Economic Impact of COVID-19 Pandemic on Ethiopia’s Economy

Ethiopia is Africa’s second most populous country with more than 110m people. The country’s real GDP growth in 2019 was 9.0% and was forecasted to be 6.2% in 2020 pre-COVID-19. This forecast has now been revised downwards to 3.2% in 2020. This is mostly due to:

• Disruption in supply chain and weakened global demand, which has affected the inflow of raw materials and finished products for manufacturing and trading;

• A sharp rise in inflation as domestic food prices rise steadily (owing to a sharp decline in harvest because of the locust infestation);

• A sharp decline in tourism as the coronavirus pandemic deters travelers with hotel occupancy rate decreased to about 2% and cancellations on bookings for the next 3-6 months

• Significant job losses- Ethiopia’s Job Creation Commission has estimated between 700,000-2 million jobs are likely to be lost in 2020 depending on the severity of the virus on Ethiopia’s economy.

Impact on Aviation Sector

• Ethiopia’s airline industry supports over 1.1m jobs and contributed 5.4% to Ethiopia’s GDP, estimated at about USD 4.2bn in 2019.

• Ethiopian Airlines reported that they were working at only 10% of their flight capacity and had so far lost USD 550m in the period between January and mid April 2020. In the same period, the sector has experienced a 2.5m decline in passenger traffic.

• The airline has suspended flights to over 80 destinations and has recently sent some of its staff on leave and suspended non essential staff as it tries to manage its costs.

• As the pandemic spreads further, Ethiopian Airlines continues to count its losses with most of its aircraft grounded. The worsening situation could also translate to significant job losses in the sector that supports over 1.1m employees. The airline is however taking advantage of its large fleet and destination networks to ferry cargo across the globe globe largely relating to medical aid items and some export cargo as well.

Impact on Tourism and Hospitality Sector

• Ethiopia’s tourism industry recorded the world’s highest growth in 2018 driven by growth of the aviation sector in the country and the development of Addis Ababa as a dynamic and growing regional hub. In 2019, tourism earnings increased to USD 3.6bn, up from USD 3.5bn in 2018.

• The sector represents 5% of Ethiopia’s GDP and supports 2.2 million jobs (about 8.3% of the total employment in the country.)

• Ethiopia’s hotel occupancy has reduced to about 2% from an average of 60% since the onset of the pandemic due to cancellations on bookings for the next 3-6 months following increased travel restrictions globally. Estimates indicate that due to the sector’s strong linkage with the wider economy, most of the 2.2 million individuals employed in the sector are at risk of unemployment.

• Initial forecasts had suggested a 6% increase in arrivals from 1m in 2019 to 1.1m in 2020 and a 5.3% increase in receipts from USD 3.6bn in 2019 to 3.8bn in 2020. However, as the pandemic spreads further, fears of community spread through travel and group environments will continue to impede domestic and international tourism. As a result, these estimates will prove to be highly ambitious as the wider industry experiences significant job losses and a heavy decline in earnings.

Impact on Manufacturing

• The manufacturing sector contributed 4% to Ethiopia’s GDP and employed 13% of the total workforce in 2019.

• The onset of the COVID-19 pandemic set in place a disruption of supply chains in Ethiopia, impacting the operations of various manufacturers and industries which have suffered depressed demand and production activity.

• Amidst the COVID-19 pandemic, Ethiopia’s manufacturing sector, which has been a key driver of growth in recent years is expected to expected to shrink by at least 50%. Further, with a partial lockdown in place, the manufacturing sector is estimated to experience a USD 13.3m monthly decline in income of workers.

• Hawassa Industrial Park, one of the seven fully operational industrial parks in the country that takes the lion’s share in terms of the number of people employed (about 35,000 in direct production) has since the start of April closed up to 45% of its operations.

Impact on Agriculture

• Ethiopia’s economy is largely based on agriculture, which accounts for 33.3% of GDP. The sector contributed nearly 60% of the country’s exports, and 70% of total employment.

• A loss of agricultural output due to locust infestation and a slump in exports due to the COVID-19 pandemic is expected to see Ethiopia’s agricultural sector decline by 1.6% in 2020. Further, Ethiopia is currently experiencing drought in some of its agricultural regions and this, coupled with locust invasions, may lead to food shortages for an estimated 30 million people in 2020.

• Ethiopia’s exports are almost entirely agricultural commodities (with the exception of Gold exports) with the horticulture sub-sector as the country’s fourth-largest export earner; generating USD280m in 2019 and employing over 150,000 people. Most of these people are now at risk of losing their jobs as the sector weathers through the COVID-19 storm. As of April 2020, Ethiopia’s agricultural exports were only at 20% of their usual volume; a YTD loss of about USD 132m.

• With a partial lockdown already in place in Ethiopia, the estimated decline in income of workers per month is about USD 5.7m. Increased travel restrictions and reduced growth prospects for key trading partners in North America and Europe due to the COVID-19 pandemic will continue to limit demand for Ethiopia’s exports of coffee horticultural products over the short term.

Impact on Construction and Real Estate Sectors

• The construction and real estate sectors combined contributed about 20.37% to Ethiopia’s GDP in 2019.

• There are 159 major construction projects currently underway in Ethiopia as of 2019 and a further 85 set to go ahead within the next five years. Infrastructural projects are however expected to stall due to a shortfall in revenue collections by the government and reduced FDI inflows into the country. Capital projects such as railway and road construction are expected to gain momentum again from 2022 once the election is over.

• With industry growth estimated to contract at between 17% to 26% in light of the COVID-19 pandemic, the construction sector is anticipated to witness a 9.9% contraction on its contribution to Ethiopia’ s GDP as the country battles to contain the spread of the virus. Further, a USD 23.3m decline in income of workers is expected monthly as the country goes through a state of emergency.

• The consequent aftermath of the pandemic expected is a decline in project financing as lenders would be uneasy to finance construction projects because of the uncertainty surrounding the completion of projects.