Export Values: Exports reached a historic high of $4.1bn in the 2021-22 fiscal year, an increase of half a billion dollars from the prior year’s $3.6bn. The outturn was somewhat below expectations, with the growth rate turning out to be 14 percent, versus government expectations (as well as our own) that export growth would have reached at least 20 percent for the fiscal year.
Main Markets: The top destinations for Ethiopia’s exports were Switzerland ($549mn, 13% of total), Netherlands ($387mn, 9%), the United States ($358mn, 9%), Somalia ($343mn, 8%), Saudi Arabia ($280mn, 7%), and Germany ($279mn, 7%). All six of these countries purchased at least a quarter billion dollars worth of Ethiopian goods, while an additional seven countries (UAE, Japan, Djibouti, Belgium, Israel, South Korea, and China) bought at least $100mn of Ethiopian products. Taken together, these 13 countries make up Ethiopia’s most important export markets, with the rest of Ethiopia’s 27 export destinations each making up no more than 2 percent of total exports.
Sources of incremental demand: Looking at where the near $500mn increase in exports came from this past year, the biggest sources of incremental demand were neighbouring Somalia (+132mn, mostly due to chat), Germany (+115mn, mostly coffee) and Netherlands (+93mn, mostly flowers). These three countries accounted for 70% of Ethiopia’s export increase in the just-completed fiscal year.
Product Mix: For the second year in a row, the top three export products were coffee ($1.4bn), gold ($546mn) and flowers ($544mn). Taken together, these three products now make up just over 60 percent of Ethiopia’s exports ($2.5bn out of $4.1bn), a high concentration ratio compared to past norms when the top three products rarely made up more than 40 percent of total exports.
Dollar Ranges: Looking at dollar values, Ethiopia’s export structure now shows one product with more than a billion dollars of annual sales (coffee), two products earning at least half a billion dollars (gold, flowers), two more earning at least a quarter billion dollars (chat, oilseeds), and another three (pulses, textiles, meat) with at least $100mn in exports. Outside of these eight large-value export products, the export proceeds from the remaining 10 main product categories remain below $100m on an annual basis.
Underlying Growth: While overall export levels rose by 14 percent, this growth was uneven across categories and far from being broad-based. Excluding coffee, Ethiopia’s exports declined by 1% in 2021-22, revealing the narrow basis of last fiscal year’s export improvement as well as underlying weakness in multiple export line-items. Half of the 18 main categories by which export data are reported showed negative USD growth in 2021-22, a roughly similar ratio to the norm seen in recent years. The fastest growing export items—among large value exports—were coffee (up 57%), meat (up 45%), fruits and vegetables (up 27%), and textile products (up 19%). The impressive gains in these areas were offset, however, by negative growth seen in other large-value exports such as pulses (-6%), leather products (-9%), gold (-16%), and oilseeds (-21%).
Volumes vs Prices: Decomposing export performance by the respective contributions of volume versus price effects shows that slightly more half (10 out of 18) of Ethiopia’s exports product categories showed volume declines during the past year, and most of these translated into corresponding dollar value declines. By contrast, eight export categories showed volume growth, and quite strongly so in the cases of coffee, flowers, textiles, and meat. Overall, most of Ethiopia’s export growth came from price effects (with the 30% price rise in international coffee prices being the most significant), and export growth would have been just 3 percent—rather than 14 percent—had export unit prices stayed unchanged and export growth only reflected volume developments.
Notable Surprises: Besides coffee (which benefitted from high global prices), three export categories—textiles, flowers, and meat—showed unexpected strength in registering double-digit volume increases. Textile exports dipped slightly in the first two months of 2022 but have trended upwards beginning March 2022, seemingly overcoming the impact of AGOA-related sanctions. While it is too early to be definitive, the resilience shown by textile exports may be reflecting the shipment (in early 2022) of carryover stock from end-2021, or possibly some manufacturers’ continued ability to sell into the US market even with some minimal tariffs (as exports to the US were up 28% y-o-y), or also potentially some re-direction of textile products to alternative markets (as exports to destinations such as China, Canada, and Turkey were up 2.3x versus year-ago levels though from low starting bases). For flowers, the strong performance seen last year reflects continued large land/hectare expansions among existing and new investors (boosting volumes by 12%), favourable transport costs/links, and still-strong import demand from European markets; there also appears to have been a boost provided by the greater diversification of flower exports to non-European destinations, as the Middle East, Asia, and Africa are now collectively buying 19 percent of Ethiopia’s flower exports versus just 10 percent five years ago. With respect to meat, Ethiopia’s has reversed years of decline in this area, with a bounce back seen from a low of just $67mn two years ago to over $100mn of meat exports this past year due to strong Middle Eastern demand in line with the high oil prices and much stronger economic activity that is benefiting that region.
