National Bank of Ethiopia Annual Report 2010/2011 — NBE — ET

National Bank of Ethiopia 2010/11 annual report | VII. Investment 96 1 Contents
Page
Governors note ................................................................................................................................ 1
I. Overall Economic Performance ................................................................................................. 6
1.1 Economic Growth ................................................................................................................. 6
1.2 GDP by sector ........................................................................................................................ 6
1.3 GDP by Expenditure by Component ................................................................................... 10
1.4 Micro and Small Scale Enterprises ...................................................................................... 11
1.5 Access to Water Supply ......................................................................................................... 13
1.6 Road Transport Development .............................................................................................. 15
1.7 Educational Sector Developments........................................................................................ 19
1.8 Telecommunication ............................................................................................................... 22
II. Energy Production .......................................................................................................................... 27
2.1 ElectricPowerGeneration ............................................................................................................... 27
2.2 VolumesandValueofPetroleumImports ........................................................................................... 29
III. Price Developments........................................................................................................................ 33
3.1 Development in Consumer Price at National Level ............................................................. 33
3.2 Regional Consumer Price Developments .............................................................................. 35
IV. Monetary and Financial Developments.................................................................................. 39
4.1 Monetary Developments and Policy ....................................................................................... 39
4.1.1 Developmentsin Monetary Aggregates .......................................................................... 39
4.1.2 Developmentsin Reserve Money and Monetary Ratios ................................................ 43
4.2 Development in Interest Rate .................................................................................................. 44
4.3 Developmentsin Financial Sector ........................................................................................... 46
4.3.1 Resource Mobilization by Banks ..................................................................................... 51
4.3.2 New Lending Activities .................................................................................................... 54
4.3.3 Outstanding Loans ........................................................................................................... 56
4.4 Financial Activities of NBE ...................................................................................................... 58
4.5 Developmentsin Financial Markets ........................................................................................ 59
4.5.1 NBE Treasury Bills Market ............................................................................................. 61
4.5.2 Bonds Market .................................................................................................................... 62
4.5.3 Interbank Money Market ................................................................................................ 63
V. Development in External Sector............................................................................................................................................................................. 65
5.1 OverallBalanceofPayments .......................................................................................................................................................................................... 65
................................................................................................................................................................................................................................................
5.2 DevelopmentsinMerchandiseTrade........................................................................................................................................................................68
5.2.1 Exports.............................................................................................................................................................................................................................68

National Bank of Ethiopia 2010/11 annual report | VII. Investment 96 2
5.2.2 Imports............................................................................................................................................................................................................................73
5.2.3 DirectionofTrade......................................................................................................................................................................................................75
5.3 ServiceandTransfers..........................................................................................................................................................................................................79
5.3.1 Services.............................................................................................................................................................................................................................79
5.3.2 UnrequitedTransfers..............................................................................................................................................................................................79
5.4 CurrentAccount....................................................................................................................................................................................................................80
5.5 CapitalAccount ......................................................................................................................................................................................................................80
5.6 ChangesinReservePosition ............................................................................................................................................................................................81
5.7 ExternalDebt ...........................................................................................................................................................................................................................81
5.8 DevelopmentsinForeignExchangeMarket .........................................................................................................................................................83
5.8.1 DevelopmentsinNormalExchangeRate ...................................................................................................................................................83
5.8.2 MovementsinRealEffectiveExchangeRate ............................................................................................................................................85
5.8.3 ForeignExchangeTransactions ......................................................................................................................................................................87
VI. GeneralGovernment Finance .................................................................................................................................................................................................. 88
6.1 GovernmentFinance ..............................................................................................................................................................................................88
6.2 RevenueandGrants ................................................................................................................................................................................................89
6.3 Expenditure ..................................................................................................................................................................................................................92
6.4 DebitFinancing...........................................................................................................................................................................................................95
VII. Investment........................................................................................................................................ 96
7.1 InvestmentbySector ...............................................................................................................................................................................................102
7.2 Distribution byregion.............................................................................................................................................................................................103
VIII. InternationalEconomicDevelopments .......................................................................................................................................................................104
8.1 InternationalEconomicDevelopments.........................................................................................................................................................104
8.1.1 OverviewofWorldEconomy ...............................................................................................................................................................104
8.1.2 WorldTrade ....................................................................................................................................................................................................108
8.1.3 InflationandCommodityPrices ...........................................................................................................................................................109
8.1.4 ExchangeRates ..............................................................................................................................................................................................112
8.1.5 CapitalFlows....................................................................................................................................................................................................114
8.2 Implications for Ethiopian ..................................................................................................................................................................................114

National Bank of Ethiopia 2010/11 annual report | VII. Investment 96 3 Statistical tables
EstimateofAgricultureProduction ....................................................................................................................................................................................... 137
GrossDomesticproductbyEconomicSectors.................................................................................................................................................................. 138
ExpenditureonGrossDomesticProductatCurrentMarketPrice .................................................................................................................... 139
BalanceofPayments........................................................................................................................................................................................................................ 141
SummaryofExternalPublicDebt .......................................................................................................................................................................................... 142
ValueofMajorExports ................................................................................................................................................................................................................. 144
QuantityofMajorExports .......................................................................................................................................................................................................... 144
ValueofMajorImports(inThousandofBirr)................................................................................................................................................................. 144
ValueofMajorImports(inMetricTons) ........................................................................................................................................................................... 145
ValueofImportsbyEndUse ...................................................................................................................................................................................................... 147
ValueofImportsbyCountryofOrigin ................................................................................................................................................................................ 148
ValueofExportsbyCountryofDestination ...................................................................................................................................................................... 150
TradeBalancewithMajorTradingPartners ................................................................................................................................................................... 151
ComponentsofBroadMoney ................................................................................................................................................................................................... 152
DomesticCreditbySector ............................................................................................................................................................................................................ 153
GoldandForeignExchangeHoldingsoftheNbeandCommercialBanks .................................................................................................... 154
TreasuryBillsAuctionResults ................................................................................................................................................................................................... 155
NumberandCapitalofDomestic&ForeignProjectsApprovedbySectors ................................................................................................. 156
NumberandCapitalofDomestic&ForeignInvestmentProjects .......................................................................................................................
ExpectedEmploymentCreationofApprovedDomesticandForeignInvestment ....................................................................................157
EmploymentCreatedbyDomesticandForeignInvestmentProjectsbySector ......................................................................................... 158
NumberandCapitalofDomestic&ForeignInvestmentProjects ....................................................................................................................... 159
NumberandCapitalofInvestmentProjectsApprovedbyRegion ..................................................................................................................... 160

National Bank of Ethiopia 2010/11 annual report | VII. Investment 96 4 Governor’s Note Ethiopia continued to maintain the double digit growth it has started since the last eight years. In 2010/11, real GDP growth was 11.4 percent moderately higher than the 10 percent growth a year earlier. This robust and broad based economic growth places Ethiopia among the top performing African and other developing Asian countries. During the fiscal year, agriculture grew by 9.0 percent due to improved productivity, good weather conditions and conducive policy environment. The industry sector expanded by 15.0 percent, owing to investment in electricity & water and construction sector. Service sector growth, however, slightly declined to 12.5 percent from 13.0 percent a year ago. Despite the fact that Ethiopia had historically been a low inflation country, it has begun witnessing some inflationary pressure during the last two years. Annual average general inflation at the close of the fiscal year 2010/11 hiked up to 18.1 percent, about 15.3 percentage point higher than the preceding year. This was largely attributed to the surge in the prices of food items which contributed 14.1 percentage point to the total annual change in headline inflation. Annualized food inflation, scaled up to 15.7 percent from -5.4 percent in June 2010 registering a 21.1 percentage point increase on account of higher food prices in the international market, domestic supply side constraints and reserve money growth largely due to higher NFA. Annual average core inflation also slightly increased to 21.8 percent from 18.2 percent at the end of last fiscal year, owing to higher commodity prices, mainly fuel prices in the international market. The government’s fiscal operations revealed an overall fiscal deficit of 4.8 percent of GDP in contrast to 4.6 percent a year earlier. General government revenue, including grants depicted a 29.2 percent surge to Birr 85.6 billion due to improved tax administration and continued economic growth. Yet, revenue to GDP ratio remained

National Bank of Ethiopia 2010/11 annual report | VII. Investment 96 5 modest at 13.5 percent from 14.1 percent a year ago, which was quite low compared to other similar developing countries indicating the need for increased tax effort. General government expenditure also registered a 31.5 percent annual increase to reach Birr 93.8 billion, as poverty related expenditure tended to play a significant role. Monetary policy continued to focus on containing inflationary pressure and building international reserves of the country. Efforts were made to make the growth of broad money supply in line with nominal GDP growth. Accordingly, broad money to GDP ratio increased from 27.2 percent in 2009/10 to 29.1 percent in 2010/11 on account of remarkable growth in net foreign assets and domestic credit. Similarly, annual reserve money growth was 39.7 percent owing to same reason. As for interest rate, the NBE continued to set the minimum interest rate on saving and time deposits while leaving lending rates to be freely determined by banks. The minimum interest rate on deposits rate was set at 5 percent while lending rate ranged between 7.5 and 16.25 percent. As inflation remained high, real rate of interest remained negative through out the fiscal year. Regarding financial sector development, the Ethiopian banking system continued to perform well. Consequently, the number of banks operating in the country reached 17 as two new private banks joined the industry during the year. Of the total banks, 14 were privately owned. The number of bank branches reached 970. About 23 percent of the public banks and 49 percent of private bank branches were concentrated in Addis Ababa. Ethiopia is still one of the most under banked countries in the world with one bank branch serving over 82,000 people. Banks operating in the country registered high profit, enhanced their resource mobilization, expanded their capital base, disbursed significant amount of credit and reduced their non-performing loans to a minimum level. Accordingly, deposit mobilized by the banking system surged 42.5 percent and their outstanding loans rose by 24.7 percent. New loans disbursed amounted to Birr 42.2 billion, about 46.0 percent higher than last year. Excess reserves scaled up by 16.1 percent to reach at Birr 7.3 billion compared to 6.3 billion a year earlier as a result of enhanced deposit mobilization and loan collection by banks. Total capital of the banks reached Birr
15.9 billion showing a 23.3 percent annual growth. The share of private banks in total

National Bank of Ethiopia 2010/11 annual report | VII. Investment 96 6 capital was Birr 7.23 billion accounting for 44 percent in contrast to 40 percent in 2009/10. The number of insurance companies increased to 14 as two more private insurance companies were opened during the year. Their branch network reached 221 following the opening of 11 additional branches during the same period. Except 1, all the other insurance companies with a branch network of 81.4 percent were privately owned. The total capital of insurance companies reached Birr 955.7 million of which private insurance companies accounted for about 70 percent. About 51 percent of the insurance companies were located in the capital, Addis Ababa. As for microfinance institutions, their number increased to 31. Their total capital and assets reached Birr 2.9 billion and Birr 10.2 billion, registering 24 and 27.6 percent annual growth, respectively. Their credit extension at Birr 7 billion showed a 20 percent increase. They mobilized deposits to the tune of Birr 3.8 billion which rose 42 percent over last year. These developments clearly witness the growing role of MFIs in income generation, asset building and poverty reduction as they largely serve low income groups with no or little access to formal bank loans. With regard to external sector developments, the review fiscal year revealed strong growth in export, a surge in services and private transfers and slightly narrowing current account deficit. Export proceeds reached USD 2.8 billion, indicating 37.1 percent annual growth, due to higher earnings from all major export items except oilseeds. Hence, the ratio of exports to GDP increased to about 10 percent compared to 6.7 percent a year ago. The export receipts covered about 33 percent of the import bill during the review year in contrast to 24 percent last year. Meanwhile, total import bill with marginal decline of 0.8 percent stood at USD 8.3 billion. This was attributed to the slowdown in import items like raw materials (13.5 percent), capital goods (4.5 percent) and consumer goods (8.8 percent).

National Bank of Ethiopia 2010/11 annual report | VII. Investment 96 7 Import bills of other commodities particularly fuel, however, tended to increase. The share of imports in total GDP marginally rose to 29.6 percent from 27.8 percent a year ago. Net private transfers witnessed 16.7 percent growth in the fiscal year and reached Birr
3.2 billion. Private individuals remitted USD 2.3 billion in cash and in kind showing
24.6 percent annual growth partly reflecting the increasing use of official transmission
channels. Official transfers, however, slightly declined to USD 1.89 billion. Consequently, the country’s current account (including official transfers) registered a surplus of USD 234.4 million in the review year vis-a-vis USD 1.2 billion deficit in the preceding year. The country also saw growth in FDI and net long term capital as a result of improved policy environment. Following positive developments in external sector, the overall balance of payments registered a surplus of USD 1.37 billion, almost four times higher than last year. Regarding exchange rate developments, the fiscal year 2010/11 revealed the fast depreciation of Birr against USD mainly due to the impact of NBE’s intervention in September 2010 which led to a one-go devaluation of the Birr by twenty percent. The aim was to enhance the country’s international competitiveness. Accordingly, in 2010/11 the Birr depreciated by 25.0 percent against USD in the official inter-bank market and 20.8 percent in the parallel market. This resulted in the narrowing of the premium between the official and parallel exchange rates to 2.6 percent from 6.1 percent a year ago. NBE continued to focus on maintaining exchange rate stability of the Birr through periodic monitoring of exchange rate developments and participating in the interbank foreign exchange market. Money market in the country remains shallow and narrow. Treasury bills market is the only active primary market in the Ethiopian financial market although the sale of corporate bonds is gradually looming large.

National Bank of Ethiopia 2010/11 annual report | VII. Investment 96 8 Treasury bills with a maturity period of 28 days, 91 days and 182 days are traded biweekly where few institutional investors participate. The amount of T-bills sold in the review year was Birr 52.3 billion, 25.3 percent higher than last year. The weighted yield across maturities increased to 1.126 from 0.786 a year earlier. During the 2010/11 fiscal year, there was no inter-bank money market transaction due to the absence of liquidity shortage in the banking system. The sale of corporate bonds increased largely owing to huge demand for infrastructure development in the country. All in all, the fiscal year 2010/11, was a year of success in maintaining sustainable economic growth, despite some hiccups regarding inflationary pressure. Looking ahead, the Ethiopian economy is projected to grow by about 11 percent (lower case scenario) in 2011/12 as macroeconomic conditions are envisaged to continue improving. Inflation is expected to be a major challenge. Therefore, coordinated and prudent monetary and fiscal policies will continue during the fiscal year. To this end, developments in reserve money will be closely monitored. Attention will also be given to improving the country’s international competitiveness and building international reserves by using appropriate exchange rate policy and other export enhancing mechanisms. Finally, I would like to thank the management and staff of the NBE for their effort in the implementation of the country’s monetary and financial sector policies as well as in contributing to the continued growth of the economy. I am confident that they will continue to do more in the coming year(s). I also thank all those stakeholders for their cooperation in realizing the objectives of the NBE throughout the fiscal year and expect the same in the fiscal year ahead.

National Bank of Ethiopia 2010/11 annual report | VII. Investment 96 9
I. OVERALL ECONOMIC PERFORMANCE
1.1 Economic Growth
Ethiopia continued to maintain the double digit growth rate which averaged 11.4 percent over the last eight years. In the fiscal year 2010/11, real GDP growth was 11.4 percent moderately higher than the previous year’s growth of 10.4 percent. This robust economic growth, which is broad based, placed Ethiopia among the top performing African and other developing Asian countries. Accordingly, Ethiopia’s real per capita GDP rose to USD 392 from USD 377 a year earlier. The resilience of the Ethiopian economy is projected to continue through 2011/12 and show 11.0 percent growth compared to 5.5 percent for Sub-Saharan Africa and 4.4 percent for the entire world.
1.2 GDP By Sector
Regarding sectoral development, agriculture grew by 9 percent, industry 15 percent and services 12.5 percent. Consequently, agriculture and allied activities accounted for 41 percent of GDP, industry 13.4 and services 45.6 percent. Similary, agriculture contributed 4.7, industry 1.5 and service 5.3 percentage points to the
11.4 percent real GDP growth in
2010/11. Although, the share of agriculture in GDP tended to decline over time, it still remains the largest employer, the main source of foreign exchange, and supplier of raw materials and market to domestic industries (Fig.I.1 below).

National Bank of Ethiopia 2010/11 Annual Report 10 Items Fiscal Year 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 Sector Agriculture 39,728 44,062 48,225 51,843 55,141 59,348 64,698 Industry 11,402 12,561 13,757 15,150 16,616 18,374 21,178 Services 33,312 37,747 43,534 50,519 57,576 65,084 73,368 Total 84,443 94,371 105,517 117,514 129,333 142,807 159,244 Less FISM 639 896 1,018 1,323 1,489 1,619 1780 Real GDP 83,804 93,474 104,499 116,190 127,844 141,187 157,464 Growth in Real GDP 12.6 11.5 11.8 11.2 10 10.4 11.4 Real GDP per capita 1,334.0 1,441.0 1,553.0 1,664.0 1,764.0 1,933.0 1,946.4 Share in GDP (in percent ) Agriculture 47.4 47.1 46.1 44.6 43.1 42.0 41.1 Industry 13.6 13.4 13.2 13.0 13.4 Services 39.7 40.4 41.7 43.5 45.0 46.1 46.1 Growth in Real GDP per capita 9.0 8.0 7.8 7.1 6.0 9.6 8.5 Agriculture Absolute Growth 13.5 10.9 9.4 7.5 6.4 7.6 9.0 Contribution to GDP growth 6.4 5.1 4.4 3.3 2.7 3.2 4.69 Contribution in percent 50.8 44.5 36.9 29.9 27.6 30.8 41.1 Industry Absolute Growth 9.4 10.2 9.5 10.0 9.9 10.6 15.0 Contribution to GDP growth 1.3 1.4 1.3 1.4 1.53 Contribution in percent 10.1 11.8 10.7 11.7 12.9 13.3 13.4 Services Absolute Growth 12.8 13.3 15.3 16.0 14.0 13.0 12.5 Contribution to GDP growth 5.1 5.4 6.4 7.0 6.3 6.0 5.26 Contribution in percent 40.1 46.6 54.2 62.5 63.4 57.6 45.6
Table 1.1 Sectoral Contribution to GDP and GDP Growth
(In Millions of Birr)
Source: MoFED and Staff Computation Note: Sectoral contributions will not add-up to overall GDP growth because of Financial Intermediary Service Indirect Measurement (FISIM)
Figure. I.1: GDP Growth by Major Sectors

National Bank of Ethiopia 2010/11 annual report 11 Source: Central Statistical Agency (CSA) The growth in agricultural outputs was largely attributed to improved productivity aided by favorable weather condition and conducive economic policy. Cultivated land expanded by 4.6 percent and reached 12 million hectares in 2010/11. Production is estimated to have increased by about 8.8 percent while productivity rose from 15.7 quintal/hectare in 2004/05 to 16.3 quintal/hectare in 2010/11. Cereal production accounted for about 87.7 percent of the total production estimated for 2010/11. Meanwhile, the 15 percent annual growth in industry was largely due to expansion in electricity and water subsectors. Manufacturing grew by 12 percent with mining and quarrying expanded by 57.7 percent. The 12.5 percent growth in services sector which has gained momentum in recent years was attributed to growth in financial sector, real estate and hotel & tourism sectors.

