National Bank of Ethiopia Annual Report 2011-2012

National Bank of Ethiopia 5 I. OVERALL ECONOMIC PERFORMANCE Economic Growth The Ethiopian economy continued to grow in 2011/12. Real GDP registered a relatively robust growth of 8.8 percent compared to the 5.5 percent estimate for Sub-Saharan Africa in the same period. The growth was ascribed mainly to higher growth in service sector (10.6 percent), agriculture (4.9 percent) and industry (17.1 percent). However, the real GDP averaged 10 percent during 2010/11-2011/12. Moreover, the economy expanded rapidly mirroring the performance of the economy, the growth of nominal GDP per capita rose to USD 510 from USD 389 in the preceding year, registering a 31.0 percent increase. The resilience of the Ethiopian economy is projected to continue with 11.3 percent growth expected in 2012/13. The Sub-Saharan Africa and world economy growths are anticipated to be 5.7 and 4.1 percent respectively in the same period.

National Bank of Ethiopia 6 Table 1.1: Sectoral Contributions to GDP and GDP Growth (In Billions of Birr) Items years 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 Sector Agriculture 130.5 144.8 158.5 170.3 181.2 195.0 212.5 222.9 Industry 26.6 29.3 32.1 35.4 38.8 43.0 49.8 58.3 Services 94.4 106.9 123.3 143.1 163.2 184.7 207.2 229.1 Total 249.2 278.5 311.3 346.7 381.7 421.8 469.4 510.3 Less FISIM 1.2 1.6 1.8 2.4 2.7 2.9 3.2 2.9 Real GDP 248.4 277.0 309.7 344.3 378.9 418.9 466.2 507.4 Growth in Real GDP 12.7 11.5 11.8 11.2 10.0 10.6 11.3 8.8 Real GDP per capita 3.6 4.0 4.3 4.6 4.9 5.3 5.8 6.1 Mid-year population(in million) 68.3 70.0 72.4 74.9 76.8 78.8 80.7 82.7 Share in GDP (in %) Agriculture 47.4 47.1 46.1 44.6 43.2 46.2 45.3 43.7 Industry 13.6 13.4 13.2 13.0 13.0 10.2 10.6 11.5 Services 39.7 40.4 41.7 43.5 45.1 43.8 44.1 44.9 Growth in Real GDP per capita 9.7 8.8 8.1 7.5 7.3 7.8 8.7 6.2 Agriculture Absolute Growth 13.5 11.0 9.5 7.4 6.4 7.6 9.0 4.9 Contribution to GDP growth 6.4 5.2 4.4 3.3 2.8 3.5 4.1 2.1 Contribution in % 50.5 44.8 36.9 29.7 27.5 33.4 36.0 24.2 Industry Absolute Growth 9.5 10.2 9.6 10.3 9.6 10.8 15.8 17.1 Contribution to GDP growth 1.3 1.4 1.3 1.3 1.2 1.1 1.7 2.0 Contribution in % 10.2 11.8 10.7 12.0 12.4 10.5 14.9 22.2 Services Absolute Growth 12.8 13.2 15.3 16.1 14.0 13.2 12.2 10.6 Contribution to GDP growth 5.1 5.3 6.4 7.0 6.3 5.8 5.4 4.7 Contribution in % 40.1 46.5 54.2 62.5 63.0 54.6 47.6 53.7 Source: Ministry of Finance and Economic Development (MoFED)

National Bank of Ethiopia 7 GDP By Sector In terms of sector development, agriculture grew just by 4.9 percent in 2011/12 compared to 9 percent growth recorded in the previous year mainly due to lower increase in crop production which went down from 10 to 5 percent. Crop production constituted the largest share in GDP, about 30 percent. Fig. I.1: GDP Growth by Major Sectors Source: Central Statistical Agency (CSA) The growth in agricultural output was largely attributed to productivity improvement aided by favorable weather condition as well as conducive economic policies. While total cultivated land expanded by 2.2 percent only to 12.1 million hectares in 2011/12, total agricultural output rose marginally by 7.4 percent to 218.6 million quintals. As a result, productivity improved slightly to 18.1 quintal in 2011/12 compared to 17.2 quintal per hectare in the preceding year. Cereal production accounted for 86.1 percent of the total agricultural production estimated for 2011/12.

National Bank of Ethiopia 8 Meanwhile, the industrial sector gained 17.1 percent growth mainly due to the increase in electricity and water supply. Manufacturing output grew by 11.8 percent while mining and quarrying expanded by 12.7 percent during the same period. The service sector, which has bolstered in the recent years, registered 10.6 percent growth; due to the expansion in financial sector, real estate and hotel & tourism sectors. Consequently, the contribution of agriculture and allied activities to real GDP growth stood at 24.2 percent while industrial and service sectors constituted about 22.2 and 53.7 percent respectively. Although, the share of agriculture to GDP tended to decline continuously, it has remained the largest source of employment, foreign exchange earning, raw material supply and market for domestic industrial outputs.(FigI.1)

National Bank of Ethiopia 9 Table 1.2: Estimates of Agricultural Production and Cultivated Areas of Major Crops for Private Peasant Holdings - Meher Season (Area and production are in thousands of hectors and quintals, respectively) Agricultural Production 2008/09 2009/10 2010/11 2011/12 Cultivated Area Total Production Cultivated Area Total Production Cultivated Area Total Production Cultivated Area Total Production Cereals 8,770.0 144,964.1 9,233.0 155,342.0 9,690.0 177,613.0 9,588.0 188,099.0 (Annual % Change) 0.5 5.7 5.3 7.2 4.9 14.3 8.0 9.0 Pulses 1,585.2 19,646.3 1,489.3 18,980.0 1,357.0 19,531.0 1,616.0 23,162.0 (Annual % Change) 4.4 10.2 -6.0 -3.4 -8.9 2.9 19.1 18.6 Oilseeds 855.1 6,557.0 780.9 6,436.0 774.0 6,339.0 880.0 7,308.0 (Annual % Change) 20.8 6.3 -8.7 -1.8 -0.88 -1.5 13.7 15.3 Total 11,210.3 171,167.4 11,503.2 180,758.0 11,821.0 203,483.0 12,084.0 218,569.0 (Annual % Change) 2.3 6.2 2.6 5.6 2.8 12.6 2.2 7.4 Source: Central Statistical Agency (CSA) 1.3 GDP by Expenditure Component Total consumption expenditure (both private and public) as a percent of GDP went down marginally to 85.0 in 2011/12 from 87.3 in 2010/11, largely on account of the reduction in private and public consumption by 1.5 and 0.8 percentage points, respectively. In contrary, gross domestic saving to GDP ratio improved to 15.0 percent from 12.7 percent recorded in the previous year. Likewise, the ratio of gross capital formation to GDP increased by 6.2 percentage point to 33.1 percent relative to last year. As a result, the resource gap widened to 18.1 percent of GDP from 15.1 percent during the same period.

National Bank of Ethiopia 10 Table: 1.3: Expenditure on GDP and Gross Domestic Savings (As Percentage of GDP) Year Domestic Absorption Consumption Expenditure Gross Capital Formation Resource Balance Exports of Goods & Services Imports of Goods & Services Gross Domestic Total Govt. Pvt. Savings 1999/00 110.4 88.2 19.1 69.1 22.2 (12.0) 12.1 24.2 11.8 2000/01 110.5 86.9 15.7 71.2 23.6 (11.8) 12.1 23.9 13.1 2001/02 117.1 90.7 15.9 74.8 26.4 (14.1) 12.7 26.9 9.3 2002/03 116.7 92.4 14.3 78.1 24.3 (14.2) 13.5 27.7 7.6 2003/04 113.9 84.9 14.0 70.9 29.0 (16.8) 15.1 31.9 15.1 2004/05 116.6 90.6 13.3 77.3 26.0 (20.6) 15.3 35.8 9.5 2005/06 119.4 91.8 13.1 78.7 27.6 (22.9) 14.0 36.9 8.3 2006/07 111.8 87.6 11.2 76.4 24.2 (19.5) 12.8 32.4 12.4 2007/08 115.3 90.8 10.5 80.3 24.5 (19.6) 11.5 31.1 9.2 2008/09 115.1 90.2 9.5 80.7 24.9 (18.4) 10.6 29.0 9.8 2009/10 117.7 90.7 9.2 81.5 27.0 (19.6) 13.8 33.3 9.3 2010/11 115.1 87.3 8.6 78.6 27.9 (15.1) 17.0 32.1 12.7 2011/12 118.1 85.0 7.2 77.8 33.1 (18.1) 13.9 32.0 15.0 Average 115.2 89.0 12.4 76.6 26.2 (17.1) 13.4 30.6 11.0 Source: Ministry of Finance and Economic Development (MoFED)

National Bank of Ethiopia 11 2011/12 2012/13 Percentage Change A B B/A No. of MSE's na 70,455.00 - Amount of credit (in million Br) 994.09 1,088.14 9.5 No of Total employment 651,366.00 806,322.00 23.8 1.4. Micro and Small-Scale Enterprises The five-year Growth and Transformation Plan envisages creating a total of three million Micro and Small-Scale Enterprises (MSE’s) at the end of the Plan period. This sector development is believed to be the major source of employment and income generation for a wider group of the society in general and urban youth in particular. According to the Federal Micro and Small Enterprise Development Agency (FeMESDA), a total of 70,455.00 new MSEs were established in 2011/12 employing 806,322.00 people. The total employment has grown by 23.8 percent, compared to a year ago. The total amount of loan received from micro finance institutions was more than Birr 1.088 Billion under the review period, 9.5 percent higher than last fiscal year. Table: 1.4 Numbers, Amount of Credit and Jobs Created through MSEs (Credit in Millions of Birr) Source: FeMSEDA

Addis Ababa Oromia SNNPR Amhara Tigray Diredawa Harari Benisha ngul Somale Gambela Afar Total No.of MSEs 10,639.0 20,555.0 9,819.0 99,750.0 64,000.0 333.0 265.0 336.0 519.0 109.0 27.0 206,352.0 Amount of credit 447,485.4 133,084.2 104,759.6 64,600.7 327,059.2 4,029.8 6,275.1 263 580.4 - - 108,813.7 No.of total Employment created by MSEs 99,899.0 0 267,474.0 127,112.0 174,971.00 82,680.0 45,248.0 3,224.0 1,010.0 3,303.0 1,401.0 - 806,322.0 Regional share Addis Ababa Oromia SNNPR Amhara Tigray Diredaw a Harari Benish angul Somale Gambela Afar Total Amount of credit 41.1 12.2 9.6 5.9 30.1 0.4 0.6 0.0 0.1 0.0 0.0 100.0 No. of total Employment created by MSEs 12.4 33.2 15.8 21.7 10.3 5.6 0.4 0.1 0.4 0.2 0.0 100.0 National Bank of Ethiopia Table: 1.5. Number, Amount of Credit and Jobs Created through MSEs by Region {{{{{[ (Credit in Billions of Birr) Source: FeMSEDA In terms of regional distribution of the amount of credit, Addis Ababa took the leading share (41.1 percent) followed by Tigray (30.1 percent), Oromiya (12.2 percent), SNNPR (9.6 percent) and Amhara 5.9 percent. However regarding employment creation, Oromia employed 33.2 percent of the total employment created during the fiscal year. Amhara region contributed for 21.7 percent of employment created in the report year followed by SNNPR (15.8 percent). 12

National Bank of Ethiopia 13 Figure 1.2 Regional distribution of amount of credit and employment created during 2011/12

National Bank of Ethiopia 14 1.5. Access to Water Supply During the Growth & Transformation Plan, both urban and rural population with 68 percent in 2009/10 would increase to 98.5 percent by the end of the plan period. Urban and rural population within 0.5 km and 1.5 km access to potable water are also expected to reach to 100 and 98.5 percent, respectively by the end of the plan period. Accordingly, the national population with access to potable water supply reached 58.3 percent in 2011/12 from 52.1 percent in the preceding year. Population with access to potable water improved in 2011/12 compared to the preceding year performance. Similarly urban population with access to potable water within 0.5 km reached to 78.7 percent, rural population having access to potable water within 1.5 km improved to 55.2 percent in 2011/12 from 74.6 and 48.9 percent respectively in 2010/11. The proportion of rural population with access to water supply in Harari reached 87.1 percent, in Gambella 71.4 percent, in Benshangule Gumz 65.7 percent, in Amhara 60.8 percent and in Oromia 54.9 percent. In contrary, urban population with access to water supply declined in Addis Ababa (80.71 percent), Afar (80.7 percent), Harari (97.2 percent) and Dire Dawa (85.5 percent) compared to the preceding year performance (Table 1.5) (Figure I.3).

National Bank of Ethiopia 15 Table: 1.5 Percentages of People with Access to Potable Water by Region* Region 2010/11 2011/12 Change in A B C D E F percentage point Rural Urban Average Rural Urban Average D-A E-B F-C Addis Ababa - 82.22 82.22 - 80.71 80.71 0.0 -1.5 -1.5 Tigray 52.3 68.7 55.4 58.6 72.1 61.2 6.4 3.4 5.8 Amhara 52.0 66.0 53.4 60.8 70.7 61.8 8.8 4.7 8.4 Oromia 49.8 74.2 51.8 54.9 85.1 57.4 5.1 11.0 5.6 SNNPR 42.9 65.9 44.3 49.1 75.5 50.7 6.2 9.6 6.4 Afar 35.0 82.2 38.0 37.5 80.7 40.3 2.6 -1.5 2.3 Somali 36.1 74.7 41.6 56.1 77.4 59.2 20.0 2.7 17.6 Ben-Gumz 59.6 66.8 59.9 65.7 69.8 65.8 6.0 2.9 5.9 Harari 65.1 100.0 84.0 87.1 97.2 92.6 22.0 -2.8 8.6 Gambella 63.6 80.3 66.1 71.4 85.7 73.6 7.9 5.4 7.5 Dire Dawa 75.6 87.6 83.8 77.1 85.5 81.3 1.5 -2.1 -2.5 National Average 48.9 74.6 52.1 55.2 78.7 58.3 6.4 4.1 6.1 Source: Ministry of Water Resources Development (MoWRD) and NBE Staff Computation Note: Water supply access is calculated based on the provision of 20 liters/capita/day for urban and 15 l/c/d for rural at a radius of 0.5 and 1.5 kilo meters, respectively. *Based on 2010/11 assessment data

16 National Bank of Ethiopia Annual Bulletin Source: Ministry of Water Resources Development (MoWRD) and NBE Staff C 1.6 Road Sector Development 1.6.1 Road Network The government of Ethiopia has been engaged in investment of infrastructure development to sustain economic growth, improving product competitiveness and encourage private investors. In particular, the government noted that, the development of road transport creates a network over a wide array of infrastructural facilities so as to improve the accessibility and mobility of agricultural and industrial products. As a result, the road transport in Ethiopia has been the dominant mode of transport and accounts for 90 to 95 percent of the total motorized inter-urban freight and passenger transports.

17 National Bank of Ethiopia Annual Bulletin In 2011/12, the total stock of road network reached 63,083 km of which 24,550 km Federal 1 , 31,550 km rural road and 6,983 are woreda road. The Federal road includes 9,875km (40 percent) asphalt and 14,675km (60 percent) gravel road, which showed annual expansion of 19.1 percent and 3.8 percent respectively. Particularly, the asphalt road net work in 2011/12 constituted about 15.7 percent of the total stock of road network in the country. In 2011/12 the total road network expanded by 16.8 percent (9.086Km) compared to 10.67 expansions in 2010/11. Total woreda road network, which was previously known as community road, also increased significantly to 6,983km compared to 854 km in 2010/11 due to the government’s plan to integrate every kebele to the main roads 1 Federal roads are administered by federal government

18 National Bank of Ethiopia Annual Bulletin . Table 1.7 Classification of Road Network (length in km) Year Federal Road Rural road Woreda road Total Asphalt Gravel Length Growth rate Length Growth rate Length Growth rate Length Growth rate Length ** Growth rate 2000 /01 3,924 - 12,467 - 16,480 - NA

32,871 - 2001/02 4,053 3.29 12,564 0.78 16,680 1.21 NA

33,297 1.30 2002/03 4,362 7.62 12,340 -1.78 17,154 2.84 NA

33,856 1.68 2003/04 4,635 6.26 13,905 12.68 17,956 4.68 NA

36,496 7.80 2004/05 4,972 7.27 13,640 -1.91 18,406 2.51 NA

37,018 1.43 2005/06 5,002 0.60 14,311 4.919355 20,164 9.55 NA

39,477 6.64 2006/07 5,452 8.99 14,628 2.215079 22,349 10.84 57,763.74 - 42,429 7.48 2007/08 6,066 11.26 14,363 -1.81159 23,930 7.07 70,038.10 - 44,359 4.55 2008/09 6,938 14.38 14,234 -0.89814 25,640 7.15 85,767.00 - 46,812 5.53 2009/10 7,476 7.75 14,373 0.976535 26,944 5.09 100,384.9 - 48,793 4.23 2010/11 8,295 10.96 14,136 -1.64893 30,712 13.98 - 854.00 53,997 10.67 2011/12 9,875 19.05 14,675 3.81296 31,550 2.73

6,983.00 63,083 16.83 Source: Ethiopian Road Authority (2011/12) *Growth rate of community road (woreda road) is not calculated because since 2009/10 community road is replaced by woreda road ** Total length does not include community road (woreda road) length till 2010/11 as it is non￾engineered road.

19 National Bank of Ethiopia Annual Bulletin 1.6.2 Road Density The proper level of road network is assessed by road density, which is measured by road length per 1000 persons or by road length per 1000 km 2 . In the five year GTP period, the plan is to increase the road density from 44.5 to 123.7 km per 1000 persons and from 0.64 to 1.54 km per 1000 km 2 . At the end of 2011/12, the road density showed improvement to 57.3km from 48.3km per 1,000 square km as compared to a year ago. Similarly, in 2011/12 fiscal year, road density per 1,000 square km was 57.3 km with annual growth rate of 18.6 percent (Table 1.8). The road density per 1000 population in 2011/12 was 0.75 km and registered 15.4 percent growth from the preceding fiscal year (Table 1.8). Table 1.8 Road Densities per 1000 persons Year Road Density /1000 person Road density /1000 sq. km 2000/01 0.50 29.9 2001/02 0.50 30.3 2002/03 0.49 30.8 2003/04 0.51 33.2 2004/05 0.50 33.7 2005/06 0.53 35.9 2006/07 0.55 38.6 2007/08 0.56 40.3 2008/09 0.57 42.6 2009/10 0.60 44.4 2010/11 0.65 48.3 2011/12 0.75 57.3 Source: Ethiopian Road Authority

20 National Bank of Ethiopia Annual Bulletin 1.6.3 Road Accessibility 2 According Ethiopian Roads Authority, Ethiopia requires constructing about 200,000 km of optimum national road network, as a target to provide to its people a reasonably good accessibility. The level of road network in good condition has improved continuously over the past years and reached 64 percent of the total road network. In particular, about 75 percent of asphalt road is found in good condition (Figure I.4). 1.6.4 Road Sector Financing Construction and maintenance of roads remained the key investment for the government in the past years. Hence, large sum of finance has been mobilized for road construction and maintenance from external loans and grants as well as domestic sources. Figure 1.5 below depicts investment capital in the road construction and expansion sector, which has been steadily rising over the past years reached Birr 28.6 billion in 2011/12 showing annual growth rate of 46.8 percent (Table 1.9). Investment in Federal road construction and expansion was Birr 21 billion, which constituted the lion’s share of the total road investment capital. 2 Access refers to the opportunity to use or the right to or the ability to reach some destiny and often used to analyze the level of population having access to all weather roads. In fact, its benefit could be evaluated in terms of reductions in monetary costs or time needed by the given population to access markets or key public social services like health and education.

