Important Notice

IMPORTANT NOTICE

THE PROSPECTUS IS AVAILABLE ONLY: (1) TO QUALIFIED INSTITUTIONAL BUYERS (AS DEFINED BELOW) OR (2) OUTSIDE OF THE U.S. IMPORTANT: You must read the following before continuing. The following applies to the Prospectus following this notice, and you are therefore advised to read this carefully before reading, accessing or making any other use of the Prospectus. In accessing the Prospectus, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from Ethiopia and the Joint Lead Managers (each as defined in the Prospectus) as a result of such access. NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN ANY JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES DESCRIBED IN THE PROSPECTUS HAVE NOT BEEN AND WILL NOT BE, REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE ‘‘SECURITIES ACT’’) OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTIONS OF THE U.S. AND MAY NOT BE OFFERED OR SOLD WITHIN THE U.S. (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT (‘‘REGULATION S’’)) EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. THE PROSPECTUS MAY ONLY BE COMMUNICATED TO PERSONS IN THE UNITED KINGDOM IN CIRCUMSTANCES WHERE SECTION 21(1) OF THE FINANCIAL SERVICES AND MARKETS ACT 2000 DOES NOT APPLY. THE PROSPECTUS MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THIS TRANSMISSION IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. IF YOU HAVE GAINED ACCESS TO THIS TRANSMISSION CONTRARY TO ANY OF THE FOREGOING RESTRICTIONS, YOU ARE NOT AUTHORISED AND WILL NOT BE ABLE TO PURCHASE ANY OF THE SECURITIES DESCRIBED THEREIN. Confirmation of your representation: In order to be eligible to view the Prospectus or make an investment decision with respect to the securities, investors must be either: (1) Qualified Institutional Buyers (‘‘QIBs’’) (within the meaning of Rule 144A under the Securities Act) or (2) outside the United States. This transmission is being sent at your request and by accepting the email and accessing the Prospectus, you shall be deemed to have represented to Ethiopia and the Joint Lead Managers that (1) you and any customers you represent are either (a) QIBs or (b) outside the U.S., (2) unless you are a QIB, the electronic mail address that you gave the sender of this transmission and to which this transmission has been delivered is not located in the U.S., (3) you are a person who is permitted under applicable law and regulation to receive the Prospectus and (4) you consent to delivery of the Prospectus by electronic transmission. You are reminded that the Prospectus has been delivered to you on the basis that you are a person into whose possession the Prospectus may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorised to, deliver the Prospectus to any other person. The Prospectus does not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that an offering of securities described herein be made by a licensed broker or dealer and any Joint Lead Manager or any affiliate of any Joint Lead Manager is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by such Joint Lead Manager or such affiliate on behalf of Ethiopia or holders of the applicable securities in such jurisdiction. The Prospectus has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently neither Ethiopia, the Joint Lead Managers nor any person who controls them nor any director, officer, employee nor agent of them or affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between the Prospectus distributed to you in electronic format and the hard copy version available to you on request from Ethiopia and the Joint Lead Managers. Please ensure that your copy is complete. You are responsible for protecting against viruses and other destructive items. Your use of this e-mail is at your own risk, and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature.

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA US$1,000,000,000 6.625 per cent. Notes due 2024 Issue Price: 100 per cent.

The US$1,000,000,000 6.625 per cent. Notes due 2024 (the ‘‘Notes’’) to be issued by The Federal Democratic Republic of Ethiopia (the ‘‘Issuer’’ or ‘‘Ethiopia’’) are direct, unconditional and unsecured obligations of Ethiopia.

The Notes will bear interest from (and including) 11 December 2014 at the rate of 6.625 per cent. per annum, payable semi- annually in arrear on 11 June and 11 December of each year, commencing on 11 June 2015. The Notes will mature on 11 December 2024 (the ‘‘Maturity Date’’).

Payments on the Notes will be made in US dollars without deduction for or on account of taxes imposed or levied by Ethiopia to the extent described under ‘‘Terms and Conditions of the Notes – Taxation’’.

The Notes have not been and will not be registered under the U.S. Securities Act of 1933 (the ‘‘Securities Act’’), or with any securities regulatory authority of any State or other jurisdiction of the United States, and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. For a summary of certain restrictions on resale, see ‘‘Transfer Restrictions’’ and ‘‘Subscription and Sale’’.

The Notes will be offered and sold outside the United States in reliance on Regulation S under the Securities Act (‘‘Regulation S’’) and within the United States to qualiﬁed institutional buyers (‘‘QIBs’’) within the meaning of Rule 144A under the Securities Act (‘‘Rule 144A’’). Prospective purchasers are hereby notiﬁed that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.

An investment in the Notes involves a high degree of risk. Prospective investors should have regard to the factors described in ‘‘Risk Factors’’.

This Prospectus has been approved by the Central Bank of Ireland (the ‘‘Central Bank’’), as competent authority under Directive 2003/71/EC, as amended (including the amendments made by Directive 2010/73/EU) (the ‘‘Prospectus Directive’’). This Prospectus constitutes a prospectus for the purposes of the Prospectus Directive. The Central Bank only approves this Prospectus as meeting the requirements imposed under Irish and European Union (‘‘EU’’) law pursuant to the Prospectus Directive. Such approval relates only to Notes that are to be admitted to trading on the regulated market of the Irish Stock Exchange (the ‘‘Main Securities Market’’) or on another regulated market for the purposes of Directive 2004/39/EC (the ‘‘Markets in Financial Instruments Directive’’) or that are to be offered to the public in any member state of the European Economic Area (‘‘EU Member States’’). Application has been made to the Irish Stock Exchange for the Notes to be admitted to its ofﬁcial list (the ‘‘Ofﬁcial List’’) and trading on the Main Securities Market.

The Notes are expected to be rated B1 by Moody’s Investors Services Ltd (‘‘Moody’s’’) and B by Standard & Poor’s Credit Market Services Europe Limited (‘‘S&P’’). Each of Moody’s and S&P is established in the European Union and registered under Regulation (EC) No 1060/2009 of the European Parliament and of the Council of 16 September 2009 on credit rating agencies (the ‘‘CRA Regulation’’). A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation.

The Notes will be offered and sold in registered form in denominations of US$200,000 or any amount in excess thereof which is an integral multiple of US$1,000. The Notes that are offered and sold in reliance on Regulation S (the ‘‘Unrestricted Notes’’) will be represented by beneficial interests in a global note (the ‘‘Unrestricted Global Note’’) in registered form without interest coupons attached, which will be registered in the name of BT Globenet Nominees Limited as nominee for, and will be deposited on or about the Closing Date with, Deutsche Bank AG, London Branch as common depositary for Euroclear Bank S.A./N.V. (‘‘Euroclear’’) and Clearstream Banking, socie´te´ anonyme (‘‘Clearstream, Luxembourg’’). The Notes that are offered and sold in reliance on Rule 144A (the ‘‘Restricted Notes’’) will be represented by beneficial interests in one or more global notes (each a ‘‘Restricted Global Note’’) in each case in registered form without interest coupons attached, which will be deposited on or about 11 December 2014 (the ‘‘Closing Date’’) with Deutsche Bank Trust Company Americas as custodian (the ‘‘Custodian’’) for, and registered in the name of Cede & Co. as nominee for, The Depository Trust Company (‘‘DTC’’). Interests in the Restricted Global Notes will be subject to certain restrictions on transfer. Beneficial interests in the Unrestricted Global Note and Restricted Global Notes (together, the ‘‘Global Notes’’) will be shown on, and transfers thereof will be effected only through, records maintained by DTC, Euroclear, Clearstream, Luxembourg and their respective participants. Except in the limited circumstances as described herein, certificates will not be issued in exchange for beneficial interests in the Global Notes.

Joint Lead Managers and Joint Bookrunners DEUTSCHE BANK J.P. MORGAN Prospectus dated 9 December 2014 RESPONSIBILITY STATEMENT

The Issuer accepts responsibility for the information contained in this Prospectus and declares that, having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is, to the best of its knowledge, in accordance with the facts and contains no omission likely to affect its import. To the best of the knowledge and belief of the Issuer, the information contained in this Prospectus is true and accurate in every material respect and is not misleading in any material respect, and this Prospectus does not omit to state any material fact necessary to make such information not misleading. The opinions, assumptions, intentions, projections and forecasts expressed in this Prospectus with regard to the Issuer are honestly held by the Issuer, have been reached after considering all relevant circumstances and does not omit anything likely to affect the import of such information.

IMPORTANT NOTICE

No person has been authorised to give any information or to make any representation other than those contained in this Prospectus in connection with the offering of the Notes and, if given or made, such information or representation must not be relied upon as having been authorised by the Issuer or the joint lead managers listed in the section entitled ‘‘Subscription and Sale’’ (the ‘‘Joint Lead Managers’’). Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, constitute a representation or create any implication that there has been no change in the affairs of the Issuer since the date hereof. This Prospectus may only be used for the purpose for which it has been published. This Prospectus does not constitute an offer of, or an invitation by, or on behalf of, the Issuer or the Joint Lead Managers to subscribe for, or purchase, any of the Notes in any jurisdiction in which such offer or invitation is unlawful. This Prospectus does not constitute an offer, and may not be used for the purpose of an offer to, or a solicitation by, anyone in any jurisdiction or in any circumstances in which such an offer or solicitation is not authorised or is unlawful. The distribution of this Prospectus and the offering, sale and delivery of the Notes in certain jurisdictions may be restricted by law. Persons into whose possession this Prospectus comes are required by the Issuer and the Joint Lead Managers to inform themselves about and to observe any such restrictions. This Prospectus is not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation by the Issuer or the Joint Lead Managers that any recipient of this Prospectus should invest in any of the Notes. Each investor contemplating an investment in Notes should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer. The Joint Lead Managers have not separately verified the information contained in this Prospectus. Accordingly no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Joint Lead Managers or any of them as to the accuracy or completeness of the information contained in this Prospectus or any other information provided by the Issuer in connection with the Notes or their distribution. For a description of certain restrictions on offers, sales and deliveries of the Notes, see ‘‘Subscription and Sale’’. The Federal Democratic Republic of Ethiopia is a sovereign state. Consequently, it may be difficult for investors to obtain or enforce judgments against the Issuer. See ‘‘Risk Factors – Risks Relating to the Notes – Ethiopia is a sovereign state and accordingly it may be difficult to obtain or enforce judgments against it’’. The Notes have not been approved or disapproved by the U.S. Securities and Exchange Commission or any State securities commission in the United States or any other U.S. regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Notes or the accuracy or adequacy of this Prospectus. Any representation to the contrary is a criminal offence in the United States. IN CONNECTION WITH THE ISSUE OF THE NOTES, DEUTSCHE BANK AG, LONDON BRANCH AS STABILISING MANAGER (THE ‘‘STABILISING MANAGER’’) (OR PERSONS ACTING ON BEHALF OF THE STABILISING MANAGER) MAY OVER ALLOT NOTES OR

(ii) EFFECT TRANSACTIONS WITH A VIEW TO SUPPORTING THE MARKET PRICE OF THE NOTES AT A LEVEL HIGHER THAN THAT WHICH MIGHT OTHERWISE PREVAIL. HOWEVER, THERE IS NO ASSURANCE THAT THE STABILISING MANAGER (OR PERSONS ACTING ON BEHALF OF THE STABILISING MANAGER) WILL UNDERTAKE STABILISATION ACTION. ANY STABILISATION ACTION MAY BEGIN ON OR AFTER THE DATE ON WHICH ADEQUATE PUBLIC DISCLOSURE OF THE TERMS OF THE OFFER OF THE NOTES IS MADE AND, IF BEGUN, MAY BE ENDED AT ANY TIME, BUT IT MUST END NO LATER THAN THE EARLIER OF 30 DAYS AFTER THE ISSUE DATE OF THE NOTES AND 60 DAYS AFTER THE DATE OF THE ALLOTMENT OF SUCH NOTES. ANY STABILISATION ACTION OR OVER ALLOTMENT SHALL BE CONDUCTED BY THE STABILISING MANAGER (OR PERSONS ACTING ON BEHALF OF THE STABILISING MANAGER) IN ACCORDANCE WITH ALL APPLICABLE LAWS AND RULES. This Prospectus may not be copied or reproduced in whole or in part nor may it be distributed or any of its contents disclosed to anyone other than the prospective investors to whom it is originally submitted. Each purchaser or holder of interests in the Notes will be deemed, by its acceptance or purchase of any such Notes, to have made certain representations and agreements as set out in ‘‘Transfer Restrictions’’.