National Bank of Ethiopia 2010/11 Annual Report 12
Table 1.2: Estimates of Agricultural Production and Cultivated Areas of Major
Crops for Private Peasant Holdings - Meher Season (Area and production are in thousands of hectars and quintals, respectively) 2007/08 2008/09 2009/10 2010/11 Agricultural Production Cultivated Area Total Production Cultivated Area Total Production Cultivated Area Total Production Cultivated Area Total Production Cereals 8,730.0 137,169.9 8,770.0 144,964.1 9233.0 155342.2 9905.5 172,383.2 (Percent Change) 3.0 6.5 0.5 5.7 5.3 7.2 Pulses 1,517.7 17,827.4 1,585.2 19,646.3 1489.3 18980.5 (Percent Change) 10.1 12.9 4.4 10.2 -6.1 -3.4 Oilseeds 707.6 6169.3 855.1 6,557.0 780.9 6436.1 (Percent Change) -4.6 24.1 20.8 6.3 -8.7 -1.8
7.3 11.0
1343.9 17,487.7
-9.8 -7.9
781.2 6765.2
0.04 5.1
Total 10,955.3 161,166.6 11,210.3 171,167 11,503.2 180758.8 12,030.6 196,636.1 (Percent Change) 3.4 7.8 2.3 6.2 2.6 5.6 Source: CSA
4.6 8.8

National Bank of Ethiopia 2010/11 Annual Report 13
1.3 GDP by Expenditure Component
In the fiscal year under review, total consumption expenditure as a percent of GDP slowed down to 91.2 from
94.8 percent in last year, largely due to
a 3 percentage point slowdown in private consumption. On the other hand, gross domestic saving as percent of GDP went up to 8.8 percent from
5.5 percent a year earlier. The ratio of
gross capital formation to GDP increased to 25.5 percent from 22.3 percent in 2009/10. The resource gap narrowed to 15 percent of GDP from 19.4 percent last fiscal year.
Table: 1.3: Expenditure on GDP and Gross Domestic Savings (As Percentage
of GDP)
Year
Domestic
Absorption
Consumption
Expenditure
Gross
Capital
Formation
Resource
Balance
Exports of
Goods
&
Services
Imports of
Goods
&
Services
Gross
Domestic
1996/97 Total Govt. Pvt. Savings 1997/98 109.2 88.0 9.8 78.2 21.2 -7.7 12.8 20.5 12.0 1998/99 113.9 92.0 15.6 76.4 21.9 -12.4 11.6 24.0 8.0 1999/00 111.3 91.0 17.9 73.1 20.3 -11.9 12.0 23.9 9.0 2000/01 111.5 90.0 14.6 75.4 21.5 -11.7 12.0 23.7 10.0 2001/02 118.1 94.0 14.8 79.2 24.1 -14.0 12.6 26.6 6.0 2002/03 118.2 96.0 13.4 82.6 22.2 -14.1 13.3 27.4 4.0 2003/04 114.6 88.1 13.1 75.0 26.5 -16.7 14.9 31.6 11.9 2004/05 117.9 94.1 12.4 81.7 23.8 -20.4 15.1 35.5 5.9 2005/06 120.6 95.4 12.2 83.2 25.2 -22.7 13.8 36.5 4.6 2006/07 113.1 91.3 10.5 80.8 22.1 -19.3 12.7 32.0 8.7 2007/08 117.2 94.8 9.8 85.0 22.4 -19.4 11.4 30.8 5.2 2008/09 116.3 93.6 8.2 85.4 22.7 -18.2 10.5 28.7 6.4 2009/10 116.7 94.8 8.6 86.2 24.7 -19.4 13.6 33.0 5.2 2010/11 116.7 91.2 8.1 83.1 25.5 -15 16.8 31.8 8.8 Average: 115.4 92.6 12.4 80.2 22.8 -16.0 12.8 28.8 7.4 Source: MoFED (Based on the Newly Revised Series)

National Bank of Ethiopia 2010/11 Annual Report 14
1.4 Micro and Small-Scale Enterprises
The five-year Growth and Transformation Plan (GTP) envisages to create a total of three million micro and small-scale enterprises (MSE’s) at the end of the plan period. The development of this sector 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 Ministry of Urban Development and Construction (MoUDC), a total of 51,983 MSEs were established in 2010/11 employing 541,883 people. The number of establishments and total employment went down by 70.6 percent and 18.7 percent respectively, compared to a year ago. The total amount of loan received from micro finance institutions was Birr 983 million, 20.7 percent higher than last fiscal year.
Table: 1.4 Numbers, Amount of Credit and Jobs Created through MSEs
(Credit in Millions of Birr) 2009/10 2010/11 Percentage Change A B C= (B/A) No. of MSEs 176,543 51,983 -70.6 Total Employment 666,192 541,883 -18.7 Amount of credit (in millions of Br) 814.1 983 20.7 Source: MoUDC

National Bank of Ethiopia 2010/11 Annual Report 15
Table: 1.5. Number, Amount of Credit and Jobs Created through MSEs by Region
(Credit in Millions of Birr) Oromia Amhara SNNPR Tigray Harari Dire Dawa Addis Ababa Grand Total No. of MSEs 11,684 26,273 4,586 859 137 68 8,166 51,983 Amount of Credit 115.78 160.60 100.13 197.50 4.66 6.27 397 982.51 Total Employment 264,443 97,447 48,767 54,238 1433 9,575 60481 541,883 Percentage Share by Region No. of MSEs 22.48 50.54 8.82 1.65 0.26 0.13 15.71 100 Amount of Credit 11.78 16.35 10.19 20.10 0.47 0.64 40.39 100 Total Employment 48.80 17.98 9.00 10.01 0.26 1.77 11.16 100 Source: MoUDC Regarding regional distribution, Amhara region with 50.5 percent of total MSEs, was the leading in establishing MSEs, followed by Oromia (22.5 percent), Addis Ababa (15.7 percent), SNNPR (8.8 percent) and Tigray (1.7 percent). Of the total credit disbursed through MFIs, Addis Ababa accounted for 40.4 percent, Tigray 20.1 percent, Amhara
16.4 percent, Oromia 11.8 percent,
SNNR 10.2 percent, Dire Dawa 0.6 percent and Harari 0.5 percent.

National Bank of Ethiopia 2010/11 annual report 16 In Percent Fig I.2 Regional share of Number of MSE's and amountof credit During Fiscal year of 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2010/11 OromiAamaharSaNNPRTigray AfarGambBeelan.GumSzoemaliHaraDriire DAadwdais Ababa 2010/11 Amount of credit 2010/11 No.of MSE'S 2009/10 Amount of credit 2009/10 No.of MSE'S 2010/11 Amount of credit 11.8 16.3 10.2 20.1 0.5 0.6 40.4 2010/11 No.of MSE'S 22.5 50.5 8.8 1.7 0.3 0.1 15.7 2009/10 Amount of credit 15.8 15.5 15.0 19.8 0.5 0.4 0.2 33.3 2009/10 No.of MSE'S 8.9 31.1 2.5 48.6 5.4 0.1 3.4 Source: MoUDC
1.5 Access to Water Supply
The five-year Growth & Transformation Plan, envisaged to increase the total population having access to safe drinking water (rural and urban) from
68.5 percent in 2005/06 to 98.5 percent
by 2015. In addition, urban population having access to potable water within
0.5 km and rural population having
access to potable water within 1.5 km are expected to grow to 100 and 98.5 percent, respectively by the end of the plan period from 91.5 and 68.5 percent in 2010/11. The overall national access to potable water supply climbed to 73.3 percent (i.e., 92.5 percent for urban and 71.3 percent for rural) in 2010/11 from 68.5 percent (i.e., 91.5 percent for urban and
65.8 percent for rural) in 2009/10
showing annual growth of 4.8 percentage points. Similarly, urban population with access to potable water within 0.5 km went up from 91.5 percent in 2009/10 to 92.5 percent in 2010/11 depicting a 1.0 percentage point rise over the preceding

National Bank of Ethiopia 2010/11 annual report 17 fiscal year. Besides, rural population with access to potable water within 1.5 km reached 71.3 percent by the end of 2010/11, exhibiting a 5.5 percent growth compared to 65.8 percent in the previous year. .
Table: 1.6 Percentages of People with Access to Potable Water by Region
2009/10 2010/11
Change in percentage
A B C D E F point
Region Rural Urban Average Rural Urban Average D-A E-B F-C Addis Ababa 96.0 96.0 96.08 96.08 0.0 0.1 0.1 Tigray 58.8 85.3 64.0 60.4 89.7 66.1 1.6 4.4 2.1 Amhara 80.0 90.0 76.0 89.9 90.6 84.9 9.9 0.6 8.9 Oromia 64.5 95.5 68.5 70.1 97.3 73.6 5.6 1.8 5.1 SNNPR 58.7 90.9 62.0 63.0 92.8 66.0 4.3 1.8 4.0 Afar 67.0 77.7 69.5 65.7 84.2 68.1 -1.3 6.5 -1.4 Somali 37.0 76.5 42.5 36.1 74.6 41.5 -0.9 -1.9 -1.0 Ben-Gumz 81.0 90.1 80.2 86.9 87.4 85.0 5.9 -2.7 4.8 Harari 53.0 95.0 75.8 56.5 122.5 92.3 3.5 27.5 16.5 Gambella 63.1 73.0 65.7 73.6 70.1 72.7 10.5 -2.9 7.0 Dire Dawa 76.0 79.7 78.1 74.2 77.8 76.2 -1.8 -1.9 -1.9 National Average 65.8 91.5 68.5 71.3 92.5 73.3 5.5 1.0 4.8 Source: Ministry of Water Resources Development (MoWRD) and NBE Staff Computation Note: Water supply access is calculated based on the provision of 20 liters/capita/day for urban and 15 l/c/d for rural at a radius of 0.5 and 1.5 kilo meters, respectively.

National Bank of Ethiopia 2010/11 annual report 18
1.6 Road Transport Development
During 2010/11, the Ethiopian road network reached 53,143 km (42.2 percent Federal and 57.8 percent rural) with annual growth rate of 10.7 percent as a result of 3,662 km new road being constructed. Of the total 22,431 km Federal roads, asphalt road constituted 37 percent and gravel road 63 percent. Moreover, the share of the total paved or asphalt road reached to 15.6 percent, about 2.0 percentage points higher than the preceding year. The community road, which was not calculated as part of the total road network as it was non-engineered road, was 854km declined by 99.1 percent over the previous year. During the review year, road density including community road was 48.1km per 1,000 square km moving upwards by
5.9 from the previous year in line with
the five year Growth and Transformation Plan which planned to increase total road net work to 64,500 km in 2015.

National Bank of Ethiopia 2010/11 annual report - 19 - Likewise, road density per 1, 000 sq km. is targeted to rise to 123.7 sq. km in 2015 from 48.1 sq. km in 2010/11 while road density per 1000 population will increase to 1.54 in 2015 from 0.65 in 2010/11. The performance of road density per 1,000 sq. km showed 8.8 percent annual growth in 2010/11 and road density per 1000 population 8.3 percent compared to last fiscal year. All-weather road (rural road) expanded by 7 percent per annum constituting 54 percent or 14,869 miles of the total road network in 2007/08. Besides, the annual All-weather road (rural road) expanded by 14 percent per annum constituting
57.8 percent (or 30,712 kms) in 2010/11.
Besides, average distance from allweather roads slightly declined to 10.35 from 11.3 kilometers a year ago. Similarly, the proportion of area more than 5 km from all weather roads went down to 61.69 percent in 2010/11 from
64.2 percent in 2009/10.

National Bank of Ethiopia 2010/11 annual report - 20 - Fig. I.4: Status of Roads (%) Source: Ethiopian Roads Authority and NBE Staff Computation

National Bank of Ethiopia 2010/11 annual report - 21 - Fig. I.5: Investment in Road Construction and Expansion (In million of Birr) Source: Ethiopian Roads Authority and NBE Staff Computation The percentage of total road network in good status was 57 percent in the review period.
Figure I.5 illustrates the total
investment capital for road construction and expansion. It has been steadily rising over the last ten years reaching Birr 19.5 billion in 2010/101 of which Birr 17 billion (or
87.2 percent) was attributed to Federal
roads.

National Bank of Ethiopia 2010/11 annual report 22
1.7 Development on Education Sector
The education sector has witnessed its improvement both in terms of quality and coverage since 2006/07, positive trend to achieve Growth and Transformation Plan goal of producing democratic, efficient and effective, knowledge based, inspired and innovative citizens who can contribute to the realization of the long term vision of making Ethiopia into a Middle Income Economy. In line with this, Primary education (1- 8 grades) enrolment grew from 14 million in 2006/07 to 15.8 million in 2009/10 and 17 million in 2010/11. Besides, the number of primary schools reached 28,301 in 2010/11 from 20,660 in 2006/07. Of the total primary schools, 24,313 or 86 percent were located in the rural areas where about 77 percent of the total population lives. On the other hand, secondary education enrolment stood at 1.8 million, 4 and 26 percent higher than 2009/10 and 2006/07, respectively. In addition, by the end of 2010/11, the number of secondary schools (9-12 grades) reached 1,392 exhibiting a 46 percent growth since 2006/07. Of the total secondary schools, 1,053 or 76 percent were found in urban areas. Technical and Vocational Education and Training (TVET) enrolment was 371,347, 5.1 and 94.3 percent above in a year earlier and 2006/07, respectively. Parallel to this, the number of TVET institutions increased to 505 against 388 in five years ago. The education share of the annual national budget was 17.5 percent, which was 32 and 29 percentage points lower than that of the preceding year and 2006/07, respectively.

National Bank of Ethiopia 2010/11 annual report 23
Table 1.7: Education Sector Data
Indicators
2006/07 2007/08 2008/09 2009/10 2010/11 1999 2000 2001 2002 2003 Improvement of Education Service Number of primary schools (urban, rural) 20,660 23,354 25,092 26,951 28,301
i. Urban 2,680 3,100 3,206 3,206 3,988
ii. Rural 17,980 20,254 21,886 23,745 24,313
Number of secondary schools (urban, rural) 952 1087 1185 1351 1392
iii. Urban 803 904 976 1,053 1,053
iv. Rural 149 183 209 298 339
Number of TVET centers (public, private, mission) 388 458 458 448 505 Number of tertiary level institutions by universities(public, private), colleges (public, private) 55 61 72 90 86 Universities 21 22 26 Student intake capacity of higher education institutions 43,764 56,421 NA NA 95,000 Participation of women in higher education institutions (%) 26 24 22.2 27 27 Primary enrolment (in million) 14.0 15.3 15.6 15.8 16.7 Secondary enrolment (in thousands) 1,399 1,501 1,588 1,696 1,760 TVET enrolment 191,151 229,252 308,501 353,420 371,347 Girls' primary enrolment (%) 45.9 46.5 47.3 47.4 47.3 Grades (1-4) gross enrolment ratio (%) 117.1 127.8 122.6 118.8 124 a. Girls' gross enrolment ratio (%) 111.2 122.8 118.4 114.3 119.1 b. Boys' gross enrolment ratio (%) 122.9 133 126.7 123.2 128.8 Grades (5-8) gross enrolment ratio (%) 61.1 60.2 63.1 65.5 66.1 a. Girls' gross enrolment ratio (%) 53.7 55.5 60.5 63.5 64.8 b. Boys' gross enrolment ratio (%) 68.3 64.8 65.6 67.4 67.4 Girls’ gross primary enrolment ratio (%) 85.1 90.5 90.7 101.6 93.2 Boys' gross primary enrolment ratio (%) 98 100.5 97.6 108.4 99.5 Gross Primary Enrolment ratio (%) (urban, rural, regional) 91.7 95.6 94.4 93.4 96.4 a. Tigray 104.8 109 107.1 103.3 102.1 b. Afar 22.2 26.2 31.2 39.3 40.1
c. Amhara 93.1 112.4 112.5 104.9 104.2
d. Oromia 91.4 91.4 89.3 88.4 94.8 e.Somali 38.5 32.7 35 65.6 61.3 f. Ben.Gumuz 127.9 112.3 112.1 114.6 119.7 g. SNNPR 97.8 102.9 101 97.3 102.6 h. Gambella 181.4 121.4 112.5 125.1 132
i. Harari 116.8 108.4 107.9 95.3 91.5
j. A.A 114.3 109.2 107.3 103.1 k. Dire Dawa 80 86.3 92.1 91.3 89.1 Primary net enrolment rate (%) 79.1 83.4 83 82.1 89.7 No. of students registered in the first cycle primary schools(1-4) (in million) 9.8 10.7 10.6 10.5 11.3

National Bank of Ethiopia 2010/11 annual report 24 No. of students registered in the second cycle primary schools(5-8) (in million) 4.2 4.6 5 5.3 5.5 Number of students registered in the first cycle secondary schools(9-10) (in million) 1.2 1.3 1.4 1.5 1.5 Gross enrolment rate in (9-10 grades)(%) 37.3 37.1 38.1 39.1 38.4 Number of students registered in the second cycle secondary schools(11-12)(in million )
0.2 0.2 0.21 0.24 0.23
Preparatory admission 101,367 100,651 118,289 142,781 NA TVET Admission 99,430 95,563 NA 95,563 NA Completion rate of primary school (%) 42.9 44.7 43.6 47.8 49.4 Girls/boys ratio in primary schools (%) 85 87 89.7 91 90.4 Girls/boys ratio in secondary schools (%) 59 63 67 0.75 79 Girls/boys ratio in(9-10) 0.61 0.65 0.72 0.78 0.81 Girls/boys ratio in (11-12) 0.5 0.48 0.4 0.56 0.83 Girls/boys ratio inTVET 0.78 0.92 0.86 0.8 0.86 Girls/boys ratio in higher education 0.25 0.24 0.28 0.36 0.36 Grade 1-8(primary) repetition rates (%) 6.1 6.7 6.7 4.9 8.5 Primary school dropout rate (%) 12.4 14.6 14.6 18.6 13.1 1st grade dropout rate (%) 20.1 18.3 22.9 28.1 19.9 Pupil/teacher ratio
i. Grade (1-8) 59 57 54 51 51
ii. Grade (9-12) 48 43 41 36 31
iii. TEVT 27 25 34 NA 29
iv. In higher education 24.3 NA 28.2 26.8
Pupil/section ratio
i. Grade (1-8) 64 62 59 57 57
ii. Grade (9-12) 79 74 68 64 58
Number of class rooms in primary schools 206,106 236,712 247,759 254,74 4 279,292 Pupil-textbook ratio
i. Grade(1-8) 1.5 NA
ii. Grade(9-12) 1 NA
Pupil-school ratio
i. Grade(1-8) 678.3 657 619 573 590
ii. Grade(9-12) 1,449 1,381 1,345 1270 1160
iii. TVET 493 501 673 788 735
Annual education share of the national budget{%} 24.6 22.8 23.6 25.9 17.5 Proportion of pupils starting grade 1 who reach grade 5(%) 59.3 49.2 39.6 75.6 69.1 Percentage of female enrolled in under graduate degree (%) 26 24.1 29 27 27 Percentage of female graduated in undergraduate degree (%) 18 20.6 29.7 23.4 27.2 Percentage of female enrolled in postgraduate degree 10 9.6 11.3 11.9 13.8 Percentage of female graduated in postgraduate degree 9.4 10.7 10.5 13.9 14.4 Source:- Education Statistics Annual Abstract, Ministry of Education & NBE Staff Computation

National Bank of Ethiopia 2010/11 annual report 25
1.8 Telecommunications
Ethio-Telecom, the former Ethiopian Telecommunications Corpor ation (ETC), has been undertaking several huge network expansion projects during the last few years with a view to enhancing the development of the telecom sector and to support the steady growth of the country. To ensure that Ethio Telecom runs parallel with top telecom operators, the Ethiopian government has reached an agreement with France Telecom, one of the world’s leader telecommunication companies. This agreement will help Ethio Telecom to improve its management capability through the transfer of worldrenowned know-hows and skills. Ethio- Telecom has provided national and international tele communications services using Satellit e, microwave Digital Radio MultiAccess System (DRMAS), VSAT, UHF, VHF, Long Line and HF Radio. The current task of Ethio-Telecom is the expansion of Telecom services intensively throughout the country with required standards through deployment of Next Generation Network (NGN) projects. In parallel with the country’s endeavor to access the Ethiopian society with multifaceted NGN based telecom services across the nation, the government has already engaged in deploying a new telecom company through the application of transformational plan leading to create a world-class telecom service provider. The number of waiting list for fixed telephone subscribers was 4,982 in the review year 2010/11 (Table 1.8). Similarly, the number of Internet subsc ribers went up from 124,528 in 2009/10 to 128,764 in the reported period registering a 3.4 percent increase. Besides, the country's telecommunicati on penetration rate (tele-density mobile plus fixed telephone subscribers per 100 inhabitants) increased from 10.1 in 2009/10 to 13.9 in 2010/11. The country’s five-year development plan Growth & Transformation Plan (GTP) envisages increasing the number of fixed line subscribers from 1 million in 2010/11 to 3.05 million by the end of 2014/15.

National Bank of Ethiopia 2010/11 annual report 26 The number of mobile-telephone subscribers and Internet users is also expected to pick up to a respective 40 million and 3.69 million by the end of the plan period from 6.52 million and 187,000 in 2010/11.

National Bank of Ethiopia 2010/11 annual report 27
Table 1.8: Summary of Telecommunications
[1985 - 2003 E.F.Y (1992/93 - 2010/2011G.C)] 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 No. ITEMS 1992/93) 1993/94) 1994/95) 1995/96) 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 1 PUBLIC STATIONS & EXCHANGES(1.2+1.3+1 .5) 475 486 512 536 548 563 573 606 649 700 770 784 865 904 919 966 N.A. N.A. N.A.
1.1 Automatic Exchanges 36 37 40 44 47 53 82 112 129 150 156 171 273 423 511
540
N.A. N.A. N.A.
1.2 Automatic Stations 22 23 26 30 32 37 58 79 93 105 122 142 242 391 475
510
N.A. N.A. N.A.
1.3 Manual
Exchanges(Stations)
375 388 403 390 382 356 347 341 335 256 136 92 86 N.A. N.A. N.A.
1.4 Manual Stations with
Semi-Auto. facility
55 74 113 153 155 175 181 331 259 306 313 310 239 131 90 78 N.A. N.A. N.A.
1.5 Pay Stations & R.R.C 78 75 83 103 113 123 125 145 200 248 307 307 368 378 352
370
N.A. N.A. N.A.
1.6 Total Exchange Capacity 169622 172742 179094 190177 196322 211108 372885 458247 511474 600337 649593 722548 872,228 1,022,399 1,123,281
1,146,555
N.A. N.A. N.A.
1.7 Automatic Exchange
Capacity
142756 143756 150556 161180 167252 182911 348644 433299 490724 579,589 629,477 703,160 857,374 1,016,111 1,120,071 1,143,525 N.A. N.A. N.A.
1.8 Manual Exchange
Capacity
26866 28986 28538 28997 29070 28197 24241 24948 20750 20,748 20,116 19,388 14,854 6,288 3,210 3,030 N.A. N.A. N.A.
1.9 % Digital by Capacity - 37.20 35.88 34.33 34.82 40.51 67.49 73.60 80.30 83.22 89.64 97.18 98.30 99.38 99.71
99.74
N.A. N.A. N.A.
1.10 % Digital by Total
Connected Lines / DEL /

39.34 38.87 38.15 37.95 39.88 51.98 61.90 74.02 80.9 89.9 97.80 93.84 98.24 99.82
99.82
N.A. N.A. N.A.
2 SUBSCRIPTION N.A. N.A. N.A.
2.01 Telephone Subscriber
Lines
132478 137731 142452 148739 156538 164140 194494 231945 283683 353,816 404790 484368 610,347 725,046 880,088 897,287 N.A. N.A. N.A.
2.02 Waiting List for
Telephone
141035 160939 178992 193499 206562 230225 224788 196883 155208 139,095 146,062 156,963 58,755 56,053 13,579 19,013 N.A. N.A. 4982
2.03 DEL's 136102 141650 146566 153001 160861 168639 199474 238495 290887 361,688 413,186 494,008 620,661 738,805 894,337
912,695
N.A. N.A. N.A.
2.04 PBX's 1251 1271 1317 1338 1476 1544 1615 1241 1419 1386 1322 1348 - - -
-
N.A. N.A. N.A.
2.05 Coin Boxes 988 997 1005 1010 1008 1014 1016 957 935 1,610 1,759 1,813 2,585 4,294 4,718
4,944
N.A. N.A. N.A.
2.06 Number of subscriber's
Facsimile
745 1039 1424 1604 2012 2476 3010 3555 3858 4231 4601 4925 - - - - N.A. N.A. N.A.
2.07 Number of Facsimile
Machines
762 1057 1445 1624 2038 2502 3034 3594 3890 4271 4649 4978 - - - - N.A. N.A. N.A.
2.08 Number of Internet
Subscribers
- - - 1042 2068 2163 2461 4073 6740 9534 12155 17,710 25,724 31,400
      34,110 60611 124528 128764
      2.09 Mobile Telephone
      Subsription
- - - - 6740 17757 27532 42910 51234 155,534 410,630 866,700 1,208,498
        1,954,327 4051703 6677903 10526190