National Bank of Ethiopia Annual Bulletin 21 Source: Ethiopian Road Authority Source: Ethiopian Road Authority (2011/12)

National Bank of Ethiopia Annual Bulletin 22 Table 1.9 Investments in the Road Sector In million Birr Road Type 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 Federal road 2,848 2,886 5,037 8,124 9,813 13512 16989 21023.7 Regional road 222.9 471.2 395.2 671 624.2 1091.2 1768.7 1506.9 Community /woreda road* 17.8 684.4 719.3 121 439.3 307 680.7 6027.2 Urban road** 25.2 46.60 63.3 61.1 53.7 127 52.5 58.5 Total 3,114.2 4,088.1 6,215.2 8,977.5 10,930.4 15,038 19,490.9 28,616.3 Source: Ethiopian Road Authority *Community road- before 2009/10 and woreda road after 2010/11 ** All municipalities’ maintenance Developments in Education Sector The government of Ethiopia views education sector development as part of its long term vision in making the country a middle income economy. To this end, it has devised and put in place various strategies for the sector. It has also increased the budget allocated every year to education sector to execute development programs and planned activities (Table 1.10). Accordingly, primary schools in urban and rural areas, increased to 29,482 in 2011/12 from 28,349 in the preceding year. Net primary school enrolment and completion, however, rose slightly to 85.4 and 52.1 percent from 85.3 and 49.4 percent respectively (Table 1.10).primary school enrolment has reached 17 million of which 47.8 percent were girls. On the other hand, secondary education enrolment stood at 1.8 million, 3 percent higher than last year. In addition, by the end of 2011/12, the number of secondary schools (9-12 grades) reached 1,710 exhibiting a 12.7 percent annual growth.

National Bank of Ethiopia Annual Bulletin 23 Technical and Vocational Education and Training (TVET) enrolment reached 330,409 registered 11 percent fall though the number of TVET institutions remained at 505 compared to the preceding year. The share of education sector in the annual national budget was 25.3 percent in 2011/12, about 44.6 percent higher than a year earlier (Table 1.10).

24 National Bank of Ethiopia Table 1.10: Development in Education Sector Indicator 2007/08 2008/09 2009/10 2010/11 2011/12 (2000) (2001) (2002) (2003) (2004) Primary Education Number of primary schools (urban, rural) 23,354 25,212 26,951 28,349 29,482 Urban 3,100 3,206 3,206 3,988 NA Rural 20,254 21,886 23,745 24,313 NA Primary enrolment (in millions) 15.3 15.6 15.8 16.7 17.0 Girls' primary enrolment (%) 46.5 47.3 47.4 47.3 47.8 Grades (1-4) gross enrolment ratio (%) 127.8 122.6 118.8 124 122.6 a. Girls' gross enrolment ratio (%) 122.8 118.4 114.3 119.1 118.1 b. Boys' gross enrolment ratio (%) 133 126.7 123.2 128.8 127 Grades (5-8) gross enrolment ratio (%) 60.2 63.1 65.5 66.1 65.6 a. Girls' gross enrolment ratio (%) 55.5 60.5 63.5 64.8 65.3 b. Boys' gross enrolment ratio (%) 64.8 65.6 67.4 67.4 65.9 Girls’ gross primary enrolment ratio (%) 90.5 90.7 101.6 93.2 92.9 Boys' gross primary enrolment ratio (%) 100.5 97.6 108.4 99.5 97.9 Proportion of pupils starting grade 1 who reach grade 5(%) 49.2 39.6 75.6 69.1 NA Gross Primary Enrolment ratio (%) (urban, rural, regional) 95.6 94.4 93.4 96.4 95.4

1. Tigray 109 107.1 103.3 102.1 NA
2. Afar 26.2 31.2 39.3 40.1 NA
3. Amhara 112.4 112.5 104.9 104.2 NA
4. Oromia 91.4 89.3 88.4 94.8 NA
5. Somali 32.7 35 65.6 61.3 NA
6. Ben.Gumuz 112.3 112.1 114.6 119.7 NA
7. SNNPR 102.9 101 97.3 102.6 NA
8. Gambella 121.4 112.5 125.1 132 NA

National Bank of Ethiopia Annual Bulletin Indicator 2007/08 2008/09 2009/10 2010/11 2011/12 (2000) (2001) (2002) (2003) (2004) NA 9. Harari 108.4 107.9 95.3 91.5 NA 10. A.A 114.3 109.2 107.3 103.1 NA 11. Dire Dawa 86.3 92.1 91.3 89.1 NA Primary net enrolment rate (%) 83.4 83 82.1 85.3 85.4 No. of students registered in the first cycle primary schools(1-4) (in millions) 10.7 10.6 10.5 11.3 11.4 No. of students registered in the second cycle primary schools(5-8) (in millions) 4.6 5 5.3 5.5 5.7 Number of students registered in the first cycle secondary schools(9-10) (in millions) 1.3 1.4 1.5 1.5 1.4 Completion rate of primary school (%) 44.7 43.6 47.8 49.4 52.1 Girls/boys ratio in primary schools (%) 87 89.7 91 90.4 92 Grade 1-8(primary) repetition rates (%) 6.7 6.7 4.9 8.5 8.5 Primary school dropout rate (%) 14.6 18.6 13.1 16.3 NA 1st grade dropout rate (%) 18.3 22.9 28.1 19.9 25.0 Secondary Education Number of secondary schools (urban, rural) 1,087 1,197 1,335 1,517 1,710 Urban 904 976 1,053 1,053 NA Rural 183 209 298 339 NA Secondary enrolment (in thousands) 1,501 1,588 1,696 1,760 1,766 Gross enrolment rate in (9-10 grades)(%) 37.1 38.1 39.1 38.4 36.9 Number of students registered in the second cycle secondary schools(11-12)(in millions ) 0.2 0.21 0.24 0.29 0.32 Preparatory admission 100,651 118,289 142,781 NA NA Girls/boys ratio in secondary schools (%) 63 67 0.75 79 0.84 Girls/boys ratio in(9-10) 0.65 0.72 0.78 0.81 0.86 Girls/boys ratio in (11-12) 0.48 0.4 0.56 0.83 0.75 25

National Bank of Ethiopia Annual Bulletin 26 Number of TVET centers (public, private, mission) 458 458 448 505 505 TVET enrolment 229,252 308,501 353,420 371,347 330,409 TVET Admission 95,563 NA 95,563 NA NA Girls/boys ratio inTVET 0.92 0.86 0.8 0.86 0.91 Tertiary level Education Number of tertiary level institutions by universities (public, private), colleges (public, private) 61 72 90 86 91 Universities 22 26 32 Student intake capacity of higher education institutions 56,421 NA NA 95,000 NA Participation of women in higher education institutions (%) 24 22.2 27 27 21.1 Girls/boys ratio in higher education 0.24 0.28 0.36 0.36 0.39 Percentage of female enrolled in under graduate degree (%) 24.1 29 27 27 22.0 Percentage of female graduated in under￾graduate degree (%) 20.6 29.7 23.4 27.2 25.3 Percentage of female enrolled in post￾graduate degree 9.6 11.3 11.9 13.8 20.2 Percentage of female graduated in post￾graduate degree 10.7 10.5 13.9 14.4 14.0 Pupil/teacher ratio i. Grade (1-8) 57 54 51 51 50 ii. Grade (9-12) 43 41 36 31 29 iii. TEVT 25 34 NA 29 NA iv. In higher education NA 28.2 26.8 26.7 25 Pupil/section ratio i. Grade (1-8) 62 59 57 57 55 ii. Grade (9-12) 74 68 64 58 56.1 Indicator 2007/08 2008/09 2009/10 2010/11 2011/12 (2000) (2001) (2002) (2003) (2004) TVET

National Bank of Ethiopia Annual Bulletin 27 Indicator 2007/08 2008/09 2009/10 2010/11 2011/12 (2000) (2001) (2002) (2003) (2004) Number of class rooms in primary schools 236,712 247,759 254,744 279,292 NA 7. Pupil-textbook ratio i. Grade(1-8) 1.5 NA NA ii. Grade(9-12) 1 NA NA Pupil-school ratio i. Grade(1-8) 657 619 573 590 576 ii. Grade(9-12) 1,381 1,345 1270 1160 1,033 iii. TEVT 501 673 788 735 654 Other Indicator Annual education share to the national budget 22.8 23.6 25.9 17.5 25.3 Source: - Education statistics annual abstract, Ministry of Education & NBE Staff Computation

National Bank of Ethiopia Annual Bulletin 28 II. ENERGY PRODUCTION 2.1 Electric Power Generation Ethiopia has very large potential for hydroelectric power and geothermal energy generation. Nine of its major rivers are suitable for hydroelectric power with a total capacity of generating 45,000 MW. The country also has vast potential for geothermal energy. The Ethiopian Electric Power Corporation (EEPCo) supplies power to more than 1,899,685 customers, of which 9,633 were registered in 2011/12. The country’s installed electricity generating capacity was 2000 MW in 2010 which is targeted to increase to 10,000 MW by the end of 2014/15, according to the five year Growth and Transformation Plan (GTP). The Ethiopian Electric Power Corporation is a public enterprise mandated with the task of generating, transmitting, distributing, and selling electricity. The Corporation generates electricity through two different power supply systems, namely, the Inter Connected System (ICS) and Self Contained System (SCS). The ICS, which is largely generated by hydropower plants, constitutes the major source of electric power in Ethiopia. The SCS system merely contributed about 0.2 percent in 2011/12 (Fig.II.1).

29 National Bank of Ethiopia Fig.II.1 Trends in Share of ICS and SCS in Total Power Generation ICS share in% SCS share in% 120.0 100.0 80.0 Share 60.0 40.0 20.0 Year 0.0 2000/0 2001/0 2002/0 2003/0 2004/0 2005/0 2006/0 2007/0 2008/0 2009/1 2010/1 2011/1 1 2 3 4 5 6 7 8 9 0 1 2 ICS share in% 98.3 99.1 99.1 98.6 98.2 98.2 98.8 99.2 99.0 98.8 99.5 99.8 SCS share in% 1.7 0.9 0.9 1.4 2.0 1.8 1.2 0.8 1.0 1.2 0.5 0.2 Source: Ethiopian Electric and Power Corporation The total amount of electric power generated during 2011/12 was 6.3 million KWH, 26.2 percent higher than a year ago. About 99.3 percent of the electric power was generated through hydropower and the remaining 0.7 percent from thermal, wind and geothermal sources (Table 2.1). The coverage of electricity is expected to scale up by 75 percent to 8000 mw in 2015 compared to 2000mw in 2010. In addition, the number of customers accessing electric power is envisaged to double to 4 million during the same period. Currently, the number of towns and cities having access to electricity has reached 5,637 of which 474 towns were added in 2011/12.

National Bank of Ethiopia Annual Bulletin 30 Table 2.1: Electric Power Generation in ICS and SCS (In000KWH) Source 2009/10 Share in % 2010/11 Share in % 2011/12 Share in % Percentage Change [A] [B] [C] [C/A] [C/B] ICS Hydro Power 3,418,610 87.5 4,922,069 98.8 6,239,288.9 99.3 82.5 26.8 Thermal Power 418,170 10.7 13,716 0.3 0.0 0.0 -100 -100 Geothermal 23,522 0.6 19,267 0.4 7,979.9 0.13 -66.1 -58.6 Wind 0.0 S 0.47 - - Sub Total 3,860,302 98.8 4,955,052 99.5 6,276,525.2 99.8 62.6 26.7 SCS Hydro Power 20,113 0.5 9,351 0.2 1,715.7 0.1 -91.5 -81.7 Thermal Power 24,960 0.6 16,094 0.3 8,180.4 0.1 -67.2 -49.2 Geothermal Sub Total 45,073 1.2 25,445 0.5 9,896.2 0.2 -78.0 -61.1 Total Hydro Power 3,438,723 88.1 4,931,420 99.0 6,241,004.6 99.3 81.5 26.6 Thermal Power 443,130 11.3 29,810 0.6 8,180.4 0.13 -98.2 -72.6 Geothermal 23,522 0.6 19,267 0.4 7,979.9 0.13 -66.1 -58.6 Wind 0.0 29,256.3 0.47 - - Grand Total 3,905,375 100.0 4,980,497 100.0 6,286,421.3 100.0 61.0 26.2 Source: Ethiopian Electric and Power Corporation Volume and Value of Petroleum Imports In 2011/12, about 2.14 million metric tons of petroleum products worth Birr 36.7 million were imported into the country. Total value of petroleum product imports surged by 37.3 percent was mainly due to an increase in import bill of gas oil (59.8 percent), regular gasoline (49.4 percent) and fuel oil (54.2 percent). The total volume of petroleum imports increased by 12.6 percent solely due to higher volume of gas oil (24.3 percent) and regular gasoline (4.7 percent) despite marginal reduction in volume of fuel oil (4.3 percent) and jet fuel (2.7 percent) (Table 2.2).

National Bank of Ethiopia Annual Bulletin 31 Table 2.2: Volume and Value of Petroleum Imports (Volume in MT and value in ‘ooo Birr) Products 2010/11 2011/12 Percentage Volume Value Volume Value Change [A] [B] [C] [D] [C/A] [D/B] Regular Gasoline (MGR) 143,878.8 1,743,315.0 150,619.1 2,604,584.2 4.7 49.4 Jet Fuel 559,522.5 9,738,630.0 544,519.6 9,795,246.5 -2.7 0.6 Fuel Oil 150,968.0 1,171,276.2 144,501.3 1,805,728.2 -4.3 54.2 Gas Oil (ADO) 1,047,862.0 14,096,853.0 1,302,451.2 22,531,329.0 24.3 59.8 Total 1,902,232.0 26,750,074.0 2,142,091.2 36.736,887.6 12.6 37.3 Source: Ethiopian Petroleum Enterprise Source: Ethiopian Petroleum Enterprise

National Bank of Ethiopia Annual Bulletin 32 Fig. II.3 Trends in Value of Petroleum Imports (1000 birr) 25,000 MGR Jet Fuel Fuel Oil Gas Oil 20,000 15,000 Value in birr 10,000 5,000 Year 0 2001/022002/032003/042004/052005/062006/072007/082008/092009/102010/112011/12 Source: Ethiopian Petroleum Enterprise As the international oil prices tended to increase domestic retail prices were also adjusted upwards during 2011/12. Accordingly, the retail prices in Addis Ababa increased on average by 25.7 percent for gas oil, 23 percent for regular gasoil, 21.8 percent for fuel oil and 16.1 percent for kerosene (Table 2.3)

National Bank of Ethiopia Annual Bulletin 33 Table 2.3 : Annual Retail Prices of Petroleum Products in Addis Ababa ( Birr / liter) Year Quarter MGR Fuel Oil Gas Oil Kerosene 2006/07 Qtr.1 7.60 4.20 5.20 3.90 Qtr.2 8.00 5.60 5.40 4.10 Qtr.3 7.70 5.20 5.40 4.10 Qtr.4 7.70 5.20 5.40 4.10 Average 7.80 5.00 5.40 4.10 2007/08 Qtr.1 7.80 4.10 5.40 4.10 Qtr.2 7.80 4.10 5.40 4.10 Qtr.3 9.60 5.90 6.90 5.70 Qtr.4 9.60 5.90 6.90 5.70 Average 8.70 5.00 6.20 4.90 2008/09 Qtr.1 9.61 5.89 6.90 5.72 Qtr.2 9.61 7.40 9.40 7.50 Qtr.3 8.14 5.90 7.81 6.00 Qtr.4 8.20 5.80 7.30 5.70 Average 8.89 6.25 7.85 6.23 2009/10 Qtr.1 9.67 8.10 8.45 7.46 Qtr.2 12.33 9.53 10.15 8.88 Qtr.3 12.99 9.88 10.53 9.29 Qtr.4 13.10 9.87 10.72 9.50 Average 12.02 9.34 9.96 8.78 2010/11 Qtr.1 13.14 10.08 10.98 9.75 Qtr.2 15.10 11.64 12.87 11.43 Qtr.3 17.14 12.98 14.75 12.92 Qtr.4 20.94 14.09 17.73 14.05 Average 16.58 12.20 14.08 12.04 2011/12 Qtr.1 20.94 14.09 17.73 14.05 Qtr.2 19.81 14.84 17.28 13.95 Qtr.3 20.42 15.27 17.89 13.95 Qtr.4 20.42 15.27 17.89 13.95 Average 20.40 14.86 17.70 13.98 Annual percentage change 23.0 21.8 25.7 16.1 Source: Ethiopian Petroleum Enterprise

National Bank of Ethiopia Annual Bulletin 34 Fig.II.4 Trends in Addis Ababa Retail Fuel Prises(Birr/liter) Source:Ethiopian Petroleum Enterprise

National Bank of Ethiopia Annual Bulletin 35 III. PRICE DEVELOPMENTS 3.1. Developments in National Consumer Price Annual average headline inflation at the end of the fiscal year 2011/12 was 34.1 percent, 16 percentage point higher than the previous year level. This was largely due to significant increase in food price inflation which contributed the 14.9 percentage points to the total annual change in headline inflation (Table 3.1). Meanwhile, annualized food inflation, scaled up significantly to 42.9 percent and depicted a 27.2 percentage point increment over the preceding year as a result of a price hike in most of the food items except oil and fats, spices and non – alcoholic beverage and coffee. Similarly, annual average core inflation slightly increased to 22.4 percent from 21.8 percent a year ago as a result of higher prices of all non-food components (Table 3.1 and Fig.III.1). On contrary, year-on-year, headline inflation slowed down to 20.8 percent from 38.0 percent a year ago as both food and non-food price inflation registered 19.9 and 12 percentage points decline, respectively. Annual food inflation, which was 45.3 percent in June 2011, declined to 25.4 percent in June 2012 while annual core inflation dropped to 15.8 percent from 27.8 over the same period (Fig III.2). Table 3.1: Annual Average Inflation Rates (in percent) Consumption Items 2010/11 2011/12 Change (in Percentage Points) Contribution to Change in Headline Inflation (in Percentage Points) A B B-A C General 18.1 34.1 16.0 16.0 Food 15.7 42.9 27.2 14.9 Non-Food 21.8 22.4 0.6 1.1 Source: CSA and NBE Staff Computation

