Commercial Bank of Ethiopia

Business Development Division

Market Research Department

Global and Domestic Economic Highlight

Semi-annual Review

February, 2019

Table of Contents

Page | 1
List of Tables.............................................................................................3

List of Figures...........................................................................................4

1. Introduction......................................................................................5

2. Global Economic Highlight..................................................................5

2.1. Global Economic Growth...............................................................5

2.2. International Remittance Inflow.....................................................8

2.3. International Trade.....................................................................10

2.4. Global Price Developments..........................................................11

2.4.1. Commodity Prices.................................................................11

2.4.2. Price Developments of Major Exportable Commodities...............12

2.4.3. Price Developments of Major Importable Items.........................16

2.5. Global Uncertainties...................................................................20

2.5.1. Escalating Trade Restrictions..................................................20

2.5.2. Policy Uncertainty and Geopolitical Tensions.............................21

2.6. Implications of Global Economic Situations on Domestic Economy.....22

3. Domestic Economic and Social Developments......................................22

3.1. Economic Growth.......................................................................22

3.2. Performance of Investment.........................................................22

3.3. Price Developments....................................................................25

3.4. Developments in Fiscal and Monetary Policies................................27

3.4.1. Money supply.......................................................................28

3.5. Financial Sector Development......................................................29

3.5.1. Developments in Micro Financial Institutions.............................29

3.5.2. Developments in the Banking Sector.......................................30

3.5.3. E-Banking Channels..............................................................30

3.5.4. Agent Banking......................................................................31

3.6. The External Sector....................................................................32

3.6.1. Export.................................................................................32

Page 2
 3.6.2. Import................................................................................35

3.7. Remittance................................................................................36

3.8. Developments in Exchange Rate...................................................38

3.9. Developments in Interest Rate.....................................................38

3.10. Telecom Infrastructure................................................................39

3.10.1. Mobile and Internet Subscribers..............................................39

3.11. Implications of Domestic Economic Situations to the Banking Industry

40

Bibliography............................................................................................41

List of Tables
Table 1: Annual Growth of Real GDP (%)......................................................5
Table 2: Price of Base Metals (USD/mt) and Iron Ore (USD/dmtu)..................19
Table 3: Number of Licensed Investment Projects by Type and Status in the First
Half of 2018/19 and 2017/18....................................................................23
Table 4: Capital and Employment Contribution of Operational Investment
Projects in the First Half of 2018/19...........................................................23
Table 5: Number of Investment Projects by Sector in the First Half of 2018/19.24
Table 6: Number of Investment Projects by Region in the First Half of 2018/19 25
Table 7: Federal Government Fiscal Performance (in millions of Birr)..............28
Table 8: Components of Broad Money (in Billions of Birr)...............................29
Table 9: Performance of Micro Financial Institutions (MFIs)............................29
Table 10: Banking Industry’s Branch Network..............................................30
Table 11: Number of Users, Number and Value of Transaction via Internet and
Mobile Banking at the end of December 2018..............................................31
Table 12: Payments Made by Agent Banking at the end of December 2018......32
Table 13: Share of Major Commodities in Aggregate Export Earnings of Ethiopia
(in millions of USD)..................................................................................33
Table 14: Plan and Performance of Coffee Export by Volume (in thousands of
tons) and Value (in millions of USD)...........................................................34

Page 3
Table 155: Export Volume (in thousands of metric tons) and Earnings (in millions
of USD) of Sesame for the First Five Months of 2018/19................................34
Table 16: Electric Energy Production (in Billions of KWH)...............................34
Table 17: Volume and Value of Electric Energy Export to Djibouti and Sudan in
millions of KWH and USD..........................................................................35
Table 188: Value of Import by End Use (in millions of USD)...........................36
Table 19: Average Interest Rate................................................................38
Table 20: Number of Mobile and Internet Subscribers by Service Type............39

List of Figures
Figure 1: World Remittance Inflow in Billions of USD......................................8
Figure 2: Top Ten World Remittance Recipient countries in 2018 (in billions of
USD).......................................................................................................9
Figure 3: Top Ten Sub-Saharan African Remittance Receiving Countries in 2018
(in billions of USD)...................................................................................10
Figure 4: Coffee Arabica and Robusta Price Trend.........................................12
Figure 5: Gold Price Trend.........................................................................14
Figure 6: Oilseeds Price Index...................................................................16
Figure 7: Crude Oil Price Trend..................................................................17
Figure 8: Palm Oil Price Trend....................................................................18
Figure 9: Country Level 12 Months Moving Average Inflation Rate..................26
Figure 10: Year-on-Year Inflation at Regional Level (December 2018)............26
Figure 11: Source of Remittance by Region in the First Half of 2018/19 and
2018/19.................................................................................................37
Figure 12: CBE’s FCY Private Transfer (in million USD)..................................37
Figure 13: Average Quarterly Official Exchange rates (Birr/USD)....................38

Page 4
 1. Introduction

This economic highlight reviews key global and domestic economic developments
in the first half of 2018/19. The likely implications on the domestic economic
environment and the banking sector are also discussed so as to provide an input
in the planning and decision making activities of the CBE.

2. Global Economic Highlight

2.1. Global Economic Growth

According to World Bank (2019), global growth is projected to moderate from a

3% in 2018 to 2.9% in 2019 and 2.8% in 2020-21, as economic slack dissipates,
monetary policy accommodation in advanced economies is removed, and global
trade gradually slows. Growth in the United States will continue to be supported
by fiscal stimulus in the near term, which will likely lead to larger and more
persistent fiscal deficits. Advanced economies growth will gradually decelerate,
falling to 1.5% in 2021, as monetary policy is normalized and capacity
constraints become increasingly binding.

Table 1: Annual Growth of Real GDP (%)

2016 2017 2018e 2019f 2020f 2021f

World 2.4 3.1 3 2.9 2.8 2.8

Advanced Economies 1.7 2.3 2.2 2 1.6 1.5
United States 1.6 2.2 2.9 2.5 1.7 1.6
Euro Area 1.9 2.4 1.9 1.6 1.5 1.3
Japan 0.6 1.9 0.8 0.9 0.7 0.6
Emerging Market and Developing
3.7 4.3 4.2 4.2 4.5 4.6
Economies (EMDEs)
East Asia and Pacific 6.3 6.6 6.3 6 6 5.8
Europe and Central Asia 1.7 4 3.1 2.3 2.7 2.9
Latin America and the Caribbean -1.5 0.8 0.6 1.7 2.4 2.5
Middle East and North Africa 5.1 1.2 1.7 1.9 2.7 2.7
South Asia 7.5 6.2 6.9 7.1 7.1 7.1
Sub-Saharan Africa (SSA) 1.3 2.6 2.7 3.4 3.6 3.7

Source: World Bank (January, 2019) e=estimate f=forecast

After slightly decelerating from 2.3% in 2017 to an estimated 2.2% in 2018,

advanced economy growth is expected to continue slowing over the forecast

Page 5
period, with a notable slowdown in investment and the eventual shift of US fiscal
policy from stimulative to contractionary in the interest of containing inflationary
tendencies.

 US growth is estimated to have picked up to 2.9% in 2018, mostly

reflecting stronger than expected domestic demand. However, it is
projected to slow to 2.5% in 2019 and to an average of 1.7% in 2020-21
as monetary policy accommodation is removed and fiscal stimulus fades
and subsequently begins to drag on growth. Higher trade tariffs are
expected to further weigh on activity, especially exports and investment.
 Euro Area growth slowed notably in 2018 to an estimated 1.9%. In
particular, exports have declined, reflecting the earlier appreciation of the
euro and slowing external demand. Growth is projected to further
decelerate over the forecast period, to 1.6% in 2019 and an average of
1.4% in 2020-21, as monetary stimulus is withdrawn and global trade
growth moderates.
 Japan growth slowed to an estimated 0.8% in 2018, reflecting
contractions in the first and third quarters due to bad weather and natural
disasters. In 2019, growth is projected to pick up to 0.9% in 2019,
reflecting a recovery from last year’s temporary disruptions. As
employment growth slows and fiscal policy tightens, growth is expected to
moderate to 0.7% in 2020 and 0.6% in 2021.
 The recovery in EMDEs (Emerging Market and Developing Economies)
activity has stagnated. Aggregate growth in EMDEs edged down to an
estimated 4.2% in 2018, against the backdrop of a substantial
strengthening of the US dollar, weakening capital flows, heightened trade
tensions, and moderating global manufacturing and trade. EMDE growth
is expected to stood at 4.2% in 2019, partly reflecting the persistent
effects of recent financial stress in some large economies (e.g., Argentina,
Turkey), with a sharply weaker than expected pickup in commodity
importers. EMDE growth is projected to remain the same at an average of
4.6% in 2020-21, as the recovery in commodity exporter’s levels off and
per capita growth will remain weak in several EMDE regions.
 China growth is estimated to have slowed to a still robust 6.5% in 2018,
supported by resilient consumption. A rebound in private fixed investment