National Bank of Ethiopia 2010/11 annual report 28 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 No. ITEMS 1992/93) 1993/94) (1994/95 1995/96) 1996/97) 1997/98) (1998/99) (1999/00) (2000/01) (2001/02) (2002/03) (2003/04) (2004/05) (2005/06) (2006/07) (2007/08) (2008/0 9) (2009/10) (2010/11) 2.10 Percentage of lines residential/business 62.4/19.6 63.4/17.7 62/18 62/19 62/20 61/20 62/19 63/20 67/19 70/17.7 70.5/16.5 72.5/16.6 74/16.5 74.8/16.5 73.2/14.9 75.6/15.5 N.A. N.A. N.A.
2.11 Number of Digital Data Circuits - - - - - - - - - - 129 178 - - -
-
N.A. N.A. N.A.
2.12 Number of Digital Data Customers - - - - - - - - - - 65 91 - - -
-
N.A. N.A. N.A.
2.13 Number of Rural Kebeles - - - - - - - - - - - - 60 4,837 7,389
8,676
N.A. N.A. N.A.
3 TELEPHONE TRAFFIC
(millions)
N.A. N.A. N.A.
3.1 Metered -Pulses 470.8 523.6 540 568.3 619.45 704.4 786.42 1010.21 1253.41 1573.99 1890.37 2,225.14 2,341.99 2,475.56 2,714.31
2,715.07
N.A. N.A. N.A.
3.2 Metered -CDR * 344.60
346.11
N.A. N.A. N.A.
3.3 Interurban calls (via operator) 3.7 4.4 5.4 6.08 6.65 7.22 6.78 7.72 10.37 12.73 14.18 15.57 - - -
-
N.A. N.A. N.A.
3.4 International calls (OG) 2.8 3.1 3.1 3.41 3.56 3.94 4.08 4.36 4.62 4.62 4.93 6.67 8.57 11.48 5.73
-
N.A. N.A. N.A.
3.5 International minutes (OG) 10.9 11.5 10.5 10.35 10.69 11.84 12.45 13.42 13.42 12.88 14.31 17.70 20.59 28.68 15.95
27.10 32777569 35894689
3.6 International calls (IC) 4.09 4.49 5.45 6.47 6.76 7.11 8.15 7.68 8.63 8.71 - - - - -
-
N.A. N.A. N.A.
3.7 International minutes (IC) 22.88 23.17 26.15 32.5 38.14 38.8 38.59 36.73 42.71 35.56 54.81 133.68 199.12 240.01 289.09 504.90
538062202 611198303
4 Mobile Telephone and Internet Traffic N.A. N.A. N.A. N.A.
4.1 Mobile -Local (million mins.) - - - - - - - 26.76 60.80 77.01 120.75 165.76 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
4.2 Mobile -International (million mins.) - - - - - - - 1.41 2.43 2.45 3.34 3.83 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
4.3 Internet Traffic ( ' 000 hours ) - - - - - - - 334.60 577.11 622.05 2,325.33 3,285.74 N.A. N.A. N.A. N.A. N.A. N.A. N.A.
5 TELEGRAPH MESSAGES
(Thousands)
N.A. N.A. N.A. N.A.
5.1 National 152.4 153.5 165.9 183.3 158.2 124.3 126 107.2 102.6 85.9 80.3 64.34 55.04 - - N.A. N.A. N.A. N.A.
5.2 International (OG) 5 3 3 2.7 2.3 1.6 1.2 1.4 0.66 0.41 0.95 0.36 0.11 - - N.A. N.A. N.A. N.A.
6 INTERNATIONAL CIRCUITS N.A. N.A. N.A. N.A.
6.1 Satellite Telephone Circuits 247 346 345 369 350 386 386 380 427 430 514 802 1,816 1,749 1,756 - 2119 2730 2708
6.2 Microwave Telephone Circts 49 91 91 186 193 25 25 26 53 53 109 109 137 167 167

178 178 301
6.3 Submarine Cable 18 18 24 - - - 25 73 102 101 250 578 1,018
1768 3087 3625
Cont’d Table 1.8:
[1985 - 2003 E.F.Y (1992/93 - 2010/2011G.C)]

National Bank of Ethiopia 2010/11 annual report 29 Cont’d Table 1.8:
[1985 - 2003 E.F.Y (1992/93 - 2010/2011G.C)] 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 No. ITEMS ( 1992/93) 1993/94) (1994/95 1995/96) 1996/97) 1997/98) (1998/99) (1999/00) (2000/01) (2001/02) (2002/03) (2003/04) (2004/05) (2005/06) (2006/07 (2007/08 N.A. N.A. N.A. 7 PERSONNEL N.A. N.A. N.A. N.A. Male 3434 3352 3514 3470 3582 3861 4267 4607 4868 5058 5416 5987 6,763 7,764 8,087 8,712 8913 9145 6999 Female 1862 1870 1982 1993 2037 2225 2306 2476 2502 2522 2497 2632 3,015 3,470 3,557 3,548 3471 3697 1622 Total 5296 5222 5496 5463 5619 6086 6573 7083 7370 7580 7913 8619 9,778 11,234 11,644 12,260 12384 12842 8621 8 FINANCE
8.1 Income (Millions Birr) 253.40 292.10 445.80 496.73 551.80 624.34 624.09 720.37 932.19 914.82 1042.66 1241.76 1,813.80 2,155.04 N.A.
3,292.25 5663 7050.7 8556.08
8.2 Expense (Millions Birr) 154.30 179.20 194.46 199.98 222.30 280.86 285.64 371.12 718.74 468.40 487.43 638.42 820.26 1,499.60 N.A.
951.74 2113 2967.09 2894.79
8.3 Gross Profit (Millions
Birr)
99.10 112.90 251.34 296.75 329.50 343.48 338.45 349.25 213.45 446.42 555.23 603.34 993.54 655.44 N.A.
2,340.51 4398 5348.97 6999.56
8.4 ASSETS
(Millions Birr)
8.5 Fixed Gross (Millions
Birr)
536.80 573.20 603.49 695.34 731.35 837.47 911.46 1218.92 1611.42 1818.60 2340.06 2596.34 2,806.21 2,843.80 N.A.
4,667.90 4637 4730.07 21735.48
8.6 Depreciation (Millions
Birr)
302.10 326.10 348.65 376.35 408.26 442.62 483.4 544.72 630.09 748.28 918.89 1084.14 1,256.37 1,430.73 N.A.
1,595.66 230 253.27 2191.97
8.7 Net Asset (Millions Birr) 234.70 247.10 254.84 318.99 323.09 394.85 428.08 674.20 981.33 1070.32 1421.17 1512.20 1,549.84 1,413.07 N.A.
3,072.25 2211 2051.48 16865.39 9 Population /in millions/ 51.43 53.02 54.65 56.37 58.12 59.88 61.67 63.49 65.3947 67.22 69.13 71.10 73.2 75.2 77.1 79.4 N.A. N.A. 80.9. 10 Teledensity 0.26 0.27 0.27 0.32 0.37 0.43 0.53 0.59 0.68 0.83 0.98 1.16 1.15 N.A. N.A. N.A. 11 Teledensity (Fixed + Mobile)

- - - - 0.33 0.39 0.48 0.59 0.66 0.90 1.39 2.14 2.73
        3.61 6.56 10.06 13.88
        Source: Ethiopian TelecommunicationsCorporation, Annual Statistical Bulletin, (2007/08) Note: - Average annual growth rate is computed for the years 1992/93-2007/08 E.F.Y.

Traffic of CDR-10 and AXE-10 exchanges measured in pulses; but for the remaining exchanges in CDR
-Figures in brackets under annual growth column show declines

National Bank of Ethiopia 2010/11 annual report 30
II. ENERGY PRODUCTION
2.1 Electric Power Generation
Ethiopia is one of the few African countries with a huge potential to produce hydroelectric and geothermal power. Nine of its major rivers are suitable for hydroelectric power with a total capacity of generating 45,000 MW. The country also has vast potential for geothermal energy generation. The Ethiopian Electric Power Corporation (EEPCo) supplies power to more than 1,830,052 customers. Under the five year Growth and Transformation Plan (GTP), the country’s installed electricity generating capacity is expected to reach 8000 MW by the end of fiscal year 2014/15 from the current level of 2000 MW. This is anticipated to be achieved by committing huge investment to construction of dams and harnessing other power generation schemes such as geothermal, wind and solar powers. The Ethiopian Electric Power Corporation, a government corporation mandated with the task of generating, transmitting, distributing, and selling electricity, generates electricity through two different power supply systems, namely, the Inter Connected System (ICS) and Self Contained System (SCS). The ICS, which is largely generated by hydropower plants, constitutes the major source of electric power in Ethiopia. The SCS system contributes less than 3 percent. In 2010/11 power supply through ICS accounted for 99 percent. The total amount of electric power generated during the current fiscal year was 4980.5 million KWH, which is
27.5 percent higher than the previous
year.

National Bank of Ethiopia 2010/11 annual report 31 Of this, hydropower accounting for about 99.0 percent and the remaining being the share of thermal (0.6 percent) and geothermal (0.4 percent) sources. (See Table 2.1 below). Source: EEPCo By end 2015 the coverage of electricity is planned to scale up to 75 percent compared to 41 percent in 2010. Energy utilization capacity is also to grow five fold to 10,000 MW from 2000 MW during the same period. The number of customers with access to electric power is targeted to reach 4 million in 2015 from about 2 million in 2010. To achieve these objectives, the Ethiopian government is undertaking several programs such as electric power generation and construction program, electricity transmission lines construction program, the power distribution and expansion program and universal electrification access programs.

National Bank of Ethiopia 2010/11annual report 32 Source 2008/09 2009/10 2010/11 Percentage Change [A] [B] [C] [C/A] [C/B] ICS Hydro Power 3,277,138 3,418,610 4,922,069 50.2 44.0 Thermal Power 380,416 418,170 13,716 -96.4 -96.7 Geothermal 6,581 23,522 19,267 192.8 -18.1 Sub Total 3,664,134 3,860,302 4,955,052 35.2 28.4 SCS Hydro Power 7,928 20,113 9,351 17.9 -53.5 Thermal Power 30,542 24,960 16,094 -47.3 -35.5 Geothermal Sub Total 38,470 45,073 25,445 -33.9 -43.5 Total Hydro Power 3,285,066 3,438,723 4,931,420 50.1 43.4 Thermal Power 410,958 443,130 29,810 -92.7 -93.3 Geothermal 6,581 23,522 19,267 192.8 -18.1 Grand Total 3,702,604 3,905,375 4,980,497 34.5 27.5
Table 2.1: Electric Power Generation in ICS and SCS
(In 000 KWH)
Source:EEPCo
2.2 Volume and Value of Petroleum
Imports
Ethiopia's second commercial energy resource is oil. During the year under review a total of 1902.23 million metric tons of petroleum products worth Birr
26.75 billion were imported by the
Ethiopian Petroleum Enterprise (EPE). Although the import volume dropped by about 23 percent, import value recorded a 60 percent over the previous years presumably due to the devaluation of the Ethiopian Birr against the USD and the increase of petroleum price in the world commodity market. Component wise, except fuel oil, the volume of all other petroleum products imported tended to decline. On the other hand, the value of all petroleum products exhibited 59 percent price surges on average.

National Bank of Ethiopia 2010/11annual report 33 Products 2009/10 2010/11 Percentage Volume Value Volume Value Change [A] [B] [C] [D] [C/A] [D/B] Regular Gasoline (MGR) 194,066 1,375,397 143878.8 1,743,315 -25.9 26.7 Jet Fuel 610,846 4,451,842 559522.5 9,738,630 -8.4 118.8 Fuel Oil 123,621 744,190 150,968 1171276.2 22.1 57.4 Gas Oil (ADO) 1,568,443 10,254,924 1,047,862 14096853 -33.2 37.5 Total 2,496,977 16,826,353 1,902,232 26,750,074 -23.8 59.0 V olu me In M T
Table 2.2: Volume and Value of Petroleum
Imports (Volume in MT and Value in '000 Birr) Source: Ethiopian Petroleum Enterprise Fig. II.2 Trends in Volume of Petroleum Imports 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 - 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 Year MGR Jet Fuel Fuel Oil Gas Oil Source: Ethiopian Petroleum Enterprise

National Bank of Ethiopia 2010/11annual report 34 Value in '000 Birr Fig. II.3 Trends in Value of Petroleum Imports 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 Year MGR Jet Fuel Fuel Oil Gas Oil Source: EPE Generally, domestic retail prices of petroleum products are adjusted monthly in line with the movements of oil prices in the world market. As a result, the average domestic prices of all petroleum products increased over the previous fiscal year. Specifically, in Addis Ababa, the average retail prices of petroleum products grew by 37 percent. Component wise, MGR, Fuel oil, Gas oil and kerosene surged by about 38 percent, 31 percent, 41 percent and 37 percent, respectively.

National Bank of Ethiopia 2010/11annual report 35 Table2.3 :- Annual Retail Prices of Petroleum Products in Addis Ababa ( Birr / liter) YEAR Quarter MGR Fuel Oil Gas Oil Kerosene 2007/08 Qtr.1 7.80 4.10 5.40 4.10 Qtr.2 7.80 4.10 5.40 4.10 Qtr.3 9.60 5.90 6.90 5.70 Qtr.4 9.60 5.90 6.90 5.70 Average 8.70 5.00 6.20 4.90 2008/09 Qtr.1 9.61 5.89 6.90 5.72 Qtr.2 9.61 7.40 9.40 7.50 Qtr.3 8.14 5.90 7.81 6.00 Qtr.4 8.20 5.80 7.30 5.70 Average 8.89 6.25 7.85 6.23 2009/10 Qtr.1 9.67 8.10 8.45 7.46 Qtr.2 12.33 9.53 10.15 8.88 Qtr.3 12.99 9.88 10.53 9.29 Qtr.4 13.10 9.87 10.72 9.50 Average 12.02 9.34 9.96 8.78 2010/11 Qtr.1
13.14 10.08 10.98 9.75
Qtr.2 15.10 11.64 12.87 11.43 Qtr.3 17.14 12.98 14.75 12.92 Qtr.4 20.94 14.09 17.73 14.05 Average 16.58 12.20 14.08 12.04 Source:EthiopianPetroleumEnterprise

National Bank of Ethiopia 2010/11annual report 36
III. PRICE DEVELOPMENTS
3.1. Developmentsin Consumer Price
at National Level
Annual average general inflation at the close of the fiscal year 2010/11 was 18.1 percent, 15.3 percentage point higher than the preceding year level. This was predominantly due to the hike in the prices of food items that contributes the lion’s share of 14.1 percentage point of the total annual change in headline inflation while non-food items made up the remaining 1.2 percentage point (Table 3.1). Annualized food inflation, scaled up to
15.7 percent from -5.4 percent in June
2010 registering notable rise of 21.1 percentage point on account of a significant surge in the prices of cereals (which accounts roughly for about 39.5 percent of food CPI,) coffee, potatoes, oil and fats, milk & cheese, bread and prepared food among others. Likewise, annual average core inflation slightly increased to 21.8 percent from
18.2 percent at the end of last fiscal year
(Table 3.1 and Fig. 3.1) as a result of higher prices of all non-food items. Year-on-year, headline inflation surged to
38.1 percent from 7.3 percent a year ago
(Fig 3.2) as both food and non-food price inflation registered 45.0 and 8.1 percentage points increase, respectively. Annual food inflation, which was just 0.0 percent in June 2010, increased to 45.0 percent in June 2011 while core inflation picked up to 27.9 percent from 19.7 over the same period.

National Bank of Ethiopia 2010/11annual report 37
Figure III.1 Developments in Annualized National Headline, Food & Core
Inflation
70.0
60.0
%50.0 in n 40.0 o t i a
30.0 f
l
I n
20.0
10.0
0.0
-10.0 J J A O D
J F A J J A O D
J F A J J A O D
J F A J J A O D
J F A J
2007/08 2008/09 2009/10 2010/11 General Food Core
Table 3.1: Annual Average Inflation Rates (in percent)
Consumption
Items
2009/10 2010/11 Change
(in Percentage
Points)
Contribution to
Change in Headline
Inflation
(in Percentage Points)
A B B-A C
General 2.8 18.1
15.3 15.3
Food -5.4 15.7
21.1 14.1
Non-Food 18.2 21.8
3.6 1.2
Source: CSA and NBE Staff Computation Source: CSA and NBE Staff Computation

National Bank of Ethiopia 2010/11annual report 38
Figure III.2 Developments in Annual (year-on-year) National
Headline, Food and Core Inflation 100.0 80.0 60.0 % in n o 40.0 t i a f l In 20.0 0.0 J S N J S N J S N J M -20.0 2008/09 2009/10 2010/11 Headline Food Core Source: CSA and NBE Staff Computation
3.2 Consumer Price Developmentsin
Regional States
At the end of 2010/11, regional simple average headline inflation jumped to
16.3 percent from 4.0 percent a year
earlier. Addis Ababa, Amhara, Harari, Oromia, SNNP and Somali regional states registered headline inflation rates above the regional simple average (Table 3.2). The highest surge in headline inflation (18.2 percentage point) was recorded in Oromia and the lowest (6.9 percentage point) in Afar.

National Bank of Ethiopia 2010/11annual report 39 aba Tigra y Som ali Ga Harari Oromia SNNP mb ella Dire Dawa B. G u muz Addis Afar Amhara A b Inflation in %
Table 3.2: Regional Average Annual Inflation (2010/11 FY)
Regions
2009/10 2010/11 Change
General Food Non
Food General Food Non
Food General Food Non
Food
A B C D E F G=D-A H=E-B I=F-C Addis Ababa 10.1 4.1 16.0 19.4 14.8 23.5 9.3 10.7 7.5 Afar 12.7 7.5 22.4 19.6 14.9 27.1 6.9 7.4 4.7 Amhara 0.7 -6.9 20.0 15.9 11.8 24.0 15.2 18.7 4 B.Gumz -2.9 -11.7 14.5 9.5 4.0 17.9 12.4 15.7 3.4 D.Dawa 5.5 1.0 12.2 14.7 13.2 16.6 9.2 12.2 4.4 Gambella -3.2 -9.4 8.2 11.3 8.3 16.1 14.5 17.7 7.9 Harari 6.8 2.5 12.9 19.3 20.5 17.8 12.5 18 4.9 Oromia 1.1 -7.0 17.3 19.3 18.4 22.0 18.2 25.4 4.7 SNNP 4.0 -4.7 18.9 19.7 18.8 19.1 15.7 23.5 0.2 Somali 8.3 3.7 19.6 20.9 21.5 19.6 12.6 17.8 0.0 Tigray 1.0 -7.5 18.9 9.7 5.3 16.9 8.7 12.8 -2.0 Mean 4.0 -2.6 16.4 16.3 13.8 20.1 12.3 16.4 3.6 Standard dev. 5.2 6.5 4.2 4.3 6.0 3.6 3.5 5.4 3.1 Coeff. of Var. 1.3 -2.5 0.3 0.3 0.4 0.2 0.3 0.3 0.9 Source: CSA and NBE Staff Computation Fig.III.3: Regional Annual Average Headline Inflation 40.0 30.0 20.0 10.0 0.0 -10.0 2009/10 2010/11 Source: CSA and NBE Staff Computation The regional simple average food inflation was 13.8 percent at the end of June 2011 with Addis Ababa, Afar, Oromia, Harari, SNNP and Somali regions experiencing higher food price inflation than the regional simple average (Table 3.2).

National Bank of Ethiopia 2010/11annual report 40 Values in % A d dis A baba Afar A m hara B. G u m uz Dire Dawa Gam bella Harari Oromia S N N P Somali Tigray The highest increase in food inflation was registered in Oromia (25.4 percentage points) and the lowest in Afar (7.4 percentage points). Over the two-year period (2009/10 to 2010/11), food price instability was high in Gambella, Benishangul Gumz, Amhara, Oromia and Tigray states but relatively low in Dire Dawa, Afar, and Addis Ababa. 25.0 Fig.III.4: Regional Annual Average Food Inflation 20.0 2009/10 2010/11 15.0 10.0 2 5.0 0.0 -5.0 -10.0 Source: CSA and NBE Staff Computation During 2010/11, simple average regional non-food inflation stood at 20.1 percent (Table 3.2). Addis Ababa, Afar, Amhara, and Oromia regions recorded non-food inflation higher than the regional simple average. Compared to 2009/10, all regional states, except Tigray, exhibited a surge in non-food inflation.

National Bank of Ethiopia 2010/11annual report 41 Source: CSA and NBE Staff Computation The highest rise in non-food inflation was recorded in Gambella (7.9 percentage points), and the lowest (-2.0 percentage points) in Tigray. Regarding convergence as measured by the change in coefficient of variation 1 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 improved. In general, inflation soared largely due to increasing food and oil prices in the international market. 1 Coefficient of variation is the ratio of standard deviation to mean.

National Bank of Ethiopia 2010/11annual report 42
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. However, annual average head line inflation at the end of the fiscal year reached 18.1 percent from 2.8percent last year due the surge in international commodity prices and marginal increase in base money.
4.1.1 Developments in Monetary
Aggregates
As at end 2010/11, domestic liquidity as measured by broad money supply (M2) reached Birr 145.4 billion reflecting 39.2 percent growth over last year, largely due to 104.2 percent surge in net foreign assets and 29.8 percent growth in domestic credit. Domestic credit to the non-government sector rose by 49.9 percent while credit to central government slowed down by 13.3 percent. In terms of components of broad money, narrow money rose by 45.3 percent due to
34.5 percent rise in currency outside banks
and 54.4 percent surge in demand deposits reflecting the growth in economic activities and improvements in transactions demand for money. Similarly, quasi-money that comprises savings and time deposits went up by 33.1 percent and reached Birr 62.9 billion, owing to improved financial intermediation by banks through opening up of 289 new branches.