National Bank of Ethiopia Annual Bulletin 36 Source:CSA and NBE Staff computation Source:CSA and NBE Staff computation

National Bank of Ethiopia Annual Bulletin 37 3.2 Consumer Price Developments in Regional States At the end of 2011/12, the regional average general inflation picked up to 32.7 percent from 16.4 percent a year earlier. Amhara, Oromia, SNNP, Gambella and Beni-shangul Gumz regional states registered higher headline inflation than the regional simple average. Beni-shangul Gumz saw the highest surge in headline inflation (32.9 percentage point) while the lowest (5.4 percentage point) rise was recorded in Addis Ababa (Table 3.2). Table 3.2: Regional Average Annual Inflation Regions 2010/11 2011/12 Change General Food Non General Food Non Food General Food Non Food Food A B C D E F G=D-A H=E-B I=F-C Tigray 9.7 5.3 16.9 31.1 33.6 28.4 21.4 28.2 11.5 Afar 19.6 13.8 27.2 29.2 37.0 23.9 9.6 23.2 -3.3 Amhara 15.9 11.8 24.0 33.8 42.0 20.7 17.9 30.2 -3.4 Oromia 19.8 18.4 22.0 36.4 44.4 25.1 16.6 26.0 3.1 Somali 20.8 21.3 19.6 29.2 30.5 26.9 8.4 9.3 7.3 SNNP 19.7 18.8 21.1 38.2 49.1 24.0 18.5 30.3 3.0 Harari 19.2 20.5 17.5 28.0 36.8 21.1 8.8 16.3 3.6 Gambela 11.3 8.3 15.9 40.9 55.3 20.2 29.6 47.0 4.3 Dire Dawa 14.7 13.2 16.7 24.5 32.2 14.4 9.8 19.0 -2.3 B. Gumuz 10.7 4.0 17.9 43.6 67.5 21.7 32.9 63.5 3.8 A.A 19.4 14.8 23.5 24.8 30.6 21.1 5.4 15.9 -2.4 Mean 16.4 13.7 20.2 32.7 41.7 22.5 Standard dev. 4.2 5.9 3.6 6.4 11.7 3.8 Coeff. of Var. 0.3 0.4 0.2 0.2 0.3 0.2 Source: CSA and NBE Staff Computation

National Bank of Ethiopia Annual Bulletin 38 Source: CSA and NBE Staff Computation The regional average food inflation significantly increased to 41.7 percent by the end of June 2012 compared to last year. Food inflation higher than the regional simple average was registered in Oromia, Amhara, SNNP, Gambella and Beni-shangul Gumz (Table 3.2). The highest increase in food inflation was registered in Beni-shangul (63.5 percentage points); and the lowest in Somali (9.3 percentage points). Over the two-year period (2010/11 to 2011/12), food price instability was high in most of the regions. Source: CSA and NBE Staff Computation

National Bank of Ethiopia Annual Bulletin 39 Likewise, the average regional non-food inflation stood at 22.5 percent at June 2012. Non-food inflation stood above the average level in SNNP, Oromia, Tigray, Somali and Afar (Table 3.2). The highest rise in non-food inflation was recorded in Tigray (11.5 percentage points), while the higher decline registered in Amhara (-3.4 percentage points). Source: CSA and NBE Staff Computation Regarding inflation rate disparity across regions which is measured by the change in coefficient of variation 3 between 2010/11 and 2011/12 indicated that no significant change were observed apparently due to the growing regional market integration as transportation and communication facilities have been improved. 3 Coefficient of variation is the ratio of standard deviation to mean.

National Bank of Ethiopia Annual Bulletin 40 IV. MONETARY AND FINANCIAL DEVELOPMENTS 4.1. Monetary Developments and Policy During the year under review, Ethiopia’s monetary policy continued to focus on containing inflationary pressure. Accordingly as a result of prudent fiscal and tight monetary policies as well as other administrational measures coupled with slow down in global food and fuel prices , the year-on-year headline inflation dropped to 20.5 percent by end 2011/12 compared to 38 percent last year. Developments in Monetary Aggregates As at end of the 2011/12 domestic liquidity, as measured by broad money supply (M2), reached Birr 189.4 billion reflecting a 30.3 percent growth, over the same period last year. This was largely attributed to the 39.5 percent surge in domestic credit offsetting the 28.4 percent decline in net foreign assets. Of the components of domestic credit, credit to non-central government sector grew remarkably by 56.7 percent while credit to central government slow down by 24.8 percent. This was consistent with the government’s policy of promoting private sector development as well as prudent fiscal policy nit to borrow from the Central Bank in a bid to fight inflationary pressure. Fiscal year 2011/12 also witnessed a 30 percent growth in broad money. Narrow money rose by 24.5 percent due to higher demand deposits and currency outside banks reflecting the growth in economic activities and improvement in transactions demand for money. Similarly, quasi-money that comprises savings and time deposits went up by 36.6 percent and reached Birr 94.5 billion owing to improved financial intermediation by banks partly through opening up of 319 new branches.

National Bank of Ethiopia Annual Bulletin 41 (In Millions of Birr) Table 4.1: Components of Broad Money (In Million of Birr) Particulars Year Ended June 30 Annual Percentage Change 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 Narrow Money Supply . Currency Outside Banks . Demand Deposits (net) Quasi-Money . Savings Deposits . Time Deposits Broad Money Supply 42,112.7 19,715.0 22,397.6 40,397.1 37,148.7 3,248.4 82,509.8 52,434.6 24,206.8 28,227.8 51,997.8 48,041.6 3,956.2 104,432.4 76,171.0 32,574.9 43,596.1 69,206.0 64,539.6 4,666.4 145,377.0 94,849.9 38,537.1 56,312.7 94,548.9 82,487.8 12,061.1 189,398.8 19.1 11.7 26.6 23.0 26.0 -3.2 21.0 24.5 22.8 26.0 28.7 29.3 21.8 26.6 45.3 34.6 54.4 33.1 34.3 18.0 39.2 24.5 18.3 29.2 36.6 27.8 158.5 30.3 Source: NBE Fig IV.1: Major Components of Broad Money (2002/03 - 2011/12) Broad Money 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 02/03 04/05 06/07 08/09 10/11 Year Currency Outside Banks Net Demand Deposit Quasi- Money Source: NBE

National Bank of Ethiopia Annual Bulletin 42 Table 4.2: Factors Influencing Broad Money ( In Millions of Birr ) Particulars Year Ended June 30 Annual Percentage Change 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 External Assets (net) Domestic Credit . Claims on Central Gov't (net) . Claims on Non-Central Gov't Other Items (net) Broad Money (M2) 17,976.8 89,203.0 32,786.5 56,416.5 24,670.1 82,509.8 27,189.8 104,413.5 33,013.1 71,400.4 27,170.9 104,432.4 55,534.7 135,553.9 28,651.7 106,902.2 45,711.6 145,377.0 39,787.7 189,080.8 21,557.4 167,523.4 39,469.7 189,398.8 54.1 11.5 -0.9 20.3 5.2 21.0 51.2 17.1 0.7 26.6 10.1 26.6 104.2 29.8 -13.2 49.7 68.2 39.2 -28.4 39.5 -24.8 56.7 -13.7 30.3 Source: NBE Source: NBE

National Bank of Ethiopia Annual Bulletin 7 4.1.2. Developments in Reserve Money and Monetary Ratios During the year under review, reserve money or base money went down by 4.4 percent over last year due to 32.6 percent decline in deposits of banks at the NBE offsetting a 17.1 percent rise in currency in circulation. The drop in reserve money was also attributed to a 35.3 percent decline in NBE’s net foreign asset outweighing12.2 percent rise in domestic credit. Excess reserves of commercial banks decreased to Birr 3.7 billion from Birr 7.3 billion last year reflecting the slow down in deposits of commercial banks at the NBE as a result of their active participation in the weekly T-bills market. The ratio of M2/GDP, an indicator of financial deepening, went up by 13.7 percent to 0.32 percent in 2011/12, partly indicating the tight monetary policy measures taken in order to mitigate the inflationary pressure. Compared to last year same period, the money multiplier defined as narrow money to reserve money and broad money to reserve money also slightly increased reflecting increased deposit mobilization by commercial banks.

National Bank of Ethiopia Annual Bulletin 44 Table 4.3: Reserve Money and Monetary Ratios (In Millions of Birr) Particulars Year Ended June 30 Annual Percentage Change 2008/09 2009/10 2010/11 2011/12 2008/09 2009/10 2010/11 2011/12 Reserve Requirement (CB's) Actual Reserve (CB's) Excess Reserve (CB's) Reserve Money . Currency in Circulation . Bank Deposits Money Multiplier (Ratio): . Narrow Money to Reserve Money . Broad Money to Reserve Money Other Monetary Ratios (%): . Currency to Narrow Money . Currency to Broad Money . Narrow Money to Broad Money . Quasi Money to Broad Money M2/GDP Ratio* 11,183.3 19,569.4 8,386.0 45,107.0 23,836.4 21,270.7 0.9 1.8 46.8 23.9 51.0 49.0 0.25 14,368.0 20,620.9 6,252.9 49,424.5 28,802.9 20,621.5 1.1 2.1 46.2 23.2 50.2 49.8 0.27 20,495.2 27,757.3 7,262.1 69,043.1 39,100.6 29,942.5 1.1 2.1 42.8 22.4 52.4 47.6 0.28 18,080.6 21,791.8 3,711.3 65,972.6 45,785.2 20,187.4 1.4 2.9 40.6 20.3 50.1 49.9 0.32 22.7 28.5 37.0 26.9 17.9 38.7 -6.1 -4.6 -6.3 -7.7 -1.6 1.7 -10.4 28.5 5.4 -25.4 9.6 20.8 -3.1 13.6 15.5 -1.4 -3.0 -1.6 1.7 10.9 42.6 34.6 16.1 39.7 35.8 45.2 4.0 -0.3 -7.4 -3.3 4.4 -4.4 4.3 -11.8 -21.5 -48.9 -4.4 17.1 -32.6 30.3 36.3 -5.0 -9.2 -4.4 4.9 13.7 Source: NBE

• M2/GDP ratio was calculated on the basis of new GDP series. Source: NBE

National Bank of Ethiopia Annual Bulletin 45 4.2. Developments in Interest Rate In 2011/12 the minimum interest rate on saving deposit was 5 percent and the maximum 5.75 percent. Consequently, average interest rate on savings deposit remained at 5.4 percent. On the other hand, the weighted annual average interest rate on time deposit increased to 5.73 percent from 5.49 percent last year. Average lending rate, however, remained at 11.88 percent. All rates including yield on T-Bills were negative against the year-on-year headline inflation of 20.9 percent during the review fiscal year.

46 National Bank of Ethiopia Table 4.4: Interest Rate Structure of Commercial Banks (In % per annum) Rates 2002/03 2003/04 2005/06 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 Deposit Rate Savings Deposit Minimum Maximum Average* Time deposit Up to 1 year 1 -2 years Over 2 years Average* Demand Deposit (Average*) 3.00 3.15 3.08 3.35 3.62 3.82 3.60 0.04 3.00 3.15 3.08 3.40 3.64 3.84 3.62 0.05 3.00 3.15 3.08 3.60 4.01 4.30 3.97 0.06 3.00 3.15 3.08 3.60 4.01 4.30 3.97 0.06 3.00 3.15 3.08 3.64 4.11 4.49 4.08 0.06 4.00 4.15 4.08 4.67 5.23 5.59 5.16 0.04 4.00 5.00 4.50 4.12 4.48 4.73 4.44 0.06 4.00 5.00 4.50 4.56 4.80 5.01 4.79 0.06 5.04 5.75 5.40 5.37 5.51 5.60 5.49 0.06 5.00 5.75 5.40 5.65 5.74 5.78 5.73 0.03 Lending Rate Minimum Maximum Average* 7.00 14.00 10.50 7.00 14.00 10.50 7.00 14.00 10.50 7.00 14.00 10.50 7.00 14.00 10.50 8.00 15.00 11.50 8.00 16.50 12.25 8.00 16.50 12.25 7.50 16.25 11.88 7.50 16.25 11.88 Real Rate of Interest Deposit 1/ Deposit 2/ Lending/1 T-bills (Nominal) -14.70 1.98 -7.27 1.31 0.70 0.48 8.12 1.05 -7.73 -7.93 -0.30 0.04 -7.73 -7.93 -0.30 0.04 -12.03 -7.83 -4.60 0.50 -51.13 -19.13 -43.70 0.67 1.80 -10.50 9.55 0.80 1.70 -13.70 13.70 0.89 -12.70 -16.40 -6.23 1.31 -28.3 -17.20 -21.80 1.92 Source: NBE 1/ Real saving deposit interest rates and real lending rates computed based on average headline inflation. 2/ Real saving deposit interest rates computed based on average core inflation It is simple average for saving deposit and lending rates, while weighted mean for time and demand deposits .As a result, the movements in the average interest rate on time and demand deposits reflect the change in the proportion of commercial bank deposits that would pay higher interest rate on time and demand deposits, rather than the change in interest rate.

47 National Bank of Ethiopia Val u e in % 14.00 12.00 10.00 8.00 6.00 4.00 2.00 0.00 Fig. IV.4: Interest Rate Structure of Commercial Banks Years Average Saving Deposit Rate Average Time Deposit Rate Average Lending Rate Source: NBE 4.3: Developments in Financial Sector The major financial institutions operating in Ethiopia are banks, insurance companies and micro-finance institutions. The number of banks operating in the country during the fiscal year reached 17, of which 14 were private, and the remaining 3 state-owned. During the fiscal year, 319 new branches were opened raising the total branch network in the country to 1,289 from 970 last year. As a result, bank branch to population ratio declined from 65,415.83 4 people to 62,063.6 in 2011/12. The significant branch expansion was undertaken by Commercial Bank of Ethiopia (CBE) (142 branches), followed by Construction & Business Bank (50 branches), United Bank (19 branches), 4 Taking total population 84 million

National Bank of Ethiopia 48 Abay Bank (17 branches), Awash International Bank (16 branches) and Buna International Bank (14 branches). Hence, the share of private banks branch network was 47.6 percent at the end of 2011/12 slightly down from 50.2 percent last year due to aggressive branch expansion by CBE. The number of bank branches in Addis Ababa, reached 430 showing 23.2 percent growth last year, indicating the booming economic activities in the central city. Following significant capital injection by private banks, mainly Nib International Bank (Birr 259 million), Dashen Bank (Birr 229 million), Wegagen Bank (Birr 176 million), Bank of Abyssinia (Birr 159 million) and Awash International Bank (Birr 153 million), the total capital of the banking industry increased by 12.9 percent to Birr 18 billion by the end of June 2012. As a result, the share of private banks in total capital rose to 49.3 percent from 45.3 percent same period last year. On the other hand, the share of public banks in total capital was 50.7 percent with CBE taking up to 34.6 percent. In the meantime, the number of insurance companies increased to 15 from 14 last year. The number of branches also rose to 243 following the opening of 22 additional branches. Major expansion of branches was undertaken by Berhan Insurance S.C. (6 branches) followed by Ethiopian Insurance Corporation (5 branches), Oromia Insurance S.C. and Tsehay Insurance S.C. each with three branches. About 53.1 percent of insurance branches were located in Addis Ababa. Ownership wise, private insurance companies accounted for 81.1 percent of the total branches.

National Bank of Ethiopia 49 At the same time, the total capital of insurance companies increased by 25.6 percent to Birr 1.2 billion in 2011/12. Private insurance companies accounted for 73.3 percent of the total capital while one public insurance company alone accounted for 26.7 percent. Source: Commercial Banks

National Bank of Ethiopia 50 Table 4.5: Capital and Branch Network of the Banking System at the Close of June 30, 2012 (Branch in Number and Capital in Million Birr) Banks Branch Network Capital 2010/11 2011/12 2010/11 2011/12 Regions Addis Ababa Total % Share Regions Addis Ababa Total % Share Total Capital % Share Total Capital % Share

1. Public Banks Commercial Bank of Ethiopia Construction & Business Bank Development Bank of Ethiopia Total Public Banks 323 17 31 371 94 17 1 112 417 34 32 483 43.0 3.5 3.3 49.8 448 53 31 532 111 31 1 143 559 84 32 675 43.4 6.5 2.5 52.4 6,262.0 277.0 2,179.0 8,718.0 39.3 1.7 13.7 54.7 6,231.0 363.0 2,540.0 9,134.0 34.6 2.0 14.1 50.7
2. Private Banks Awash International Bank Dashen Bank Bank of Abyssinia Wegagen Bank United Bank Nib International Bank Cooperative Bank of Oromiya Lion International Bank Oromia International Bank Zemen Bank Buna International Bank Berhan International Bank Abay Bank Addis International Bank Total Private Banks 36 31 25 29 18 19 38 17 25 0 2 3 7 n/a 250 34 34 32 24 32 32 5 13 11 3 9 7 1 n/a 237 70 65 57 53 50 51 43 30 36 3 11 10 8 0 487 7.2 6.7 5.9 5.5 5.2 5.3 4.4 3.1 3.7 0.3 1.1 1.0 0.8 0.0 50.2 39 38 29 33 29 20 45 19 29 3 14 7 21 1 327 47 37 32 27 40 38 6 17 12 4 11 8 4 4 287 86 75 61 60 69 58 51 36 41 7 25 15 25 5 614 6.7 5.8 4.7 4.7 5.4 4.5 4.0 2.8 3.2 0.5 1.9 1.2 1.9 0.4 47.6 1,104.0 1,152.0 532.0 1,093.0 748.0 983.0 207.0 318.0 265.0 193.0 220.0 138.0 161.0 117.0 7,231.0 6.9 7.2 3.3 6.9 4.7 6.2 1.3 2.0 1.7 1.2 1.4 0.9 1.0 0.7 45.3 1,257.0 1,381.0 691.0 1,269.0 785.0 1,242.0 338.0 357.0 393.0 290.0 257.0 211.0 250.0 155.0 8,876.0 7.0 7.7 3.8 7.0 4.4 6.9 1.9 2.0 2.2 1.6 1.4 1.2 1.4 0.9 49.3 3.Grand Total Banks 621 349 970 100 859 430 1,289 100.0 15,949.0 100 18,010.0 100 Source: Commercial Banks

National Bank of Ethiopia 51 Table.4.6: Branch Network & Capital of Insurance Companies at a close of June 2012. (Branch in Number and Capital in Million Birr) No. Insurance Companies Branch Capital 2010/11 2011/12 2010/11 2011/12 % Change A.A Region s Total A.A Region s Total A B B/A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Ethiopian Insurance Corporation. Awash Insurance S.C. Africa Insurance S.C. National Ins. Co. of Eth. United Insurance S.C Global Insurance S.C Nile Insurance S.C Nyala Insurance S.C Nib Insurance S.C Lion Insurance S.C Ethio-Life Insurance S.C. Oromia Insurance S.C. Abay Insurance S.C. Berhan Insurance S.C Tsehay Insurance S.C 11.0 18.0 6.0 8.0 15.0 6.0 11.0 8.0 14.0 6 0.0 8 1

30.0 11.0 7.0 8.0 8.0 4.0 10.0 8.0 8.0 5 0.0 8 2

41 29 13 16 23 10 21 16 22 11

16 3

11 20 6 9 15 6 11 10 14 6 0 11 1 6 3 35 11 7 8 8 4 10 8 8 5 0 8 2 0 0 46 31 13 17 23 10 21 18 22 11

19 3 6 3 291.0 89.0 81.0 27.9 88.0 27.8 100.3 96.3 87.4 17.3 4.9 23.9 11.4 9.4 0.0 321.0 113.9 96.7 52.5 121.9 29.8 122.9 126.0 102.7 35.2 5.3 39.6 10.4 11.4 10.9 10.3 27.9 19.5 87.8 38.4 7.1 22.6 30.8 17.5 103.3 7.4 65.4 -8.6 20.8

16 Total 112.0 109.0 221.0 129 114 243 955.7 1,200.1 25.6 Source: Insurance Companies Note: A.A represents Addis Ababa

National Bank of Ethiopia 52 Source: Insurance Companies By the end of 2011/12, the number of Micro-finance Institutions (MFIs) operating in the country was 33. Their total capital and total asset remarkably increased by 27.5 and 31 percent and reached Birr 3.8 billion and Birr 13.3 billion, respectively. Similarly their deposit mobilization and credit extension have witnessed a significant growth. Compared to last year, their deposits went up by 44.2 percent to Birr 5.4 billion while their credit provision rose by 32.9 percent to Birr 9.3 billion. The four largest MFI namely Amhara, Dedebit, Oromia and Omo Crediit and Savings institution accounted for 75.4 percent of the total capital, 88.0 percent of the savings, 82.7 percent of the credit and 82.7 percent of the total assets of MFIs at the end of 2011/12, reflecting the existence of low competition in the industry.