NOTICE TO NEW HAMPSHIRE RESIDENTS

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENCE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT, ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

(iii) PRESENTATION OF ECONOMIC AND OTHER INFORMATION

Certain figures included in this Prospectus have been subject to rounding adjustments; accordingly, figures shown for the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be the sum of the figures which precede them. Statistical information reported herein has been derived from official publications of, and information supplied by, a number of agencies and ministries of the Government of Ethiopia, including the Ministry of Finance and Economic Development (‘‘MoFED’’) and the National Bank of Ethiopia (‘‘NBE’’). Some statistical information has also been derived from information publicly made available by third parties such as the International Monetary Fund (the ‘‘IMF’’) and the World Bank (the ‘‘World Bank’’). Where such third party information has been so sourced, the source is stated where it appears in this Prospectus. The Issuer confirms that it has accurately reproduced such information and that, so far as it is aware and is able to ascertain from information published by third parties, it has omitted no facts which would render the reproduced information inaccurate or misleading. Similar statistics may be obtainable from other sources, but the date of publication, underlying assumptions, methodology and, consequently, the resulting data may vary from source to source. In addition, statistics and data published by one ministry or agency may differ from similar statistics and data produced by other agencies or ministries due to differing underlying assumptions, methodology or timing of when such data is reproduced. Certain historical statistical information contained herein is provisional or otherwise based on estimates that Ethiopia and/or its agencies believe to be based on reasonable assumptions. Ethiopia’s official financial and economic statistics are subject to internal review as part of a regular confirmation process. Accordingly, the financial and economic information set out in this Prospectus may be subsequently adjusted or revised and may differ from previously published financial and economic information. While Ethiopia does not expect such revisions to be material, no assurance can be given that material changes will not be made. Annual information presented in this Prospectus is based upon a fiscal year commencing on 8 July in one year and ending on 7 July in the subsequent year. Therefore, references to any individual period such as 2010/11 and so on are references to such a fiscal year commencing on 8 July in the first mentioned year and ending on 7 July in the subsequent year. References to any individual period such as 2010 and so on are references to a calendar year commencing on 1 January and ending on 31 December in the same year. All references in this document to ‘‘birr’’ are to the currency of the Federal Democratic Republic of Ethiopia, to ‘‘US dollars’’, ‘‘US$’’ and ‘‘$’’ are to the currency of the United States of America; and to ‘‘euro’’ are to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community, as amended by the Treaty of European Union. References to ‘‘SDR’’ are to Special Drawing Rights, a unit of account having the meaning ascribed to it from time to time by the Rules and Regulations of the IMF. References in this document to ‘‘billions’’ are to thousands of millions. References to the ‘‘Government’’ are to the government of Ethiopia. Information contained herein that is identified as being derived from a publication of The Federal Democratic Republic of Ethiopia or one of its agencies or instrumentalities is included herein on the authority of such publication as an official public document of The Federal Democratic Republic of Ethiopia. All other information contained herein with respect to The Federal Democratic Republic of Ethiopia is included as an official public statement made on the authority of the Minister of Finance and Economic Development of The Federal Democratic Republic of Ethiopia.

(iv) FORWARD-LOOKING STATEMENTS

This Prospectus includes forward-looking statements, which involve risks and uncertainties. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms ‘‘believes’’, ‘‘estimates’’, ‘‘anticipates’’, ‘‘expects’’, ‘‘intends’’, ‘‘may’’, ‘‘will’’ or ‘‘should’’ or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Prospectus and include statements regarding the Government’s intentions, beliefs or current expectations concerning, among other things, the general political and economic conditions in Ethiopia. All forward-looking statements are based upon information available to the Issuer on the date of this Prospectus and the Issuer undertakes no obligation to update any of these in light of new information or future events. The Issuer derives many of its forward-looking statements from its budgets and forecasts, which are based upon many detailed assumptions. While the Issuer believes that its assumptions are reasonable, it cautions that it is very difficult to predict the impact of known factors, and, of course, it is impossible to anticipate all factors that could affect the actual performance of Ethiopia’s economy. These factors include, but are not limited to: * Investing in securities involving emerging markets such as Ethiopia generally involves a higher degree of risk than more developed markets; * Ethiopia is both an importer and an exporter of commodities and, as such, is exposed to fluctuations in global commodity prices; * Ethiopia’s foreign trade is heavily reliant upon access to the Djibouti port and the transport infrastructure which connects Ethiopia to Djibouti; * Ethiopia’s economy and food security is largely dependent on its domestic agriculture sector, which is subject to weather-related risks; * Failure or inability to implement economic reforms and development projects, particularly with respect to physical and financial infrastructure, may have a negative effect on the growth of Ethiopia’s economy and the intended outcomes of reforms may not be achieved even if the reforms are properly implemented; * Lack of effective and dependable energy supply may hinder GDP growth and/or the development of the economy; * A global economic downturn, instability in internaional financial markets or other negative external economic shocks could have an adverse effect on Ethiopia’s economy; * Ethiopia exports certain products to and imports certain commodities from Sudan which is subject to a comprehensive U.S. sanctions programme administered by the Office of Foreign Assets Controls of the United States Department of the Treasury (‘‘OFAC’’); * Failure to manage a steadily depreciating exchange rate may adversely affect Ethiopia’s economy and balance of payments; * High inflation could have a material adverse effect on Ethiopia’s economy; * Certain segments of Ethiopia’s economy are not recorded and a failure by the Government to broaden the tax base may have a negative impact on economic growth; * Regional political and/or military in stability may have a material adverse effect on Ethiopia’s economy; * The forthcoming general elections may result in political instability or changes in policies; * Health risks could adversely affect Ethiopia’s economy; * The statistical information published by Ethiopia may differ from that produced by other sources and may be unreliable; * Ethiopia’s mining and energy sectors may create environmental hazards; * Ethiopia’s banking sector is highly concentrated; * Any future borrowing beyond sustainable levels could have a material adverse effect on Ethiopia’s economy and its ability to service its debt, including the Notes; and * There are high levels of poverty within Ethiopia, which are only addressed in part by foreign aid and concessionary lending and could hinder economic growth.

(v) ENFORCEMENT OF CIVIL LIABILITIES

The Issuer is a sovereign state, and substantially all of the assets of the Issuer are located in Ethiopia. Consequently, it may be difficult for investors to obtain or enforce judgments of courts in England, the United States or anywhere else against Ethiopia. The Issuer has submitted to the jurisdiction of the courts of England and waived any immunity from the jurisdiction (including sovereign immunity) of such courts, in connection with any action arising out of or based upon the Notes brought by any holder of Notes. The Issuer’s waiver of immunity is, however, limited. Such a waiver constitutes only a limited and specific waiver for the purposes of the Notes, and under no circumstances shall it be interpreted as a general waiver by the Issuer or a waiver with respect to proceedings unrelated to the Notes. Investors may effect service of process within the United Kingdom upon the Issuer through its Ambassador to the Court of St. James’s. The enforceability of final judgments of the English courts in Ethiopia is subject to the rules governing the enforcement of civil judgments of foreign courts, as specified in the Ethiopian Civil Code of 1960 (the ‘‘Ethiopian Civil Code’’). In accordance with the Ethiopian Civil Code, the Ethiopian courts would recognise and enforce a judgment granted by the English courts if the following conditions are met: (i) the execution of Ethiopian judgments is allowed in England and Wales; (ii) the judgment was given by an English court that is duly established and constituted; (iii) the judgment-debtor was given the opportunity to appear before the English courts and present his defence; (iv) the judgment to be executed is final and enforceable; and (v) the execution is not contrary to public order or morals. A judgment is deemed to be final and conclusive if no appeal is pending against it. Proceedings for the enforcement of an English court judgment would be subject to Ethiopian procedural law. In original actions brought before the Ethiopian courts, there is doubt as to the enforceability of liabilities based on US federal securities laws. US federal securities laws must be specifically pleaded as the governing law in proceedings commenced before an Ethiopian court. The choice of English law as the governing law of the Notes is recognised under the Ethiopian Civil Code, subject to mandatory provisions of law and such choice not (i) being deemed contrary to public policy in Ethiopia, (ii) violating an Ethiopian court’s perception of justice, fairness or good morals and (iii) relating to immovable property situated in Ethiopia. See ‘‘Terms and Conditions of the Notes – Governing Law, Jurisdiction and Enforcement’’.

(vi) EXCHANGE RATES

The currency of Ethiopia is the Ethiopian birr. The following table sets forth, for the stated ﬁscal years, unless otherwise indicated, the high, low, average and year end published by the National Bank of Ethiopia, expressed in US dollars.

Average High Low Period End

(birr: US$1.00) 2008/09 ...... 11.7787 12.6397 9.9566 12.6397 2009/10 ...... 14.4060 16.5482 12.6416 16.5482 2010/11 ...... 16.9011 17.2201 16.5508 17.2201 2011/12 ...... 17.7024 18.1843 17.2227 18.1843 2012/13 ...... 18.6269 19.0587 18.1877 19.0587 20141 ...... 19.5320 19.9885 19.0625 19.9885

Source: National Bank of Ethiopia 1 Calendar year up to 14 November 2014

The US dollar versus birr exchange rate published by the National Bank of Ethiopia on 25 November 2014 was US$20.0123 per birr 1. Solely for convenience, this Prospectus includes conversions of certain birr amounts into US dollars at speciﬁed rates. Unless otherwise stated, amounts as at the end of a period have been converted from birr at the applicable exchange rate at the period end and amounts in respect of a period of time have been converted at the average exchange rate applicable to that period. These conversions are solely illustrative and should not be construed as representations that birr amounts actually represent such US dollar amounts or could be converted into US dollars at the rate indicated as of any of the dates mentioned in this Prospectus or at all.

(vii) TABLE OF CONTENTS

Overview...... 1 Risk Factors ...... 9 Use of Proceeds ...... 21 The Federal Democratic Republic of Ethiopia...... 22 The Economy ...... 38 Foreign Trade and Balance of Payments...... 54 Public Finance ...... 59 Public Debt...... 68 Monetary and Financial System ...... 72 Terms and Conditions of the Notes...... 77 The Global Notes...... 93 Clearing and Settlement Arrangements...... 95 Transfer Restrictions ...... 99 Taxation ...... 101 EU Directive on the Taxation of Savings Income (Directive 2003/48/EC) ...... 103 Subscription and Sale ...... 104 General Information...... 106

(viii) OVERVIEW

This Overview must be read as an introduction to this Prospectus. Any decision to invest in the Notes should be based on a consideration of this Prospectus as a whole. This Overview does not purport to be complete and is qualified in its entirety by the more detailed information elsewhere in this Prospectus. Prospective investors should also carefully consider the information set forth in ‘‘Risk Factors’’ below prior to making any investment decision. Terms not otherwise defined in this Overview and defined elsewhere in this Prospectus are used in the Overview as so defined. See ‘‘The Federal Democratic Republic of Ethiopia’’ and ‘‘The Economy’’, amongst others, for a more detailed description of the Issuer. References in this Overview to a ‘‘Condition’’ are to the numbered condition corresponding thereto set out in the Terms and Conditions of the Notes.

The Federal Democratic Republic of Ethiopia General Ethiopia is Africa’s seventh largest country by area and second largest in terms of population. It is a land-locked country located in the north-east of Africa, in the sub-region commonly referred to as the ‘Horn of Africa’. Ethiopia has a total area of 1,140,000 square kilometres and is a country of great geographical diversity. While Ethiopia is located within the tropics, its geographical diversity and variations in altitude mean there is a great range of terrain, climate, soils, natural vegetation and settlement patterns throughout the country. Ethiopia is Africa’s oldest independent country and has a rich, ancient history and unique cultural heritage attributed to a succession of dynastic monarchies which reigned in Ethiopia until 1974, save for a period of six years from 1935 during which Italy invaded and occupied Ethiopia until Haile Selassie was restored to the throne in 1941. Following the ‘Derg Period’, which lasted for 17 years from 1974 to 1991, the Ethiopian People’s Revolutionary Democratic Front overthrew the ‘Derg’ regime. In May 2010, the ruling EPRDF won a majority in the parliamentary elections and Meles Zenawi became prime minister for a fourth term, until his death in 2012. Zenawi has been credited with lifting Ethiopia out of famine, reducing poverty and increasing economic growth, despite a severe drought in 2011. He was succeeded in August 2012 by deputy prime minister Hailemariam Desalegn and Mulatu Teshome was subsequently elected as President in October 2013 by a unanimous vote of the House of Peoples’ Representatives. Ethiopia’s goal is to become a lower-middle income economy by 2025 and the Government has prepared, and is close to completing the ﬁrst of three Growth and Transformation Plans (‘‘GTP’’) which set out the strategy for economic development during this period. In 2000, Ethiopia committed to achieving the eight Millennium Development Goals articulated by the United Nations and is on track to achieving all eight goals, having already achieved certain of these goals ahead of schedule.