National Bank of Ethiopia 2010/11annual report 43 Fig IV.1: Major Components of Broad Money (1992/93 - 2010/11) Broad Money r ) i r B 24,000 f o 22,000 s 20,000 n o 18,000 l i i l 16,000 M 14,000 n 12,000 ( I 10,000 8,000 6,000 4,000 2,000 0 04/05 05/06 06/07 07/08 08/09 9/10 10/11 Year Quasi- Money Net Deman d Deposit Curren cy Outsid e Banks 1 10025.95
Table 4.1: Components of Broad Money
(In Million of Birr)
Particulars
Year Ended June 30 Annual Percentage Change 2007/08 2008/09 2009/10 2010/11 2008/09 2009/10 2010/11 Narrow Money Supply . Currency Outside Banks . Demand Deposits (net) Quasi-Money . Savings Deposits . Time Deposits Broad Money Supply 35,350.4 17,654.1 17,696.3 32,831.8 29,477.6 3,354.1 68,182.1 42,112.7 19,715.0 22,397.6 40,397.1 37,148.7 3,248.4 82,509.8 52,434.6 24,206.8 28,227.8 51,997.8 48,041.6 3,956.2 104,432.4 76,171.0 32,574.9 43,596.1 69,206.0 64,539.6 4,666.4 145,377.0 19.1 11.7 26.6 23.0 26.0 -3.2 21.0 24.5 22.8 26.0 28.7 29.3 21.8 26.6 45.3 34.6 54.4 33.1 34.3 18.0 39.2 Source: NBE Source: NBE

National Bank of Ethiopia 2010/11annual report 44 Fig IV.2: Major Determinants of Monetary Growth Others NFA
80.0 400.0
t h w70.0 350.0 r o
G60.0 e 300.0 g50.0 t a e 40.0 n 250.0 r c P e 30.0 200.0 l a u
20.0 150.0
n
A
10.0 100.0
n
0.0
50.0
-10.0
-20.0
0.0
-30.0 -50.0
Ethiopian Fiscal year
Credit toCentral Gov't Credit to Non-Central Gov't Broad Money Net Foreign Assets
Table 4.2: Factors Influencing Broad Money
In Millions of Birr)
Particulars
Year Ended June 30 Percentage Change 2007/08 2008/09 2009/10 2010/11 2007/08 2008/09 2009/10 2010/11 External Assets (net) Domestic Credit . Claims on Central Gov't (net) . Claims on Non-Central Gov't Other Items (net) Broad Money (M2) 11,665.6 79,969.3 33,075.7 46,893.6 23,452.7 68,182.1 17,976.8 89,203.0 32,786.5 56,416.5 24,670.1 82,509.8 27,189.8 104,413.5 33,013.1 71,400.4 27,170.9 104,432.4 55,534.7 135,553.9 28,651.7 106,902.2 45,711.6 145,377.0 -12.6 29.3 9.0 48.8 26.5 20.4 54.1 11.5 -0.9 20.3 5.2 21.0 51.2 17.1 0.7 26.6 10.1 26.6 104.2 29.8 -13.2 49.7 68.2 39.2 Source: NBE Source: NBE

National Bank of Ethiopia 2010/11annual report 43
4.1.2. Developments in Reserve Money
and Monetary Ratios
During the year under review, reserve money or base money rose by 39.7 percent over last year due to the 35.8 percent increase in currency in circulation and 45.2 percent growth in bank deposits. The growth in reserve money was attributed to the surge in net foreign assets and net domestic credit. Excess reserves of commercial banks increased to Birr 7.3 billion from Birr
6.3 billion last year reflecting the
increased deposit mobilization capabilities of banks as a result of strong branch expansion. Deposit liabilities of banks surged by 42.5 percent during the review period. The ratio of M2/GDP, an indicator of financial deepening, went up merely by
6.7 percent to 29.1 percent in 2010/11,
partly indicating the tight monetary policy measures taken to mitigate the inflationary pressures. Money multiplier defined as narrow money to reserve money and broad money to reserve money remained the same at 1.1 and 2.1 percent, respectively.
Table 4.3: Reserve Money and Monetary Ratios
(In Millions of Birr)
Year Ended June 30 Percentage Change Particulars 2007/08 2008/09 2009/10 2010/11 2007/08 2008/09 2009/10 2010/11 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* 9,112.9 15,233.0 6,120.1 35,551.1 20,216.4 15,334.7 1.0 1.9 49.9 25.9 51.8 48.2 27.5 11,183.3 19,569.4 8,386.0 45,107.0 23,836.4 21,270.7 0.9 1.8 46.8 23.9 51.0 49.0 24.6 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 27.2 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 29.1 251.5 29.8 -33.1 30.2 33.2 26.3 -8.3 -7.5 7.9 7.0 -0.8 0.9 -16.6 22.7 28.5 37.0 26.9 17.9 38.7 -6.1 -4.6 -6.3 -7.7 -1.6 1.7 -10.4 28.5 5.4 -25.4 9.6 20.8 -3.1 13.6 15.5 -1.4 -3.0 -1.6 1.7 10.7 42.6 34.6 16.1 39.7 35.8 45.2 4.0 -0.3 -7.4 -3.3 4.4 -4.4 6.7 Source: NBE)

M2/GDP ratio was calculated on the basis of new GDP series.

National Bank of Ethiopia 2010/11annual report 44 Fig. IV.3: Reserve Money 80000 r i r 70000 B f 60000 o s 50000 n o 40000 l i i l 30000 M20000 i n e 10000 lu a 0 V year Reserve Requirement (CB's) Actual Reserve (CB's) Excess Reserve (CB's) Reserve Money Source: NBE
4.2. Developmentsin Interest Rate
Following the policy adjustment in minimum deposit interest rate on December 1, 2010 all commercial banks changed their lending rates. Accordingly, the minimum deposit interest rate on saving deposits increased to 5.04 percent per annum from 4 percent last year. With, the maximum deposit rate reaching 5.75 percent, the average interest rate on savings deposit rate rose to 5.4 percent from 4.5 percent in the preceding year. Similarly the weighted annual average interest rate on time deposit increased to 5.49 percent from 4.79 percent of last year. Average lending rate witnessed a decline from 12.25 percent to 11.88 percent due to lowering of minimum lending rate from 8 to 7 percent and maximum lending rate from 16.50 to 16.25 percent. Yet, all rates, including yield on T-Bills remained negative in real terms with annual average headline inflation hovering around
18.1 percent during the review fiscal year.

National Bank of Ethiopia 2010/11annual report 45 Rates 2001/02 2002/03 2003/04 2005/06 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 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 3.30 3.51 3.57 3.46 0.04 3.00 3.15 3.08 3.35 3.62 3.82 3.60 0.04 3.00 3.15 3.08 3.40 3.64 3.84 3.62 0.05 3.00 3.15 3.08 3.60 4.01 4.30 3.97 0.06 3.00 3.15 3.08 3.60 4.01 4.30 3.97 0.06 3.00 3.15 3.08 3.64 4.11 4.49 4.08 0.06 4.00 4.15 4.08 4.67 5.23 5.59 5.16 0.04 4.00 5.00 4.50 4.12 4.48 4.73 4.44 0.06 4.00 5.00 4.50 4.56 4.80 5.01 4.79 0.06 5.04 5.75 5.40 5.37 5.51 5.60 5.49 0.06 Lending Rate Minimum Maximum Average* 7.50 14.00 10.75 7.00 14.00 10.50 7.00 14.00 10.50 7.00 14.00 10.50 7.00 14.00 10.50 7.00 14.00 10.50 8.00 15.00 11.50 8.00 16.50 12.25 8.00 16.50 12.25 7.50 16.25 11.88 Real Rate of Interest Deposit 1/ Deposit 2/ Lending/1 T-bills (Nominal) 13.65 2.79 21.32 1.98 -14.70 1.98 -7.27 1.31 0.70 0.48 8.12 1.05 -7.73 -7.93 -0.30 0.04 -7.73 -7.93 -0.30 0.04 -12.03 -7.83 -4.60 0.50 -51.13 -19.13 -43.70 0.67 1.80 -10.50 9.55 0.80 1.70 -13.70 13.70 0.89 -12.70 -16.40 -6.23 1.31
Table 4.4: Interest Rate Structure of Commercial Banks
( In % per annum)
Source: NBE
1/ Real saving deposit interest rates and real lending rates computed based on average headline inflation. 2/ Real saving deposit interest rates computed based on average core inflation.

It is simple average for saving deposit and lending rates, while weighted mean for time and
demand deposits. As a result, the movements in the average interest rate on time and demand deposits reflect the change in the proportion of commercial bank deposits that would pay higher interest rate on time and demand deposits, rather than the change in interest rate.

National Bank of Ethiopia 2010/11annual report 46 Fig. IV.4: Interest Rate Structure of Commercial Banks 14.00 12.00 %10.00 i n 8.00 e 6.00 lu a 4.00 V 2.00 0.00 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 17 following the establishment of two new banks. In terms of ownership, fourteen were private commercial banks and the remaining three state-owned. During the fiscal year, 289 new bank branches were opened raising the total branch network in the country to 970 from 681 last year. As a result, the bank to people ratio declined from 117,474 2 people to 82,474 in 2010/11. The significant branch expansion was undertaken by CBE (208), followed by Bank of Abyssinia (10 branches), Oromia International Bank (9 branches), with Awash International Bank, United Bank and Lion International Bank opening 8 branches each. Due to the aggressive branch expansion by CBE, the share of private banks branch network went down to 49 percent at the end of 2010/11 from 60 percent last year. 2 Taking total population80 million

National Bank of Ethiopia 2010/11annual report 47 The number of bank branches in Addis Ababa, the capital and major business center of the country, increased by 13.9 percent from last year, indicating booming economic activities in the city. Following significant capital injection by private banks mainly Awash International Bank (Birr 383 million), Wegagen Bank (Birr 265 million), Nib International Bank (Birr 260 million), United bank (Birr 242 million) and Dashen bank (Birr 185 million), the total capital of the banking industry increased by 23.3 percent and reached Birr
15.9 billion by the end of June 2011. As a
result, the share of private banks in the total capital rose to 43.6 percent from 40.2 percent last year. In the meantime, the number of insurance companies increased to 14 from last year level of 12. The number of branches reached 221 following the opening of 11 additional branches. Major expansions of branches were undertaken by Awash Insurance, Oromia Insurance, Ethiopian Insurance and Nib insurance. Of the total insurance branches, 50.7 percent were concentrated in Addis Ababa. Private insurance companies owned 81.4 percent of the total branches. On the other hand, the total capital of insurance companies declined by 0.7 percent from Birr 962.4 million to Birr 955.7 million. Private insurance companies accounted for 69.5 percent of the total capital, while the remaining share was taken up by the single public owned enterprise, the Ethiopian Insurance Corporation.

National Bank of Ethiopia 2010/11annual report 48 Source: Commercial Banks

National Bank of Ethiopia 2010/11annual report 49
Table. 4.5. A: Capital and Branch Network of the Banking System at the Close of June 30,
2011
(Branch in Number and Capital in Million Birr) Banks Branch Network Capital 2009/10 2010/11 2009/10 2010/11 Addis Ababa Regions Total % Share Regions Addis Ababa Total % Share Total Capital % Share Total Capital % Share

Public Banks

Commercial Bank of
Ethiopia
Construction &
Business Bank
Development Bank of
Ethiopia
Total Public Banks
49
15
1
65
160
17
31
208
209
32
32
273
30.7
4.7
4.7
40.1
323
17
31
371
94
17
1
112
417
34
32
483
43.0
3.5
3.3
49.8
5,532.0
229.0
1,969.0
7,730.0
42.8
1.8
15.2
59.8
6,262.0
277.0
2,179.0
8,718.0
39.3
1.7
13.7
54.7

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
Total Private Banks
31
30
25
23
27
31
5
11
6
3
3
5
0
0
200
31
29
22
27
15
17
32
11
21
0
0
3
0
0
208
62
59
47
50
42
48
37
22
27
3
3
8
0
0
408
9.1
8.7
6.9
7.3
6.2
7.0
5.4
3.2
4.0
0.4
0.4
1.2
0.0
0.0
59.9
36
31
25
29
18
19
38
17
25
0
2
3
7 n/a
250.0
34
34
32
24
32
32
5
13
11
3
9
7
1 n/a
237.0
70
65
57
53
50
51
43
30
36
3
11
10
8
-
487
7.2
6.7
5.9
5.5
5.2
5.3
4.4
3.1
3.7
0.3
1.1
1.0
0.8
-
50.2
721.0
967.0
482.0
828.0
506.0
723.0
169.0
201.0
208.0
121.0
169.0
108.0
-
-
5,203.0
5.6
7.5
3.7
6.4
3.9
5.6
1.3
1.6
1.6
0.9
1.3
0.8
-
-
40.2
1,104.0
1,152.0
532.0
1,093.0
748.0
983.0
207.0
318.0
265.0
193.0
220.0
138.0
161.0
117.0
7,231.0
6.9
7.2
3.3
6.9
4.7
6.2
1.3
2.0
1.7
1.2
1.4
0.9
1.0
0.7
43.6
3.Grand Total Banks 265 416 681 100 621 349 970 100.0 12,933.0 100.0 15,949.0 98.3 Source: Commercial Banks

National Bank of Ethiopia 2010/11annual report 50
Table.4.5. B: Branch Network & Capital of Insurance Companies at a close of June 2011.
(Branch in Number and Capital in Million Birr) No. Insurance Companies Branch Capital 2009/10 2010/11 2009/10 2010/11 % 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 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 11.0 15.0 6.0 8.0 15.0 6.0 11.0 8.0 12.0 6 - 6 1 - 28.0 11.0 7.0 8.0 7.0 4.0 9.0 8.0 8.0 5 - 8 2 - 39 26 13 16 22 10 20 16 20 11 - 14 3 - 11 18 6 8 15 6 11 8 14 6 0 8 1 - 30 11 7 8 8 4 10 8 8 5 0 8 2 - 41 29 13 16 23 10 21 16 22 11 - 16 3 - 333.9 93.7 23.4 105.2 20.4 90.0 77.9 102.7 77.0 13.2 4.4 20.5 - - 291.0 89.0 81.0 27.9 88.0 27.8 100.3 96.3 87.4 17.3 4.9 23.9 11.4 9.4 -12.9 -5.0 245.4 -73.4 331.3 -69.1 28.7 -6.2 13.4 31.1 11.8 16.8 - Berhan insurance S.C - 15 Total 105.0 105.0 210 112 109 221 962.4 955.7 -0.7 Source: Insurance Companies Note: A.A=Addis Abeba Source: Insurance Companies

National Bank of Ethiopia 2010/11annual report 51 By the end of 2010/11, the number of microfinance institutions (MFIs) operating in the country rose by 1 and reached 31. Their total capital increased by 24 percent to Birr 2.9 billion and their assets rose by 27.6 percent to Birr 10.2 billion mirroring their ever growing rose in the economy. Deposit mobilization and credit prevision of microfinance institutions have also witnessed a remarkable increment. Compared to last year, deposit mobilization went up by 42 percent and reached Birr 3.8 million. Their total credit to clients also rose by 20 percent to Birr about 7 billion indicating the expanding outreach of microfinance institutions. Of the total MFIs, 14 (46.7 percent) were operating in Addis Abeba. The three largest MFIs, namely Amhara, Oromia and Dedebit Credit and Savings institutions accounted for 67.1 percent of the total capital, 81.4 percent of the savings, 74.0 percent of the credit and 76.2 percent of the total assets of MFIs by the end of 2010/11.
Table 4.6: Microfinance Institutions Performance as of June 2010 (In Thousands of Birr)
Micro-Financing
Institutions
2008/09 2009/2010 2010/2011 % Change A B C C/B*100 Total Capital 1,737,402.7 2,375,228.0 2,945,970.0 24 Saving 2,098,742.1 2,658,962.0 3,779,089.0 42 Credit 4,936,135.2 5,824,489.0 6,991,986.0 20 Total Assets 6,620,630.8 7,958,194.0 10,156,387.0 27.6 Source: Microfinance Institutions
4.3.1 Resource Mobilization
Total resource mobilization by the banking system in the form of net deposits, collection of loans and net borrowings increased by 58.9 percent and reached Birr 76.5 billion at the end of 2010/2011.

2010/11annual report 52
National Bank of Ethiopia Spurred by remarkable branch expansion, deposit liabilities of the banking system reached Birr 140.5 billion reflecting annual growth rate of 42.5 percent over last year. Component wise, demand deposits registered a 53.5 percent growth followed by savings deposits (34.3 percent), and time deposits (16.4 percent). Demand deposits accounted for
50.4 percent of the total deposits
followed by saving deposits (46 percent) and time deposit (3.8 percent). The surge in demand deposit over saving deposit indicates the relative increase in transaction demand for money. At the same time the growth in saving deposits reflected an increase in financial intermediation of banks. Despite the arrival of two new private banks and opening of 61 new branches by private commercial banks, the share of private banks in deposit mobilization went down to 33.3 percent from 35.2 percent last year. CBE alone mobilized
58.3 percent of the total deposit due to its
large branch network.
Raising funds through borrowing was not an important source of resource mobilization. As a result, total outstanding borrowing at the end of the fiscal year was only Birr 9.6 billion. Of the total borrowing, domestic sources accounted for 89.5 percent, while foreign sources took the remaining balance. On the other hand, loan collection by the banking system stood at Birr 30.6 billion up by 21.9 percent over last year. More than half of the loan collection (60.8 percent) was by the private banks.

National Bank of Ethiopia
Table 4.7: Annual Resource Mobilization & Disbursing Activities of Commercial Banks and DBE (Specialized
Bank) at June 30, 2011 (In Million Birr) Particulars 2008/09 2009/10 2010/11 Percent Change Public Banks Private Banks Total (A) Public Banks Private Banks Total (B) Public Banks Private Banks Total (C) C/A C/B

Deposits (net change)
Demand
Savings
Time
Borrowing (net change)
Local
Foreign
Collection of Loans
Total Resources Mobilized (1+2+3)
Disbursement
Change in Liquidity (4-5)
Memorandum Item:
Outstanding Credit*
7,524.9
4,482.9
2,905.7
136.3
366.2
225.0
141.2
10,368.8
18,260.0
12,782.3
5,477.7
33,912.8
7,670.8
3,042.3
4,765.4
(137.0)
-
-
-
11,596.7
19,267.5
12,694.7
6,572.8
17,720.8
15,195.7
7,525.2
7,671.1
(0.6)
366.2
225.0
141.2
21,965.5
37,527.4
25,477.0
12,050.5
51,633.5
11,863.0
6,813.9
4,574.5
474.5
2,597.5
2,266.1
331.4
10,168.0
24,628.4
13,939.3
10,689.2
39,384.7
8,618.4
2,067.9
6,322.0
228.5
-
-
-
14,898.8
23,517.2
14,965.8
8,551.4
22,896.0
20,481.4
8,881.8
10,896.6
703.0
2,597.5
2,266.1
331.4
25,066.8
48,145.6
28,905.1
19,240.5
62,280.7
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
175.7
228.1
114.8
(112,867.5)
1,003.7
1,678.1
(71.1)
39.1
103.8
65.7
184.5
50.5
104.6
178.0
51.2
3.3
55.6
76.6
(87.7)
21.9
58.9
46.0
78.2
24.7
Source: Commercial Banks &Staff Computation

Includes coupon bonds issued by the government.
2010/11annual report 53

National Bank of Ethiopia 2010/11annual report 54
Table 4.8: Deposits and Borrowings of Commercial Banks and DBE at June 30, 2011
(in Million Birr)
2008/09 2009/10 2010/11 C/A C/B A B C A. Deposits -Demand -Savings -Time T o t a l 37,267.3 37,153.3 3,731.4 78,152.0 46,149.0 48,049.9 4,434.4 98,633.3 70,842.4 64,528.7 5,160.6 140,531.8 90.1 73.7 38.3 79.8 53.5 34.3 16.4 42.5 B. Borrowings -Local -Foreign 2,399.4 647.3 4,665.6 978.7 8,666.5 1,019.4 261.2 57.5 85.8 4.2 T o t a l 3,046.7 5,644.2 9,686.0 217.9 71.6 Source: Commercial Banks &Staff Computation
4.3.2 New Lending Activities
Commercial banks including DBE disbursed Birr 42.2 billion to various economic sectors. Despite the tight monetary policy measures followed by the National Bank of Ethiopia, the fiscal year witnessed a 46 percent increase in fresh loan disbursements by banks, indicating the surge in deposit mobilization and loan collection. Of the total new loans disbursed 48 percent was provided by private banks, while the public banks took the remaining balance. The ratio of new loan disbursement to total deposit was 40.5 percent for private banks and 24.2 percent for public banks. About 25 percent of the new loans went to finance international trade followed by industry (24.8 percent) and domestic trade (16 percent), while other sectors took the remaining share. The share of the new loan disbursement to the production sector (agriculture, industry and housing & construction) rose from 46 percent last year to 51.2 percent in the review year reflecting the shift in loan disbursement towards production sector in contrast to service sector.

