge for the sector's
growth and bringing about structural transformation envisaged in the HGER agenda.
3.2.2. Policy Recommendations
The recommendations for the manufacturing sector are:

● Future reforms in the manufacturing sector should be accompanied by separate implementation

plans and M&E and reporting specific to the reform measures.
● There should be strong coordination of efforts and collaborations between the Ministry and
Ethiopia’s Investment Commission (EIC), Industrial Parks Development Corporation (IPDC),
universities, TVETs and research institutions, and utility providers.
● Approval of the legal framework and other instruments developed as a result of the reform.
● Most of the planned reforms in the manufacturing sector are underway while some are at
preliminary stages, and these should be completed to the fullest extent as outlined in the HGER
agenda. This includes finalizing the incentive strategy development.
● Launch all the digital platforms and systems that have been developed.

3.3. Tourism Sector Reform (July 2019– July 2022)

Ethiopia has enormous physical and social aspects of tourist attractions. It is endowed with diversified and
unique historical sites, cultural heritages, festivities and social systems. It has diverse ecological and
geological zones, ranging from desert to frosty mountains and extensive plains, parks and sanctuaries with
endemic wild animals and birds. Moreover, Addis Ababa is the capital city of Africa and hosts many
regional and international organizations. However, the tourism potential of Ethiopia is underexploited. The
main reasons for such under exploitation of Ethiopia’s tourism sector include lack of skilled manpower in
the sector, limited infrastructural development and inadequate promotion or marketing. The HGER plan
aims to relieve these constraints so as to tap the potential of the tourism sector in Ethiopia.

3.3.1. Achievements and Challenges of the Tourism sector Reform Implementation

Major Achievements: Most of the achievements in implementing the reform measures in the tourism sector
are related to legal reforms, problem and potential identification and documentation, revision of existing
and developing new manuals and guidelines, and institutional networking. Specifically, the reform
measures that the Ministry of Tourism (MoT), formerly known as the Ministry of Culture and Tourism, has
implemented between July 2019 and July 2022 are: (i) improving tourism legal framework and foster
institutional capacity (Annex A.3.1), (ii) designing a new investment incentive package for tourism
investment (Annex A.3.2), (iii) improving access to finance to tourism operators in the short term (Annex
A.3.3), (iv) designing and implement destination development strategy (Annex A.3.4), (v) developing
integrated tourism marketing, promotion and branding platforms (Annex A.3.5), and (vi) strengthening the
linkage to the agriculture sector (Annex A.3.6). In 2021/22, preservation and protection of 12 immovable
heritage sites and 30 movable heritages, and provision of star ratings for 30 new hotels and proof of
qualification for 150 tourism service providers were realized. Other results obtained in relation to the HGER
plan implementation by the MoT mainly include: protecting wildlife parks from poachers; building road
infrastructure in national wildlife parks, and protecting and controlling wildfires in and around national

35
wildlife parks; and capacity building of local community members on wildlife development and ensuring
that they will get fair share of the benefit generated from it.
Challenges: The major challenges encountered in the implementation of the tourism sector reform
measures are:

● The Covid-19 pandemic and the armed conflict in the country hit the tourism sector the hardest,
as movement of people is highly restricted. To provide some figures, the Ministry planned to
attract 1,161,334 international tourists in 2012 EFY (i.e., 2019/20) of which only 36% was
realized. Similarly, the Ministry realized 30% and 36.3% of planned international tourist arrivals
in 2013 EFY (i.e., 2020/21) and 2014 EFY (i.e., 2021/22), respectively.
● Though the MoT and MoA had established a discussion forum and regular and productive
consultation meetings on promoting agro-tourism, the discussion was interrupted due to Covid-
19. Such interruption has delayed the implementation of reform activities on agro-tourism.
● The planned reform measures/activities have no detailed time schedule (monthly or quarterly)
and no separate monitoring, evaluation and reporting system.
● Lack of finance for the development of tourism sites and related infrastructure, lack of skilled
manpower and public bureaucracy in the procurement of services and materials have adversely
affected the implementation of the reform measures.

3.3.2. Policy Recommendations

The recommendations for the tourism sector are:
● Mobilize funding for investments in tourism infrastructure development to enhance accessibility
and quality of services in key tourist attractions outside the capital city.
● Lack of skilled manpower is one of the main challenges of the development of the tourism
industry of Ethiopia as implementation of human resource development is missing from the
tourism sector reform. This should be addressed by targeting critical short-term skills training
while laying the foundations for long-term human resource development strategies, such as skill
gap identification, networking with training institutions, and curriculum revision and
development.
● A tourism sector recovery plan should be designed to undo the effects of the Covid-19 pandemic
and armed conflicts as these challenges seriously obstructed implementation of reform measures
and performance of the tourism sector.

3.4. Mining Sector Reform (July 2019 – July 2022)

The mining sector is identified as one of the underdeveloped sectors and is promoted as a competitive
industry (value addition) and a strategic source of input for other industries (inter-sectoral linkages).
Despite the availability of vast and diverse mineral resources potentials, the mining industry remains
untapped with a low level of development. Several constraints hinder the growth and upgrading of the
mining industry in Ethiopia. For instance, technical and institutional barriers, lack of legal framework (that
governs investors' relationship with local communities), and informality related to mining products
significantly constrained mining sector development.

36
 3.4.1. Achievements and Challenges of the Mining sector Reform Implementation
Major Achievements: To alleviate the mining sector constraints, the reform interventions that have been
implemented in the sector are: (i) developing Policy, legal framework, and institutional capacities (Annex
A.4.1), (ii) formalizing and support artisanal and small-scale mining (Annex A.4.2), (iii) strengthening
geological information accessibility and promotion of the sector (Annex A.4.3), (iv) enhancing local
community engagement (Annex A.4.4), and (v) reducing incentives for contraband trade (Annex A.4.5).
Observed achievements related to the implementation of the reform measures in the mining sector are:

The total volume of gold production has increased from 7.227 tons (2009-2011), which
was Worth 0.337 billion USD, to 21.14 tons (2012-2014) which is worth 1.4 billion USD.

Human Capital development through the tailored MSc Programs at AAiT (AAU).
Currently 44 Students are attending the programs (Mineral engineering and petrochemical
engineering).
The restructuring work of the three organizations have been implemented and working
successfully. As a result two Institutes (Geological Institute of Ethiopia and Mineral
industry development Institute) were established under the ministry by regulation. This
restructuring has created an efficient working environment with downsizing the number of
employees within the three organizations from 1000 to 520.

485,656 new job opportunities were created in small-scale mining in the HGER period
(2012 to 2014).

Import substitution on strategic commodities such as coal, ceramic, marble, granite is

ongoing and these products will be fully substituted at the end of the current HGER period.

Increased volume and value of export in mining products. Export earnings from gold
during the HGER year from 29 million USD to 536 Mill USD (Appx. Table 3).