National Bank of Ethiopia 53 Table 4.7: Microfinance Institutions Performance as of June 2012 (In Thousands of Birr) Micro-Financing Institutions 2010/11 2011/12 Percentage Change A B B/A Total Capital 2,945,970.0 3,755,479.9 27.5 Saving 3,779,089.0 5,450,593.5 44.2 Credit 6,991,986.0 9,289,642.6 32.9 Total Assets 10,156,387.0 13,308,200.1 31.0 Source: Microfinance Institutions 4.3.1 Resource Mobilization by Banks The total resource mobilized by the banking system in the form of deposit, loan collection and borrowing increased by 16.6 percent and reached Birr 89.2 billion at the end of 2011/12. Spurred by remarkable branch expansion, deposit liabilities of the banking system reached Birr 187.3 billion reflecting annual growth rate of 33.3 percent over last year. Component wise, time deposits registered a significant increase (143 percent) followed by demand deposits (30.2 percent), and saving deposits (27.8 percent). Demand deposits accounted for 49.3 percent of the total deposits followed by saving deposits (44 percent) and time deposit (6.7 percent). The surge in demand deposit over saving deposit indicates the relative increase in transaction demand for money. At the same time the rise in saving deposits reflects the ever growing financial intermediation of banks Despite the opening of 127 new branches by private commercial banks, the share of private banks in deposit mobilization slightly went down to 31.9 percent from 33.3 percent last year. CBE alone mobilized 65.9 percent of the total deposit due to its wider branch network. Raising funds through borrowing by the banking industry was not an important source of resource mobilization as most of the banks were sufficiently liquid due to the surge in deposit mobilization and

National Bank of Ethiopia 54 collection of loans. As a result, total outstanding borrowing at the end of the fiscal year reached Birr 16.9 billion in2011/12 up from Birr 9.7 billion a year earlier. Of the total borrowing, domestic sources accounted for 93.9 percent, while foreign sources took the remaining balance. Loan collection by the banking system stood at Birr 35.2 billion 15.2 percent higher than last year. More than half of 52.5 percent of the loan was collected by public banks

National Bank of Ethiopia Source: Commercial Banks &Staff Computation 55 Particulars 2009/10 2010/11 2011/12 B/A C/B A B C A. Deposits -Demand -Savings -Time T o t a l 46149.0 48049.9 4434.4 98633.3 70842.4 64528.7 5160.6 140531.8 92254.8 82494.6 12541.3 187290.7 53.5 34.3 16.4 42.5 30.2 27.8 143.0 33.3 B. Borrowings -Local -Foreign T o t a l 4665.6 978.7 5644.2 8666.5 1019.4 9686.0 15898.9 1034.1 16933.1 85.8 4.2 71.6 83.5 1.4 74.8 Table 4.8: Annual Resource Mobilization & Disbursement Activities of Commercial Banks and DBE (Specialized Bank) During 2011. (In Million Birr) Particulars 2009/10 2010/11 2011/12 Percent Change Public Banks Private Banks Total (A) Public Banks Private Banks Total (B) Public Banks Private Banks Total (C) C/A C/B

1. Deposits (net change) Demand Savings Time
2. Borrowing (net change) Local Foreign
3. Collection of Loans
4. Total Resources Mobilized (1+2+3)
5. Disbursement
6. Change in Liquidity (4-5) Memorandum Item:
7. Outstanding Credit* 11,863.0 6,813.9 4,574.5 474.5 2,597.5 2,266.1 331.4 10,168.0 24,628.4 13,939.3 10,689.2 33,912.8 8,618.4 2,067.9 6,322.0 228.5

14,898.8 23,517.2 14,965.8 8,551.4 17,720.8 20,481.4 8,881.8 10,896.6 703.0 2,597.5 2,266.1 331.4 25,066.8 48,145.6 28,905.1 19,240.5 51,633.5 30,423.2 19,721.7 10,114.6 586.9 4,041.7 4,001.0 40.8 11,987.8 46,452.7 21,955.8 24,496.9 50,743.5 11,475.2 4,971.7 6,364.2 139.3

18,560.4 30,035.6 20,252.0 9,783.6 26,947.0 41,898.4 24,693.4 16,478.8 726.2 4,041.7 4,001.0 40.8 30,548.2 76,488.4 42,207.9 34,280.5 77,690.5 37,004.6 19,199.2 12,049.3 5,756.0 7,247.1 7,232.4 14.7 18,479.9 62,731.5 36,949.2 25,782.4 79,605.7 9,754.3 2,213.2 5,916.5 1,624.6

16,707.6 26,461.9 19,152.9 7,308.9 36,740.4 46,758.9 21,412.4 17,965.9 7,380.6 7,247.1 7,232.4 14.7 35,187.4 89,193.4 56,102.1 33,091.3 116,346.1 128.3 141.1 64.9 949.8 179.0 219.2 (95.6) 40.4 85.3 94.1 72.0 125.3 11.6 (13.3) 9.0 916.3 79.3 80.8 (63.9) 15.2 16.6 32.9 (3.5) 49.8 Source: Commercial Banks &Staff Computation

• Includes government borrowing in the form of bonds and treasury bills from commercial banks and other sectors other than NBE 4.9: Deposits and Borrowings of Commercial Banks and DBE At June 30, 2012 (In Million Birr)

National Bank of Ethiopia 56 4.3.2 New Lending Activities. Despite the tight monetary policy measures followed by the National Bank of Ethiopia, the fiscal year witnessed a 32.9 percent increase in fresh loan disbursements by banks, (including DBE) which reached Birr 56.1 billion in 2011/12. This was attributed to enhanced deposit mobilization and loan collection of the banks. Of the total new loans disbursed by the banking system, 34.1 percent was by private banks and remainder by public banks. The ratio of new loan disbursement of private banks to their total deposit was 32.1 percent while that of public banks was 29 percent. Regarding loan allocation by sector, 29.4 percent went to industry followed by agriculture (25.3 percent) and domestic trade (17.3 percent), with other sectors taking up the remaining balance. The share of the new loan disbursement to real sector (agriculture, industry and housing & construction) rose from 51.2 percent last year to 63.8 percent in 2011/12 reflecting the shift in loan from trade and other short term loans towards the production sector. Source: Commercial Banks and DBE

National Bank of Ethiopia 57 Table.4.10: Loans and Advances by Lenders 1/ At June 30, 2012 (In Million Birr) Lenders 2010/11 2011/12 D* C* O/S* D* C* O/S* Percentage Change A B C D E F D/A E/B F/C A. Public Banks 1.Commercial Bank of Ethiopia 3. Construction & Business Bank 2.Development Bank of Ethiopia Sub-Total B. Private Banks 4 Awash International Bank 5. Dashen Bank 6. Bank of Abyssinia 7. Wegagen Bank 8. United Bank 9. Nib International Bank 10. Cooperative Bank of Oromia 11. Lion International Bank 12. Oromia International Bank 13. Zemen Bank 14.Berhan International Bank 15.Bunna International Bank 16.Abay Bank 17. Addis International Bank Sub-Total Grand Total 17796.8 367.2 3791.8 21,955.8 4654.0 2912.0 2497.9 2612.0 2557.1 1645.0 660.2 472.9 649.4 817.4 312.4 309.5 152.3 0.0 20,252.0 42,207.9 10156.7 593.8 1237.3 11,987.8 4257.3 2748.1 2338.4 2640.7 2287.4 1724.9 703.6 514.8 465.4 490.0 192.0 187.0 10.8 0.0 18,560.4 30,548.2 34,217.7 1,726.6 11,980.5 47,924.8 3994.8 6141.7 3315.9 2910.0 3277.0 2766.5 799.5 677.0 645.2 661.7 330.0 366.3 161.0 0.0 26,046.6 73,971.4 31940.3 460.8 4548.1 36,949.2 2467.2 3632.4 2101.7 2556.5 2358.1 2093.4 669.0 568.8 786.7 579.5 254.2 472.8 453.0 159.6 19,152.9 56,102.1 15718.4 605.4 2156.1 18,479.9 2204.7 3380.4 1998.0 2370.4 2228.6 1755.5 407.4 454.6 745.8 467.6 165.1 296.5 213.4 19.5 16,707.6 35,187.4 58,327.0 1,803.1 15,120.0 75,250.1 5511.6 8042.0 3897.7 3565.7 4085.4 3708.2 1383.5 970.8 1012.7 1019.6 499.6 649.1 450.4 154.2 34,950.5 110,200.6 79.5 25.5 19.9 68.3 -47.0 24.7 -15.9 -2.1 -7.8 27.3 1.3 20.3 21.2 -29.1 -18.6 52.8 197.5

-5.4 32.9 54.8 2.0 74.3 54.2 -48.2 23.0 -14.6 -10.2 -2.6 1.8 -42.1 -11.7 60.2 -4.6 -14.0 58.6 1876.1

-10.0 15.2 70.5 4.4 26.2 57.0 38.0 30.9 17.5 22.5 24.7 34.0 73.1 43.4 57.0 54.1 51.4 77.2 179.8

34.2 49.0 Source: Commercial Banks & DBE

1. O/S Credit excludes lending to central government D*=Disbursement, C*=Collection, O/S*= Outstanding Credit

National Bank of Ethiopia 58 Table 4.11: Percentage Share of Loans and Advances by Lenders at June 30, 2012 (In Million Birr) Lenders 2010/11 2011/12 D* C* O/S* D* C* O/S* Percentage change A B C D E F D/A E/B F/C Public Banks 35.0 -90.9 831.8 26.6 34.4 -57.5 215.2 33.8 14.4 -89.9 487.8 5.4 1.Commercial Bank of Ethiopia 2.Development Bank of Ethiopia 3. Construction & Business Bank Sub-Total 42.2 9.0 0.9 52.0 33.2 4.1 1.9 39.2 46.3 16.2 2.3 64.8 56.9 0.8 8.1 65.9 44.7 1.7 6.1 52.5 52.9 1.6 13.7 68.3 B. Private Banks 4 Awash International Bank 5. Dashen Bank 6. Bank of Abyssinia 7. Wegagen Bank 8. United Bank 9. Nib International Bank 10. Cooperative Bank of Oromia 11. Lion International Bank 12. Oromia International Bank 13. Zemen Bank 14.Berhan International Bank 15.Bunna International Bank 16. Abay Bank 17. Addis International Bank Sub-Total Grand Total 11.0 6.9 5.9 6.2 6.1 3.9 1.6 1.1 1.5 1.9 0.7 0.7 0.4 0.0 48.0 100.0 13.9 9.0 7.7 8.6 7.5 5.6 2.3 1.7 1.5 1.6 0.6 0.6 0.0 0.0 60.8 100.0 5.4 8.3 4.5 3.9 4.4 3.7 1.1 0.9 0.4 0.5 0.2 0.0 35.2 100.0 4.4 6.5 3.7 4.6 4.2 3.7 1.2 1.0 1.4 1.0 0.5 0.8 0.8 0.3 34.1 100.0 6.3 9.6 5.7 6.7 6.3 5.0 1.2 1.3 2.1 1.3 0.5 0.8 0.6 0.1 47.5 100.0 5.0 7.3 3.5 3.2 3.7 3.4 1.3 0.9 0.5 0.6 0.4 0.1 31.7 100.0 -60.1 -6.2 -36.7 -26.4 -30.6 -4.3 -23.8 -9.5 -8.9 -46.7 -38.8 14.9 123.8 0.0 -28.8 0.0 -55.0 6.8 -25.8 -22.1 -15.4 -11.6 -49.7 -23.3 39.1 -17.1 -25.4 37.7 1615.5 0.0 -21.9 0.0 -7.4 -12.1 -21.1 -17.8 -16.3 -10.0 16.2 -3.7 5.4 3.4 1.6 18.9 87.8 0.0 -9.9 0.0 Source: Commercial Banks & DBE D*=Disbursement, C*=Collection, O/S*= Outstanding Credit 4.3.3 Outstanding Loans Total outstanding credit of the banking system including the central government increased by 49.8 percent and reached Birr 116.3 billion at end June 2012. Gross outstanding claims on the central government and public enterprises surged by 65.2 and 102.3 percent, while claims on the private sector including cooperatives rose by 32 and 64.1 percent, respectively. The sectoral distribution of outstanding loans indicated that credit to Industry accounted for 28.8 percent followed by international trade (21.5 percent) and agriculture (14.8 percent).

National Bank of Ethiopia 59 Table 4.12: Loans & Advances by Economic Sectors 1 Economic Sectors 2010/11 2011/12 Percentage Change D* C* O/S* D* C* O/S* D* C* O/S* A B C D E F D/A E/B F/C Government Deficit Financing Agriculture Industry Domestic Trade International Trade Export Import Hotels and Tourism Transport and Communication Housing and Construction Mines, Power and Water resource Others Personal Interbank Lending 0 8,248.0 10,465.2 6,733.5 10,569.9 5,921.4 4,648.5 395.4 1,850.6 2,900.9 7.3 711.9 311.7 13.66 0 5,114.4 3,556.5 6,148.3 9,943.5 6,078.5 3,895.6 333.1 1,455.4 2,739.5 14.9 729.0 359.4 123.6 3,719.1 10,575.3 20,650.5 7,261.1 18,025.7 7,222.8 10,802.8 1,435.5 3,558.6 9,023.1 37.2 3,076.6 315.0 12.9 0 14,175.4 16,511.9 9,700.7 7,061.3 2,659.5 4,401.8 456.3 1,917.3 5,083.4 16.2 907.0 183.8 88.8 0 8,686.4 5,706.6 6,548.9 7,489.3 2,733.6 4,755.7 433.7 1,724.6 3,440.1 16.3 931.4 174.6 35.5 6,145.6 17,165.6 33,557.3 12,074.7 25,015.6 10,720.6 14,294.8 1,650.5 4,428.9 12,397.4 31.9 3,172.3 430.1 276.4

71.9 57.8 44.1 (33.2) (55.1) (5.3) 15.4 3.6 75.2 123.5 27.4 (41.0) 549.9

69.8 60.5 6.5 (24.7) (55.0) 22.1 30.2 18.5 25.6 9.5 27.8 (51.4) (71.3) 65.2 62.3 62.5 66.3 38.8 48.4 32.3 15.0 24.5 37.4 (14.1) 3.1 36.5 2,038.3 Total 42,207.9 30,548.2 77,690.5 56,102.1 35,187.4 116,346.1 32.9 15.2 49.8 Source: Commercial Banks including DBE & Staff Computation D*=Disbursement, C*=Collection, O/S*= Outstanding Credit 1/ includes lending to central government

National Bank of Ethiopia 60 Source: Commercial Banks including DBE & Staff Computation Table 4.13: Loans and Advances by Borrowers1atst June 30, 2012 (In Million Birr) Borrowing Sector 2008/09 2009/10 2010/11 2011/12 O/S* O/S* O/S* D* C* O/S* Percentage change A B C E F G G/B G/C Central Government 5,628.8 7,600.1 3,719.1 - 0.0 6,145.6 -19.1 65.2 Public Enterprises 8,170.8 8,442.7 13,687.9 13,534.5 3,753.4 27,694.9 228.0 102.3 Cooperatives 3,364.5 5,077.8 8,377.5 12,116.3 8,197.2 13,750.2 170.8 64.1 Private & Individuals 34,041.9 40,910.7 51,893.1 30,362.6 23,201.4 68,479.1 67.4 32.0 Inter-bank Lending 427.5 260.9 12.9 88.8 35.5 276.4 6.0 2038.3 Total 51,633.5 62,292.2 77,690.5 56,102.1 35,187.4 116,346.1 86.8 49.8 Total less Inter-bank Lending 51,206.0 62,031.3 77,677.5 56,013.3 35,151.9 116,069.7 87.1 49.4 Source: Commercial Banks including DBE & Staff Computation D*=Disbursement, C*=Collection, O/S*= Outstanding Credit 1/ Includes lending to central government

National Bank of Ethiopia 61 4.4 Financial Activities of NBE By the end of 2011/12, outstanding claims of NBE on the central government reached Birr 55.56 billion of which direct advances stood at Birr 46.3 billion or 83.3 percent of the total claim, while bond holdings accounted for the remaining 16.7 percent. By the end of 2011/12, the outstanding claim of NBE on DBE rose from Birr 9.3 billion to Birr 12.5 billion. Regarding liabilities of NBE, total deposits at the NBE dropped by 24.4 percent to Birr 30.8 billion due to lower deposits of financial institutions and central government. Table 4.14: Financial Activities of National Bank of Ethiopia at the Close of June 30, 2012 (In Million Birr) Particulars 2009/10 2010/11 2011/12 % Change A B C B/A C/B Loans and Advances (1+2) 1.Claims on Central Government 1.1 Direct Advance 1.2 Bonds 2. Claims on DBE 3. Deposit Liabilities 3.1 Government 3.2 Financial Institutions 45,522.8 45,522.8 36,044.1 9,478.7

27,107.8 6,182.5 20,925.3 61,864.6 55,614.6 46,265.0 9,349.6 6,250.0 40,705.9 10,290.9 30,415.0 68,064.5 55,562.5 46,264.9 9,297.5 12,502.0 30,756.9 10,218.4 20,538.5 35.9 22.2 28.4 -1.4

50.2 66.5 45.4 10.0 -0.1 0.0 -0.6 100.0 -24.4 -0.7 -32.5 Source: NBE and Staff Computation 4.5. Developments in Financial Markets Treasury bill market is the only regular primary market where securities are transacted on a weekly basis. There is no secondary market for the security. Government bonds are also occasionally issued to finance government expenditures and/or to absorb excess liquidity in the banking system.