National Bank of Ethiopia 2010/11annual report 55 Source: Commercial Banks and DBE
Table.4.9: Loans and Advances by Lenders at June 30, 2011 (In Million Birr)
Lenders
2009/10 2010/11 Percentage Change D* C* O/S* D* C* O/S* A B C D E F D/A E/B F/C A.Public Banks 1.Commercial Bank of Ethiopia
2. Construction & Business Bank of Ethiopia
3 .Development Bank of Ethiopia Sub-Total B. Private Banks 4 Awash International Bank
5. Dashen Bank
6. Bank of Abyssinia
7. Wegagen Bank
8. United Bank
9. Nib International Bank
10. Cooperative Bank of Oromia
11. Lion International Bank
12. Oromia International Bank
13. Zemen Bank
14.Berhan International Bank 15.Bunna International Bank 16.Abay Bank Sub-Total Grand Total 10697.0 494.3 2747.9 13,939.3 2955.7 2231.8 2139.8 2189.4 2283.7 1066.8 572.4 355.0 424.0 367.6 155.5 224.2 14,965.8 28,905.1 9116.5 496.5 555.1 10,168.0 3153.3 2434.3 1884.6 2324.4 2153.6 1325.0 635.4 313.7 263.2 275.6 108.3 27.6 14,898.8 25,066.8 22,859.0 1,748.3 8,787.2 33,394.6 3163.6 5033.1 3153.2 2473.9 2524.7 2546.1 721.9 583.5 383.9 369.0 153.2 191.4 21,297.5 54,692.1 17796.8 367.2 3791.8 21,955.8 4654.0 2912.0 2497.9 2612.0 2557.1 1645.0 660.2 472.9 649.4 817.4 312.4 309.5 152.3 20,252.0 42,207.9 10156.7 593.8 1237.3 11,987.8 4257.3 2748.1 2338.4 2640.7 2287.4 1724.9 703.6 514.8 465.4 490.0 192.0 187.0 10.8 18,560.4 30,548.2 34,217.7 1,726.6 11,980.5 47,924.8 3994.8 6141.7 3315.9 2910.0 3277.0 2766.5 799.5 677.0 645.2 661.7 330.0 366.3 161.0 26,046.6 73,971.4 66.4 -25.7 38.0 57.5 57.5 30.5 16.7 19.3 12.0 54.2 15.3 33.2 53.1 122.4 100.9 38.1 0.0 35.3 46.0 11.4 19.6 122.9 17.9 35.0 12.9 24.1 13.6 6.2 30.2 10.7 64.1 76.8 77.8 77.3 577.8 0.0 24.6 21.9 49.7 -1.2 36.3 43.5 26.3 22.0 5.2 17.6 29.8 8.7 10.7 16.0 68.1 79.3 115.4 91.4 0.0 22.3 35.3 Source: Commercial Banks O/S Credit excludes lending to central government D*=Disbursement, C*=Collection, O/S*= Outstanding Credit

National Bank of Ethiopia 2010/11annual report 56 Lenders 2009/10 2010/11 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 13.9 -90.8 425.4 7.9 -8.6 -12.2 104.5 -3.3 10.7 -85.5 406.7 6.1 1.Commercial Bank of Ethiopia 2.Development Bank of Ethiopia
3. Construction & Business Bank of Ethiopia
Sub-Total
37.0
9.5
1.7
48.2
36.4
2.2
2.0
40.6
41.8
16.1
3.2
61.1
42.2
0.9
9.0
52.0
33.2
1.9
4.1
39.2
46.3
2.3
16.2
64.8
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 Sub-Total Grand Total 10.2 7.7 7.4 7.6 7.9 3.7 2.0 1.2 1.5 1.3 0.5 0.8 50.5 98.7 12.6 9.7 7.5 9.3 8.6 5.3 2.5 1.3 1.1 1.1 0.4 0.1 58.9 99.5 5.8 9.2 5.8 4.5 4.6 4.7 1.3 1.1 0.7 0.7 0.3 0.3 38.3 99.4 11.0 6.9 5.9 6.2 6.1 3.9 1.6 1.1 1.5 1.9 0.7 0.7 47.6 99.6 13.9 9.0 7.7 8.6 7.5 5.6 2.3 2.1 1.9 2.0 0.8 0.7 60.5 99.8 5.4 8.3 4.5 3.9 4.4 3.7 1.1 1.2 0.6 0.7 35.0 99.8 7.8 -10.6 -20.1 -18.3 -23.3 5.6 -21.0 -8.8 4.9 52.3 - - -5.6 1.0 10.8 -7.4 1.8 -6.8 -12.8 6.8 -9.1 64.1 76.8 77.8 - - 2.8 0.3 -6.6 -9.8 -22.3 -13.0 -4.0 -19.7 -18.1 16.0 68.1 79.3 - - -8.6 0.4
Table 4.10: Percentage Share of Loans and Advances by Lenders at June 30, 2011
(In Million Birr)
Source: Commercial Banks D*=Disbursement, C*=Collection, O/S*= Outstanding Credit
4.3.3 Outstanding Loans
Total Outstanding credit of the banking system, including the central government, increased by 24.7 percent and reached Birr 77.7 billion at end June 2011. Outstanding claims on the central government dropped by 51.1 percent while those on the private sector including cooperatives surged by 31 percent to Birr 60.3 billion. Sectoral distribution of outstanding loans indicated that credit to trade sector (both domestic and international) accounted for
32.5 percent followed by industry (26.6
percent) and agriculture (13.6 percent).

National Bank of Ethiopia 2010/11annual report 57
Table 4.11: Loans & Advances by Economic Sectors
1
Economic Sectors
2009/10 2010/11 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 4,437.1 4,958.2 5,169.4 8,217.4 5,279.5 2,937.9 320.2 965.6 3,916.0 7.2 343.5 272.3 298.25 0 3,619.6 2,213.3 5,550.2 8,114.0 4,472.5 3,641.5 265.5 1,122.6 3,163.6 6.7 727.7 134.7 148.9997 7,600.1 6,819.6 12,234.9 6,210.0 14,433.9 5,137.3 9,296.6 1,257.4 2,786.5 8,222.5 3.4 2,233.8 229.2 260.9 0 8,248.0 10,465.2 6,733.5 10,569.9 5,921.4 4,648.5 395.4 1,850.6 2,900.9 7.3 711.9 311.7 13.66 0 5,114.4 3,556.5 6,148.3 9,943.5 6,078.5 3,895.6 333.1 1,455.4 2,739.5 14.9 729.0 359.4 123.5853 3,719.1 10,575.3 20,650.5 7,261.1 18,025.7 7,222.8 10,802.8 1,435.5 3,558.6 9,023.1 37.2 3,076.6 315.0 12.9 85.9 111.1 30.3 28.6 12.2 58.2 23.5 91.6 (25.9) 0.2 107.3 14.5 (95.4) 41.3 60.7 10.8 22.5 35.9 7.0 25.5 29.7 (13.4) 123.5 0.2 166.8 (17.1) (51.1) 55.1 68.8 16.9 24.9 40.6 16.2 14.2 27.7 9.7 986.6 37.7 37.4 (95.0) Total 28,905.1 25,066.8 62,292.2 42,207.9 30,548.2 77,690.5 46.0 21.9 24.7 Source: Commercial Banks &Staff Computation D*=Disbursement, C*=Collection, O/S*= Outstanding Credit 1/ includes lending to central government

National Bank of Ethiopia 2010/11annual report 58
Table 4.12: Loans and Advances by Borrowers at June 30, 2011
(In Million Birr)
Borrowing Sector
2007/08 2008/09 2009/10 2010/11 Percentage O/S* O/S* O/S* D* C* O/S* change A B C E F G G/B G/C Central Government 6,902.0 5,628.8 7,600.1 0.0 0.0 3,719.1 -33.9 -51.1 Public Enterprises 8,732.6 8,170.8 8,442.7 6,102.6 1,611.0 13,687.9 67.5 62.1 Cooperatives 3,161.1 3,364.5 5,077.8 7,502.5 4,494.7 8,377.5 149.0 65.0 Private & Individuals 29,269.6 34,041.9 40,910.7 28,589.2 24,319.0 51,893.1 52.4 26.8 Inter-bank Lending 176.5 427.5 260.9 13.7 123.5 12.9 -97.0 -95.0 Total 48,241.8 51,633.5 62,292.2 42,207.9 30,548.2 77,690.5 50.5 24.7 Total less Inter-bank Lending 48,065.3 51,206.0 62,031.3 42,194.2 30,424.7 77,677.5 51.7 25.2 Source: Commercial Banks &Staff Computation D*=Disbursement, C*=Collection, O/S*= Outstanding Credit
4.4. Financial Activities of NBE
By the end of 2010/11, outstanding claims of NBE on the central government went up by 20.3 percent to Birr 55.3 billion. This was attributed to a 27 percent rise in direct advances to Birr 46.3 billion. Direct advances to the government accounted for 83.6 percent of the total claims, while bond holdings took the remaining 16.4 percent. Total deposits at the NBE grew by 34.3 percent due to 30.7 percent rise in deposits of financial institutions and
46.2 percent in that of central
government.

National Bank of Ethiopia 2010/11annual report 59
Table 4.14: Financial Activities of National Bank of Ethiopia at the
Close of June 30, 2010
( in Million Birr)
Particulars
2008/09 2009/10 2010/11 % Change A B C C/A C/B Loans and Advances (1+2)

Claims on Central Gov’t
1.1 Direct Advance
1.2 Bonds
Claims on DBE
Deposit Liabilities
3.1 Government
3.2 Financial Institutions
44,498.7
44,498.7
34,891.0
9,607.7
-
28,054.3
6,671.5
21,382.8
45,989.7
45,989.7
36,434.1
9,555.6
-
30,310.3
7,036.6
23,273.8
61,570.7
55,320.7
46,265.0
9,055.7
6,250.0
40,705.9
10,290.9
30,415.0
38.4
24.3
32.6
-5.7
-
45.1
54.3
42.2
33.9
20.3
27.0
-5.2
-
34.3
46.2
30.7
Source: NBE and Staff Computation
4.5 Developmentsin Financial Markets
4.5.1 Treasury Bills Market
Treasury bills market is the only regular market where securities are transacted on a fortnightly basis. Three types of T-bills with a maturity period 28 days, 91 days and 182 days are supplied to the market. There is no secondary market for the security. Government bonds are occasionally issued to finance government expenditures and/or to absorb excess liquidity in the banking system. The amount of Treasury-bills offered to the fortnightly auction market during the fiscal year reached Birr 83.4 billion, about 51 percent higher than last year. Total demand also registered a 8.8 percent growth. On the other hand, the amount of Tbills sold during the year stood at Birr 52.3 billion (98.3 percent of total demand), depicting 25.3 percent increase. The dominance of commercial banks in the T-bills market continued to diminish through the review year owing to enhanced participation of non-bank institutions.

National Bank of Ethiopia 2010/11annual report 60 At the end of 2010/2011, the total outstanding T-bills stood at Birr 10.8 billion, of which
91.7 percent was hold by non-bank
institutions.
The average weighted yield for all types of bills increased to 1.13 from 0.79 percent last year. The yields for 28-days 91-days and 182 days T-bills grew by 94.7, 21.5 and 15.7 percent respectively over last year reflecting the higher demand for short term bills than the long term bills.

National Bank of Ethiopia 2010/11annual report 61
Table 4.15: Results of Treasury Bills Auction at June 30, 2011
Particulars
2008/09 2009/10 2010/11 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 Amount Supplied (Mn.Birr) 28-day bill 91-day bill 182-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 Average Weighted Yeild for Successful bids(%) 28-day bill 91-day bill 182-day bill Outstanding bills at the end of period (Mn.Br.) Banks Non-Banks 261 46,767.2 10,441.9 29,477.7 6,847.6 28,471.9 4,265.0 15,931.7 8,275.2 27,839.8 2,672.0 25,167.8 99.797 99.951 99.783 99.657 0.743 0.636 0.871 0.723 7,783.100 1,672.000 6,111.100 280 51,258.0 19,760.0 27,553.8 3,944.3 55,203.3 15,110.0 28,150.5 11,942.8 41,736.4 13,902.0 27,834.4 97.017 99.943 99.757 91.352 0.786 0.750 0.976 0.633 11,566.200 4,400.000 7,166.200 220 55,760.0 30,635.0 22,159.9 2,965.2 83,390.7 41,575.9 35,152.6 6,662.1 52,316.0 20,271.3 32,044.8 99.745 99.886 99.703 99.645 1.126 1.460 1.186 0.732 10,796.620 900.000 9,896.620 -15.7 19.2 193.4 -24.8 -56.7 192.9 874.8 120.6 -19.5 87.9 658.7 27.3 -0.052 -0.065 -0.080 -0.012 51.517 129.595 36.193 1.295 38.719 -46.172 61.945 -21.4 8.8 55.0 -19.6 -24.8 51.1 175.2 24.9 -44.2 25.3 45.8 15.1 2.811 -0.057 -0.054 9.078 43.236 94.706 21.529 15.722 -6.654 -79.545 38.101 Source: NBE
4.5.2 NBE Bill Market
On April 4, 2011 NBE introduced NBE Bill market to mobilize resource from the banking system to finance priority sectors 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 Birr 6.3 billion at the end of the fiscal year. .

National Bank of Ethiopia 2010/11annual report 62 Source: NBE
4.5.3. Bonds Market
In recent years, following the strong growth in economic activities and real income, the issuance of corporate bonds has tended to increase. Outstanding Corporate bond holdings of CBE issued by regional states, EEPCO and DBE increased to Birr 40.3 billion (or shared 45.2 percent) in 2010/11 from Birr 27.7 billion a year ago. During the review year alone, corporate bond issued by public institutions and regional governments reached Birr 18.2 billion reflecting 67.2 percent growth over last year.

National Bank of Ethiopia 2010/11annual report 63
Table 4.16 Disbursement, Redemption and Outstanding of Coupon and Corporate Bond
Purchases by the Banking System at June 30, 2011 (In Millions of Birr) Particulars Annual Percentage Change 2009/10 2010/11 A. B A/B

Corporate Bond Purchases by holders
EEPCO
Regional governments
Development Bank of Ethiopia Private Sector
Redemption of Bonds by Clients
EEPCO
Regional governments
Development Bank of Ethiopia Private Sector
Outstanding Bonds by Clients
EEPCO
Regional governments
Development Bank of Ethiopia Private Sector 10,860.0 5,000.0 3,560.0 2,300.0 1,235.7 0.0 1,116.4 119.3 27,727.3 16,600.0 7,032.7 4,094.6 18,157.0 13,000.0 3,007.0 2,150.0 5,611.7 0.0 1,167.1 4,444.6 40,258.3 29,600.0 8,858.3 1,800.0 67.2 160.0 -15.5 -6.5 354.1 - 4.5 3,626.1 45.2 78.3 26.0 -56.0 Source: Commercial Banks
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 since April 2008. Ever since the introduction of the interbank money market in September 1998, merely twenty three transactions worth Birr 259.2 million were conducted with interest rates ranging between 7 to 11 percent per year. The maturity period of these loans widely spanned from overnight to 5 years.

National Bank of Ethiopia 2010/11annual report 64
Table 4. 17: Interbank Money Market Transactions up to June 20, 2011
Amount
Borrowed (In Interest Date of Maturity Borrower Lender Thousand Birr) Rate % Transaction Period Nib International Bank Awash International Bank 7,000.0 11 November, 2000 Overnight Wegagen Bank Commercial Bank of Ethiopia 10,000.0 8 January, 2001 5 years Nib International Bank ,, 10,000.0 8 March, 2001 3 months Wegagen Bank ,, 10,000.0 8 March, 2001 1 year Nib International Bank ,, 3,600.0 8 May, 2001 6 months Nib International Bank ,, 3,700.0 8 June, 2001 6 months Nib International Bank ,, 778.0 8 November, 2001 6 months Nib International Bank Bank of Abyssinia 28,999.8 7 December, 2002 3.5 months Nib International Bank Bank of Abyssinia 19,046.9 7 January, 2003 3.5 months Nib International Bank Bank of Abyssinia 20,310.0 7 February, 2003 3.5 months Nib International Bank Bank of Abyssinia 28,987.0 7 March, 2003 3.5 months Nib International Bank Commercial Bank of Ethiopia 25,000.0 7.5 July, 2003 5.2 months Nib International Bank Bank of Abyssinia 50.1 7.5 March, 2005 open Nib International Bank Bank of Abyssinia 50.5 7.5 March, 2003 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 2010/11annual report 65
V. DEVELOPMENTS IN EXTERNAL SECTOR
5.1 Overall Balance of Payments
The overall balance of payments in 2010/11 recorded USD 1.37 billion in surplus compared to USD 316.6 million in the preceding year. This achievement was the result of robust growth in net service receipts, private transfers, long term official loan disbursement and estimated foreign direct investment inflows. The deficit in merchandise trade during the review period narrowed by 12.1 percent owing to a strong rise in merchandize export (37.1 percent) and a slight contraction in total imports (0.2 percent). The current account also registered USD 234.4 million in surplus in contrast to the USD 1.2 billion deficit mainly due to the increase in net service receipts (50.4 percent) and private transfers (16.7 percent). As a result, current account (including official transfer) to GDP ratio improved to 0.8 percent from -4 percent in 2009/10.
Table 5.1 Balance of Payments

National Bank of Ethiopia 2010/11annual report 66 (In Millions of USD) Particulars 2008/09 A 2009/10 B 2010/11 C Percentage Change C/B C/A Trade Balance -6,279.2 -6,265.8 -5,506.2 -12.1 -12.3 Exports 1,447.4 2,003.1 2,747.1 37.1 89.8 Imports 7,726.6 8,268.9 8,253.3 -0.2 6.8 Net Services 384.7 457.5 688.1 50.4 78.9 Travel 207.9 224.1 574.9 156.5 176.5 Transportation 223.0 241.3 322.5 33.7 44.6 Government (n.i.e.) 160.4 225.2 247.4 9.9 54.2 Investment income -34.6 -55.2 -69.6 26.1 101.2 Interest -10.3 -28.3 -41.5 46.7 302.9 Cash (net) -8.5 -26.1 -40.9 56.7 381.2 Arrears 0.0 Relief 1.8 -2.2 -0.6 -72.6 -133.3 Dividend -24.3 -26.9 -28.1 4.5 15.6 Other Services -172.1 -177.8 -387.1 117.7 124.9 Private Transfers 2,706.8 2,709.7 3,161.5 16.7 16.8 Current Account Balance(excl. public transfers) -3,187.6 -3,099.5 -1,656.6 - 46.6 -48.0 Public Transfers 1,551.4 1,905.6 1,891 -0.8 21.9 Current Account Balance(incl. public transfers) -1,636.2 -1,193.9 234.4 -119.6 -114.3 Non-monetary Capital 1,647.9 1,996.2 2,473.3 23.9 50.1 Long-term (net) 722.2 1,043.6 1,387.4 32.9 92.1 Disbursements 781.3 1,118.1 1,538.9 37.6 97.0 Repayments 59.2 74.5 151.5 103.4 155.9 Cash 42.3 64.7 143.7 122.1 239.7 Arrears 0.0 0.0 - Relief 16.9 9.8 7.8 -20.2 -53.8 Direct Investment (net) 893.7 956.4 1,242.5 29.9 39.0 Short-term (net) 32.0 -3.8 -156.6 Net Errors & Omissions 501.8 -485.7 -1,340.4 Overall Balance 513.5 316.6 1,367.3 331.9 166.3 Financing -513.5 -316.6 -1,367.3 Reserves (-:increase) -494.8 -304.6 -1,358.9 NBE net foreign asset -558.7 57.8 -915.3 CBs net foreign asset 63.9 -362.4 -443.6 Debt Relief 18.7 -12.0 -8.4 Principal 16.9 9.8 7.8 Interest 1.8 2.2 0.6 Source: NBE Staff Compilation

National Bank of Ethiopia 2010/11annual report 67 in Million USD
Table 5.2: Components of External Trade as Percentage of GDP
Particulars 2008/09 2009/10 20010/11 Percentage Change A B C C/B C/A Exports Imports Trade Balance Net Services Net Private Transfers Current Account Deficit (Excluding Official Transfers) Current Account Deficit (Including Official Transfers) 4.5 24.0 -19.5 1.2 8.4 -9.9 -5.1 6.7 27.8 -21.1 1.5 9.1 -10.4 -4.0 9.9 29.6 -19.9 2.5 11.4 -6.0 0.8 47.8 6.5 -5.7 66.7 25.3 -42.3 -120.0 120.0 23.3 2.1 108.3 35.7 -39.4 -115.7 Source: NBE Staff Compilation 9000 Fig. V.1 Trends in Components of Current Account 8000 7000 6000 5000 4000 3000 2000 1000 0 2000/012001/022002/032003/042004/052005/062006/072007/082008/092009/102010/11 Exports Imports NetServices Private Transfers

National Bank of Ethiopia 2010/11annual report 68
5.2 Developmentsin Merchandise
Trade
Merchandise trade deficit in 2010/11 narrowed by 12.1 percent to USD 5.5 billion vis-a-vis the preceding fiscal year, largely due to the significant growth in total exports and a small reduction in total imports. Hence, total export of goods to GDP ratio improved to 10 percent from
6.7 percent in 2009/10.
Total merchandise export proceeds in 2010/11 amounted to USD 2.75 billion, showing 37.1 percent growth over the previous fiscal year largely owing to higher earnings from export of coffee (59.3 percent), gold (64.1 percent), live animals (63 percent), leather & leather products (84.1 percent), meat & meat products (86.2 percent), chat (13.7 percent), pulses (6 percent) and flower (3 percent). This improvement in receipts was driven by the rise in global commodity prices and expansion in volume of exports.
5.2.1 Exports
Earning from export of coffee rose sharply by 59.3 percent in 2010/11 to USD 841.8 million on account of a 40 and 14 percent growth in world coffee price and volume of export, respectively. As a result, the share of coffee in total exports of goods increased to 30.6 percent from 26.4 percent in the previous year.

