Half of the gross domestic product (GDP) for the Ethiopian country comes from its primary economy: agriculture. Apart from agriculture, there are mining and minerals, energy, services, and multiple manufacturing industries for the economy to thrive on. However, Ethiopia’s external trade also accounts for a portion of the economy, and this external trade is currently not in the best of conditions.
Ethiopia is one of the largest producers of coffee, which accounts for 26.4 percent of Ethiopia’s foreign exchange earnings. The coffee sector provides livelihood to more than 25 percent of the population, which is more than 15 million people. However, a current affiliate review by major economic analysts and development experts has shown that coffee as an export crop is on the decline.
Apart from coffee, the Ethiopian foreign exchange earning is also dependent on live animals, chemicals, gold, leather, leather products, oilseed, fruits and vegetables, flowers and khat. Decreasing buyers of the export items and Ethiopia’s dependence on imported oil is disturbing the balance of foreign exchange, that is, the imbalance is impacting the creation of foreign exchange reserves.
To solve the poor foreign exchange situation, the current Ethiopian government has taken financial conservative measures, like stringent import controls and reduced subsidies on gasoline prices. But, with the government having to manage several other economically important situations, such as drought relief, high military expenditures, indispensable imports, and developmental strategies, the dependence on foreign assistance cannot be ruled out.
The current poor state of foreign investment and reserves is due to the war with Eritrea, wherein the government had to spend a large chunk of the funds from the $1.4 billion joint venture for the development of the natural gas field in the Somali region. However, the war put an end to this, as well.
Nevertheless, the current Ethiopian government is trying to increase foreign investment and balance the foreign exchange reserves.