Page 6
 helped offset a decline in public infrastructure and other state spending.
However, industrial production and export growth have decelerated,
reflecting easing global manufacturing activity. Import growth continued
to outpace export growth, contributing to a shrinking current account
surplus. Net capital outflows have resumed, and international reserves
have been edging down. Stock prices and the renminbi have experienced
continued downward pressures, and sovereign bond spreads have risen
amid ongoing trade tensions and concerns about the growth outlook.
Growth is projected to decelerate to 6.2% in 2019, as a result of weaker
exports, and to further moderate to 6% in 2021, broadly in line with its
potential pace. Domestic demand is projected to remain robust aided by
policies to boost consumption. Supportive fiscal and monetary policies
undertaken or announced so far are expected to largely offset the
negative impact of higher tariffs.
 Growth in Middle East and North Africa is expected to pick up slightly to
1.9% in 2019, but prospects are uneven across countries. Accelerating
activity in Saudi Arabia and Egypt is expected to be offset by a sharp
contraction in Iran following the imposition of US sanctions. Increased oil
production and fiscal easing are supporting the recovery in some oil
exporters, while oil importers continue to benefit from policy reforms.
Regional growth is projected to rise to 2.7% in 2020-21, as domestic
demand among both oil importers and exporters shows a broad based
pickup, supported by reforms and diversification policies. Key downside
risks include the possibility of intensified geopolitical tensions, renewed
volatility in oil prices, rising global trade restrictions, an abrupt tightening
of global financing conditions, and delays in reform implementation.
 Growth in Sub-Saharan Africa reached an estimated 2.7% in 2018,
reflecting a sluggish expansion in the region’s largest economies amid
moderate trade growth, tightening financial conditions, and weak prices
for key metals and agricultural commodities. Regional growth is expected
to pick up, reaching 3.4% in 2019 and an average of 3.7% in 2020-21,
predicted on diminished policy uncertainty and improved investment in
large economies, together with continued robust growth in non-resource
intensive countries. Per capita income growth is predicted to remain well

Page 7
 below its long-term average in many countries, yielding little progress in
poverty reduction.

2.2. International Remittance Inflow

In 2018, global remittance is estimated to reach USD 689 billion, increasing by

10.2% from previous year. From 2015 to 2017, world remittance inflow showed
increasing trend except in 2016 where it slightly dropped to USD 586 billion.

On the other hand, during 2019-20, global remittance is expected to manifest

good improvement. In line with this, it is forecasted to reach USD 715 billion in
2019 and USD 747 billion in 2020.

Figure 1: World Remittance Inflow in Billions of USD

800 747
689 715
700 625
592 586
600
469
500
400
300
200
100
0
2010 2015 2016 2017 2018e 2019f 2020f
Source:
WB (December, 2018)

In 2018, India and China are projected to be the top two world remittance
receiving countries followed by Philippines and Mexico. Whereas, Egypt, Nigeria,
Pakistan, Ukraine, Vietnam and Bangladesh are countries projected to take the
rank from fourth to tenth, respectively.

Page 8
Figure 2: Top Ten World Remittance Recipient countries in 2018 (in billions of
USD)
79.5
80
67.4
70
60
50
40 33.7 33.7
25.7 25.1
30 20.9
16.5 15.9 15.9
20
10
0
India China Philippines Mexico Egypt Nigeria Pakistan Ukraine Vietnam Bangladesh

Source: WB (December, 2018)

Remittances to Sub-Saharan Africa are estimated to grow by 9.8% from USD 41

billion in 2017 to USD 45 billion in 2018. Nigeria, the largest remittance recipient
country in Sub-Saharan Africa and the sixth largest among LMICs, is expected to
receive more than USD 25 billion by the end of 2018, an increase of more than
USD 3 billion compared with the previous year. Next to Nigeria, Ghana, Senegal,
Kenya and Zimbabwe are projected to be the larger recipients of remittances in
2018. During the period, Ethiopia is expected to take the ninth rank and the
corresponding remittance inflow to the country is estimated to reach USD 0.8
billion.

Projections indicate that remittances to the region will keep increasing, but at a
slower rate, to USD 47 billion in 2019. The upward trend observed since 2016 is
explained by strong economic conditions in the high income economies where
many Sub-Saharan African migrants earn their income.

Overall, downside risks to economic growth and restrictive immigration policies

in many countries may moderate the future growth of remittance.

Page 9
Figure 3: Top Ten Sub-Saharan African Remittance Receiving Countries in 2018
(in billions of USD)

30
25.1
25

20

15

10

3.8
5 2.7 2.1 1.9
1 0.9 0.9 0.8 0.5
0
Nigeria Ghana Senegal Kenya Zimbabwe Mali South Africa Uganda Ethiopia Togo

Source: WB (December, 2018)

2.3. International Trade

Following strong momentum in 2017, growth in global goods trade markedly

slowed during the first half of 2018 and has only partially recovered since then.
The deceleration was more pronounced than previously expected, as reflected in
decreasing export orders and global manufacturing activity (World Bank, January
2019).

New tariffs introduced since the beginning of last year have affected about 12%
of US goods imports, 6.5% of China’s goods imports, and about 2.5% of global
goods trade. In the US, tariff increases were implemented citing national security
concerns and unfair trade practices. Import restrictions and tariff increases were
also put in place in some EMDEs, as retaliatory actions or as measures aimed at
reducing current account vulnerabilities in the face of intensifying capital outflow
pressures.

Combined with the rising prevalence of temporary trade barriers (such as anti-
dumping and countervailing duties and safeguards), recent protectionist
measures have disproportionately affected trade in parts and components, with
negative repercussions on international value chains. Increased tariffs on certain
goods, including on US steel imports, is associated with an especially large
negative effect on producers in poorer and smaller EMDEs.

Page 10
The temporary pause in tariff hikes agreed by the US and China during the G20
meeting in early December 2018 and the successful negotiations of the US-
Mexico-Canada Agreement have somewhat moderated trade policy uncertainties.
However, the possibility of escalating trade restrictions involving major
economies remains high. This uncertainty is likely to weigh on firms’ willingness
to invest, export and engage in international value chains, with negative effects
on the global trade outlook.

Rising interest rates in advanced economies and economic rebalancing in China

is expected to continue to slower global investment and trade growth, with the
latter projected to decelerate from 3.8% in 2018 to 3.4% in 2021. Global trade
is still projected to grow somewhat faster than global GDP, but at a much weaker
pace than previously envisaged, reflecting a deterioration in growth prospects in
several large EMDEs and in the Euro Area, as well as trade policy uncertainties.

2.4. Global Price Developments

2.4.1. Commodity Prices

Energy prices fluctuated markedly in the first half of 2018/19, mainly reflecting
supply factors, with sharp falls toward the end of the year. Prices of most metals
and, to a lesser extent, agricultural commodities also weakened, largely due to
concerns about the effects of tariffs on global growth and trade. Prices of the
three commodity groups are expected to generally stabilize in 2019 (Annex I).

 In the first five months of 2018/19, price index for energy items showed
increasing trend except in August where it declined to 90.38. However, at
the end of December 2018, it dropped by 11.31% from previous month.
In the first half of 2018/19, average price index for energy rose by
24.41% from previous year’s similar period.
 In the first half of 2018/19, price index for non-energy items showed a
decreasing trend except in October. During the period, the average price
index dropped by 2.53% from previous year’s similar period.
 In first quarter of 2018/19, price index for agricultural products showed a
decreasing trend. But, in the second quarter of 2018/19, it showed a
rather mixed trend. In the first half of 2018/19, average price index for
agricultural products declined by 2.53% from previous year’s similar
period.

Page 11
  In the first quarter of 2018/19, price index for precious metals showed a
decreasing trend. However, in the second quarter of 2018/19, it showed
an increasing trend. In the first half of 2018/19, average price index for
precious metals declined by 5.73% from previous year’s similar period.