National Bank of Ethiopia 2010/11annual report 69
Table 5.3 Values of Major Export Items
(In Millions of USD)
Export Commodities
2008/09 2009/10 2010/2011 Percentage Change Value Share (%) Value Share (%) Value Share (%) A B C C/B C/A Coffee Oilseeds Leather & Leather products Pulses Meat & Meat Products Fruits & Vegetables Live Animals Chat Gold Flower Others 375.9 356.1 75.3 90.7 26.6 12.1 52.7 138.7 97.8 130.7 91.3 26.0 24.6 5.2 6.3 1.8 0.8 3.6 9.6 6.8 9.0 6.3 528.3 358.5 56.4 130.1 34.0 31.47 90.7 209.5 281.4 170.2 112.5 26.4 17.9 2.8 6.5 1.7 1.6 4.5 10.5 14.0 8.5 5.6 841.8 326.6 103.8 137.9 63.3 31.50 147.9 238.3 461.7 175.3 219.1 30.6 11.9 3.8 5.0 2.3 1.1 5.4 8.7 16.8 6.4 8.0 59.3 -8.9 84.1 6.0 86.2 0.1 63.0 13.7 64.1 3.0 94.7 124.0 -8.3 37.9 51.9 138.1 159.6 180.7 71.8 371.9 34.1 139.9 Total 1,447.9 100.0 2,003.1 100.0 2,747.1 100.0 37.1 89.7 Source: Ethiopian Revenue and Customs Authority Similarly, gold export proceeds expanded by 64.1 percent to USD 461.7 million, supported by a 25.3 and 31 percent rise in volume of export and world gold price, respectively. Revenue from gold export accounted for 16.8 percent of total export revenue compared to 14 percent in the preceding year. The country earned USD 148 million from export of live animals depicting a 63 percent an annual growth solely due to the 66.1 percent increment in volume despite a 2 percent fall in international price. Revenue from live animals export constituted 5.4 percent of the total merchandise export. Owing to a significant growth in volume of exports and marginal increase in international price, export revenue from leather & leather products in 2010/11 depicted an 84.1 percent surge over the previous year and stood at USD 103.8 million. Consequently, its share in the total exports improved to 3.8 percent from 2.8 percent a year ago. Meanwhile, earnings from export of meat & meat products rose by 86.2 percent to USD 63.3 million as a result of 65.8 percent surge in volume of exports and
12.3 percent rise in international price.
Export of chat went up moderately by
13.7 percent to USD 238.3 million owing

National Bank of Ethiopia 2010/11annual report 70 In Million U S D to 13.5 percent growth in volume of export. However, its share in the total export of goods went down to 8.7 percent relative to 10.5 percent last year. Despite a slight drop in volume of exports, pulses export proceeds increased marginally by 6 percent and stood at USD 138 million wholly driven by moderate improvement in international prices. Revenue from export of pulses constituted only 5 percent of the total income from exports. Earning from export of flower was USD
175.3 million, showing 3 percent increase
solely due to a 15.6 percent growth in volume of exports despite 11 percent decline in price. Of the total revenue from exports, flower export accounted for
6.4 percent, down from 9 and 8.5 percent
in the past two years, respectively. On the other hand, export of oilseeds went down by 9 percent and fetched USD
326.6 million during the review period.
The poor performance was ascribed to the decline in volume of exports (15 percent) inspite of a 7.2 percent improvement in world prices. Fig. V 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 2010/11annual report 71 Particulars 2008/09 2009/10 2010/11 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 134.0 287.0 7.3 138.0 7.5 38.5 36.7 25.4 0.0049 29.2 172.2 299.0 2.9 225.7 10.2 66.3 67.9 36.1 0.0089 36.0 196.1 254.2 5.2 224.5 16.9 91.6 112.8 41.0 0.0112 41.6 13.9 -15.0 77.8 -0.5 65.8 38.1 66.1 13.5 25.3 15.6 46.4 -11.4 -29.1 62.7 125.7 138.0 207.1 61.3 129.2 42.5 Fig V 3. Export Share of Selected Commodities in 2010/11 Others 16.8% Coffee 30.6% Flower 6.4% Gold 16.8% Oilseeds 11.9% Chat 8.7% Pulses 5% Leather and Leather Products 3.8% Source: NBE Staff Compilation
Table 5.4: Volume of Major Exports
(In Millions of Kg)
Source: Ethiopian Revenue and Customs Authority

National Bank of Ethiopia 2010/11annual report 72 2008/09 2009/10 2010/11 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 2.8 1.24 10.3 0.7 3.6 0.3 1.4 5.5 20,084.1 4.5 3.1 1.20 19.4 0.6 3.3 0.5 1.3 5.8 31,574.2 4.7 4.3 1.3 20.1 0.61 3.8 0.34 1.31 5.82 41,344.5 4.2 39.9 7.2 3.5 6.5 12.3 -27.5 -1.9 0.2 30.9 -10.9 53.0 3.6 94.6 -6.6 5.5 9.1 -8.6 6.5 105.9 -5.9 In Million Kg Fig. V.4 Export Volume of Selected Commodities 350.0 300.0 250.0 200.0 150.0 100.0 50.0 0.0 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 Kg)
Source: Calculated from Tables 5.3 and 5.4

National Bank of Ethiopia 2010/11annual report 73 USD/Kg Fig. V. 5 Unit Value of Exports of Selected Commodities 25.0 20.0 15.0 10.0 5.0 0.0 Coffee Oilseeds Leather and Leather Products Pulses Chat Source: NBE Staff Compilation
4.2.2. Imports
Total merchandise imports in 2010/11 contracted slightly by 0.2 percent relative to the preceding year and reached USD
8.25 billion owing to lower imports of
raw materials, capital goods particularly industrial goods; and consumer goods. Nevertheless, the ratio of imports to GDP slightly rose to 29.6 percent from 27.8 percent in 2009/10. Imports of capital goods fell by 4.5 percent compared to last year and amounted to USD 2.8 billion, wholly on account of a 13.4 percent reduction in imports of industrial goods. Imports of transport goods and agricultural goods, however, depicted 35 and 6.4 percent growth, respectively. As a result, the share of capital goods in total imports declined to 33.4 percent from 35 percent last year. Likewise, import of consumer goods dropped by 8.8 percent owing to a 13.6 percent contraction in imports of nondurable consumer goods. The curb in import of cereals (61.8 percent) was the sole contributing factor for lower imports of non-durable goods. Consumer goods

National Bank of Ethiopia 2010/11annual report 74 Categories 2008/09 2009/10 2010/11 Percentage Value Share (%) Value Share (%) Value Share (%) 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 354.2 1,140.1 270.7 1,256.6 1,246.9 9.7 2,474.7 384.2 31.3 2,059.2 2,383.5 674.8 1,708.7 117.4 4.6 14.8 3.5 16.3 16.1 0.1 32.0 5.0 0.4 26.7 30.8 8.7 22.1 1.5 212.4 1,226.5 249.4 1,310.7 1,303.0 7.7 2,886.3 509.8 59.8 2,316.7 2,515.7 865.0 1,650.7 117.3 2.6 14.8 3.0 15.9 15.8 0.1 34.9 6.2 0.7 28.0 30.4 10.5 20.0 1.4 183.7 1,228.0 342.4 1,659.3 1,648.8 10.5 2,757.0 688.1 63.6 2,005.4 2,294.8 868.5 1,426.3 130.5 2.2 14.9 4.1 20.1 20.0 0.1 33.4 8.3 0.8 24.3 27.8 10.5 17.3 1.6 -13.5 0.1 37.3 26.6 26.5 36.9 -4.5 35.0 6.4 -13.4 -8.8 0.4 -13.6 11.3 -48.1 7.7 26.5 32.0 32.2 8.7 11.4 79.1 103. 3 -2.6 -3.7 28.7 -16.5 10.9 Total Imports 7,726.6 100.0 8,268.9 100.0 8,253.3 100.0 -0.2 6.8 accounted for 27.8 percent of the total import bill. Meanwhile, raw material imports went down by 13.5 percent compared to the preceding year and constituted 2.2 percent of the total imports. On the other hand, import of fuel grew strongly by 26.6 percent and reached USD 1.7 billion largely owing to the continued rise in international oil price and increased volume. Consequently, the share of fuel import in total imports of goods rose to 20.1 percent from 16 percent in 2009/10. Imports of semi-finished goods reached USD 1.23 billion, close to the performance in the preceding fiscal year. However, import of fertilizer surged by
37.3 percent to USD 342.4 million,
largely driven by higher world prices.
Table 5. 6: Value of Imports by End Use
(In Millions of USD)
Source: Ethiopian Revenue and Customs Authority

National Bank of Ethiopia 2010/11annual report 75
5.2.3 Direction of Trade
In 2010/11, Europe emerged as the largest market for Ethiopia’s exports. It accounted for 50 percent of the total merchandise exports of the nation. With in European countries, Switzerland was the vast market for about 34 percent of the total exports particularly gold and coffee, followed by Germany, constituting 23.1 percent. Germany was the second important market, mainly for coffee, flower, leather & leather products and textile exports. The Netherlands, with a 12 percent share in Ethiopia’s export to Europe, was major destination for flower, vegetables, coffee and pulses exports. Italy, a market for coffee, leather & leather products, cereals and textile exports, accounted for 7.7 percent of Ethiopia’s export to Europe during the review period. Meanwhile, about 26.5 percent of the total Ethiopia’s exports were shipped to Asian countries of which China constituted 34.2 percent, Saudi Arabia 19 percent, United Arab Emirates 10.3 percent, Israel 8.4 percent and Japan 5.4 percent. The major export items to China include oilseeds, mineral products and leather & leather products. Coffee, meat & meat products, spices and live animals were exported to Saudi Arabia. Live animals, meat & meat products, oilseeds, pulses and vegetables were the major export products to United Arab Emirates. Israel bought mainly coffee and oilseeds while Japan imported largely coffee. African nations accounted for about 18 percent of Ethiopia’s total exports in the same period. Somalia, Sudan, Djibouti, and Egypt constituted 95 percent of the total exports to the African continent. Exports to Somalia included mainly chat, live animals and vegetables. Coffee, spices, pulses, live animals and cereals were exported to Sudan. Djibouti mainly imported live animals, chat and vegetables while Egypt imported live animals. American markets accounted for 5.1 percent Ethiopia’s total exports during 2010/11. United States and Canada alone constituted 93.4 percent of the exports. The United States imported mainly coffee and oilseeds while Canada bought coffee.

National Bank of Ethiopia 2010/11annual report 76 Asia 26.5% America 5.1% Fig V.6 Export by Destinations Oceania 0.5% Africa 18% Europe 49.9% Source: NBE staff compilation

National Bank of Ethiopia 2010/11annual report 77 Regarding Ethiopia’s imports by countries of origin, about 67 percent of its imports in 2010/11 were originated from Asia, 21.3 percent from Europe,
5.5 percent from America and 6 percent
from Africa.
Among Asian countries, China accounted for 23.3 percent, Saudi Arabia
13.4 percent, India 10.8 percent, United
Arab Emirates 10.3 percent, Japan 8.1 percent, Malaysia 3.8 percent and Thailand 2 percent. The main items imported from China included chemicals, clothing, glass & glass wares, machinery, medical & pharmaceutical products, road & motor vehicles, metals, electric materials and rubber products. Petroleum products were the major imports from Saudi Arabia which accounted for 64.1 percent of the total petroleum imports of Ethiopia in 2010/11. Imports from India were mainly electrical materials, machinery, metals, medical & pharmaceutical products and rubber products. Road & motor vehicles, machinery and rubber products were imported from Japan. United Arab Emirates supplied petroleum products and metals to Ethiopia. Of the Ethiopian imports from Europe, Italy accounted for 21 percent, Turkey
16.6 percent, Germany 10.8 percent,
France 7.7 percent, Ukraine 7 percent, Spain 6.2 percent, United Kingdom 5.4 percent and the Netherlands 5.3 percent. Machinery, electrical materials, vehicles and medical & pharmaceutical products were the major import from Italy. Metal, machinery and electrical materials came from Turkey. Part of imported machinery, road & motor vehicles and electrical materials were imported from Germany and France. About 91.2 percent of Ethiopia’s import from America originated from USA, Brazil and Canada. The main imports were glass & glass wares, machinery, road & motor vehicles, electrical materials and grain. Likewise, 77.2 percent of Ethiopia’s imports from African nations originated from Egypt (27 percent), Sudan (26.8 percent), South Africa (14.5 percent) and Kenya (9 percent). Import items included petroleum products, electrical materials, vehicles, metals and soap & polish.

National Bank of Ethiopia 2010/11annual report 78 Fig. V. 7 Imports by Origin Asia 67% Oceania 0.3% Africa 5.9% Europe 21.3% America 5.5%

National Bank of Ethiopia 2010/11annual report 79
5.3 Services and Transfers
5.3.1 Services
The services account in 2010/11 recorded USD 688.1 million in net inflows, depicting 50.4 percent growth over the preceding year. This was attributed to higher net receipts from travel, transport and government services. Net receipts from travel rose sharply by
156.5 percent due to the increase in
tourism. Net incomes from transport service went up by 33.7 percent largely driven by the expansion of air transport services. Net government service receipts also showed a moderate growth of 10 percent during the review period.
5.3.2 Unrequited Transfers
Net receipts from private transfers in 2010/11 improved by 16.7 percent to USD 3.2 billion largely because of the
87.4 percent growth in cash receipts of
individual remittances and 3.8 percent rise in cash transfers to non-governmental organizations Underground transfers and transfer in kind, however, declined by
21.3 and 34 percent, respectively.

National Bank of Ethiopia 2010/11annual report 80
Table 5. 7: Unrequited Transfers
(In Millions of USD)
No. Particulars
2008/09 2009/10 2010/11 Percentage Change A % Share B % Share C % Share C/B C/A 1 Private Transfers 2,706.8 63.6 2,709.7 58.7 3,161.5 62.6 16.7 16.8
1.1 Receipts 2,733.3 63.6 2,736.2 58.8 3,202.9 62.5 17.1 17.2
NGOs 921.0 21.4 888.9 19.1 901.8 17.6 1.5 -2.1 Cash 916.9 21.3 860.5 18.5 893.5 17.4 3.8 -2.5 Other 0.0 0.0 28.4 0.6 0.0 0.0 - - Food 4.1 0.1 0.0 0.0 8.3 0.2 Private individuals 1,812.3 42.1 1,847.3 39.7 2,301.1 44.9 24.6 27.0 Cash 723.2 16.8 790.3 17.0 1,481.2 28.9 87.4 104.8 In kind 195.5 4.5 96.7 2.1 63.9 1.2 -33.9 -67.3 Underground Private Transfers 893.6 20.8 960.3 20.6 756.0 14.7 -21.3 -15.4
1.2 Payments -26.5 63.4 -26.6 74.5 -41.4 55.7 55.9 56.3
2. Official Transfers 1,551.4 36.4 1,905.6 41.3 1,891.0 37.4 -0.8 21.9
2.1 Receipts 1,566.7 36.4 1,914.7 41.2 1,923.8 37.5 0.5 22.8
Cash 1,444.8 33.6 1,741.5 37.4 1,893.7 36.9 8.7 31.1 Other 0.2 0.0 Food 121.7 2.8 173.2 3.7 30.1 0.6 -82.6 -75.2
2.2 Payments -15.3 36.6 -9.1 25.5 -32.9 44.3 261.6 115.4
Total Receipts 4,300.0 101 4,650.9 101 5,126.7 101 10.2 19.2 Total Payments -41.8 -1.0 -35.7 -0.8 -74.3 -1.5 108.3 78.0 Total Net Transfers 4,258.2 100 4,615.2 100 5,052.4 100 9.5 18.7 Source: NBE, MoFED and Disaster Prevention & Preparedness Agency In contrast, net official transfers during 2010/11 dropped by 0.8 percent to USD 1.9 billion relative to the preceding year as a result of a sharp decline in food aid.
5.4. Current Account
The current account balance (including public transfers) registered USD 234.4 million in surplus against USD 1.2 billion deficit in the preceding fiscal year due to higher income from net services and private transfers.
5.5 Capital Account
In 2010/11, the surplus in capital account reached USD 2.5 billion compared to USD 2 billion surpluses in the preceding fiscal year. This was ascribed to strong growth in official long term loan disbursements (33 percent) and estimated foreign direct investment inflows (30 percent).

National Bank of Ethiopia
5.6 Changes in Reserve Position
Reflecting the surpluses in current and capital accounts, the banking system recorded USD 1.37 billion reserve build up by end 2010/11. Consequently, the gross foreign reserve position of the NBE was adequate to cover 3.1 months of imports of goods and non-factor services.
5.7 External Debt
As at end 2010/11, Ethiopia’s total external debt stock reached USD 7.3 billion, depicting a 31.4 percent growth over last year. Of the total debt stock by creditors, debt owed to international financial institutions rose by 27.5 percent to USD 3.5 billion and accounted for 47.6 percent. Debt owed to bilateral and commercial creditors also increased by 24.1 and 45.7 percent to reach USD 1.7 billion and USD
2.1 billion, and constituted 23.6 and 28.8
percent of the total debt stock, respectively. Accordingly, the total debt stock to GDP ratio, increased to 26.3 percent from 17.8 percent a year earlier. However, the ratio of total debt stock to total receipts from export of goods and non-factor services remained unchanged at 1.4 percent due to proportional growths in total debt stock (31.4 percent) and total receipts from export of goods and non-factor services (31.8). Debt service (including both principal and interest) to total export receipts of goods and services ratio, rose to 3.7 percent from
2.3 percent in the preceding fiscal year as
the debt service grew significantly faster than total receipts from export of goods and services. 2010/11annual report 81

National Bank of Ethiopia 2010/11annual report 82 Particulars 2008/09 2009/10 2010/11 Percentage change A B C C/B C/A Debt Outstanding Lender Total 3,304.5 5,569.8 7,318.8 31.4 121.5 Multilateral 2,029.1 2,729.1 3,480.9 27.5 71.5 Bilateral 1,020.5 1,389.7 1,724.5 24.1 69.0 Commercial 254.9 1,451.0 2,113.4 45.7 729.1 Drawing by Lender 650.4 842.4 1,038.2 23.2 59.6 Lender Total 650.4 842.4 1,038.2 23.2 59.6 Drawing by Sector 650.4 842.4 1,038.2 23.2 59.6 Sector Total 650.4 842.4 1,038.2 23.2 59.6 Debt Service 67.6 94.8 196.0 106.8 190.1 Principal repayments 42.1 64.7 143.7 122.0 241.5 Interest payments 25.5 30.0 52.3 74.1 105.1 Debt stock to GDP ratio (in percent ) 10.2 18.7 26.3 40.3 156.6 Debt stock to export of goods and nonfactor services 1.0 1.4 1.4 -0.5 40.1 Receipts from goods and non-factor services 3,381.4 4,047.0 5,332.6 31.8 57.7 Debt service ratio ( percent ) 1/ 2.0 2.3 3.7 57.0 83.9 Arrears 0.0 - - Principal 0.0 - - Interest 0.0 - - Relief 18.7 12.0 8.4 -29.8 -55.0 Principal 16.9 9.8 7.8 -20.2 -53.8 Interest 1.8 2.2 0.6 -72.6 -66.3
Table 5. 8 External Public Debts
(In Millions of USD)
Source: Ministry of Finance and Economic Development

A ratio of debt service to total receipts from export of goods and non-factor services
Note: Outstanding as at end period

National Bank of Ethiopia 2010/11annual report 83
5.8. Developments in Foreign
Exchange Markets
5.8.1 Developments in Nominal
Exchange Rate
During 2010/11, the weighted average exchange rate of the Birr in the inter-bank market depreciated by 25 percent to Birr 16.1178/USD with respect to Birr 12.8909/USD recorded in the previous year (Table 5.9). The Birr also weakened in the parallel market where it depreciated by 20.8 percent during the same period to reach Birr 16.5292/USD. As a result, the average premium between the official and parallel average market rates narrowed to 2.6 percent from 6.1 percent last year mainly due to faster depreciation of the Birr in the official foreign Exchange market.
Table 5.9 Inter-Bank and Parallel Forex Market Exchange Rates
Period
Average
Weighted
Rate
Amount Traded in millions of USD Number of Trades Average Rates in Parallel Total Market o/w Among CBs Total o/w Among CBs 2008/09 Qtr. I Qtr. II Qtr. III Qtr. IV 10.4205 9.6602 9.8670 10.9521 11.2028 18.4 6.3 6.0 3.0 3.1 0.0 1818.0 483.0 531.0 387.0 417.0 0.0 11.8102 10.2623 10.7540 12.8163 13.4083 2009/10 Qtr. I Qtr. II Qtr. III Qtr. IV 12.8909 12.3746 12.5851 13.1342 13.4697 12.6 3.3 3.3 3.0 3.1 0.0 252.0 65.0 66.0 60.0 61.0 0.0 13.6806 13.2933 13.3933 13.8495 14.1863 2010/11 Qtr. I Qtr. II Qtr.III Qtr. IV 16.1178 14.5535 16.4667 16.6342 16.8169 90.2 3.2 3.3 3.0 80.8 25.1 0.0 25.1 284.0 64.0 65.0 60.0 95.0 11.0 0.0 11.0 16.5292 14.9833 16.9567 17.1067 17.0700 Source: NBE

National Bank of Ethiopia 2010/11annual report 84 Likewise, the average retail buying and selling rates of forex bureaux of commercial banks depicted a 25.7 and 25 percent depreciation during 2010/11 and stood at Birr 16.1914/USD and Birr 16.4333/USD, respectively. Consequently, the average premium between the buying and selling rates of forex bureaux narrowed to 1.5 percent from 2.1 percent in the preceding year (Table 5.13).
Table 5.10: End Period Mid Market Rates
(USD per Unit of Foreign Currency) Currency 2008/9 2009/10 2010/11 Percentage change A B C C/B C/A Pound Sterling 1.6824 1.5052 1.6036 6.5 -4.7 Swedish Kroner 0.1324 0.1279 0.1566 22.4 18.3 Djibouti Frank 0.0639 0.0057 0.0056 -2.2 -91.2 Swiss Frank 0.9356 0.9190 1.1989 30.5 28.1 Saudi Riyal 0.2698 0.2666 0.2666 0.0 -1.2 UAE Dirhams 0.2755 0.2723 0.2723 0.0 -1.2 Canadian Dollar 0.8753 0.9523 1.0274 7.9 17.4 Japanese Yen 0.0106 0.0113 0.0123 9.5 16.7 Euro 1.4274 1.2187 1.4434 18.4 1.1 SDR 1.5690 1.4796 1.5903 7.5 1.4 Source: NBE