National Bank of Ethiopia 62 4.5.1 NBE Treasury Bill Market The amount of Treasury-bills offered to the weekly auction market during the fiscal year reached Birr 96.5 billion, depicting 15.7 percent annual growth while total demand increased by 38.4 percent. The amount of T-bills sold during the year was Birr 74.7 billion (96.8 percent of total demand), depicting a 42.8 percent rise. Albeit improved participation of banks in the T-bill market, non-bank institutions continued to dominate in the market by holding 88.1 percent of the total outstanding T-bills. At the end of 2011/12, the total outstanding T-bills went up by 85.4 percent to Birr 20 billion. The average weighted yield for all types of bills increased to 1.87 from 1.13 percent last year. The yields for 28-days, 91-days and 182 days T-bills grew by 73.5, 17.9 and 83.2 percent, respectively over last year.

National Bank of Ethiopia 63 Particulars 2009/10 2010/11 2011/12 Percentage Change A B C C/A C/B Number of Bidders Amount Demanded (Mn.Birr) 28-day bill 91-day bill 182-day bill 364-day bill Amount Supplied (Mn.Birr) 28-day bill 91-day bill 182-day bill 364-day bill Amount Sold (Mn.Birr) Banks Non-Banks Average Weighted Price for Successful bids(Birr) 28-day bill 91-day bill 182-day bill 364-day bill Average Weighted Yeild for Successful bids(%) 28-day bill 91-day bill 182-day bill 364-day bill Outstanding bills at the end of period(Mn.Br.) Banks Non-Banks 280 51,258.015 19,760.000 27,553.755 3,944.260 55,203.315 15,110.000 28,150.495 11,942.820 41,736.415 13,902.000 27,834.415 97.017 99.943 99.757 91.352 0.786 0.750 0.976 0.633 11,566.200 4,400.000 7,166.200 220 55,760.025 30,635.000 22,159.875 2,965.150 83,390.670 41,575.900 35,152.630 6,662.140 52,316.025 20,271.275 32,044.750 99.745 99.886 99.703 99.645 1.126 1.460 1.186 0.732 10,796.620 900.000 9,896.620 406 77,194.810 33,689.070 28,691.740 9,748.000 5,066.000 96,511.875 40,023.990 35,435.585 16,652.300 4,400.000 74,694.810 24,212.670 50,482.140 98.556 99.806 99.653 97.254 97.513 1.866 2.533 1.399 1.342 2.189 20,011.860 2,383.500 17,628.360 45.0 50.600 70.491 4.130 147.144

74.8 164.884 25.879 39.434

79.0 74.167 81.366 1.586 -0.137 -0.105 6.461

137.299 237.809 43.336 112.004

73.020 -45.830 145.993 84.5 38.4 9.969 29.476 228.752

15.7 -3.733 0.805 149.954

42.8 19.443 57.536 -1.192 -0.080 -0.051 -2.400

65.671 73.497 17.944 83.201

85.353 164.833 78.125 Table 4.15: Results of Treasury Bills Auction at June 30, 2012 Source: NBE

National Bank of Ethiopia 64 V alu e in Million s of Birr 4.5.2 NBE Bill Market On April 4, 2011, NBE introduced NBE Bill to mobilize resource from banks to help long term financing of some priority sectors identified as the driving forces for over all economic growth. Since its introduction total NBE bill purchased by the banking sector reached Birr 12.84 billion at the end of the fiscal year. Fig IV.9:Treasury Bills Auction Result 120000.00 3.00 100000.00 2.50 80000.00 2.00 60000.00 1.50 40000.00 1.00 20000.00 0.50 0.00 0.00 Year Demand Supply Average Weighted Yield Source: NBE

National Bank of Ethiopia 65 4.5.3. Bonds Market In recent years, following the strong growth in economic activities and real income, there was strong demand for corporate bonds. As a result, corporate bond holdings of CBE increased by 53.5 percent to Birr 61.8 billion in 2011/12 from Birr 40.3 billion a year ago. Corporate bonds of EEPCO accounted for 79.2 percent, regional states and DBE 17.8 percent and 3 percent, of total bond holdings by CBE. Public institutions and regional governments are the sole issues of corporate bonds. Table 4.16: Disbursement, Redemption and Outstanding of Coupon and Corporate Bond Purchases by the Banking System at the end of June 30, 2012 (In Millions of Birr) Particulars Annual Percentage Change 2010/11 2011/12 A B B/A

1. Corporate Bond Purchases by holders EEPCO Regional governments Development Bank of Ethiopia Private Sector
2. Redemption of Bonds by Clients EEPCO Regional governments Development Bank of Ethiopia Private Sector
3. Outstanding Bonds by Clients EEPCO Regional governments Development Bank of Ethiopia Private Sector 18,157.0 13,000.0 3,007.0 2,150.0 5,611.7 0.0 1,167.1 4,444.6 40,258.3 29,600.0 8,858.3 1,800.0 23,501.0 19,300.0 4,101.0 100.0 1,740.3 0.0 1,740.3 0.0 61,786.7 48,900.0 11,015.8 1,870.9 29.4 48.5 36.4 -95.3 -69.0 0.0 49.1 -100.0 53.5 65.2 24.4 3.9 Source: Commercial Bank of Ethiopia

National Bank of Ethiopia 66 4.5.4. Inter-bank Money Market The interbank money market was not active in Ethiopia due to the existence of excess reserves in the banking system. Accordingly, no inter-bank money market transaction has been conducted since April 2008. Since the introduction of the interbank money market in September 1998, merely twenty three transactions to the tune of Birr 259.2 million were conducted with interest rates ranging between 7 to 11 percent per year. The maturity period of these loans widely spanned from overnight to 5 years. Table 4.17: Interbank Money Market Transactions up to June 30, 2012 Amount Borrowed (In Interest Rate Date of Maturity Borrower Lender Thousand Birr) % Transaction Period Nib International Bank Awash International Bank 7,000.0 11 16/11/00 Overnight Wegagen Bank Commercial Bank of Ethiopia 10,000.0 8 3/1/2001 5 years Nib International Bank ,, 10,000.0 8 3/31/2001 3 months Wegagen Bank ,, 10,000.0 8 3/22/2001 1 year Nib International Bank ,, 3,600.0 8 5/31/2001 6 months Nib International Bank ,, 3,700.0 8 06/31/01 6 months Nib International Bank ,, 778.0 8 30-11-2001 6 months Nib International Bank Bank of Abyssinia 28,999.8 7 31/12/02 3.5 months Nib International Bank Bank of Abyssinia 19,046.9 7 31/01/03 3.5 months Nib International Bank Bank of Abyssinia 20,310.0 7 28/02/03 3.5 months Nib International Bank Bank of Abyssinia 28,987.0 7 31/03/03 3.5 months Nib International Bank Commercial Bank of Ethiopia 25,000.0 7.5 7/7/2003 5.2 months Nib International Bank Bank of Abyssinia 50.1 7.5 26/03/2005 open Nib International Bank Bank of Abyssinia 50.5 7.5 26/03/2005 open Wegagen Bank Awash International Bank 19,744.6 7.5 December, 2006 21/05/07 Wegagen Bank Awash International Bank 19,870.4 7.5 January, 2007 21/05/07 Wegagen Bank Awash International Bank 10,937.2 7.5 February, 2007 21/05/07 Awash International Bank Nib International Bank 30,000.0 7.5 February, 2007 18/08/07 Wegagen Bank Awash International Bank 10,931.4 7.5 March, 2007 21/05/07 Nib International Bank Awash International Bank 142.0 8.5 January, 2008 25/4/08 Nib International Bank Awash International Bank 7.0 8.5 February, 2008 25/04/08 Nib International Bank Awash International Bank 3.0 8.5 March, 2008 25/04/08 Nib International Bank Awash International Bank 17.0 8.5 April,2008 25/04/08 Total/Average - 259,174.8 7.87 - - Source: NBE

National Bank of Ethiopia 67 V. DEVELOPMENTS IN EXTERNAL SECTOR 5.1 Overall Balance of Payments The overall balance of payments in 2011/12 recorded a deficit of USD 972.8 million in contrast to USD 1.4 billion surplus registered in the preceding year. The trade deficit also widened by 43.6 percent during the review period owing to a 34 percent growth in merchandise imports compared to moderate increase (14.8 percent) in merchandise exports. Meanwhile, although net private transfers improved in the same period, the current account deficit worsened to USD 2.8 billion from USD 210.6 million in the previous year. As a result, net transfers to GDP ratio declined to 11.8 percent from 14.7 percent a year ago.

National Bank of Ethiopia 68 Table 5.1: Balance of Payments (In Millions of USD) S/N Particulars 2009/10 2010/11 2011/12 Percentage Change A B C B/A C/B 1 Exports,f.o.b. 2,003.1 2,747.1 3,152.7 37.1 14.8 Coffee 528.3 841.8 833.0 59.3 -1.0 Other 1,474.8 1,905.3 2,319.7 29.2 21.7 2 Imports 8,268.9 8,253.3 11,061.2 -0.2 34.0 Fuel 1,310.7 1,659.3 2,124.7 26.6 28.0 Cereals 513.1 196.0 652.5 -61.8 232.9 Aircraft 0.8 24.7 42.1 2,987.5 70.6 Imports excl. fuel, cereals, aircraft 6,444.3 6,373.3 8,241.8 -1.1 29.3 3 Trade Balance (1-2) -6,265.8 -5,506.2 -7,908.5 -12.1 43.6 4 Services,net 457.4 688.1 74.9 50.4 -89.1 Non-factor services, net 513 757.6 171.1 47.7 -77.4 Exports of non-factor services 2,044.0 2,585.5 2,810.5 26.5 8.7 Imports of non-factor services 1531 1,827.9 2,639.4 19.4 44.4 Income, net -55.3 -69.5 -96.2 25.7 38.4 O/w Gross official int. payment 31.9 51.9 89.1 62.7 71.7 Dividend -26.6 -28.1 -15.5 5.6 -44.8 5 Private transfers 2,709.6 2,746.7 3,245.8 1.4 18.2 o/w: Private Individuals 1,847.3 1,886.3 1,945.9 2.1 3.2 6 Current account balance (3+4+5) -3,098.8 -2,071.4 -4,587.8 -33.16 121.48445 Current account balance (excluding official transfers) %age of GDP -10.4 -6.6 -10.7 7 Official transfers 1,905.6 1,860.7 1,787.9 -2.4 -3.9 8 Current account balance (6+7) -1,193.2 -210.6 -2,799.8 -82.3 1,229.3 Current account balance as %age of GDP -4.0 -0.7 -6.6 9 Capital account 1,996.2 2,535.5 2,119.8 27.0 -16.4 Off. Long-term Cap., net 857.16 1,019.3 937.8 18.9 -8.0 Disbursements 893.96 1,054.5 1,007.0 18.0 -4.5 Amortization 36.8 35.2 69.2 -4.3 96.7 Other pub. long-term cap. 186.4 430.3 230.8 130.8 -46.4 Foreign Direct Investment(net) 956.4 1,242.5 1,072.1 29.9 -13.7 Sht-trm Capital -3.8 -156.6 -120.9 10 Errors and omissions -486.3 -940.7 -292.7 11 Overall balance (8+9+10) 316.6 1,384.2 -972.8 12 Financing -316.6 -1,384.2 972.8 13 Reserves (-; Increase) -304.6 -1,375.8 980.8 14 Central Bank (NFA) 57.8 -932.2 846.5 Asset -397.7 -1,065.0 810.0 Liabilities 455.5 132.8 36.6 15 Commercial banks (net) -362.4 -443.6 134.3 16 Debt Relief -12.0 -8.4 -8.0 Principal 9.8 7.8 6.7 Interest 2.2 0.6 1.3 Source: NBE Staff Compilation

National Bank of Ethiopia 69 Table 5.2: Components of External Trade as Percentage of GDP Particulars 2009/10 2010/11 2011/12 Percentage Change A B C B/A C/B Exports 6.7 8.7 9.5 29.9 9.2 Imports 27.8 26.0 33.2 -6.5 27.7 Trade Balance -21.1 -17.4 -23.7 -17.5 36.2 Net Services 1.5 2.2 0.2 40.9 -89.6 Net Private Transfers 15.5 14.5 15.1 -6.5 3.9 Current Account Deficit (excluding official transfers) -10.4 -6.5 -13.8 -37.4 110.6 Current Account Deficit (including official transfers) -4.0 -0.7 -8.4 Source: NBE Staff Compilation Source: NBE Staff Computations

National Bank of Ethiopia 70 5.2 Developments in Merchandise Trade The deficit in merchandise trade during 2011/12 was widened by 42.8 percent to USD 7.9 billion, relative to the preceding fiscal year mainly due to higher growth in total imports than total exports. Compared to same period last year, export to GDP ratio and import to GDP ratios was declined by 1.3 and 0.4 percentage points respectively from 8.7 percent and 26.3 percent last year. 5.2.1 Exports Total export proceeds during 2011/12 amounted to USD 3.15 billion, about 14.8 percent higher than the previous fiscal year. The growth was largely attributed to increased earnings from oilseeds (44.6 percent), gold (30.5 percent), live animals (40 percent), pulses (15.8 percent), flower (12.4 percent), meat & meat products (24.5 percent), fruits and vegetables (42.7 percent), leather & leather products (5.9 percent), and chat (0.8 percent). Earnings from export of oilseeds grew by 44.6 percent and reached USD 472.3 million, as a result of significant increment in volume of export (44.6 percent) and marginal improvement in international price (0.03 percent). Revenue from gold rose by 30.5 percent annually to USD 602.4 million driven by 9 percent growth in volume and 19.7 percent increase in international price. Revenue from gold accounted for 19.1 percent of total export earnings. Export of live animals earned USD 207.1 million, depicting a 40 percent growth over the preceding year owing to a rise in the volume of exports (28.4 percent) and higher international price (9 percent). Earnings from live animals contributed 6.6 percent of the total merchandise export proceeds. Driven by marginal improvement in the volume of export (0.7 percent) and moderate rise in international price (15 percent); export proceeds from pulses increased by 15.8 percent to USD 159.7 million accounting for 5.1 percent of the total merchandise exports.

National Bank of Ethiopia 71 Earning from flower was USD 197 million, 12.4 percent higher than a year ago owing to 12.6 percent growth in volume despite 0.2 percent decline in world price. The share of flower export in total export revenue was 6.3 percent, down from 8.5 and 6.4 percent in the last consecutive two years, respectively. Similarly, earnings from export of meat & meat products rose by 24.5 percent to USD 78.8 million as a result of 4.7 percent growth in volume and 19 percent increase in international price. As a result, revenue from this export item accounted for 2.5 percent of the total export, earnings. Earnings from export of fruits and vegetables at USD 44.9 million showed a 42.7 percent annual growth driven by higher volume of exports (34.9 percent) and international price (5.8 percent). Fruits and vegetables export accounted for 1.4 percent of the total export revenue. Table 5.3: Values of Major Export Items (In Millions of USD) Particulars 2009/10 2010/11 2011/12 Percentage Change Value Share (%) Value Share (%) Value Share (%) A B C C/B C/A Coffee Oilseeds Leather & Leather products Pulses Meat & Meat Products Fruits & Vegetables Live Animals Chat Gold Flower Others 528.3 358.5 56.4 130.1 34.0 31.5 90.7 209.5 281.4 170.2 112.5 26.4 17.9 2.8 6.5 1.7 1.6 4.5 10.5 14.0 8.5 5.6 841.8 326.6 103.8 137.9 63.3 31.5 147.9 238.3 461.7 175.3 219.1 30.6 11.9 3.8 5.0 2.3 1.1 5.4 8.7 16.8 6.4 8.0 833.1 472.3 109.9 159.7 78.8 44.9 207.1 240.3 602.4 197.0 207.1 26.4 15.0 3.5 5.1 2.5 1.4 6.6 7.6 19.1 6.2 6.6 -1.0 44.6 5.9 15.8 24.5 42.7 40.0 0.8 30.5 12.4 -5.4 57.7 31.7 95.0 22.7 131.8 42.8 128.2 14.7 114.1 15.7 84.1 Total 2003.1 100.0 2747.1 100.0 3152.7 100.0 14.8 57.4 Source: Ethiopian Revenue and Customs Authority Leather & leather products earned USD 109.9 million, about 5.9 percent higher than the previous year. This increment ascribed to a 23.4 percent rise in international price despite 14.2 percent decline in volume. However, their share in the total export declined to 3.5 percent from 3.8 percent in the previous period.

