National Bank of Ethiopia Annual Report 2012-2013

1 Annual Report 2012/13 I. THE OVERALL ECONOMIC PERFORMANCE I.1. Economic Growth The Ethiopian economy continued to grow and the overall economic performance reflected the rapid expansion of the country. Real GDP continued to grow on average by 10.9 percent in the past decade (2003/04- 2012/13). During the F.Y 2012/13, the real GDP revealed a remarkable growth of 9.7 percent compared to the 5.6 percent forecast for sub-Saharan Africa countries for 2013. The growth was mainly contributed by the service sector (46.1 percent), agricultural sector (31.2 percent) and industrial sector (23.8 percent). Nominal GDP per capita went up to USD 550 from USD 510 in the preceding year, registering a 7.8 percent increase. Real per capita GDP increased by 1.6 percent to USD 359 against the preceding year. The Ethiopian economy projected to grow by 11.2 percent in 2013/14 (MoFED, 2005) compared with the 6.1 percent forecast for sub-Saharan Africa countries and its robust growth will continued as it was observed in the past ten years. The inflation level is also expected to be contained in a single digit level.

2 Annual Report 2012/13 Items Year 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Sector Agriculture 144.8 158.5 170.3 181.2 195.0 212.5 222.9 238.7 Industry 29.3 32.1 35.4 38.8 43.0 49.8 58.3 69.1 Services 106.9 123.3 143.1 163.2 184.7 207.2 229.1 251.8 Total 278.5 311.3 346.7 381.7 421.8 469.4 510.3 559.6 Less FISIM 1.6 1.8 2.4 2.7 2.9 3.2 2.9 3.1 Real GDP 277.0 309.7 344.3 378.9 418.9 466.2 507.4 556.5 Growth in Real GDP 11.5 11.8 11.2 10.0 10.6 11.3 8.8 9.7 Real GDP per capita 4.0 4.3 4.6 4.9 5.3 5.8 6.1 6.6 Growth in Real GDP per capita 8.8 8.1 7.5 7.3 7.8 8.7 6.2 7.0 Mid-year population (in millions) 70.0 72.4 74.9 76.8 78.8 80.7 82.7 84.8 Share in GDP (in %) Agriculture 52.0 50.9 49.1 47.5 46.2 45.3 43.7 42.7 Industry 10.6 10.4 10.3 10.2 10.3 10.7 11.5 12.4 Services 38.4 37.6 41.3 42.8 43.8 44.1 44.9 45.0 Agriculture Absolute Growth 11.0 9.5 7.4 6.4 7.6 9.0 4.9 7.1 Contribution to GDP growth 5.7 4.8 3.7 3.0 3.5 4.1 2.1 3.0 Contribution in percent 49.5 40.8 32.7 30.2 33.4 36 24.2 31.2 Industry Absolute Growth 10.2 9.6 10.3 9.6 10.8 15.0 17.1 18.5 Contribution to GDP growth 1.1 1.0 1.1 1.0 1.1 1.7 2.0 2.3 Contribution in percent 9.3 8.4 9.5 9.8 10.5 15.0 22.2 23.8 Services Absolute Growth 13.2 15.3 16.1 14.0 13.2 12.2 10.6 9.9 Contribution to GDP growth 5.1 6.1 6.6 6.0 5.8 5.4 4.7 4.5 Contribution in percent 44.1 51.5 59.3 59.8 54.6 47.6 53.7 46.1 Table I.1: Sectoral Contributions to GDP and GDP Growth (In Billions of Birr) Source: Ministry of Finance and Economic Development (MoFED)

3 Annual Report 2012/13 I.2. GDP by Sector The share of agriculture to Ethiopian economy during the F.Y 2012/13 was 42.7 percent. The sector contributed 31.2 percent to GDP growth rate and grew by 7.1 percent in comparison with the 4.9 percent growth recorded in the preceding year. This was due to a high increase in crop production which improved from 5 percent to 8.2 percent as compared to previous year performance and contributing about 26 percent to GDP growth and 80 percent to agriculture growth. The growth in agricultural output was mainly attributed to productivity improvements supported by favorable conditions and conducive agricultural development policies. In 2012/13, the total cultivated land area was expanded by 1.6 percent to 12.3 million hectares. As a result, the total agricultural crop production was enhanced by 5.8 percent and reached 231.3 million quintals. Productivity was improved slightly to 18.8 quintal per hectare compared to 18.1 quintal per hectare in the preceding year. Cereal production accounted for 85 percent of the total crop production during the period. Pulse production was increased by 18.8 percent as cultivated land area increased by 15.3 while oil seeds reflected a moderate decline of the total crop production by 0.6 percent, as cultivated land area declined by 0.7 percent for the year 20112/13. Similarly, the industrial sector had achieved 18.5 percent growth showing an improvement of 1.5 percentage points against the preceding year. The sector had contributed 23.6 percent to the overall economic growth. Manufacturing contributed about 21 percent to industrial output growth and 4.6 percent to real GDP growth during the period. The construction sector of the industry contributed 15 percent to GDP growth and 68 percent to industrial sector growth; implying that currently it is sector is currently the leading sub components in the industry due to expansion in the construction of roads, dams and housing infrastructures. Manufacturing output grew by 10.8 percent in 2012/13. On the other hand, the service sector was relatively the dominant economy in Ethiopia. The share of service sector was about 45 percent of the overall economy representing a principal

4 Annual Report 2012/13 Growth rate contribution of about 46.1 percent to the GDP growth in 2012/13 with 9.9 percent of its sectoral growth. The widespread service work during the period was whole sale and retail trade; constituting 15.7 percent of the whole economy followed by ‘real estates, renting and business activities’ comprising 8.5 percent. Fig. I.1: GDP Growth by Major Sectors 20.0 15.0 10.0 5.0 0.0 -5.0 -10.0 -15.0 Growth in real GDP Growth in Agriculture Growth in Service Growth in Industry Source: MoFED

5 Annual Report 2012/13 Agricultural Production 2009/10 2010/11 2011/12 2012/13 Cultivated Area Total Production Cultivated Area Total Production Cultivated Area Total Production Cultivated Area Total Production Cereals 9,233 155,342.0 9,690 177,613.0 9,588 188,099 9,601 196,512 Percentage Change 5.3 7.2 4.9 14.3 -1.1 5.9 0.1 4.5 Pulses 1,489.3 18,980.0 1,357.0 19,531.0 1,616.0 23,162.0 1,863.4 27,510.3 Percentage Change -6.0 -3.4 -8.9 2.9 19.1 18.6 15.3 18.8 Oilseeds 780.9 6,436.0 774.0 6,339.0 880.0 7,308.0 818.4 7,266.6 Percentage Change -8.7 -1.8 -0.88 -1.5 13.7 15.3 -7.0 -0.6 Total 11,503.2 180,758.0 11,821.0 203,483.0 12,084.0 218,569.0 12,282.9 231,288.5 Percentage Change 2.6 5.6 2.8 12.6 2.2 7.4 1.6 5.8 Table 1.2: Estimates of Agricultural Production and Cultivated Areas of Major Crops for Private Peasant Holdings - Meher Season (Area in thousands of hectares and production in thousands of quintals) Source: Central Statistical Agency (CSA)

6 Annual Report 2012/13 I.3. GDP by Expenditure Components The total consumption expenditure (public and private) as a percent of GDP went down to 82.3 percent in 2012/13 from 85 percent in the preceding year due to the reduction in private consumption expenditure to GDP ratio by 2.8 percentage points against 2011/12. This in turn improves the performance of domestic saving by 2.7 percent percentage points. Gross domestic saving to GDP ratio improved to 17.7 percent from the 15.0 percent recorded in the preceding year. Likewise, the ratios of gross capital formation to GDP and government consumption to GDP during the review period were more or less similar with the 2011/12 performance. On the other hand, the domestic absorption to GDP ratio was decreased by 2.8 percentage point vis-à-vis last fiscal year. As a result, the resource gap contracts to 15.3 percent of GDP from 18.1 percent of GDP recorded in 2011/12.

7 Annual Report 2012/13 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 2004/05 116.5 90.5 13.3 77.3 26.0 (20.6) 15.3 35.8 9.5 2005/06 119.3 91.7 13.1 78.7 27.6 (22.9) 14.0 36.9 8.3 2006/07 111.9 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 2012/13 115.3 82.3 7.3 75.0 33.0 (15.3) 12.7 28.0 17.7 Average 115.2 88.5 12.1 76.5 26.7 (17.0) 13.4 30.4 11.5 Table: 1.3: Expenditure on GDP and Gross Domestic Savings (As Percentage of GDP) Source: MoFED

8 Annual Report 2012/13 1.4. Micro and Small-Scale Enterprises The five-year Growth and Transformation Plan envisages creating a total of three million employment opportunities 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 Scale Enterprise Development Agency (FeMESDA), a total of 77,415 new MSEs were established during the fiscal year 2012/13 which employed 1,223,679 peoples. The number of establishment has grown by 10 percent and total employment has grown by 51.8 percent, compared to a year ago. The total amount of loan received from micro finance institutions was more than Birr 2.7 billion under the review period, 150 percent higher than last fiscal year which shows higher credit deepness per MSEs. Table: 1.4 Numbers, Amount of Credit and Jobs Created through MSEs (Credit in Millions of Birr) Particulars 2011/12 2012/13 Percentage Change A B B/A No. of MSE's 70,455 77,415 9.9 Amount of credit 1,088.1 2,725.1 150.8 No of Total employment 806,322 1,223,679 51.8 Source: FeMSEDA

9 Annual Report 2012/13 Variables Addis Ababa Oromia SNNPR Amha ra Tigray Direda wa Har ari Benis hang ul Som ali Gamb ela Afar Total No.of MSEs 7,571 16,897 7,500. 29,848 13,659 1,482 118 192 83 65 77,415 Amount of credit 808.3 314.2 126.6 980.0 459.8 12.5 17.0 4.0 2.9 3.4 2,725.1 No.of total Employement created by MSEs 219,06 4 596,035 93,204 152,71 3 132,697 10,838 3,72 8 3,800 8,71 0 1,972 918 1,223,679 Regional percentage share No.of MSEs 9.8 21.8 9.7 38.6 17.6 1.9 0.2 0.3 - 0.1 0.1 100.0 Amount of credit 29.6 11.5 4.6 35.9 16.9 0.5 0.6 0.2 0.1 0.1 0 100.0 No.of total Employemet created by MSEs 17.9 48.7 7.6 12.5 10.8 1.0 0.3 0.3 0.7 0.2 0.08 100.0 Table: 1.5. Number, Amount of Credit and Jobs Created through MSEs by Region (Credit in Millions of Birr) Source: FeMSEDA In terms of regional distribution of new MSE’s established Amhara region took the leading share (38.6 percent) followed by Oromia (21.8 percent), Tigray (17.6 percent) and Addis Ababa (9.8 prcent). However Oromia constituted about half of the employment created during the review period (48.7 percent) followed by Addis Ababa (17.9 percent), Amahara (12.5 percent) and Tigray (10.8 percent). Meanwhile, regarding the amount of credit placed to each region Amhara region took 35.9 percent of the credit distributed to the sector followed by Addis Ababa (29.7 percent), Tigray (17 percent) and Oromia (11.5 percent)

10 Annual Report 2012/13 Figure 1.2: Regional distribution of amount of credit during 2011/12 and 2012/13 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2011/12 Amount of credit 2012/13 Amount of credit Figure 1.3: Regional distribution of amount employment created during 2011/12and 2012/13 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2011/12 No.of total employement created by MSEs 2012/13 No.of total employement created by MSEs

11 Annual Report 2012/13 1.5. Access to Water Supply During 2012/13, the proportion of people accessing to potable water supply improved by 10 percent to 68.5 Percent (81.3 percent urban and 66.5 percent rural population); relative to 58.3 percent (78.7 percent urban and 55.2 percent rural people) coverage registered in 2011/12. Urban population with access to potable water within 0.5 km increased to 81.3 percent in 2012/13 from 78.1 percent in 2011/12, depicting a 2.6 percentage point improvement. Similarly, rural population with access to potable water within 1.5 km reached 66.5 percent by the end of 2012/13, exhibiting 11.3 percent expansion over the 55.2 percent coverage in 2011/12. In the Growth & Transformation Plan, the total population (rural and urban) having access to safe drinking water is envisaged to reach 98.5 percent by the end 2014/15 from 68.5 percent in 2009/10. Urban and rural population with access to potable water within 0.5 Km and 1.5 Km are also expected to increase to 100 and 98 percent, respectively, by the end of the plan period. However, the base year (2009/10) data for the GTP period of 68.5, 65.8 and 91.5 for National average, rural and urban, respectively, is falsified by the actual WaSH (Water supply, Sanitation and Health) inventory result of 2010/11. Accordingly, the base year plan for water supply coverage has been revised by the actual WaSH inventory results of 2010/11 as 52.1 percent for national average, 74.7 percent for urban and 48.9 percent for rural population.

12 Annual Report 2012/13 Table: 1.5 Percentages of People with Access to Potable Water by Region Region 2011-12 2012-13 Change in percentage A B C D E F point Rural Urban Average Rural Urban Average D-A E-B F-C Addis Ababa 80.71 80.71 94.00 94.00 0.0 13.3 13.3 Tigray 58.6 72.1 61.2 74.09 70.24 73.36 15.5 -1.8 12.2 Amhara 60.8 70.7 61.8 78.20 72.82 77.62 17.4 2.2 15.8 Oromia 54.9 85.1 57.4 66.38 85.15 67.92 11.4 0.0 10.5 SNNPR 49.1 75.5 50.7 53.07 94.36 55.57 4.0 18.8 4.9 Afar 37.6 80.7 40.3 42.35 79.19 44.73 4.8 -1.5 4.4 Ethiopian Somia 56.1 77.4 59.2 70.80 89.21 73.48 14.7 11.8 14.3 Ben-Gumuz 65.7 69.8 65.8 69.39 63.77 69.18 3.7 -6.0 3.3 Harari 87.1 97.2 92.6 97.00 98.79 98.00 9.9 1.6 5.4 Gambella 71.4 85.7 73.6 85.72 98.00 91.85 14.3 12.3 18.3 Dire Dawa 77.1 85.5 81.3 85.30 83.42 82.55 8.2 -2.0 1.3 National 55.2 78.7 58.3 66.5 81.3 68.5 11.3 2.6 10.2 Source: Ministry of Water, Irrigation and Energy 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.

13 Annual Report 2012/13 National Bank of Ethiopia Annual Bulletin (Average values in %) 120 Acces to Water Supply by Region 100 80 60 2011/12 2012/13 40 20 0 region Source: Ministry of Water, Irrigation and Energy; and NBE Staff Computation

National Bank of Ethiopia Annual Bulletin 14 Annual Report 2012/13 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. During the fiscal year 2012/13, the total stock of road network reached 85,966 km of which 25,756 km Federal 1 , 32,582 km rural road and 27,628 are woreda road. The Federal road includes 11,301km (43.9 percent) asphalt and 14,455km (56.1 percent) gravel road, showed annual expansion of 14.4 percent and reduction of 1.5 percent, respectively. The asphalt road net work in 2012/13 constituted about 13.1 percent of the total stock of road network in the country. In 2012/13 the total road network reached 22,883Km expanded by 36.3 percent compared to 9,086 Km recorded in 2011/12. The community road, which was replaced as woreda road in 2010/11 have been included under the total road network, which grow remarkably in 2012/13 to 27,628 km from 6,983 km registered last year the same period. This huge increment is due to the government’s plan to connect each kebele to the main road in line with the woreda road program during the growth and transformation period. 1 Federal roads are administered by federal government

15 Annual Report 2012/13 National Bank of Ethiopia Annual Bulletin Table 1.7: Classification of Road Network (Length in km) Year Federal Road Asphalt Gravel Rural road Woreda road * Total** 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 3.3 12,564 0.78 16,680 1.2 NA - 33,297 1.3 2002/03 4,362 7.6 12,340 -1.78 17,154 2.8 NA - 33,856 1.7 2003/04 4,635 636 13,905 12.68 17,956 4.7 NA - 36,496 7.8 2004/05 4,972 7.3 13,640 -1.91 18,406 2.5 NA - 37,018 1.4 2005/06 5,002 0.6 14,311 4.9 20,164 9.6 NA - 39,477 6.6 2006/07 5,452 9.0 14,628 2.2 22,349 10.8 57,763.7 - 42,429 7.5 2007/08 6,066 11.3 14,363 -1.8 23,930 7.1 70,038.1 21.3 44,359 4.5 2008/09 6,938 14.4 14,234 -0.9 25,640 7.2 85,767.0 22.5 46,812 5.5 2009/10 7,476 7.8 14,373 1.0 26,944 5.1 100,384.9 17.0 48,793 4.2 2010/11 8,295 11.0 14,136 -1.6 30,712 14.0 854.0 - 53,997 10.7 2011/12 9,875 19.1 14,675 3.8 31,550 2.7 6,983.0 717.7 63,083 16.8 2012/13 11,301 14.4 14,455 -1.5 32,582 3.3 27,628.0 295.6 85,966 36.3 Source: Ethiopian Road Authority

• The community road was replaced as woreda road and registered as new road in 2010/11 (and also not possible to compute growth rate for the year). ** Total length does not include community road length till 2010/11 as it is non-engineered road.

National Bank of Ethiopia Annual Bulletin 16 Annual Report 2012/13 1.6.2. Road Density The proper level of road network is assessed by road density, which is measured by road length per 1,000 persons or by road length per 1,000 km 2 . In the five year GTP period, the plan is to increase the road density from 44.5 Km to 123.7 km per 1,000 persons and from 0.64 Km to 1.54 km per 1000 km 2 . At the end of 2012/13, the road density per 1,000 square Km showed improvement to 78.2 km from 57.3 km a year ago; though GTP target is 89.3 for the year 2012/13. The road density per 1,000 populations in 2012/13 was 1 km and up by 33.3 percent from 0.75 Km in the preceding fiscal year (Table 1.8). Table 1.8: Road Densities 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 2012/13 1.00 78.2 Source: Ethiopian Road Authority

National Bank of Ethiopia Annual Bulletin 17 Annual Report 2012/13 1.6.3. Road Accessibility 2 All-weather road grew by 3.3 percent per annum constituting 38 percent or 32,582 km of the total road network in 2012/13. Besides, the annual average distance from all-weather roads declined by 31 percent from 8.7 kilometers to 6 kilometers. Similarly, the proportion of area more than 5 km from all weather roads went down to 46 percent in 2012/13 from 56.4 percent in 2011/12, though the growth and transformation plan for 2012/13 was 40.9 percent. About 70 percent of the total road network in the country is found in good condition. This indicates 6 percentage points improvement over the preceding year 2011/12. Unlike the other road types, the highest proportion of asphalt road which constitutes 74 percent was in a good condition. Moreover, there has been slight improvement in gravel road from 57 to 58 percent. While rural roads status declined from 57 to 54 percent (Figure I.4). 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 18 Annual Report 2012/13 perce ntage Fig. I.4 Status of Roads 80 70 60 50 40 30 20 10 0 • Asphalt Roads in Good Condition • Gravel Roads in Goods Condition • Rural Roads in Good Condition • Total Roads Network in Good Condition Source: Ethiopian Road Authority 1.6.4. Road Sector Financing Construction and maintenance of roads remained among 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. The cumulative investment capital in the road construction and expansion sector had rose by 17.6 to 33.7 billion from Br 28.6 billion a year earlier. Investment in the Federal road construction and expansion also reached Br 22.7 billion usually making up the lion’s share (67.2 percent) of the total road investment capital. The higher percentage change of investment registered 50.4 and 44.8 for regional road and community road respectively; federal road also rose by 7.6 percent vis-à-vis 2011/12 fiscal year, while investment in urban road declined by 12.1 percent (Table 1.9). Figure 1.5 depicts that investment capital in the road construction and expansion has showed an increasing trend over the past eight years and reached Birr 33.7 billion in 2012/13.