Economy Ethiopia has sustained an average annual gross domestic product (‘‘GDP’’) growth rate of 10.9 per cent. over the past decade, with the average GDP growth rate for each of the last four consecutive years being 10.3 per cent. for 2013/14, 9.8 per cent. for 2012/13, 8.7 per cent. for 2011/12 and 11.4 per cent. for 2010/11. Agriculture is the primary sector of the Ethiopian economy, contributing 40.2 per cent. to GDP in 2013/14, which is a gradual decline from 42.0 per cent. of GDP in 2012/13 and 43.1 per cent. in 2011/12. In 2013/14 the services sector, which comprises wholesale and retail trade, hotels and restaurants, transport, ﬁnancial services, real estate, public administration, education and others, contributed 46.2 per cent. to GDP while industry contributed 14.3 per cent. for the same year. The agriculture, services and industry sectors of the economy have all contributed to the economic growth of the country, with agriculture growing by 5.4 per cent., services growing by 11.9 per cent. and industry growing by 21.2 per cent. in 2013/14. One of the Government’s objectives, set out in the GTP, is a long-term shift in the fundamental structure and diversiﬁcation of the economy away from such a concentration on the agriculture sector by increasing the productivity and output of other sectors such as manufacturing, energy and services in a manner which promotes sustainable growth and economic development. Ethiopia’s goal is to become a lower-middle income economy by 2025 and as such, Ethiopia’s economic policies are geared towards its long-term development objectives in accordance with the GTP. See ‘‘The Federal Democratic Republic of Ethiopia – Growth and Transformation Plans’’. The Government’s main economic policy objectives are to increase agricultural productivity by introducing

1 more widely the use of modern agricultural technologies and increasing irrigation, develop the manufacturing sector and increase exports of raw materials and ‘value added’ products. To achieve these objectives, the Government has allocated 57.9 per cent. of budgetary spending to capital expenditure (as opposed to recurring expenditures) in 2013/14, 59.3 per cent. to capital expenditure in 2012/13 and 58.7 per cent. to capital expenditure in 2011/12. Such capital expenditures have been for investment in Ethiopia’s economy, infrastructure and the skills and resources of its workforce. Infrastructure investment initiatives include, among others, the development and expansion of roads schools and health facilities and expanding telecommunication facilities as well as public housing schemes. Ethiopia ranks third-largest in the world in terms of public investment as a share of GDP according to the IMF, with public investment increasing from 19.6 per cent. of GDP in 2011/12 to 26.5 per cent. in 2012/13 and reducing to 20.0 in 2013/14. Ethiopia’s ﬁscal deﬁcit was birr 27.4 billion or 2.6 per cent. of GDP in 2013/14 and birr 16.8 billion or 1.9 per cent. of GDP in 2012/13. Total public debt (including both external and domestic debt of the central government and SOEs) was US$25.7 billion or 46.8 per cent. of GDP in 2013/14 and US$22.1 billion or 46.6 per cent. of GDP in 2012/13; of this amount total external debt was US$14.0 billion or 25.5 per cent. of GDP in 2013/14 and US$11.2 billion or 23.7 per cent. of GDP in 2012/13. The challenges for Ethiopia are to further diversify its economy, to continue to invest in infrastructure as a driver of economic growth, to further improve agricultural productivity and increase the competitiveness of the economy as well as to ensure that the country’s balance of payments and levels of debt remain at manageable levels. The Government is committed to implementing economic policies and reforms that are consistent with its objectives of economic development and macroeconomic stability based on good governance and social welfare.

Selected Economic Information The following table sets out certain information about Ethiopia’s GDP by sector for the ﬁscal years indicated:

2009/10 2010/11 2011/12 2012/13 2013/14

(in birr billions or per cent. as indicated) Sector (in birr billions) Agriculture...... 195.0 212.5 222.9 238.8 251.8 Industry ...... 43.0 49.8 59.6 73.9 89.6 Services ...... 184.7 216.6 237.4 258.7 289.4

Total...... 422.7 478.9 519.9 571.4 630.8

Less FISIM1...... 2.9 3.2 2.9 3.5 4.2 Real GDP (in birr billions) ...... 149.8 475.7 517.0 567.9 626.6 Growth in Real GDP (in per cent.)...... 10.6 11.4 8.7 9.8 10.3 Mid-year population (in millions)...... 78.8 80.7 82.7 84.8 87.0 Share in GDP (in per cent.)2 Agriculture...... 46.2 44.7 43.1 42.0 40.2 Industry ...... 10.3 10.5 11.5 13.0 14.3 Services ...... 43.8 45.5 45.9 45.6 46.2 Agriculture (in per cent.) Absolute Growth...... 7.6 9.0 4.9 7.1 5.4 Industry (in per cent.) Absolute Growth...... 10.8 15.0 19.6 24.1 21.2 Services (in per cent.) Absolute Growth...... 13.2 12.2 10.6 9.9 11.9

1. Financial Intermediation Services Indirectly Measured (‘‘FISIM’’) 2. The total of Agriculture, Industry and Services exceeds 100 per cent. as it is calculated as a percentage of total GDP less FISIM.

2 The following table sets out details of the central Government budget for the ﬁscal years indicated:

2009/10 2010/11 2011/12 2012/13 2013/14

(in birr Millions except as otherwise indicated) Nominal GDP...... 379,219 515,078 747,327 864,673 1,047,393 Nominal GDP (US dollar millions)...... 30,002 31,957 43,314 47,305 54,910 Real GDP growth per cent...... 10.6 11.4 8.7 9.8 10.3 Total Revenues and Grants...... 66,240 85,611 115,659 137,192 158,077 Total Revenues and Grants per cent. GDP ..... 17.5 16.6 15.5 15.9 15.1 Revenue...... 53,864 69,120 102,864 124,077 146,173 Revenue per cent. GDP ...... 14.2 13.4 13.8 14.3 14.0 Tax Revenue...... 43,318 58,981 85,740 107,010 133,118 Tax Revenue per cent. GDP ...... 11.4 11.5 11.5 12.4 12.7 Non-tax Revenue...... 10,546 10,139 17,124 17,067 13,055 Non-tax Revenue per cent. GDP...... 2.8 2.0 2.3 2.0 1.2 Grants ...... 12,376 16,491 12,795 13,115 11,904 Grants per cent. GDP ...... 3.3 3.2 1.7 1.5 1.1 Total expenditure and net lending (cash basis) 72,598 93,943 124,417 154,009 185,472 Total expenditure and net lending (cash basis) per cent. GDP ...... 19.1 18.2 16.6 17.8 17.7 Recurrent expenditure ...... 32,537 40,660 51,445 62,746 78,087 Recurrent expenditure per cent. of GDP ..... 8.6 7.9 6.9 7.3 7.5 of which: Interest payments...... 1,587 1,913 2,230 2,931 3,794 Domestic interest and charges ...... 1,220 1,300 1,388 1,792 2,290 External interest payments1 ...... 368 613 842 1,139 1,504 Capital expenditure ...... 40,061 53,283 72,971 91,263 107,385 Capital expenditure per cent. GDP ...... 10.6 10.3 9.8 10.6 10.3 of which: poverty-reducing expenditure2 32,794 43,372 62,574 76,334 88,641 Poverty-reducing capex per cent. GDP 8.6 8.4 8.5 8.8 8.5

Overall ﬁscal balance (incl. grants)...... (6,358) (8,332) (8,758) (16,816) (27,395) per cent. GDP...... (1.4) (1.6) (1.2) (1.9) (2.6)

Financing ...... 6,358 9,332 8,758 16,816 27,395 Net external ﬁnancing...... 4,446 8,436 7,443 18,045 21,877 per cent. GDP ...... 1.1 1.5 0.9 2.0 2.0 Net domestic ﬁnancing...... 1,758 111 3,793 1,764 13,510 per cent. GDP ...... 0.5 — 0.5 0.2 1.3 Privatisation ...... 697 1,458 2,764 1,200 — Other and residual ...... (543) (1,673) (5,242) (4,193) (7,992)

1. External interest is presented after HIPC debt relief from the World Bank and African Development Bank. 2. Poverty-reducing spending is deﬁned to include total spending on health, education, agriculture, roads, and food security.

The following table sets out details of the composition of Ethiopia’s budgetary expenditures:

2009/10 2010/11 2011/12 2012/13 2013/14

3 The following table sets out the composition of Ethiopia’s total public debt as at the end of the ﬁscal year indicated. ‘‘External Debt’’ refers to public debt which is denominated in a currency other than birr and ‘‘Domestic Debt’’ refers to debt denominated in birr:

2010/11 2011/12 2012/13 2013/14

US$ US$ US$ US$ millions Per cent. millions Per cent. millions Per cent. millions Per cent. External Debt 7,807.6 53.4 8,888.7 50.5 11,222.8 50.8 14,007.0 54.5 Central Government...... 4,725.0 32.3 5,469.3 31.1 6,831.5 30.9 8,419.2 32.8 State Owned Enterprise.. 3,082.6 21.1 3,419.4 19.4 4,391.2 19.9 5,587.8 21.7 Domestic Debt ...... 6,826.1 46.7 8,712.0 49.5 10,862.7 49.2 11,696.2 45.5 Central Government...... 3,789.2 25.9 4,369.7 24.8 4,996.8 22.6 5,489.8 21.4 State Owned Enterprise.. 3,036.9 20.8 4,342.3 24.7 5,865.9 26.6 6,206.4 24.2

Total Public Debt ...... 14,633.7 100 17,600.6 100 22,085.4 100 25,703.3 100

The following table sets out certain data in respect of Ethiopia’s external trade as a percentage of GDP for the ﬁscal years indicated:

2010/11 2011/12 2012/13 2013/14

4 The Offering

Issuer ...... The Federal Democratic Republic of Ethiopia. Notes Being Issued ...... 6.625 per cent. Notes due 2024 in the aggregate principal amount of US$1,000,000,000. Issue Price of Notes ...... 100 per cent. of the principal amount of the Notes. Issue Date...... 11 December 2014. Maturity and Redemption...... The Notes will mature on 11 December 2024 and will be redeemed at par on that date. The Notes are not redeemable prior to maturity. Interest...... The Notes will bear interest from and including 11 December 2014 to but excluding 11 December 2024 at the rate of 6.625 per cent. per annum, payable semi-annually in arrear on 11 June and 11 December in each year, commencing on 11 June 2015. Status...... The Notes constitute direct, general, unconditional and (subject to a negative pledge, described below) unsecured obligations of the Issuer and the full faith and credit of the Issuer is pledged for the due and punctual payment of principal and interest on the Notes and for the performance of all obligations of the Issuer in respect of the Notes. The Notes will at all times rank pari passu without preference among themselves and at least pari passu in right of payment with all other unsecured External Indebtedness (as defined in the Conditions) of the Issuer from time to time outstanding; provided, however, that the Issuer shall have no obligation to effect equal or rateable payment(s) at any time with respect to any other External Indebtedness and, in particular, shall have no obligation to pay other External Indebtedness at the same time or as a condition of paying sums due on the Notes or vice versa. Negative Pledge ...... So long as any Note remains outstanding, the Issuer has undertaken that it will not (save for the specific exceptions provided in the Conditions) create, incur, assume or permit to subsist any Security (as defined in the Conditions) upon the whole or any part of its present or future assets or revenues to secure (i) any of its Public External Indebtedness, (ii) any guarantees in respect of Public External Indebtedness or (iii) the Public External Indebtedness of any other person, without, at the same time or prior thereto, securing the Notes equally and rateably therewith or providing such other arrangement as shall be approved by an Extraordinary Resolution. Events of Default...... Condition 10 provides that holders of the Notes who hold at least 25 per cent. in aggregate principal amount of the relevant Notes then outstanding may declare such Notes to be immediately due and payable at their principal amount together with accrued interest if any one or more of the events described in that Condition occurs. A declaration of acceleration may be rescinded in certain circumstances by the resolution in writing of the holders of at least 50 per cent. in aggregate principal amount of the outstanding Notes in accordance with the procedures in Condition 10. Noteholder Meetings...... A summary of the provisions for convening meetings of holders of the Notes to consider matters relating to their interests is set out in Condition 13. The Conditions contain a ‘‘collective action’’ clause which permits defined majorities to bind all Noteholders.