National Bank of Ethiopia 72 Export of chat rose slightly by 0.8 percent and reached USD 240.3 million owing to marginal increase in volume and improved price. The share of Chat in total export was 7.6 percent. Revenue, from export of coffee declined by 1 percent in 2011/12 and amounted to USD 833.0 million. This slight fall in export proceeds from coffee was solely attributed to the 13.6 percent decline in volume of export despite higher price. As a result, the share of coffee in total exports went down to 26.4 percent from 30.6 percent last year. Source: Ethiopian Revenue and Customs Authority

National Bank of Ethiopia 73 Particulars 2009/10 2010/11 2011/12 Percentage Change A B C C/B C/A Coffee Oilseeds Leather and Leather products Pulses Meat & Meat Products Fruits & Vegetables Live Animals Chat Gold Flower 172.2 299.0 2.9 225.7 10.2 66.3 67.9 36.1 0.0089 36.0 196.1 254.2 5.2 224.5 16.9 91.6 112.8 41.0 0.0112 41.6 169.4 367.4 4.4 226.2 17.7 123.5 144.9 41.1 0.0122 46.8 -13.6 44.6 -14.2 0.7 4.7 34.9 28.4 0.2 9.00 12.6 -1.6 22.9 52.6 0.2 73.5 86.2 113.3 13.8 36.76 30.1 Source: NBE Staff Compilation Table 5.4: Volume of Major Exports (In Millions of K.G.) Source: Ethiopian Revenue and Customs Authority

National Bank of Ethiopia 74 Source: Ethiopian Revenue and Customs Authority Table 5.5: Unit Value of Major Exports (In USD per K.G.) 2009/10 2010/11 2011/12 Percentage Change A B C C/B C/A Coffee Oilseeds Leather and Leather products a Pulses Meat & Meat Products Fruits & Vegetables Live Animals Chat Gold Flower 3.1 1.199 19.4 0.58 3.3 0.47 1.34 5.81 31.6 4.73 4.3 1.285 20.1 0.61 3.8 0.34 1.31 5.82 41.3 4.22 4.9 1.285 24.8 0.71 4.5 0.36 1.43 5.85 49.4 4.21 14.6 0.03 23.4 15.0 19.0 5.8 9.0 0.6 19.7 -0.2 60.3 7.2 27.7 22.5 33.6 -23.3 7.0 0.8 56.5 -11.1 Source: Calculated from Tables 5.3 and 5.4

National Bank of Ethiopia 75 Source: NBE Staff Compilation 5.2.2. Imports Compared to last year, total merchandise import in 2011/12 surged by 33.8 percent to USD 11.06 billion owing to growth in imports of consumer goods (53.9 percent), fuel (28.1 percent), and semi￾finished goods (59.4 percent), capital goods (7.4 percent) and raw materials (8.4 percent). Imports of consumer goods rose considerably by 53.9 percent mainly due to 70.1 percent increment in imports of non-durable goods. The boost in imports of cereals (232.9 percent) was the main factor for higher import of non-durably. Consequently, the share of consumer goods in total imports increased to 31.9 percent from 27.8 percent in the preceding year. Similarly, fuel import bill rose by 28.1 percent in 2011/12 and amounted to USD 2.12 billion. This was due to higher volume of export (20.4 percent) and improvement in international fuel price (16.6 percent) 5 . As a result, the share of fuel in total import bill went down to 19.2 percent from 20.1 percent recorded last year same period. 5 Information on international fuel price was obtained from U.S. Energy Information Administration

National Bank of Ethiopia 76 Meanwhile, import of capital goods increased by 7.4 percent over the previous year and amounted to USD 2.96 billion. The increase was due to a rise in import of transport goods (17.7 percent), agricultural goods (87.9 percent) and industrial goods (1.4 percent). Capital goods import accounted for 26.8 percent of the total import during the period. Table 5.6: Value of Imports by End Use Import bill of semi-finished goods was USD 1.96 billion, which was 59.4 percent higher than last year. Import of fertilizer surged by 76.6 percent and reached USD 604.6 million, driven by the rising global prices and increased volume of imports. During that time, raw material imports rose by 8.7 percent relative to the preceding year and constituted 1.8 percent of the total imports. (In Millions of USD) Categories 2009/10 2010/11 2011/12 Percentage Value Change Share (%) Value Share (%) Value Share (%) A B C C/B C/A Raw Materials Semi-finished Goods Fertilizers Fuel Petroleum Products Others Capital Goods Transport Agricultural Industrial Consumer Goods Durables Non-durables Miscellaneous 212.4 1,226.5 249.4 1,310.7 1,303.0 7.7 2,886.3 509.8 59.8 2,316.7 2,515.7 865.0 1,650.7 117.3 2.6 14.8 3.0 15.9 15.8 0.1 34.9 6.2 0.7 28.0 30.4 10.5 20.0 1.4 183.7 1,228.0 342.4 1,659.3 1,648.8 10.5 2,757.0 688.1 63.6 2,005.4 2,294.8 868.5 1,426.3 130.5 2.2 14.9 4.1 20.1 20.0 0.1 33.4 8.3 0.8 24.3 27.8 10.5 17.3 1.6 199.7 1,957.2 604.6 2,124.8 2,078.3 46.4 2,961.7 809.7 119.5 2,032.5 3,531.7 1,105.3 2,426.4 286.3 1.8 17.7 5.5 19.2 18.8 0.4 26.8 7.3 1.1 18.4 31.9 10.0 21.9 2.6 8.7 59.4 76.6 28.1 26.1 340.5 7.4 17.7 87.9 1.4 53.9 27.3 70.1 119.3 -6.0 59.6 142.4 62.1 59.5 502.9 2.6 58.8 99.8 -12.3 40.4 27.8 47.0 144.0 Total Imports 8,268.9 100.0 8,253.3 100.0 11,061.2 100.0 34.0 33.8 Source: Ethiopian Revenue and Customs Authority

National Bank of Ethiopia 77 5.2.3 Direction of Trade Ethiopia’s merchandise exports have vast market in Europe, accounting for 47.1 percent of the total merchandise exports. Within European countries, Switzerland, accounting for about 38.6 percent of the total exports, was the largest market mainly for gold. Germany, the second important market in the continent accounting for 20.7 percent, mainly imported coffee, textile & garments, flower and leather & leather products. The Netherlands, constituting 14.6 percent of Ethiopia’s export to Europe, was an important export destination primarily for flower, gold, vegetable and coffee. Italy with 5.4 percent of the total Ethiopian exports to the Europe was the market for coffee, leather & leather products, textile & garment and pulses. About 30 percent of the total Ethiopian exports were shipped to Asian market, of which China accounted for 34.6 percent, Saudi Arabia 21.7 percent, United Arab Emirates 8.1 percent, Israel 6.4 percent and Japan 4.8 percent. The prime export items shipped to China included oilseeds, leather & leather products, mineral products, natural gums and vegetables. Coffee, meat & meat products, oilseeds, live animals and flower were exported to Saudi Arabia. Meat & meat products, pulses, live animals, oilseeds, vegetables, natural gum, flower and food were the major export products sold to United Arab Emirates. Israel bought mainly oilseeds, coffee and vegetables while Japan imported mainly coffee, oilseeds, and flower. Meanwhile, about 18.9 percent of Ethiopia’s total exports went to African nations of which Somalia, Sudan, Djibouti, and Egypt together accounted for 93.3 percent of the total exports to the continent. Exports to Somalia mainly included vegetables, live animals and chat. Live animals, coffee, pulses and spices were the main exports to Sudan. Djibouti imported vegetables, live animals, chat, textile & garments, fruits and pulses whilst Egypt bought live animals, oilseeds, meat & meat products and pulses. Ethiopia’s exports to American accounted for 3.4 percent of the total export during

National Bank of Ethiopia 78 2011/12 of which United States and Canada together made up 92.5 percent. The United States imported mainly coffee, oilseeds, mineral products and leather & leather products while Canada mainly bought coffee. Asia 30% Fig VI.6 Export by Destinations Oceania 0.6% Africa 18.9% America 3.4% Europe 47.1% Source: NBE staff compilation

National Bank of Ethiopia 79 Concerning Ethiopia’s imports, about 65.4 percent of the total merchandise imports in 2011/12 originated from Asia, 23 percent from Europe, 6.2 percent from America and 5.1 percent from Africa. Among Asian countries, China accounted for 25.4 percent, Saudi Arabia 21.2 percent, India 12.8 percent, Kuwait 6.6 percent, Japan 6.3 percent, and Indonesia 3.9 percent. The prime imports from China included machinery & aircraft, metal and metal manufacturing, road & motor vehicles, electric materials, clothing, textiles and rubber products. Petroleum products were the major imports from Saudi Arabia which accounted for 67 percent of the total petroleum import of the nation in 2011/12. The share of European countries in total imports was just 23 percent, of which 79.4 percent came from six countries; namely, Italy (15.4 percent), Turkey (14.7 percent), Russia (14.1 percent), Ukraine (12.3 percent), Germany (7.1 percent) and France (5.8 percent). Machinery & aircraft, road & motor vehicles, grain, metals & metal manufacturing and electrical materials were imported from Italy. Metal & metal manufacturing, machinery & aircraft and electrical materials were bought from Turkey. The major imports from Russia were grain and fertilizer while fertilizer, metal & metal manufacturing, road & motor vehicles and grain were the principal imports from Ukraine. Machinery & aircraft, road & motor vehicles, metal & metal manufacturing, medical & pharmaceutical and electrical materials import were imported from Germany. Electrical materials, machinery & aircraft and metal & metal manufacturing were imported from France. Spain mainly exported electrical materials, road & motor vehicles, metal & metal manufacturing and machinery & aircraft to Ethiopia. About 85.1 percent of Ethiopian imports from America were from USA and Brazil. These imports mainly include glass & glass ware, machinery & aircraft, road & motor vehicles, grain and medical & pharmaceutical imports. African countries were the sources of 5.1 percent of the total Ethiopian imports. The major imports were from Morocco (32.1 percent), South Africa (20.9 percent), Sudan (19.4 percent), and Egypt (15.9 percent) which altogether accounted

National Bank of Ethiopia 80 for 88.3 percent of the total import from Africa. Import from Morocco was mainly fertilizer. Road & motor vehicles, food & live animals, machinery & aircraft, medical and pharmaceutical products, metal & metal manufacturing, paper & paper manufacturing, fertilizer, grain and beverages were the major imports from South Africa. Petroleum products were the main import from Sudan. Imports from Egypt included metal & metal manufacturing, petroleum products, rubber products, food & live animals, paper & paper manufacturing. Fig. VI. 7 Import by Origin Asia 65.4% Oceania 0.2% Africa 5.1% Europe 23% America 6.2% Source: NBE staff compilation 5.3 Services and Transfers 5.3.1 Services In 2011/12, net services account recorded USD 74.9 million inflow, showing 89.1 percent fall compared to the preceding year on account of higher net payments and decline in government and travel services. 5.3.2 Unrequited Transfers Net transfers in 2011/12 improved by 9.3 percent, owing to 52.2percent increment in NGO transfers (both cash and food aid) and 3.2 percent private individual transfers mainly cash component. Official transfers, however tended to decline.

National Bank of Ethiopia 81 Table 5.7 Services Accounts (In Millions of USD) S/N Particulars 2009/10 2010/11 2011/12 Percentage Change A B C -96.2 -80.7 8.4 89.1 -15.5 171.1 2,810.5 680.9 1,690.8 212.1 226.7 2,639.4 188.2 1,355.7 10.2 1,085.3 74.9 492.6 335.1 202.0 -858.6 -96.2 B/A C/B 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Investment Income (2+5) Interest, net (3-4) Credit Debit Dividend, net OTHER SERVICES, net (7-8) Exports of non-factor servies Travel Transport 1 Gov't 2 Other 3 Imports of non-factor servies Travel Transport 1 Gov't 2 Other 3 Net Services (10+11+12+13+14) Travel Transport Gov't Other Investment Income -55.3 -28.7 3.2 31.9 -26.6 513.0 2,044.0 360.1 1,101.3 252.6 330.0 1,531.0 135.9 859.9 27.5 507.7 457.4 224.1 241.3 225.1 -177.8 -55.3 -69.5 -41.4 10.5 51.9 -28.1 757.6 2,585.5 722.7 1,319.8 262.0 281.0 1,827.9 147.8 997.3 14.6 668.2 688.1 574.9 322.5 247.4 -387.2 -69.5 25.7 44.3 228.1 62.7 5.6 47.7 26.5 100.7 19.8 3.7 -14.8 19.4 8.8 16.0 -46.9 31.6 50.4 156.5 33.7 9.9 117.8 25.7 38.4 94.9 -20.0 71.7 -44.8 -77.4 8.7 -5.8 28.1 -19.0 -19.3 44.4 27.3 35.9 -30.1 62.4 -89.1 -14.3 3.9 -18.4 121.7 38.4 Source: MOFED, Transport and Telecommunication Companies, NBE- FEMEMD and Staff Compilation.

National Bank of Ethiopia 82 Table 5.8 Unrequited Transfers (In Millions of USD) No. Particulars 2009/10 2010/11 2011/12 Percentage Change A % Share B % Share C % Share B/A C/B 1 1.1 1.2 2. 2.1 2.2 Private Transfers Receipts NGOs Cash Other Food Private individuals Cash In kind Underground Transfers(in kind) Payments Official Transfers Receipts Cash Other Food Payments 2,709.7 2,736.2 888.9 860.5 28.4 0.0 1,847.3 790.3 96.7 960.3 -26.6 1,905.6 1,914.7 1,741.5 0.0 173.2 -9.1 58.7 58.8 19.1 18.5 0.6 0.0 39.7 17.0 2.1 20.6 74.5 41.3 41.2 37.4 0.0 3.7 25.5 2,746.7 2,788.1 901.8 893.5 0.0 8.3 1,886.3 1,066.4 63.9 756.0 -41.4 1,860.8 1,893.7 1,863.5 0.0 30.1 -32.9 59.6 59.6 19.3 19.1 0.0 0.2 40.3 22.8 1.4 16.1 55.7 40.4 40.4 39.8 0.0 0.6 44.3 3,245.9 3,318.4 1,372.5 1,186.6 0.0 185.9 1,945.9 1,347.5 70.8 527.6 -72.5 1,787.9 1,812.1 1,692.3 0.0 119.8 -24.2 64.5 64.7 26.8 23.1 0.0 3.6 37.9 26.3 1.4 10.3 75.0 35.5 35.3 33.0 0.0 2.3 25.0 1.4 1.9 1.5 3.8 2.1 34.9 -33.9 -21.3 55.9 -2.3 -1.1 7.0 -82.6 261.6 18.2 19.0 52.2 32.8 3.2 26.4 10.7 -30.2 75.0 -3.9 -4.3 -9.2 297.4 -26.5 Total Net Transfers 4,615.2 100 4,607.5 100 5,033.8 100 -0.2 9.3 Source: Disaster Prevention and Preparedness Agency, MoFED and NBE Net official transfers declined by 3.9 percent owing to lower grants from both international financial institutions and bilateral donors. Cash component of official transfers declined by 9.2 percent to USD 1.7 billion while food aid increased to USD 119.8 million compared to USD 30.1 million in the previous year. 5.4. Current Account As a result of widening trade balance, decline in net services and public transfers, the current account deficit widened to USD 2.8 billion in 2011/12 from USD 210.6 million deficits recorded last fiscal year.

National Bank of Ethiopia 83 5.5 Capital Account In 2011/12, the balance in capital account showed a surplus of USD 2.12 billion, about 16.4 percent lower than that of last year owing to a fall in official and other public long term net capital inflows Likewise, foreign direct investment declined by 13.7 percent compared to last year. 5.6 Changes in Reserve Position Net foreign assets of the banking system at the end of 2011/12 recorded a reserve drawdown of USD 972.8 million, due to decreases in the net foreign assets of NBE and commercial banks. The gross international reserve of NBE was adequate to cover 1.9 months of imports of goods and non-factor services. 5.7 External Debt External debt stock of the country at the end of 2011/12 amounted to USD 8.8 billion, depicting a 20.9 percent increase over the preceding year. This was attributed largely to higher debt owed to multilateral (USD 4 billion) and bilateral creditors (USD 2.2 billion). Hence, the country’s external debt stock to GDP ratio rose to 26.5 percent from 23.1 percent in 2010/11. Debt stock to total receipts from export of goods and non-factor services ratio also slightly rose to 1.5 percent in from 1.4 percent a year ago. Similarly, commercial debt stock, reached USD2.6 billion in 2011/12. It accounted for 29.6 percent of the total debt stock and showed a 23.9 percent annual growth. Of the total debt stock, 45.3 percent was owed to multilateral and 25.2 percent to bilateral creditors. The country’s external debt burden as measured by debt services to export of goods and services ratio increased to 7.1 percent from 3.6 percent in the same period last year.

National Bank of Ethiopia 84 Table 5.9: External Public Debt (In Million of USD) Particulars 2009/10 2010/11 2011/12 Percentage Change A B C B/A C/B Debt Outstanding Lender Total 5,569.8 7,318.8 8,846.3 31.4 20.9 Multilateral 2,729.1 3,480.9 4,001.1 27.5 14.9 Bilateral 1,389.7 1,724.5 2,227.5 24.1 29.2 Commercial 1,451.0 2,113.4 2,617.7 45.7 23.9 Drawing by Lender 1,601.2 1,148.5 1,471.8 -28.3 28.1 Lender Total 1,601.2 1,148.5 1,471.8 -28.3 28.1 Drawing by Sector 1,601.2 1,148.5 1,471.8 -28.3 28.1 Sector Total 1,601.2 1,148.5 1,471.8 -28.3 28.1 Debt Service 106.7 204.5 391.8 91.6 91.6 Principal repayments 74.5 151.6 302.1 103.5 99.3 Interest payments 32.2 52.9 89.7 64.1 69.7 Debt stock to GDP ratio (in percent ) 18.7 23.1 26.5 23.1 14.9 Debt stock to export of goods and non-factor services 1.4 1.4 1.5 -0.5 8.2 Receipts from goods and non-factor services 4,047.0 5,605.6 5557.6 38.5 -0.9 Debt service ratio ( percent ) 1/ 2.6 3.6 7.1 38.3 93.3 Arrears 0.0 Principal 0.0 Interest 0.0 Relief 12.0 8.4 8.0 -29.8 -5.5 Principal 9.8 7.8 6.7 -20.2 -14.1 Interest 2.2 0.6 1.3 -72.6 106.7 Source: MoFED 1/ Ratio of debt service to receipts from export of goods and non-factor services Note: Outstanding as at end period. Developments in Foreign Exchange Markets Developments in Nominal Exchange Rate In the inter-bank foreign exchange market, the average weighted exchange rate of the Birr depreciated by 7.1 percent year-on￾year to reach Birr 17.2536/USD 8.8 percent annual depreciation. (Table 5.9). Similarly, the Birr weakened in the parallel foreign exchange market to Birr17.9883/USD on average, showing 8.8 percent annual depreciation.

National Bank of Ethiopia 85 As a result, the average spread between the official and parallel market rates widened to 4.3 percent from 2.6 percent the previous year, mainly due to relatively faster depreciation of the Birr in the parallel market. Table 5.9 Inter-Bank and Parallel Forex Market Exchange Rates Period Average Weighted Rate Amount Traded in millions of USD Number of Trades Average Rates in Parallel Total Market o/w Among CBs Total o/w Among CBs 2009/10 Qtr. I Qtr. II Qtr. III Qtr. IV 12.8909 12.3746 12.5851 13.1342 13.4697 12.6 3.3 3.3 3.0 3.1 0.0 252.0 65.0 66.0 60.0 61.0 0.0 13.6806 13.2933 13.3933 13.8495 14.1863 2010/11 Qtr. I Qtr. II Qtr. III Qtr. IV 16.1178 14.5535 16.4667 16.6342 16.8169 90.2 3.2 3.3 3.0 80.8 25.1 0.0 25.1 284.0 64.0 65.0 60.0 95.0 11.0 0.0 11.0 16.5292 14.9833 16.9567 17.1067 17.0700 2011/12 Qtr. I Qtr. II Qtr.III Qtr. IV 17.2536 17.0011 17.1522 17.3107 17.5503 152.2 80.3 17.5 41.4 13.1 90.9 28.6 14.2 38.2 10.0 292.0 75.0 73.0 78.0 66.0 37.0 10.0 8.0 15.0 4.0 17.9883 17.3900 17.8333 18.2400 18.4900 Source: NBE, Foreign Exchange Monitoring & Reserve Management Directorate and staff compilation Reflecting the depreciation of the exchange rate of the Birr in the inter-bank foreign exchange market, the average retail buying and selling rates of forex bureau also depreciated by 2.6 percent each and stood at Birr 17.2531/USD and Birr 17.6002/USD, respectively. The average premium between forex bureau’s buying and selling rates, however, remained stable at 2 percent (Table 5.13).