National Bank of Ethiopia Annual Bulletin 19 Annual Report 2012/13 In Millions of Birr Table 1.9: Investments in the Road Sector (In million Birr) Road type 2011/12 2012/13 Percentage change A Share (in %) B Share (in %) Federal roads 21,023.7 73.5 22,615.5 67.2 7.6 Regional road 1,506.9 5.3 2,266.9 6.7 50.4 Woreda road 6,027.2 21.1 8,725.1 25.9 44.8 Urban road* 58.5 0.2 51.4 0.2 -12.1 Total 28,616.3 100.0 33,658.9 100.0 17.6 Source: Ethiopian Road Authority

• All municipalities’ maintenance Fig.I.5. Investment in Road Construction and Expansion 40000 35000 30000 25000 20000 15000 10000 5000 0 • Federal Road • Regional Road • woreda Road • Urban Road • Total Road Investment Source: Ethiopian Road Authority

National Bank of Ethiopia Annual Bulletin 20 Annual Report 2012/13 1.7 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. The sector had been improving both in terms of qualities and coverage during the previous years. In the sector, there were positive trends to achieve goals of Growth and Transformation Plan by producing democratic, efficient, effective, well-informed and innovative citizens which can contribute to the realization of the long term vision to create nations of middle income country. In 2012/13, Primary education (1- 8 grades) enrollment grew by 3 percent to 17.5 million against the preceding year while the number of primary schools reached 30,534 up by 3.6 percent from 29,482 recorded in the previous year. Five years ago, primary enrollment was 15.6 million and the number of primary schools was 25,212. Of the total primary schools, 85 percent were located in the rural areas where about 83 percent of the total population resides. Similarly, secondary education enrolment reached 1.9 million, 7.6 percent and 19.6 percent higher than 2011/12 and 2008/09, respectively. By the end of 2012/13 again, the number of secondary schools (9-12 grades) reached 1,912 exhibiting 61.4 percent growth over the 2008/09. Of the total secondary schools, 1,451 or 76 percent were found in urban areas. The Technical and Vocational Education and Training (TVET) enrolment was 237,877; showing 28 percent and 23 percent decline over the preceding year and the five year performance, respectively. Parallel to this, the number of TVET institutions decreased to 437 from 505 institutions in the preceding year. Education share of the annual national budget was 25.2 percent, almost similar with preceding year, while higher by 1.6 percent vis-à-vis the 2008/09 performance (Table 1.10)

21 Annual Report 2012/13 National Bank of Ethiopia Table 1.10: Education Sector Data Indicators G.C 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 E.F.Y 1999 2000 2001 2002 2003 2004 2005 Number of primary schools (urban, rural) 20,660 23,354 25,212 26,951 28,349 29,482 30,534 i. Urban 2,680 3,100 3,206 3,206 3,988 4,241 4,536 ii. Rural 17,980 20,254 21,886 23,745 24,313 25,227 25,998 Number of secondary schools (urban, rural) 952 1,087 1,185 1,351 1,392 1,710 1,912 iii. Urban 803 904 976 1,053 1,053 1,342 1,451 iv. Rural 149 183 209 298 339 368 461 Number of TVET centers (public, private, mission) 388 458 458 448 505 505 437 Number of tertiary level institutions by universities (public, private), colleges (public, private) 55 61 72 90 86 91 99 Universities 21 22 26 32 32 Participation of women in higher education institutions (%) 26 24 22.2 27 27 21.1 29.5 Primary enrollment (in millions) 14.0 15.3 15.6 15.8 16.7 17.0 17.5 Secondary enrollment (in thousands) 1,399 1,501 1,588 1,696 1,760 1,766 1,900 TVET enrollment 191,151 229,252 308,501 353,420 371,347 330,409 237,877 Girls' primary enrolment (%) 45.9 46.5 47.3 47.4 47.3 47.8 48 Grades (1-4) gross enrolment ratio (%) 117.1 127.8 122.6 118.8 124 122.6 124.9 Girls' gross enrollment ratio (%) 111.2 122.8 118.4 114.3 119.1 118.1 119.8 Boys' gross enrollment ratio (%) 122.9 133.0 126.7 123.2 128.8 127.0 129.7 Grades (5-8) gross enrolment ratio (%) 61.1 60.2 63.1 65.5 66.1 65.6 62.9 Girls' gross enrollment ratio (%) 53.7 55.5 60.5 63.5 64.8 65.3 62.2 Boys' gross enrollment ratio (%) 68.3 64.8 65.6 67.4 67.4 65.9 63.5 Girls’ gross primary enrollment ratio (%) 85.1 90.5 90.7 101.6 93.2 92.9 92.4 Boys' gross primary enrollment ratio (%) 98.0 100.5 97.6 108.4 99.5 97.9 98.2 Gross Primary Enrollment ratio (%) (urban, rural, regional) 91.7 95.6 94.4 93.4 96.4 95.4 95.3 Tigray 104.8 109.0 107.1 103.3 102.1 100.1 98.8 Afar 22.2 26.2 31.2 39.3 40.1 43.7 50.5

22 Annual Report 2012/13 National Bank of Ethiopia Annual Bulletin Indicators G.C 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 E.F.Y 1999 2000 2001 2002 2003 2004 2005 Amhara 93.1 112.4 112.5 104.9 104.2 1003.0 100.7 Oromia 91.4 91.4 89.3 88.4 94.8 92.0 91.2 Somali 38.5 32.7 35.0 65.6 61.3 75.1 96.9 Ben.Gumuz 127.9 112.3 112.1 114.6 119.7 115.9 111.9 SNNPR 97.8 102.9 101.0 97.3 102.6 100.7 98.4 Gambella 181.4 121.4 112.5 125.1 132 138.5 126.6 Harari 116.8 108.4 107.9 95.3 91.5 89.3 87.1 A.A 146.6 114.3 109.2 107.3 103.1 102.4 99.2 Dire Dawa 80.0 86.3 92.1 91.3 89.1 87.3 84.9 Primary net enrollment rate (%) 79.1 83.4 83.0 82.1 85.3 85.4 85.9 No. of students registered in the first cycle primary schools(1-4) (in millions) 9.8 10.7 10.6 10.5 11.3 11.4 12.0 No. of students registered in the second cycle primary schools(5-8) (in millions) 4.2 4.6 5.0 5.3 5.5 5.7 5.5 Number of students registered in the first cycle secondary schools(9-10) (in millions) 1.2 1.3 1.4 1.5 1.5 1.4 1.5 Gross enrolment rate in (9-10 grades) in percent 37.3 37.1 38.1 39.1 38.4 36.9 38.4 Preparatory admission 0.20 0.20 0.21 0.24 0.29 0.32 0.36 Completion rate of primary school (%) 42.9 44.7 43.6 47.8 49.4 52.1 52.8 Girls/boys ratio in primary schools (%) 85 87 90 91 90 92 94 Girls/boys ratio in secondary schools (%) 59 63 67 75 79 84 88 Girls/boys ratio in(9-10) in percent 0.61 0.65 0.72 0.78 0.81 0.86 0.90 Girls/boys ratio in (11-12) 0.50 0.48 0.40 0.56 0.83 0.75 0.80 Girls/boys ratio inTVET 0.78 0.92 0.86 0.80 0.86 0.91 1.05 Girls/boys ratio in higher education 0.25 0.24 0.28 0.36 0.36 0.39 0.42 Grade 1-8(primary) repetition rates (%) 6.1 6.7 6.7 4.9 8.5 8.5 7.9 Primary school dropout rate (%) 12.4 14.6 18.6 13.1 16.3 16.3 15.7

23 Annual Report 2012/13 National Bank of Ethiopia Annual Bulletin Indicators G.C 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 E.F.Y 1999 2000 2001 2002 2003 2004 2005 1 st grade dropout rate (%) 20.1 18.3 22.9 28.1 19.9 25.0 22.5 Pupil/Teacher ratio i. Grade (1-8) 59 57 54 51 51 50 49 ii. Grade (9-12) 48 43 41 36 31 29 29 iii. TEVT 27 25 34 NA 29 25 19 iv. In higher education 24.3 NA 28.2 26.8 26.7 25.0 24.4 Pupil/Section ratio i. Grade (1-8) 64 62 59 57 57 55 54 ii. Grade (9-12) 79 74 68 64 58 56 59 Number of class rooms in primary schools 206,106 236,712 247,759 254,744 279,292 308,905 324,587 Pupil-Textbook ratio i. Grade(1-8) 1.5 1.4 ii. Grade(9-12) 1 Pupil-School ratio i. Grade(1-8) 678 657 619 573 590 576 571 ii. Grade(9-12) 1,449 1,381 1,345 1270 1160 1033 994 iii. TEVT 493 501 673 788 735 654 544 Proportion of pupils starting grade 1 who reach grade 5(%) 59.3 49.2 39.6 75.6 69.1 NA NA Percentage of female enrolled in under graduate degree (%) 26 24 29 27 27 22 30 Percentage of female graduated in under￾graduate degree (%) 18.0 20.6 29.7 23.4 27.2 25.3 28.7 Percentage of female enrolled in post￾graduate degree 10.0 9.6 11.3 11.9 13.8 20.2 20.6 Percentage of female graduated in post￾graduate degree 9.4 10.7 10.5 13.9 14.4 14.0 14.9 Annual education share of the national budget{%} 24.6 22.8 23.6 25.9 17.5 25.3 25.2 Source:- Ministry of Education

National Bank of Ethiopia Annual Bulletin 24 Annual Report 2012/13 1.8 Telecommunication Telecommunication is one of the prime support services needed for rapid growth and modernization of various sectors of the economy. It has become especially important in recent years because of enormous growth of information technology and its significant potential for the impact on the rest of the economy. The telecom sector, which has the multiplier effect on the economy, has a vital role to play in an economy by way of contributing to the increased efficiency. Cognizant of these facts, Ethiopian government has created new telecom company, Ethio Telecom, which officially took over from the long serving Ethiopian Telecommunications Corporation, with a view to enhance the development of the telecom sector and to support the steady growth of the country. Pursuant to this grand objective of the government, Ethio Telecom has set and been striving to meet ambitious targets in customer acquisition, customer satisfaction and provision of quality services to customers. The country’s five-year Growth and Transformation Plan (GTP) envisages increasing the number of fixed line subscribers from 1 million in 2009/10 to 3.05 million by the end of 2014/15. The number of mobile-telephone subscribers is expected to pick up to 40 million from 6.52 million. Similarly, the number of internet users will increase to 3.69 million from 187,000 by the end of the plan period. 1.8.1 Mobile, Fixed Line and Internet Subscriptions During the F.Y 2012/13, the number of people who are mobile subscriber surge by 37.7 percent and reached 23,756,607 from 17,257,480 registered a year ago. On the other hand, the number of fixed line subscribers in 2012/13 slightly fall by 1.8 percent to 790,168 from 804,635 registered in 2011/12 mainly because of the swap by mobile line and relocation of people as a result of construction of new condominiums.

National Bank of Ethiopia Annual Bulletin 25 Annual Report 2012/13 Similarly, the number of internet subscribers showed huge increment on annual basis and reached 4.4 million from 221,542 recorded in 2011/12 (Table 1.11). Table 1.11: Number of Subscribers in 2012/13 Service Type 2011 /12 2012 /13 Percentage Change I. Fixed line 804,635 790,168 -1.8 II. Mobile GSM pre-paid* 17,020,972 23,526,519 38.2 III. Mobile CDMA pre- paid* 142,086 110,488 -22.2 VOICE 19,940 11,197 -43.8 VOICE + DATA 122,146 99,291 -18.7 Total mobile pre-paid 17,163,058 23,637,007 37.7 IV. Mobil GSM post- paid 86,019 107,739 -100 V. Mobil CDMA post- paid 8,403 11,861 41.2 VOICE 6,017 8,595 42.8 VOICE + DATA 1,824 2,621 43.7 GOTA ONLY 562 645 14.8 ALL MOBIL 17,257,480 23,756,607 37.7 Broadband (EVDO, WCDMA, ADSL) 30,372 44,032 45.0 Narrowband (1X, dialup, ADSL*< 256K) 191,170 177,011 -7.4 GPRS 2,442,158 4,208,989 72.3 Total data and Internet 221,542 4,430,032 1,899.6 Source: Ethio-Telecom *CDMA (Code Division Multiple Access), GSM (Global System for Mobiles), GPRS (General packet radio service) and ADSL (Asymmetric Digital Subscriber Line)

National Bank of Ethiopia Annual Bulletin 26 Annual Report 2012/13 1.8.2 Telecom Density The country's telecommunication penetration rate (telecom density) increased from 21.4 in 2011/12 to 28.5 in 2012/13. Mobile density has nearly reached 27.6 in 2012/13. In the review period, internet and data density also improved to 5.2 from 0.3 a year ago. The fixed line density has decreased slightly to 0.9 in 2012/13 compared to the performance in 2011/12 due to high operational cost and accessories shortages encountered in the fiscal year and long lead time to procure from international market (Table 1.12). Table 1.12: Telecom Density* (Penetration Rate) in 2012/13 Tele density/100 Subscribers 2008/09 2009/10 2010/11 2011/12 2012/13** Fixed line 1.2 1.4 1.0 1.0 0.9 Mobile 5.4 8.7 12.9 20.4 27.6 Total 6.6 10.1 13.9 21.4 28.5 Internet and data*** 0.1 0.3 0.2 0.3 5.2 Source: Ethio-Telecom *Tele-density mobile plus fixed telephone subscribers per 100 inhabitants

• Population 84.5 million **Does not take GPRS service in to account 1.8.3 Mobile Telephone and Internet Traffic International outgoing minutes increased by 37.2 percent from 43.2 million in 2011/12 to 59.3 million in 2012/13 which increased. International incoming minutes also improved to 797.1 million from 748.8 million with 6.5 percent growth compared to the performance a year ago (Table 1.13).

National Bank of Ethiopia Annual Bulletin Table 1.13: Annual Traffic Local and International Outgoing and Incoming in 2012/13 Annual Traffic 2011/12 2012/13 Percentage Change Mobile local traffic (In millions) 12,770 17,234.6 35.0 International Traffic International outgoing calls (In number) 26,248,606 37,253,286 41.9 International outgoing minutes 43,182,755 59,264,121 37.2 International incoming calls (In number) 192,608,343 207,483,552 7.7 International incoming minutes 748,839,134 797,113,550 6.5 Source: Ethio-Telecom 1.8.4 Annual Financial performance and Asset of Ethio-Telecom Income of Ethio-telecom rose by 30.3 percent to Birr 16.6 billion in 2012/13 vis-à￾vis Birr 12.8 billion recorded in 2011/12. Similarly, total expense of the company reached Birr 4.3 billion during the review period. Though the company’s expense during the review year surged, Ethio – Telecom earned a gross profit of Birr 12.3 billion; increased by 26.6 percent on annual basis (Table 1.14 27 Annual Report 2012/13

28 Annual Report 2012/13 National Bank of Ethiopia Table 1.14: Annual Financial performance and Asset of Ethio -Telecom in 2012/13 (In Millions of Birr) Finance and Asset 2011/12 2012/13 Percentage Change Income 12,770 16,644 30.34 Expense 1,722 4,270 148 Gross Profit 9,657 12,227 26.6 Assets NA 37,244 - Fixed Gross NA 15,834 - Depreciation 4,297 4,622 7.6 Source: Ethio - Telecom

29 Annual Report 2012/13 National Bank of Ethiopia Annual Bulletin II. ENERGY PRODUCTION 2.1 Electric Power Generation Ethiopia has immense potential for hydroelectric power, geothermal and wind energy generation. According to Ethiopian Electric Power Corporation (EEPCO) report, the country has an estimated hydro-power potential of 45,000 MW, a geothermal potential of 10,000 MW and 1.3 million MW potential from wind farm. The countries generating capacity is largely based on hydropower reservoirs as nine of its major rivers are suitable for hydroelectric power generation. The country’s energy generating capacity is largely based on hydroelectric power and it will remain a predominant energy source. However, it is vulnerable to the effects of climatic change, and non-renewable fuels such as gasoline and charcoal. Considering the increasing power demand and capacity shortfall in the system and to have a better generation mixes, the country is looking to diversify its production of renewable power to wind and geothermal sources. Wind energy was found an immediate and clean energy solution as wind power is renewable with short construction period & has significant advantage of quick result. Ethiopian Electric power corporation implemented different wind power Projects in several parts/sites of Ethiopia. Ashegoda Wind Farm, with a generating capacity of 120MW, is the second project in the country after the first 51 MW Adama wind farm project, which began production in 2011. The country has also identified as one of the huge solar energy potential in Africa. Currently, solar energy projects are designed and it will be implemented in the coming years before the end of the Growth and Transformation Plan. As part of Ethiopia’s plans to become a major power exporter in East Africa, the country is building Africa’s largest Geothermal Power Plant. The project will be a crucial input to Ethiopia’s economic growth and is also part of the country’s plan to be a carbon-neutral

30 Annual Report 2012/13 National Bank of Ethiopia Annual Bulletin middle income economy by 2025. The geothermal development will help Ethiopia towards achieving sustainable energy supply in line with the country’s green economy 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) 3 and Self Contained System (SCS)4 . The ICS, which usually generated the magnificent component of electric power in Ethiopia, constituted the major source of electric power generating system (99.9 percent) (Table 2.1). The total amount of electric power generated in 2012/13 was about 7.6 billion KWH, showing 20.6 percent growth in comparison to the preceding year and 52.3 percent compared to 2010/11. During the review period, 97.4 percent of the electric power was generated by hydropower alone while the remaining 2.6 percent share had come from thermal and wind sources 3 Generates power by connecting to other systems 4 Generates power independently (Table 2.1). By 2014/15, the country foresees to produce about 32.7 billion KWH electricity. During the FY 2012/13, there is a promising performance in the production of wind energy in the country. The total electric energy generated from wind sources had grown to 191.3 million KWH from 29.3 million KWH registered in the preceding year, though, production of wind energy did not exist in 2010/11 (Table 2.1). As per the government’s five-year Growth and Transformation Plan, the coverage of electricity is planned to scale up to 75 percent in 2015 from 41 percent in 2009/10. Energy utilization capacity has also planned to grow to 10,000 MW from 2,000 MW in the base year. Currently, the number of towns and cities having access to electricity has reached 4,143 of which 734 towns were registered in 2012/13. The total number of towns and cities in this fiscal year seems decline vis-à-vis the one registered last year, 5,637 towns and cities. This is because, the actual number of cities and towns having access to electricity reported in the F.Y 2011/12 was overstated as it includes