5 If the Issuer issues future debt securities which contain collective action clauses in the same form as the collective action clause in the Conditions, the Notes would be capable of aggregation with any such future debt securities. Withholding Tax...... All payments by the Issuer under the Notes are to be made without withholding or deduction for or on account of Taxes (as deﬁned in Condition 8) unless the withholding or deduction for Taxes is required by law. In such circumstances, the Issuer may be required to pay additional amounts so that Noteholders will receive the full amount which otherwise would have been due and payable under the Notes, all as more particularly described in Condition 8. Listing...... Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Ofﬁcial List and trading on the Main Securities Market. Form and Denomination ...... The Notes will be in registered form and will be offered and sold in minimum denominations of US$200,000 or any amount in excess thereof which is an integral multiple of US$1,000. Settlement ...... The Notes will initially be represented by Global Notes. One or more Restricted Global Notes will be issued in respect of Notes offered and sold in reliance on Rule 144A. The Unrestricted Global Note will be issued in respect of the Notes offered and sold in reliance on Regulation S. Transfer Restrictions ...... The Notes have not been registered under the Securities Act and are subject to certain restrictions on transfers. See ‘‘Transfer Restrictions’’ and ‘‘Subscription and Sale’’. Use of Proceeds...... The net proceeds of the issue of the Notes are expected to be approximately US$999,200,000, after deduction of commissions and estimated other expenses. The Issuer expects to use the net proceeds of the issue of the Notes to fund planned Government capital expenditure in priority areas, including industrial zone development and the development of the sugar and energy industries, including projects in which the Issuer is investing together with development partners. The balance of any remaining proceeds will be used for general budgetary purposes. Fiscal Agent...... Deutsche Bank AG, London Branch. Registrars...... Deutsche Bank Luxembourg S.A. (in respect of the Unrestricted Notes) and Deutsche Bank Trust Company Americas (in respect of the Restricted Notes). Rule 144A CUSIP/ISIN/Common Code...... 29766LAA4/US29766LAA44/115289535 Regulation S ISIN/Common Code...... XS1151974877/115197487 Further Issues ...... The Issuer may from time to time, without notice to or the consent of the holders of the Notes, issue additional securities that will form a single series with such Notes, subject to certain conditions set out in Condition 15. Governing Law ...... The Agency Agreement, the Deed of Covenant and the Notes (including any non-contractual obligations arising from or in connection with any of them) are governed by, and will be construed in accordance with, English law. Jurisdiction ...... The Issuer has submitted to the jurisdiction of the courts of England in respect of any disputes that may arise out of or in connection with the Notes and accordingly any legal action or proceedings arising out of or in connection with any Notes may be brought in the courts of England.

6 The Issuer has waived any immunity from the jurisdiction (including sovereign immunity) of such courts, in connection with any action arising out of or based upon the Notes brought by any holder of Notes, subject as provided in Condition 16(d). Risk Factors ...... Any one or more of the risk factors described in this Prospectus could affect Ethiopia’s economy, its ability to fulfil its obligations under the Notes and an investor’s investment in the Notes. Risks Relating to the Federal * Investing in securities involving emerging markets such as Democratic Republic of Ethiopia..... Ethiopia generally involves a higher degree of risk than more developed markets * Ethiopia is both an importer and an exporter of commodities and, as such, is exposed to fluctuations in global commodity prices * Ethiopia’s foreign trade is heavily reliant upon access to the Djibouti port and the transport infrastructure which connects Ethiopia to Djibouti * Ethiopia’s economy and food security is largely dependent on its domestic agriculture sector, which is subject to weather- related risks * Failure or inability to implement economic reforms and development projects, particularly with respect to physical and financial infrastructure, may have a negative effect on the growth of Ethiopia’s economy and the intended outcomes of reforms may not be achieved even if the reforms are properly implemented * Lack of effective and dependable energy supply may hinder GDP growth and/or the development of the economy * A global economic downturn, instability in international financial markets or other negative external economic shocks could have an adverse effect on Ethiopia’s economy * Ethiopia exports certain products to and imports certain commodities from Sudan, which is subject to a comprehensive U.S. sanctions programme administered by OFAC * Failure to manage a steadily depreciating exchange rate may adversely affect Ethiopia’s economy and balance of payments * High inflation could have a material adverse effect on Ethiopia’s economy * Certain segments of Ethiopia’s economy are not recorded and a failure by the Government to broaden the tax base may have a negative impact on economic growth * Regional political and/or military instability may have a material adverse effect on Ethiopia’s economy * The forthcoming general elections may result in political instability or changes in policies * Health risks could adversely affect Ethiopia’s economy * The statistical information published by Ethiopia may differ from that produced by other sources and may be unreliable * Ethiopia’s mining and energy sectors may create environmental hazards * Ethiopia’s banking sector is highly concentrated * Any future borrowing beyond sustainable levels could have a material adverse effect on Ethiopia’s economy and its ability to service its debt, including the Notes

7 * There are high levels of poverty within Ethiopia, which are only addressed in part by foreign aid and concessionary lending and could hinder economic growth Risks Relating to the Notes ...... * An investment in the Notes may not be suitable for all investors * Events in other emerging markets, including those in other African countries, may negatively affect the Notes * The credit ratings of the Notes are subject to revision or withdrawal, either of which could adversely affect the trading price of the Notes * Legal investment considerations may restrict certain investments * The liquidity of the Notes may be limited and trading prices may fluctuate * Fluctuations in exchange rates and interest rates may adversely affect the value of the Notes * Definitive Notes not denominated in an integral multiple of US$200,000 or its equivalent may be illiquid and difficult to trade * Ethiopia is a sovereign state and accordingly it may be difficult to obtain or enforce judgments against it * Payments made in certain EU Member States may be subject to withholding tax under the EU Savings Directive * The Issuer may issue additional Notes that are intended to be fungible with the original Notes, but which may in some cases be treated as a separate series for US federal income tax purposes, which may in turn affect the market value of the original Notes * The Notes contain a ‘‘collective action’’ clause under which the terms of the Notes may be amended, modified or waived without the consent of all the holders of the Notes * The Issuer is not required to effect equal or rateable payment(s) with respect to the Notes or any other External Indebtedness, and is not required to pay other External Indebtedness at the same time or as a condition of paying sums on the Notes and vice versa

8 RISK FACTORS

An investment in the Notes involves a high degree of risk. You should carefully consider the risks described below as well as the other information contained in this Prospectus before investing in the Notes. Any of the following risks could materially adversely affect Ethiopia’s economy and an investor’s investment in the Notes. The risks described below are not the only risks that Ethiopia faces. Additional risks and uncertainties not currently known to Ethiopia or that Ethiopia currently considers immaterial may also materially affect Ethiopia’s economy and its ability to perform its obligations under the Notes. In any such case, an investor may lose all or part of its investment in the Notes.

Risks Relating to the Federal Democratic Republic of Ethiopia Investing in securities involving emerging markets such as Ethiopia generally involves a higher degree of risk than more developed markets Investing in the securities of issuers in emerging markets, such as Ethiopia, generally involves a higher degree of risk than investments in the securities of corporate or sovereign issuers from more developed countries and carries risks that are not typically associated with investing in more mature markets. These risks include, but are not limited to, higher volatility and more limited liquidity in respect of the Notes, political risk, instability in neighbouring countries, a relatively narrow export base, reliance on concessionary funding and budget deficits, lack of adequate infrastructure necessary to accelerate economic growth and changes in the political and economic environment, any of which may adversely impact Ethiopia’s economy and its ability to meet its obligations under the Notes. Although significant progress has been made in developing Ethiopia’s economy and its political and judicial systems, the country is still in the process of developing the necessary infrastructure, regulatory and judicial framework that is essential to support market institutions and broad-based economic and social reforms. Investors should also note that emerging markets, such as Ethiopia, are subject to rapid change and that the information set out in this Prospectus may become outdated relatively quickly. Any such heightened risks, underdeveloped infrastructure or unimplemented reforms may adversely impact Ethiopia’s economy, which may, in turn, have a material adverse effect on Ethiopia’s ability to make payments under the Notes. Emerging markets can also experience more instances of corruption by government officials and misuse of public funds than is the case in more mature markets. In 2013, Transparency International ranked Ethiopia 111 out of 177 countries with a score of 33 out of 100, where 100 means ‘very clean’ and 0 means ‘highly corrupt’. The Government has introduced various initiatives to prevent and prosecute instances of corruption. See ‘‘Public Finance – Governance’’. However, failure to adequately implement such initiatives or if such initiatives were to prove ineffective, may significantly hinder efforts to reduce corruption, which could in turn affect the growth of Ethiopia’s economy and thus its ability to perform its obligations under the Notes.

Ethiopia is both an importer and an exporter of commodities and, as such, is exposed to ﬂuctuations in global commodity prices Petroleum products are one of Ethiopia’s primary imports and demand for petroleum products is increasing as the economy continues to grow. In 2012/13 Ethiopia imported 2.2 million tonnes of petroleum products, of which approximately 54.0 per cent. was diesel, approximately 10.0 per cent. was gasoline and approximately 36.0 per cent. was jet fuel. The amount of such petroleum products imported in 2012/3 was 3.4 per cent. higher compared to 2011/12, in which year the volume of petroleum products imported increased by 12.6 per cent. compared to 2010/11. See ‘‘Foreign Trade and Balance of Payments – Imports and Exports – Imports’’. The development of Ethiopia’s economy is in part dependent on, and such development will increase the demand for, imported petroleum products. As a result, Ethiopia remains exposed to the risk that the international price of petroleum product imports may increase. Ethiopia’s largest export commodities are coffee, gold and oilseeds, which accounted for 21.9 per cent., 20.0 per cent. and 14.0 per cent., respectively, of export receipts in 2013/14. In particular, the international price of coffee and gold has historically been volatile, affecting Ethiopia’s export income from such commodities. For example, in 2012/13 export receipts attributed to coffee decreased by 10.6 per cent. as compared to the previous year, despite a 17.3 per cent. increase in volumes exported, as a result of a 23.8 per cent. decline in the international price of coffee. Similarly, export receipts attributed to gold amounted to US$456.2 million in 2013/14, which was a 21.9 per cent. reduction from US$578.6 million in 2012/13 despite a 0.37 per cent. increase in the volume of gold exported in the same period, due to a 21.5 per cent. decrease in the unit price. Gold accounted for

9 14.0 per cent. of total exports value in 2013/14, 18.9 per cent. in 2012/13 and 19.1 per cent. in 2011/ 12. Such commodity prices may continue to be volatile, leading to unpredictable and potentially reduced export income. Nevertheless, Ethiopia’s export performance during the past decade has remained strong with an average annual export growth of 21.2 per cent. between 2004 and 2013. The Government has taken and continues to take significant measures in order to diversify the economy and the range of its exports. A more diverse export base would better manage Ethiopia’s exposure to key commodity price fluctuations, as well as increase the value of exports overall. However, a failure to further diversify the country’s export base and/or increase exports, or the occurrence of significant fluctuations in the prices of key import and export products, could result in increasing trade deficits and lower GDP growth which may, in turn, result in a material adverse effect on Ethiopia’s ability to perform its obligations under the Notes.