Challenges: The major challenges encountered in the implementation of the tourism sector reform
measures are:

● Political instability and security problems in mining production areas and major companies.
● Lack of finance support to artisanal miners who have a great share of gold production.
● Lack of technology, traditional mining practices, and necessary logistics to improve the miner’s
capacity.
● Lack of infrastructure like water for mining purposes, electric power, access to roads in major gold
producing areas.
● Contraband and illicit trade.

35
 ● Lack of logistics for regional mining offices to support and monitor artisanal miners.

3.4.2. Policy Recommendations

The recommendations for the mining sector are:

• Holistic capacity building activities for ASM, supply of machineries and other logistics which improve
productivity, formalizing Artisanal Miners legal structure and providing delineated resource potential
areas for ASM miner should be given an additional emphasis.
• Strengthening stockholder’s engagement and security institutions could minimize the illicit trading of
mining resources.
• Working on capacity development of regional states in terms of manpower and logistical capabilities
to develop the mining sector should also be an area of further reform actions.
• Developing the mining sector as a whole and using the existing potential of the resource endowment
in addition to Gold (such as Tantalum, natural gas, etc) will have immense benefit towards the country’s
prosperity goal.

3.5. ICT Sector Reform (July 2019– July 2022)

The ICT sector is prioritized as an enabler of socio-economic transformation in Ethiopia. Not only can its
promotion be a new source of economic growth and job creation but it also enables the country to transition
into an inclusive digital economy. Due to the continuously expanding Science Technology Engineering and
Mathematics (STEM) universities in the country, there is a growing population of ICT graduates.
Furthermore, Ethiopia's untapped telecom sector and its liberalization plans, and the development of
specialized ICT parks make the ICT sector a potential growth sector.
3.5.1. Achievements and Challenges of the ICT sector Reform Implementation
Major Achievements: To fully unlock the potential of the ICT sector, the key ICT sector reform measures
that have been implemented are: (i) developing a conducive policy and regulatory environment (Annex
A.5.1), (ii) promoting the use of ICT for modernizing the civil service and public services (Annex A.5.2),
(iii) promoting e-commerce and digitization of the financial and logistic sectors (Annex A.5.3), (iv)
expanding ICT infrastructure throughout the country and ensure it is accessible (Annex A.5.4), (v) investing
on ICT literacy and advanced trainings (Annex A.5.5), and (vi) promoting the export of IT-enabled services
(Annex A.5.6).

To modernize the civil service, more than 309 electronic services are implemented to make civil service
easily accessible for customers. Also, the MInT indicated that more than 8.6million people were reached
in e-services usage (See Appx. Figure 7 and Appx. Figure 8). The outcome of these reforms is that public
institutions are able to provide timely, convenient & reliable government services through online (digital)
services, hence ensuring good governance. In 2014, MInT planned to increase the number of direct e-gov
services users by six-fold (5 million) to reach the cap set by the ten-year innovation and tech sector plan.
Additional achievements related to the implementation of the reform measures in the ICT sector are:

36
Promoting e-commerce led to accomplishments like provision of support to different
digital tech entrepreneurs for piloting, obtaining training for entrepreneurs in
collaboration with Alibaba, implementation of framework for entrepreneurship
development in ICTpark, and technical support for different e-commerce companies
and incubators.

Financial intermediaries and applications are getting licenses to operate in the

system. Example: Telebirr, Kacha financials. These led to the technical capacity
development of entrepreneurs and making about a 20-billion-birr transaction by
telebirr as a milestone.

The telecommunication sector has been liberalized and paved the way for private
sector ISP'S to invest in the sector ($800+ million) which led to the outcome of
SAFARICOM Ethiopia to join the market. Furthermore, this will be an opportunity
to develop communication infrastructure, and realization of comprehensive telecom
service provision for all.

The major achievements due to the investment on ICT literacy and advanced training
include the finishing of training and the formation of an association by Alibaba
entrepreneurs (digital Ethiopia transformation association), capacity building of
Regional ICT professionals in terms of portal management and cyber awareness,
awareness of internal staff on selected advanced areas of development such as power
BI, application programming interface, and making digital learning platform
operational. Moreover, more than 2000 staff have received different training and
getting badges, from basic to the advanced IBM DNA platform.

More than 1,197,168+ visitors to date have accessed the services and payment was
also enabled using Derash as a facilitator to pay for their utility in different regions.
Private sector IT enabled services, such as RIDE, have started operating in
neighboring Djibouti. The BPO sector brought hard currencies and created thousands
of jobs. Moreover, recent research conducted using social accounting matrix
methodology shows that the ICT sector has contributed about 4% to the GDP of
Ethiopia.

Concerning the creation of a pro-innovation and ICT regulatory and business

environment, startup and personal data protection proclamation was ratified.

37
Challenges: The major challenges encountered in the implementation of the ICT sector reform measures
are:
● Budget constraint to advertise and reach a large portion of society on the use of ICT for modernizing
the civil service. The social media aspect of the promotion is versatile and enables it to reach more
people at once but still it needs subscription in some instances and platforms.
● Lack of sustainable support structure that can oversee and render support as needed for the
entrepreneurs to flourish.
● Low acceptance of non-cash or digital currency by the people, which requires the attitudinal change
(digital financial literacy need to be rampant)
● Despite the rapid expansion of ICT infrastructure, the quality of the available infrastructure remains
to be an issue that makes the implementation of the ICT sector reform challenging. Upgrading the
quality and relevance of existing ICT infrastructure needs to be part of the ICT infrastructure
expansion.
● Delay of the ratification of the finalized versions of respective draft laws which hinders the
possibility of seeing the impact.

3.5.2. Policy Recommendations

The recommendations for the ITC sector are:

● ICT modernization services require a huge budget. Thus, mobilizing funds for investments for ITC
infrastructure development and to reach a large portion of society on the use of ICT for modernizing
the civil service should be an integral part of national development plans.
● The quality of the available infrastructure is an issue that makes the implementation of the ICT
sector reform challenging. Therefore, upgrading the quality and relevance of existing ICT
infrastructure needs to be part of the ICT infrastructure expansion.
● The multisectoral nature of the ICT sector reforms calls for the coordinated effort and collaboration
of the various sectors and stakeholders as well. Thus, working on coordination efforts and
collaboration with different institutions would help to realize the goal of digital Ethiopia 2025.