31 Annual Report 2012/13 National Bank of Ethiopia Annual Bulletin cities and towns that were connected and not connected to the substations. The number for the year 2012/13, however, includes only those cities and towns that have really access to electricity or connected to the substation. The number of customers accessing electric power has also reached 1.9 million of which 163, 848 customers got access during the F.Y 2012/13. Table 2.1: Electric Power Generation in ICS and SCS (I n ‘000 KWH) Source 2010/11 2011/12 2012/13 Percentage Change [A] Share in % [B] Share in % [C] Share in % [C/A] [C/B] ICS Hydro Power 4,922,069.4 98.8 6,239,288.9 99.3 7,384,468.3 97.4 50.0 18.4 Thermal Power 13,715.5 0.3 - - 37.8 - -99.7 - Geothermal 19,267.1 0.4 7,979.9 0.1 - - Wind - - 29,256.3 0.5 191,327.8 2.5 554.0 Sub Total 4,955,052.0 99.5 6,276,525.2 99.8 7,575,833.9 99.9 52.9 20.7 SCS Hydro Power 9,350.5 0.2 1,715.7 - 1,511.9 - -83.8 -11.9 Thermal Power 16,094.1 0.3 8,180.4 0.1 5,867.7 0.1 -63.5 -28.3 Sub Total 25,444.6 0.5 9,896.2 0.2 7,379.5 0.1 -71.0 -25.4 Total Hydro Power 4,931,419.9 99.0 6,241,004.6 99.3 7,385,980.1 97.4 49.8 18.3 Thermal Power 29,809.6 0.6 8,180.4 0.1 5,905.5 0.1 -80.2 -27.8 Geothermal 19,267.1 0.4 7,979.9 0.1 - - - - Wind - - 29,256.3 0.5 191,327.8 2.5 - 554.0 Grand Total 4,980,496.6 100.0 6,286,421.3 100.0 7,583,213.5 100.0 52.3 20.6 Source: Ethiopian Electric Power Corporation

National Bank of Ethiopia Annual Bulletin 32 Annual Report 2012/13 2.2 Volume and Value of Petroleum Imports During the FY 2012/13, a total of about 2.2 million metric tons of petroleum products worth Birr 38.7 billion were imported into the country by the Ethiopian Petroleum Enterprise. The total value of imports was increased by 5.5 percent as compared to the performance in FY 2011/12. It was mainly due to an increase in import of gasoline (42.1 percent), jet fuel (14.2 percent) and fuel oil (15.9 percent). On the other hand, decline in imports of gas oil by 3.4 percent was observed. Similarly, the total volume of petroleum imports was increased by 3.4 percent owing to higher volume of gasoline (23.8 percent), jet fuel (10.6 percent), and fuel oil (10.2 percent) overwhelming the decline in import volume of gas oil (2.8 percent) (Table 2.2). In general, the value of petroleum products imported over the previous five years slightly increased due to the rise in international oil price (Fig II.2), despite the marginal growth in volume of import during the period (Fig II.1). Table 2.2 Volume and Value of Petroleum Imports (Volume in MT and Value in '000 Birr) Petroleum Products 2011/12 2012/13 Volume Value Volume Value Percentage Change A B C D C/A D/B Regular Gasoline (MGR) 150,619.0 2,604,584.2 186,517.5 3,700,854.8 23.8 42.1 Jet Fuel 544,519.6 9,795,246.5 602,427.0 11,190,669.9 10.6 14.2 Fuel Oil 144,501.3 1,805,728.2 159,297.4 2,093,480.5 10.2 15.9 Gas Oil (ADO) 1,302,451.2 22,531,328.7 1,266,562.9 21,759,803.1 (2.8) (3.4) Total 2,142,091.2 36,736,887.6 2,214,804.8 38,744,808.3 3.4 5.5 Source: Ethiopian Petroleum Enterprise

National Bank of Ethiopia Annual Bulletin 33 Annual Report 2012/13 Volume In M T Value in Birr Fig. II.1 Trends in Volume of Petroleum Imports (In '000) MGR Jet Fuel Fuel Oil Gas Oil 14,000.0 12,000.0 10,000.0 8,000.0 6,000.0 4,000.0 2,000.0

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Source: Ethiopian Petroleum Enterprise Year Fig. II.2 Trends in the Value of Petroleum Imports (In '000) 25,000,000.0 20,000,000.0 15,000,000.0 10,000,000.0 MGR Jet Fuel Fuel Oil Gas Oil 5,000,000.0

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Source: Ethiopian Petroleum Enterprise

National Bank of Ethiopia Annual Bulletin 34 Annual Report 2012/13 The domestic retail prices of petroleum products are adjusted monthly in line with the development of oil prices in the world market. As the international oil prices tended to decrease during 2012/13 domestic retail prices were also adjusted downwards. Accordingly, the average domestic retail prices of petroleum products decreased vis￾à-vis the previous year because of the decline in retail prices of Regular Gasoline (8.0 percent), Fuel Oil (1.8 percent), Gas Oil (4.5 percent) and Kerosene (1.0 percent) in the review period (Table 2.3). As illustrated in Fig.II.3, the retail fuel price in Addis Ababa had been rising for the last five years and started to decline in 2012/13 owing to the fall in international oil price during the period .

National Bank of Ethiopia Annual Bulletin 35 Annual Report 2012/13 Birr/Litre Table 2.3 : Annual Retail Prices of Petroleum Products in Addis Ababa (Birr/liter) Year Quarter MGR Fuel Oil Gas Oil Kerosene 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 2012/13 Qtr.1 18.78 14.59 16.91 13.85 Qtr.2 18.78 14.59 16.91 13.85 Qtr.3 18.78 14.59 16.91 13.85 Qtr.4 18.78 14.59 16.91 13.85 Average 18.78 14.59 16.91 13.85 Annual percentage change -7.9 -1.8 -4.5 -0.9 Source: Ethiopian Petroleum Enterprise Fig.II.3 Trends in Average Fuel Price in Addis Ababa 25 20 15 MGR Fuel Oil 10 Gas Oil 5 Kerosene 0 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Year Source: Ethiopian Petroleum Enterprise.

National Bank of Ethiopia Annual Bulletin 36 Annual Report 2012/13 III. PRICE DEVELOPMENTS 3.1. Developments in Consumer Price at National Level Annual average national headline inflation at the end of the fiscal year 2012/13 was 13.5 percent, 20.6 percentage point lower than the previous year inflation level. This was due to the slowdown in both food & non-alcoholic beverage and core inflation by 30.2 and 8.0 percentage points, respectively. As usual, food & non-alcoholic beverage inflation contributed the lion’s share in the 20.6 percentage point change of annualized headline inflation (Table 3.1). Annualized food &non-alcoholic beverage inflation, scaled down to 12.6 percent from 42.9 percent level of fiscal year 2011/122 registering a notable decline of 30.2 percentage point on account of a significant slowdown in the prices of all food & non-alcoholic beverage items except fruits compared fiscal year 2011/12. Similarly, annual average core inflation has registered 8.0 percentage point reduction from last year same period to stood at 14.5 percent in 2012/13. The slowdown in annualized core inflation over the previous year same period was due to lower inflation registered in all non￾food items except health which has recorded 11.1 percentage point surge. Similar to annual average, year-on-year, headline inflation has slowdown to 7.4 percent from 20.8 percent a year ago (Table 4.2) resulted from slowdown in both food & non-alcoholic beverage and non-food price inflation by 13.5 and 3.4 percentage, respectively. Annual food & non-alcoholic inflation, which was 20.8 percent in 2011/12, declined to 7.4 percent in 2012/13 while annual core inflation reduced to 11.9 percent from 15.3 over the same period.

National Bank of Ethiopia Annual Bulletin 37 Annual Report 2012/13 Inflation in Percent Table 3.1: Annual Average Inflation Rates (in percent) Items 2011/12 2012/13 Change (Percentage Points) Contribution to change in headline inflation (percentage points) A B B-A C General 34.1 13.5 -20.6 -20.6 Food &Non￾alcoholic beverages 42.9 12.6 -30.2 -15.5 Non-Food 22.5 14.5 -8.0 -5.1 50.0 Fig III .1: Development in Annualized National Headline, Food & Non-alcoholic beverages and Core Inflation 40.0 30.0 20.0 10.0 0.0 -10.0 J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A 2010/11 2011/12 2012/13 Year/Quarter General Food & Non-alcoholic Beverages Core Source: CSA and NBE Staff Computation

National Bank of Ethiopia Annual Bulletin 38 Annual Report 2012/13 Inflation in Percent Table 3.2: Annual Inflation Rates (in percent) Items 2011/12 2012/13 Change (Percentage Points) Contribution to change in headline inflation (percentage points) A B B-A C General 20.8 7.4 -13.5 -20.6 Food &Non￾alcoholic beverages 25.4 3.7 -21.7 -15.5 Non-Food 15.3 11.9 -3.4 -5.1 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 Fig III.2: Development in Annual General, Food & Non-alcoholic beverages and Core Inflation J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J 2010/11 2011/12 2012/13 Year/Quarters General Food & Non-alcoholic Beverages Core 3.2 Consumer Price Developments in Regional States At the close of 2012/13, regional simple average general inflation declined to 13.9 percent from 33.0 percent a year earlier. Amhara, Tigray, SNNP, SNNP, Afar and Amhara regional states registered headline inflation rates greater than the regional simple average (Table 4.3). Afar regional state experienced the highest headline inflation of 18.0 percent; while the lowest was recorded in Oromia, 11.3 percent.

National Bank of Ethiopia Annual Bulletin 39 Annual Report 2012/13 Table 3.3: Regional Average Annual Inflation (2010/11 FY) Regions 2011/12 2012/13 Change General Food &Non￾alcoholic beverages Non￾food General Food &Non￾alcoholic beverages Non￾food General Food &Non￾alcoholic beverages Non￾food A B C D E F G=D-A H=E-B I=F-C SNNP 37.2 49.1 24.0 15.9 15.1 16.5 -21.4 -34.0 -7.6 Harari 28.0 36.8 17.8 12.0 20.0 3.8 -16.0 -16.8 -14.0 Oromia 36.4 44.5 25.1 11.3 10.3 12.9 -25.1 -34.1 -12.2 Tigray 31.1 33.6 28.4 17.4 15.2 20.4 -13.7 -18.4 -8.0 Gambella 40.9 55.3 20.3 11.7 11.2 12.5 -29.2 -44.1 -7.7 Addis Ababa 24.8 30.6 21.1 12.6 13.1 11.9 -12.2 -17.5 -9.2 Dire Dawa 24.5 32.2 14.4 11.3 9.0 13.4 -13.2 -23.2 -1.0 Ben. Gum 48.3 67.5 21.7 11.9 7.5 18.4 -36.3 -60.0 -3.3 Somali 29.2 30.5 26.9 15.9 14.1 18.4 -13.2 -16.5 -8.4 Afar 29.2 32.8 23.9 18.0 13.3 24.6 -11.2 -19.5 0.7 Amhara 33.8 42.0 20.7 14.6 15.8 13.9 -19.2 -26.2 -6.8 Regions Average 33.0 41.4 22.2 13.9 13.1 15.2 Standard deviation 7.2 11.9 4.0 2.5 3.5 5.4 Coefficient of variation 0.2 0.3 0.2 0.2 0.3 0.4 Sources: CSA and NBE’s staff computation Fig III.3: Varaition in Regional Annual Avarage Headline Inflation SNNP Harari Oromia Tigray Gambell a Addis Ababa Dire Dawa Ben. Gum Somali Afar Amhara 2012/13 15.9 12.0 11.3 17.4 11.7 12.6 11.3 11.9 15.9 18.0 14.6 2011/12 37.2 28.0 36.4 31.1 40.9 24.8 24.5 48.3 29.2 29.2 33.8 2011/12 2012/13 Sources: CSA and NBE’s staff computation

National Bank of Ethiopia Annual Bulletin 40 Annual Report 2012/13 The regional simple average food & non￾alcoholic beverage inflation was 13.1 percent in 2012/13 (Table 4.3). Food & non-alcoholic beverage inflation in regional states like Amhara, Harari, SNNP, Tigray and Somali was higher than the regional simple average. The highest food & non-alcoholic beverage inflation was registered in Harari (20.0 percent); and the lowest in Benishangul Gumz (7.5 percent). Over the two-year period (2011/12 to 2012/13), food & non-alcoholic beverage price instability 5 was high in most of the regional states. 5 Highly varied over the periods

National Bank of Ethiopia Annual Bulletin 41 Annual Report 2012/13 Fig III.4: Variation in Regional Annual Average Food & Non-alcoholic Beverage Inflation 2011/12 2012/13 SNNP Harari Oromi a Tigray Gamb ella Addis Ababa Dire Dawa Ben. Gum Somali Afar Amhar a 2012/13 15.1 20.0 2011/12 49.1 36.8 10.3 15.2 11.2 13.1 9.0 7.5 14.1 13.3 15.8 44.5 33.6 55.3 30.6 32.2 67.5 30.5 32.8 42.0 During 2012/13, simple average regional non-food inflation stood at 15.2 percent (Table 4.3) declining from 22.2 percent in the previous year. SNNP, Tigray, Benshangul Gumz, Somali and Afar regional states recorded non-food inflation higher than the regional simple average

National Bank of Ethiopia Annual Bulletin 42 Annual Report 2012/13 Fig III.5: Variation in Regional Annual Average Non-food Inflation 50.0 45.0 40.0 35.0 30.0 25.0 20.0 15.0 16.5 24.0 3.8 12.9 25.1 20.4 28.4 12.5 11.9 13.4 18.4 18.4 24.6 26.9 23.9 13.9 2012/13 2011/12 10.0 5.0 0.0 17.8 20.3 21.1 21.7 14.4 20.7 Source: CSA and NBE Staff Computation

National Bank of Ethiopia Annual Bulletin The highest rise in non-food inflation was recorded in Gambella (7.9 percentage points), and the lowest in Tigray (-2.0 percentage points). Regarding convergence as measured by the change in coefficient of variation 6 in regional rates of inflation between 2009/10 and 2010/11, no significant change was observed apparently due to the growing regional market integration as transportation and communication facilities have been improved. In general, inflation has increased through the fiscal year as a result of increasing international prices for commodities like coffee, oilseeds, fuel and pulses among others, which is fueled by the devaluation of birr against USD in early September 2010. 6 Coefficient of variation is the ratio of standard deviation to mean. Annual Report 2012/13 43

National Bank of Ethiopia Annual Bulletin Annual Report 2012/13 44 IV. MONETARY AND FINANCIAL DEVELOPMENTS 4.1 Monetary Developments and Policy During the year under review, Ethiopia’s monetary policy was geared towards containing inflationary pressure. Accordingly, the National Bank of Ethiopia has been closely monitoring monetary development so as to arrest the speed of inflation and inflation expectation. This was manifested in the reduction of year-on￾year headline inflation down to 7.4 percent by the end of 2012/13 compared to 20.8 percent last year largely due to a slowdown in global food and fuel prices and the implementation of the base money nominal anchor. 4.1.1 Developmentsin Monetary Aggregates At the end of 2012/13 domestic liquidity, as measured by broad money supply (M2), reached Birr 235.3 billion reflecting 24.2 percent growth compared with the same period last year. This is due to the surge in both domestic credit and net foreign assets by 23.4 and 14.7 percent respectively. The high growth of domestic credit is attributed to a 26.2 percent increase in credit to the non-central government. At the same time credit to the central government also increased slightly by 1.9 percent (Table 4.2). The performance shows the priority of the government policy in encouraging private investment activities. Fiscal year 2012/13 also witnessed a surge in all components of broad money. Narrow money rose by 21.0 percent due to the rise in demand deposits and currency outside banks reflecting the growth in economic activities and improvements in transactions demand for money. Similarly, quasi-money that comprises savings and time deposits rose by 27.5 percent and reached Birr 120.6 billion pointing to the increased capacity of banks in deposit mobilization driven by the opening of 435 new branches (Table 4.1).

National Bank of Ethiopia Annual Bulletin Annual Report 2012/13 50 P 0 (In Millions of Birr) Table 4.1: Components of Broad Money (In Million of Birr) Particulars Year Ended June 30 Annual ercentage Change 2009/10 2010/11 2011/12 2012/13 2009/10 201 /11 2011/12 2012/13 Narrow Money Supply . Currency Outside Banks . Demand Deposits (net) Quasi-Money . Savings Deposits . Time Deposits Broad Money Supply 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 12,061.1 189,398.8 114,745.7 45,671.0 69,074.7 120,567.9 106,276.2 14,291.7 235,313.6 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 21.0 18.5 22.7 27.5 28.8 18.5 24.2 Source: NBE Fig IV.1: Major Components of Broad Money (2003/04 - 2012/13) 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 03/04 05/06 07/08 09/10 11/12 Year Currency Outside Banks Net Demand Deposit Quasi- Money Source: NBE

National Bank of Ethiopia Annual Bulletin Annual Report 2012/13 51 Particulars Year Ended June 30 Annual Percentage Change 2009/10 2010/11 2011/12 2012/13 2009/10 2010/11 2011/12 2012/13 External Assets (net) Domestic Credit . Claims on Central Gov't (net) . Claims on Non-Central Gov't Other Items (net) Broad Money (M2) 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 45,648.5 233,404.3 21,965.5 211,438.8 43,739.3 235,313.6 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 14.7 23.4 1.9 26.2 10.8 24.2 Annual Percentage Gro wth Table 4.2: Factors Influencing Broad Money (In Millions of Birr) Source: NBE Others Fig IV.2: Major Determinants of Monetary Growth NFA 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 -10.0 -20.0 -30.0 Ethiopian Fiscal year 120.0 100.0 80.0 60.0 40.0 20.0 0.0 -20.0 -40.0 Credit to Central Gov't Credit to Non-Central Gov't Broad Money Net Foreign Assets Source: NBE

National Bank of Ethiopia Annual Bulletin Annual Report 2012/13 7 4.1.2. Developmentsin Reserve Money and Monetary Ratios During the year under review, reserve money or base money reached Birr 74.9 billion reflecting a 13.6 percent expansion over last year owing mainly to a 19.9 percent rise in currency in circulation which offsetted the minor 0.8 percent decline in deposits of banks at the NBE. Determinant wise, the increment in reserve money was the result of the rise in domestic credit by 24.3 percent coupled with a buildup of NBE’s net foreign asset by 16.0 percent. Excess reserves of commercial banks increased from Birr 3.7 billion from previous year to reach Birr 9.5 billion. This sharp increase in banks holding of excess reserve is on account of the decision by NBE to reduce the reserve requirement from 10 to 5 percent in March, 2013. The ratio of M2/GDP, an indicator of financial deepening, went up slightly by 7.6 percent to 0.28 percent in 2012/13, partly indicating the tight monetary policy measures to mitigate the inflationary pressures. Compared to last year same period, the money multipliers defined as Narrow Money to Reserve Money and Broad Money to Reserve money increased to 1.5 and 3.1 percent from 1.4 and 2.9 percent respectively, reflecting increased deposit mobilization by commercial banks in the review period (Table 4.3).