Ethiopia’s foreign trade is heavily reliant upon access to the Djibouti port and the transport infrastructure which connects Ethiopia to Djibouti Approximately 90.0 per cent. of Ethiopia’s imports and exports currently transit through the Djibouti port, which is Ethiopia’s principal way of accessing the shipping routes in the Red Sea and the Gulf of Aden. Imported goods and commodities for export are primarily transported to and from the Djibouti port via trucks using the Ethiopia-Djibouti highways, as well as the lesser-used Djibouti- Ethiopia railway, which is being replaced by the new Addis Ababa-Djibouti railway (which is currently under construction). The completed Addis Ababa-Djibouti railway will halve the current time taken to transport goods between Addis Ababa and the Djibouti port using the roads and the current railway. See ‘‘The Economy – Infrastructure – Transport – Rail Transport’’. Ethiopia and Djibouti maintain good diplomatic relations and both countries benefit economically from Ethiopia conducting the majority of its foreign trade through Djibouti. In addition, both countries expect that the development of transport infrastructure linking Addis Ababa with Djibouti, as well as the on-going development of energy infrastructure in Ethiopia, will enable Ethiopia to increase its exports of electricity to neighbouring Djibouti and will increase trade between and economically benefit both countries. Ethiopia does not anticipate any disruption to its access to the Djibouti port as a result of unilateral action on Djibouti’s part or any political or diplomatic discord between the two countries, nor does it expect a reduction in trading activity with Djibouti for any other reason. Recent and projected economic growth has made it necessary to increase the number of ports though which Ethiopia trades, and as such the new Djibouti port being constructed at Tajoura and the Berbera port in Somaliland may be used in the future, and trade through the Port of Sudan and the Mombasa port in Kenya is also expected to increase. However, there can be no certainty that such alternate trade routes or the necessary infrastructure will be completed within the envisaged timeframe, or at all, or will be cost effective. Even if such alternate trade routes are developed, a substantial portion of Ethiopia’s trade will still transit through Djibouti and as such, there remains a risk that the Addis Ababa-Djibouti railway project and/or road network projects providing transport routes to Djibouti may not be completed on time or at all. There is also a risk that Ethiopia might otherwise encounter difficulties in transporting its export and import commodities to and from the Djibouti port, if, for example, the railway or road is blocked as a result of natural or other causes or if the railway or road was temporarily or permanently closed. If such difficulties in transporting imports and exports to and from Djibouti were to arise, or access to the Djibouti port was otherwise hampered, Ethiopia’s foreign trade and economy would be materially adversely affected, which could, in turn, have a material adverse effect on Ethiopia’s ability to perform its obligations under the Notes.

Ethiopia’s economy and food security are largely dependent on its domestic agriculture sector, which is subject to weather-related risks The Ethiopian economy remains concentrated in agriculture and its current slow pace of diversiﬁcation, although improved in recent years, has resulted in an over-reliance on the agriculture sector for economic growth and export income. Two decades ago, Ethiopia’s agriculture sector accounted for approximately 60.0 per cent. of GDP, which has reduced to 40.2 per cent. of GDP in 2013/14. The agriculture sector also accounted for approximately 74.1 per cent. of exports by value for 2013/14. Agriculture in Ethiopia is dominated by subsistence food crops and Ethiopia produces a diverse range of crops including cereals, pulses and oilseeds, which amounted to 11.1 million tonnes or 68.4 per

10 cent. of total agricultural output in 2013/14. In 2013/14 export receipts attributable to agriculture accounted for approximately 68.3 per cent. of total export receipts, of which approximately 60.3 per cent. of total export receipts were attributed to crop based commodities. The other agricultural based commodities (including livestock and animal products such as meat, meat products and live animals) amounted to approximately 8.0 per cent. of total export receipts in the same year. Coffee also remains an important export commodity, accounting for approximately 21.9 per cent. of export receipts in 2013/14. See ‘‘– Ethiopia is both an importer and an exporter of commodities and, as such, is exposed to fluctuations in global commodity prices’’. Although the agriculture sector is important as a source of export income, approximately 90.0 per cent. of Ethiopia’s agricultural output is consumed domestically and the majority of output comes from smallhold farmers. More than 90.0 per cent. of the livestock reared in Ethiopia are either reared for draught-power or for consumption domestically. A reduction in the productivity of the agricultural sector due to adverse weather conditions, such as below-expected rainfall or floods, could lead to a reduction in export volumes and/or potentially contribute to shortages of, or an increase in the price of, agricultural products consumed domestically. In addition, the frequency and/or severity of adverse weather conditions are unpredictable and there is a risk that Ethiopia’s climate may be affected over the medium-term by climate change. Irrigation is one of the primary means of mitigating the effect of low rainfall on the agriculture sector and the Government has been implementing and continues to implement programmes to increase the percentage of land that is irrigated. See ‘‘The Economy – Infrastructure – Access to Water Supply’’. In addition, the topographical profile of Ethiopia means that the country has a variety of climatic conditions, which are appropriate for different agricultural activities and which rely on water and irrigation to varying degrees and are therefore affected to differing degrees by adverse weather conditions. There remains, however, the risk that severe adverse weather conditions may negatively affect the productivity of the agricultural sector overall, that irrigation is not as effective in mitigating weather-risk as is anticipated and, as a result, domestic demand may exceed supply. In addition, a failure to further diversify Ethiopia’s economy and exports may adversely affect Ethiopia’s export income and could result in trade deficits and lower economic growth, which may, in turn, have a material adverse effect on Ethiopia’s ability to perform its obligations under the Notes.

Failure or inability to implement economic reforms and development projects, particularly with respect to physical and financial infrastructure, may have a negative effect on the growth of Ethiopia’s economy and the intended outcomes of reforms may not be achieved even if the reforms are properly implemented The Government has made significant progress implementing reforms under GTP I (as defined in ‘‘The Federal Democratic Republic of Ethiopia – Growth and Transformation Plans’’) and such reforms have been largely successful and have contributed to economic growth during the last four years. See ‘‘The Federal Democratic Republic of Ethiopia – Growth and Transformation Plans’’. The Government is also committed to a further two GTPs which will be implemented through 2025 and will identify development objectives for their respective periods. However, no assurance can be given that such initiatives will be adequately funded, achieve or maintain the necessary long-term political support, be fully implemented or prove successful in achieving their objectives. Continued pursuit of the medium- and long-term objectives identified in the GTPs will depend on a number of factors, including continued political and popular support at many levels of Ethiopian society and across multiple Government administrations, adequate funding, significant coordination and effective implementation. In particular, Ethiopia faces significant challenges in specific areas of physical infrastructure, such as transport (see ‘‘The Economy – Infrastructure’’), health, education, access to clean water (see ‘‘The Federal Democratic Republic of Ethiopia – Millennium Development Goals’’), production and distribution of sustainable energy (see ‘‘The Economy – Energy’’) and the development of industrial zones and business parks to accommodate the desired growth in the manufacturing and industry sectors (see ‘‘The Economy – Industry’’), and in the financial infrastructure needed to satisfy the borrowing requirements of domestic companies. The Government has undertaken development initiatives in respect of each of these areas where the physical infrastructure requires investment through a combination of fully Government-funded programmes, projects with development partners and private capital investments. However, the significant funding requirements for these initiatives may prove difficult or impossible to achieve and may lead to an increase in Ethiopia’s outstanding external debt. Ethiopia currently has relatively low levels of foreign direct investment and if significant additional foreign direct investment cannot be attracted to Ethiopia, there is a risk that the economy may not continue to grow at its current rate or may even contract and that achievement of its economic growth targets may not be achieved. If its fiscal resources prove inadequate, Ethiopia may

11 not be able adequately to pursue all of the public sector capital projects set forth in the GTPs and other long-term fiscal or economic reforms. In addition, development of the domestic financial infrastructure, such as an increased banking sector and an active local securities market, will take time to achieve. Further, the economic and other assumptions underlying the objectives set forth in the Government’s development plans, including with respect to GDP growth, inflation, external debt and the fiscal deficit, may not be accurate, which would undermine Ethiopia’s ability to achieve its stated economic development objectives. There is also a risk that economic management may become too centralised and that, as has happened with many centrally-managed economies, the intended outcomes of reforms may not be realised, promoted industries may not be viable and anticipated demand does not materialise and as a result, the internal market has become distorted and resources misallocated. If the Government is not able to realise its medium-term development objectives, maintain its current prevailing economic growth and development rates and/or its development plans are not realised or successful, it may not be able to meet the long-term strategic development objectives set forth in the GTPs and this may, in turn, have a material adverse effect on Ethiopia’s ability to perform its obligations under the Notes.

Lack of effective and dependable energy supply may hinder GDP growth and/or the development of the economy Although Ethiopia has extensive renewable energy resources, its energy sector is currently underdeveloped with insufficient production and distribution capacity. Approximately 53.5 per cent. of Ethiopia’s population had access to electricity in 2012/13, but such electricity supply can be intermittent. Ethiopia also exports electricity to neighbouring countries and plans to increase transmission capacity for export to East Africa but domestic demand for electricity and demand from neighbouring countries is expected to increase, placing strains upon both generation and distribution capacity. The Government has identified the improvement of the country’s electricity generation, transmission and distribution infrastructure as a critical element in meeting economic growth and development objectives and has implemented legislative, regulatory and tax reforms to encourage foreign and domestic investment and development of the energy sector. In addition, a number of large-scale projects such as the Grand Ethiopian Renaissance Dam (‘‘GERD’’), a hydroelectric power plant with a projected capacity of 6,000 MW and 15,692 GWh annual energy output, a 1,000 MW geothermal power plant in the Corbetti Caldera area, as well as a number of additional hydro-electric, geothermal and wind projects are at various stages of development and construction. See ‘‘The Economy – Energy’’. In order to meet its targets for developing and improving power generation and supply across the country and for export, the Government will require significant investment and funding, as well as coordination and investment in education and training programmes across several of its sectors. No assurance can be given that Ethiopia will be able to obtain the necessary funding or resources to achieve these targets or to achieve its targets within budget. Failure to adequately address the significant deficiencies in Ethiopia’s power generation, transmission and distribution infrastructure could lead to lower GDP growth, hampering the development of the economy and Ethiopia’s ability to meet its debt obligations, including those under the Notes.

A global economic downturn, instability in international financial markets or other negative external economic shocks could have an adverse effect on Ethiopia’s economy The Ethiopian economy is vulnerable to external shocks, such as those which have previously been caused, and may in the future be caused, by global financial market instability or contractions and/or material adverse movements in commodity prices. See ‘‘– Ethiopia is both an importer and an exporter of commodities and, as such, is exposed to fluctuations in global commodity prices’’. If a negative external shock were to occur, particularly on a global level or to one or more of Ethiopia’s primary export markets, demand for Ethiopian products could decrease, which would in turn put pressure on Ethiopia’s balance of payments and foreign currency reserves. Further, foreign governments and donor countries or organisations could face constrained financial conditions themselves which could lead to a reduction in the overall amount of aid that they would be willing or able to provide to Ethiopia. In addition, remittances from members of Ethiopia’s diaspora may also decline. The occurrence of any of these events as a result of a negative external shock such as a global economic downturn or financial instability, could have a material adverse impact on Ethiopia’s economy, which

12 may, in turn, have a material adverse effect on Ethiopia’s ability to perform its obligations under the Notes.

Ethiopia exports certain products to and imports certain commodities from Sudan, which is subject to a comprehensive U.S. sanctions programme administered by OFAC Ethiopia imported approximately 160 metric tonnes of gasoline from the Republic of Sudan (‘‘Sudan’’) in 2013/14 which is equivalent to 7.5 per cent. of total imports of petroleum products and anticipates continued imports in future periods. Ethiopia also exported 100 megawatts of electricity in 2013/14 to Sudan, which is expected to increase to 150 megawatts in the medium-term as Ethiopia expands its electricity generation and transmission and distribution capacity. Ethiopia believes that these exports and imports do not violate existing U.S. or other sanctions. If such transactions were engaged in by U.S. persons (as such term is defined in Title 31 §538.315 of the Code of Federal Regulations) and/or transacted in U.S. dollars, such transactions could potentially fall under such U.S. sanctions. The application of the relevant regulations by OFAC, in particular in circumstances in respect of sovereigns, is to a degree situational and discretionary, and likely to be related to U.S. foreign policy considerations. Ethiopia has maintained a strong and longstanding partnership with the United States. The existence of the sanctions regime, however, leaves open the possibility of interpretations or actions that could adversely affect Ethiopia’s trade flows with Sudan and/or Ethiopia’s ability to attract third party financing. If this occurred, it could adversely affect Ethiopia’s access to external financing and/or Ethiopia’s trade flows with Sudan. The resulting potential adverse effects on Ethiopia’s economy and, in particular, its ability to access external financing, if they occurred, could have a material adverse effect on Ethiopia’s ability to perform its obligations under the Notes.