38
Annexes
ANNEX I. MACRO-FINANCIAL REFORM MEASURES

Annex 1 Mapping macro-financial reform objectives with the outputs of public sector finance
and SOE reforms
No. Outputs Objectives
1 Maintaining a prudent fiscal policy to reduce inflationary pressure Price stability
2 Enhancing domestic resources mobilization Price stability and reduced debt distress
3 Improve debt management and export performance Reduced debt distress
4 Efficiency and governance of public finance systems Reduced debt distress
5 Improve the efficiency of SOEs Reduced debt distress
Reduced debt distress/ Rebalancing the role of the public
6 Leverage public investment to increase private investment
and private sectors
Source: Ministry of Finance

Annex 2 Public Sector Domestic Debt Outstanding by Instrument (millions of ETB)

Instruments 30-06-19 30-06-20 30-06-21 30-06-22
Direct Advances 187,265 31,000 83,500 159,500
Values (Millions of ETB)

Treasury Bills 138,034 23,724 120,960 317,670

Treasury Notes* 149,333 147,658 147,658
SOE Debt 411,652 486,560 575,364 657,231
Government Bonds** 36,589 228,337 248,458 248,020
Total Domestic Debt 773,540 918,954 1,175,939 1,530,078
Direct Advances -156,265 52,500 76,000
Treasury Bills -114,310 97,236 196,710
Net Changes

Total -270,575 149,736 272,710

Direct Advances 58 35 28
Treasury Bills 42 65 72
Total 100 100 100
Source: MOF, Public Sector Debt Statistical Bulletin. No. 42

Annex 3 Domestic Financing from the Banking System (millions of ETB)

Financing 2018/19 2019/20 2020/21 2021/22
Domestic Financing - From the Banking System 10,189 5,215 54,121 206,614
National Bank of Ethiopia 38,572 28,852
Commercial Bank of Ethiopia (28,384) (23,637)
Domestic Financing - From the Banking System (% of GDP) 0.38 0.15 1.25 3.36
NBE (% of GDP) 1.43 0.85
Source: MOF and authors’ calculation

39
Annex 4 Total tax revenue as a percentage of GDP
14.0
12.0 12.7
11.5
10.0 10.1
8.0
Total tax (budget)
6.0
Total tax (actual)
4.0
2.0 ECF and EFF Plans
-
2

2
/1

/1

/1

/1

/1

/1

/1

/1

/2

/2

/2
11

12

13

14

15

16

17

18

19

20

21
20

20

20

20

20

20

20

20

20

20

20
Source: Drawn based on data from MOF

Annex 5 Direct and indirect tax revenue (as a percentage of GDP)

2018/19 2019/20 2020/21 2021/22
Total tax (actual) 10.0 9.2 8.3 7.1
Direct taxes 4.3 3.9 3.9 3.4
Indirect taxes 5.7 5.3 4.4 3.7
Domestic indirect taxes 2.9 2.3 1.9 1.6
Import duties & taxes 2.8 3.0 2.5 2.1
Source: Drawn based on data from MOF

Annex 6 Activities undertaken in debt management by the Ministry of Finance

Activities undertaken in debt management
A medium debt management strategy is under preparation (described in main text).
Debt restructuring with Chinese creditors and Abu Dhabi Funds was completed, and debt restructuring
with Saudi is in progress.

Ethiopia has benefited from the G20 Debt Service Suspension Initiative (DSSI) worth a total amount of
USD 221.66 million that should have been paid by the central government to its bilateral creditors from
May 2020 to June 2021. The debt service suspension initiative (DSSI), as the name indicates, suspends
debt service temporarily and is meant to ease financial constraints on low-income countries so that they
can respond to the crisis caused by COVID-19. Since it entered into effect on May 1, 2020, several
countries have benefited from the DSSI. The debt service suspension, which was set to end by
December 31, 2020, has been extended to December 31, 2020.20 While DSSI might help to address
liquidity issues, it is not going to address debt solvency.

Ethiopia requested a debt treatment under the G20's Common Framework from G20 and Paris Club
creditors. Ethiopia is working with the Paris Club, the International Monetary Fund, and other partners
to benefit from this initiative. The debt treatment under the G20’s common Framework is carried out
on a case-by-case basis and is based on the debt sustainability analysis and will address both liquidity
and solvency issues with a long-term perspective. Hence, depending on the nature of the problem, the

20
https://www.worldbank.org/en/topic/debt/brief/covid-19-debt-service-suspension-initiative

40
 debt treatment might include debt write-offs. Although the DSA shows that Ethiopia’s debt is
sustainable, IMF considers debt reprofiling is required to bring the DSA to a moderate risk rating.21

Domestic central government debts was restructured. Direct advance worth 192 billion Birr was
converted into a 25-year bond including a 10-year grace period, and Accumulated treasury bills
converted into three years treasury notes.

There was an increased focus on concessional loans from external sources between 2016 and 2020.
Under the Homegrown Economic Reform, a zero limit on non-concessional loans has been adopted. In
fact, there has been no non-concessional borrowing by the central government or by other institutions
guaranteed by the government in the last three years.

A debt resolution framework has been developed for highly indebted SOEs (Ethiopian Electric Power
(EEP), Ethiopian Railway Corporation (ERC), Metal and Engineering Corporation (METEC), and
Ethiopian Sugar Corporation (ESC), which was passed in July 2020. The resolution proposes
restructuring the debt owed to the Commercial Bank of Ethiopia.

MOF has improved total public sector debt transparency, as requested by partners, by publishing
quarterly and annual debt statistics and analyses.
Source: From discussion with the officials of MOF

Annex 7 Projected exchange rate path of the Ethiopian Birr against the US dollar
Parallel
Nominal exchange
Date exchange rate (NER) rate 2/ Spread*
Jul-19 28.9 36.1 25.0
Jun-20 34.7 41.6 19.8
Jun-21 40.9 44.9 9.6
Jun-22 45.8 47.1 2.8
Jun-23 49.5 49.5 0.0
Jun-24 52.0 52.0 0.0
*Exchange rate unification expected to be achieved by June 2023.
Source: Building Blocks for Exchange Rate Reform Roadmap. National Bank of Ethiopia. April 2020

21
https://www.bloomberg.com/news/articles/2021-04-15/rescheduling-payments-will-ease-ethiopia-s-debt-risks-
imf-says

41
Annex 8 Trends of official and parallel exchange rate
70.0 35.0
60.0 30.0
50.0 25.0 Official Exchange Rate

Premium (%)
(Birr Per USD)
Birr/USD

40.0 20.0
30.0 15.0 Parallel Market Rtae
20.0 10.0
10.0 5.0 Premium (absolute)
- -
Premium (%, right
20 11

20 12

20 13

20 14

20 15

20 16

20 17

20 18

20 19

20 20

20 21

2
axis)

/2
/

/
10

11

12

13

14

15

16

17

18

19

20

21
20

Axis Title

Source: Drawn based on data from the National Bank of Ethiopia

Annex 9 Trends in the Real Effective Exchange Rate (REER)

250.0

200.0

150.0

100.0

50.0

-
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22

Source: Drawn based on data from the National Bank of Ethiopia

42
Annex 10 Exports of major commodities in Ethiopia
7,000 1,600

6,000 1,400
1,200 Coffee
5,000
1,000 Textile & Textile Products
4,000 Flower
800
3,000 Gold
600
Chat
2,000
400 Exports of goods

1,000 200 Exports of non-factor services

Private transfers
- -
20 1

20 2

20 3

20 4

20 5

20 6

20 7

20 8

20 9

20 0

20 1

2
/1

/1

/1

/1

/1

/1

/1

/1

/1

/2

/2

/2
10

11

12

13

14

15

16

17

18

19

20

21
20

Source: Based on NBE data

Annex 11 Velocity of Broad Money

2.5

2.0

1.5

1.0

0.5

-
2001200220032004200520062007200820092010201120122013201420152016201720182019202020212022
(0.5)

