While Ethiopia offers several opportunities, the market also has challenges. The government is engaged in a gradual process of economic reform and liberalization, and the state remains heavily involved in most economic sectors. State-owned enterprises (SOEs) dominate the economic landscape, reducing room for the private sector to flourish.
The acute foreign exchange shortage, largely the result of weak export performance and high demand for foreign currency, remains the leading challenge for U.S. suppliers and for which there is no quick fix. When foreign currency is available, banks prioritize certain sectors over others. (see table below). Businesses can usually expect delays in acquiring foreign currency extending up to a year. Significant payment delays for delivery of imported goods and services, or cancellation of government tenders for lack of funds are another side effect. Further, forex controls make it difficult for investors to repatriate profits.
| Priority | Categories |
| 1 | Pharmaceuticals: Medicine and laboratory reagents |
| 2 | Inputs for Agriculture: Fertilizer, Seed, Pesticide and Chemical Inputs for Manufacturing: Raw material and Chemical |
| 3 | Motor oil, lubricants and LGP gas. |
Source: NBE Directives No. FXD/67/2020; Transparency in Foreign Currency Allocation and Foreign Exchange Management
Other challenges include bureaucratic barriers to investment, inconsistent interpretation of the investment regulations, logistical bottlenecks, corruption, expensive land transportation, and delays affecting importing products and shipping exports. Land rights issues and an unpredictable tax regime may add another layer of complexity for foreign investors and operators. Private sector expansion is hampered by a lack of a capital market.
The Ethiopian economy has grown at a rapid pace over past decade until 2019, but in addition to foreign exchange scarcities, the economy remains vulnerable to internal conflicts, periodic droughts and commodity price volatility that impacts the demand and price of Ethiopia’s primary export commodities. The price of coffee, one-third of Ethiopia’s exports, has a pronounced impact on Ethiopia’s export earnings.
The European Union Business Forum Ethiopia, through a survey of more than 80 European businesses with operations in Ethiopia, identified key challenges of doing business in the areas of tax, customs, delay in the renewal of licenses, access to foreign exchange, unpredictability of the business climate. Progress on improvements to the business climate are monitored by the government in coordination with the Ethiopian Investment Commission (EIC).