Failure to manage a steadily depreciating exchange rate may adversely affect Ethiopia’s economy and balance of payments In September 2010, the NBE devalued the birr by 20.0 per cent. in order to enhance Ethiopia’s international competitiveness. The NBE continues to closely manage the birr through periodic monitoring of exchange rate developments and participation in the interbank foreign exchange market although its ability to do so and, in particular, to manage the birr’s exchange rate in times of volatility or external downwards pressure is subject to Ethiopia having sufﬁcient international reserves. As Ethiopia’s international reserves have fallen substantially in terms of months’ import coverage, from 4.3 months in 2010/11 to 2.2 months in 2013/14, it may not be possible for the NBE to manage the exchange rate as effectively in the future as it has in the past. Failure to manage a steadily depreciating exchange rate may adversely affect Ethiopia’s economy and balance of payments and Ethiopia’s ability to perform its obligations under the Notes.

High inflation could have a material adverse effect on Ethiopia’s economy Historically, inflation in Ethiopia has fluctuated significantly from year to year. In particular, inflation exceeded 30.0 per cent. in 2008/09 and again in 2011/12 largely due to food price inflation and to some extent inflation which resulted from higher prices of Ethiopia’s key imports and the depreciation of the birr. The Government was able to arrest inflationary pressures through the use of effective fiscal and monetary policies. As a result, inflation has remained within single-digit levels during the last two years. Although recent monetary policy has helped to curb inflation, the year-on-year inflation rate may continue to fluctuate and a failure to effectively manage the birr depreciation may increase inflationary pressures. See ‘‘– Failure to manage a steadily depreciating exchange rate may adversely affect Ethiopia’s economy and balance of payments’’ and ‘‘Monetary and Banking System – Inflation’’.

Although the Government has committed in the GTPs to maintain a prudent monetary policy with the aim of sustaining single-digit inflation, Ethiopia is still exposed to the risk of high inflation as the impact on inflation of the price of imports as well as increases in domestic food and other prices which are beyond Ethiopia’s control. However, in the medium- to long-term, the Government believes food price related-inflation will be significantly reduced due to anticipated increases in agricultural productivity. Changes in monetary and/or fiscal policy may also result in higher rates of inflation. There can therefore be no assurance that the inflation rate will not rise in the future. Significant inflation could have a material adverse effect on Ethiopia’s economy and Ethiopia’s ability to meet its debt obligations, including those under the Notes.

13 Certain segments of Ethiopia’s economy are not recorded and a failure by the Government to broaden the tax base may have a negative impact on economic growth Part of the Ethiopian economy relating to the small enterprise sector in urban areas is comprised of the informal sector which is engaged primarily in some services and handicraft production activities. The informal economy is not fully recorded and is only partially taxed, resulting in lower revenue for the Government as well as ineffective regulation, unreliable statistical information (including the possible understatement of GDP and the misidentiﬁcation of the relative contribution to GDP of various sectors) and an inability to monitor or otherwise regulate this portion of the economy. While the Government is implementing reforms to address these issues and is receiving technical assistance from multilateral and bilateral partners as to how to broaden the tax base as well as with respect to tax assessment and collection, a failure to formalise these sectors of the economy and implement more efﬁcient and comprehensive tax collection systems may adversely affect the Government’s revenues and thus limit the funds available to support the GTPs, which in turn may have a material adverse effect on GDP growth rates. See ‘‘Public Finance’’.

Regional political and/or military instability may have a material adverse effect on Ethiopia’s economy Ethiopia has good relations with all of its neighbours, with the exception of Eritrea, and has provided and continues to provide peacekeeping forces to a number of them, including Somalia, Sudan and South Sudan. Ethiopia is also an active participant in the United Nations (the ‘‘UN’’) and the African Union and has contributed to the creation of a cooperative framework among countries in the region on issues of common concern, including peace initiatives and conﬂict early warning systems. Ethiopia is committed to maintaining good diplomatic and trade relationships with its neighbours.

While Ethiopia does not foresee any political or diplomatic discord arising with any of its neighbours, or any negative developments in the current stalemate with Eritrea over disputed border regions, if such discord or escalation were to arise, particularly any requiring military involvement, it would have a negative impact on Ethiopia’s external trade, the allocation of ﬁscal resources and the economy overall. In addition, if any of Ethiopia’s neighbours experience domestic instability (see ‘‘The Federal Democratic Republic of Ethiopia – Foreign Relations’’), an increase in current tensions or increased activity by rebel or terrorist factions, there is a risk of cross-border contagion into Ethiopia and/or Ethiopia being requested to provide military support in the form of peacekeeping troops, either of which could have a material adverse effect on Ethiopia’s economy which may, in turn, have an adverse effect on Ethiopia’s ability to perform its obligations under the Notes.

The forthcoming general elections may result in political instability or changes in policies Since the overthrow of the communist regime of Mengistu Haile Mariam in May 1991, Ethiopia has held regular elections in all of which one political party, the Ethiopian Peoples’ Revolutionary Democratic Front (‘‘EPRDF’’), has been dominant. Following a formal invitation from the Government and the National Electoral Board of Ethiopia, an EU election observation mission observed the 2010 parliamentary elections in which the ruling party, the EPRDF, received over 90.0 per cent. of the votes. While these elections were generally considered by the EU observers to be largely peaceful, orderly and well-administrated, the observers noted that the process did not meet international standards, particularly regarding the transparency of the process and inequality of treatment of parties. The next general election is due to take place in May 2015 and while the Government expects these elections to be peaceful, there is a risk that political tensions and unrest in the country may occur, similarly to that which was observed after the 2010 election.

Whatever the outcome of the election, the next administration may pursue policies and have priorities which differ from those of the current administration and may alter or reverse certain reforms or take actions that make domestic and foreign investment in Ethiopia less attractive. Failure to address allegations of fraud or other irregularities in connection with the general election may undermine the legitimacy of the new administration or lead to protests, violence or other instances of civil unrest. Any significant changes in the political climate in Ethiopia, including changes affecting the stability of the Government or involving a rejection, reversal or significant modification of the present Government’s policies, may have negative effects on the economy, Government revenues and foreign exchange reserves and, as a result, a material adverse effect on Ethiopia’s ability to perform its obligations under the Notes.

14 Health risks could adversely affect Ethiopia’s economy HIV/AIDS, tuberculosis (which is exacerbated in the presence of HIV/AIDS), malaria and typhoid are major healthcare challenges in Ethiopia and other Sub-Saharan African countries. According to the most recent Ethiopia Demographic and Health Survey (‘‘EDHS’’), in 2011 Ethiopia had an HIV/AIDS prevalence rate of approximately 1.5 per cent. among its adult population, although this rate has been falling in past years due to measures the country has been taking. In addition, Ebola has become an increasing problem in Africa with an increasing number of cases discovered mainly in West Africa. No assurance can be given that the prevalence rate of HIV/AIDS, malaria, typhoid or other diseases in Ethiopia will not have a material adverse effect on its economy and therefore on Ethiopia’s ability to meet its debt obligations, including those under the Notes.

The statistical information published by Ethiopia may differ from that produced by other sources and may be unreliable The main source of statistical information in Ethiopia is the Central Statistical Agency (‘‘CSA’’) which is the principal collector, aggregator and disseminator of official statistics, and the coordinator of the national statistical system. In addition, the NBE, MoFED, National Planning Commission, Ministry of Industry and Ministry of Trade all produce statistics relating to Ethiopia and its economy. Although collaborative efforts are being taken by the relevant ministries in order to produce accurate and consistent social and economic data, there may be inconsistencies in the compilation of data and methodologies by these ministries. In addition, in common with many developing economies, given the relative size of the informal economy in Ethiopia, there may be material omissions from or misstatements in the statistical data published by such ministries. As a result, there can be no assurance that these statistics are as accurate or as reliable as those published by more developed countries. Some of the statistical data in this Prospectus for 2012/13 and 2013/14 may be indicated as being estimated or provisional and subject to revision. In particular, prospective investors should be aware that data relating to Ethiopia’s GDP and balance of payments are subject to some degree of uncertainty and that the information set forth in this Prospectus may become outdated relatively quickly. Although there have been significant efforts to improve the compilation of Ethiopia’s balance of payments data in recent years, errors and omissions in the balance of payments data persist and may complicate the assessment of such data. As noted by the IMF in its latest Article IV consultation report, Ethiopia’s national statistics still require improvement and, as a result, official figures on economic growth, savings and investment as well as some of the data regarding Ethiopia’s financial sector, are subject to a substantial degree of uncertainty.

Ethiopia’s mining and energy sectors may create environmental hazards Ethiopia’s mining sector has shown significant growth in recent years and is expected to continue to grow as the Government implements reforms to encourage local and foreign direct investment in the sector. While all active and proposed mining projects are required to produce environmental impact reports and are subject to a statutory approval process with regards to potential environmental impact, mining activities create and increase the risk of environmental hazards, in particular the silting of rivers due to erosion of soil waste and the build up of residue minerals in watercourses. In addition, the construction of dams for hydropower generation, in particular the GERD and Gibe dam, have the potential to alter the ecology of the respective rivers and surrounding areas both up- and down-stream, affecting river-flow, sediment distribution and wildlife habitation. Although extensive environmental impact studies have been carried out with respect to these projects and they are being managed in a manner designed to mitigate adverse environmental impacts, there remains a risk of adverse environmental impact being caused by the construction and operation of the dams. Although the Government has created legal and regulatory frameworks designed to ensure that the energy and mining sectors use good environmental practices, there can be no assurance that an incident causing significant environmental damage in Ethiopia or its neighbours will not occur and this could have an adverse effect on the planned growth of the energy and/or mining sectors and Ethiopia’s economy as a whole.

Ethiopia’s banking sector is highly concentrated Ethiopia’s banking system is highly concentrated. 19 banks currently operate within the country, 16 of which are privately owned and three of which are owned by the Government. In 2013/14 more than two-thirds of the total assets and 44.6 per cent. of the total capital of the banking sector (which

15 amounted to birr 26.5 billion), was attributable to the three state-owned banks of which 34.1 per cent. of total capital was attributable to the Commercial Bank of Ethiopia (‘‘CBE’’), 8.1 per cent. to the Development Bank of Ethiopia (‘‘DBE’’) and 2.4 per cent. to the Construction and Business Bank (‘‘CBB’’). See ‘‘Monetary and Financial System’’. The trend has been for the role and share of private banks to increase overtime, while the share of public banks has continued to decline. According to a World Bank study, the Ethiopian financial sector continues to have the potential to be a driver of growth. However, if either the CBE or the DBE were to experience liquidity difficulties, there could be severe adverse effects on Ethiopia’s financial system. As a result, these banks could require material state support resulting in materially adverse consequences for Ethiopia’s economy and/or fiscal stability, which may in turn adversely affect Ethiopia’s ability to perform its obligations under the Notes.

Any future borrowing beyond sustainable levels could have a material adverse effect on Ethiopia’s economy and its ability to service its debt, including the Notes Ethiopia’s total public debt as at the end of the 2013/14 ﬁscal year amounted to US$25.7 billion, comprising external debt of US$14.0 billion and domestic debt of US$11.7 billion. Of the US$14.0 billion external debt, US$8.4 billon or 60.1 per cent. was incurred by the Government and US$5.6 billion or 39.9 per cent. was incurred by State Owned Enterprises (‘‘SOE’’), of which US$2.9 billion or 52.5 per cent. was guaranteed by the Government. See ‘‘Public Debt’’. The Debt Sustainability Analysis published by the IMF in 2014 indicated that Ethiopia is on the border of low to moderate risk of debt distress and may increase its non-concessional borrowings without affecting debt sustainability. However, any signiﬁcant future non-concessional borrowings, including the further issuance of domestic debt or the issuance of external debt on the international capital markets, or pressure on the Government to support SOE borrowings could increase the risk of default on Ethiopia’s external debt and a failure to carefully manage its debt strategy could result in unsustainable debt levels which could materially adversely affect Ethiopia’s ability to perform its obligations under the Notes.