2.4.2. Price Developments of Major Exportable Commodities

A) Coffee

In the first half of 2018/19, price of Coffee Arabica and Coffee Robusta showed
decreasing trends except in October. During the period, average price of Coffee
Arabica decreased by 10.06%, while price of coffee Robusta dropped by 16.74%
compared with the previous year’s similar period owing to increased exports.

Figure 4: Coffee Arabica and Robusta Price Trend

$/kg
3.30 3.30 3.23
3.50 3.10 3.11 3.03 3.06 3.00 2.98 2.96 2.99 2.95 3.03 3.02
2.88 2.76 2.80
3.00 2.67
2.31 2.30 2.19 2.17
2.50 2.01 1.93 1.95 1.97 1.94 1.95 1.96 1.90 1.86
1.78 1.69 1.88 1.84 1.71
2.00
1.50
1.00
0.50
0.00
Jul..1 Aug… Sep… Oct… Nov… Dec… Jan… Feb… Mar… Apr… May Jun… Jul… Aug… Sep… Oct… Nov… Dec…
7 17 17 17 17 17 18 18 18 18 …18 18 18 18 18 18 18 18

Coffee Arabica Coffee Robusta

S
ource: World Bank Global Commodity Price Data (January, 2019)

Global Coffee Output

Coffee output is estimated at 167.47 million bags in 2018/19, an increase of

1.5% from previous year. Production of Arabica is estimated at 104.01 million
bags, up 2.5%, while that of Robusta is estimated at 63.5 million bags, down
just 0.1% compared to previous year1.

According to USDA (December 2018), Brazil Arabica output is forecasted to

surge as its Arabica crop enters on-year of the biennial production cycle and

1
ICO, December 2018

Page 12
ideal weather during the fruit set and fruit development period. Production in
Africa and South America is expected to increase by 1.8% to 17.8 million bags
and 4.3% to 79.94 million bags, respectively. Output in Asia and Oceania is
estimated to fall by 2.1% to 48.01 million bags, while production in Mexico and
Central America is estimated to decrease by 0.5% to 21.72 million bags. 2

Global Coffee Consumption (ICO, December 2018)

Coffee consumption is estimated at 165.19 million bags in 2018/19, an increase

of 2.1% compared to 2017/18. Domestic consumption in exporting countries is
estimated to increase by 1.4% to 50.3 million bags. Consumption in importing
countries is estimated to rise by 2.5% to 114.88 million bags. Demand from
non-traditional importing countries continues to grow, accounting for around
18% of global consumption in 2018/19. Both Africa and Asia & Oceania are
estimated to increase consumption by 4.1% to 12.23 million bags, respectively.
These regions are seeing demand increase in some producing countries as well
as in newer markets in importing countries. Demand in the more traditional
markets in Europe and North America is estimated to grow by 1% to 53.51
million bags and by 2.5% to 30.73 million bags, respectively. Consumption in
South America is estimated to rise by 0.9% to 27.22 million bags, while in
Central America & Mexico, it is estimated to remain stable at 5.23 million bags.

Overall, in 2018/19, world coffee production is expected to exceed consumption

by 2.29 million bags, decreasing by 30.2% (0.99 million bags) from previous
year. Hence, two years of surplus will weigh heavily on prices for the near future
(i.e. price of coffee is expected to decrease).

B) Gold

In the first quarter of 2018/19, gold price showed a decreasing trend. However,
in the second quarter of 2018/19, it manifested an increasing trend owing to
increased demand from Chinese and Indian jewelry, growth in purchase of
Russia’s central bank gold reserves, Chinese and Iranian bar and coin
investment, and to a lesser extent, a rise in the use of gold in technology
applications3. In the first half of 2018/19, average price of gold dropped by
4.38% from the previous year’s similar period.

2
ICO, December 2018
3
http://blogs.worldbank.org/developmenttalk/precious-metals-outlook-regaining-lustre

Page 13
Figure 5: Gold Price Trend

$/troy oz
1350.00

1300.00

1250.00

1200.00

1150.00

1100.00
Jul.. Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul… Aug Sep Oct Nov Dec
17 …17 …17 …17 …17 …17 …18 …18 …18 …18 …18 …18 18 …18 …18 …18 …18 …18
.

Source: World Bank Global Commodity Price Data (January, 2019)

Contractionary US monetary policy (the tightening of money supply and raising

of interest rates to keep inflation in check) has reduced the attractiveness of gold
as an investment asset. The appreciation of the US dollar has also made gold
more expensive in domestic currency terms for the world’s most important
consumers such as China, India, Iran and Turkey 4. On the other hand, increase
in market uncertainty, expansion of protectionist economic policies and political
and economic instability in Europe may make gold increasingly attractive as a
form of hedge.5

Weighing in these trends, in 2019, price of gold is forecasted to reach USD

1,264/troy ounce, slightly decreasing by 0.4% from previous year’s average
price.

C) Oilseeds

In the first quarter of 2018/19, price index for oilseeds showed a decreasing
trend. But, in the second quarter, it showed an increasing trend. This moderate
rise in price index is attributed to a possible easing in the US-China trade
tensions as well as reports of heavy rainfall hampering sowing operations in
Argentina. In the first half of 2018/19, average price index for oilseeds
decreased by 4.4% from previous year’s similar period.

4
http://blogs.worldbank.org/developmenttalk/precious-metals-outlook-regaining-lustre
5
World Gold Council, January 2019

Page 14
Oilseeds production for the 2018/19 forecast indicate ample crops to climb to
new record. Soybean production is anticipated to rebound owing to recovery of
production in Argentina and further yield improvement in US and aria expansion
in Brazil, China and India. Sunflower seed production is also anticipated to
rebound though to a lesser extent. Palm oil production is also forecasted to
continue growing at a moderate level. Rapeseed production, on the other hand,
is forecasted to contract due to unfavorable weather conditions in Europe and
Australia.6

According to FAO (November 2018), in 2018/19, growth in world meals/ cakes

utilization is forecast to slow down, tied to subdued feed demand in China.
Growth in oils/ fats consumption will most likely be supported by continuing
economic growth in major consuming regions and sustained demand for the
biofuel sector. International trade in vegetable oils is expected to recover in
2018/19. Trade in oilseeds and oilmeals is also forecasted to expand, but at a
slower pace, mainly reflecting uncertainties about the US-China trade relations
and related slowdown in import demand.

FAO’s estimate indicates that the output of oilcrop production is anticipated to

exceed global consumption, and consequently world inventories are forecasted to
rise. In this respect, price index for oilseeds is expected to fall owing to a
promising crop, the prospect of record-high inventories worldwide, particularly in
the US and slowing import purchases by China, given the uncertainties
surrounding progress in the US-China trade talks (FAO, 2018).

Figure 6: Oilseeds Price Index

6
FAO (November 2018): Food Outlook

Page 15
Price Index
170
165
160
155
150
145
140
135
130
125
Jul..1 Aug… Sep… Oct… Nov… Dec… Jan… Feb… Mar… Apr… May… Jun… Jul… Aug… Sep… Oct… Nov… Dec…
7 17 17 17 17 17 18 18 18 18 18 18 18 18 18 18 18 18

Source: FAO (January, 2019)

2.4.3. Price Developments of Major Importable Items

A) Crude Oil

In the first four months of 2018/19, price of crude oil showed an increasing trend
except in August. However, from October onwards, it assumed a decreasing
trend. In the first half of 2018/19, average price of crude oil rose by 26.19%
from the previous year’s similar period. Decrease in oil prices from October
onwards owes to the United States’ temporary waivers that allow some of the
Iran’s biggest purchasers to continue importing its oil without violating the
sanctions.

The decline in prices also reflected continued rapid growth in oil production in the
US, as well as a substantial increase in supply by the Organization of the
Petroleum Exporting Countries (OPEC) and the Russian Federation.

Figure 7: Crude Oil Price Trend

Page 16
$/bbl
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
Jul..1 Aug… Sep… Oct… Nov… Dec… Jan… Feb… Mar… Apr… May Jun… Jul… Aug… Sep… Oct… Nov… Dec…
7 17 17 17 17 17 18 18 18 18 …18 18 18 18 18 18 18 18

Source: World Bank Global Commodity Price Data (January, 2019)

World Oil Demand (OPEC, December 2018)

In 2019, oil demand is anticipated to rise by 1.29 mb/d to average 100.08 mb/d.
In the OECD region, oil demand is projected to grow by 0.25 mb/d. On the other
hand, in the non-OECD region, growth is anticipated to be around 1.04 mb/d
with slightly lower Chinese oil demand growth compared with 2018. However,
this is offset by higher oil requirements in other regions such as Latin America
and the Middle East compared to 2018 estimates.