Velocity of money (M2/Nominal GDP) Growth of Nominal GDP / Growth of M 2

Source: Drawn based on data form NBE

Annex 12 Annual Growth in reserve money and Broad Money

40.0

30.0

20.0

10.0

-
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

M0 growth M2 growth

Source: Drawn based on data form NBE

43
Annex 13 Monthly Growth in reserve money and Broad Money
15

10

0
Aug/16

Aug/17

Aug/18

Aug/19

Aug/20

Aug/21
Nov/16
Feb/17
May/17

Nov/17
Feb/18
May/18

Nov/18
Feb/19
May/19

Nov/19
Feb/20
May/20

Nov/20
Feb/21
May/21

Nov/21
Feb/22
May/22
-5

-10

-15

Broad Money Reserve Money

Source: Drawn based on data form NBE

Annex 14 Inflation in Ethiopia and Selected African Countries (percent)

50.0
Ethiopia
40.0
Kenya
30.0
Uganda
20.0

10.0 Tanzania

- Sub-Saharan Africa (IDA

& IBRD countries)
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021

(10.0) World

(20.0)

Source: World Development Indicators (https://data.worldbank.org/indicator/)

Annex 15 Market share (%) of the commercial banking sector as of 2022

Asset Outstanding credit Deposit Capital & Reserves
Amount Amount Amount Amount
Bank (Mil. ETB) Share (Mil. ETB) Share (Mil. ETB) Share (Mil. ETB) Share

Public 819,278.8 59.4 789, 481.1 51.5 891, 984.1 52.3 49,822.1 41.7
o/w
CBE 819,278.8 59.4 789,481.1 51.5 891,296.5 52.3 49,822.1 41.7

Private 560,555.1 40.6 742,707.7 48.5 813,045.4 47.7 69,635.3 58.3

Total 1,379,833.9 100.0 1,532,188.8 100.0 1,705,029.5 100.0 119,457.4 100.0

Source: National Bank of Ethiopia

44
Annex 16 Indicators for measuring financial stability
Although a comprehensive financial soundness assessment requires information about the health of the
balance sheet of the household sector, the corporate sector, and the government, and other
macroeconomic variables, in the following we highlight the measures that directly address depository
institutions' financial status. Among measures that address the balance sheet of depository institutions
are the following22:

Regulatory Capital to Risk-Weighted Assets: regulatory capital to risk‑weighted assets gauges

depository institutions’ capital strength to withstand shocks and absorb unexpected losses.

Nonperforming loans (NPLs) net of provisions to capital serves to assess the potential impact on the
Banks’ capital of non-performing loans. It measures the adequacy of Banks’ balance sheet to withstand
losses on loans already identified as nonperforming.

Nonperforming Loans to Total Gross Loans: measures the ratio of nonperforming loans to Banks’ loan
portfolio. A high ratio indicates that the quality of the loan portfolio of Banks is deteriorating and
indicates liquidity and solvency issues down the line.

Loan Concentration by Economic Activity and Location: measures the concentration of lending to
firms in specific sectors or locations. If lending is concentrated by sector or location, then the riskiness
of the loan portfolio increases.

Liquid Assets to Total Assets: Higher liquidity to total assets ratio increases the ability of Banks to
meet expected and unexpected cash outflows. It is a buffer against a liquidity crisis.

Liquid Assets to Short-Term Liabilities and Liquidity Coverage Ratio: this indicator measures the
mismatch between the liability and assets of financial institutions. If a large chunk of Banks’ liabilities
is short-term and their lending portfolio tends to be composed of long-term holdings, it increases the
susceptibility of the Bank to a liquidity crisis that may morph into a solvency issue.

Annex 17 Indicators of Financial Stability and Access, Planned and Achieved

Outcome July 2019-Dec 2020
KPIS
Planned Achieved
Capital adequacy ratio (CAR) of the
>=8% 18.39%
banking Sector
Liquidity ratio of the banking sector >=15% 17.79%
Financial stability Non-performing loans (NPLs) ratio of
<=5% 2.32%
the banking sector
Customers’ satisfaction on
effectiveness and efficiency of service >=88% 72.17%
delivery of the banking sector
Maintain minimum solvency of the >100% 277%
insurance sector

22
Reference for Financial Soundness Indicators

45
 Maintain minimum liquidity position
>100% 103%
of the insurance sector
Maintain minimum capital adequacy of
>20% 40%
the insurance sector

Annex 18 Growth in Deposits and Loan Outstanding

Variable 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22
Deposit 568,818.7 730,257.7 899,628.4 1,041,410.3 1,356,822.3 1,705,029.5
Outstanding Loans 560,792.0 685,980.5 840,983.5 1,032,203.0 1,283,283.8 1,590,362.9
Deposit 29.8 28.4 23.2 15.8 30.3 25.7
Annual growth Loans 23.9 22.3 22.6 22.7 24.3 23.9
Source: Computed based on National Bank of Ethiopia

Annex 19 Number of People per Branch

100,000

80,000

60,000

40,000

20,000

-
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21

Source: NBE, Second quarter report 2020/21

46
ANNEX II. SECTORAL REFORM MEASURES

Annex A.1. Revised or developed policies and legal frameworks in the agriculture sector

Policies and legal frameworks that have been revised or developed towards enhancing rural land use and
administration, access to agricultural inputs, private sector participation, and commercialization are
presented below.

a) Revision of the 1994 agriculture and rural development policy

Following the adoption of HGER, the MoA has embarked on revising the ‘Rural Development Policies,
Strategies, and Instruments’, an overarching policy and strategy framework which has guided agriculture
and rural development in Ethiopia. The revised Agriculture and Rural Development (ARD) policy is drafted
with an overall objective of accelerating progress by refocusing state interventions on developing
regulations and providing services that cannot be provided by the market, thereby facilitating private
investment, entrepreneurship and innovation. It aims to transform the sector, within the next 20 years, to
one that sustains accelerated production growth with producers that are increasingly commercially oriented
and have access to well-functioning input, output and financial markets, while conserving and enhancing
the natural resource base on which the sector depends. The revision of the policy opened up room for setting
up a platform for inclusive collaboration towards government-led and consensus-oriented policy making in
the agriculture sector. The inputs received from the platform are prepared into a comments audit trail table
that summarizes the sets of comments and the core policy team reflections. A series of consultations enabled
the revised draft policy to incorporate concerns of the different stakeholders. The draft policy has been
enriched by the inputs of multiple stakeholders and submitted to the CoM for review and approval.

b) Revision of the Rural Lands Administration and Use Proclamation No. 456/2005
To improve the legal framework regarding land use rights as collateral, the MoA implemented a pilot
program that allows holders to use land use rights as collateral for acquiring loan, through facilitating
linkages with financial institutions and financial innovations. During the pilot implementation in Amhara,
Oromia and SNNP regions, eight microfinance institutions (MFI) participated and have disbursed more
than 700 million birr to nearly 22,000 farmers using their landholding certificates. The pilot exercise sheds
light on the contribution of using landholding certificates as collateral for agricultural development and
employment creation. The pilot showed promising results and the lessons learned were used as inputs for
the revision of the Rural Land Administration and Use Proclamation 456/2005. After multiple rounds of
stakeholder consultation and endorsement of regional governments, the draft has been submitted for review
and approval to the CoM. This initiative played a role towards formulation of the ‘Movable Property
Security Right’ proclamation (see section ‘d’ below).

c) Developing legal framework to enhance provision of agricultural inputs and services

i) National fertilizer supply chain enhancement
Shortage of fertilizer has been a major problem for agricultural production in Ethiopia. As a result, the
procurement system has been changed from procuring fertilizers from importers to FOB and shipped from
the manufacturer port to the regional central warehouse by the Ethiopian Shipping and Logistics Service
Enterprise. This change has contributed to the improvement of the fertilizer marketing system of the
country.