National Bank of Ethiopia Annual Bulletin Annual Report 2012/13 53 Value in Millions of Birr Table 4.3: Reserve Money and Monetary Ratios (In Millions of Birr) Particulars Year Ended June 30 Annual Percentage Change 2009/10 2010/11 2011/12 2012/13 2009/10 2010/11 2011/12 2012/13 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* 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 0.26 11,708.8 21,160.9 9,452.1 74,942.3 54,917.7 20,024.6 1.5 3.1 39.8 19.4 48.8 51.2 0.28 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 -9.8 -35.2 -2.9 154.7 13.6 19.9 -0.8 6.5 9.4 -2.0 -4.6 -2.6 2.6 7.6 Source: NBE

• M2/GDP ratio was calculated on the basis of new GDP series. 80000 70000 60000 50000 40000 30000 20000 10000 0 Fig. IV.3: Reserve Money Source: NBE year Reserve Requirement (CB's) Actual Reserve (CB's) Excess Reserve (CB's) Reserve Money

National Bank of Ethiopia Annual Bulletin Annual Report 2012/13 54 4.2. Developmentsin Interest Rate In 2012/13 fiscal year, both minimum and maximum deposit interest rate did not show any change to the rates of the past two years and continued to register rates of 5.0 and 5.75 percent respectively. Consequently, average interest rate on savings deposit remained intact at its preceding year balance of 5.38 percent. On the other hand, the weighted annual average interest rate on time deposit increased to 5.66 percent from 5.55 percent in last year. The average demand deposit rate banks pay increased by one basis point from last year rate. Average lending rate, however, witnessed no change from last year balance of 11.88 percent. Despite the negligible change in nominal interest rates the real rate of interest showed a significant improvement from the past year as a result of the drop in the year-on-year headline inflation from 20.9 to 7.4 percent. Consequently, the real rate of lending rate recorded a positive value of 4.8 percent for the first time since 2009/10. However, the other real interest rates including yield on T￾Bills remained negative during the review fiscal year (Table 4.4).

National Bank of Ethiopia Annual Report 2012/13 56 Rates 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2009/10 2010/11 2011/12 2012/13 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 3.47 3.71 3.94 3.71 0.05 3.00 3.15 3.08 3.60 4.01 4.30 3.97 0.06 3.00 3.15 3.08 3.64 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 4.56 4.80 5.01 4.79 0.06 5.00 5.75 5.38 5.37 5.51 5.60 5.49 0.06 5.00 5.75 5.38 5.48 5.57 5.61 5.55 0.02 5.00 5.75 5.38 5.57 5.68 5.74 5.66 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 7.50 16.25 11.88 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 -7.63 -3.13 -0.20 0.13 -7.73 -7.93 -0.30 0.04 -12.03 -7.83 -4.60 0.50 -51.13 -19.13 -43.70 0.67 1.70 -13.70 13.70 0.89 -32.51 -22.40 -26.13 1.31 -12.70 -16.40 -6.23 1.25 -2.03 -6.53 4.48 1.86 Table 4.4: Interest Rate Structure of Commercial Banks (In % per annum) Source: NBE 1/Real saving deposit interest rates and real lending rates were computed based on average headline inflation. 2/Real saving deposit interest rates was 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.

National Bank of Ethiopia Annual Report 2012/13 57 V alue 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 Developmentsin 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 19. In terms of ownership, sixteen were private commercial banks, and the remaining three state-owned. During the fiscal year, 435 new branches were opened raising the total branch network in the country to 1,724 from 1,289 last year. As a result, bank branch to population ratio declined from 62,063.6 7 people to 49,826.0 8 in 2012/13. The significant branch expansion was undertaken by Commercial Bank of Ethiopia (CBE) (173 branches), followed by Dashen Bank (36 branches), Awash International Bank (28 branches), Abyssinia Bank (25 branches), Oromiya International Bank (24 branches), Cooperative Bank of Oromiya (23 branches) and Abay Bank (22 branches). In spite of a continuous branch expansion by public banks to mobilize deposit throughout the country, the share of public banks branch network slightly down to 50.2 percent at the end of 2012/13 from 52.4 percent last year (Table 4.5). 7 Taking total population 80 million 8 Taking total population 85.9 million

National Bank of Ethiopia Annual Report 2012/13 57 The number of bank branches in Addis Ababa, the capital city and major business center of the country, increased by 33.5 percent from last year, indicating the booming economic activities in the city. Following a significant capital injection by private banks mainly Awash International Bank (371 million birr), Wegagen Bank (301 million birr), Bank of Abyssinia (218 million birr), Nib International Bank and Cooperative Bank of Oromiya (211 million birr) each and United Bank (166 million birr) the total capital of the banking industry increased by 28.1 percent and reached Birr 23.0 billion by the end of June 2013. Nevertheless the shares of private banks from the total capital fall to 47.8 percent from 49.3 percent the same period last year reflecting the surge in capital expansion of public banks mainly Commercial Bank of Ethiopia (2.8 billion birr). Accordingly, the share of CBE from the total capital of banking sector went up to 39.1 percent from 34.6 percent a year ago (Table 4.5). Despite the continuous increase in the capital base, the banking industry in Ethiopia is still very small compared to some big banks in Africa, depicting the ongoing effort needed to bring Ethiopian banks to the international level. In the meantime, the number of insurance companies in the country increased to 16 from 15 in the last year. The number of branches reached 275 following the opening of 32 additional branches. Major expansion of branches was undertaken by Lion Insurance company S.C. (5 branches) followed by Ethio￾Life Insurance company S.C. and Abay Insurance Company S.C (4 branches) each, Nile Insurance Company S.C and Nyala Insurance Company .S.C (3 branches) each. In terms of placement, 53.8 percent of insurance branches were located in the capital city reflecting high concentration of the business in Addis Ababa. Ownership wise, private insurance companies owned 82.5 percent of the total branches, slightly up from 81.1 percent a year ago. On the other hand, the total capital of insurance companies increased by 24.1 percent reaching Birr 1.5 billion from Birr 1.2 billion the same period last year. Private insurance companies accounted for 74.7 percent of the total capital while one public insurance company alone accounted for 25.3 percent (Table 4.6).

National Bank of Ethiopia Annual Report 2012/13 58 Percent(%) Fig IV.5: Capital and Branch Network of Banking System (2009/10-2012/13) 70 60 50 40 30 20 10 0 Total Public Banks Total Private Banks Source: Commercial Banks

National Bank of Ethiopia Annual Report 2012/13 59 Table.4.5.: Capital and Branch Network of the Banking System at the Close of June 30, 2013 (Branch in Number and Capital in Millions of Birr) Banks Branch Network Capital 2011/12 2012/13 2011/12 2012/13 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 448 53 31 532 111 31 1 143 559 84 32 675 43.4 6.5 2.5 52.4 595 63 31 689 137 39 1 177 732 102 32 866 42.5 5.9 1.9 50.2 6,231.0 363.0 2,540.0 9,134.0 34.6 2.0 14.1 50.7 9,027.0 465.0 2,554.0 12,046.0 39.1 2.0 11.1 52.2
2. Private Banks Awash International Bank Dashen Bank Abyssinia Bank 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 Debub Global Bank Enat Bank Total Private Banks 39 38 29 33 29 20 45 19 29 3 14 7 21 1 0 0 327 47 37 32 27 40 38 6 17 12 4 11 8 4 4 0 0 287 86 75 61 60 69 58 51 36 41 7 25 15 25 5 0 0 614 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 0.0 0.0 47.6 47 57 41 38 30 30 62 23 44 3 20 11 37 2 10 0 445.0 67 54 45 41 45 42 12 22 21 5 13 11 10 9 4 2 397.0 114 111 86 79 75 72 74 45 65 8 33 22 47 11 14 2 858 6.6 6.4 5.0 4.6 4.4 4.2 4.3 2.6 3.8 0.5 1.9 1.3 2.7 0.6 0.8 0.1 48.8 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

47.0 1,628.0 1,493.0 909.0 1,570.0 951.0 1,453.0 549.0 415.0 490.0 400.0 321.0 340.0 300.0 205.0 114.0 162.0 11,024.0 7.1 6.5 3.9 6.8 4.1 6.3 2.4 1.8 2.1 1.7 1.4 1.5 1.3 0.9 0.5 0.7 47.8 3.Grand Total Banks 615 430 1289 100 1134 574 1724 99.1 18,010.0 97.8 23,070.0 100.0 Source: Commercial Banks

National Bank of Ethiopia Annual Report 2012/13 60 No. Insurance Companies Branch Capital 2011/12 2012/13 2011/12 2012/13 % Change A.A Regions Total A.A Regions Total A B B/A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Ethiopian Ins. Cor. Awash Ins.Com.S.C. Africa Ins.Com S.C. National Ins. Co. of Eth. United Ins.Com. S.C Global Ins. Com.S.C Nile Ins.Com.S.C Nyala Ins.Com.S.C Nib Ins. Com.S.C Lion Ins. Com.S.C Ethio-Life Ins.Com.S.c Oromia Ins.Com.S.c Abay Insurance Company S.C Berhan insurance S.C Tsehay Insurance S.C Lucy 11.0 20.0 6.0 9.0 15.0 6.0 11.0 10.0 14.0 6 0.0 11 1 6 3 0 35.0 11.0 7.0 8.0 8.0 4.0 10.0 8.0 8.0 5 0.0 8 2 0 46 31 13 17 23 10 21 18 22 11

19 3 6 3 0 11 20 6 9 16 6 11 12 15 11 4 13 3 6 5 0 37 12 7 10 8 5 13 9 8 5 0 8 4 1 0 0 48 32 13 19 24 11 24 21 23 16 4 21 7 7 5 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 0.0 376.0 145.7 106.5 54.9 88.9 44.2 158.9 163.0 151.8 52.7 25.9 76.6 12.1 15.5 7.9 8.4 17.1 27.9 10.1 4.6 -27.0 48.2 29.2 29.4 47.9 49.8 390.5 93.5 16.8 36.3 -27.1 0.0 17 Total 129 114 243 148 127 275 1,200.1 1,489.0 24.1 Percentage Table 4.6: Branch Network & Capital of Insurance Companies as at June 30, 2013 (Branch in Number and Capital in Millions of Birr) Source: Insurance Companies Note: A.A=Addis Ababa Fig IV:6 Capital and Branch Network of Insurance Companies (2009/10-2012/13) 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Public Insurance companies Private Insurance Companies Source: Insurance Companies

National Bank of Ethiopia Annual Report 2012/13 61 By the end of 2012/13, the number of Micro-finance Institutions (MFIs) operating in the country were 31. The overall performance of micro-finance institution during the review period was encouraging. Accordingly, their total capital and total asset increased by 20.8 and 33.0 percent and reached Birr 4.5 billion and Birr 17.7 billion, respectively. Deposit mobilization and credit provision activities of micro-finance institution have also witnessed a remarkable increment. Compared to last year, deposit mobilization went up by 39.6 percent and reached Birr 7.6 billion. Their credit provision capabilities also rose by 37.6 percent indicating the expanded outreach of the micro-finance institutions (Table 4.7). The Four largest MFIs, namely the Amhara, Dedebit, Oromiya and Omo Credit and Savings institutions accounted for 75.5 percent of the total capital, 83.4 percent of the savings, 81.9 percent of the credit and 80.9 percent of the total assets of MFIs at the end of 2012/13, reflecting the existence of low competition in the industry. Table 4.7: Microfinance Institutions Performance as of June 30, 2013 (In thousands of Birr) Particulars 2011/12 2012/13 % Change A B B/A Total Capital 3,755,479.9 4,536,577.6 20.8 Saving 5,450,593.5 7,611,397.0 39.6 Credit 9,289,642.6 12,781,816.6 37.6 Total Assets 13,308,200.1 17,700,416.3 33.0 Source: Microfinance Institutions

National Bank of Ethiopia Annual Report 2012/13 62 4.3.1 Resource Mobilization The total resource mobilized by the banking system in the form of deposit, loan collection and borrowing increased by 9.9 percent and reached Birr 98.0 billion at the end of 2012/13 (Table 4.8). Spurred by remarkable branch expansion, deposit liabilities of the banking system reached Birr 237.1 billion reflecting annual growth rate of 26.6 percent over last year. Component wise, saving deposits registered significant increase (28.5 percent) followed by demand deposits (25.9 percent), and time deposits (19.3 percent). Demand deposits accounted for 49.0 percent of the total deposits followed by saving deposits (44.7 percent) and time deposit (6.3 percent) (Table 4.9). 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 indicate an increase in financial intermediation of banks in the year under review. Despite the opening of 244 new branches by private commercial banks, the share of private bank deposit mobilization increased only marginally to 32.3 percent from 31.9 percent last year. CBE alone mobilized 65.7 percent of the total deposit due to its large branch network expansion. Raising funds through borrowing by the banking industry was not an important source of resource mobilization as most of banks were sufficiently liquid due to the surge in deposit mobilization and collection of loans. As a result, total outstanding borrowing at the end of the fiscal year was only Birr 23.3 billion up from Birr 16.9 billion a year earlier (Table 4.8). Of the total borrowing, domestic sources accounted for 90.1 percent, while foreign sources took the remaining balance. On the other hand, loan collection by the banking system stood at Birr 41.8 billion up by 18.8 percent (Table 4.8). More than half of the total loan collection (54.8 percent) was collected by the public

National Bank of Ethiopia Annual Report 2012/13 63 banks reflecting their increased efficiency.

National Bank of Ethiopia Table 4.8: Annual Resource Mobilization & Disbursing Activities of Commercial Banks and DBE (Specialized Bank) as at June 30, 2013 (In Million Birr) Particulars 2010/11 2011/12 2012/13 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* 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 32,949.9 18,781.8 12,937.5 1,230.6 6,343.0 5,075.9 1,267.1 22,935.5 62,228.4 33,249.7 28,978.7 103,725.3 16,906.0 5,113.8 10,603.5 1,188.7

18,884.7 35,790.7 21,001.8 14,788.9 47,618.9 49,855.9 23,895.7 23,541.0 2,419.2 6,343.0 5,075.9 1,267.1 41,820.2 98,019.1 54,251.5 43,767.6 151,344.2 19.0 (3.2) 42.9 233.1 56.9 26.9 3,008.2 36.9 28.1 28.5 27.7 94.8 6.6 11.6 31.0 (67.2) (12.5) (29.8) 8,514.5 18.8 9.9 (3.3) 32.3 30.1 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 Annual Report 2012/13 64

National Bank of Ethiopia Annual Report 2012/13 65 Particulars 2010/11 2011/12 2012/13 B/A C/B A B C A. Deposits -Demand -Savings -Time T o t a l 70,842.4 64,528.7 5,160.6 140,531.8 92,254.8 82,494.6 12,541.3 187,290.7 116,150.5 106,035.6 14,960.5 237,146.6 30.2 27.8 143.0 33.3 25.9 28.5 19.3 26.6 B. Borrowings -Local -Foreign T o t a l 8,666.5 1,019.4 9,686.0 15,898.9 1,034.1 16,933.1 20,974.8 2,301.2 23,276.1 83.5 1.4 74.8 31.9 122.5 37.5 Table 4.9: Deposits and Borrowings of Commercial Banks and DBE as at June 30, 2013 (In Millions of Birr) Source: Commercial Banks &Staff Computation 4.3.2 New Lending Activities Lending is one of the most important activities of the banking system in any economy. In this regard, Commercial Banks and DBE disbursed Birr 54.3 billion to various economic sectors. The fiscal year witnessed a 3.3 percent decrease in fresh loan disbursements by banks despite the surge in deposit mobilization capabilities of banks and loan collection that can be re-lent again without affecting the outstanding limits. Of the total new loans disbursed by the banking system, 38.7 percent was provided by private banks, while the public bank took the remaining balance (Table 4.10). The ratio of new loan disbursement by the private banks to their total deposit at the end of the fiscal year stood at 27.4 percent while that of public bank was 20.7 percent. Regarding loan allocation by sector, 35.6 percent went to Industry followed by Agriculture (17.9 percent) and domestic trade (15.3 percent), while other sectors consumed the remaining balance (Table 4.12). The share of the new loan disbursement to the production sector (agriculture, industry and housing & construction) rose from 63.8 percent last year to 65.1 reflecting the shift in loan from trade and other short term loans towards the production sector.

National Bank of Ethiopia Annual Report 2012/13 66 Value in Millions of Birr Fig IV.7: Development in Deposit Mobilization, Lending and Loan Collection Activities of Banking System (2004/05-2012/13) 40000 35000 30000 25000 20000 15000 10000 5000 0 Year & Bank Ownership Net Deposit Lending Loan collection Source: Commercial Banks and DBE

National Bank of Ethiopia Table.4.10: Loans and Advances by Lenders 1/ (In Millions of Birr) Lenders 2011/12 2012/13 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 31940.3 15718.4 58,327.0 27365.9 19700.4 70,432.3 -14.3 25.3 20.8 3. Construction & Business Bank of Ethiopia 460.8 605.4 1,803.1 548.2 687.7 1,792.7 19.0 13.6 -0.6 2.Development Bank of Ethiopia 4548.1 2156.1 15,120.0 5335.6 2547.3 18,948.5 17.3 18.1 25.3 Sub-Total 36,949.2 18,479.9 75,250.1 33,249.7 22,935.5 91,173.4 -10.0 24.1 21.2 B. Private Banks 4 Aw ash International Bank 2467.2 2204.7 5511.6 2961.5 2027.3 7737.1 20.0 -8.0 40.4 5. Dashen Bank 3632.4 3380.4 8042.0 2917.3 3913.3 8836.6 -19.7 15.8 9.9 6. Bank of Abyssinia 2101.7 1998.0 3897.7 2252.6 1800.9 4675.9 7.2 -9.9 20.0 7. Wegagen Bank 2556.5 2370.4 3565.7 3031.3 2493.6 4689.9 18.6 5.2 31.5 8. United Bank 2358.1 2228.6 4085.4 2210.4 2580.0 4710.8 -6.3 15.8 15.3 9. Nib International Bank 2093.4 1755.5 3708.2 2429.6 2131.3 4542.8 16.1 21.4 22.5 10. Cooperative Bank of Oromia 669.0 407.4 1383.5 332.9 635.0 1941.0 -50.2 55.9 40.3 11. Lion Interenational Bank 568.8 454.6 970.8 601.8 514.1 1318.1 5.8 13.1 35.8 12. Oromia International Bank 786.7 745.8 1012.7 816.4 548.9 1621.2 3.8 -26.4 60.1 13. Zemen Bank 579.5 467.6 1019.6 1195.3 972.8 1369.7 106.2 108.0 34.3 14.Berhan International Bank 254.2 165.1 499.6 690.9 329.7 967.6 171.8 99.8 93.7 15.Bunna International Bank 472.8 296.5 649.1 532.4 448.3 948.4 12.6 51.2 46.1 16.Abay Bank 453.0 213.4 450.4 686.5 383.9 864.9 51.6 79.9 92.0 17. Addis International Bank 159.6 19.5 154.2 232.5 92.5 328.0 45.7 373.6 112.7 18. Debub Global Bank 0.0 104.4 13.1 98.5 0.0 19. Enat Bank 0.0 6.0 0.0 6.0 0.0 Sub-Total 19,152.9 16,707.6 34,950.5 21,001.8 18,884.7 44,656.5 9.7 13.0 27.8 Grand Total 56,102.1 35,187.4 110,200.6 54,251.5 41,820.2 135,829.9 -3.3 18.8 23.3 Source: Commercial Banks

1. O/S Credit excludes centeral government borrow ing D*=Disbursement, C*=Collection, O/S*= Outstanding Credit Annual Report 2012/13 67

National Bank of Ethiopia Annual Report 2012/13 68 Lenders 2011/12 2012/13 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 -11.4 -87.5 1097.4 -6.9 5.5 -73.2 254.0 4.4 -2.0 -90.4 752.6 -1.7 1.Commercial Bank of Ethiopia 2.Development Bank of Ethiopia 3. Construction & Business Bank of Ethiopia Sub-Total 56.9 8.1 0.8 65.9 44.7 6.1 1.7 52.5 52.9 13.7 1.6 68.3 50.4 1.0 9.8 61.3 47.1 1.6 6.1 54.8 51.9 1.3 14.0 67.1 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 Interenational 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 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 31.8 97.6 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 45.5 98.0 5.0 7.3 3.5 3.2 3.7 3.4 1.3 0.9 0.5 0.6 0.4 0.1 30.1 98.4 5.5 5.4 4.2 5.6 4.1 4.5 0.6 1.1 1.5 2.2 1.3 1.0 1.3 0.4 36.8 98.1 4.8 9.4 4.3 6.0 6.2 5.1 1.5 1.5 1.6 2.8 0.9 1.3 1.1 0.3 43.0 97.9 5.7 6.5 3.4 3.5 3.5 3.3 1.4 1.2 1.5 1.2 0.9 0.9 0.8 0.3 31.2 98.4 24.1 -16.9 10.8 22.6 -3.1 20.0 -48.5 9.4 7.3 113.3 181.0 16.4 56.7 0.0 15.9 0.5 -22.6 -2.6 -24.2 -11.5 -2.6 2.2 31.2 13.1 -26.4 108.0 99.8 51.2 79.9 0.0 -5.4 -0.1 13.9 -10.9 -2.7 6.7 -6.4 -0.6 13.8 35.8 60.1 34.3 93.7 46.1 92.0 0.0 3.7 0.0 Table 4.11: Percentage Share of Loans and Advances by Lenders 4.3.3 Outstanding Loans Total Outstanding credit of the banking system including the central government increased by 30.1 percent and reached Birr 151.3 billion at the end of June 2013. Gross outstanding claims on the central government and public enterprises increased by 152.4 and 47.6 percent, respectively while claim on the private sector also surged by 20.6 percent (Table 4.13). Sectoral distribution of outstanding loans indicated that credit to Industry accounted 32.2 percent followed by International trade (18.2 percent) and agriculture (11.0 percent) (Table 4.12). Outstanding claims on the private sector including cooperatives stood at Birr 94.8 billion or 62.7 percent of the total outstanding claim reflecting a 15.3 percent growth over last year (Table 4.13).