World Oil Supply (OPEC, December 2018)

Non-OPEC oil supply growth in 2019 revised down by 0.08 mb/d to average 2.16
mb/d and OPEC supply is expected to grow by 0.11 mb/d to average 6.45 mb/d.
The US, Brazil, Russia and the UK are the main drivers for the next year’s growth
also supported by Canada, Ghana, Australia and Kazakhstan, while Mexico,
Norway, Indonesia, Vietnam and Egypt are projected to see the largest declines.

OPEC Natural gas liquids supply is expected to grow by 0.10 mb/d, to average
6.34 mb/d, and are forecasted to grow by 0.11 mb/d in 2019 to average 6.45
mb/d.

Oil prices are forecasted to lower to USD 68.76/bbl in 2019, and further to about
USD 60/bbl in 2023 owing to a gradual increase in global oil supply (IMF,
October 2018).

B) Palm Oil

Page 17
In the first half of 2018/19, price of palm oil has been decreasing and reached
USD 535.02/mt. During the period, its average price dropped by 19.52% from
previous year’s similar period.

In 2018/19, total production of palm oil is expected to reach 73.3 million metric
tons, mostly due to anticipated increase in Indonesian production by 1 million
tons to 41.5 million tons. Increase in production is driven by high yields and
favorable weather (USDA, December 2018).

On the other hand, during the period, consumption of palm oil are forecasted to
stand at 69.6 million metric tons, while ending stocks are projected to reach
10.9 million metric tons.

Rising production and weak demand for palm oil have led its stocks to
accumulate to all-time highs in both Indonesia and Malaysia. Hence, price of
palm oil is expected to fall in the future.

Figure 8: Palm Oil Price Trend

$/mt
800.00
700.00
600.00
500.00
400.00
300.00
200.00
100.00
0.00
Jul..1 Aug… Sep… Oct… Nov… Dec… Jan… Feb… Mar Apr… May Jun… Jul… Aug… Sep… Oct… Nov… Dec…
7 17 17 17 17 17 18 18 …18 18 …18 18 18 18 18 18 18 18
S
ource: World Bank Global Commodity Price Data (January, 2019)

C) Metals and Minerals

Metals prices rose by 6%, on average, in 2018. After increasing in the first half
of last year, prices fell sharply in the second half following the imposition of
broad based tariffs by the US on China’s imports (World Bank, 2018b).
Heightened trade tensions involving these economies have raised market
concerns about global trade and investment prospects. As a result, it has
clouded the outlook for commodities demand. Industrial metals have been

Page 18
particularly responsive to these concerns given their many uses in the
manufacture of tradable goods, with some metals such as nickel falling more
than 20%.

Table 2: Price of Base Metals (USD/mt) and Iron Ore (USD/dmtu)

Iron
Aluminu
ore, cfr Copper Lead Tin Nickel Zinc
m
spot

Jul-17 1903 67.74 5985 2270 20223 9491 2787

Aug-17 2030 76.07 6486 2348 20521 10890 2981
Sep-17 2096 71.53 6577 2374 20797 11216 3117
Oct-17 2131 61.66 6808 2498 20376 11336 3265
Nov-17 2097 64.24 6827 2461 19558 11972 3229
Dec-17 2080 72.25 6834 2510 19476 11495 3196
Jul-18 2082 64.56 6251 2207 19730 13794 2656
Aug-18 2052 67.15 6051 2054 19229 13411 2512
Sep-18 2026 68.44 6051 2023 18967 12510 2435
Oct-18 2030 73.41 6220 1988 19121 12315 2674
Nov-18 1939 73.26 6196 1937 19065 11240 2596
Dec-18 1920 69.15 6075 1972 19260 10835 2616

Source: World Bank Global Commodity Price Data (January, 2019)

Aluminum

In the first half of 2018/19, price of aluminum showed a decreasing trend except
in the month of October. During the period, its average price dropped by 2.35%
compared to the previous year’s similar period.

Iron Ore

In the first four months of 2018/19, price of iron ore manifested an increasing
trend. However, in November and December, it showed a decreasing trend. In
the first half of 2018/19, average price of iron ore slightly increased by 0.59%
from previous year’s similar period.

Copper

Page 19
In the first half of 2018/19, price of copper showed a decreasing trend except in
October. During the period, its average price dropped by 6.76% from previous
year’s similar period.

As the effects of recent tariff actions take hold and trade policy uncertainty
weighs on metals demand, metals prices are expected to decline by 3.6% in
2019 (IMF, October 2018).

2.5. Global Uncertainties

2.5.1. Escalating Trade Restrictions

The risk of rising trade protectionism remains high. New US tariffs and the
retaliatory response of trading partners now affect close to USD 430 billion of
global imports, around 2.5% of global goods trade. Despite a temporary pause in
tariff hikes agreed by the US and China in early December, unsuccessful
negotiations might lead to a renewed escalation in trade restrictions. These,
along with previous measures, would affect majority of goods trade between the
two countries. Additional tariffs on US imports of motor vehicles and parts are
also under consideration, which could cause serious adverse effects given tightly
integrated global automotive value chains (WB, January 2019).

More generally, a proliferation of trade barriers across both advanced economies

and EMDEs could inflict lasting damage to the global economy. In particular, if all
WTO members were to increase tariffs up to legally allowed bound rates, this
could translate into a decline in global trade flows of about 9%.

For other countries, the trade war between US and China could signal gain or
loss. Countries who are in the supply chain for China export will be affected
negatively as less China export to US means less Import of raw materials and
intimidate goods by China. On the other hand, a country is exporter to the US
and could be substitute for China exports, it may be a gainer.

2.5.2. Policy Uncertainty and Geopolitical Tensions

Global policy uncertainty has increased since mid-2018, reflecting heightened

trade tensions and geopolitical risks, as well as unusual developments in a
number of large advanced economies and EMDEs. A further escalation of policy

Page 20
uncertainty could lead companies to delay or reconsider capital spending,
contributing to a more rapid deceleration of global growth than currently
projected (WB, January 2019).

Political uncertainty is generally associated with lower growth in both advanced

economies and EMDEs. It has increased or remained high in a number of
European countries including Italy where fiscal expansion beyond the limit have
led to a market reassessment of country risk, and the United Kingdom (UK) as it
transitions out of the European Union (EU). In the absence of an approved
withdrawal agreement, the exit of the UK from the EU could be accompanied by
significant disruptions in the short term and lasting economic losses over the
medium term. A sustained period of financial market stress and interruptions in
cross border financial flows associated with a disorderly exit process could cause
significant adverse spillover effects and become a source of financial stability
risks in large economies.

Electoral outcomes in a number of EMDEs and advanced economies could result

in further polarization and political fragmentation, making it harder to govern
and formulate policies. A backlash against trade and immigration could also spur
more inward looking and populist policies.

Geopolitical risks intensified again in the Middle East, and persist in Central Asia,
East Asia and Africa. An intensification of these risks could impact growth in the
affected regions, and their main trading partners. In the case of the Middle East,
disruptions to global oil supplies could result in higher than expected oil prices,
with negative impacts on aggregate demand and trade balances in major oil
importers.

The number of armed conflicts also remains above historical averages. In

particular, security conditions remain challenging in many countries in Sub-
Sahara Africa, the Middle East and North Africa. In the past, countries in conflict
or in fragile situations suffered from below average growth in income per capita,
delaying or derailing their catch up with advanced economy levels. Beyond
adverse short term effects on growth, conflict can also substantially set back
efforts to reduce poverty.

Page 21
 2.6. Implications of Global Economic Situations on Domestic
Economy

 Decrease in global economic growth will adversely affect international

trade and capital flows (investment). This in turn negatively affects the
domestic economy as it decreases the demand for export items,
discourage inflow of foreign direct investment and thereby foreign
currency earnings.
 Anticipated decrease or low global prices of coffee, gold and oilseeds in
international markets will continue to have negative impact on the
Ethiopia’s foreign exchange earnings.
 Anticipated decrease in global prices of crude oil, palm oil and metals
helps the country to save its scarce foreign currency and spend on other
crucial import items. A decrease in price of crude oil could help contain the
inflation rate.