47
 ii) Developing a seed policy and supporting directives
Improved seed varieties are crucial for improving crop production and productivity. Nevertheless, the use
of improved crop seeds has been limited in Ethiopia. As part of sectoral HGER reform measures, a new
seed policy and regulatory framework have been proposed, and consequently a National Seed Policy has
been adopted by the MoA under the delegation of the CoM. To facilitate the implementation of the policy,
a new Seed Proclamation and Plant Breeders Right Regulations are developed and currently being reviewed
by the CoM. Furthermore, to facilitate smallholder farmers’ access to agricultural inputs in general and
improved seed varieties in particular, various policy documents have been developed, endorsed or are in
the process of endorsement. To name these legal frameworks; (i) direct seed marketing (DSM) directives,
(ii) issuing Certificates of Competence (CoC) for seed businesses directive, and (iii) adopting agricultural
one-stop-shop (AOSS) CoC. DSM and AOSS create access to seed and all types of inputs, respectively, for
smallholder farmers.

iii) Removal of duties and import taxes on agricultural mechanization technologies

Duty and taxes account for a large portion of the cost of importing agricultural technologies, making them
expensive for farmers. This is one of the key barriers to the widespread adoption of agricultural machinery
and restricted the transformation of smallholder agriculture in the country. By considering this, the
government endorsed the removal of duties and import taxes on agricultural mechanization technologies.
This has resulted in a substantial increase in the import and adoption of agricultural machineries.

d) Developing a legal framework for agriculture-focused financial services

Legal frameworks have been introduced to improve the supply and accessibility of finance to the
agricultural sector of the country. Besides allowing the use of land use rights as collateral for acquiring
loans, the NBE has enacted Proclamation 1147/2019 and the National Financial Inclusion Strategy (NFIS)
to allow the usage of movable properties as collateral, which will further facilitate financial inclusion in the
agriculture sector. In accordance with the Proclamation No. 1147/2019 and the National Financial Inclusion
Strategy, the NBE has issued a directive titled “Codification, Registration and Valuation of Movable
Properties to be pledged as Collateral for Loan, Directive No. MCR/02/2020”. The other is promotion of
the Warehouse Receipts System that will protect farmers from falling market prices during the harvest
season and through facilitating storage of agricultural outputs at certified warehouses using collateral
receipts.

e) Developing a legal framework for contract agriculture

Contract farming in Ethiopia is currently governed by the general Civil Code. This doesn’t adequately
address specific rules for special contracts, facilitate market linkages, and provide clear rights and remedies
to parties in contract farming arrangements. As such, the existing laws do not provide an institutional
framework for the promotion, facilitation, and coordination of contract farming arrangements. Taking into
account the revised or newly developed policies and legal frameworks discussed above, the new contract
farming law was prepared and approved by the House of Federation and directed to the House of Peoples
Representatives for final approval. Thus, this law aims to modernize agricultural marketing and improve
smallholder farmers’ market participation.

48
Annex A.2. Reform Measures in the manufacturing sector

Annex A.2.1. Revised or developed policies and legal frameworks in manufacturing

sector

a) Developing Ethiopia’s New Industrial policy

Ethiopia’s new Manufacturing Industrial Policy provides special focus to export promotion and also
emphasizes the importance of substituting import of manufactured goods through local production and
promoting local industry linkages based on comparative and competitive advantage of Ethiopia. The
process of drafting the policy involves preparation of a diagnostic and policy white paper, where the content
of the report has been reviewed by steering and technical committees composed of relevant stakeholders.
The diagnostic report identifies 10 priority sub-sectors which have revealed comparative advantage, 10
sectoral deep dive studies were conducted to identify cross-cutting binding constraints across and policy
recommendations on how to address these constraints have been indicated in the policy white paper. Based
on the findings the Ministry of Industry core policy team has developed the Manufacturing Industry Policy
in consultation and discussion with the private stakeholders, development partners, think tanks,
academicians, regional and federal (13 institutions have participated in the write-up) stakeholders. The draft
policy has undergone 2 validation workshops in which more than 30 institutions representatives have
participated. The draft policy has 6 policy pillars with at least 2 policy directions and 62 implementing
instruments. The process of drafting the policy is completed, and currently it is awaiting approval from
CoM. A linkage strategy and manufacturing industry incentive study that are based upon the manufacturing
industrial policy is under development.

b) Export Development and Promotion Strategy

Export Development and Promotion Strategy Preparation of export development and promotion strategy
focuses on both intensive and extensive margins for product diversification and market expansion. As such,
the strategy is intended to increase Ethiopia’s forex earnings through increasing the volume and types of
export products and identifying new destination markets. This strategy is being finalized by the mandated
Ministry (i.e., the MoTRI). The MoI has been following up and is ensuring that the manufacturing sector
received the necessary attention in the strategy. The MoI is also initiating a commencement of a background
study that would help enrich the contents of the strategy.

c) Developing trade policy and undertaking ease of starting a business reforms

Ethiopia has never had a trade policy. As part of implementation of HGER, a Terms of Reference (TOR)
is developed for a consultant to undertake the technical support for the trade policy framework
development. Furthermore, ease of starting a business reforms involve revision of legal requirements to
start a business that is specific to MoI. In this respect, endorsement of the revised trade law, revision of
many legal requirements for starting a business, discussion with relevant stakeholders to align the revision
are underway to improve Ethiopia’s rank in cost of starting a business.

d) Development of e-commerce service framework

E-Commerce pilot project: has been commenced in collaboration with UNECA within the Alibaba
Electronic World Trade Platform (eWTP) to allow SMEs to export their products. Product selection has
been done for the pilot and advertised for proposals to be submitted by interested SMEs.

49
 e) Performance-based finance allocation systems
As putting a transparent finance provision administration system is crucial to address the urgent need for
finance by manufacturers, prioritization of manufacturers (especially based on their export performance)
has been presented to the Commercial Bank of Ethiopia. However, a performance-based incentive
allocation system has not yet been developed.

f) Consolidation of the existing trading legal framework

Preparation of integrated export commodity trading legal framework: on average, about 85 percent of the
trading legal frameworks preparation for pulses & oilseeds, khat, live animal, and hides & skins has been
completed. The process involves conducting a manufacturing sector value chain study. The study has
identified challenges and the solutions to address the challenges. The findings and recommendations of the
study have been discussed with major stakeholders, and an integration plan has been developed by all
implementing institutions.