National Bank of Ethiopia 86 Table 5.10: End Period Mid Market Rates (USD per Unit of Foreign Currency) Currency 2009/10 2010/11 2011/12 Percentage change A B C C/B C/A Pound 1.5052 1.6036 1.5563 -2.9 3.4 Swedish Kroner 0.1279 0.1566 0.1416 -9.6 10.7 Djibouti Frank 0.0057 0.0056 0.0056 0.0 -2.2 Swiss Frank 0.9190 1.1989 1.0365 -13.5 12.8 Saudi Riyal 0.2666 0.0 0.0 UAE Dirhams 0.2723 0.2723 0.2722 0.0 0.0 Canadian Dollar 0.9523 1.0274 0.9745 -5.2 2.3 Japanese Yen 0.0113 0.0123 0.0126 2.0 11.7 Euro 1.2187 1.4434 1.2450 -13.7 2.2 SDR 1.4796 1.5903 1.5139 -4.8 2.3 Source: Staff Compilation Table 5.11: Mid Market End Period Rates (Birr per Unit of Foreign Currency) Currency 2009/10 2010/11 2011/12 Percentage change A B C C/B C/A USD 13.5998 16.9927 17.8192 4.9 31.0 Pound 20.4704 27.2494 27.7320 1.8 35.5 Swedish Kroner 1.7395 2.6612 2.5231 -5.2 45.0 Djibouti Frank 0.0781 0.0954 0.1000 4.9 28.1 Swiss Frank 12.4986 20.3725 18.4693 -9.3 47.8 Saudi Riyal 3.6261 4.5308 4.7513 4.9 31.0 UAE Dirhams 3.7027 4.6264 4.8513 4.9 31.0 Canadian Dollar 12.9510 17.4588 17.3642 -0.5 34.1 Japanese Yen 0.1533 0.2096 0.2243 7.0 46.3 Euro 16.5741 24.5272 22.1849 -9.6 33.9 SDR 20.1222 27.0234 26.9757 -0.2 34.1 Source: Staff Compilation

National Bank of Ethiopia 87 During the review year, the end period mid market exchange rate of the US dollar appreciated against major international currencies. The highest rate of appreciation was against Euro (13.7 percent) and Swiss Frank (13.5 percent), followed by Swedish Kroner (9.6 percent), Canadian Dollar (5.2 percent), SDR (4.8 percent) and Pound sterling (2.9 percent). However, the US dollar has shown slight depreciated vis-à-vis Japanese Yen, while it remained stable with respect to Djibouti Frank, Saudi Riyal and UAE Dirhams (Table 5.10). Since USD is an intervention currency in Ethiopia, the end period exchange rate of the Birr also followed similar patterns as it appreciated against Euro (9.6 percent), Swiss Frank (9.3 percent), Swedish Kroner (5.2 percent), Canadian Dollar (0.5 percent) and SDR (0.2 percent). The Birr also showed annual depreciation of 7 percent against Japanese Yen and 4.9 percent against Djibouti Frank, Saudi Riyal and UAE Dirham each (Table 5. 11). 5.8.2. Movements in Real Effective Exchange Rate Following the decline in its rate of depreciation, the real effective exchange rate (REER) appreciated by 22 percent in 2011/12 against 10.8 percent depreciation in the preceding year, mainly due to higher domestic inflation (Table 5.12). The nominal effective exchange rate, however, depreciated by 5.2 percent compared to 20.6 percent depreciation in 2010/11 as domestic annual inflation tended to slow down from 38 percent to 20.5 percent during the review period.

National Bank of Ethiopia 88 Table 5.12: Trends in Real and Nominal Effective Exchange Rates Year REERI NEERI Percentage Change REER NEER 2005/06 108.6 90.6 _ _ 2006/07 120.5 87.4 10.98 -3.49 2007/08 126.6 78.2 5.07 -10.50 2008/09 152.8 72.0 20.69 -7.99 2009/10 124.2 57.5 -18.71 -20.10 2010/11 110.7 45.6 -10.83 -20.66 2011/12 135.1 43.2 22.02 -5.24 Source: NBE Staff Compilation An increase in REERI and NEERI indicates appreciation and vice versa. Where: REERI = Real Effective Exchange Rate Index NEERI = Nominal Effective Exchange Rate Index 5.8.3 Foreign Exchange Transactions USD 152.2 million was traded in the inter￾bank foreign exchange market during 2011/12, about 68.7 percent higher than last year. Of the total transactions, USD 90.9 million (or 60 percent) was among commercial banks while the remaining USD 61.3 million was supplied by the NBE (Table 5.9). Meanwhile, foreign exchange purchase of forex bureau of commercial banks declined by 32.5 percent to USD 134.6 million. Their sales of foreign exchange, however, surged from USD 19.7 million in 2010/11 to USD 88 million in 2011/12 (Table 5.13).

National Bank of Ethiopia 89 Name of Forex Bureau 2009/10 2010/11 2011/12 Percentage Change A B C D E F E/C F/D Purchases Sales Purchases Sales Purchases Sales Purchases Sales Commercial Bank of Ethiopia Bank of Abyssinia Dashen Bank Awash International Bank Construction & Business Bank Wegagen Bank United Bank Development Bank Nib International Bank Lion International Bank Oromia International Bank Zemen Bank Cooperative Bank of Oromia Buna International Bank Birhan International Bank Abay Bank Addis International Bank 40.64 2.96 13.64 8.96 0.97 11.78 30.44 0.00 97.41 7.89 2.10 0.54 0.03 0.19 0.00

0.20 4.23 20.57 5.96 0.16 3.38 7.90 0.00 5.11 0.97 0.25 0.74 0.10 0.05 0.00

55.56 5.67 15.48 25.94 2.27 16.08 20.96 0.00 52.46 1.38 1.59 0.99 0.03 0.92 0.07

1.94 1.69 5.29 3.01 0.26 1.29 2.84 0.00 2.33 0.12 0.23 0.61 0.04 0.03 0.04

55.77 5.99 17.24 7.08 4.56 3.06 22.30 0.00 8.90 1.94 2.35 2.89 0.50 1.00 0.60 0.37 0.09 2.26 7.24 29.56 14.75 0.91 4.44 12.05 0.00 7.75 1.76 1.28 3.92 0.70 0.05 1.05 0.21 0.08 0.4 5.6 11.4 -72.7 100.8 -81.0 6.4

-83.0 40.9 48.1 192.3 1727.2 9.4 786.2

16.3 329.8 459.0 389.6 247.9 245.8 324.2

232.4 1408.3 458.9 541.7 1696.4 38.4 2752.4

Total 217.5 49.6 199.4 19.7 134.6 88.0 -32.5 346.4 Average Exchange Rate 12.8763 12.8763 16.8116 17.1485 17.2531 17.6002 2.6 2.6 Table 5.13: Foreign Exchange Transactions by Forex Bureaux of Commercial Banks USD) (In Millions of Source: Staff Compilation

National Bank of Ethiopia 90 Fiscal Year PD/GDP IP/RR Debt/GDP R(Debt) R(GDP) Exp/GDP Rev/GDP R(OR) 1999/00 -9.4 9.9 39.8 30.7 13.4 26.6 14.8 2.3 2000/01 -3.7 7.9 40.9 4.9 2.1 23.4 15.7 7.9 2001/02 -7.3 10.1 41.8 0.0 -2.2 26.8 15.8 -1.0 2002/03 -6.6 8.8 38.8 2.4 10.3 28.2 15.3 12.2 2003/04 -3.0 6.1 36.3 10.4 18.0 23.9 16.2 17.2 2004/05 -4.5 5.0 38.2 29.4 22.9 23.5 14.7 13.7 2005/06 -4.7 4.5 37.8 22.3 23.6 22.5 15.0 25.3 2006/07 -3.7 4.1 36.3 25.5 30.6 20.9 12.8 11.6 2007/08 -2.9 3.0 32.5 29.3 44.4 19.1 12.1 36.7 2008/09 -0.9 2.4 26.9 11.5 35.1 17.4 12.1 34.8 2009/10 -1.3 2.4 27.5 17.1 14.2 18.8 14.2 34.1 2010/11 -1.6 2.2 26.8 29.8 33.5 18.5 13.7 28.3 2011/12 -1.2 1.9 25.7 39.5 45.6 16.9 14.0 48.8 GENERAL GOVERNMENT FINANCE Gove rnment Finance The overall fiscal performance of the general government in 2011/12 resulted in a deficit of Birr 21.5 billion, which was less than Birr 24.7 billion (excluding grants) recorded in 2010/11. Total revenue (including grants) depicted a 35.1 percent growth in 2011/12 as compared to the preceding year. Thus revenue to GDP ratio increased to 14.0 percent from 13.7 percent a year ago. Meanwhile, general government expenditure rose by 32.6 percent during the review period as all of its components showed significant increases. The ratio of expenditure to GDP became 16.9 which was marginally less than a year ago (Table 6.1). 6.1 Measuring Fiscal Sustainability (In %) Source: Staff Computation PD = Primary Deficit IP/RR = Share of interest payments in Recurrent revenue Ddebt/GDP = Ratio of Domestic Debt to GDP R(Debt) = Growth rate of Domestic Debt R(GDP) = Growth rate of GDP at current market price Exp/GDP = Ratio of General Government Expenditure to GD Rev/GDP = Ratio of General Government Revenue to GDP R(OR) = Growth rate of ordinary Revenue

National Bank of Ethiopia 91 6.2 Revenue and Grants Under the review period, Birr 115.6 billion (including grants) was collected from various sources. The performance against the plan was 94.4 percent. Total revenue (including grants) depicted a 35.1 percent annual growth as a result of improved tax collection and administration like application of cash registration machines, enhanced capacity building, improved awareness of tax payers and economic growth. Domestic revenue reached Birr102.9 billion showing102 percent growth over last year. Of the total domestic revenue, about 83.4 percent was generated through taxes and 16.6 percent through non-taxes. Tax revenue rose by 45.4 percent in the fiscal year owing to a 47.6 percent increase in direct taxes, which largely constitute personal income and business taxes. These taxes alone accounted for 84.7 percent of the direct taxes. The share of rural and urban land use fee, however, was only 3.4 percent. Revenue from indirect taxes was Birr 56.9 billion and its share in total tax revenue reached 66.3 percent. About 59.0 percent of the indirect tax revenue was generated through import duties whose share grew by about 41.4 percentage points over last year. Non-tax revenue reached Birr 17.1 billion showing a 68.9 percent increment vis-à￾vis preceding year largely due to higher income from government investment and property sales. On the other hand, external grants dropped by a 22.4 percent compare to a year earlier.

National Bank of Ethiopia 92 In million Birr Fig. VI.1 Trend of General Government Revenue by Component 140000 120000 100000 80000 60000 40000 20000 0 Fiscal Year Total Revenue and Grants Tax Revenue Direct tax revenue Indirect tax revenue Non-tax revenue Grants

National Bank of Ethiopia 93 6.2 Summary of General Government Revenue by Components (In Million of Birr) Particulars 2010/11 2011-12 Percentage Change Perform￾ance A [B] C Rate Pre. Act [C/A] Revised Budget Pre. Act [C/B] Total Revenue and Grants 85,611.2 122,541.8 115,658.5 35.1 94.4 Total Revenue 1/ 69,119.9 101,222.0 102,863.7 48.8 101.6 Tax Revenue 58,980.8 87,131.8 85,739.9 45.4 98.4

1. Direct Tax Revenue 19,549.7 31,610.0 28,857.6 47.6 91.3 1.1 Income and Profit Taxes 18,809.2 27,295.4 27,877.0 48.2 102.1 Personal 5,733.4 8,098.2 8,900.2 55.2 109.9 Business 10,055.2 15,843.1 15,540.0 54.5 98.1 Others 2/ 3,020.7 3,354.1 3,436.8 13.8 102.5 1.2 Rural Land Use Fee 316.6 534.9 320.2 1.2 59.9 1.3 Urban Land Use Fee 423.9 3,779.7 660.3 55.8 17.5
2. Indirect Taxes 39,431.1 55,521.9 56,882.3 44.3 102.5 2.1 Domestic Taxes 15,705.3 22,621.9 23,326.1 48.5 103.1 2.2 Foreign Trade Taxes 23,725.8 32,900.0 33,556.2 41.4 102.0 Import 23,725.8 32,900.0 33,556.2 41.4 102.0 Export -
3. Non-Tax Revenue 10,139.1 14,090.2 17,123.8 68.9 121.5 3.1 Charges and Fees 970.3 762.2 1126.7 16.1 147.8 3.2 Govt. Invt. Income 3/ 4,475.5 4310.3 9178.5 105.1 212.9 3.3 Reimb. And Property Sales 194.0 364.2 451.0 132.5 123.8 3.4 Sales of Goods & Services 1,774.6 2920.4 1738.5 (2.0) 59.5 3.5 Others 4/ 2,724.7 5,733.1 4,629.1 69.9 80.7
4. Grants 16,491.4 21,319.8 12,794.9 (22.4) 60.0 Source: Ministry of Finance and Economic Development 1/ It does not include privatization proceeds 2/ Others include rental income tax, with holding income tax on imports, interest income tax, capital gains tax, agricultural income and other incomes 3/Gov. Investment income includes : Residual surplus, capital charge, interest payments and state dividend 4/ Other extra ordinary, miscellaneous, pension contribution and other revenue

National Bank of Ethiopia 94 6.3 Expenditure Total general government expenditure in 2011/12 reached Birr 124.4 billion compared with Birr 93.8 billion a year ago. The growth was attributed to higher out lays in all its components. Hence the share of expenditure in GDP showed a marginal decline to 16.9 percent last year. Recurrent expenditure was Birr 51.4 billion about 26.9 percent higher than a year ago. The largest share (41.3 percent) of the current expenditure went to finance social and general services and its ratio to GDP was about 5.7 percent. Likewise, capital expenditure during the review period increased by 36.9 percent over the preceding year and reached Birr 73 billion largely on account of higher spending on economic development which accounted for 69.1 percent of the total capital expenditure. Of the total expenditure on economic development 34.2 percent was allotted to poverty related programs such as education, health and agriculture etc. Its share in GDP stood at about 3.4 percent. In summary, general government expenditure performance rate was 90.0 percent of the annual budget.

National Bank of Ethiopia 95 6.3: Summary of General Government Expenditure (In million Birr) Particulars 2010/11 2011/12 Percentage Change Perform-ance [A] [B] [C] Rate [C/A] Pre actual Revised Budget Pre actual [C/B] Total Expenditure 93,831.4 138,293.5 124,416.7 32.6 90.0

1. Current Expenditure 40,534.7 55,851.6 51,445.5 26.9 92.1 General Services 15,654.5 18,828.3 21,158.8 35.2 112.4 Economic Services 5,324.7 7,119.6 6,577.0 23.5 92.4 Social Services 16,057.3 21,958.6 21,054.8 31.1 95.9 Interest and Charges 1,912.7 3,523.6 2,230.4 16.6 63.3 Others (Miscellaneous) 1,248.0 4,421.5 424.4 (66.0) 9.6
2. Capital Expenditure 53,296.7 82,442.0 72,971.3 36.9 88.5 Economic Development 35,309.8 56,365.8 50,400.7 42.7 89.4 Social Development 14,706.9 20,289.0 17,971.3 22.2 88.6 General Development 3,280.0 5,787.3 4,599.3 40.2 79.5 3,Special programs - - - - - Source: Ministry of Finance and Economic Development 6.4: Deficit Financing General government budgetary operation including grants resulted in a deficit of Birr 8.7 billion in 2011/12. This was 6.6 percent higher than the deficit recorded a year earlier. Fiscal deficit as a percentage of GDP was 1.2 percent. About 74.6 percent of the deficit was financed through net external borrowing. The remaining balance was covered through net domestic borrowing and privatization receipts.

National Bank of Ethiopia 96 In Perce nt of GDP 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 Fig.6.3 Trends in General Government Expenditure and Revenue (% of GDP) 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 Fiscal Year Expenditure/GDP Revenue/GDP Source MoFED

National Bank of Ethiopia 97 6.4: Summary of General Government Expenditure (In Million Birr) Particulars 2010/11 2011/12 Percentage Change performance rate [A] [B] [C] Pre. Act [C/A] [C/B] Revised Budget Pre. Act Revenue and Grants 85,611.22 122,541.79 115,658.50 35.10 94.38 Revenue 69,119.87 101,222.04 102,863.65 48.82 101.62 Grants 16,491.35 21,319.75 12,794.85 (22.41) 60.01 Total Expenditure 93,831.41 138,293.53 124,416.72 32.60 89.97 Current Expenditure 40,534.71 55,851.56 51,445.45 26.92 92.11 Capital Expenditure 53,296.70 82,441.97 72,971.26 36.92 88.51 Overall Surplus/ Deficit (Including Grants) (8,220.19) (15,751.74) (8,758.21) 6.55 55.60 (Excluding Grants) (24,711.54) (37,071.49) (21,553.06) (12.78) 58.14 Total Financing 8,220.19 15,751.74 8,758.21 6.55 55.60 Net External Borrowings 7,797.63 5,776.34 6,529.65 (16.26) 113.04 Gross Borrowing 8,435.50 6,807.03 7,443.08 (11.76) 109.34 Amortization Paid 770.31 1,185.06 1,062.55 37.94 89.66 HIPC relief & MDRI 132.44 154.37 149.12 12.59 96.60 Net Domestic Borrowings 111.22 9,974.71 3,793.10 3,310.56 38.03 Banking System (3,039.50) - (3,825.50) 25.86 Non-Banking Systems 3,150.72 - 7,618.60 141.81 Privatization Receipts 1,457.61 - 2,763.90 89.62 Others and Residuals (1,146.26) 0.68 (4,328.44) 277.61 (632,618.24) Source: Ministry of Finance and Economic Development

National Bank of Ethiopia 98 VII. INVESTMENT The Ethiopian Investment Agency and Regional Investment Offices licensed 62,068 investment projects with an aggregate capital of Birr 1.2 trillion in the period between 1992/93 – 2011/12. Of these projects, 52,462 (84.5 percent) were domestic, 9,498 (15.3 percent) foreign and 108 (0.2 percent) public. In terms of capital, Birr 483.4 billion (39.5 percent) was from to domestic investors, Birr 466.2 billion (38.1 percent) from foreign investors and Birr 275.2 billion (22.5 percent) from the public sector (Table 7.1). In 2011/12, a total of 5,649 investment projects with a combined capital of Birr 146.2 billion were approved. Domestic investment accounted for more than 89 percent of the total projects approved during the review period. The number of foreign projects reached 604 which were 36.6 percent lower than the same period last year. With regard to investment capital, domestic private projects which made up Birr 59.3 billion or 41 percent while foreign investment projects accounted for Birr 84 billion (or 57.5 percent) of the total approved investment capital the rest investment was carried out by the government. Upon commencement of operation, the approved investment projects are expected to create job opportunities for 147,400 permanent and 375,657 casual workers (Table 7.2).