National Bank of Ethiopia Annual Report 2012/13 69 Economic Sectors 2011/12 2012/13 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 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 88.78 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 35.493511 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 0 9,709.2 19,298.4 8,325.0 5,973.6 2,569.1 3,700.5 882.6 1,575.7 6,322.9 82.4 1,529.5 256.3

0 10,107.1 7,845.9 7,980.3 8,286.3 2,777.2 5,509.1 555.0 1,798.6 4,098.7 18.7 790.8 185.7 153.062553 15,514.4 16,723.4 48,739.0 14,185.1 27,519.3 10,616.1 16,963.3 1,848.5 4,779.0 16,544.5 88.3 4,624.5 554.6 163.3

(31.5 ) 16.9 (14.2) (15.4) (3.4) (15.9) 93.4 (17.8) 24.4 408.3 68.6 39.5 (100.0)

16.4 37.5 21.9 10.6 1.6 15.8 28.0 4.3 19.1 14.7 (15.1) 6.4 331.2 152.4 (2.6 ) 45.2 17.5 10.0 (1.0 ) 18.7 12.0 7.9 33.5 176.6 45.8 29.0 (40.9 ) Total 56,102.1 35,187.4 116,346.1 54,251.5 41,820.2 151,344.3 (3.3) 18.8 30.1 Table 4.12: Loans & Advances by Economic Sectors (In Millions of Birr) Source: Commercial Banks &Staff Computation D*=Disbursement, C*=Collection, O/S*= Outstanding Credit

National Bank of Ethiopia Annual Report 2012/13 70 B 3 Borrowing Sector 2009/10 2010/11 2011/12 2012/1 Percentage O/S* O/S* O/S* D* C* O/S* change A B C E F G G/B G/C Central Government 7,600.1 3,719.1 6,145.6 - 0.0 15,514.4 317.2 152.4 Public Enterprises 8,442.7 13,687.9 27,694.9 15,171.7 6,627.8 40,888.6 198.7 47.6 Cooperatives 5,077.8 8,377.5 13,750.2 5,967.6 8,757.6 12,219.7 45.9 -11.1 Private & Individuals 40,910.7 51,893.1 68,479.1 33,112.2 26,281.8 82,558.2 59.1 20.6 Inter-bank Lending 260.9 12.9 276.4 0.0 152.9 163.3 1163.6 -40.9 Total 62,292.2 77,690.5 116,346.1 54,251.5 41,820.2 151,344.3 94.8 30.1 Total less Inter-bank Lending 62,031.3 77,677.5 116,069.7 54,251.5 41,667.3 151,181.0 94.6 30.3 In Millions of Birr Fig IV.8: Sectoral reakdown of Bank Credit(1999/00-2012/13) 300000.0 250000.0 200000.0 150000.0 100000.0 50000.0 0.0 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 2012/13 Fiscal Year Total Others Housing & Construction International Trade Domestic Trade & Services Industry Agriculture Source: Commercial Banks including DBE & Staff Computation Table 4.13: Loans and Advances by Borrowers/1 as at June 30, 2013 (In Million Birr) 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 Annual Report 2012/13 71 Particulars 2010/11 2011/12 2012/13 % Change A B C B/A C/B Loans and Advances (1+2) 1.Claims on Central Gov’t 1.1 Direct Advance 1.2 Bonds 2. Claims on DBE 3. Deposit Liabilities 3.1 Government 3.2 Financial Institutions 61,864.6 55,614.6 46,265.0 9,349.6 6,250.00 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 81,017.4 64,510.4 55,264.9 9,245.4 16,507.0 29,464.2 9,133.0 20,331.1 10.0 -0.1 0.0 -0.6 100.0 -24.4 -0.7 -32.5 19.0 16.1 19.5 -0.6 32.0 -4.2 -10.6 -1.0 4.4. Financial Activities of NBE By the end of 2012/13, outstanding claims of NBE on the central government reached Birr 64.5 billion due to a 19.5 percent increase in direct advance. Direct advances to the government stood at Birr 55.3 billion or 85.7 percent of the total claim, while bond holdings accounted the remaining 14.3 percent. By the end of 2012/13, the outstanding claim of NBE on DBE has also reached Birr 16.5 billion. Regarding liabilities of NBE, total deposits at the NBE decreased by 4.2 percent to Birr 29.5 billion, due to decline in deposits of central government by 10.6 percent (Table 4.14). Table 4.14: Financial Activities of National Bank of Ethiopia at the Close of June 30, 2013 ( in Millions of Birr) Source: NBE and Staff Computation 4.5 Developmentsin Financial Markets Treasury bill market is the only regular market where securities are transacted on a weekly basis. There is no secondary market for the security. However, government bonds are occasionally issued to finance government expenditures and/or to absorb excess liquidity in the banking system.

National Bank of Ethiopia Annual Report 2012/13 72 4.5.1 Treasury Bills Market The transaction in the Treasury-bill market is growing at a fast pace. Both the amount of Treasury-bills offered and demanded in the weekly auction market during the fiscal year has risen considerably. The amount of Treasury￾bills offered reached Birr 107.5 billion, up by 11.4 percent on annual basis while the total demand for treasury bills registered 41.4 percent growth to reach Birr 109.2 billion. The amount of T-bills sold during the year stood at Birr 109.2 billion indicating the market was able to accommodate all the demand from participants. This depicts a 46.2 percent growth from the previous year. At the end of 2012/13, the total outstanding T-bills went up by 30.1 percent and stood at Birr 26 billion. Although banks participation in the T-bill market is showing a marked improvement, the dominance of non-bank institutions in the market continued in the review year. Accordingly, the non-bank institutions account for 86.8 percent of the total outstanding T-bills (Table 4.15). The average weighted yield of the four types of bills increased slightly to 1.89 from 1.87 percent a mere 1.3 percent increase from last year (Table 4.15). The highest yield was recorded for the 28-day T-bill while the lowest yield was for 182-day T-bill with a corresponding rate of 2.89 and 0.94 percent respectively.

National Bank of Ethiopia Annual Report 2012/13 73 Table 4.15: Results of Treasury Bills Auction at June 30, 2012 Particulars 2010/11 2011/12 2012/13 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 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 17,628.360 604 109,184.572 54,313.455 38,905.117 9,600.000 6,366.000 107,484.572 50,677.955 35,532.617 12,358.000 8,916.000 109,184.572 51,493.455 57,691.117 99.156 99.778 99.652 99.472 97.721 1.889 2.897 1.403 0.940 2.317 26,044.860 3,436.000 22,608.860 174.5 95.812 77.292 75.566 223.761

28.9 21.893 1.081 85.496

108.7 154.022 80.033 -0.591 -0.108 -0.052 -0.174

67.755 98.423 18.239 28.395

141.232 281.778 128.450 48.8 41.4 61.220 35.597 -1.518

11.4 26.619 0.274 -25.788 102.636 46.2 112.672 14.280 0.608 -0.028 -0.001 2.280 0.214 1.258 14.367 0.250 -29.916

30.147 44.158 28.253 Source: NBE 4.5.2 NBE Bill Market On April 4, 2011, NBE has introduced NBE-Bill market so as to mobilize resource from private banks for the financing of priority sectors which are identified as the driving forces of the economy. Following the introduction of the NBE Bill market, the total NBE bill purchased by the banking sector reached

National Bank of Ethiopia Annual Report 2012/13 74 Value in Millions of Birr Birr 18.85 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 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 to Birr 79.5 billion in 2012/13 from Birr 61.8 billion a year ago. The share of EEPCO from the outstanding corporate bond increased to 81.9 from 79.1 percent the previous year. While the holdings by Regional States and Saving Houses Development Enterprise accounted for 16.0 and 1.2 percent of the outstanding corporate bond, respectively. During the year, corporate bond issued by public institutions and regional governments reached Birr 21.9 billion, reflecting 6.1 percent reduction over last year (Table 4.16).

National Bank of Ethiopia Annual Report 2012/13 75 Particulars Annual Percentage Change 2011/12 2012/13 A B B/A

1. Corporate Bond Purchases by holders EEPCO Regional governments Development Bank of Ethiopia Saving Houses Development Enterprise Private Sector
2. Redemption of Bonds by Clients EEPCO Regional governments Development Bank of Ethiopia Saving Houses Development Enterprise Private Sector
3. Outstanding Bonds by Clients EEPCO Regional governments Development Bank of Ethiopia Saving Houses Development Enterprise Private Sector 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 21,875.0 16,200.0 4,750.0 0.0 925.0 4,202.2 0.0 3,020.0 1,182.2 0.0 79,459.5 65,100.0 12,745.8 688.7 925.0 -6.9 -16.1 15.8

141.5

73.5

28.6 33.1 15.7 -63.2

Table 4.16: Disbursement, Redemption and Outstanding of Coupon and Corporate Bond Purchases by the Banking System at June 30, 2013 (In Millions of Birr) Source: Commercial Bank of Ethiopia 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 was conducted after April 2008. Since the introduction of the interbank money market in September 1998, merely twenty three transactions worth of Birr 259.2 million were transacted 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).

National Bank of Ethiopia Annual Report 2012/13 76 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 V. DEVELOPMENTS IN EXTERNAL SECTOR 5.1 Overall Balance of Payments The overall balance of payments deficit in FY.2012/13 was USD 114.2 million, much lower than USD 972.8 billion deficit registered in the preceding year. The trade deficit also widened by 6.1 percent during the review period owing to a 3.7 percent growth in merchandise imports compared to a moderate decrease (2.5 percent) in merchandise exports. Meanwhile, despite the decline in net official transfers in the same period, the current account deficit narrowed to USD 2.5 billion from USD 2.8 billion in the previous year. As a result, net transfers to GDP ratio slightly declined to 12.6 percent from 12.7 percent a year ago Table 5.1: Balance of Payments (In Millions of USD) S/N Particulars FY 2010/11 FY2011/12 FY2012/13 Percentage Change A B C B/A C/B 1 Exports, f.o.b. 2,747.1 3,152.7 3,075.2 14.8 -2.5 Coffee 841.8 833.0 745.1 -1.0 -10.6 Other 1,905.3 2,319.7 2,330.1 21.7 0.5 2 Imports 8,253.3 11,061.2 11,467.3 34.0 3.7 Fuel 1,659.3 2,124.7 2,163.8 28.0 1.8 Cereals 196.0 652.5 560.8 232.9 -14.1 Aircraft 24.7 42.1 7.7 70.6 -81.7 Imports excl. fuel, cereals, aircraft 6,373.3 8,241.8 8,735.0 29.3 6.0 3 Trade Balance (1-2) -5,506.2 -7,908.5 -8,392.1 43.6 6.1 4 Services, net 688.1 74.9 459.1 -89.1 512.9 Non-Factor services, net 757.6 171.1 571.7 -77.4 234.2 Exports of non-factor services 2,585.5 2,810.5 2,852.9 8.7 1.5 Imports of non-factor services 1,827.9 2,639.4 2,281.2 44.4 -13.6 Income, net -69.5 -96.2 -112.645 38.4 17.1 O/w Gross office. int. payment 51.9 89.1 120.7 71.7 35.5 Dividend -28.1 -15.5 -1.7 -44.8 -89.0 5 Private transfers 2,746.7 3,245.8 3,889.2 18.2 19.8 o/w: Private Individuals 1,886.3 1,945.9 2,491.3 3.2 28.0 6 Current account balance excluding -2,071.4 -4,587.8 121.5 7 Official transfers, net 1,860.7 1,787.9 1,529.9 -3.9 -14.4 8 Current account balance including -210.6 -2,799.8 -2,513.9 1,229.3 -10.2 9 Capital account 2,535.5 2,119.8 3,226.4 -16.4 52.2 Off. Long-term Cap., net 1,019.3 937.8 1,687.5 -8.0 80.0 Disbursements 1,054.5 1,007.0 1,743.3 -4.5 73.1 Amortization 35.2 69.2 55.8 96.7 -19.4 Other pub. Long-term cap. 430.3 230.8 398.9 -46.4 72.9 Foreign Direct Investment(net) 1,242.5 1,072.1 1,231.6 -13.7 14.9 Short-term Capital -156.6 -120.9 -91.6 -22.8 -24.2 10 Errors and omissions -1,114.8 -292.7 -826.7 -73.7 182.4 11 Overall balance (8+9+10) 1,210.0 -972.8 -114.2 12 Financing -1,210.0 972.8 114.2 13 Reserves [Increase (-), Decrease (+)] -1,201.6 980.8 123.2 14 Central Bank (NFA) -932.2 846.5 -258.1 Asset -675.2 810.0 -425.9 Liabilities -25.8 36.6 167.8 15 Commercial banks (NFA) -269.4 134.3 381.3 16 Debt Relief -8.4 -8.0 -9.0 Principal 7.8 6.7 7.1 Interest 0.6 1.3 2.0 Source: NBE Staff Compilation Annual Report 2012/13 77

National Bank of Ethiopia Annual Report 2012/13 78 In Million of USD Table 5.2: Components of External Trade as Percentage of GDP Particulars FY 2010/11 FY 2011/12 FY 2012/13 Percentage Change A B C B/A C/B Exports 9.5 8.0 7.2 -16.0 -10.3 Imports 28.5 28.0 26.7 -1.9 -4.7 Trade Balance -19.0 -20.0 -19.5 5.1 -2.5 Net Services -97.6 -99.8 -98.9 2.2 -0.9 Net Private Transfers 0.1 -13.5 10.1 Current Account Deficit (excluding official transfers) -7.2 -11.6 -9.4 62.1 -19.0 Current Account Deficit (including official transfers) -0.7 -7.1 -5.8 873.1 -17.5 Source: NBE Staff Compilation Fig. VI.1 Trends in Components of Current Account 14000 12000 10000 8000 6000 4000 2000 0 Exports Imports Net Services Private Transfers Source: NBE Staff Computations 5.2 Developments in Merchandise Trade The deficit in merchandise trade during FY2012/13 stood at USD 8.4 billion, widened by 6.1 percent relative to the preceding fiscal year mainly due to the significant growth in total imports coupled with the fall in the growth of total exports. Compared to same period last year, export and import to GDP ratios went down by 10.2 and 4.5 percentage points, respectively, from 4.5 percent and 15.8 percent last year. 5.2.1 Exports Total export proceeds during FY2012/13 amounted to USD 3.1 billion, down by 2.5

National Bank of Ethiopia Annual Report 2012/13 79 percent vis-à-vis the previous fiscal year. This export performance is attributed largely to the decreased earnings from export of coffee (10.6 percent), gold (3 percent), oilseeds (7.4 percent), flower (5.5 percent), live-animals (19.8 percent), meat and meat products (5.9 percent) and fruits and vegetables (2.8 percent) owing to the fall in global commodity prices and/or decreased volume of exports. Earnings from export of coffee declined by 10.6 percent and reached USD 745.1 million. This performance is attributed to the significant decline in international price of coffee (23.8 percent), in spite of the encouraging improvement registered in volume of export (17.3 percent). Earnings from export of coffee had 24.2 percent share in the total export revenue the country generated in the review period. Earnings from export of gold contracted by 3.0 percent annually to reach USD 584.4 million, driven by 3.9 percent decline in international price though its volume marginally increased by 1.0 percent. Export of gold revenue accounted for 19.0 percent of total export compared to 19.1 percent in the preceding year. Export of oilseeds generated USD 437.1 million, depicting a 7.4 percent fall over the preceding year solely owing to a fall in the volume of exports (23.8 percent), despite improvements in the international price (21.4 percent). Oilseeds export earning accounted for 14.2 percent of the total merchandise export proceeds, down from 15.0 percent in the previous year. During the same period, export proceeds of flower decreased by 5.5 percent and stood at USD 186.1 million, driven by a fall in the volume of export (9.6 percent) in spite of improvements in the international price (4.5 percent). Receipts from flower export accounted for 6.1 percent of the total merchandise exports, slightly below the 6.2 percent registered last year. Earnings from export of live-animals stood at USD 166 million, down by 19.8 percent due to the 30.5 percent decline in the volume of exports despite 15.3 percent growth in world price. Live-animals export accounted for 5.4 percent, down from 6.6 percent in the previous year. Similarly, earnings from export of meat & meat products fell by 5.9 percent and