Exports vs other fx inflows: Total foreign exchange inflows were close to $22.7bn in the just-completed fiscal year, per our estimates, so exports still represent less than one-fifth (18%) of Ethiopia’s gross foreign currency earnings. Based on balance of payments flows (for which NBE data is available up to end-March 2022 and estimates possible for the full-year figures), the other main sources of Ethiopia’s fx inflows in 2021-22 were service receipts ($6.2bn), remittances ($5.3bn), FDI ($3.2bn), loans ($1.1bn, counting both Government plus SOE borrowing) and grants ($1bn). Collectively, the gross fx inflows of near $23bn in 2021-22 were only slightly higher than the prior year’s outturn of $22.3bn, reflecting better performance in exports, service income, and remittances. At the same time, fx inflows were lower for government’s foreign borrowing (down by $100mn), SOE foreign borrowing (down by $900mn), and grants (down by $300mn). Reflecting the latter declines plus the much higher fx outflows due to increased imports ($18bn for the year, or an extra $4bn), we estimate that the overall balance of payments showed a large deficit of near $2bn in 2021-22. This BOP deficit has been covered by a drawdown of NBE fx reserves, which fell by $1.4bn from $2.9bn in June 2021 to an estimated $1.5bn in June 2022, as well as by the use of $0.7bn in commercial banks’ fx reserves over the same period.
Export Outlook: The Government expects exports will reach $5.4bn this fiscal year, or growth of around 30 percent versus last year’s $4.1bn outturn. This growth could be justified by still-high global prices for coffee and gold (arabica coffee prices in July-August 2022 were already 25 percent higher than the 2021-22 average), by anticipated volume growth in the flowers and fruits/vegetables sectors (reflecting new investments and expansion in cultivated hectares), by on-going expansion of electricity exports to neighbouring countries, and by the likely improvement of exports—such as meat—that are mainly geared towards the Middle Eastern market. At the same time, the export growth prospects for what were previously large export categories—such as oilseeds, pulses, and chat—will likely remain somewhat restrained owing to unsettled conditions in parts of the relevant producing regions. Reflecting the latter factors, and an increasingly cloudy global economic environment, particularly in Europe, we think export growth of closer to 20 percent is more realistic and thus anticipate total exports reaching just under $5bn for this fiscal year.
Import Values: Like exports, imports also reached a historic high in the just-completed fiscal year, rising from $14.2bn in 2020-21 to $18.1bn in 2021-22. The growth rate of 27 percent was the highest recorded during the past decade.
Origin countries: For what is now the 20th year in a row, China continues to be the leading origin for Ethiopia’s imports, providing $3.3bn or 18% of total imports. Other leading sources of imports are India ($2.7bn, 15% of total) followed by UAE, Saudi Arabia, Kuwait, Turkey, and the US—all of whom each sold close to $1bn worth of products in the Ethiopian market last fiscal year.
Products: Three products whose global prices spiked in 2022 were among the largest imports into Ethiopia, with fuel imports reaching $3.4bn (up 83%), cereal grain imports of $2.2bn (up 63%), and fertilizer imports of $1.4bn (up 98%). These three imports are largely or exclusively imported by government agencies, and their large dollar requirements—a combined $7bn in all—have been met by fx funds from NBE/CBE. By contrast, imports largely undertaken by the private sector either declined or were broadly flat, including most notably for capital goods (-22%), vehicles (-17%) and consumer non-durables (1%).
Capital Goods: Except for imports of aircraft and heavy-duty vehicles, all sub-categories of capital goods imports fell last FY, including for transport vehicles, agricultural capital equipment, and manufacturing capital equipment. The $3bn capital goods imports level is nearly a $1bn drop from the year before and amounts to less than 3% of GDP versus a prior 10-year average of 7% of GDP.
Imports-to-GDP: After six years of continued decline, the import-to-GDP ratio has turned upwards last year, rising from a low of 13% of GDP to 16% of GDP in 2021-22. Ethiopia still remains a relatively closed economy based on this metric, however, as import-to-GDP ratios are 26% in SSA and 22% in emerging markets.
Ethiopia as a Sellers Market: Ethiopia’s $18bn of (import) purchasing power places it as a major African market for global exporters. Ethiopia stands in 6th place after South Africa, Nigeria, DRC, Ghana and Kenya as a market for foreign exporters targeting Sub-Saharan Africa. In this context, countries that have built up market share in Ethiopia include India (+$1.5bn extra sales in the past three years), Saudi Arabia (+$0.9bn), UAE (+$0.7bn), and Morocco (+$0.6bn).
Import outlook: The Government forecasts import growth will be 10 percent this fiscal year, per the recent 2022-23 Budget document. However, even with declines in commodity prices from their exceptional highs, this growth rate very likely understates the magnitude of the import increase for the year ahead. An import growth rate in the mid- to high-teens seems more realistic, in our view, given still-high food import needs, large reconstruction requirements, and the limited volume adjustment being seen even in the face of elevated global prices (due to inelastic demand) for large-value imports such as fuel and fertilizers.