There are high levels of poverty within Ethiopia, which are only addressed in part by foreign aid and concessionary lending and could hinder economic growth Ethiopia is currently ranked 173 out of 187 countries in the UN Human Development Index, a composite measure of life expectancy, education and income. In addition, the World Bank categorised Ethiopia in 2011 as a ‘low income’ country, in which approximately 29.6 per cent. of the population lived at or below the poverty line. In 2012/13 the number of people living below the poverty line had decreased by 12.2 per cent. to 26.0 per cent. Ethiopia currently beneﬁts from foreign aid and access to concessionary lending, which is primarily used to fund the economic and social development programmes set out in the GTPs, as well as other infrastructure developments designed to support economic growth. Grants from foreign aid contributed birr 11.9 billion in 2013/14, which was 7.5 per cent. of Government revenue or the equivalent of 1.1 per cent. of GDP and approximately 70.0 per cent. of Ethiopia’s current external debt constitutes concessionary lending. While Ethiopia maintains good relationships with its foreign donors and concessionary lenders, they are not under any obligation to continue to make such resources available to Ethiopia and their contributions may decline or cease over time, however the Government believes this risk is mitigated by the low levels of donor support and concessionary lending it receives, which was, for example, only 1.1 per cent. of GDP in 2013/14. If the Government fails adequately to fund and successfully implement its development programmes and/or foreign donors and concessionary lenders are no longer able or willing to support Ethiopia, this would have an adverse effect on the country’s economic and social development programmes resulting in possible failure to reduce overall poverty levels and materially adversely affecting the growth of Ethiopia’s economy and Ethiopia’s ability to perform its obligations under the Notes.

Risks Relating to the Notes An investment in the Notes may not be suitable for all investors Generally, investment in emerging markets such as Ethiopia is only suitable for sophisticated investors who fully appreciate the significance of the risks involved in, and are familiar with, investing in emerging markets. Investors are urged to consult their own legal, tax and financial advisers before making an investment. Such risks include, but are not limited to, higher volatility and more limited liquidity in respect of the Notes, a fragile export base, budget deficits, lack of adequate infrastructure

16 necessary to accelerate economic growth and changes in the political and economic environment. Emerging markets can also experience more instances of corruption by government officials and misuse of public funds than do more mature markets, which could affect the ability of governments to meet their obligations under issued securities. Investors should also note that emerging markets such as Ethiopia are subject to rapid change and that the information set out in this Prospectus may become outdated relatively quickly. Each potential investor in the Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: * have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained in this Prospectus or any applicable supplement; * have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact which the Notes will have on its overall investment portfolio; * have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes, including where the currency for principal or interest payments is different from the potential investor’s currency; * understand thoroughly the terms of the Notes and be familiar with the behaviour of any relevant financial markets; and * be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.

Events in other emerging markets, including those in other African countries, may negatively affect the Notes Economic distress in any emerging market country may adversely affect prices of securities and the level of investment in other emerging market issuers as investors move their money to more stable, developed markets. Financial problems or an increase in the perceived risks associated with investing in emerging market economies could dampen foreign investment in Ethiopia, adversely affect the Ethiopian economy or adversely affect the trading price of the Notes. Even if the Ethiopian economy remains relatively stable, economic distress in other emerging market countries could adversely affect the trading price of the Notes and the availability of foreign funding sources for the Government. Adverse developments in other countries in sub-Saharan Africa, in particular, may have a negative impact on Ethiopia if investors perceive a risk that such developments will adversely affect Ethiopia or that similar adverse developments may occur in Ethiopia. Risks associated with sub-Saharan Africa include political uncertainty, civil unrest and conﬂict, corruption, the outbreak of diseases and poor infrastructure. Investors’ perceptions of certain risks may be compounded by incomplete, unreliable or unavailable economic and statistical data on Ethiopia, including elements of the information provided in this Prospectus. See ‘‘– Risks Relating to the Federal Democratic Republic of Ethiopia – The statistical information published by Ethiopia may differ from that produced by other sources and may be unreliable’’.

The credit ratings of the Notes are subject to revision or withdrawal, either of which could adversely affect the trading price of the Notes The Notes are expected to be rated B1 by Moody’s and B by S&P. The ratings may not reﬂect the potential impact of all risks related to the structure, market, additional factors discussed above and any other factors that may affect the value of the Notes. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organisation. Other than pursuant to Article 16 of the Prospectus Directive, Ethiopia has no obligation to inform Noteholders of any revision, downgrade or withdrawal of its current or future sovereign credit ratings. A suspension, downgrade or withdrawal at any time of a credit rating assigned to Ethiopia may adversely affect the trading price of the Notes. Both Moody’s and S&P are established in the EU and registered under the CRA Regulation. In general, European regulated investors are restricted under the CRA Regulation from using credit ratings for regulatory purposes, unless such ratings are issued under the CRA Regulation (and such registration has not been withdrawn or suspended). Such general restriction will also apply in the case of credit ratings issued by non-EU credit rating agencies, unless the relevant credit ratings are

17 endorsed by an EU-registered credit rating agency or the relevant non-EU rating agency is certiﬁed in accordance with the CRA Regulation (and such endorsement or certiﬁcation, as the case may be, has not been withdrawn or suspended).

Legal investment considerations may restrict certain investments The investment activities of certain investors are subject to legal investment laws and regulations, and/ or review or regulation by certain authorities. Each potential investor should consult its legal advisers to determine whether and to what extent the Notes are legal investments for it, the Notes can be used as collateral for various types of borrowing and other restrictions apply to its purchase or pledge of the Notes. Financial institutions should consult their legal advisors or the appropriate regulators to determine the appropriate treatment of the Notes under any applicable risk-based capital or similar rules.

The liquidity of the Notes may be limited and trading prices may ﬂuctuate The Notes have no established trading market. While application has been made to list the Notes on the Irish Stock Exchange and any one or more of the Joint Lead Managers may make a market in the Notes, they are not obligated to do so and may discontinue any market making, if commenced, at any time without notice. There can be no assurance that a secondary market will develop for the Notes or, if a secondary market therein does develop, that it will continue. If the Notes are traded after their initial issuance, they may trade at a discount to their initial offering prices, depending upon prevailing interest rates, the market for similar securities, general economic conditions and the ﬁnancial condition of Ethiopia.

Fluctuations in exchange rates and interest rates may adversely affect the value of the Notes The Issuer will pay principal and interest on the Notes in US dollars. This presents certain risks relating to currency conversions if an investor’s ﬁnancial activities are denominated principally in a currency or currency unit (the ‘‘Investor’s Currency’’) other than US dollars. These include the risk that exchange rates may signiﬁcantly change (including changes due to devaluation of the US dollar or revaluation of the Investor’s Currency) and the risk that authorities with jurisdiction over the Investor’s Currency may impose or modify exchange controls. An appreciation in the value of the Investor’s Currency relative to the US dollar would decrease the Investor’s Currency-equivalent yield on the Notes, the Investor’s Currency equivalent value of the principal payable on the Notes and the Investor’s Currency equivalent market value of the Notes. Government and monetary authorities (including where the investor is domiciled) may impose (as some have done in the past) exchange controls that could adversely affect an applicable exchange rate. As a result, investors may receive less interest or principal than expected, or no interest or principal. In addition, an investment in the Notes involves the risk that subsequent changes in market interest rates may adversely affect the value of the Notes.

Definitive Notes not denominated in an integral multiple of US$200,000 or its equivalent may be illiquid and difficult to trade The Notes have denominations consisting of a minimum of US$200,000 plus integral multiples of US$1,000 in excess thereof. It is possible that the Notes may be traded in amounts that are not integral multiples of US$200,000. Any holder who, as a result of trading such amounts, holds an amount which is less than US$200,000 in his account with the relevant clearing system at the relevant time may not receive a Certificate in respect of such holding (should Certificates be printed) and would need to purchase a principal amount of Notes such that its holding amounts to US$200,000. If Certificates are issued, holders should be aware that Certificates which have a denomination that is not an integral multiple of US$200,000 may be illiquid and more difficult to trade than Notes denominated in an integral multiple of US$200,000.

Ethiopia is a sovereign state and accordingly it may be difﬁcult to obtain or enforce judgments against it Ethiopia is a foreign sovereign state. Consequently, it may be difﬁcult for investors to obtain or realise upon judgments of courts in England or the United States or any other courts against the Issuer. The Issuer has irrevocably submitted to the jurisdiction of the courts of England and waived any immunity from the jurisdiction (including sovereign immunity) of such courts in connection with any action arising out of or based upon the Notes brought by any holder of Notes. See ‘‘Terms and Conditions of the Notes – Governing Law, Jurisdiction and Enforcement’’ and ‘‘Enforcement of Civil Liabilities’’.

18 Payments made in certain EU Member States may be subject to withholding tax under the EU Savings Directive Under EC Council Directive 2003/48/EC on the taxation of savings income (the ‘‘EU Savings Directive’’), EU Member States are required, from 1 July 2005, to provide to the tax authorities of another EU Member State details of payments of interest (or similar income) paid by a person established within its jurisdiction to (or for the benefit of) an individual resident, or certain types of entity established, in that other EU Member State. However, for a transitional period, Luxembourg and Austria will (unless during that period they elect otherwise) instead operate a withholding system in relation to such payments. The current rate of withholding under the Directive is 35.0 per cent. The transitional period is to terminate at the end of the first full fiscal year following agreement by certain non-EU countries to exchange information procedures relating to interest and other similar income. The Luxembourg government has announced its intention to elect out of the withholding system in favour of automatic exchange of information with effect from 1 January 2015. The Council of the EU has adopted a Directive (the ‘‘Amending Directive’’) which will, when implemented, amend and broaden the scope of the requirements of the EU Savings Directive described above. The Amending Directive will expand the range of payments covered by the EU Savings Directive, in particular to include additional types of income payable on securities, and the circumstances in which payments must be reported or paid subject to withholding. For example, payments made to (or for the benefit of) (i) an entity or legal arrangement effectively managed in an EU Member State that is not subject to effective taxation, or (ii) a person, entity or legal arrangement established or effectively managed outside of the EU (and outside any third country or territory that has adopted similar measures to the EU Savings Directive) which indirectly benefits an individual resident in an EU Member State, may fall within the scope of the Savings Directive, as amended. The Amending Directive requires EU Member States to adopt national legislation necessary to comply with it by 1 January 2016, which legislation must apply from 1 January 2017. A number of non-EU countries and certain dependent or associated territories of certain EU Member States have adopted similar measures to the EU Savings Directive. If a payment were to be made or collected through an EU Member State which has opted for a withholding system and an amount of, or in respect of, tax were to be withheld from that payment pursuant to the EU Savings Directive or any other Directive implementing the conclusions of the ECOFIN Council meeting of 26/27 November 2000 on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to such Directive, neither the Issuer nor any paying agent nor any other person would be obliged to pay additional amounts with respect to any Note as a result of the imposition of such withholding tax. Furthermore, once the Amending Directive is implemented and takes effect in EU Member States, such withholding may occur in a wider range of circumstances than at present, as explained above. The Issuer is, however, required to maintain a paying agent in an EU Member State, if any, that will not be obliged to withhold or deduct tax pursuant to the EU Savings Directive. Noteholders should consult their own tax advisers regarding the implications of the EU Savings Directive in their particular circumstances.

The Issuer may issue additional Notes that are intended to be fungible with the original Notes, but which may in some cases be treated as a separate series for US federal income tax purposes, which may in turn affect the market value of the original Notes The Issuer may, without notice to or the consent of the Noteholders, create and issue further Notes having the same terms and conditions as the Notes in all respects (or in all respects apart from the ﬁrst payment of interest) (see Condition 15 for further details). These further Notes, even if they are treated for non-tax purposes as part of the same series as the original Notes, may in some cases be treated as a separate series for U.S. federal income tax purposes. In such a case, the further Notes may be considered to have been issued with original issue discount for US federal income tax purposes (‘‘OID’’) even if the original Notes had no OID. These differences may affect the market value of the original Notes if the further Notes are not otherwise distinguishable from the original Notes.