National Bank of Ethiopia Annual Report 2012/13 80 reached USD 74.1 million as a result of 12.6 percent decline in the volume of export though international price grew by 7.6 percent. As a result, it accounted for 2.4 percent of the total export, decreased from 2.5 percent last year. Compared to that of the previous year, earnings from export of fruits and vegetables went down by 2.8 percent and reached USD 43.7 million due to a decrease in the international price (10.8 percent) although volume of exports registered improvement (9.0 percent). Fruits and vegetables export accounted for only 1.4 percent of the total export, holding on to the same share as the preceding year. Table 5.3: Values of Major Export Items (In Millions of USD) Particulars FY 2010/11 % share FY 2011/12 % share FY 2012/13 % share 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 Others 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 6.6 745.1 437.1 120.6 232.5 74.1 43.7 166.0 270.6 584.4 186.1 214.9 24.2 14.2 3.9 7.6 2.4 1.4 5.4 8.8 19.0 6.1 7.0 -10.6 -7.4 9.7 45.6 -5.9 -2.8 -19.8 12.6 -3.0 -5.5 3.8 -11.5 33.8 16.2 68.7 17.1 38.7 12.3 13.6 26.6 6.2 -1.9 Total 2747.1 100.0 3152.7 100.0 3075.2 100.0 -2.5 11.9 Source: Ethiopian Revenue and Customs Authority On the other hand, export of chat increased by 12.6 percent and reached USD 270.6 million owing to improvement in the volume of exports by 14.6 percent even though world price decreased by 1.8 percent. Likewise, its share in the total export of goods increased to 8.8 percent, up by 1.2 percentage points relative to that of last year. Similarly, leather and leather products earned USD 120.6 million, up by 9.7 percent vis-à-vis the previous year. This

National Bank of Ethiopia Annual Report 2012/13 81 In Million US D increment resulted from the growth in both international price and volume of export by 5.8 percent and 3.6 percent, respectively. As a result, its share in the total export earnings improved from 3.5 percent in the previous year to 3.9 percent in the review period. In the same way, earnings from export of pulses improved by 45.6 percent in FY 2012/13 and amounted to USD 232.5 million. This significant growth in export proceeds is attributed solely to the surge in the volume of pulses export by 57.4 percent. As a result, the share of pulses in total exports of goods increased to 7.6 percent from 5.1 percent last year. Fig. VI 2 Foreign Exchange Earning From Selected Export Items 900 800 700 600 500 400 300 200 100 0 Coffee Oilseeds Leather and Leather Products Pulses Chat Gold Source: Ethiopian Revenue and Customs Authority

National Bank of Ethiopia Annual Report 2012/13 82 r e Fig VI 3. Expo t Share of Selected Commodities in 2012/13 Flower 6.1% Others 16.2% Coff e 24.2% Gold 19% Source: NBE Staff Compilation Table 5.4: Volume of Major Exports Chat 8.8% Pulses 7.6% Oilseeds 14.2% Leather and Leather Products 3.9% (In Millions of K.G.) Particulars 2010/11 2011/12 2012/13 Percentage Change A B C C/A100-100 C/B100-100 Coffee Oilseeds Leather and Leather products Pulses Meat & Meat Products Fruits & Vegetables Live-animals Chat Gold Flower 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 46.8 198.7 280.2 4.6 356.1 15.4 134.6 100.7 47.1 0.0123 42.3 1.3 10.2 -11.0 58.6 -8.5 47.0 -10.7 14.8 10.23 1.8 17.3 -23.8 3.6 57.4 -12.6 9.0 -30.5 14.6 0.99 -9.6 Source: Ethiopian Revenue and Customs Authority

National Bank of Ethiopia Annual Report 2012/13 83 Particulars 2010/11 2011/12 2012/13 Percentage Change A B C C/A100-100 C/B100-100 Coffee Oilseeds Leather and Leather products Pulses Meat & Meat Products Fruits & Vegetables Live-animals Chat Gold Flower 4.29 1.29 20.09 0.61 3.75 0.34 1.31 5.82 41,344.44 4.22 4.92 1.29 24.78 0.71 4.46 0.36 1.43 5.85 49,426.27 4.21 3.75 1.56 26.23 0.65 4.80 0.32 1.65 5.75 47,481.12 4.40 -12.6 21.4 30.6 6.3 28.0 -5.7 25.8 -1.1 14.8 4.3 -23.8 21.4 5.8 -7.5 7.6 -10.8 15.3 -1.8 -3.9 4.5 In Million K.G. 400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 0.0 Fig. VI.4 Export Volume of Selected Commodities Coffee Oilseeds Leather and Leather Products Pulses Chat Gold (MT) Source: Ethiopian Revenue and Customs Authority Table 5.5: Unit Value of Major Exports (In USD per K.G) Source: Calculated from Tables 5.3 and 5.4

National Bank of Ethiopia Annual Report 2012/13 84 USD/K. G. Fig. VI. 5 Unit Value of Exports of Selected Commodities 60000.0 50000.0 40000.0 30000.0 20000.0 10000.0 0.0 Coffee Oilseeds Leather and Leather Products Pulses Chat Gold Source: NBE Staff Compilation 5.2.2. Imports Total value of merchandise import in FY2012/13 rose by 3.7 percent in relation to that of last year to reach USD 11.5 billion owing to growth in imports of capital goods (20.6 percent) and fuel (1.8 percent) though import of consumer goods, semi finished goods and raw materials registered 2.2 percent, 10.4 percent and 27.1 percent decrement, respectively. Its ratio to GDP, however, decreased to 15.0 percent from 15.8 percent recorded in 2011/12. Expenditure on imports of capital goods rose considerably by 20.6 percent and amounted to USD 3.6 billion mainly due to 70.1 percent increment in the value of imports of industrial, transport and agricultural goods by 24.9 percent, 11.5 percent and 8.8 percent, respectively. Consequently, the share of capital goods in total imports bill increased to 31.2 percent from 26.8 percent in the preceding year. Similarly, fuel import bill rose by 1.8 percent in FY2012/13 and amounted to USD 2.2 billion. This is due to a rise in the volume of import (3.4 percent) and improvements in the international fuel price. In contrary, the share of fuel in

National Bank of Ethiopia Annual Report 2012/13 85 total import of goods went down marginally by 1.6 percent from 19.2 percent recorded last year same period. Meanwhile, expenditure on import of consumer goods decreased by 2.2 percent because of fall in imports of non-durable and durable goods by 2.6 percent and 1.4 percent, respectively. Consequently, the share of consumer goods in total imports decreased to 30.1 percent from 31.9 percent in the preceding year. During this period, Semi-finished goods import bill stood at USD 1.75 billion, which is below the corresponding performance in the preceding fiscal year. Value of import of fertilizer decreased by 51.7 percent and reached USD 291.8 million. Similarly, raw material imports bill fell by 27.1 percent relative to the preceding year and accounted for only 1.3 percent of the total imports bill. Table 5.6: Value of Imports by End Use (In Millions of USD) FY 2010/11 % share FY 2011/12 % share FY 2012/13 % share Percentage change 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 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 2.6 145.6 1,753.9 291.8 2,163.9 2,128.2 1,236.1 3,572.6 903.1 129.9 2,539.6 3,452.4 1,089.8 2,362.6 378.9 1.3 15.3 2.5 18.9 18.6 10.8 31.2 7.9 1.1 22.1 30.1 9.5 20.6 3.3 -27.1 -10.4 -51.7 1.8 2.4 2,564.8 20.6 11.5 8.8 24.9 -2.2 -1.4 -2.6 32.4 -20.8 42.8 -14.8 30.4 29.1 11,637.2 29.6 31.3 104.4 26.6 50.4 25.5 65.6 190.3 Total Imports 8,253.3 100.0 11,061.2 100.0 11,467.3 100.0 3.7 38.9 Source: Ethiopian Revenue and Customs Authority

National Bank of Ethiopia Annual Report 2012/13 86 5.2.3 Direction of Trade Ethiopia’s merchandise exports have vast market in Europe, accounting for 43.6 percent of the total merchandise exports of the nation. Within European countries, Switzerland was the largest market largely for export of gold and coffee, accounting for about 43.7 percent of the total exports earnings from the region. Germany, the second important market in the continent mainly for coffee and textile and garments products, accounted for 17.2 percent of total export earnings from the continent. The Netherlands, generating 12.4 percent of Ethiopia export earnings from Europe, was an important export destination primarily for flower. About 30.3 percent of the total Ethiopian export earnings were obtained from goods shipped to Asian market. Of the total earnings from this continent, 26.9 percent was from China, 16.2 percent from Saudi Arabia, 9.5 percent from Japan, 8.5 percent from Israel and 8.3 percent from United Arab Emirates. The prime export items shipped to China includes oilseeds, leather and leather products, mineral products, natural gums and vegetables while coffee, meat and meat products, oilseeds, live-animals and flower were shipped to Saudi Arabia. Meat and 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 in the review period. Meanwhile, about 21.3 percent of Ethiopia’s total exports earnings were from African nations, of which Somalia, Sudan and Djibouti accounted for 87.5 percent. Exports to Somalia mainly included vegetables, live-animals and chat, while live-animals, coffee, pulses and spices were the main export items to Sudan. Djibouti imported vegetables, live- animals, chat, textile and garments, fruits and pulses from Ethiopia in the period under review. American markets accounted for 4.2 percent of the nation’s total export earnings during FY2012/13 in which the United States and Canada made up 86.9

National Bank of Ethiopia Annual Report 2012/13 87 percent and 6.7 percent, respectively. The United States imported mainly coffee, oilseeds, mineral products and leather and leather products while Canada mainly bought coffee. Asia 30.3% America 4.2% Fig VI.6 Export by Destinations Oceania 0.6% Africa 21.3% Europe 43.6% Source: NBE staff compilation Concerning Ethiopia’s imports by countries of origin, about 72.6 percent of the total merchandise import bills in FY2012/13 was paid to Asia while 19.3 percent to Europe, 5.3 percent to America and 2.7 percent to Africa. The three top supplier Asian countries, namely China, Saudi Arabia and India accounted for 31.3 percent, 14.3 percent and 12.7 percent of the total import bills paid to the continent, respectively. The prime imports from China included machinery & aircraft materials, metal and metal manufacturing, road motor vehicles, electric materials, clothing, textiles and rubber products. Petroleum products were the major imports from Saudi Arabia which alone accounted for 73.3 percent of the total petroleum import bill of the nation in FY2012/13. The share of European countries from total import bill was just 19.3 percent, where 79.2 percent went to four countries; namely, Italy (23.41 percent) followed by Turkey (19 percent), Germany (9.6 percent) and France (8.9 percent). Machinery & aircraft equipments, road and motor vehicles, grain, metals and metal manufacturing and electrical materials were imported from Italy while metal and metal manufacturing, machinery and aircraft

National Bank of Ethiopia Annual Report 2012/13 88 equipments and electrical materials were bought from Turkey. The major imports from Russia were grain and fertilizer while fertilizer, metal and metal manufacturing, road & motor vehicles and grain were the principal imports from Ukraine. Machineries and aircraft equipments, road and motor vehicles, metal and metal manufacturing, medical and pharmaceutical and electrical materials were the items imported from Germany and electrical materials, machineries and aircraft and metal and metal manufacturing were from France. Spain mainly imported electrical materials, road and motor vehicles, metal and metal manufacturing and machinery and aircraft. At the same time, of the total value of import, USA and Brazil alone accounted for over 87.03 percent of the country’s forex payment for imports from America. Glass and glassware, machinery and aircraft equipments, road and motor vehicles, grain and medical and pharmaceutical were the major items imported. African countries were the sources of import items which accounted for 2.7 percent of the total imports bill of the country. The bulk of imports bill was paid for items imported from South Africa (39.7 percent) and Egypt (33.1 percent), which jointly accounted for 72.8 percent of the total import from Africa. The major imported items were fertilizer, road and motor vehicles, food and live￾animals, machinery and aircraft equipments, medical and pharmaceutical products, metal and metal manufacturing, paper and paper manufacturing, fertilizer, grain and beverages.

National Bank of Ethiopia Annual Report 2012/13 89 7 % Fig. VI. 7 Import by Origin Oceania 0.1% Africa 2.7% Europe 19.3 America 5.3% Asia 72.6% Source: NBE staff compilation 5.3 Services and Transfers 5.3.1 Services In FY2012/13, net services account 5.3.2Unrequited Transfers Net transfers in FY 2012/13 improved by recorded USD 459.1 million inflows, 7.7 percent, owing to 7.5 percent showing 512.9 percent rise compared to increment in NGO transfers (both cash the preceding year on account of higher and food aid) and 28 percent private net transport services (69.3 percent) and individual transfers, mainly cash fall in payments other services (39.8 percent). component. Net official transfers, however, declined by 14.4 percent.

National Bank of Ethiopia Annual Report 2012/13 90 Table 5.7 Services Accounts (In Millions of USD) S/N Particulars 2010/11 2011/12 2012/13 Percentage Change A B C -112.6 -110.9 9.8 120.7 -1.7 571.7 2,852.9 514.1 1,889.7 201.0 248.1 2,281.2 192.9 1,322.4 0.7 765.2 459.1 321.2 567.3 200.3 -517.1 -112.6 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 services Travel Transport Gov't Other Imports of non-factor services Travel Transport Gov't Other Net Services (10+11+12+13+14) Travel Transport Gov't Other Investment Income -69.5 -41.4 10.5 51.9 -28.1 757.6 2585.5 722.7 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 -96.2 -80.7 8.4 89.1 -15.5 171.1 2810.5 680.9 1,690.8 212.1 226.7 2,639.4 188.2 1355.7 10.2 1085.3 74.9 492.6 335.1 202 -858.6 -96.2 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 17.1 37.5 16.7 35.5 -89.0 234.2 1.5 -24.5 11.8 -5.2 9.4 -13.6 2.5 -2.5 -93.1 -29.5 512.9 -34.8 69.3 -0.8 -39.8 17.1 Source: MOFED, Transport and Telecommunication Companies, NBE- FEMEMD and Staff Compilation.

National Bank of Ethiopia Annual Report 2012/13 91 No. Particulars 2010/11 2011/12 2012/13 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 Food Other Private individuals Cash In kind Underground Transfers(in kind) Payments Official Transfers Receipts Cash Food Other Payments 2,746.7 2,788.1 901.8 893.5 8.3 0.0 1,886.3 1,066.4 63.9 756.0 -41.4 1,860.8 1,893.7 1,863.5 30.1 0.0 -32.9 59.6 59.6 19.3 19.1 0.2 0.0 40.3 22.8 1.4 16.1 55.7 40.4 40.4 39.8 0.6 0.0 44.3 3,245.6 3,318.4 1,372.5 1,186.6 185.9 0.0 1,945.9 1,347.5 70.8 527.6 -72.8 1,787.9 1,812.1 1,692.3 119.8 0.0 -24.2 64.5 64.7 26.8 23.1 3.6 0.0 37.9 26.3 1.4 10.3 75.1 35.5 35.3 33.0 2.3 0.0 24.9 3,889.2 3,967.2 1,475.9 1,028.0 447.8 0.0 2,491.3 1,821.9 30.9 638.5 -77.9 1,529.9 1,535.7 1,535.7 0.0 0.0 -6.1 75.4 75.7 28.2 19.6 8.5 0.0 47.5 34.8 0.6 12.2 92.7 28.2 27.9 27.9 0.0 0.0 7.3 18.2 19.0 52.2 32.8 2144.8 3.2 26.4 10.7 -30.2 75.7 -3.9 -4.3 -9.2 297.4 -26.5 19.8 19.6 7.5 -13.4 140.9 28.0 35.2 -56.3 21.0 7.1 -14.4 -15.3 -9.3 -100.0 -74.6 Total Net Transfers 4,607.5 100 5,033.5 100 5,418.8 100 9.2 7.7 Table 5.8 Unrequited Transfers (In Millions of USD) Source: Disaster Prevention and Preparedness Agency, MoFED and NBE The decline in net official transfers was due to lower grants from both international financial institutions and bilateral donors. Cash component of official transfers declined by 9.3 percent to reach USD 1.5 billion compared to USD 1.7 million in the previous year. 5.4. Current Account Despite the widening trade balance and the decline in public transfers, the current account deficit narrowed to USD 2.5 billion in FY2012/13 from USD 2.8 billion deficits recorded last fiscal year, as a result of the rise in net service and private transfers. 5.5 Capital Account In FY 2012/13, the balance in capital account showed a surplus of USD 3.2 billion, about 52.2 percent higher than that of last year owing to a rise in official (80 percent) and other public long term (72.9

National Bank of Ethiopia percent) net capital inflows. Likewise, foreign direct investment increased by 14.9 percent compared to last year. 5.6 Changes in Reserve Position Net foreign assets of the banking system at the end of 2012/13 recorded a reserve drawdown of USD 123.2 million, due to decreases in the net foreign assets of commercial banks by USD 381.3 million while the net foreign assets of NBE rose by USD 258.1 million. The gross international reserve of NBE was adequate to cover 1.7 months of imports of goods and non-factor services. 5.7 External Debt External debt stock of the country at the end of 2012/13 amounted to USD 10.2 billion, depicting a 15.1 percent increase over the preceding year. This was attributed largely to higher debt owed to multilateral (USD 4.7 billion) and bilateral creditors (USD 2.1 billion). Hence, the country’s external debt stock to GDP ratio rose to 23.2 percent from 19.4 percent in 2011/12. Debt stock to total receipts from export of goods and non-factor services ratio also slightly rose to 1.7 percent from 1.5 percent a year ago. Similarly, commercial debt stock, reached USD 3.4 billion in 2012/13. It accounted for 33.5 percent of the total debt stock and showed a 30.3 percent annual growth. Of the total debt stock, 46.4 percent was owed to multilateral and 20.2 percent to bilateral creditors. The country’s external debt burden as measured by debt services to export of goods and services ratio increased to 6.6 percent from 13.2 percent in the same period last year. Annual Report 2012/13 92

National Bank of Ethiopia 93 Particulars 2010/11 2011/12 2012/13 Percentage Change A B C B/A C/B Annual Debt 1,148.5 1,471.8 3,658.7 28.1 148.6 Debt Stock 7,318.8 8,846.3 10,185.1 20.9 15.1 Multilateral 3,480.9 4,001.1 4,721.9 14.9 18.0 Bilateral 1,724.5 2,227.5 2,052.5 29.2 -7.9 Commercial 2,113.4 2,617.7 3,410.7 23.9 30.3 Debt Service 204.5 391.8 781.9 91.6 99.5 Principal repayments 151.6 302.1 587.9 99.3 94.6 Interest payments 52.9 89.7 194.0 69.7 116.2 Debt stock to GDP ratio (In percent ) 23.1 19.4 23.2 -16.1 19.6 Debt stock to export of goods and non-factor services 1.4 1.5 1.7 8.2 16.0 Receipts from goods and non-factor services 5,605.6 5,963.2 5,928.1 6.4 -0.6 Debt service ratio (In percent ) 1/ 3.6 6.6 13.2 80.9 100.0 Arrears 2/

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Principal - - - Interest - - - Relief 8.4 7.9 7.9 -5.5 0.0 Principal 7.8 6.7 7.1 -14.1 6.0 Interest 0.6 1.2 2.0 106.7 61.3 Table 5.9: External Public Debt (In Million of USD) Source: MoFED 1/ Ratio of debt service to receipts from export of goods and non-factor services

National Bank of Ethiopia 94 5.8. Developments in Foreign Exchange Markets 5.8.1 Developmentsin Nominal Exchange Rate During FY 2012/13, the weighted average exchange rate of the Birr in the inter-bank foreign exchange market was Birr 18.1947/USD, depicting 5.5 percent year￾on-year depreciation against the average rate of Birr 17.2536/USD recorded in the previous year (Table 5.9). Similarly, the Birr in the parallel foreign exchange market depreciated on average by 7.3 percent annually to reach Birr 19.3022/USD. As a result, the average spread between the official and parallel market rates widened to 6.1 percent during the same period from 4.3 percent the previous year, mainly due to relatively faster depreciation of the parallel market rate. Table 5.9 Inter-Bank and Parallel Forex Market Exchange Rates Period Average Weighted Rate Amount Traded in millions of USD Average Rates in parallel Market Number of Trades Total o/w Among CBs Total o/w Among CBs 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 2012/13 Qtr. I Qtr. II Qtr. III Qtr. IV 18.1947 17.8705 18.0782 18.2971 18.5331 15.6 6.2 3.3 3.1 3.1 3.0 3.0 0.0 231.0 65.0 65.0 61.0 40.0 2.0 2.0 0.0 19.3022 18.4400 18.7333 19.8367 20.1988 Source: NBE, Foreign Exchange Monitoring & Reserve Management Directorate and staff compilation

National Bank of Ethiopia 95 In line with 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 5.5 percent and 5.6 percent and stood at Birr 18.2085/USD and Birr 18.5881/USD, respectively. Accordingly, the average premium between forex bureau’s buying and selling rates marginally went up to 2.1 percent in 2012/13 compared to 2 percent premium in the preceding fiscal year (Table 5.13). Table 5.10: End Period Mid Market Rates (USD per Unit of Foreign Currency) Currency 2010/11 2011/12 2012/13 Percentage change A B C C/B C/A Pound Sterling 1.6036 1.5563 1.5280 -1.8 -4.7 Swedish Kroner 0.1566 0.1416 0.1488 5.1 -5.0 Djibouti Frank 0.0056 0.1 0.1 Swiss Frank 1.1989 1.0365 1.0569 2.0 -11.8 Saudi Riyal 0.2666 0.0 0.0 UAE Dirhams 0.2723 0.2722 0.2723 0.0 0.0 Canadian Dollar 1.0274 0.9745 0.9574 -1.8 -6.8 Japanese Yen 0.0123 0.0126 0.0102 -19.1 -17.4 Euro 1.4434 1.2450 1.3029 4.7 -9.7 SDR 1.5903 1.5139 1.5051 -0.6 -5.4 Source: Staff Compilation During the period under review, the end period mid market exchange rate of the US dollar appreciated against some major international currencies such as Japanese Yen (19.1 percent), Canadian Dollar (1.8 percent), Pound sterling (1.8 percent) and SDR (0.6 percent), while it depreciated vis-à-vis Swedish Kroner (5.1 percent), Euro (4.7 percent), Swiss Frank (2.0 percent) and Djibouti Frank (0.1 percent). However, the US dollar remained stable with respect to Saudi Riyal and UAE Dirhams (Table 5.10).