Annex A.2.2. Manufacturing Incentive Mechanism Activities

To put in place incentives that motivate, attract and grow the private sector investment in the manufacturing
sector, relevant documents have been reviewed and points have been identified for primary data collection
to understand the situation on the ground. Conducting a study on the current manufacturing incentive
system and identifying gaps, and developing incentive packages for local manufacturing investors are yet
to be finalized.

Annex A.2.3. Digitization of Service Provision Activities

Lack of information in the manufacturing sector has been identified as a major bottleneck for investors to
facilitate their investment decisions in the sector. Hence, the Industry Information System (IIS) has been
developed to showcase data of the manufacturing industry in comparison with import and export
performance of the economy. The system also compares Ethiopia with other nations and helps understand
the advantage of investing in Ethiopia’s manufacturing industry. As this system's source of data are different
institutions, an MoU has been signed with Customs Commission and Central Statistics Services to access
the relevant data for the system. With additional MoUs signing needed with EIC and MoTRI to get data on
a timely manner, the IIS will be launched in the first quarter of the 2015 EFY (i.e., 2022/23). At the time
of compiling this report, the system developers are handing over and providing on the job training to the
data management team of the MoI. Furthermore, the Ministry is embarking on digitizing various services
it provides especially the incentive management system through upgrading and finalizing the online
incentive management system to avoid a long process to access the incentive packages. Accordingly, the
Ministry has 10 services that it provides online to ensure accessibility and timeliness of service provision.

Annex A.2.4. Strengthening manufacturing sector support institutions

Manufacturing sector supporting institutions are focused on doing various research and development works
to grow the sector's contribution to the economy. To ensure impact of research, the MoI provides technical
training to the institutions and tracks research progress and implementation. The Ministry has also identified
research by intuitions that are problem solving and ensured their implementation and linkage to benefiting
manufacturers and SMEs. The way forward for the Ministry to promote effective product development is
to find funding to change prototypes to products.

50
Annex A.3. Reform Measures in the Tourism sector
Annex A.3.1. Improve tourism legal framework and foster institutional capacity
Reforming the regulatory framework pertaining to the administration and operation of the tourism sector
helps to relieve regulatory bottlenecks and gaps that hinder the efficient operation and development of the
sector. Considering Addis Ababa is the seat of several international organizations and the Ethiopian airline
is the leading passenger carrier in Africa that transits through Addis Ababa, the Ministry has prepared
stopover tourism and MICE (Meetings, Incentives, Conferences and Exhibitions) tourism strategies, with
the help of the IFC of the World Bank Group, to exploit such untapped tourism potential of the country.
The Ministry has also prepared a domestic tourism strategy. In addition, the Ministry has been undertaking
several other activities in relation to its legal reform. These include revision of the guideline for the
certification of tour operators and tour guides, preparation of directives for managing tourist fees in all
destinations, customization of 10 different ISO standards to be applied in the industry, and harmonization
and coordination of the federal and regional level plans and monitoring and evaluation systems of Ethiopia.
Ten (10) customized ISO standards that can be applied to ensure quality and maintain international
standards are prepared. The federal and regional tourism development plans are harmonized and
coordinated. This is important to avoid conflict of interest and duplication of efforts.

Annex A.3.2. Designing a new investment incentive package for tourism investment
The activities performed to accomplish this objective include identification of new investment areas or
tourism opportunities and preparation of a national tourism investment guide. Both of these activities
provide potential investors with important information about the investment prospects in the tourism
industry and reduce the cost of the market assessment. Moreover, the existing investment incentives were
revised and a new package of incentives was designed.

Annex A.3.3. Improve access to finance to tourism operators in the short term
Lack of finance is one of the main constraints for investment in general and in the tourism sector in
particular. Therefore, enhancing the availability of finance in the tourism sector is an essential step in the
development of the sector. The main activities conducted to expand financial access of the tourism industry
of Ethiopia include identification of the main constraints and challenges of access to finance for the actors
in the tourism sector. In this respect, key challenges in tourism financing have been identified and
documented, and a common understanding has been created between the actors of the tourism industry and
banks to provide sound financial support for the sector. Moreover, strategic solutions that would help to
expand access to finance for the tourism investment in Ethiopia are identified, and a new tourism fund
raising proclamation and regulations are developed.

Annex A.3.4. Design and implement destination development strategy

The main activity performed in relation to this focus area is the identification and documentation of the
tourism resource and potential of Ethiopia. Tourism supply inventory was carried out in which tourist
services, attractions and other features of destinations were assessed to improve the overall attractiveness
of tourist destinations. Sub activities include recruitment of consultants and collection and analysis of data.
Building on these preliminary activities, a destination development and administration strategy is prepared.
A detailed profile of Ethiopian tourism resources and associated opportunities for development was
prepared, and resource mapping was conducted for more than 200 tourist sites in the country.

51
 Annex A.3.5. Tourism marketing, promotion and branding
These activities include developing integrated tourism marketing and promotion platforms involving all
key stakeholders of the industry, conducting promotion campaigns through social media, networking with
outbound tour operators, and developing customer feedback collection systems. An investment promotion
guide that clearly indicates key tourism resources and products in the tourism industry has been prepared.
Strong promotion campaigns were conducted on social media; images of important tourist attractions of
Ethiopia are posted and circulated on social media. Strengthened market ties with different outbound tour
operators, and created B2B networks with Ethiopian tour operators. An integrated plan of action for tourism
marketing and promotion has been prepared and being implemented. Consumer feedback system is
established to help tourists to lodge their appeals and comments.

Annex A.3.6. Strengthen the linkage to the agriculture sector

Activities under this goal are at the preliminary stages to promote the use of local products at hotels and
restaurants. These include tourism value chain mapping and analysis, identification of key challenges
pertaining to the agriculture-tourism linkages, and a plan for organizing a national cultural food festival.
Building on the value chain analysis, a framework to administer agri-tourism in the country has yet to be
established.

Annex A.4. Reform Measures in the Mining sector

Annex A.4.1. Developing Policy, legal framework, and institutional capacities

This includes the preparation and implementation of policy documents along with improving the regulatory
framework key to creating a conducive and enabling environment for private sector participation and
operations in the mining sector. The Ministry of Mining and Petroleum has finalized the preparation of
revised policy documents: mining policy, petroleum policy, and local content policy. In addition, the
Geological Institute of Ethiopia has been re-established by regulation and it is accountable to the Ministry
of Mines. Further, capacity gaps for exploration have been identified as areas of reform. To solve the gaps
in collaboration with AAU a curriculum development tailor-made Masters' programs in mining energy,
petrochemical engineering, drilling, and laboratory is done. Training centers for ASM on internationalizing
the sector, better production techniques, and marketing linkages are established.

