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Ethiopia Country Risk Report Q2 2016

  • March 2016
  • -
  • Business Monitor International
  • -
  • 41 pages

Core Views Ethiopia will remain one of the fastest-growing economies in Africa over 2016 and 2017 as the state drives large-scale investment. We expect the government's continued investment into improving infrastructure and the agricultural sector will provide opportunities for the population to become increasingly engaged in the economy. We expect monetary policy in Ethiopia to remain loose over the year ahead as the National Bank of Ethiopia increases money available for lending to the government. We do not expect the bank to devalue the currency given the risk associated with pass-through effects to inflation. The Ethiopian government will drive up capital expenditure in the next two years in line with its ambitious budget announced in 2015.

Ethiopia's budget deficit will rise to a peak of 3.1% of GDP in 2016 and 2017 as the government pushes forward with the second phase of its Growth and Transformation Plan. We expect Ethiopia's current account balance to remain firmly in deficit over the next two years as imports of capital goods strongly outweigh exports from the country. Official aid in the wake of the drought will provide substantial foreign exchange as support for the country's sizeable current account deficit. Political risk in Ethiopia will remain heightened as the government pushes the predominantly agrarian economy towards industrialisation. Furthermore, we expect tensions to rise between the government and its citizens as the government exerts excessive pressure on the public to make way for the expansion of the capital, Addis Ababa.

Table Of Contents

Ethiopia Country Risk Report Q2 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
State-Led Growth Will Drive Economy8
Ethiopia will remain one of the fastest-growing economies in Africa over 2016 and 2017 as the state drives large-scale investment We
expect the government's continued investment into improving infrastructure and the agricultural sector will provide opportunities for the
population to become increasingly engaged in the economy
GDP By Expenditure Outlook 9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS9
TABLE: FIXED INVESTMENT FORECASTS9
TABLE: NET EXPORTS FORECASTS10
Monetary Policy 10
State Investment Will Keep Monetary Policy Loose10
We expect monetary policy in Ethiopia to remain loose over the year ahead as the National Bank of Ethiopia increases money available
for lending to the government We do not expect the National Bank of Ethiopia to devalue the currency given the risk associated with
pass-through effects to inflation
Monetary Policy Framework 11
Fiscal Policy And Public Debt Outlook 12
Expansionary Policy Will Drive Capital Expenditure12
We expect the Ethiopian government to drive up capital expenditure in line with its ambitious budget announced in 2015 Ethiopia's
budget deficit will rise to a peak of 31% of GDP in 2016 and 2017 as the government pushes forward with the second phase of its
Growth and Transformation Plan
Structural Fiscal Position 13
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES 2014 13
External Trade And Investment Outlook 14
Capital Goods Imports Will Drive Deficit Deeper14
We expect Ethiopia's current account balance to remain firmly in deficit over the next two years as imports of capital goods strongly
outweigh exports from the country Official aid in the wake of the 2015 drought will provide substantial foreign exchange as support for
the country's sizeable current account deficit
Outlook On External Position 15
TABLE: TOP FIVE GOODS EXPORTS IN 201415
TABLE: TOP FIVE IMPORTS IN 201416
Currency Forecast 16
Development Drive Will Deter Devaluation16
We expect the Ethiopian birr to continue on its gradual depreciatory trend over 2016, in line with the National Bank of Ethiopia's
managed floating rate exchange rate system We forecast the currency to depreciate by 47% and to average ETB2175/USD
over 2016 We do not believe the central bank will devalue the currency given the risk associated with pass-through effects to
inflation
TABLE: BMI CURRENCY FORECAST17
Chapter 2: 10-Year Forecast 19
The Ethiopian Economy To 2025 19
Strong Growth Ahead, But Limits To State Model19
Ethiopian growth will remain 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 FORECASTS19
Chapter 3: Political Outlook 21
SWOT Analysis 21
BMI Political Risk Index 21
Domestic Politics 22
Continued Expansion To Spur Unrest22
We expect political risk in Ethiopia to remain heightened as the government pushes the predominantly agrarian economy towards
industrialisation Furthermore, we expect tensions to rise between the government and its citizens as the government exerts excessive
pressure on the public to make way for the expansion of the capital, Addis Ababa
TABLE: POLITICAL OVERVIEW 22
Long-Term Political Outlook 23
More Armed Conflict Likely This Decade23
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 4: Operational Risk 27
SWOT Analysis 27
Operational Risk Index 27
Operational Risk 28
TABLE: OPERATIONAL RISK28
Trade Procedures And Governance 29
TABLE: EXPORT AND IMPORT DOCUMENTS29
TABLE: SSA - TRADE PROCEDURES AND GOVERNANCE 30
TABLE: TRADE PROCEDURES BREAKDOWN 31
Vulnerability To Crime 31
Chapter 5: BMI Global Macro Outlook 37
Global Macro Outlook 37
Tail Risks Mounting Amid Sub-Par Growth37
TABLE: GLOBAL ASSUMPTIONS 37
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 38
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, 2015 AND 2016 (%) 38
TABLE: EMERGING MARKETS, REAL GDP GROWTH, % 39
TABLE: MACROECONOMIC DATA and FORECASTS41

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