National Bank of Ethiopia 96 Table 5.11: End Period Mid Market Rates (Birr per Unit of Foreign Currency) Currency 2010/11 2011/12 2012/13 Percentage change A B C C/B C/A USD 16.9927 17.8192 18.7358 5.1 10.3 Pound 27.2494 27.7320 28.6284 3.2 5.1 Swedish Kroner 2.6612 2.5231 2.7871 10.5 4.7 Djibouti Frank 0.0954 0.1000 0.1052 5.1 10.2 Swiss Frank 20.3725 18.4693 19.8011 7.2 -2.8 Saudi Riyal 4.5308 4.7513 4.9959 5.1 10.3 UAE Dirhams 4.6264 4.8513 5.1010 5.1 10.3 Canadian Dollar 17.4588 17.3642 17.9376 3.3 2.7 Japanese Yen 0.2096 0.2242 0.1908 -14.9 -9.0 Euro 24.5272 22.1849 24.4109 10.0 -0.5 SDR 27.0234 26.9757 28.1998 4.5 4.4 Source: Staff Compilation On the other hand, the end period exchange rate of the Birr depreciated against most international currencies vis￾à-vis the previous year. For instance, it depreciated at highest rates against Swedish Kroner (10.5 percent), Euro (10 percent) & Swiss Frank (7.2 percent) followed by 5.1 percent depreciation against USD, Djibouti Frank, Saudi Riyal and UAE Dirhams each and 3.3 percent and 3.2 percent against Canadian Dollar and Pound Sterling, respectively. However, the Birr appreciated against Japanese yen (14.9 percent) during the same period (Table 5. 11). 5.8.2. Movements in Real Effective Exchange Rate. Though the real effective exchange rate (REER) of the Birr had been appreciating since 2010/11, due to higher domestic inflation relative to that of major trading partner countries, the rate of appreciation has been declining in the review year as a result of the concerted effort of the government to contain inflation. Accordingly, REER appreciated by 0.6 percent annually in 2012/13 as compared to 13.5 percent appreciation in the preceding year (Table 5.12).

National Bank of Ethiopia 97 On the other hand, the nominal effective exchange rate depreciated by 2.7 percent annually compared to 0.7 percent appreciation in 2011/12. Table 5.12: Trends in Real and Nominal Effective Exchange Rates Fiscal Year REERI NEERI Percentage Change REERI NEERI 2006/07 108.9 84.5 12 -6.7 2007/08 139.2 74.0 27.9 -12.4 2008/09 130.1 67.5 -6.5 -8.7 2009/10 112.1 56.1 -13.8 -17.0 2010/11 113.6 42.9 1.3 -23.5 2011/12 128.9 43.2 13.5 0.7 2012/13 129.7 42.0 0.6 -2.7 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 With regard to the volume of foreign exchange transaction, USD 15.6 million was traded in the inter-bank foreign exchange market during 2012/13, which is 89.7 percent lower than the amount traded in 2011/12. Of the total amount of transaction, USD 3.0 million or 19 percent were traded among commercial banks while the remaining USD 12.6 million were supplied by the NBE for sale (Table 5.9). Meanwhile, the volume of foreign exchange purchase of forex bureau of commercial banks increased by 27.5 percent over the preceding year to USD 171.7 million owing to increase in private remittances. Likewise, their sales of foreign exchange marginally increased from USD 88 million in 2011/12 to USD 89.7 million in 2012/13 due to higher foreign exchange demand by travelers as

National Bank of Ethiopia Annual Report 2012/13 98 Name of Forex Bureau 2010/11 2011/12 2012/13 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 Debub Global Bank 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 0.00 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 0.05 0.00 55.77 5.97 17.20 7.82 4.56 3.06 22.29 0.00 8.89 1.93 2.34 2.89 0.49 1.00 0.59 0.37 0.09 0.00 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 0.00 73.64 4.50 28.52 7.09 4.91 5.73 25.87 3.53 5.94 3.65 1.99 0.97 0.58 1.51 0.45 1.00 1.80 0.05 2.24 6.77 34.84 13.08 1.25 4.26 12.10 0.27 6.67 1.03 1.66 2.65 0.79 0.57 0.37 0.90 0.22 0.05 32.05 -24.68 65.80 -9.36 7.69 87.32 16.05

-33.21 89.14 -14.97 -66.60 19.08 51.47 -23.38 169.95 1,833.87

-0.6 -6.5 17.8 -11.3 36.8 -4.2 0.4

-13.9 -41.6 29.9 -32.4 13.7 1143.1 -64.2 332.2 187.5

Total 199.40 19.70 134.64 88.0 171.70 89.70 27.53 1.94 Average Exchange Rate 16.7116 17.1485 17.2531 17.6002 18.2085 18.5881 5.54 5.61 reflected on the rise of travel service payments (Table 5.13). Table 5.13: Foreign Exchange Transactions by Forex Bureaux of Commercial Banks (In Millions of USD) Source: Staff Compilation

National Bank of Ethiopia Annual Report 2012/13 99 VI. GENERAL GOVERNMENT FINANCE 6.1. General The overall fiscal performance of the general government in 2012/13 resulted in a deficit of Birr 16.7 billion deficits, exceeding by Birr 7.9 billion (including grants) over the deficit recorded in 2011/12. Total revenue (including grants) during the same period depicted a 18.6 percent growth over the preceding fiscal year. However, revenue to GDP ratio improved slightly to 14.6 percent from 14 percent. Meanwhile, general government expenditure increased by 23.7 percent due to the increase in current and capital expenditure. As a result, the ratio of total government expenditure to GDP increased 18.1 percent compared to 17 percent registered in the preceding year. (Table 6.1) 6.1: Measuring Fiscal Sustainability (In %) 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 9.0 26.6 14.8 2.3 2000/01 -3.7 7.9 40.9 4.9 2.1 23.4 15.7 8.5 2001/02 -7.3 7.8 41.8 0.0 -2.2 26.8 15.8 -1.8 2002/03 -6.6 7.8 38.8 2.4 10.3 28.2 15.3 7.1 2003/04 -3.0 6.0 36.3 10.4 18.0 23.9 16.2 24.8 2004/05 -4.5 5.0 38.2 29.4 22.9 23.5 14.7 11.1 2005/06 -4.7 4.5 37.8 22.3 23.6 22.5 15.0 26.3 2006/07 -3.7 4.1 36.3 25.5 30.6 20.9 12.8 11.6 2007/08 -2.9 2.9 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 33.4 18.6 13.7 28.3 2011/12 -1.2 1.9 25.7 39.5 46.1 16.8 13.9 48.8 2012/13 -2.0 2.1 27.4 23.4 15.5 18.1 14.6 20.6 Source: Staff Computation PD = Primary Deficit IP/RR = Share of interest payments in Recurrent revenue ebt /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 Annual Report 2012/13 100 6.2. Revenue and Grants The general government revenue including grants registered a 18.6 percent growth in 2012/13 over the previous year and amounted Birr 137.2 billion. However, it ratio to GDP stood 14.6 percent compared to the 14 percent ratio recorded in 2011/12. During the same period, the total domestic tax revenue surged by 20.6 percent vis-à-vis the preceding year and reached Birr 124 billion on account of both direct tax (26.1 percent) and indirect tax (24.1 percent). The respective contribution of direct and indirect taxes to tax revenue rose to 34 percent and 66 percent respectively. The revenue from non-tax sources during the same period stood at Birr 17.1 billion, slightly lower than the preceding year. However, the non-tax revenue from sales of goods & services and others increased by 15 and 17.8 percent. While government investment income, charges & fees and reimbursement & property sales declined by 9.1, 3.4, and 60.7 percent respectively. Meanwhile, grants showed a 2.5 percent increment over the preceding year to reach Birr 13.1 billion. All in all, the total revenue raised and total collection including grants received from external sources in the 2012/13 accounted for 93 percent of the total budget.

National Bank of Ethiopia Annual Report 2012/13 101 In millio n Birr 160000 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

National Bank of Ethiopia Annual Report 2012/13 102 Table 6.2:SummaryofGeneralGovernmentRevenuebyComponent (InMillionsofBirr) Particulars 2011/12 2012/13 Percentage Change [C/A] 18.6 Performance [A] [B] [C] Rate Pre. Act Revised Budget 147,695.79 Pre. Act 137,192.48 [C/B] Total Revenue and Grants 115,658.50 92.9 Total Revenue 1/ 102,863.65 126,624.91 124,077.43 20.6 98.0 Tax Revenue 85,739.86 110,000.09 107,010.31 24.8 97.3

1. Direct Tax Revenue 28,857.57 38,124.65 36,392.64 26.1 95.5 1.1 Income and Profit Taxes 27,877.03 35,651.64 35,354.77 26.8 99.2 Personal 8,900.24 10,712.43 11,567.05 30.0 108.0 Business 15,539.97 20,492.93 19,437.13 25.1 94.8 Others 2/ 3,436.81 4,446.28 4,350.59 26.6 97.8 1.2 Rural Land Use Fee 320.24 295.34 340.95 6.5 115.4 1.3 Urban Land Use Fee 660.30 2,177.67 696.91 5.5 32.0
2. Indirect Taxes 56,882.29 71,875.44 70,617.67 24.1 98.3 2.1 Domestic Taxes 23,326.05 30,151.00 32,440.34 39.1 107.6 2.2 Foreign Trade Taxes 33,556.24 41,724.44 38,177.32 13.8 91.5 Import 33,556.24 41,724.44 38,177.32 13.8 91.5 Export
3. Non-Tax Revenue 17,123.79 16,624.83 17,067.12 (0.3) 102.7 3.1 Charges and Fees 1,126.74 1,179.59 1,087.93 (3.4) 92.2 3.2 Govt. Invt. Income 3/ 9,178.51 4,772.55 8,347.79 (9.1) 174.9 3.3 Reimb. And Property Sales 450.99 179.88 177.39 (60.7) 98.6 3.4 Sales of Goods & Services 1,738.49 2,295.09 1,998.88 15.0 87.1 3.5 Others 4/ 4,629.06 8,197.71 5,455.13 17.8 66.5
4. Grants 12,794.85 21,070.88 13,115.05 2.5 62.2 Source: Ministry of Finance and Economic Development 1/ It does not include privatization proceeds 2/ Others include rental income tax, withholding income tax on imports, interest income tax, capital gains tax, agricultural income and other income 3/ Government investment income includes: residual surplus, capital charge, interest payments and state dividend. 4/ other extraordinary, miscellaneous and pension contribution

National Bank of Ethiopia Annual Report 2012/13 103 6.3. Expenditure Total general government expenditures during 2012/13 rose by 23.7 percent vis￾à-vis the previews year and reached Birr 154 billion as both recurrent and capital expenditures increased strongly over the preceding year. The recurrent expenditure alone amounted Birr 62.7 billion, showing a 22 percent growth over the previous year and accounted for 40.8 percent of the total expenditure of the review period. Likewise capital expenditures expanded robustly by 25 percent relative to last year to Birr 91.2 billon and constituted 59.2 percent of the annual planned expenditure. Both current and capital expenditures performed each 92 percent of the respective annual budget plan for 2012/13. In summary, the performance of general government expenditure accounted for 92 percent of the annual budget in 2012/13.

National Bank of Ethiopia Annual Report 2012/13 104 Particulars 2011/12 2012/13 Percentage Change Performance [A] [B] [C] Rate [C/A] 23.7 Pre. Act Revised Budget 167,342.7 Pre. Act 153,928.7 [C/B] Total Expenditure 124,416.7 92.0

1. Current Expenditure 51,445.5 68,146.2 62,745.8 22.0 92.1 General Services 21,158.8 21,953.7 23,301.6 10.1 106.1 Economic Services 6,577.0 9,334.5 8,408.1 27.8 90.1 Social Services 21,054.8 27,516.0 26,891.1 27.7 97.7 Interest and Charges 2,230.4 3,721.2 2,931.4 31.4 78.8 External Assistance1/ Social Safety Net Others (miscellaneous) 424.4 5,620.9 1,213.6 186.0 21.6
2. Capital Expenditure 72,971.3 99,196.5 91,182.9 25.0 91.9 Economic Development 50,400.7 66,260.5 64,271.4 27.5 97.0 Social Development 17,971.3 25,432.4 21,131.6 17.6 83.1 General Development 4,599.3 7,503.7 5,779.9 25.7 77.0
3. Special programs Table 6.3: Summary of General Government Expenditure (In Millions of Birr) Source: Ministry of Finance and Economic Development Note: 1/ Includes mapping, science and technology, public buildings, etc

National Bank of Ethiopia Annual Report 2012/13 105 In millions of Birr Fig. VI.2: Trends in General Government Expenditure by Component 180000 160000 140000 120000 Total Expenditure 100000 80000 Current Expenditure 60000 40000 Capital Expenditure 20000 0 1998/992002/032003/042004/052005/062006/072007/082008/092009/102010/112011/122012/13 Fiscal Year

National Bank of Ethiopia Annual Report 2012/13 106 In Percent of GD P 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 2012/13 30.0 Fig.VI.3: Trends in General Government Expenditure and Revenue (% of GDP) 25.0 20.0 15.0 10.0 5.0 0.0 Fiscal Year Expenditure /GDP

National Bank of Ethiopia Annual Report 2012/13 107 6.4. Deficit Financing Government budgetary operation including grants during 2012/13 resulted in a Birr 16.7 billion deficits, widened significantly relative to the preceding year’s performance. The deficit was financed through external and domestic borrowings as well as privatization receipts while there was repayment to banking system. Its ratio to GDP stood at 2 percent.

108 Annual Report 2012/13 Particulars 2011/12 2012/13 Percentage Change [C/A] 18.6 Performance [A] [B] [C] Rate Pre. Act Revised Budget 147,695.8 Pre. Act 137,192.5 [C/B] Revenue and Grants 115,658.5 92.9 Revenue 102,863.7 126,624.9 124,077.4 20.6 98.0 Grants 12,794.9 21,070.9 13,115.1 2.5 62.2 Total Expenditure 124,416.7 167,342.7 153,928.7 23.7 92.0 Current Expenditure 51,445.5 68,146.2 62,745.8 22.0 92.1 Capital Expenditure 72,971.3 99,196.5 91,182.9 25.0 91.9 Special Programs Overall Surplus/ Deficit (Including Grants) (8,758.2) (19,646.9) (16,736.2) 91.1 85.2 (Excluding Grants) (21,553.1) (40,717.8) (29,851.2) 38.5 73.3 Total Financing 8,758.2 19,646.9 16,736.2 91.1 85.2 Net External Borrowings 6,529.7 6,644.9 16,845.6 158.0 253.5 Gross Borrowing 7,443.1 7,973.5 17,964.9 141.4 225.3 o/w Special Programs Amortization Paid 1,062.6 1,498.3 1,281.0 20.6 85.5 HIPC Relief 149.1 169.7 161.7 8.4 95.3 Net Domestic Borrowings 3,793.1 13,003.0 1,764.3 (53.5) 13.6 Banking System (3,825.5) (3,245.0) (15.2) Non-Banking Systems 7,618.6 5,009.3 (34.2) Privatization Receipts 2,763.9 0.0 1,200.0 (56.6) Others and Residuals (4,328.4) (1.0) (3,073.7) (29.0) 301,461.4 Table 6.4: Summary of General Government Finance (In Millions of Birr) Source: Ministry of Finance and Economic Development

109 Annual Report 2012/13 VI. INVESTMENT The Ethiopian Investment Agency and Regional Investment Offices licensed 69,079 investment projects with an aggregate capital of Birr 1.3 trillion in the period between 1992/93 – 2012/13. Of these projects, 58,735 (85 percent) were domestic, 10,220 (14.8 percent) foreign and 124 (0.2 percent) are public. In terms of capital, Birr 518.2 billion (38.8 percent) was from domestic investors, Birr 515.6 billion (38.6 percent) from foreign investors and Birr 303.0 billion (22.6 percent) from the public sector (Table 7.1). Similarly, during the GTP period the Ethiopian Investment Agency and Regional Investment Offices licensed a total of 18,980 projects with a capital of 507.7 billion birr. In 2012/13, a total of 7,011 investment projects with a combined capital of Birr 112.1 billion were approved. The number of domestic investment projects reached 6,273 which accounts for more than 89.5 percent of the total projects approved during the review period, whereas foreign projects reached 722 (10.5 percent). The capital performance for foreign investor projects during the review period found to be about 19.5 percent higher than the same period last year. Regarding to investment capital, domestic private projects which made up Birr 34.8 billion or (31.1 percent) while foreign investment projects accounted for Birr 49.5 billion ( 44.2 percent) of the total approved investment capital while the remaining (24.8 percent) was carried out by the government. Upon commencement of operation, the approved investment projects are expected to create job opportunities for 125,658 permanent and 255,931 casual workers (Table 7.2).