Annex A.4.2. Formalize and support artisanal and small-scale mining

Artisanal and small-scale mining (ASM) dominate the mining sector in Ethiopia. Despite its significant
role, the ASM faces numerous challenges. The main challenges that hinder its development include
rudimentary mining practices; a high level of unlicensed, informal, operations; limited small-scale
processing technology; poor market access, and the poor conditions of infrastructure. To address these
bottlenecks, the HGER introduces formalizing and supporting ASM as a key reform area to increase the
production of minerals thereby increasing foreign exchange earnings from the mining sector.

Annex A.4.3. Strengthen geological information accessibility and promotion of the

sector
Ethiopia has promising geology with more than 50 years of history. Despite this, Ethiopian geological
science lagged far behind many countries. For instance, there are only a few operating large-scale mines
and advanced stage exploration in Ethiopia. As a result, the government has considered undertaking reforms

52
in this area to improve geological information of mineral resources in Ethiopia. In this regard, various
activities have been carried out consisting of full-fledged operationalization of IGMIS (Integrated
Geoscience Information Management System), conducting geo-hazard study and notification, and
conducting research on mineral occurrence and deposit.

Annex A.4.4. Enhance local community engagement

Sustainable development of the mining sector requires a strengthened relationship between mining
enterprises and the local community. Mining benefits need to be reasonably shared and wide-ranging
negative impacts of mining activities sufficiently mitigated. This requires the establishment of a national
corporate social responsibility policy and local content policy. In this regard, the enhancement of a
community development fund has been started to ensure local society benefits from mining activities.

Annex A.4.5. Reduce incentives for contraband trade

Illicit mining trade activities are highly practiced in border areas. This significantly reduced export revenue
from the mining sector as well as undermined environmental impact management. Various factors
contribute to illegal mining trading activities such as the absence of marketing centers, low law
enforcement, lack of incentive packages, and weak institutional structure (mainly at regional, zonal, and
district levels). As a result, various reform measures have been undertaken to reduce illegal trading
activities. For instance, the introduction of incentive packages to encourage formal mining trade; the
improvement in law and order enforcement in collaboration with relevant stakeholders to control
contraband trade; and the establishment of market centers' (e.g., opening of commercial banks near mineral
sites).

Annex A.5. Reform Measures in the ICT sector

Annex A.5.1. Pro-innovation and ICT regulatory and business environment
Due to the disruptive nature of ICT, existing traditional regulatory approaches have often a constraining
impact on the sector’s innovation and growth. The HGER agenda considers Laissez-faire and concerted
policy actions are needed to expand and strengthen the participation of the private sector to ensure the rapid
development of ICT and ITes. Accordingly, under this reform area, the government aims to adopt a
consultative approach to policy making and explore sandbox regulatory approaches to support technology
start-ups and incumbents, including facilitating access to alternative financing sources. However, the
sandbox regulatory framework needs a mandated regulator. In view of this, the MInT aims to design
strategies, proclamations, directives, and related legal frameworks that can guide the development of ICT
as per the national reform directions. Some of the main reform activities carried out to create a pro-
innovation and ICT regulatory frameworks includes: establishment of a Digital Transformation Program
Office for the implementation of the national digital transformation strategy; the national digital
transformation strategy (Digital Ethiopia 2025); the startup and innovation fund proclamation; the e-
transaction regulation; and personal Data Protection Proclamation. All these proclamations, regulations and
guidelines drafts are finalized. Concerning stakeholders (Ministry of justice, Ministry of peace, attorney
general, law enforcement agencies) were engaged in enriching the draft law documents.

53
 Annex A.5.2. Promote the use of ICT for modernizing the civil service and public
services
Promoting the use of ICT for modernizing the civil service and public service with the aim of enhancing
the efficiency and effectiveness of service delivery is one of the key ITC sector reform areas identified
under the HGER agenda. As part of this reform area, the government has a plan to scale up the ongoing
government ICT initiatives such as e-governance, WoredaNet, the rural connectivity program, and the rural
public internet access centers. Modernizing and scaling up these ICT initiatives will not only improve
service delivery and the ease of doing business but also onboard a large segment of the population to the
digital economy. In relation to this reform area, MInT aims to interconnect all public institutions at all levels
and anchor community organizations with reliable, high speed, and affordable service by leveraging the
existing infrastructure as much as possible. Since one of the objectives of this reform measure is to provide
connectivity to large segments of the population in a short period of time, for sites that do not have readily
available fiber access at the moment, the initial last-mile connectivity is expected to be high speed fixed
wireless access. The MInT expects the high-speed fixed wireless to be a stopgap solution that will
eventually be replaced by fiber, which is the preferred last-mile connectivity.
Under the Ministry’s “Ethiopian Electronic Government Services Development” reform area activities that
the Ministry indicated are designing e-services around citizens; providing orchestrated services regardless
of organizational boundaries; minimizing the number of visits to government offices; ensuring faster
service turnaround time and reduced service delivery cost; promoting transparency and efficiency during
service provision; and improving the ease of doing business as its major objectives. The major reform
activities under this reform include mainstreaming mass media outlets and the social media to promote the
digital agenda of 2025.

Annex A.5.3. Promote e-commerce and digitization of the financial and logistic
sectors
Ethiopia is poised to benefit from the opportunities of e-commerce. Ethiopia’s large population and market
size can be leveraged for e-commerce development. To exploit the opportunities of e-commerce in the
country, significant reforms and improvements in the financial and logistics sectors including e-payments,
national addressing system, and geospatial enabled logistics modernization are important. Furthermore,
reforms in the areas of policy and regulatory frameworks can drive the development of the digital payment
ecosystem, and increase investments and startups in e-commerce businesses. The reform activities
implemented include; preparation of the startup and innovation fund proclamation by adding all the
stakeholder’s inputs and suggestions and waiting to be ratified by the ratifying body, promoting e-
commerce companies were undertaken by the DTP office since its operation started in 2013 E.C., and
further digitizing the financial and logistic sectors with the help of a push to realize the digital Ethiopia
agenda 2025.

Annex A.5.4. Expand ICT infrastructure throughout the country and ensure it is
accessible
This reform measure aims at improving both quality and access to IT infrastructure. The document
underscores the need to expand access to services through broadband networks and other infrastructure
developments to unlock the country’s potential in the digital economy and IT enabled services (ITes). The
HGER agenda considers expediting the telecom sector reform, the digital ID system, refreshing the ICTpark
as initial efforts needed to kick-start the ITes in the short run. In relation to this, the Ministry plans activities

54
including liberalizing the telecom sector to increase reach, removing the regulatory bottlenecks and
encouraging the private sector players to get into the Ethiopian Telecom market via an international bid,
and plan to conduct feasibility study and project development to achieve access to multiple high capacity
routes to first mile international connectivity and improve National fiber backbone connecting the entry
point international connectivity to major population centers.

Annex A.5.5. Investing on ICT literacy and advanced trainings

The planned activities under this reform include; Developing Local online training platforms with Local
content; developing National Digital Inclusion and Literacy Strategy, trainings the entrepreneurs in
collaboration with Allibaba, trainings for regional ICT professionals on city portal management, cyber
security, different advanced trainings for internal staff of MINT, starting the digital learning platform
development, making an agreement with IBM digital nation Africa to access contents from IBM's platform
for advanced training content by MINT.

