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Ethiopia Country Summary

64.55 Country Rating /100
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Sanctions

Limited US sanctions

FATF AML Deficient List

No

Terrorism
Corruption
US State ML Assessment
Criminal Markets (GI Index)
EU Tax Blacklist
Offshore Finance Center

Background Information


Anti Money Laundering

FATF Status

Ethiopia is no longer on the FATF List of Countries that have been identified as having strategic AML deficiencies

Latest FATF Statement  -  18 October 2019

The FATF welcomes Ethiopia's significant progress in improving its AML/CFT regime and notes that Ethiopia has strengthened the effectiveness of its AML/CFT regime and addressed related technical deficiencies to meet the commitments in its action plan regarding the strategic deficiencies that the FATF identified in February 2017. Ethiopia is therefore no longer subject to the FATF's monitoring process under its ongoing global AML/CFT compliance process. Ethiopia will continue to work with ESAAMLG to improve further its AML/CFT regime.

Compliance with FATF Recommendations 

The last follow-up to the Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Ethiopia was undertaken in 2022. According to that Evaluation, Ethiopia remained Compliant for 11 and Largely Compliant for 25 of the FATF 40 Recommendations. It remains Highly Effective for 0 and Substantially Effective for 0 of the Effectiveness & Technical Compliance ratings.

US Department of State Money Laundering assessment (INCSR) 

Ethiopia was deemed a ‘Monitored’ Jurisdiction by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -

Due primarily to its underdeveloped financial system and pervasive government controls, Ethiopia is not considered to be a regional financial center. Although Ethiopia’s location within the Horn of Africa makes it vulnerable to money laundering-related activities perpetrated by transnational criminal organizations, terrorists, and narcotics trafficking organizations, its limited integration in the global financial system, underdeveloped financial institutions, and strict currency controls make it highly unlikely such groups will use the financial sector to launder funds from abroad. Corruption, smuggling, tax fraud, and trafficking in narcotics, persons, arms, and animal products are the key proceeds-generating crimes.  As the economy grows and becomes more open, Ethiopian law enforcement sources believe bank fraud, electronic/computer crime, and related money laundering activities could continue to rise. The financial services sector remains closed to foreign investment.

High tariffs encourage customs fraud and trade-based money laundering. Since strict foreign exchange controls limit the possession of foreign currency, most of the proceeds of contraband smuggling and other crimes are not laundered through the official banking system, composed of three public banks and sixteen private banks.  Law enforcement sources indicate money and value transfer systems, particularly hawala, are widely used. The Ethiopian government attempts to monitor informal value transfer networks within the country and has closed a number of illegal hawala operations. The Financial Intelligence Center (FIC), Ethiopia’s financial intelligence unit, is currently conducting an assessment of the informal money transfer system.

Sanctions

The US has issued Executive Order (E.O.) of September 17, 2021, “Imposing Sanctions on Certain Persons with Respect to the Humanitarian and Human Rights Crisis in Ethiopia.

Bribery & Corruption

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           37

World Governance Indicator – Control of Corruption             37

There are high levels of corruption in Ethiopia, although less high than in comparable regional countries. Examples of corruption include facilitation payments and bribes being necessary to keep land leased from the state or in order to obtain government contracts. Ethiopian anti-corruption law is primarily contained in The Revised Federal Ethics and Anti-corruption Commission Establishment Proclamation and the Revised Anti-Corruption Law which criminalize major forms of corruption including active and passive bribery, bribing a foreign official, and money laundering. Facilitation payments are illegal, and it is forbidden for civil servants to accept gifts or hospitality that may affect their decisions. The legal anti-corruption framework is rarely enforced. For further information - GAN Integrity Business Anti-Corruption Portal

Economy

Ethiopia is the second most populous country in Africa after Nigeria, with a growing population of over 120 million, approximately two-thirds of whom are under age 30. A reform-minded government, low-cost labor, a national airline with over 100 passenger connections, and growing consumer markets are key elements attracting foreign investment.

Ethiopia faced several economic challenges in 2022 relating to drought in the southern and eastern lowlands, political tensions and unrest in parts of the country, armed conflict in the north, lingering effects of the COVID-19 pandemic, and Russia’s war in Ukraine. Ethiopia’s macroeconomic position was characterized by over 30 percent inflation, an acute foreign exchange shortage, a 3.4 percent budget deficit to GDP ratio, and plummeting credit ratings. The IMF estimated GDP growth at 3.8 percent in 2022, which was a significant drop from 6.3 percent in 2021 and double-digit growth for much of the past decade. In 2022, the government re-tendered a partial privatization of state-owned telecoms monopoly Ethio Telecom, released a request for comments to issue a third telecoms license, and launched Ethiopian Investment Holdings, a sovereign wealth fund with the mandate to manage future privatization offerings. In 2022, the government also established the Capital Markets Authority to prepare the legal framework for establishing a stock market and committed to banking liberalization in the near term.

