2022 Index of Economic Freedom

Ethiopia

OVERALL SCORE49.6
WORLD RANK150
Rule of Law

Property Rights38.1

Judicial Effectiveness20.5

Government Integrity33.2

Government Size

Tax Burden78.3

Government Spending93.0

Fiscal Health81.6

Regulatory Efficiency

Business Freedom42.7

Labor Freedom38.8

Monetary Freedom57.7

Open Markets

Trade Freedom61.4

Investment Freedom30.0

Financial Freedom20.0

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Quick Facts
  • Population:
    • 115.0 million
  • GDP (PPP):
    • $282.6 billion
    • 6.1% growth
    • 8.2% 5-year compound annual growth
    • $2,908 per capita
  • Unemployment:
    • 2.8%
  • Inflation (CPI):
    • 20.4%
  • FDI Inflow:
    • $2.4 billion

Ethiopia’s economic freedom score is 49.6, making its economy the 150th freest in the 2022 Index. Ethiopia is ranked 35th among 47 countries in the Sub-Saharan Africa region, and its overall score is below the regional and world averages.

Over the past five years, Ethiopia has enjoyed uninterrupted and impressive economic growth averaging over 8 percent annually. Economic freedom peaked in 2019 and 2020. However, dragged down by score decreases in judicial effectiveness and labor freedom, Ethiopia has recorded a 3.1-point overall loss of economic freedom since 2017 and has fallen from the “Mostly Unfree” category to the “Repressed” category. The government spending score is good, but rule of law, investment freedom, and financial freedom are far below average.

IMPACT OF COVID-19: As of December 1, 2021, 6,771 deaths had been attributed to the pandemic in Ethiopia, and the government’s response to the crisis ranked 83rd among the countries included in this Index in terms of its stringency. The economy grew by 6.1 percent in 2020.

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Background

A military junta deposed Emperor Haile Selassie in 1974 and established a socialist state. The Ethiopian People’s Revolutionary Democratic Front overthrew the junta in 1991, replacing it with a repressive one-party system dominated by the Tigray tribe. Protests by Ethiopia’s marginalized Oromo tribe in 2018 led to the surprise rise of Prime Minister Abiy Ahmed, who launched an ambitious reform agenda and won the Nobel Peace Prize. In 2020, however, war broke out between rebels from the Tigray Region and the federal government. At the end of 2021, the political situation was highly unstable. The agriculture-based economy’s strong growth has reduced poverty, but high unemployment, still-severe poverty, and a large debt burden remain persistent challenges.

Rule of Law

Property Rights 38.1 Create a Graph using this measurement

Judicial Effectiveness 20.5 Create a Graph using this measurement

Government Integrity 33.2 Create a Graph using this measurement

Ownership of land remains in the hands of the state, and decisions on land use have generated conflict. The judiciary is officially independent, but its judgments rarely deviate from government policy. While property and contractual rights are recognized, judges often lack a technical understanding of complex cases. Problems caused by corruption and unequal distribution of resources have contributed to the unrest that has beset Ethiopia in recent years.

Government Size

The top individual income tax rate is 35 percent, and the top corporate tax rate is 30 percent. The overall tax burden equals 6.7 percent of total domestic income. Government spending has amounted to 15.3 percent of total output (GDP) over the past three years, and budget deficits have averaged 2.8 percent of GDP. Public debt is equivalent to 55.3 percent of GDP.

Regulatory Efficiency

In 2021, the 62-year-old commercial code was revamped to simplify business regulations and increase transparency. Ethiopia digitized its commercial registration and business licensing processes. More than 80 percent of Ethiopians work in agriculture. Partially or fully subsidized state-owned enterprises continue to dominate major sectors of the economy including telecommunications, power, banking, insurance, rail, air transport, and shipping.

Open Markets

Ethiopia has one preferential trade agreement in force. The trade-weighted average tariff rate is 11.8 percent, and nontariff barriers further undermine the freedom to trade. Ethiopia is not a member of the World Trade Organization. Institutional shortcomings continue to limit market openness to foreign investment. Although the state has allowed the private sector to participate in banking, it influences lending and funds state-led development projects.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Mauritius70.9-6.1
2Cabo Verde66.72.9
3Botswana64.8-2.8
4Côte d'Ivoire61.6-0.1
5Seychelles61.1-5.2
6Benin611.4
7São Tomé and Príncipe60.34.4
8Senegal602.0
9Ghana59.80.6
10Tanzania59.5-1.8
11Namibia59.2-3.4
12Madagascar58.91.2
13Burkina Faso58.31.8
14The Gambia58-0.8
15Togo57.2-0.3
16Rwanda57.1-11.2
17South Africa56.2-3.5
18Mali55.90.3
19Gabon55.8-2.3
20Mauritania55.3-0.8
21Djibouti55.3-0.9
22Niger54.9-2.4
23Nigeria54.4-4.3
24Uganda54.2-4.4
25Guinea54.2-2.3
26Malawi530.0
27Cameroon52.9-0.5
28Kenya52.6-2.3
29Angola52.6-1.6
30Sierra Leone520.3
31Eswatini51.4-3.7
32Mozambique51.3-0.3
33Comoros50.4-5.3
34Chad49.8-0.6
35Ethiopia49.6-2.1
36Zambia48.7-1.7
37Republic of Congo48.5-2.2
38Lesotho48.1-5.4
39Liberia47.9-1.3
40Democratic Republic of Congo47.6-1.4
41Equatorial Guinea47.2-2.0
42Guinea-Bissau46-8.9
43Central African Republic45.7-3.1
44Eritrea39.7-2.6
45Burundi39.4-10.5
46Zimbabwe33.1-6.4
47Sudan32-7.1
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