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Economy of Ethiopia

Ethiopia's economy is based on agriculture, which accounts for half of GDP, 90% of exports[?], and 80% of total employment.

The major agricultural export crop is coffee, providing 65%-75% of Ethiopia's foreign exchange earnings. Coffee is critical to the Ethiopian economy, and Ethiopia earned $267 million in 1999 by exporting 105,000 metric tons. According to current estimates, coffee contributes 10% of Ethiopia's GDP. More than 15 million people (25% of the population) derive their livelihood from the coffee sector.

Other exports include live animals, hides, gold, pulses, oilseeds, and khat (or "qat") a leafy shrub which has psychotropic qualities when chewed.

Ethiopia's agriculture is plagued by periodic drought, soil degradation caused by overgrazing, deforestation, high population density, and poor infrastructure, making it difficult and expensive to get goods to market. Yet it is the country's most promising resource. A potential exists for self-sufficiency in grains and for export development in livestock, grains, vegetables, and fruits. As many as 4.6 million people need food assistance annually.

Gold, marble, limestone, and small amounts of tantalum are mined in Ethiopia. Other resources with potential for commercial development include large potash deposits, natural gas, iron ore, and possibly oil and geothermal energy. Although Ethiopia has good hydroelectric resources ,which power most of its manufacturing sector, it is totally dependent on imports for its oil. A landlocked country, Ethiopia uses the seaports of Assab and Massawa in Eritrea. Ethiopia also uses the port of Djibouti, connected to Addis Ababa by rail, for international trade. Of the 23,812 kilometers of Ethiopia's all-weather roads, 15% are asphalt. Mountainous terrain and the lack of good roads and sufficient vehicles make land transportation difficult. However, the government-owned airline is excellent. Ethiopian Airlines serves 38 domestic airfields and has 42 international destinations.

Dependent on a few vulnerable crops for its foreign exchange earnings and reliant on imported oil, Ethiopia lacks sufficient foreign exchange. The financially conservative government has taken measures to solve this problem, including stringent import controls and sharply reduced subsidies on retail gasoline prices. Nevertheless, the largely subsistence economy is incapable of supporting high military expenditures, drought relief, an ambitious development plan, and indispensable imports such as oil and, therefore, must depend on foreign assistance.

In December 1999, Ethiopia signed a $1.4 billion joint venture deal to develop a huge natural gas field in the Somali Regional State. The war with Eritrea has forced the government to spend scarce resources on the military and forced the government to scale back ambitious development plans. Foreign investment has declined significantly. Government taxes imposed in late 1999 to raise money for the war will depress an already weak economy. The war has forced the government to improve roads and other parts of the previously neglected infrastructure, but only certain regions of the nation have benefited.

The current government has embarked on a program of economic reform, including privatization of state enterprises and rationalization of government regulation. While the process is still ongoing, the reforms have begun to attract much-needed foreign investment.