The National Bank of Ethiopia (NBE) report, which was released recently, says that during fiscal year 2006/07, real GDP grew by 11.4 percent. This high growth was achieved for the fourth time in a row (i.e. 11.7 percent in 2003/04, 12.6 percent in 2004/05, and 11.6 in 2005/06), which places Ethiopia among the top performing economies in sub-Saharan Africa. Although all sectors contributed to this relatively high economic growth performance, agriculture was growing by 9.4 percent with its share of contributing about 45.9 percent of the 11.4 percent overall real GDP growth.

Industry and service sectors also grew by 11.0 and 11.5 percent, respectively. Real GDP is projected to grow by 10.8 percent in 2007/08. In terms of sectoral distribution, agriculture has remained the major constituent of the economy having about 45.9 percent share in the country’s GDP followed by services and industry sectors each accounting for 40.8 and 13.3 percent in the review year.

Generally, overall economic growth in Ethiopia has been highly associated with the performance of the agricultural sector. However, the dependence of the agricultural sector on unpredictable rainfall and the influence of exogenous factors such as drought have made its performance erratic in the overall GDP growth.

The increase in the 2006/07 agricultural outputs can largely be attributed to improved farmers' productivity achieved through better use of modern agricultural inputs and the favorable weather condition in the year as well as to a 3.5 percent expansion in cultivated land.

According to NBE's report, during 2006/07 the fiscal deficit of the general government, (excluding grants) stood at 8.1 percent of GDP slightly higher than 7.4 percent in 2005/06. The ratio of expenditure to GDP declined from 22.3 percent in the preceding fiscal year to 20.8 percent in 2006/07 and that of revenue to GDP from 14.8 percent to 12.8 percent during the same period. The primary deficit also narrowed to 3.0 percent of GDP from 5.5 percent last year.

Total outstanding public sector external debt as at the end of fiscal year 2006/07 was USD 2,300.3 million, showing a decrease of USD 3,728.8 million against that recorded at the end of previous fiscal year. As a result, the ratio of external debt to GDP which was 39.8 percent at the end of preceding fiscal year drastically declined to 11.84 percent at the end of 2006/07.

On the other hand, the stock of domestic debt reached 30,064 million birr, increasing by 13 percent from what was 26,489 million birr at the end of the preceding fiscal year. Since the rate of growth of nominal GDP (29.8 percent) was quite higher than that of domestic debt, there was decrease in the ratio of domestic debt to GDP from 20.1 percent in the preceding year to 17.6 percent in the 2006/07.

General government revenue, including grants, was increased by about 26.3 percent on annual basis to 29.3 billion birr. In terms of GDP, general government revenue was (12.8 percent lower) than the 14.8 percent ratio in 2005/06.

About 79.6 percent of the total domestic revenue was generated from tax sources which surged by 22 percent in the review year to 17.3 billion birr. The observed increase in tax revenue was attributed to the improved collection of taxes both from direct (15.8 percent) and indirect (25.6 percent) sources. The respective contribution of direct and indirect taxes to tax revenue reached 23.7 percent and 55.9 percent in the 2006/07, the reaming being from non-tax sources.

Revenue from direct taxes went up owing to improved revenue from personal income taxes and business profit. Meanwhile, agriculture, which is the mainstay of the economy, contributed a modest revenue in the form of land use fee and agricultural income. At the same time, 67.2 percent of the indirect tax revenue was derived from import taxes.

A total of 4.4 billion birr was collected as non-tax revenue during 2006/07 about 17.2 percent lower than the amount collected in the previous fiscal year. Due to slowdown in collection from government investment income, charges and fees, sales of goods and services and reimbursement and property sales. Meanwhile, external grants was doubled and reached 7.5 billion, 103 percent higher than 3.7 billion birr recorded in the preceding fiscal year.

All in all, total revenue collection, including grants, in the 2006/07 was about 85 percent of the total budget. A total of 35.6 billion birr was spent on different government programs, this sum was 21.1 percent higher than the amount in 2005/06 as both recurrent and capital expenditures increased.

Recurrent expenditure reached 17.2 billion birr, showing 12 percent increase over last fiscal year. Its share in total expenditure was 48.2 percent and its performance rate 89 percent of the annual budget.

Capital expenditure at 18.4 billion birr showed a 31 percent increase vis-à-vis 2005/06. Its performance rate against the annual budget plane was 81.5 percent. On the other hand, expenditure on special programs continued to decline from 50 million birwr in the previous period to 44 million birr in the review year presumably due to phasing out of social rehabilitation and reconstruction projects.

General government budgetary operations, including external grants, resulted in a deficit of 6.23 billion birr in 2006/07. This was 2.7 percent higher than 6.06 billion birr deficit recorded in the preceding year. Net domestic borrowing financed the significant proportion of the deficit, of which 4.25 billion birr was from the domestic banking system.

Looking at the investment licensing profiles of the Ethiopian Investment Agency and Regional Investment Offices, the report indicated that a total of 25,835 investment projects involving 322.86 billion birr in capital were licensed during 1992/93–2006/07. Of these projects, 22,489 (or 87.0 percent) were domestic, 3,267 (12.6 percent) foreign and, 79 (or 0.3 percent) public. In terms of investment capital 179.7 billion birr (or 55.6 percent) was attributed to domestic investors, 108.3 billion birr (or 33.5 percent) to foreign investors and 34.9 billion birr (10.8 percent) to public sector.

Investment has tended to accelerate since 2002/03 due to favorable investment climate. During 2002/03-2006/07 alone, 18,645 projects with a capital of 244.74 billion birr were licensed, accounting for 72 percent of the projects and 75.8 percent of investment capital registered during the last 15 years.

In 2006/07 alone, a total of 6,472 investment projects involving capital outlay of 93.6 billion birr were approved, the highest number in a single year since 1992/93. Domestic investment accounted for more than 82.2 percent of the total projects approved during the review fiscal year. The number of foreign projects reached 1,150, which was 52.7 percent higher than the same period last year.

With regard to investment capital, domestic private investment projects accounted for 46.6 billion birr (49.8 percent) of the total investment capital approved, followed by foreign projects comprising 46.9 billion birr or 50.2 percent.

The investment projects approved during the review fiscal year, when implemented, are expected to create job opportunities for 302,598 permanent and 461,341 temporary workers.

Sector-wise, 2568 project (about 39.7 percent of the total projects licensed in 2006/07) were in real estate, renting and business activities followed by manufacturing (19.5 percent), agriculture (17 percent), hotel and tourism (8 percent) and education (5.1 percent). Manufacturing, real estate, renting and business activities and agriculture appeared to dominate in terms of approved investment capital with a respective share of 39.9 percent, 26.2 percent and 15.4 percent.

A closer look at the regional distribution of the approved investment projects reveals that Addis Ababa, the capital city, attracted 336.4 projects (about 52 percent the total approved projects) and 38.1 billion birr investment capital (40.8 percent) during the review fiscal year.