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Ethiopia Country Risk Report Q1 2016

  • December 2015
  • -
  • Business Monitor International
  • -
  • 35 pages

Core Views

Policy continuity has characterised the rule of Prime Minister HailemariamDesalegn, after taking over from the late Meles Zenawiin 2012, and this will remain the case following the 2015 generalelection landslide victory. The governing Ethiopian People's RevolutionaryDemocratic Front will retain control, but ethno-religiousdivisions and social unrest will become an increasing source oftension over the coming years.Ethiopia will be among the fastest growing economies in Sub-SaharanAfrica over the next few years, but growth will be slower than thedouble-digit rates experienced over the last decade. Heavy publicinvestment into infrastructure and agriculture combined with anincreasingly buoyant consumer segment will be the main drivers.Inflation in Ethiopia has moderated in recent years since reachinga peak of 40.6% y-o-y in August 2011; however we expect inflationto rise over the coming quarters, hovering broadly between 10.0and 11.0% year-on-year.

The view is based primarily on risingfood prices due to subdued agricultural production in the wake ofdroughts in 2015.Ethiopia will sustain a current account deficit in the region of 10.3%of GDP between 2016 and 2020, driven by a gaping trade deficit.Demand for capital goods imports will outweigh growth in Ethiopia'scoffee exports.Major Forecast ChangesWe have revised our current account forecasts to reflect a substantialwidening of the deficit as demand for capital goods imports surges.We now expect the current account deficit to widen to 12.2% of GDPin 2016 and will remain in deficit over our 10-year forecast period.

Table Of Contents

Ethiopia Country Risk Report Q1 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
One-Party State To Ensure Policy Continuity8
The lack of political reform and opposition in Ethiopia will ensure continuation of the country's state-driven, investment-centric model
Furthermore, Ethiopia will not face international pressure to improve its rigid political system due to the country's efforts to combat
Islamist extremism in the region
TABLE: POLITICAL OVERVIEW8
Long-Term Political Outlook 9
More Armed Conflict Likely This Decade9
Ethiopia's much-vaunted democratisation programme is being used as a facade for increased control by the ruling Ethiopian People's
Revolutionary Democratic Front This increasingly crude concentration of power ultimately risks exacerbating resentment to the point
that largely fragmented groups could coalesce into a coherent armed threat to the regime
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Index 13
Economic Growth Outlook 14
Laying The Foundation For Strong Growth14
Large-scale government investment under the Growth and Transformation Plan will pave the way for strong and stable economic growth
in Ethiopia
GDP By Expenditure Outlook 15
TABLE: PRIVATE CONSUMPTION FORECASTS15
TABLE: GOVERNMENT CONSUMPTION FORECASTS15
TABLE: FIXED INVESTMENT FORECASTS 16
TABLE: NET EXPORTS FORECASTS 16
Monetary Policy 16
Droughts To Drive Up Inflation16
Inflation will continue to accelerate in Ethiopia over 2016 due to rising food prices in the wake of droughts Inflation will slow in the
following years as agricultural production recovers and as subdued oil prices keep fuel inflation anchored
Fiscal And Debt Outlook 18
Heavy Government Investment To Widen Fiscal Deficit18
Government financing needs will rise over the second phase of the Growth and Transformation Plan as large-scale capital expenditure
continues Increasing use of non-concessional loans and rising emerging market bond yields will drive up government financing costs
Structural Fiscal Position 19
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES 201419
External Trade And Investment Outlook 19
Current Account Deficit To Widen Sharply19
Ethiopia's current account deficit will widen over 2016 as an increase in imports of capital goods outweighs growth in Ethiopia's coffee
exports
Outlook On External Position 20
TABLE: TOP FIVE GOODS EXPORTS IN 201421
TABLE: TOP FIVE IMPORTS IN 201421
Chapter 3: 10-Year Forecast23
The Ethiopian Economy To 202423
Strong Growth Ahead, But Limits To State Model23
Ethiopian growth will re main robust over the next decade, albeit well below 2005-2014 levels, with infrastructure investment and private consumption at the core Imbalances arising from the state-dominated nature of the economy will be responsible for the more modest long-term growth rate
TABLE: LONG-TERM MACROECONOMIC FORECASTS23
Chapter 4: Operational Risk25
SWOT Analysis25
Operational Risk Index25
Operational Risk26
TABLE: EAST AFRICA - OPERATIONAL RISK26
TABLE: EAST AFRICA - LABOUR MARKET RISK27
TABLE: EAST AFRICA - LOGISTICS RISK28
TABLE: EAST AFRICA - TRADE AND INVESTMENT RISK29
TABLE: EAST AFRICA - CRIME AND SECURITY RISK31
Chapter 5: BMI Global Macro Outlook33
Global Outlook33
Emerging Markets Bending, Not Breaking33
TABLE: GLOBAL ASSUMPTIONS33
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %34
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %34
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %35

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