3. Domestic Economic and Social Developments

3.1. Economic Growth

According to National Plan Commission (2019), Ethiopia’s real GDP is projected

to grow by 11% in 2018/19 fiscal year. In this respect, agriculture and allied
activities are expected to rise by 7.9%, while industrial and service sectors are
forecasted to expand by 19.1% and 10%, respectively.

3.2. Performance of Investment

The Ethiopian Investment Commission has issued licenses for a total of 1,516
investment projects in the first half of 2018/19. Of this, 89.8% (1,362) of the
investment projects were licensed to domestic investors followed by foreign
investors (10%), while two public investments got license. Among licensed firms,
56.1% of them were operational, while 36.9% and 7% of them were in the
implementation and pre-implementation stages, respectively. Compared to last
year’s similar period, the number of licensed investment projects dropped by
33%. However, the share of operational investment projects substantially
increased to 56% from 7.8% average in 2013 to 2017.

Table 3: Number of Licensed Investment Projects by Type and Status in the First
Half of 2018/19 and 2017/18

Page 22
 Pre-
Implementation Operational Total
Type/ implementation
Status
2018/1 2017/1 2018/1 2017/1 2018/1 2017/1 2018/1 2017/1
9 8 9 8 9 8 9 8
Domestic 104 1,987 554 11 704 97 1,362 2,095
Foreign 2 147 6 6 144 5 152 158
Public - 10 - - 2 10 2 20
Grand
106 2,144 560 17 850 102 1,516 2,263
total

Source: EIC (January, 2019)

In the first half of 2018/19, operational FDIs injected a total investment capital
of Birr 31.2 billion which accounted for 58.8% of the total investment capital,
while that of domestic and public investments injected Birr 20.5 billion and Birr
1.4 billion, respectively. The operational investments created 49,197 permanent
and 35,759 jobs.

Table 4: Capital and Employment Contribution of Operational Investment

Projects in the First Half of 2018/19

Permanent Temporary
Capital
Employee Employee
% age % age % age
in '000' Birr No No
share share share
Domestic 20,464,299 38.5 30,860 62.7 22,631 63.29
Foreign 31,188,406 58.8 18,337 37.3 13,128 36.7
Public 1,380,000 2.6
Total 53,032,705 100 49,197 100 35,759 100
Source: EIC (January, 2019)

With regard to sectoral distribution of the licensed investment projects in the

first half of 2018/19, manufacturing sector took the highest share which was
39.9% followed by real estate (28.9%), construction (14%) and hotels (8.9%).
The smallest share went to mining and quarrying which was one investment.

Of the total operational investment firms, manufacturing sector registered the

highest share which was 41.1% followed by real estate (25.5%), hotels (15.2%)
and construction (6.4%).

Table 5: Number of Investment Projects by Sector in the First Half of 2018/19

Page 23
 Number of Investment Projects
Sector Pre- Implementatio %
Operation Total
Implementation n Share
Agriculture, hunting and
3 8 33 44 2.9
forestry
Manufacturing 19 237 349 605 39.9
Mining and quarrying 0 1 0 1 0.07
Education 0 3 7 10 0.7
Health and social work 0 3 3 6 0.4
Hotels (including resort
hotels, motels and lodges) 4 2 129 135 8.9
and restaurants
Tour operation, transport
0 3 39 42 2.8
and communication
Real estate, machinery and
equipment rental and 47 174 217 438 28.9
consultancy service
Construction contracting
31 127 54 212 14.0
including water well drilling
Other community, social
and personal service 2 2 7 11 0.7
activities
Wholesale, retail trade &
0 0 10 10 0.7
repair service
Electricity (generation,
transmission and 0 0 2 2 0.13
distribution)
Grand total 106 560 850 1,516 100
Source: EIC (January, 2019)

Region wise, Addis Ababa enjoyed the largest share of licensed investment
projects which was 53.8% of the total projects. Next to Addis Ababa, Amhara,
Oromia and Tigray regions attracted investment projects with a respective share
of 22.6%, 14.3% and 4.7%.

Table 6: Number of Investment Projects by Region in the First Half of 2018/19

Number of Investment Projects
Region Pre- Share
Implementation Operation Total
Implementation
Addis Ababa 186 80 549 815 53.8
Afar 3 0 0 3 0.20

Page 24
Amhara 342 0 1 343 22.6
B.Gumuz 17 0 0 17 1.12
Dire Dawa 2 0 0 2 0.13
Oromia 214 2 1 217 14.3
SNNPs 21 23 0 44 2.9
Somale 2 0 0 2 0.13
Tigray 61 1 9 71 4.7
Multiregional 2 2 0.13
Grand Total 850 106 560 1,516 100
Source: EIC (January, 2019)

Concerning total employment contribution of operational investment firms by

region, Addis Ababa took the highest share which was 12,522 (72.1%) followed
by Amhara (3,000 or 17.3%) and Tigray (1,836 or 10.6%).

3.3. Price Developments

The overall inflation computed using the 12 months moving average showed a
decreasing trend since July 2018 to December 2018. In the first half of 2018/19,
the highest year-on–year general inflation rate was 15.3% in July 2018, while
the lowest score (9.3%) was recorded in November 2018.

In December 2018, the overall inflation rate (based on 12 months moving

average) was 10.4%, while that of food and non-food items were 11.4% and
9.1%, respectively.

During the period, the rise in food inflation was attributed to increase in prices of
vegetables, meat, milk, cheese and eggs, butter, and spices; while that of non-
food was mainly due to rise in the prices of clothing and footwear, housing repair
and maintenance (especially, corrugated iron sheets and door set, cement) and
energy (charcoal), and household goods and furnishings, transport, health care
and food and drinks taken away from home.

Figure 9: Country Level 12 Months Moving Average Inflation Rate

Page 25
 21.0
18.0
15.0
12.0
9.0
6.0
3.0
-
Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

Source: CSA (December, 2018)

In December 2018, Tigray (23.9%), Benishangul-Gumuz (16.9%), Gambella

(14.2%), Harari (12.5%), SNNPs (11.5%) and Addis Ababa (10.9%) registered
an overall inflation rate above the country level, while Dire Dawa (10.3%),
Oromia (9.7%), Amhara (8.6%), Afar (6.9%) and Somale (5.3%) regions scored
an overall inflation rate below the national level.

Figure 10: Year-on-Year Inflation at Regional Level (December 2018)

30
25
20
15
10
5
0
A.A Afar Amhara B.Gumuz D.DawaGambella Harari Oromia SNNPs Somale Tigray Country
-5

Source: CSA (December, 2018)

The highest food price increase was registered in Tigray (28.1%) followed by
Dire Dawa (19.6%), Harari (16.4.5%), and Gambella (16.1%), while Afar region
registered the lowest food inflation which was 8.3%. Non-food inflation rate was

Page 26
higher in Dire Dawa (21.9%) and Tigray (17.9%) regions, while it deflated by
2.1% in Somale region.

3.4. Developments in Fiscal and Monetary Policies

During the first half of 2018/19, domestic revenue collection reached Birr 108.7
billion, increasing by 7.5% from previous year’s similar period. Domestic
revenue collected accounted for 46.1% of the fiscal year plan. Of the total
revenue collected, tax revenue took the lion’s share which was 89.4% followed
by non-tax revenue (10.6%) and direct budget support (DBS), grant and relief
(1.3%). Compared to previous year’s similar period, the share of tax revenue
rose by 1.5 percentage points, while that of DBS, grants & relief and non-tax
revenue declined by 1.5 and 1.2 percentage points, respectively.

During the period, revenue from direct taxes showed a good progress compared
to other components of tax revenue. The government managed to collect 62.6%
of the fiscal year plan showing a 30% increase from previous year similar period.

On the other hand, in the first half of 2018/19, actual expenditure of federal
government reached Birr 149.1 billion, increasing by 6.1% from previous year’s
similar period. This accounted for a 46.8% of the fiscal year plan. Of the total
expenditure of federal government, regional transfer took the highest share
which was 48.7% followed by capital (28.2%) and recurrent expenditure
(23.1%). Compared to previous year’s similar period, the share of regional
transfer rose by 5.8 percentage points though the share of both recurrent and
capital expenditure dropped by 3.8 and 1.9 percentage points, respectively.

Overall, in the first half of 2018/19, the federal government fiscal performance
showed a deficit of about Birr 39 billion, increasing by 5.9% from previous year’s
similar period. This deficit accounted for 48.3% of the total deficit plan of federal
government for the fiscal year.