National Bank of Ethiopia 2010/11annual report 85
Table 5.11: End Period Mid Market Rates
(Birr per Unit of Foreign Currency) Currency 2008/9 2009/10 2010/11 Percentage change A B C C/B C/A USD 11.2190 13.5998 16.9927 24.9 51.5 Pound Sterling 18.8749 20.4704 27.2494 33.1 44.4 Swedish Kroner 1.4855 1.7395 2.6612 53.0 79.1 Djibouti Frank 0.0639 0.0781 0.0954 22.2 49.2 Swiss Frank 10.4965 12.4986 20.3725 63.0 94.1 Saudi Riyal 3.0274 3.6261 4.5308 25.0 49.7 UAE Dirham 3.0911 3.7027 4.6264 24.9 49.7 Canadian Dollar 9.8201 12.9510 17.4588 34.8 77.8 Japanese Yen 0.1186 0.1533 0.2096 36.8 76.7 Euro 16.0137 16.5741 24.5272 48.0 53.2 SDR 17.6022 20.1222 27.0234 34.3 53.5 Source: NBE The mid exchange rate of the US dollar relative to major international currencies at end 2010/11 showed a noticeable depreciation, though at different rates. The US dollar depreciated with respect to Swiss Frank (30.5 percent), Euro (18.4 percent), Japanese Yen (9.5 percent) and Pound Sterling (6.5 percent) (Table 5.10). Likewise, the end period exchange rate depreciation of the Birr in relation to the international currencies varied. For instance, the Birr weakened strongly relative to Swiss Frank (63 percent) Euro (48 percent), Japanese Yen (36.8 percent) and Pound Sterling (33.1 percent) (Table
5. 11).
5.8.2. Movements in Real Effective
Exchange Rate
The pace of depreciation in the real effective exchange rate (REER) in 2010/11 slowed down to 14.8 percent from 23.1 percent in the preceding fiscal

National Bank of Ethiopia 2010/11annual report 86 year, largely as a result of the rise in domestic prices (Table 5.12). Nominal effective exchange rate (NEER) also depreciated by 23.8 percent, slightly slower than the rate of depreciation recorded in 2009/10.
Table 5. 12: Trends in Real and Nominal Effective Exchange Rates
Years REERI NEERI
Percentage Change
REERI NEERI
2004/05 94.0 83.1
_ _
2005/06 102.9 80.9 9.4 -2.7 2006/07 121.3 77.6 17.9 -4.1 2007/08 136.3 72.4 12.4 -6.7 2008/09 184.7 76.1 35.5 5.1 2009/10 142.1 57.4 -23.1 -24.6 2010/11 121.1 43.7 -14.8 -23.8 Source: NBE Staff Compilation

Regarding the methodology for constructing the effective exchange rate indices, see annual report of NBE, 2004-2005, P. 66
An increase in REERI and NEERI indicates appreciation and vice versa.
Where: REERI = Real Effective Exchange Rate Index NEERI = Nominal Effective Exchange Rate Index

National Bank of Ethiopia Name of Forex Bureau 2008/09 2009/10 2010/11 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 44.80 3.48 16.86 1.94 1.43 7.73 13.09 0.00 53.56 1.43 0.03 0.10 0.00 11.68 4.18 17.60 6.70 0.53 6.38 5.48 0.00 6.91 0.13 0.00 0.04 0.05 0.00 0.00 40.64 2.96 13.64 8.96 0.97 11.78 30.44 0.00 97.41 7.89 2.10 0.54 0.03 0.19 0.00 0.20 4.23 20.57 5.96 0.16 3.38 7.90 0.00 5.11 0.97 0.25 0.74 0.10 0.05 0.00 55.56 5.67 15.48 25.94 2.27 16.08 20.96 0.00 52.46 1.38 1.59 0.99 0.03 0.92 0.07 1.21 4.75 19.89 8.19 0.22 4.11 8.68 0.00 6.94 0.42 0.60 1.50 0.04 0.26 0.05 36.7 91.6 13.5 189.4 134.6 36.5 -31.2 -46.1 -82.6 -24.3 83.1 -6.7 389.1 515.1 12.3 -3.3 37.5 34.9 21.7 9.8 35.9 -56.3 140.3 101.8 -56.7 381.1 Total 144.5 59.7 217.5 49.6 199.4 56.9 -8.3 14.6 Average Exchange Rate 11.1113 11.3107 12.8763 13.1481 16.1914 16.4333 25.7 25.0
5.8.3 Foreign Exchange Transactions
The amount of foreign exchange transaction in the inter-bank foreign exchange market during 2010/11 increased significantly to USD 90.2 million from USD 12.6 million in 2009/10. Of the total transaction, USD 65.1 million was traded between NBE and commercial banks, and the remaining USD
25.1 million among commercial banks
themselves (Table 5.13).
The volume of foreign exchange purchased by forex bureaux of commercial banks during 2010/11 declined by 8.3 percent to USD
199.4 million while their sales went up by
14.6 percent to USD 57 million in the same
period (Table 5.13).
Table 5.13: Foreign Exchange Transactions by Forex Bureaux of Commercial Banks
(In Millions of USD)
Source: NBE
2010/11annual report 87

National Bank of Ethiopia 2010/11annual report 88 Fiscal Year PD/GDP IP/RR Debt/GDP R (Debt) R (GDP) Exp/GDP Rev/GDP R (OR) 1996/97 4.1 11.7 29.8 3.4 24.2 19 8.1 1997/98 -1.5 9.9 24.7 7.9 -3.9 20.7 15.4 2.8 1998/99 -4.0 10.1 15.4 11.9 5.9 24.7 16.0 8.3 1999/00 -6.4 11.8 25.4 61.1 13.4 26.1 14.4 8.3 2000/01 -2.2 10.6 21.4 -7.1 2.1 23.4 15.1 7.1 2001/02 -10.7 9.7 23.2 8.2 -2.2 32.6 16.5 2.3 2002/03 -5.2 10.9 25.6 10.7 10.3 27.9 15.2 7.1 2003/04 -1.8 7.8 26.6 22.6 18.0 23.7 16.1 24.8 2004/05 -3.9 6.5 22.2 2.3 22.9 19.3 14.6 12 2005/06 -5.5 5.4 20.1 12.2 23.7 22.3 14.8 25.1 2006/07 -3.0 5.5 17.6 13.5 29.8 20.8 12.7 11.6 2007/08 -2.1 3.8 15.6 27.1 42.9 19.1 12.1 36.7 2008/09 -0.9 3.2 14.8 28.7 35.1 17.2 12.2 34.8 2009/10 -1.3 2.9 11.9 2.3 14.3 18.6 14.1 34.1 2010/11 -1.6 2.2 26.5 29.8 33.5 18.4 13.5 28.3
VI. GENERAL GOVERNMENT FINANCE
6.1. Government Finance
Overall fiscal performance of the general government during the review period indicated an expansion of the overall fiscal deficit (excluding grants) from Birr 17.5 billion in 2009/10 to Birr 24.7 billion in 2010/11. Its ratio to GDP also tended to rise marginally from 4.6 percent to 4.8 percent a year earlier. General government revenue (including grants) improved by 29.2 percent in 2010/11 compared to last year. The ratio of revenue to GDP was 13.5 percent, almost the same as last fiscal year. General government expenditure also went up by 31.5 percent while its ratio to GDP fell to 18.4 percent from 18.6 percent a year ago (Table 6.1).
Table 6.1: Measuring Fiscal Sustainability (In %)
Source: Staff computation Definitions:
PD = Primary Deficit
IP/RR= Share of Interest Payments in Recurrent Revenue DDebt/GDP=Ratio of Domestic Debt to GDP R (Debt) = Growth Rate of Domestic Debt R (GDP) = Growth Rate of GDP at Current Market Price Exp/GDP=Ratio of General Government Expenditure to GDP Rev/GDP= Ratio of General Government Revenue to GDP R (OR) = Growth Rate of Ordinary Revenue Note: Starting from 1997/98; the figure was based on revised GDP data

National Bank of Ethiopia 2010/11annual report 89
6.2 Revenue and Grants
Under the review period, Birr 85.6 billion (including grants) was collected which was close to the planned target. It increased by 29.2 percent as a result of improved tax administration and economic growth. Its share in GDP was
16.7 percent. Of the total domestic
revenue, about 85.3 percent was generated from taxes, and 14.7 percent was from non-taxes. Tax revenue rose 36.2 percent in the fiscal year owing to a 31.2 percent growth in direct taxes, which largely constitute personal income and business taxes. These taxes alone accounted for
96.2 percent of the direct taxes. The
share of rural and urban land use fee, however, was only 3.8 percent. Revenue from indirect taxes was Birr 39.4 billion and its share in total tax revenue reached
66.9 percent.
About 60.2 percent of the indirect tax revenue was generated through import duties whose share grew by about 34.2 percentage points over last year. Non-tax revenue reached Birr 10.1 billion showing a 3.9 percent decline largely due to lower income from government investment income. External grants showed a 33.3 percent increase compared to last year.

National Bank of Ethiopia 2010/11annual report 90 Fig. VI.1 Trend of General Government Revenue by Component 90000 80000 70000 r i r 60000 B n50000 o l i i l 40000 m I n30000 20000 10000 0 Fiscal Year Total Revenue and Grants Tax Revenue Direct tax revenue Indirect tax revenue Non-tax revenue Grants

National Bank of Ethiopia 2010/11annual report 91 Particulars 2009/10 2010/11 Percentage Change Perform- [A] [B] [C] ance Rate Pre. Act [C/A] Revised Budget Pre. Act [C/B] Total Revenue and Grants 66,237 86164.2 85,611 29.2 99.4 Total Revenue 1/ 53,861 66172.5 69,120 28.3 104.5 Tax Revenue 43,315 56,173 58,981 36.2 105.0

Direct Tax Revenue 14,903 19,517 19,550 31.2 100.2
1.1 Income and Profit
Taxes 14,027 17,403 18,809 34.1 108.1 Personal 4,391 5,321 5,733 30.6 107.8 Business 7,391 9,619 10,055 36.0 104.5 Others 2/ 2,245 2,464 3,021 34.5 122.6
1.2 Rural Land Use Fee 270 315 317 17.3 100.4
1.3 Urban Land Use Fee 606 1,798 424 -30.1 23.6
Indirect Taxes 28,412 36,656 39,431 38.8 107.6
2.1 Domestic Taxes 10,727 13,225 15,705 46.4 118.8
2.2 Foreign Trade Taxes 17,685 23,431 23,726 34.2 101.3
Import 17,685 23,431 23,726 34.2 101.3 Export - - - - -
Non-Tax Revenue 10,546 9,999 10,139 -3.9 101.4
3.1 Charges and Fees 489 737 970 98.4 131.7
3.2 Govt. Invt. Income 3/ 6,979 5,602 4,476 -35.9 79.9
3.3 Reimb. And Property
Sales 108 113 194 80.2 172.3
3.4 Sales of Goods &
Services 1,032 1,603 1,775 71.9 110.7
3.5 Others 4/ 1,939 1,945 2,725 40.6 140.1
Grants 12,376 19992 16,491 33.3 82.5
Table 5.2: Summary of General Government Revenue by Component
(In Million of Birr)
Source: Ministry of Finance and Economic Development 1/ It does not include privatization proceeds 2/ Others include rental income tax, with holding income tax on imports, interest income tax, capital gains tax, agricultural income and other incomes 3/Gov. Investment income includes : Residual surplus, capital charge, interest payments and state dividend 4/ Other extra ordinary, miscellaneous, pension contribution and other revenue

National Bank of Ethiopia 2010/11annual report 92
6.3 Expenditure
General government expenditure amounted to Birr 93.8 billion exhibiting
31.5 percent growth over last year. Its
share in GDP declined marginally to
18.4 percent from 18.6 percent last fiscal
year.
Recurrent expenditure at Birr 40.5 billion went up by 26.6 percent over last fiscal year and accounted for 43.2 percent of total expenditure and 7.9 percent of GDP. The largest share of the current expenditure went to finance social and general services. Capital expenditure reached Birr 53.3 Billion from Birr 39.3 Billion of a year earlier on account of higher spending on all its components. About 81.4 percent of the capital spending was for poverty related programs (like education, health and food security etc.). Its share in GDP stood at about 10.4 percent. In summary, expenditure performance rate was 95.4 percent of the annual budget.

National Bank of Ethiopia 2010/11annual report 93 Particulars 2009/10 2010/11 Percentage Change Performance [A] [B] [C] Rate Pre actual [C/A] Revised Budget Pre actual [C/B] Total Expenditure 71,335 98,406 93,831 31.5 95.4

Current Expenditure 32,012 43,246 40,535 26.6 93.7
General Services 12,864 12,666 15,655 21.7 123.6 Economic Services 4,064 4,840 5,325 31.0 110.0 Social Services 12,349 15,397 16,057 30.0 104.3 Interest and Charges 1,587 2,326 1,913 20.5 82.2 External Assistance* 631 750 338 -46.5 45.0 Others (miscellaneous) 517 7,268 1,248 141.4 17.2
Capital Expenditure 39,322 55,159 53,297 35.5 96.6
Economic Development 27,240 33,949 35,310 29.6 104.0 Social Development 9,793 17,364 14,707 50.2 84.7 General Development 2,289 3,846 3,280 43.3 85.3 3,Special programs - - - - -
Table 6.3: Summary of General Government Expenditure
(In Million Birr)
Source: Ministry of Finance and Economic Development Note: * value estimated

National Bank of Ethiopia 2010/11annual report 94 Fig. VI.3 Trends in General Government Expenditure and Revenue (% of GDP) 35.0 30.0 25.0 P D G f 20.0 o t n e r c e P 15.0 I n 10.0 5.0 0.0 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 / 9 / 9 / 9 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 0 / 1 / 1 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 9 0 1 9 0 1 2 Fiscal Year Expenditure/GDP Revenue/GDP Source MoFED

National Bank of Ethiopia 2010/11annual report 95 Particulars 2009/10 2010/11 Percentage Change performance rate [A] [B] [C] Pre. Act [C/A] [C/B] Revised Budget Pre. Act Revenue and Grants 66,237 86,164 85611.2 29.2 99.36 Revenue 53,861 66,172 69119.9 28.3 104.45 Grants 12,376 19,992 16491.4 33.3 82.49 Total Expenditure 71,335 98,406 93831.4 31.5 95.35 Current Expenditure 32,012 43,246 40534.7 26.6 93.73 Capital Expenditure 39,322 55,159 53296.7 35.5 96.62 Overall Surplus/ Deficit (Including Grants) (5,097) (12,242) (8220.2) 61.3 67.15 (Excluding Grants) (17,473) (32,234) (24711.5) 41.4 76.66 Total Financing 5,097 12,242 8220.2 61.3 67.15 Net External Borrowings 4,131 4,520 7797.6 88.7 172.51 Gross Borrowing 4,446 5,126 8435.5 89.7 164.56 Amortization Paid 459 748 770.3 68.0 102.98 HIPC relief & MDRI 144 142 132.4 -7.8 93.35 Net Domestic Borrowings 1,758 7,356 111.2 -93.7 1.51 Banking System 1,382 7,356 (3039.5) -319.9 (41.32) Non-Banking Systems 375 - 3150.7 739.5 Privatization Receipts 697 366 1457.6 109.0 398.25 Others and Residuals (1,489) (0) -1146.3 -23.0
6.4. Deficit Financing
General government budgetary operations resulted in a deficit of Birr
8.2 billion during the review year, about
61.3 percent higher than a year earlier.
Fiscal deficit as percentage GDP was 1.6 percent. More than 94 percent of the deficit was financed by net external borrowing. While the remaining balance was covered by net domestic borrowing and privatization receipts.
Table 6.4 Summary of General Government Finance
(In Million Birr)
Source: Ministry of Finance and Economic Development

VII. INVESTMENT
National Bank of Ethiopia The Ethiopian Investment Agency and regional Investment Offices licensed some 56,421 investment projects with an aggregate capital of Birr 1.1 trillion during 1992/93 – 2010/11. Of these projects, 47,420 (or 84.1 percent) were domestic, 8,896 (or 15.7 percent) foreign and 105 (or
0.2 percent) public. In terms of capital, Birr
424.1 billion (or 39.4 percent) was attributed
to domestic investors, Birr 382.2 billion (or
35.4 percent) to foreign investors and Birr
272.4 billion (or 25.2 percent) to the public
sector (Table 7.1).
In 2010/11, a total of 6,322 investment projects with a combined capital of Birr
249.5 billion were approved, a record high
in a single year since 1992/93.
Domestic investment accounted for more than 84 percent of the total projects approved during the review period. The number of foreign projects reached 952 which were 33 percent lower than the same period last year. With regard to investment capital, domestic private projects which make up Birr 42.1 billion or 17 percent while foreign investment projects accounted for Birr 53.4 billion (or 21 percent) of the total approved investment capital the rest 62 percent investment was carried out by the government. Upon commencement of operation, the approved investment projects are expected to create job opportunities for 227,715 permanent and 586,380 casual workers (Table 7.2). 2010/11annual report 96

National Bank of Ethiopia 2010/11annual report 97 Fiscal Year Domestic projects Foreign Projects Public Projects Total Projects No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investme nt Capital No. of Projects Investme nt Capital 1992/93 542 3,750 3 233 0 0.00 545 3,983.0 1993/94 521 2,926 4 438 1 57.00 526 3,421.0 1994/95 684 4,794 7 505 2 39.00 693 5,338.0 1995/96 897 6,050 10 434 1 6.00 908 6,490.0 1996/97 752 4,447 42 2,268 1 7.00 795 6,722.0 1997/98 816 5,819 81 4,106 1 14.00 898 9,939.0 1998/99 674 3,765 30 1,380 9 4,915.00 713 10,060.0 1999/00 561 6,740 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 53,357 10 154,019 6,322 249,469 Average Annual 2,496 223,22 468 20,115 6 14,335 2,969 56,771 Cumulative 47,420 424,111 8,896 382,182 105 272,356 56,421 1,078,650
Table 7.1: Number and Investment Capital of Approved Projects by Ownership since 1992/93
(Investment capital in millions of Birr) Source: Ethiopian Investment Agency

National Bank of Ethiopia 2010/11annual report 98 Source: Ethiopian Investment Agency

National Bank of Ethiopia 2010/11annual report 99 Source: Ethiopian Investment Agency

National Bank of Ethiopia 2010/11annual report 100 2008/09 2009/10 2010/11 Percentage change A B C C/A C/B 1.Total Investment Number 8,807 6,496 6,322 -28.2 -2.7 Capital 239,525 96,415 249,469 4.2 158.7 Permanent Workers 614,172 224,633 227,715 -62.9 1.4 Casual Workers 1,166,468 488,330 586,380 -49.7 20.1
2. Total Private
Number 8,797 6,493 6,312 -28.2 -2.8 Capital 156,741 96,022 95,450 -39.1 -0.6 Permanent Workers 405,296 223,161 212,470 -47.6 -4.8 Casual Workers 868,166 488,162 412,117 -52.5 -15.6
3. Domestic
Number 7,184 5,080 5,360 -25.4 5.5 Capital 83,630 40,852 42,093 -49.7 3.0 Permanent Workers 196,420 152,283 146,378 -25.5 -3.9 Casual Workers 569,864 311,185 283,277 -50.3 -9.0
4. Foreign
Number 1,613 1,413 952 -41.0 -32.6 Capital 73,111 55,169 53,357 -27.0 -3.3 Permanent Workers 208,876 70,878 66,092 -68.4 -6.8 Casual Workers 298,302 176,977 128,840 -56.8 -27.2 5.Public Number 10 3 10 0.0 233.3 Capital 82,784 394 154,019 86.0 39002.4 Permanent Workers 208,876 1,472 15,245 -92.7 935.7 Casual Workers 298,302 168 174,263 -41.6 103628.0
Table 7.2 Numbers, Capital and Expected Job Opportunities
(Capital in millions of Birr) Source: Ethiopian Investment Agency

National Bank of Ethiopia 2010/11annual report 101 Sectors 2008/09 2009/10 2010/11 Percentage Share to total in 2010/11 No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investment Capital Manufacturing 1804 58351.11 1,433 35,583 1,294 43,530 20.47 17.45 Agriculture, hunting and forestry 2455 47153.74 1,342 21,625 907 82,769 14.35 33.18 Real estate, renting and Business activities 1506 21489.76 1,155 11,617 1,652 10,439 26.13 4.18 Hotel and restaurants 1091 10466.32 617 10,463 609 9,968 9.63 4.00 Education 249 5664.00 181 1,464 143 1,586 2.26 0.64 Health and social work 155 2255.24 99 2,519 87 1,143 1.38 0.46 Construction 826 81162.70 942 9,924 947 11 14.98 0.00 Construction Machinery Leasing 0 0.00 0.00 Wholesale, retail trade and repair service 242 2712.63 154 893 158 586 2.50 0.23 Transport, storage and communication 346 1510.43 477 1,596 413 1,743 6.53 0.70 Fishing 7 100.21 8 19 1 8 0.02 0.00 Mining and quarying 25 317.84 9 358 17 222 0.27 0.09 Electricity, gas, steam and water supply 12 7825.13 4 33 7 85,570 0.11 34.30 Public administration and defense; compulsory social security 0 0.00 Other community, social and personal service activities 89 515.68 75 321 87 756 1.38 0.30 Grand Total 8807 239525 6496 96415 6322 249,469 100 100
Table 7.3 Number and Capital of Investment Projects Approved by Sector
(Capital in millions of Birr) Source: Ethiopian Investment Agency

National Bank of Ethiopia 2010/11annual report 102
7.1 Investment by Sector
About 20.5 percent of the approved projects were in manufacturing; 14.4 percent in agriculture, hunting and forestry;
26.1 percent in real estate,
renting and business activities; 15 percent in construction and
9.6 percent in hotel and
restaurants.
In terms of approved investment capital, Electricity, gas, steam and water supply accounted for 34 percent followed by Agriculture, hunting and forestry (33.2 percent) and Manufacturing (17.5 percent). Fig. VII.3 Distribution of Major Investment Projects by Sector in 2010/11 (in %) Source: Ethiopian Investment Agency
7.2 Distribution by Region