National Bank of Ethiopia 99 Fiscal Year Domestic projects Foreign Projects Public Projects Total Projects No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investment Capital 1992/93 542 3,750 3 233 0 0.00 545 3,983 1993/94 521 2,926 4 438 1 57.00 526 3,421 1994/95 684 4,794 7 505 2 39.00 693 5,338 1995/96 897 6,050 10 434 1 6.00 908 6,490 1996/97 752 4,447 42 2,268 1 7.00 795 6,722 1997/98 816 5,819 81 4,106 1 14.00 898 9,939 1998/99 674 3,765 30 1,380 9 4,915.00 713 10,060 1999/00 561 6,740 54 1,627 9 5,760.00 624 14,127 2000/01 635 5,675.7 45 2,923 7 257.00 687 8,856 2001/02 756 6,117.3 35 1,474 10 1,598.80 801 9,190.2 2002/03 1,127 9,362.9 84 3,369 6 706.11 1,217 13,437.9 2003/04 1,862 12,177.7 347 7,205 16 1,837.04 2,225 21,220 2004/05 2,240 19,571.7 622 15,405 10 1,486.48 2,872 36,463.3 2005/06 5,100 41,841.1 753 19,980 6 18,215.08 5,859 80,036.3 2006/07 5,322 46,630.1 1,150 46,949 0 0.00 6,472 93,579 2007/08 7,307 77,868.2 1,651 92,249 3 261.56 8,961 170,378.5 2008/09 7,184 83,630.2 1,613 73,111 10 82,783.52 8,807 239,524.8 2009/10 5,080 40,852.2 1,413 55,169 3 393.89 6,496 96,415.4 2010/11 5,360 42,093 952 53,357 10 154,019 6,322 249,469 2011/12 5,042 59,316 604 83,975 3 2,877 5,649 146,168 Average Annual 2,625 23,248 515 21,868 5 13,638 3,103 61,241 Cumulative 52,462 483,427 9,498 466,156 108 275,233 62,068 1,224,818 Table 7.1: Number and Investment Capital of Approved Projects by Ownership since 1992/93 (Investment capital in millions of Birr) Source: Ethiopian Investment Agency

National Bank of Ethiopia 100 Source: Ethiopian Investment Agency Source:EthiopianInvestmentAgency

National Bank of Ethiopia 101 Type of Projects Items 2009/10 2010/11 2011/12 Percentage change A B C C/A C/B 1.Total Investment Number 6,496 6,322 5,649 -13.0 -10.6 Capital 96,415 249,469 146,168 51.6 -41.4 Permanent Workers 224,633 227,715 147,400 -34.4 -35.3 Casual Workers 488,330 586,380 375,657 -23.1 -35.9 2. Total Private Number 6,493 6,312 5,646 -13.0 -10.6 Capital 96,022 95,450 143,291 49.2 50.1 Permanent Workers 223,161 212,470 147,286 -34.0 -30.7 Casual Workers 488,162 412,117 375,504 -23.1 -8.9 3. Domestic Number 5,080 5,360 5,042 -0.7 -5.9 Capital 40,852 42,093 59,316 45.2 40.9 Permanent Workers 152,283 146,378 104,582 -31.3 -28.6 Casual Workers 311,185 283,277 254,733 -18.1 -10.1 4. Foreign Number 1,413 952 604 -57.3 -36.6 Capital 55,169 53,357 83,975 52.2 57.4 Permanent Workers 70,878 66,092 42,704 -39.7 -35.4 Casual Workers 176,977 128,840 120,771 -31.8 -6.3 5.Public Number 3 10 3 0.0 -70.0 Capital 394 154,019 2,877 630.4 -98.1 Permanent Workers 1,472 15,245 114 -92.3 -99.3 Casual Workers 168 174,263 153 -8.9 -99.9 Table 7.2 Numbers, Capital and Expected Job Opportunities (Capital in millions of Birr) Source: Ethiopian Investment Agency

National Bank of Ethiopia 102 Sectors 2009/10 2010/11 2011/12 Percentage Share to Total in 2011/12 No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investment Capital Manufacturing 1,433 35,583 1,294 43,530 1,211 45,482 21.44 31.12 Agriculture, hunting and forestry 1,342 21,625 907 82,769 435 23,268 7.70 15.92 Real estate, renting and Business activities 1,155 11,617 1,652 10,439 2,694 23,165 47.69 15.85 Hotel and restaurants 617 10,463 609 9,968 271 12,322 4.80 8.43 Education 181 1,464 143 1,586 57 465 1.01 0.32 Health and social work 99 2,519 87 1,143 52 2,814 0.92 1.92 Construction 942 9,924 947 11 747 29,794 13.22 20.38 Construction Machinery Leasing 0 Wholesale, retail trade and repair service 154 893 158 586 22 322 0.39 0.22 Transport, storage and communication 477 1,596 413 1,743 101 578 1.79 0.40 Fishing 8 19 1 8 2 32 0.04 0.02 Mining and quarying 9 358 17 222 9 159 0.16 0.11 Electricity, gas, steam and water supply 4 33 7 85,570 2 7,129 0.04 4.88 Public administration and defense; compulsory social security 0 Other community, social and personal service activities 75 321 87 756 46 639 0.81 0.44 Grand Total 6496 96415 6322 249,469 5649 146168 100 100 Table 7.3 Number and Capital of Investment Projects Approved by Sector (Capital in millions of Birr) Source: Ethiopian Investment Agency

National Bank of Ethiopia 103 7.1 Investment by Sector About 21 percent of the approved projects were in manufacturing; 8 percent in agriculture, hunting and forestry; 48 percent in real estate, renting and business activities; 13 percent in construction and 5 percent in hotel and restaurants. In terms of approved investment capital, manufacturing accounted for 31 percent followed by construction (20 percent), agriculture, hunting and forestry (16 percent) and real estate, renting and business activities (16 percent). Source: Ethiopian Investment Agency

National Bank of Ethiopia 104 7.2: Distribution by Region Of the total 5649 projects approved in2011/12, Addis Ababa attracted 4,170 projects (73.8 percent) with Birr 62.3 billion investment capital, followed by Amhara (612 projects with Birr 38.6 billion capital), Oromia (510 projects with Birr 25.7 billion capital) and Dire Dawa (134 projects with Birr 660 million capital). Table 7.4: Number and Capital of Approved Projects by Region (Capital in millions Birr) Regions 2009/10 2010/11 2011/12 percentage share to Total No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investment Capital Tigray 626 7,224 349 11,112 7 130 0.12 0.09 Afar 32 1,307 26 399 50 190 0.89 0.13 Amhara 743 17,371 722 32,753 612 38,642 10.83 26.44 Oromia 1,558 20,739 1,386 32,219 510 25,714 9.03 17.59 Somali 58 345 127 2,738 50 1,001 0.89 0.68 Benishangul￾Gumuz 111 1,389 56 81,611 50 354 0.89 0.24 SNNPR 163 2,020 160 49,751 49 2,845 0.87 1.95 Gambella 11 2,675 14 3,920 11 6,265 0.19 4.29 Harari 2 7 48 276 4 974 0.07 0.67 Addis Ababa 2,902 29,195 3,221 30,627 4,170 62,264 73.82 42.60 Dire Dawa 172 1,455 207 2,995 134 660 2.37 0.45 Multiregional Projects 118 12,689 6 1,067 2 7,129 0.04 4.88 Grand Total 6496 96415.44 6322 249,469 5649.00 146,168 100 100 Source: Ethiopian Investment Agency

National Bank of Ethiopia 105 VIII. INTERNATIONAL DEVELOPMENTS 8.1 International Economic Developments 8.1.1 Overview of the World Economy 6 Global economic growth momentum weakened in 2011, albeit the firming of momentum in the global economic growth in the final quarter of 2010 continued in the onset of 2011. Growth has been 1.6 percent for advanced economies (against 3.2 percent in 2010) and 6.2 percent for emerging and developing economies (against 7.3 percent in 2010). As a reflection of this, the external imbalances, which had decreased in 2009 in the context of global financial crisis, stopped narrowing and remained at elevated levels in 2011. The slowdown is contributed by several factors such as; dampening of real incomes in major advanced economies due to rising commodity prices and the disruption of global supply chain as a result of the Great East Japan Earthquake. During the period, the divergence in growth patterns continued not only between advanced and emerging economies but also among advanced economies. Emerging economies growth remained robust in the earlier period of 2011 but the moderation of growth in the later part of year helped alleviate the build-up of overheating pressures. In advanced economies growth has been restrained by the continuing repair of public and private sector balance sheets and the persistent weaknesses in the labour and housing markets as well as high rate of unemployment specifically in the OECD area. The second half of the year is characterized by continued deterioration of business and consumer sentiment on account of increased financial market stress & uncertainty, the escalation of the sovereign debt crisis in the euro area and the drawn-out discussions on the US debt ceiling. 6 It Extracted from European Central Bank annual report 2011& monthly reports, through January to June, 2012 and World Economic Outlook, October 2012.

National Bank of Ethiopia 106 Table 8.1: Overview of World Economic Outlook and Projection (Annual Percentage Change) Particulars 2010 2011 Projection 2012 2013 2014 World Output 5.1 3.9 3.2 3.5 4.1 Advanced Economies 3.0 1.6 1.3 1.4 2.2 United States Euro Area Japan 2.4 2.0 4.5 1.8 1.4 –0.6 2.3 –0.4 2.0 2.0 –0.2 1.2 3.0 1.0 0.7 Emerging Market & Developing Economies 7.4 6.3 5.1 5.5 5.9 World Trade Volume (goods & services) 12.6 5.9 2.8 3.8 5.5 Imports Advanced Economies Emerging Market & Developing Economies 11.4 14.9 4.6 8.4 1.2 6.1 2.2 6.5 4.1 7.8 Exports Advanced Economies Emerging Market & Developing Economies 12.0 13.7 5.6 6.6 2.1 3.6 2.8 5.5 4.5 6.9 Commodity Prices (U.S. dollars) Oil Non- oil 27.9 26.3 31.6 17.8 1.0 –9.8 –5.1 –3.0 –2.9 –3.0 Consumer Prices Advanced Economies Emerging Market & Developing Economies 1.5 6.1 2.7 7.2 2.0 6.1 1.6 6.1 1.8 5.5 Source: IMF, World Economic Outlook, October 2012

National Bank of Ethiopia 107 In the US, economic activities continue to recover though at a slower pace as the real GDP growth declined to 1.7 percent from 3.0 percent in 2010. Lower government expenditure at both the federal and state levels together with external factors led to sluggish growth in the first half of 2011. However, the economy gained momentum in the second half of the year as private consumption posted gains albeit low consumer confidence and weak growth in disposable income. Supported by strong corporate profits and an environment of very low interest rates, non–residential investment continued its substantial and positive contribution to growth, while residential investment started to contribute positively to GDP growth from the second quarter of 2011. Similarly, the pace of employment growth in the labour market was insufficient to recover the job losers recorded two-three years later and markedly bring down the unemployment rate, which averaged 8.9 percent in 2011, compared with 9.6 percent the preceding year. In 2011, Japan’s Economy experienced fluctuation in real GDP due to various factors. Sharp decline in production and exports as well as domestic private demand as a result of the earthquake in March and the ensuing nuclear disaster intensely affected its growth which led to significant decline in real GDP in the first half of the year. However, the economic activity has recovered in the third quarter as the supply constraints caused by the earthquake eased faster than initially expected. Yet again, the real GDP contracted following a weakening of global demand and the disruption to Asian trade caused by the floods in Thailand. Japan faced the first annual deficit in the trade balance since 1980 which is led by weak exports, partly caused by the appreciation of yen along with increasing imports of raw materials following the earthquake. With regard to Emerging Asia, economic growth decelerated after an exceptionally strong expansion the year before. The moderation in global growth considerably reduced export growth in the second half of the year. However, annual GDP growth was 7.3 percent, close to its long-term average as domestic demand remained robust.

National Bank of Ethiopia 108 In China, real GDP growth, which is mainly driven by domestic demand while the contribution of net exports tuned negative, declined to 9.2 percent from 10.3 percent in 2010. Domestic demand was driven by ample liquidity built up in previous years where as construction was sustained by the government’s social housing program of 2011, which set out to provide 36 million new housing units by the end of 2015. In Latin America, real GDP growth has declined on account of slower expansion of domestic demand due to the tightening monetary policy stance in most countries of the region. Year-on-year growth was 4.9 percent in the first half for the region as a whole compared with 6.3 percent in the previous year. However, the decline in real GDP growth was partly by the less negative contribution from external demand as private consumption continued to be the main engine of growth and labour market conditions remained favorable and lending standards eased. 8.1.2 World Trade In line with the developments in global economic activity, a rebound in the volume of world merchandise trade over the final quarter of 2010 continued into the first quarter of 2011. At the same time, the second quarter global supply chain disruptions caused by the natural disaster in Japan coupled with the floods in Thailand resulted in global trade contraction for the first time since mid-2009. Though, the most pronounced decline in exports being recorded in Japan and the newly industrialized countries in Asia, the slowdown was distributed across regions. Consistent with all these developments, evidence shows that trade made minor positive contribution to growth, in net terms. This has great implication of the need for some stabilization in global trade. In the US, the current account deficit remained almost unchanged as it stood at about 3.2 percent of GDP in the first nine months of the year.

National Bank of Ethiopia 109 In Emerging Asia, trade surplus narrowed to USD 155 billion in 2011 from USD 181 billion in 2010. This is due to decline in export growth in the second half of the year, mainly as a result of weaker global growth, while import growth held up relatively well supported by robust domestic demand. 8.1.3 Inflation and Commodity Prices In 2011, gradual increase in annual inflation rate is observed in advanced economies though it slightly declined at the end of the year. The surge in oil prices continued owing to the rise in global oil demand coupled with the severe disruption to the oil supply from Libya amid the political turmoil in that region. Despite the slow down in global growth, oil prices stayed to be strong in the second half of 2011. The price of Brent crude oil was 38 percent above the average in 2010. In the contrary, the prices of non-energy commodities declined substantially during 2011 as it was 15 percent lower towards the end of 2011 than at the beginning of the year. In OECD countries, average headline consumer price inflation was 2.9 percent up from 1.9 percent in the preceding year. Excluding food and energy, average consumer price inflation stood at 1.7 percent compared with 1.3 percent in 2010. In the US, headline inflation was elevated during 2011, despite the slack in product and labor markets, due to rising food and energy costs. The downward trend that had started with the economic downturn in 2008 has been reversed as annual CPI inflation was 3.1 percent in 2011 up from 1.6 percent the year before. Excluding food and energy, CPI inflation surged to 1.7 percent from 1 percent the previous year. In Euro area, there was evidence of upward pressure on overall inflation, averaging 2.7 percent in 2011, up from 1.6 percent in 2010, mainly owing to commodity prices. Concerning the monthly profile of annual HICP, the rate gradually increased from 2.3 percent in January to a peak of 3.0 percent from September to November, before edging down to 2.7 percent in December, reflecting mainly developments in energy and other commodity prices. According to March 2011 ECB staff macroeconomic projections, annual HICP inflation was in a range between 2 percent and 2.6 percent in 2011 mainly due to higher energy and food prices.

National Bank of Ethiopia 110 Japanese economy continued with its deflationary environment as CPI inflation remained negative throughout most of 2011. All through the year, the Bank of Japan maintained an accommodative monetary stance in order to stimulate the economy and fight deflation. Emerging economies, inflationary pressures remained strong in 2011. In the first half, annual inflation rates increased on account of the surge in food and other non food commodity prices though the increase later on became more broadly based. However, it peaked in the third quarter of the year as both imported demand and domestic demand pressures eased. In the last quarter of the period, annual inflation marginally declined, prompting some central banks to halt their monetary tightening cycle they had begun in the second half of the preceding year. In China, inflation remained high mainly driven by high commodity prices and adverse domestic supply shocks to food items, but eased to 3.1 percent by the end of the year. For Latin America, headline inflation stood at 6.7 percent in the first half of 2011. The solid growth performance coupled with rising food prices resulted in a wide spread increase in inflationary pressures, which prompted several central banks to increase their policy rates during this period. 8.1.4 Exchange Rate In 2011, developments in foreign exchange markets were the reflection of prospect for the global economic recovery and financial market conditions. During the year, effective exchange rate of Euro declined moderately with high volatility. After continuous appreciation till April 2011, the Euro depreciated overall against the US dollar, Japanese Yen and Pound Sterling in the second half of the year amid temporarily declining volatility. On 30 December 2011, the Euro traded at USD 1.29, JPY 100.2 and GBP 0.84, which was 2.4 percent, 13.9 percent and 2.7 percent below its average in 2010, respectively. However, the Euro’s subsequent decline against these currencies was partly offset by a strengthening against other currencies, particularly those of central and eastern

National Bank of Ethiopia 111 European currencies. As a result, the nominal effective exchange rate of the Euro, as measured against the currencies of 20 of the Euro areas most important trading partners, declined by 2.2 percent over the year. By the end of 2011, in nominal effective terms, the Euro stood at 4 percent below its average level in 2010 and close to its average level since 2009. The real effective exchange rates of the Euro based on different cost and price measures increased during the first half of 2011 and there after depreciated to levels close to those prevailing at the end of 2010. 8.1.5 Capital Flows In the course of 2011, risks to euro area financial stability increased considerably as the sovereign debt crisis worsened and its harmful interplay with the banking sector intensified. Vulnerabilities grew as the sovereign debt crisis spread from some smaller to some larger euro area countries in the second half of the year. In addition, substantial capital outflows from emerging Asia occurred at the end of the year as a reflection of concerns about the global outlook which triggered financial market volatility.

National Bank of Ethiopia 112 8.2 Implications for Ethiopia The moderation in the global economic activities has been partly reflected in the external sector of Ethiopia as its momentum of growth tended to decline. Following the gradual global economic recovery, total export growth slowed down to 14.8 percent in 2011/12 compared with 37.1 percent in the preceding year. Net receipts from private transfers; however, surged by 18.2 percent vis-à-vis 1.4 percent a year before. [[ On the other hand, FDI dropped by 17.2 percent presumably in line with the slowdown in global economic activities. Furthermore, Ethiopia’s total import bill significantly rose as a result of higher world commodity prices. Hence, this had negative effect on Ethiopia’s current account balance.