Page 27
 Table 7: Federal Government Fiscal Performance (in millions of Birr)
Performance in
Budget for First Half of First Half of
Description First Half of
2018/19 2018/19 2017/18
2018/19
Revenue and direct
238,067.0 110,071.3 103,658.0 46.2
budget support (DBS)
Domestic revenue 235,732.5 108,681.8 101,111.2 46.1
Tax revenue 211,111.4 97,117.2 88,797.2 46.0
Direct taxes 56,684.3 35,484.1 27,265.7 62.6
Domestic indirect taxes 62,593.6 25,883.2 22,964.3 41.4
Foreign trade 91,833.5 35,749.9 38,567.2 38.9
Non-tax revenue 24,621.1 11,564.6 12,314.0 47.0
DBS, grant and relief 2,334.4 1,389.5 2,546.8 59.5
Expenditure* 318,919.5 149,105.6 140,512.4 46.8
Recurrent 84,384.7 34,444.6 37,857.0 40.8
Capital** 97,316.1 41,983.9 42,267.5 43.1
Total regional transfer 137,218.7 72,677.1 60,387.9 53.0
Overall surplus/deficit -80,852.6 -39,034.3 -36,854.3 48.3
Others/residual 1,905.7 -3,589.1
*all expenditures from domestic sources are authorized payments **excludes external technical
assistance

Source: NPC (January 2019)

3.4.1. Money supply

Ethiopia’s monetary policy aims at maintaining price and exchange rate stability.
The GTP II envisions maintaining inflation rate within single digit band and
expanding the money supply consistent with the GDP Growth.

At the end of December 2018, broad money reached Birr 789.2 billion,
suggesting an increase of 22.5% from previous year’s similar period. Narrow
money stood at Birr 277.6 billion, increasing by 12% from previous year’s similar
period.

On the other hand, currency outside banks stood at Birr 92.2 billion, while quasi-
money which comprises saving and time deposits reached Birr 511.6 billion,
increasing by 6.2% and 29.1% from previous year’s similar period, respectively.
However, the ratio of currency outside banks to broad money showed a one
percentage point decrease compared to the level in December 2017, which
indicates the good performance of banks in deposit mobilization.

Table 8: Components of Broad Money (in Billions of Birr)

Page 28
 At the end of At the end of Growth
Description
December 2017 December 2018 (%)
Broad money 644.2 789.2 22.5
Narrow money 247.9 277.6 12.0
Currency outside banks 86.8 92.2 6.2
Quasi-money 396.3 511.6 29.1
Currency outside banks
0.13 0.12 -13.3
to broad money (%)
Source: NBE (January, 2019)

3.5. Financial Sector Development

3.5.1. Developments in Micro Financial Institutions

In the first quarter of 2018/19, total deposit of micro financial institutions (MFIs)
reached Birr 32.4 billion, increasing by 16.8% from previous year’s similar
period.

Similarly, during the period, total outstanding loan balance of MFIs stood at Birr
46.9 billion, increasing by 36.2% from previous year’s similar period. Besides,
the number of clients increased to 5.34 million, while branch network of MFIs
reached 1,888 by the end of September 2018.

Table 9: Performance of Micro Financial Institutions (MFIs)

First Quarter of First Quarter Growth

Description
2017/18 of 2018/19 (%)

Deposit (in billions of Birr) 27.75 32.4 16.8

Gross loan (in billions of Birr) 34.43 46.9 36.2

Number of client (in millions) 4.88 5.34 9.4

Number of branch 1,775 1,888 6.4

Source: NBE

3.5.2. Developments in the Banking Sector

At the end of December 2018, total assets, deposits and capital of commercial
banks stood at Birr 1.1 trillion, Birr 792.5 billion and Birr 85.9 billion,

Page 29
respectively. It suggests a growth of 23.5%, 23.8% and 15% in asset deposit
and capital from the previous year, respectively. Loan disbursement of
commercial banks reached Birr 71.5 billion while outstanding loan stood at Birr
402.6 billion.

Table 10: Commercial Banks’ Total Asset, Capital, Deposit, Disbursement and
Loan Outstanding (in billions of Birr)

At the end of December At the end of December

2017 2018
Description
CBE's CBE's
Industry CBE Industry CBE
share share
Assets 857.5 515.8 60.2 1,059.3 608.0 57.4
Deposits 640 408.3 63.8 792.5 481.1 60.7
Capital 74.7 43 57.6 85.9 45.5 53.0
Disbursement 53.2 12.13 22.8 71.5 25.0 34.9
Loan outstanding 319.1 157 49.2 402.6 185.3 46.0
Source: NBE

At the end of first half of 2018/19, total branch network of the banking industry
stood at 4,779, which is an increase by 514 branches compared with the level in
the previous year’s similar period.

Table 10: Banking Industry’s Branch Network

At the end of December At the end of December

2017 2018
Description
CBE's CBE's
Industry CBE Industry CBE
share share
Branch network 4,265 1,270 29.8 4,779 1,335 27.9
Source: NBE (January, 2019)

3.5.3. E-Banking Channels

At the end of December 2018, the number of mobile and internet banking users
of the industry reached 3.54 million and 279.1 thousand, respectively. CBE has
71.3% share from mobile banking users and 23.5% from internet banking users.
The number of transaction made via mobile and internet banking reached about
1.2 million and 62,500, respectively. CBE took 95.8% and 64% of the

Page 30
 transaction made by mobile and internet banking, respectively. The average
value per transaction made using mobile banking in CBE was about Birr 6,096.3
and the average value for the industry was Birr 5,952.5. The average value of
transaction made using internet banking was Birr 56,201.4 and Birr 38,956.9 for
CBE and the industry, respectively.

Table 11: Number of Users, Number and Value of Transaction via Internet and
Mobile Banking at the end of December 2018

Mobile Banking Internet Banking

CBE's
CBE's
Indicators Industr Shar Industr
CBE CBE Share
y e y
(%)
(%)
Number of 1,114.
1,163.5 95.8 40 62.5 64.0
transaction* 9
6,796.
Value of transaction** 6,925.8 98.1 2,248.2 2,433.8 92.4
6
2,529.
Number of users* 3,547.2 71.3 65.5 279.1 23.5
5
Average value per 6,096. 56,201.
5,952.5 38,956.9
transaction (in Birr) 3 4
Source: NBE and MIS (January, 2019) *in thousand count **in millions of Birr

3.5.4. Agent Banking

At the end of December 2018, a total value of Birr 310.9 million transfer
payments was made via agents from 734,090 transactions which results in an
average transaction value of about Birr 423.6. The number of Agent banking
users of CBE and the industry reached 4.1 thousand and 10.8 thousand,
respectively. The share of CBE from the volume and value of transaction during
this period was 95.1% and 85.9%, respectively.

Table 12: Payments Made by Agent Banking at the end of December 2018

Agent Banking
Indicators
CBE Industry CBE's Share (%)

Page 31
 Number of transaction
697,852 734,090 95.1
Value of transaction
267,056,863.9 310,935,583 85.9
Number of users
4,065 10,838 37.5
Average value per
382.7
transaction (in Birr) 423.6
Source: NBE and MIS (January, 2019)

3.6. The External Sector

3.6.1. Export

In the first half of 2018/19, Ethiopia planned to get a total export earning of USD
1,955.1 million.

 The actual export earnings in the first half of 2018/19 was USD 1,098.4
million which accounted for 56.2% of the plan during the period. All export
items fail short of the plan except for chat (104.2%). Export earnings of
gold and live animals were below 50% of the plan which was 12.2% and
28.4%, respectively.

 Compared to previous year’s similar period, most of export items have

underperformed in the first half of 2018/19 owing to a decrease in export
volume of these items from previous year’s similar period. But, earnings
from textile & textile products, chat and flower showed an increase during
the period. It is attributed to increase in export volume of these items by
9.3%, 27.2%, and 4.3% from previous year’s similar period, respectively.

 During the first half of 2018/19, CBE’s FCY earning from export reached
USD 153.6 million. Its share out of the country’s total export earning was
14% which further shrink by 6.6 percentage point from previous year
similar period.