Annex A.5.6. Promote the export of IT-enabled services

Given its pool of young ICT graduates and the increased availability of high-quality and reliable
telecommunications and power supply, Ethiopia has a great potential to be a destination for Business
Process Outsourcing (BPO). Accordingly, this reform aims to promote the export of IT-enabled services
by adopting targeted BPO-friendly regulations and policies, encouraging private investment, and branding
and marketing Ethiopia as a BPO-primed site. The planned activities include launching IT enabled services
and making payment integration efforts, measuring the economic contribution of the ICT sector to the GDP,
promoting the private sector exporting value created, and exporting this created value of skill in business
process outsourcing (BPO) companies.

Annex B. Appendix Tables

Appendix Table 1: Directives endorsed or on the process of endorsement to enhance access to
inputs
Ministerial Directives
No Topic Date Submitted Current status
1 Seeds / Directive No. 1/2007 for Quality Declared Seed January 2014 Under implementation
(QDS)
2 Seeds / Directive No. 2/2017 for issuance and 2016 Under Implementation
administration of Competency Certificate (COC) to
engage in seed production and business
3 Seeds / Directive No.3/2015 for utilization and October 2016 Under implementation
excluding of rejected seed of non-conforming to quality
requirements
4 Seeds /Directive NO.-007/782/2018 for Seed Marketing December 2018 Under implementation

5 Seeds/Directive for import & multiplication of August 2018 December, 2012

unregistered varieties seed exclusively for export (December 2019)
purpose N0 003/2012
6 Directive to administer public crop and forage EGS, No May 2018 Endorsed on May 20, 2020
005/782/2012 by MoA.

55
 7 Seeds/ Cooperatives based Seed Production Directive December 2017 At the Director General’s
Office- Federal
Cooperative Agency
8 Fertilizers/ Fertilizer Demand Assessment, January 2018 At the State Minister’s
Procurement, Supply and Distribution Guideline Office- Ministry of
Agriculture
9 Fertilizers / Fertilizer Registration Directive November 2018 At Seed Regulatory
Directorate- Ministry of
Agriculture
10 Fertilizer/Fertilizer Competency Certificate (COC) to December 2018 At Seed Regulatory
engage in fertilizer production and business Directive Directorate- Ministry of
Agriculture
12 Agricultural Inputs/Directive No. 002/782/2018 for December 2018 Under implementation
issuance and administration of Competency of
Certificate to Agricultural Input Supply & Service
centers
13 Cereals cross-border trade /Directive on Cereals Export December 2018 At the Ministry of Trade
Ban- Ministry of Trade and Industry and Industry
14 Guideline on the distribution of fertilizer through May 2019 Endorsed on May 15, 2020
Agricultural One-Stop Centers by MoA
15 Plant Breeder’s Right Directive 769/2021 NK Endorsed on February 27,
2021 by MoA

Appendix Table 2: Productivity for ACC commodities

Unit/details 2012 Actual 2013 Actual % Change RF % Target
Performance1 Performance1 from 2012 to increase from
2013 Year 1 to Year 2
Increase in Tef (kg/ha) 1,985.33 2,334.67 +17.60% +8.20%
yield Maize (kg/ha) 5,540.22 5,767.20 +4.10% +6.90%
Sesame (kg/ha) 376.92 432.34 +14.70% +12.30%
Malt Barley(kg/ha) 3,682.02 3,963.90 +7.66% +8.40%
Wheat(kg/ha) 3,774.77 3,761.98 -0.34% +8.50%
Average Tef (kg/ha) 1,617.26 2,240.31 +38.53% +9.20%
increase in Maize (kg/ha) 3,165.53 3,407.58 +7.65% +10.10%
yield per Sesame (kg/ha) 1,098.09 845.54 -23.00% +20.00%
farm Malt Barley(kg/ha) 1,641.01 2,467.94 +50.39% +21.40%
Wheat(kg/ha) 2,547.72 2,930.63 15.03% +10.10%
Source: ACC program management office

Appendix Table 3: Export performance of Selected Mining products

2019/20 2020/21
Output indicators Baseline (2018/19) (2011 EFY) 2021/22
(2012 EFY) (2013 EFY)
Indicator (2014 EFY)
Gold (companies) k.g 270.307 678.39 788.253 2662.97
Gold (Artisanal) k.g 582.84 2620.87 8596 5798.82
Gold (total) (in mil USD) USD 29.236 198.3 672.3 536.45
Tantalum (companies) tone - - - -
Tantalum (Artisanal) tone 161.582 102.46 80.01 111.89

Tantalum (total) (in mil USD) USD 11.547 6 5.29 10

Source: Authors compilation using data obtained from Ministry of Mining and Petroleum

56
Annex C. Appendix Figures
110
100 105
90 98
80 86
70
Number of farmers
60
(Million)
50
Production (Million
40 Qt)
30
20
10 3.5 3.6 3.7
0
2019/20 2020/21 2021/22

Appendix Figure 1: Supply and distribution of mineral fertilizers and seeds Appendix Figure 2: Number of farmers and quantity of crop production in ACC
8 3,500.00
7 Total
6 3,000.00 Agricultural
5
4 Products
3 2,500.00
2 Coffee

Million USD
1 2,000.00
0
2018/19 2019/20 2020/21 2021/22
1,500.00 Cut Flowers
Meat (Cattle,
Sheep, Goat and 1,000.00
1.93 1.713 0.349 0.448
Camel) in million Chat/Khat
ton 500.00

Poultry meat in 0.00

0.055 0.063 0.07 0.091
million ton 2018/19 2019/20 2020/21 2021/22 Oil Seeds
Milk in billion liter 6.038 6.6 7.225 7.08 Year (2011-2014 EFY)
Egg in billion 1.874 1.858 2.77 3.25

Appendix Figure 3: Trends in production of livestock products Appendix Figure 4: Ethiopia’s agricultural exports

57
 2,500.0

2,000.0
Million USD

1,500.0

1,000.0

500.0

0.0
2018/19 2019/20 2020/21 2021/22
Year (2011-2014 EFY)

Cereals Other food items

Appendix Figure 5: Import of food items

600 Total
manufacturing
500 products
Leather and
400 Leather products
Million USD

Textiles and
300
Clothing
200 Meat and Dairy

100
Food, Beverage
0 and
2018/19 2019/20 2020/21 2021/22 Pharmaceutical

Year
Appendix Figure 6: Ethiopia’s manufacturing exports

81436 86299
Planned No of electronic service users No of e-service users (journey
E-SERVICE USERS 2013 ('000)
E-gov service users (millions)

completed)
20
15
15 53363
10 42011
10
5
5 2
13490
0
2013 2014 2015 2016
Years (Ec.) Qr 1 Qr 2 Qr 3 Qr 4 Q1&2
2014
Total

Appendix Figure 7: Planned number of e-service users Appendix Figure 8: Number of e-service users

56