Russia’s illegal invasion of Ukraine and the resulting global supply chain disruptions exacerbated galloping inflation in Ethiopia, which was 32 percent year-on-year in March 2023 according to the Ethiopian Central Statistics Agency. The World Bank estimated 10 million Ethiopians could fall into poverty in 2022 as a result of inflation.

Ethiopia is a signatory of the Paris Agreement on Climate Change, and it has a climate resilience green economy strategy (CRGES) to build a green and resilient economy. Ethiopia has also formulated climate-resilient sectoral policies and strategies to provide specific strategic interventions in areas such as agriculture, forestry, transport, health, urban development, and housing although they are not fully implemented.

The challenges of doing business in Ethiopia remain daunting. Companies often face long lead-times importing goods and dispatching exports due to logistical bottlenecks, corruption, high land-transportation costs, and bureaucratic delays. An acute foreign exchange shortage (the Ethiopian birr is not a freely convertible currency) impedes companies’ ability to repatriate profits and obtain investment inputs. The lack of a capital market hinders private sector growth. Export performance remains weak as the country struggles to develop exports beyond primary commodities (coffee, gold, and oil seeds), further hindered by an overvalued Ethiopian birr. Ethiopia is not a signatory of major intellectual property rights treaties such as the Paris Convention for the Protection of Industrial Property and the Madrid System for the International Registration of Marks.

The largest source of foreign direct investment (FDI) in Ethiopia is the People’s Republic of China (PRC), followed by Saudi Arabia and Turkey. Insecurity and political instability associated with various ethnic conflicts – particularly the conflict in northern Ethiopia and ongoing violence in Oromia – have negatively affected the investment climate and dissuaded FDI.

 

Investment Climate  -  US State Department

Ethiopia is the second most populous country in Africa after Nigeria, with a growing population of over 110 million, approximately two-thirds of whom are under age 30. A reform-minded government, low-cost labor, a national airline with over 100 passenger connections, and growing consumer markets are key elements attracting foreign investment.

Ethiopia faced several economic challenges in 2021 related to the COVID-19 pandemic, a drought in the southern and eastern lowlands, political tension and unrest in parts of the country, and an ongoing conflict in the north. Ethiopia’s macroeconomic position was characterized by over 30 percent inflation, meager foreign exchange reserves, a large budget deficit, and plummeting credit ratings. The IMF estimated GDP growth at 2.0 percent in 2021, a significant drop from 6.0 percent in 2020 and double-digit growth for much of the past decade. During 2021, the Government of Ethiopia (GOE) made the first revisions in over 60 years to the commercial code, awarded a spectrum license to a private telecom operator, and took initial steps toward privatization of other state-owned sectors, including the telecom and sugar industries.

Ethiopia is a signatory of the Paris Agreement on Climate Change, and it has a climate resilience green economy strategy (CRGES) to build a green and resilient economy. Ethiopia has also formulated climate-resilient sectoral policies and strategies to provide specific strategic interventions in areas such as agriculture, forestry, transport, health, urban development, and housing.

In 2020-21, the GOE provided liquidity to private banks to mitigate the impact of COVID-19 on businesses, to facilitate debt restructuring and to prevent bankruptcies and it also injected liquidity into the hotel and tourism sector through commercial banks. The GOE planned to allocate roughly $1 billion U.S. dollars during the same period for medical equipment purchases, healthcare worker salaries, quarantine and isolation facilities, and the procurement of disinfectants and personal protective equipment.

The challenges of doing business in Ethiopia remain daunting. Companies often face long lead-times importing goods and dispatching exports due to logistical bottlenecks, corruption, high land-transportation costs, and bureaucratic delays. An acute foreign exchange shortage (the Ethiopian birr is not a freely convertible currency) impedes companies’ ability to repatriate profits and obtain investment inputs. The lack of a capital market hinders private sector growth. Export performance remains weak, as the country struggles to develop exports beyond primary commodities (coffee, gold, and oil seeds) and the Ethiopian birr remains overvalued. Ethiopia is not a signatory of major intellectual property rights treaties such as the Paris Convention for the Protection of Industrial Property and the Madrid System for the International Registration of Marks.

Insecurity and political instability associated with various ethnic conflicts – particularly the conflict in northern Ethiopia – have negatively impacted the investment climate and dissuaded foreign direct investment (FDI).

 

Country Links

National Bank of Ethiopia

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