Table 13: Share of Major Commodities in Aggregate Export Earnings of Ethiopia

(in millions of USD)
Categories First Half of First Half of 2018/19 Growth 2018/19

Page 32
 2017/18
Actual Performance
% % % (%)
Value Plan performanc against Plan
share share share
e
Coffee 382.3 31.1 476.8 24.4 334.4 30.4 -12.5 70.1
Oilseeds 217.5 17.7 231.2 11.8 149.1 13.6 -31.4 64.5

Leather and
68.6 5.6 123.8 6.3 67.1 6.1 -2.2 54.2
leather prod.

Pulses 114.6 9.3 149.3 7.6 112.4 10.2 -1.9 75.3

Textile and
49.6 4 97 5.0 68.7 6.3 38.5 70.8
textile prod.

Flower 104 8.5 166.2 8.5 105.6 9.6 1.5 63.5

Gold 47.3 3.9 158.6 8.1 19.4 1.8 -59 12.2
Live animals 38.1 3.1 67.2 3.4 19.1 1.7 -49.9 28.4
Chat 125 10.2 153.5 7.9 160 14.5 28 104.2
Electricity* 37.3 3 43.3 2.2 33.4 3 -10.5 77.1
Others 43.9 3.6 288.2 14.7 29.7 2.7 -32.3 10.3
1,955.
Total 1,228.2 100 100 1,098.4 100 -10.6 56.2
1
Source: NBE and Ministry of Trade (January, 2019)

Performance of Coffee Export

Ethiopia planned to get about USD 475.1 million by exporting 131,446 tons of
coffee in the first half of 2018/19 fiscal year. During the period, earning from
coffee was USD 333.9 million (70.3% of the plan) owing to a shortage of export
volume by 21.6% of the plan. Compared to previous year similar period, the
export of coffee declined both in volume of export (3.9%) and in the amount of
earning (12.5%). The amount of earnings dropped much higher (by more than
three-fold) than the drop in volume of export. Thus, the lower export earnings
could be said primarily due to the fall in the global prices of coffee.

Data obtained from the CBE MIS revealed that about USD 30.35 million coffee
export earning was channeled through CBE in the first half of 2018/19 CBE’s
share dropped to 9.1% in the period which was 17.4% in 2017/18 and 33.8% in
2016/17 similar period.

Page 33
 Table 14: Plan and Performance of Coffee Export by Volume (in thousands of
tons) and Value (in millions of USD)

2018/19 2018/19
Plan Performance Performance Percentage Share
Period
Volum Value Volum Valu Volum Valu D/
C/A*100
e (A) (B) e (C) e (D) e (E) e (F) B*100

Jul-18 22.6 81.6 17.9 65.7 18.4 77.3 79.2 80.5

Aug-18 25.4 92.1 23.7 80.6 20.7 79.6 93.3 87.5
Sep-18 20.4 73.8 17.6 58 16.7 58.5 86.3 78.6
Oct-18 23.2 83.8 17.7 53 18.9 63.4 76.3 63.2
Nov-18 21.3 77.0 13.3 39.2 17.4 55.8 62.4 50.9
Dec-18 18.6 66.8 13 37.4 15.2 47.2 69.9 56.0
333. 107.3 381.
Total 131.5 475.1 103.1 78.4 70.3
9 8
Source: Ethiopian Coffee and Tea Development and Marketing Authority (2019)

Performance of Sesame Export

In the first half of 2018/19, export volume of sesame dropped by 46.5% from
previous year’s similar period. Similarly, during the period, the total export
earnings from sesame export substantially dropped by 28.9% from previous
year’s similar period. The average earnings per metric ton showed an increase in
2018/19, indicating the decline in volume affected earnings from sesame.

Table 155: Export Volume (in thousands of metric tons) and Earnings (in millions
of USD) of Sesame for the First Five Months of 2018/19

First Half of First Half of

Description Growth (%)
2017/18 2018/19

Export volume 116.3 62.2 -46.5

FOB value 134.7 95.9 -28.8

Average price/ ton 1,158.21 1,541.80 33.1

Source: EPOSPEA7 (January, 2019)

Electric Energy Production and Export

In the first half of 2018/19, total electric energy production reached 7.2 billion
KWH, increasing by 6.3% from previous year’s similar period.

Table 16: Electric Energy Production (in Billions of KWH)

7
Ethiopian Pulses, Oilseeds and Spices Processors Exporters Association

Page 34
 Growth
Description First Half of 2017/18 First Half of 2018/19
(%)
Electric Energy
6.7 7.2 6.3
Production

Source: Ethiopian Electric Power (January, 2019)

The total electric energy exported to Djibouti and Sudan was 584.5 million KWH,
which shows a drop by 12.6% from previous year’s similar period. In line with
this, the corresponding total earning from export of electric energy also declined
by 4.4% from previous year’s similar period.

Table 17: Volume and Value of Electric Energy Export to Djibouti and Sudan in
millions of KWH and USD

Djibouti Sudan Total

Period
KWH USD KWH USD KWH USD
First half of 2017/18 284.4 17.8 384.4 19.3 668.8 37.1
First half of 2018/19 291.1 18.4 293.4 17.1 584.5 35.5
Source: Ethiopian Electric Power (January, 2019)

3.6.2. Import

During the first half of 2018/19, Ethiopia’s aggregate import bill reached USD
8,118.4 million, which suggests an increase by 2.1% from previous year’s similar
period. During the period, import bills for raw materials, fuel, non-durables and
capital goods has increased by 54.7%, 29.5%, 3.8% and 1.8% compared with
the same period of last year, respectively. Import bills of durables and semi-
finished goods declined by 19.2% and 8.7%, respectively. An increase in import
bill on consumable items such as fuel and non-durables may have adverse effect
on capital formation effort of the country.

The total import bill of the country, capital goods took the largest share which
was 37.2% followed by non-durables (21.3%), fuel (16.5%), semi-finished
goods (14.6%) and durables (7.5%).

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Table 188: Value of Import by End Use (in millions of USD)
First Half of First Half of
Growth
Categories 2017/18 2018/19
(%)
Value % Share Value % Share
Raw materials 59.4 0.7 91.9 1.1 54.7
Semi-finished
1,299.0 16.3 1,186.4 14.6 -8.7
goods
Fuel 1,032.5 13.0 1,336.9 16.5 29.5
Capital goods 2,967.3 37.3 3,020.8 37.2 1.8
Durables 756.7 9.5 611.5 7.5 -19.2
Non-durables 1,663.1 20.9 1,726.3 21.3 3.8
Miscellaneous 176.4 2.2 144.5 1.8 -18.1
Total 7,954.4 100.0 8,118.4 100.0 2.1
Source: NBE (January, 2019)

3.7. Remittance

Remittance is a major source of foreign exchange for Ethiopia. Over the past six
months (July to December 2018), Ethiopia experienced a substantial remittances
inflow from Ethiopians living abroad. The amount of USD earned from individual
cash remittance flow during the review period amounts USD 1.53 billion, which is
14.2% higher than the amount obtained during previous year’s similar period.
The average monthly flow of remittance during the first half of 2018/19 was USD
255 million.

Table 19: Individual Cash Remittance by Means of Transfers (in Millions of USD)

Means of July-December July-December

Growth (%)
Transfers 2017 2018
SWIFT 870.0 1,011.4 16.3
Transfer agents 458.3 500.6 9.2
Other means 11.8 18.0 52.5
Total 1,340.0 1,530.0 14.2
Source: NBE (January, 2019)

By origin, the remittance generated from Asia/Middle East constitutes the lion’s
share (42.8%), followed by Europe (23.9%), and North America (19.2%) in the
first half of 2018/19. During the period, the remittances flow from Asia/Middle
East, Europe, North America and Australia increased by 1.1%, 0.9%, 0.7% and
0.1% from previous year’s similar period, respectively. But, remittance from

Page 36
African countries dropped by 1.8% (USD 2.4 million) from previous year’s similar
period. At country level, USA (USD 271.4 million), UAE (USD 209.1 million) and
Lebanon (USD 107.8 million) are the top three sources of remittance as they
host a significant number of Ethiopian Diasporas.

Figure 11: Source of Remittance by Region in the First Half of 2018/19 and
2018/19

In percentage
45.0
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
0.0
North America Asia/Middle East Europe Africa Australia Others

Source: NBE (January, 2019)

Data obtained from the CBE MIS revealed that about USD 1.09 billion 8 private
transfers was channeled via CBE from July to December 2018.