110 Annual Report 2012/13 Table 7.1: Number and Investment Capital of Approved Projects by Ownership since 1992/93 (Investment Capital in millions of birr) 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 3,750.0 3 233 0 0.00 545 3,983.0 1993/94 521 2,926.0 4 438 1 57.00 526 3,421.0 1994/95 684 4,794.0 7 505 2 39.00 693 5,338.0 1995/96 897 6,050.0 10 434 1 6.00 908 6,490.0 1996/97 752 4,447.0 42 2,268 1 7.00 795 6,722.0 1997/98 816 5,819.0 81 4,106 1 14.00 898 9,939.0 1998/99 674 3,765.0 30 1,380 9 4,915.00 713 10,060.0 1999/00 561 6,740.0 54 1,627 9 5,760.00 624 14,127.0 2000/01 635 5,675.7 45 2,923 7 257.00 687 8,856.0 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 21,220.0 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 93,579.0 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 53,355 10 154,019 6,322 249,469 2011/12 5,042 59,316 604 83,975 3 2,877 5,649 146,168 2012/13 6,273 34,823 722 49,485 16 27,763 7,011 112,072 Cumulative 58,735 518,250 10,220 515,641 124 302,997 69,079 1,336,890 Average Annual 2,797 24,679 487 24,554 6 14,428 3,289 63,661 Source: Ethiopian Investment Agency

111 Annual Report 2012/13 (In Billions of Birr) N u m ber of Invest ment Projects Fig 7.1: Approved investment projects by source 9000 8500 8000 7500 7000 6500 6000 5500 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 Domestic Foreign Public Total 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Year Fig 7. 2: Capital of Approved Investment Projects by Source 300 250 200 Domestic Foreign Public Total 150 100 50 0 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Year

112 Annual Report 2012/13 Table7.2: Numbers, Capital and Expected Job Opportunities (Investment Capital in millions of birr) Types of Projects 2010/11 2011/12 2012/13 Percentage change A B C C/A C/B

1. Total Investment Number 6,322 5,649 7,011 10.9 24.1 Capital 249,469 146,168 112,072 -55.1 -23.3 Permanent Workers 227,715 147,400 125,658 -44.8 -14.8 Temporary Workers 586,380 375,657 255,931 -56.4 -31.9
2. Total Private Number 6,312 5,646 6,995 10.8 23.9 Capital 95,450 143,291 84,309 -11.7 -41.2 Permanent Workers 212,470 147,286 125,488 -40.9 -14.8 Temporary Workers 412,117 375,504 255,401 -38.0 -32.0 2.1. Domestic Number 5,360 5,042 6,273 17.0 24.4 Capital 42,093 59,316 34,823 -17.3 -41.3 Permanent Workers 146,378 104,582 59,352 -59.5 -43.2 Temporary Workers 283,277 254,733 125,424 -55.7 -50.8 2.2. Foreign Number 952 604 722 -24.2 19.5 Capital 53,357 83,975 49,485 -7.3 -41.1 Permanent Workers 66,092 42,704 66,136 0.1 54.9 Temporary Workers 128,840 120,771 129,977 0.9 7.6
3. Public Number 10 3 16 60.0 433.3 Capital 154,019 2,877 27,763 -82.0 865.0 Permanent Workers 15,245 114 170 -98.9 49.1 Temporary Workers 174,263 153 530 -99.7 246.4 Source: Ethiopian Investment Agency Note: Total investment (1) = Total private investment (2) + Public investment (3).

113 Annual Report 2012/13 Table 7.3: Number and Capital of Investment Projects Approved by Sector (Capital in millions of birr) Sectors 2011/12 2012/13 Percentage share to total No. of Investment No. of Investment No. of Investment Projects Capital Projects Capital Projects Capital Manufacturing 1,211 45,482 1,005 35,399 14.3 31.6 Agriculture, hunting and forestry 435 23,268 471 12,206 6.7 10.9 Real estate, renting and Business activities 2,694 23,165 4,300 20,710 61.3 18.5 Hotel and restaurants 271 12,322 208 5,297 3.0 4.7 Education 57 465 44 845 0.6 0.8 Health and social work 52 2,814 50 3,524 0.7 3.1 Construction 747 29,794 725 5,486 10.3 4.9 Wholesale, retail trade and repair service 22 322 37 177 0.5 0.2 Transport, storage and communication 101 578 85 198 1.2 0.2 Fishing 2 32 - - 0.0 0.0 Mining and quarrying 9 159 14 154 0.2 0.1 Electricity, gas, steam and water supply 2 7,129 16 27,707 0.2 24.7 Other community, social and personal service activities 46 639 56 369.2 0.8 0.3 Grand Total 5,649 146,168 7,011 112,072 100.0 100.0 Source: Ethiopian Investment Agency

114 Annual Report 2012/13 7.1 Investment by Sector Of the total number of approved projects during the FY 2012/13, 61.3 percent were in real estate, renting and business activities; 14.3 percent in manufacturing; 10.3 in construction, 6.7 in Agriculture, hunting and forestry; and 3 percent in hotel and restaurants. In terms of approved investment capital, manufacturing constitutes the largest share (31.6 percent), followed by electricity, gas, steam & water supply (24.7 percent), real estate, renting & business activities (18.5 percent), agriculture, hunting & forestry (10.9 percent), construction (4.9 percent) and hotel & restaurants (4.7 percent). Fig 7.3: Distribution of Investment Projects by Sector in 2012/13 Others 4% Hotels and restaurants 3% Construction 11% Manufacturing 14% Agriculture, hunting and forestry 7% Real estate, renting and Business activities 61%

115 Annual Report 2012/13 7.2 Distribution by Region Of the total 7,011 investment projects approved in the review period; Addis Ababa attracted 4,890 projects (69.7 percent) with Birr 36.1 billion investment capitals, followed by Oromia 846 (12.1 percent) projects with capital of 49.1 billion, Amahara 829 (11.8 percent) projects with 10.5 billion birr of capital, Dire Dawa 170 projects and SNNPR 125 projects. Table 7.4: Number and Capital of Approved Projects by Region (Capital in millions of Birr) Regions 2010/11 2011/12 2012/13 Percentage share to total No. of projects Investment Capital No. of projects Investment Capital No. of of projects Investment Capital No. of of projects Investment Capital Tigray 349 11,112 7 130 17 580 0.2 0.5 Afar 26 399 50 190 89 1,174 1.3 1.0 Amhara 722 32,753 612 38,642 829 10,469 11.8 9.3 Oromia 1,386 32,219 510 25,714 846 49,111 12.1 43.8 Somali 127 2,738 50 1,001 4 24 0.1 0.0 Benishangul￾Gumuz 56 81,611 50 354 33 114 0.5 0.1 SNNPR 160 49,751 49 2,845 125 3,140 1.8 2.8 Gambella 14 3,920 11 6,265 4 163 0.1 0.1 Harari 48 276 4 974 1 10 0.0 0.0 Addis Ababa 3,221 30,627 4,170 62,264 4,890 36,160 69.7 32.3 Dire Dawa 207 2,995 134 660 170 1,730 2.4 1.5 Multiregional Projects 6 1,067 2 7,129 3 9,397 0.0 8.4 Grand Total 6,322 249,469 5,649.0 146,168 7,011 112,072 100.0 100.0 Source: Ethiopian Investment Agency

116 Annual Report 2012/13 VIII. INTERNATIONAL DEVELOPMENTS 8.1 International Economic Developments 8.1.1 Overview of the World Economy 9 In early 2012 survey indicators signaled that the firming of momentum in global economic growth over the final quarter of 2011 was continuing into the first quarter of 2012. Growth has been 3.2 percent for Global economy (against 4.0 percent in 2011), 1.3 percent for advanced economies (against 1.6 percent in 2011) and 5.1 percent for emerging and developing economies (against 6.3percent in 2011). This slowdown was partly driven by higher levels of uncertainty and partly due to past policy tightening in a number of countries. Social unrest and geopolitical tensions in a number of Middle Eastern and North African countries also stifled growth. However, this improvement in sentiment was short-lived and confidence began to deteriorate once more, in a pattern similar to developments seen in 2011. Activity slowed in advanced economies as financial market stress and the sovereign debt crisis affecting some euro area countries intensified, and uncertainty remained persistently high. The ongoing repair of public and private balance sheets, as well as weak labour and housing markets, continued to dampen growth. Growth also slowed in a number of emerging economies but remained robust in comparison with developments in advanced economies. Furthermore, a significant part of the lower growth in emerging market and developing economies is related to domestic factors, notably constraints on the sustainability of the high pace of growth in these economies and building financial imbalances. 9 Excerpted from European Central Bank annual report 2012, monthly reports through January to June, 2013 and World Economic Outlook, April 2013

Annual Report 2012/13 117 Table 8.1: Overview of World Economic Outlook and Projection (Annual Percentage Change) Particulars 2011 2012 Projection 2013 2014 World Output 4.0 3.2 3.3 4.0 Advanced Economies 1.6 1.2 1.2 2.2 United States Euro Area Japan 1.8 1.4 -0.6 2.2 -0.6 2.0 1.9 -0.3 1.6 3.0 1.1 1.4 Emerging Market & Developing Economies 6.4 5.1 5.3 5.7 World Trade Volume (goods & services) 6.0 2.5 3.6 5.3 Imports Advanced Economies Emerging Market & Developing Economies 4.7 8.6 1.0 4.9 2.2 6.2 4.1 7.3 Exports Advanced Economies Emerging Market & Developing Economies 5.6 6.4 1.9 3.7 2.8 4.8 4.6 6.5 Commodity Prices (U.S. dollars) Oil Non- oil 31.6 17.8 1.0 -9.8 -2.3 –0.9 –4.9 –4.3 Consumer Prices Advanced Economies Emerging Market & Developing Economies 2.7 7.2 2.0 5.9 1.7 5.9 2.0 5.6 Source: IMF, World Economic Outlook, April 2013 In the United States, the economy continued on a path to recovery in 2012, growing at a faster pace than in the previous year. Real GDP growth stood at 2.2%, compared with 1.8% in 2011. Economic growth in the first half of 2012 was sluggish, weighed down by concerns about global economic prospects, by the contraction in government expenditure and by the slowdown in most of the other domestic demand components. In the second half of the year GDP growth gained some momentum on the back of resilient growth in personal consumption expenditure, which was supported primarily by wealth effects coming from continued increases in equity prices and improvements in the housing market and by strong levels of consumer confidence.

Annual Report 2012/13 118 Moreover, a strong expansion in private residential investment, reflecting a sustained increase in the housing market, also contributed to the acceleration in GDP growth. Similarly, the pace of employment growth in the lobour market was slightly more dynamic than that of the previous year, allowing the unemployment rate to fall from 8.9% in 2011 to 8.1% in 2012. In Japan, Economic growth in Japan was highly volatile in 2012 owing to the considerable uncertainty surrounding global developments and national policies. Growth in the first quarter was firm, driven mainly by strong domestic demand. Public demand due to the reconstruction work following the Earth quake and tsunami in 2011, as well as private consumption demand partly boosted by the subsidized purchase of eco-friendly cars, contributed positively to growth. Starting from the second quarter the economy contracted amid weakening global demand. Owing partly to the strong yen, the Current account balance turned negative for the first time since the series began in 1985. Together with subdued domestic demand, the slowdown in external demand led to a sizeable contraction in growth in the third quarter. At the end of the year the economy remained weak, although private consumption picked up once again against the background of a weaker yen. Economic growth in emerging Asia decelerated further in 2012, with annual GDP growth slowing to around 5.9%, some way below its long-term average. Export growth declined significantly as the slowdown in Europe and other advanced economies contributed to a widespread reduction in trade. In China, real GDP growth declined to 7.8% in 2012 from 9.3% in 2011. Growth had been weak at the start of the year but rebounded strongly in the second half, driven by domestic demand. Consumption and investment contributed in almost equal measure, while the contribution of net exports was slightly negative. Domestic demand was supported by government infrastructure investment and accommodative financing conditions. Economic activity in Latin America slowed overall during 2012, on the back of lower

Annual Report 2012/13 119 external demand and some signs of weakness in domestic demand in a number of countries. In addition, weaker global prospects led to a decline in commodity prices and terms-of-trade losses for commodity exporters, which account for roughly three-quarters of the output in the region. For the region as a whole, the year￾on-year real GDP growth rate stood at 3.1% in the first half of 2012, compared with average growth of 4.5% in 2011. Private consumption continued to be the main engine of growth, despite recording some deceleration. To a lesser extent, government consumption also contributed positively to growth. 8.1.2 World Trade The slowdown in world trade that began in 2010 intensified over the course of 2012, total trade volume growth slowed to just 2.2% in 2012, from 5.8% in 2011. Over the course of 2012 world import growth slowed much more sharply than overall activity. Over the course of 2012 world import growth slowed much more sharply than overall activity. High uncertainty particularly in Europe and subdued confidence appear to have dampened demand for durable and investment goods, which affected global trade flows. In emerging market economies, some inventory destocking was observed in the second half of 2011, followed by a slight recovery in the first half of 2012. These developments roughly coincided with the decline in the ratio of import growth to GDP growth. In euro area, since the second half of 2011 fixed investment and inventories have contributed negatively to output growth, which helps to explain the significant decline observed in the ratio of import growth to GDP growth. 8.1.3 Inflation and Commodity Prices In United state, after average annual inflation of 3.2% in 2011, CPI inflation decelerated to 2.1% in 2012. In the first half of 2012 inflation eased significantly, reflecting lower energy and food prices. In August 2012, however, energy prices reversed their previous downward trend, leading to an increase in CPI inflation until October, before resuming their decline until the end of the year. Excluding food and energy, CPI inflation averaged 2.1%, up

Annual Report 2012/13 120 from 1.7% in the previous year, on the back of sustained increases in the cost of shelter, medical care and apparel. In euro area, in 2012 head line inflation in was 2.5%, on average, after standing at 2.7% in 2011 and 1.6% in 2010. Since the end of 2010 annual inflation has been somewhat elevated, owing mainly to the strong annual rates of growth in energy prices, as well as to pronounced increases in indirect taxes and administered prices in some euro area countries. Inflation in emerging Asia moderated in 2012. Declining global food prices helped to bring headline inflation rates lower, while weaker activity also moderated inflationary pressures. In the light of the deterioration in activity and trade, and easing Inflation, some countries reversed the monetary tightening cycle that had begun in the second half of 2010, contributing to renewed growth momentum towards the end of the year. In Japan, annual inflation was positive in the first half of the year but turned negative in the second half. Core inflation (excluding food, beverages and energy) was negative throughout 2012. In China, Inflation eased during the year on the back of declining food prices, reaching 2.6% for 2012 as a whole, against 5.4% in 2011. In Latin America, the inflation moderation in economic growth coupled with lower energy and food prices which led to some easing in inflationary pressures in 2012. Average annual consumer price inflation decelerated from 6.9% in 2011 to 6.2% in 2012. In OECD countries, average headline consumer price inflation stood at 2.2% in 2012, down from 2.9% in 2011. Average consumer price inflation excluding food and energy stood at 1.8%, compared with 1.6% in 2011.

Annual Report 2012/13 121 8.1.4 Exchange Rate In the period up to April 2012 the euro appreciated slightly in nominal effective terms and bilaterally against the US dollar. After April renewed tensions related to the resolution of the euro area sovereign debt crisis led to a decline in the value of the euro. Specifically, between April and July 2012, the euro depreciated by around 5% in nominal effective terms and by 8% against the US dollar. Between the end of July and the end of September, the euro appreciated markedly, largely recovering earlier losses, amid substantially declining volatility. Euro exchange rate movements in the later part of 2012 were characterized by an environment of stability, with volatility indicators in foreign exchange rate markets near levels seen before the financial crisis. The nominal effective exchange rate of the euro, as measured against the currencies of 20 of the euro area’s most important trading partners, was broadly unchanged over the year. By the end of 2012, in nominal effective terms, the euro stood 0.4% below its level at the end of 2011 and 1% below its average level since 1999. Against the US dollar, on 31 December 2012 the euro traded at USD 1.32, which was around 2% higher than at the end of 2011 and 5% below its average for 2011. Regarding other major currencies, the euro appreciated substantially against the Japanese yen, particularly in the second half of 2012, as uncertainties in Japan negatively affected the value of the Japanese currency. On 31 December 2012 the euro stood at JPY 114, 13% higher than at the start of the year and 2% above its 2011 average. By contrast, the euro depreciated slightly against the pound sterling, trading at GBP 0.82 at the end of 2012, which was around 2% below its level at the beginning of the year and 6% lower than its average level in 2011. The euro was unchanged during 2012 against the Australian dollar but depreciated against the Canadian dollar (by 1%), the Norwegian krone (by 5%) and the Korean won (by 6%). By contrast, it appreciated against the Asian currencies that are linked to the US dollar, including the Chinese renminbi (by 1%) and the Hong Kong dollar (by 2%). Against the

Annual Report 2012/13 122 Swiss franc, the euro continued to trade close to the minimum exchange rate of CHF 1.20 which was unilaterally announced by the Swiss National Bank in September 2011 and defended through interventions by the central bank in the foreign exchange market over the course of 2012. On 30 December 2012 the euro stood at CHF 1.21, broadly unchanged from its level at the beginning of the year. The real effective exchange rates of the euro based on different cost and price measures decreased during the first three quarters of 2012. By the end of 2012 they stood at levels below those prevailing at the end of 2011. 8.1.5 Capital Flow Conditions in euro area money markets continued to be affected by the sovereign debt crisis in 2012. The ECB policy decisions which had the most notable impact on euro area money markets were the allotment of the two three-year LTROs (on 21 December 2011 and 29 February 2012) and the lowering of the deposit facility rate to zero in July 2012. Strong demand from counterparties in the two three-year LTROs led to a significant build-up of excess liquidity, which peaked at €773.9 billion on average during the sixth maintenance period of 2012. Partly as a consequence of the increase in excess liquidity, trading activity in euro area money markets declined further. However, the underlying reason for the continued decline in trading activity was the continued strong market segmentation caused by the sovereign debt crisis. The announcement on OMTs in August 2012 led to an overall improvement in financial market conditions and a reduction in excess liquidity, which stood at €622.7 billion on average during the last maintenance period of 2012. Owing to the high level of excess liquidity prevailing throughout 2012, short￾term money market rates remained close to the rate on the deposit facility, exhibiting only mild volatility. 8.2 Implications for Ethiopia The slow growth in global economic activity has to some extent affected the external sector of Ethiopia. Earnings from export of goods during 2012/13 fell by 2.5 percent compared to the previous year. A fall in the prices of major export commodities of the country in the international market, decline the production of some of the export

Annual Report 2012/13 123 commodities and slow recovery in major trading partners are among the major factors On the other hand, net receipts from service exports went up by 512.9 percent while private transfers and FDI inflows showed a moderate growth of 19.8 and 14.9 percent, respectively, during the review year. The declining international oil price has positively contributed to the country’s current account positively despite high fuel import bill; fuel import was constituted 18.9 percent of the total import bill during the review period. Looking ahead, world oil price is anticipated to slow down and hence decrease the foreign exchange payment of the country. Overall, global economic conditions are expected to improve throughout the next fiscal year. Hence, Ethiopia’s external sector performance particularly with respect to export revenue, FDI inflows and private remittances are likely to improve. that led to this decline.

Annual Report 2012/13 124