National Bank of Ethiopia 2010/11annual report 103 The regional distribution of the approved investment projects depicted that Addis Ababa attracted 3,221 projects with Birr
30.6 billion investment capital, followed
by Oromia 1,386 projects, with Birr 32.2 billion, Amhara 722 projects with Birr
32.7 billion; Tigray 349 projects with
Birr 11.1 billion capital and SNNPR with 160 projects and Birr 49.7 billion capital.
Table 7.4: Number and Capital of Approved Projects by Region
(Capital in millions Birr) Regions 2008/09 2009/10 2010/11 percentage share to Total No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investment Capital No. of Projects Investment Capital Tigray 543 10862.8 626 7,224 349 11,112 5.52 4.45 Afar 46 4880 32 1,307 26 399 0.41 0.16 Amhara 1,425 12167.2 743 17,371 722 32,753 11.42 13.13 Oromia 2,689 63572.5 1,558 20,739 1,386 32,219 21.93 12.92 Somali 11 55.7 58 345 127 2,738 2.01 1.10 BenishangulGumuz 182 643.9 111 1,389 56 81,611 0.89 32.71 SNNPR 543 4487.8 163 2,020 160 49,751 2.53 19.94 Gambella 132 681.04 11 2,675 14 3,920 0.22 1.57 Harari 2 7 48 276 0.76 0.11 Addis Ababa 2,773 120471.3 2,902 29,195 3,221 30,627 50.97 12.28 Dire Dawa 190 8078.9 172 1,455 207 2,995 3.28 1.20 Multiregional Projects 273 13623.4 118 12,689 6 1,067 0.09 0.43 Grand Total 8,807 239,524.8 6496 96415.44 6322 249,469 100 100 Source: Ethiopian Investment Agency

National Bank of Ethiopia 2010/11 annual report 104
8.1 International Economic
Developments
8.1.1 Overview of World Economy
3
In 2010, global economic activity continued to recover from the severe recession recorded during the global financial crisis. Particularly in the first half of the year, the economic upturn was sustained by monetary and fiscal policy stimulus measures, some further normalization of global financing conditions and improvements in consumer and business confidence. In addition, a prolonged inventory cycle supported the global economic recovery, as firms rebuilt their stocks in response to a more favorable global economic outlook. In fact, the restocking contributed significantly to GDP growth in major economies over this period. Accordingly, the global composite Purchasing Managers’ Index (PMI) continued to recover in early 2010 and reached a peak of 57.7 in April, which was above the levels prevailing just before the intensification of the global economic crisis after the collapse of Lehman Brothers in September 2008. The overall improvement in the economic situation and the rebound in activity – which 3 Excerpted from European Central Bank, Annual Report 2010. was led by the manufacturing sector – were accompanied by a strong recovery in world trade, as reflected in very buoyant export and import growth rates, particularly in the first half of the year. However, the pace of the recovery was rather uneven across regions. In advanced economies, the upturn remained fairly modest. At the same time, emerging economies, particularly in Asia, led the global recovery, even raising concerns about overheating pressures in several countries. Global employment indicators also gradually improved in the course of the year, following widespread job losses throughout the preceding two years. In the second half of the year, the global recovery temporarily lost some momentum in the light of waning support from the global inventory cycle and the retrenchment of fiscal stimuli, but the recovery seemed to have moved onto a more self-sustained trajectory. Several countries also announced consolidation measures to address the precarious fiscal situation. The process of balance sheet adjustment in various sectors and subdued labour market developments, particularly in advanced economies, further dampened the recovery of the world economy. Correspondingly, global trade

2010/11 annual report 105 National Bank of Ethiopia dynamics also slowed down in the second half of 2010, six months. However, available information suggests that the growth momentum picked up again at the turn of the year. In the United States, the economy continued to recover in 2010. A modest cyclical upswing gained traction, with the support of substantial macroeconomic policy stimuli and a gradual improvement in financial conditions. The recovery in private domestic demand was slow by historical standards, reflecting subdued growth in consumer spending. Household consumption remained constrained by high unemployment, low confidence and continuing efforts to repair stretched balance sheets. A strong rebound in business investment in equipment and software was an important driver of the recovery, underpinned by improving access to credit, as well as solid corporate profitability against the background of cost-cutting measures implemented during the downturn. Growth was also supported by temporary factors such as government policies enacted to foster the economic recovery and the restocking of inventories. The housing sector failed to improve: after tentatively increasing in the first half of the year, housing activity and prices weakened again in the second half following the expiration of some housing support initiatives. Economic activity in Canada picked up rapidly in early 2010, after emerging from the recession in mid-2009, supported by solid domestic demand, macroeconomic stimuli and a rebound in exports. By the third quarter of 2010, however, the recovery had lost momentum owing to a slowdown in construction activity, coupled with a negative net trade contribution to growth. Labour market conditions were relatively favourable, as they continued to improve gradually in parallel with the evolving economic upturn. However, despite declining to 7.6% in December 2010, the unemployment rate remained well above its pre-recession levels. Economic activity continued to be supported by a low interest rate environment, stable financial market conditions and a resilient banking system, which allowed for a continued flow of credit to businesses and households.
Table 8.1 Overview of World Economic Outlook and Projection

2010/11 annual report 106 National Bank of Ethiopia (Annual Percentage Change) 2009 2010 Projection 2011 2012 World Output -0.7 5.1 4.0 4.0 Advance Economies -3.7 3.1 1.6 1.9 United States -3.5 3.0 1.5 1.8 Euro Area -4.3 1.8 1.6 1.1 Japan -6.3 4.0 -0.5 2.3 Other Emerging Markets and Developing Countries 2.8 7.3 6.4 6.1 World Trade Volume (goods and services) -10.7 12.8 7.5 5.8 Import Advance Economies -12.4 11.7 5.9 4.0 Other Emerging Markets and Developing Countries -8.0 14.9 11.1 8.1 Export Advance Economies -11.9 12.3 6.2 5.2 Other Emerging Markets and Developing Countries -7.7 13.6 9.4 7.8 Commodity Prices Oil -36.3 27.9 30.6 -3.1 Non-Oil -15.7 26.3 21.2 -4.7 Consumer Price Advance Economies 0.1 1.6 2.6 1.4 Other Emerging Markets and Developing Countries 5.2 6.1 7.5 5.9 Source: IMF, World Economic Outlook, September, 2011. Following the sharp contraction experienced in 2008-09, euro area economic growth turned positive again at the end of 2009 and continued to grow in 2010. Quarterly real GDP growth rates in the first half of 2010 were better than expected, reflecting in part considerable support from fiscal stimuli and the accommodative monetary policy stance, as well as the rebound in global economic activity. In line with expectations, economic growth moderated somewhat in the second half of the year, while the underlying momentum of the euro area recovery remained positive. Overall, euro area real GDP increased by around 1.8% in 2010 after having contracted by 4.3% in 2009. In Japan, the economic recovery continued during the first three quarters of 2010, supported by the implementation of accommodative monetary policy and a substantial fiscal stimulus. The improvement in the economic situation in Japan was also

National Bank of Ethiopia 2010/11 annual report 7 aided by strong global demand, in particular from the Asian emerging economies, especially in the first half of 2010. In the second half of the year, the contribution from the external sector declined, owing to the moderation of world trade growth, while domestic spending remained firm. However, towards the end of the year, as a result of volatility in domestic spending following the withdrawal of the government stimulus, the economic recovery in Japan hit a soft patch, resulting in a deterioration in business sentiment. Labor market conditions improved somewhat over 2010, although the unemployment rate remained rather high by historical standards. Emerging Asia’s resilience to the global economic and financial crisis was demonstrated by very strong economic performance across the region in 2010, with an area-wide GDP growth rate of 9.1%. While supportive fiscal and monetary policies were gradually withdrawn and the contribution of net exports declined in the second half of the year, domestic private demand and, notably, gross fixed investment took over as the main drivers of economic growth, especially in India and Indonesia. Overall economic performance remained robust in the second half of 2010, although the pace of expansion slowed down somewhat compared with the previous six months. Real GDP growth in China accelerated to 10.3% in 2010, from 9.2% in 2009. The vigorous economic performance reflected increasing contributions from private investment and net exports, which counterbalanced the negative impact of the gradual withdrawal of policy stimuli. However, the relative contribution of consumption to growth decreased and the current account surplus widened in nominal terms in 2010, evidence of the persistence of internal and external imbalances. Latin America’s economic activity continued to recover rapidly in 2010. GDP growth was particularly robust in the first half of the year, mainly owing to buoyant domestic demand which more than offset the outstanding negative contribution of external demand (about 3 percentage points in the third quarter) to GDP growth. Thereafter, the growth momentum slowed down somewhat as policy stimulus measures were withdrawn and foreign demand weakened. In year-onyear terms, real GDP for the region as a whole increased by 6.0% on average in the first three quarters of 2010. Gross capital formation, including inventory accumulation and private consumption were the main

2010/11 annual report 8
National Bank of Ethiopia drivers of regional growth. Investment was spurred on by the improved growth outlook, the rise in commodity prices, the decline in real interest rates and the greater availability of financing, which, in some countries, was enhanced by lending by public banks. Private consumption growth was sustained by a rapid recovery in confidence as well as employment and real wages. The SSA region is showing solid macroeconomic performance, with many economies already growing at rates close to their pre-crisis averages. The global slowdown has not significantly affected the region thus far, but downside risks have risen. Real activity in the region expanded strongly in 2010 and so far in 2011. Robust private and public consumption underpinned this strength, as many countries used available macroeconomic policy room to help speed the recovery from the crisisinduced slowdown. A further deterioration of the global economic environment could have substantial spillovers to the SSA region. A faltering U.S. or European recovery could undermine prospects for exports, remittances, official aid, and private capital flows. The region is poised for continued economic expansion in the near term, provided the recent rise in financial and economic instability in major advanced economies remains contained. Real GDP growth in the SSA region is projected to average 5.3 to 5.8 percent during 2011–12, with considerable differences across the region.
8.1.2 World Trade
Trade has been an important driver of the global economic recovery in 2010 as the performance of global volume of trade in goods and services depicted 12.8 percent growth from a 10.7 percent decline in 2009. The pace of growth in global volume of trade in goods and service is, however, expected to slow down to 7.5 percent in 2011 and further to 5.8 percent in the subsequent year. Imports in advanced economies also went up by 11.7 percent in 2010 in contrast to a 12.4 percent fall in the preceding year. Import growth in these countries are anticipated to grow by 6 and 4 percent in the following two years respectively. Likewise, exports in advanced nations recorded a 12.3 percent growth in 2010 following a 12 percent decline in 2009. Growth in exports of these economies are forecasted to slow down to 6.2 and 5.2 percent in the next two years respectively.

2010/11 annual report 9
National Bank of Ethiopia The volume of export of goods and services in other emerging markets and developing countries expanded by 13.6 percent while imports increased by 15 percent in 2010 against a 7.7 and 8 percent contraction respectively in the previous year. Growth in exports and imports of these countries are anticipated to slow down moderately to 9.4 and 11.1 percent respectively in 2011. Having contracted sharply during the recession, the US current account deficit widened modestly with the onset of the recovery and averaged 3.3% of GDP in the first three quarters of 2010, up from 2.7% in 2009. In 2010, the current account of the euro area recorded a deficit of €56.4 billion (or 0.6% of euro area GDP), compared with a deficit of €51.4 billion in 2009. These developments resulted from a decrease in the deficit in the income balance of €18.6 billion, while the trade balance in services remained somewhat stable. However, the trade balance in goods worsened during 2010, counterbalancing the improvement in the income balance. After the rebound in trade in early 2009 and the improvement in the trade balance over 2009, the goods balance continued to register a surplus in 2010 that was €16.2 billion lower than the surplus recorded in 2009. Finally, the deficit in the current transfers balance deteriorated by €8.2 billion in 2010.
8.1.3 Inflation and Commodity Prices
In spite of a gradual increase in commodity prices, mostly in the second half of the year, inflationary pressures in advanced economies remained subdued in 2010 – with some notable exceptions, such as the United Kingdom – on account of well-anchored inflation expectations and the prevailing spare capacity. This contrasted with dynamic emerging markets where inflationary pressures were more pronounced, partly on account of higher commodity prices as well as rising capacity constraints. Amid persisting concerns regarding inflation resulting from overheating, several central banks in emerging economies decided to withdraw some of the exceptional liquidity measures introduced in response to the crisis and to tighten their monetary policy stances. Headline annual consumer price inflation in the OECD area declined gradually during 2010, from a peak of just above 2% in January 2010 to 1.6% in August, before edging up again to stand at 2.1% in December. This is also consistent with developments in the PMI for input prices,

2010/11 annual report 10 National Bank of Ethiopia which also increased in the second half of 2010 and in January 2011 stood at the highest level in almost two and a half years. Higher food and energy prices contributed to this increase. Excluding food and energy, annual consumer price inflation in the OECD area declined throughout the year, from 1.6% at the beginning of 2010 to 1.2% in December. In the context of a modest economic recovery, price developments in United States remained subdued as upward cost pressures were limited by the persistent slack in product and labour markets. The annual change in the CPI for 2010 rose to 1.6% from -0.4% the year before, on account of rising energy costs. Excluding food and energy, CPI inflation continued to slow and averaged 1.0% for the whole year, down from 1.7% in 2009. In Canada, headline and core CPI inflation stayed within the central bank’s target inflation range of 1% to 3%. Annual headline CPI inflation trended upwards in the second half of 2010 and stood at 2.4% in December, reflecting the impact of higher energy and food prices, while core inflation was 1.5% in December, following a gentle deceleration in the course of 2010. Consumer prices in Japan fell throughout most of 2010, on a year-on-year basis, owing to substantial slack in the economy. In October, however, annual CPI inflation turned positive for the first time in almost two years, driven partly by an increase in tax on cigarettes and higher commodity prices, while annual CPI inflation excluding food and energy, although moderating, continued its deflationary trend. Inflationary pressures in the Euro area remained moderate in 2010, with some upward pressure emerging at the end of the year and in early 2011. The average annual inflation rate in 2010 stood at 1.6%. Monthon-month developments in the inflation rate were noteworthy, as annual HICP inflation gradually increased in 2010, rising from a low of 0.9% in February to 2.2% in December. The gradual increase in HICP inflation mainly reflected developments in commodity prices, driven by the global economic recovery and by base effects. Market-based and survey-based measures of long-term inflation expectations remained broadly anchored at levels consistent with the Governing Council’s aim of keeping inflation rates below, but close to 2% in the medium term.

2010/11 annual report 11 National Bank of Ethiopia After recording very low consumer price inflation rates in 2009, inflationary pressures in emerging Asia increased markedly during
2010. Annual CPI inflation for the region
stood at 5% in December 2010, mainly on account of rising food and commodity prices. Most central banks in the region started to tighten their monetary stances in the second half of 2010, reducing the monetary stimuli introduced in the previous year. Inflationary pressures in China increased during the year, with CPI inflation reaching 4.6% in annual terms in December, mainly on account of rising food prices. Property price pressures emerged against the background of ample liquidity, ongoing loose credit conditions and negative real interest rates on deposits. In early 2010, notwithstanding sizeable differences across Latin America countries, inflation in most of the countries with inflation-targeting arrangements moved significantly closer to the respective target value. However, in the context of strong growth in economic activity and rising commodity prices, inflationary pressures started to rise later in the year and some countries began to reverse part of the monetary stimuli deployed during the crisis. From April onwards several central banks in the region initiated a cycle of official interest rate rises. Across the SSA region, there has been a marked increase in inflation. The earlier surge in commodity prices risks fueling inflation further amid the limited economic slack of the LICs (for example, Uganda), especially in net staple importers (such as Ethiopia) or where there is significant passthrough from international to domestic food prices (for example, Kenya). Among oil exporters, inflation is projected to remain high, dominated by price developments in Nigeria and Angola, where rapid monetary expansion before the crisis (Nigeria) and a sharp increase in domestic fuel prices (Angola) fed into price increases. After having remained broadly stable amid some volatility in the first half of 2010, oil prices began to increase steadily in August, with the Brent crude oil price standing at USD 113 per barrel on 25 February 2011, compared with USD 78 per barrel at the beginning of 2010. In US dollar terms, the level reached at the end of February 2011 was broadly similar to that recorded in May
2008. For the year 2010 as a whole, the
average price of Brent crude oil was USD 80

2010/11 annual report 12 National Bank of Ethiopia per barrel, i.e. 29% above the average of the previous year. The oil price increases came against the background of a recovery in global oil demand, which strengthened throughout the year, and was supported by the global economic recovery, as well as by weather conditions in the northern hemisphere in the second part of the year. This growth in demand also led to a reassessment of future demand prospects, which looked much more robust than one year earlier and suggested that the market might tighten in the future. One indication of this was the stream of repeated upward revisions of demand projections by the International Energy Agency, both for emerging and developed economies. On the supply side, the output in North America and in former Soviet Union countries proved to be higher than foreseen, but on the other hand, OPEC decided not to raise its production quotas in 2010, despite its ample spare capacity. In the context of buoyant demand, this led to a substantial drawdown in OECD inventories, which nevertheless remained at high levels by historical standards. In the first two months of 2011 geopolitical events in North Africa and the Middle East further tightened the supply side of the market, thereby accelerating the increase in prices. The prices of non-energy commodities also increased in 2010, amid robust demand from emerging economies and supply constraints. Metal prices, in particular of copper, nickel and tin – posted significant gains, which were also sustained by buoyant imports by emerging economies. On the back of supply constraints, food prices also increased, led in particular by maize, sugar and wheat. In aggregate terms, non-energy commodity prices (denominated in US dollars) were about 36% higher towards the end of February 2011 compared with the beginning of 2010.
8.1.4 Exchange Rates
Exchange rate developments in 2010 were to a large extent shaped by the economic recovery, fiscal conditions and monetary policy around the world. Developments were somewhat volatile in many advanced economies, as the economic recovery was still vulnerable and dependent on the support of fiscal and monetary policies. In the first half of the year, the euro depreciated against several major currencies, reflecting rising concerns about the sovereign debt situation in some euro area countries. This uncertainty also resulted in an increase in the implied volatility of the euro exchange rate against

2010/11 annual report 13 National Bank of Ethiopia major currencies in May and June. In the second half of 2010, the euro rebounded, amid some volatility, owing mostly to the alleviation of concerns about sovereign debt, as well as more positive than expected macroeconomic news for the euro area. The overall appreciation was driven mainly by developments in the USD/EUR exchange rate. In the course of 2010, the euro depreciated by 8.2% in effective terms as measured against the currencies of 20 of the euro area’s important trading partners. As a consequence, the average level of the nominal effective exchange rate in 2010 was 6.3% lower compared with 2009. In 2010 the euro stood 5.5% higher than the historical average since 1999. The euro traded at USD 1.34 on 31 December 2010, about 7.3% lower than at the beginning of 2010 and 4.2% weaker than its average in 2009. The depreciation of the euro vis-à-vis the US dollar in the first half of 2010 was driven by a stronger macroeconomic recovery in the United States than in the euro area in early 2010. In the second half of 2010, the euro strengthened against the US dollar in response to the approval by the US authorities of an additional economic stimulus. In the first half of 2010 the euro also continued to depreciate vis-à-vis the Japanese yen, completely reversing its appreciation in 2009. Throughout the remainder of 2010, the bilateral JPY/EUR exchange rate fluctuated within a rather narrow range, with the euro trading between JPY 105 and JPY 115. The euro traded at JPY 108.65 on 31 December 2011, lower by 18.4% than at the beginning of the year and 16.7% below its average for 2009. Volatility in the JPY/EUR exchange rate increased sharply in May and June 2010, before declining in the second half of 2010. In 2010, the euro depreciated against the Pound Sterling by 3.1% from GBP 0.89 to GBP 0.86. The euro depreciated against the Pound Sterling in the first half of 2010 amid market concerns over fiscal sustainability in some euro area countries. In the second half of the year, the euro recovered some of the earlier losses. By the end of 2010, the euro bilateral exchange rate against the Pound Sterling was still above its historical average since 1999, owing to the appreciation that occurred in 2008 and early 2009. In 2010, the euro depreciated against the Swiss Franc by 15.7%. Until June 2010, the depreciation

2010/11 annual report 14 National Bank of Ethiopia was moderated as a result of interventions by the Swiss National Bank. In the second half of 2010, the euro further depreciated against the Swiss Franc significantly, amid some volatility.
8.1.5 Capital Flows
Given emerging Asia’s strong macroeconomic performance and the declining risk aversion of international investors the region also experienced a major rebound in capital inflows. A number of countries intervened in currency markets to stem the ensuing currency appreciation pressures and also introduced capital controls and macro-prudential measures. A large capital inflows in to China, particularly in the last quarter of 2010, fuelled a rapid increase in foreign exchange reserves, which reached USD 2.85 trillion by the end of 2010. Private capital flows, which had been gaining importance in Sub-Saharan Africa region as a source of external financing before the crisis, have resumed only to a handful of emerging and frontier economies (Ghana, Mauritius, South Africa).
8.2 Implication for Ethiopia
The continuous recovery and expansion of global economic activities in particular of advanced nations and emerging Asia economies and the rising global commodity prices accounted largely for a robust development of Ethiopia external sector in 2010/11. The global developments in commodity prices attributed importantly to the strong growth of commodity exports while the expansion of economic activities in advanced countries has been the prime driving factor for the significant inflows of individual remittances and service receipts mainly from travel and transport services during the review fiscal year. On the other hand, the increase in global commodity prices had produced a notable pass-through effect and contributed to rising domestic food price. The surge in fuel import bill during the review period was primarily pushed up by the hike in international oil price following the political unrest in Middle East and North Africa since the beginning of the second half of 2010/11. Fertilizer import bill also poised a potential burden on foreign exchange payments of the nation largely driven by the increase in international price of the product.