Figure 12: CBE’s FCY Private Transfer (in million USD)

198.1 197.0 198.4

182.3
166.8
144.1

Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

Source: MIS, CBE (January, 2019)

8
This number includes private individual transfers and NGO transfers

Page 37
 3.8. Developments in Exchange Rate

In the first half of 2018/19, weighted average official exchange rate showed an
increasing trend and reached USD 27.81 per Birr. It depreciated by 4.1% during
the first half of the current fiscal year compared to that of the preceding year
similar period.

Figure 13: Average Quarterly Official Exchange rates (Birr/USD)

Weighted Average Offcial Rate
30.00 27.25 27.81
26.71
25.00 22.92 27.22 27.43
21.57 22.22
20.95 23.25
20.00 21.93 22.58
20.70 21.21
15.00

10.00

5.00

0.00
QI QII QIII QIV QI QII QIII QIV QI QII QIII QIV QI QII
2015/16 2016/17 2017/18 2018/19

Source; NBE (January, 2018)

3.9. Developments in Interest Rate

In the first half of 2018/19, average saving interest rate remains 8%, increasing
by 19.4% from previous year’s similar period. However, real saving interest rate
is still in the negative zone as the inflation rate remains high (10.4%). Average
time deposit interest rate stood at 8.09%, increasing by 47.09%, while average
lending interest rate reached 13.5%, which is an increase by 2.66% from
previous year’s similar period.

Table 19: Average Interest Rate

Growth
Description First Half of 2017/18 First Half of 2018/19
(%)
Saving rate 6.70 8.00 19.40
Time deposit rate 5.50 8.09 47.09
Lending rate 13.15 13.50 2.66
Source: NBE (January, 2019)

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 3.10. Telecom Infrastructure

3.10.1. Mobile and Internet Subscribers

During the first five months of 2018/19, the total number of mobile subscribers
reached 108.6 million, up by 6.6% from previous year’s similar period. Inactive
mobile subscribers took the highest share which was 63.5%, while that of active
subscribers accounted for 36.5% of the total mobile subscribers.

Concerning fixed mobile broad band internet subscribers, at the end of

November 2018, the total number of subscribers reached 142,457, increasing by
30.2% from previous year’s similar period. Like that of mobile subscribers, the
number of active fixed broad band internet subscribers remained low (49.6%).

In the first five months of 2018/19, the total number of mobile broad band
internet subscribers reached about 20 million. However, the number of active
subscribers were 49.8% of total subscribers.

In contrast, the total number of GPRS (General Packet Radio Services)

subscribers slightly dropped by 0.9% from previous year’s similar period and
reached 18.4 million at the end of November 2018.

Table 20: Number of Mobile and Internet Subscribers by Service Type

At the end of November 2017 At the end of November 2018
Service Type Inactive Active Inactive Active
Total Total
customer customer customer customer
46,124,50 25,016,80 48,739,75 22,202,43
2G Mobile 71,141,317 70,942,193
9 8 5 8
16,016,16 14,288,07 19,766,22 17,099,91
3G Mobile 30,304,246 36,866,141
8 8 4 7
4G Mobile 243,902 222,886 466,788 422,742 360,019 782,761
62,384,57 101,912,35 68,928,72 39,662,37 108,591,09
Total mobile 39,527,772
9 1 1 4 5
Fixed broadband
55,195 54,204 109,399 71,822 70,635 142,457
Internet
Mobile broadband 10,072,08
7,807,083 7,644,629 15,451,712 9,975,770 20,047,859
internet 9
GPRS 9,306,354 9,306,333 18,612,687 9,220,556 9,220,464 18,441,020
Source; Ethio-telecom (December, 2018)

Page 39
3.11. Implications of Domestic Economic Situations to the
Banking Industry

 Anticipated growth in Ethiopia’s economy in 2018/19 fiscal year creates

an opportunity for the banking industry to mobilize additional
resources.

 Increase in the number of operational investment projects provides a

room for banking industry to mobilize additional domestic deposits as
well as respective foreign currency.

 Increase in overall inflation rate of the country has adverse effect on

deposit mobilization effort of the banking industry by decreasing
disposable income of households.

 Expansion of micro financial institutions in the country can support

deposit mobilization efforts of commercial banks by enhancing saving
culture of the society at large through awareness creation mechanisms
in underserved areas.
 Ethiopia’s total export earnings has been decreasing in most cases due
to a decline in export volume which deteriorate foreign currency
reserve of the country. Thus, the banking industry has to support the
value chain of the sector to increase the supply.
 Middle East countries have become important source of remittance. In
addition, following the lift of the ban by on migrant workers by having
a bilateral agreement with countries in the region, a surge of migrant
workers traveling is expected. In line with this, the banking sector
should improve the remittance service in the region by broadening
access to the migrant workers. Moreover, the sector has to acquaint
the migrant workers on formal remittance services before departing.
 Increase in the number of mobile, fixed broad band and mobile broad
band internet subscribers paves the way for the banking industry to
expand modern/latest services as well as fulfill the immediate needs of
their customers. The expansion of such services helps the customers to
choose and use different service alternatives of the banks and thereby
save their money, effort and energy.

Page 40
Bibliography
 WB (January, 2019). Global Economic Prospects. Darkening Skies
 WB (December, 2018). Migration and Remittances. Recent Developments
and Outlook
 ICO (January, 2019). Website
 WB (January, 2019). Global Commodity Price Data
 WGC (January, 2019). Website
 FAO (November, 2018). Food Outlook
 FAO (December, 2018). Oilseeds Price Index
 WB (October, 2018). Commodity Price Forecast
 OPEC (December, 2018). Monthly Oil Market Report
 IMF (October, 2018). World Economic Outlook. Challenges to Steady
Growth
 USDA (December, 2018). Oilseeds: World Markets and Trade
 USDA (December, 2018). World Agricultural Production
 NPC (2019). Real GDP Forecast for 2018/19 Fiscal Year
 EIC (2019). Performance of Investment
 MOFEC (2019). Revenue and Expenditure of FDRE
 CSA (2018). Price Developments
 NPC (2019). Fiscal and Monetary Policies of FDRE
 NBE (2019). Money Supply in Billions of Birr
 NBE (2018). Performance of Micro Financial Institutions (MFIs)
 NBE and MIS (2019). Electronic Banking Channels and Agent Banking
 NBE and CBE (MIS) (2019). Performance of Banking Industry
 NBE (2019). Value of Export in Millions of USD
 NBE, MoT and ECTDMA (2019). Production and Export of coffee
 EPOSPEA (2019). Export Performance of Sesame
 EEP (2019). Electric Energy Production and Export
 NBE (2019). Value of Import in Millions of USD
 NBE and MIS (2019). Private Individual and Private Transfer
 NBE (2019). Developments of Official Exchange Rate
 NBE (2019). Developments of Interest Rate
 Ethio-telecom (2018). Number of Mobile and Internet Subscribers

Page 41
 Annex I: Commodity Price Index (price index, 2010 =100)

Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

Energy 62.19 65.29 68.82 70.85 76.63 78.11 91.69 90.38 95.63 96.87 81.91 72.65

Non-energy 83.03 83.8 84.62 84.46 84.82 84.24 84.14 82.7 81.15 82.26 81.14 80.82

Agriculture 87.54 85.61 86.15 85.33 85.6 84.86 86.35 84.83 82.65 83.35 82.25 82.66

Beverages 83.4 83.62 82.56 82.63 81.78 77.58 79.64 75.32 73.73 77.45 77.57 74.88

Food 91.68 88.5 89.23 88.6 89.19 88.2 89.97 88.7 85.64 86.4 84.84 86.08

Oils and meals 86.76 85.93 87.67 87.79 87.22 85.32 83.15 81.59 79.3 79.36 76.72 76.6

Grains 85.43 78.49 79.61 79.08 80.33 81.4 86.67 90.4 85.8 87.37 85.85 88.39

Other food 103.8 100.9 99.98 98.29 99.8 98.15 101.9 96.51 93.82 94.79 94.61 96.44

Raw materials 79.59 79.6 80.5 78.74 78.82 80.45 80.94 80.26 79.93 78.93 78.33 78.32

Fertilizers 68.93 70.78 74.06 78.12 82.68 74.11 82.62 84.59 86.68 88.15 93.11 89.41

Metals and minerals 74.26 75.19 77.28 78.43 80.75 77.28 81.78 82.43 83.31 83.54 85.72 83.86

Precious Metals 95.61 99.4 101.8 99.06 99.28 97.35 95.08 92.05 91.17 92.6 92.74 94.91

Source: World Bank (January, 2019)

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