The Notes contain a ‘‘collective action’’ clause under which the terms of the Notes may be amended, modified or waived without the consent of all the holders of the Notes The Conditions contain provisions regarding amendments, modifications and waivers, commonly referred to as ‘‘collective action’’ clauses. Such clauses permit defined majorities to bind all

19 Noteholders, including Noteholders who did not vote and Noteholders who voted in a manner contrary to the majority. In the future, the Issuer may issue debt securities which contain collective action clauses in the same form as the collective action clauses in the Conditions. If this occurs, then this could mean that the Notes would be capable of aggregation with any such future debt securities. This means that a defined majority of the holders of such debt securities (when taken in the aggregate) would be able to bind all holders of debt securities in all the relevant aggregated series, including the Notes. Any modification or actions relating to Reserved Matters (as defined in the Conditions), including in respect of payments and other important terms, may be made to the Notes with the consent of the holders of 75 per cent. of the aggregate principal amount outstanding of the Notes, and to multiple series of debt securities which may be issued by the Issuer with the consent of both (i) the holders of 662/3 per cent. of the aggregate principal amount outstanding of all debt securities being aggregated and (ii) the holders of 50 per cent. in aggregate principal amount outstanding of each series of debt securities being aggregated. In addition, under certain circumstances, including the satisfaction of the Uniformly Applicable condition (as more particularly described in the Conditions), any such modification or action relating to reserved matters may be made to multiple debt securities with the consent of 75 per cent. of the aggregate principal amount outstanding of all debt securities being aggregated only, without requiring a particular percentage of the holders in any individual affected debt securities to vote in favour of any proposed modification or action. Any modification or action proposed by the Issuer may, at the option of the Issuer, be made in respect of some debt securities only and, for the avoidance of doubt, the provisions may be used for different groups of two or more debt securities simultaneously. At the time of any proposed modification or action, the Issuer will be obliged, inter alia, to specify which method or methods of aggregation will be used by the Issuer. There is a risk therefore that the Conditions of the Notes may be amended, modified or waived in circumstances whereby the holders of debt securities voting in favour of an amendment, modification or waiver may be holders of different debt securities and as such, less than 75 per cent. of the Noteholders would have voted in favour of such amendment, modification or waiver. In addition, there is a risk that the provisions allowing for aggregation across multiple debt securities may make the Notes less attractive to purchasers in the secondary market on the occurrence of an Event of Default or in a distress situation. Further, any such amendment, modification or waiver in relation to the Notes may adversely affect their trading price.

The Issuer is not required to effect equal or rateable payment(s) with respect to the Notes or any other External Indebtedness, and is not required to pay other External Indebtedness at the same time or as a condition of paying sums on the Notes and vice versa The Notes will at all times rank at least pari passu in right of payment with all other unsecured External Indebtedness (as deﬁned in the Conditions) of the Issuer from time to time outstanding. However, the Issuer will have no obligation to effect equal or rateable payment(s) at any time with respect to any other External Indebtedness and, in particular, will have no obligation to pay other External Indebtedness at the same time or as a condition of paying sums due on the Notes and vice versa. See Condition 3 of the Conditions for further details.

20 USE OF PROCEEDS

The net proceeds of the issue of the Notes are expected to be approximately US$999,200,000, after deduction of commissions and estimated other expenses. The Issuer expects to use the net proceeds of the issue of the Notes to fund planned Government capital expenditure in priority areas including industrial zone development and the development of the sugar and energy industries, including projects in which the Issuer is investing together with development partners. The balance of any remaining proceeds will be used for general budgetary purposes.

21 THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

Location and Geography Ethiopia is Africa’s seventh largest country by area and second largest in terms of population. Located in the north-east of Africa, in the sub-region commonly referred to as the ‘Horn of Africa’, Ethiopia is a landlocked country which is bordered by Eritrea to the north, Djbouti to the northeast, Somalia to the east, Somalia and Kenya to the south and Sudan and South Sudan to the west and northwest. The capital of Ethiopia is Addis Ababa, which is situated approximately in the centre of the country.

Ethiopia has a total area of 1,140,000 square kilometres and is a country of great geographical diversity. While Ethiopia is located within the tropics, its physical conditions and variations in altitude (the highest peak, Ras Dashen, is approximately 4,620 metres above sea level and the Dalol, or ‘Danakil’ depression is approximately 148 metres below sea level) mean there is a great range of terrain, climate, soils, natural vegetation and settlement patterns. Ethiopia’s topography ranges from deserts along its eastern border, mountain ranges in its centre and tropical forests in the southern regions. It is dominated by a vast highland complex of mountains, plateaus and lakes, and is divided by the Great Rift Valley which is surrounded by lowlands and steppes. Much of Ethiopia is also dissected by tributaries to well-known rivers, including the Abay (the ‘Blue Nile’) and there are 12 substantial river basins, meaning that Ethiopia has lush plains and forests as well as arid expanses. Approximately 513,000 square kilometres, or 45.0 per cent. of the land in Ethiopia is arable of which approximately 34,200 square kilometres, or 7 per cent. has access to large-scale irrigation.

Climate Ethiopia is located in the tropical latitudes. Its areas of lower elevation experience climatic conditions typical of tropical savannah or desert, however higher elevations experience weather typical of temperate zones. Average annual temperatures in the highlands are about 168 C (618 F), while the lowlands’ temperatures average about 288 C (828 F). There are three seasons in Ethiopia. September to February is the long dry season known as the ‘bega’, which is followed by a short rainy season, the ‘belg’ in March and April. May is a hot and dry month preceding the long rainy season, the ‘kremt’, in June, July, and August. Rain falls year-round in the southern portions of the western highlands, where annual precipitation can reach 2,000 millimetres. Summer rain falls in the eastern highlands and the northern portion of the western highlands in which areas annual precipitation can amount to 1,400 millimetres. It rains twice a year in the eastern lowlands, in April-May and October-November, with two dry periods in

22 between. Total annual precipitation varies between 500 millimetres and 1000 millimetres. The driest of all regions is the Danakil depression, which receives less than 500 millimetres of precipitation per year and sometimes none at all.

History Ethiopia, known previously as ‘Abyssinia’, is Africa’s oldest independent country and has a rich, ancient history and unique cultural heritage. It is widely believed that homo sapiens originated in Ethiopia with evidence of the species discovered in the Awash valley. A succession of dynastic monarchies reigned in Ethiopia until 1974, save for a period of six years from 1935, during which Italy invaded and occupied Ethiopia until Haile Selassie was restored to the throne in 1941. In 1974, following a period of internal pressures and social unrest, including conflict with Eritrea and a severe famine, the Coordinating Committee of the Armed Forces (the ‘Derg’in Amharic) deposed Haile Selassie in a coup d’e´tat on 12 September. A new administration, the Provisional Military Administration Council (the ‘PMAC’, although still popularly referred to as the Derg) abolished the parliament, suspended the constitution and during the course of the following 12 months, summarily executed 59 members of the royal family, ministers and generals from the Imperial Government, as well as killing Haile Selassie in August 1975. Lieutenant Colonel Mengistu assumed power as the head of state and Derg chairman in 1977 after his two predecessors were killed. The ‘Derg Period’ lasted for 17 years from 1974 to 1991. This was a period of heightened militarisation and tense relationships with the province of Eritrea and neighbouring Somalia. In 1977, Somalian forces invaded Ethiopia’s Ogaden region but were defeated the following year with the help of Soviet and Cuban forces. Communism was officially adopted by Ethiopia and in 1984 the Workers’ Party of Ethiopia was established. In accordance with the a constitution, the country was renamed the ‘‘People’s Democratic Republic of Ethiopia’’ on 10 September 1987 and Mengistu was declared president. However, the regime was weakened as the country suffered the worst drought and famine in decades, as well as fighting in the northern regions of Tigray and Eritrea. In 1991, the opposition movement, the EPRDF, captured Addis Ababa and forced Mengistu to flee the country. At the same time, Eritrea established its own provisional government and later became independent in 1993. An election took place in Ethiopia in May 1995, in which Meles Zenawi was elected as Prime Minister and Negasso Gidada as President. Over the following decade, Ethiopia alternated between periods of peace and war. Border clashes between Ethiopia and Eritrea escalated in 1998. A ceasefire agreement was subsequently signed in 2000 but a dispute over the border town of Badme was unresolved and tensions reappeared in 2006, with neither party accepting the border lines demarcated by an international boundary commission. In May 2005, allegations of irregularities during the general elections, which brought victory to the EPRDF, led to months of widespread protests in Ethiopia. In 2006, an Islamic organisation with alleged links to al-Qaeda spread rapidly in Somalia and Ethiopian troops crossed into Somalia to support the government, withdrawing in 2009 following a peace agreement between the Somali government and the rebels. In May 2010, the ruling EPRDF won a majority in the parliamentary elections and Meles Zenawi became prime minister for a fourth term serving in this post, until his death in 2012. Zenawi is generally credited with lifting Ethiopia out of famine, reducing poverty and increasing economic growth, despite another severe drought in 2011. He was succeeded after his death in August 2012 by deputy prime minister Hailemariam Desalegn, and Mulatu Teshome was subsequently elected as President in October 2013 by a unanimous vote of the House of Peoples’ Representatives.

Growth and Transformation Plans Ethiopia’s goal is to become a lower-middle income economy (according to the World Bank classifications) by 2025. In 2010 the MoFED published the first of the three GTPs, which was the medium term strategic framework for the five-year period 2010/11 to 2014/15 (‘‘GTP I’’) to drive the country to lower-middle income economy status. Two subsequent GTPs for the periods 2015/16 to 2019/20 and 2020/21 to 2024/25 are being planned, and each ‘phase’ will be known respectively as ‘‘GTP II’’ and ‘‘GTP III’’. The three GTPs together form the Government’s national plan for economic and social development and good developmental governance over the period 2010 to 2025. For each year of each phase of a GTP an annual progress report is prepared and published which

23 assesses the progress made over the preceding fiscal year in achieving the targets set out in the relevant GTP. The current fiscal year, 2014/15, is the fifth and final year of GTP I and is also the year in which the National Planning Commission is preparing GTP II. GTP II will take into account the achievements and progress made under GTP I and will set out the stages for the next phase of development from 2015/16 to 2019/20. GTP II will build on the current policy objectives and will focus on increasing the productivity, quality and competitiveness of the workforce, particularly in respect of manufacturing and agricultural outputs and providing strong support for the private sector. There are also a number of infrastructure priorities to which the country is already committed and which it will continue to invest in to ensure timely completion of these important projects. See ‘‘The Economy – Infrastructure’’. There are three ‘pillars’ of the GTP, each of which represents a strategic development priority for the Government: Pillar I – ‘Institution Building’ involves strengthening the capacity of Government institutions and structures, establishing transparency and accountability within the administrative and democratic systems, combating corruption and ensuring public participation in the democratic process. Pillar II – ‘Infrastructure Building’ involves improving Ethiopia’s infrastructure including in respect of increasing the generation, transport and distribution energy infrastructure as well as the overall amount of energy generated within Ethiopia both for domestic consumption and for export to neighbouring countries, as well as the expansion of access to telecommunications including mobile, landline and internet access for Ethiopians. Building road and rail infrastructure to facilitate exports and imports and to create strong rural-urban linkages is also a priority in this area. Pillar III – ‘Human Capabilities’ involves investing in education, training and jobs, building a civic culture amongst Ethiopians and improving access to health facilities both in respect of preventative and curative care.

Population, Education, Health and Social Security Population The population of Ethiopia is approximately 88.0 million, making Ethiopia the 14th most populous country in the world and the second-most populous country in Africa after Nigeria. Ethiopia is one of the least urbanised countries in the world with approximately 18 per cent. of the country’s population living in urban areas whereas 82.0 per cent. live in rural areas and the main occupation of the settled rural population is farming. Approximately 44.2 per cent. of the country’s population are aged between 0 and 14 years, 53.0 per cent. are aged between 15 and 64 years, and 2.8 per cent. are aged over 65 years. The annual population growth of Ethiopia is estimated by the CSA to be 2.6 per cent. for 2014, which is the 14th highest in the world. Ethiopia’s population is ethnically diverse and is made up of approximately 78 different ethnic groups. Approximately 34.4 per cent. of the population are Oromo, 27.0 per cent. are Amhara and the Somali and Tigray represent 6.2 per cent. and 6.1 per cent. of the population, respectively. Other prominent ethnic groups include Sidama (4.0 per cent.) Gurage (2.5 per cent.) Welayta (2.3 per cent.), Afar (1.7 per cent.), Hadiya (1.2 per cent.) and Gamo (1.49 per cent.). Ethiopia is also a multi-religious country and while 62.8 per cent. of the country’s population are Christian (43.5 per cent. Ethiopian Orthodox and 19.3 per cent. other denominations), 33.9 per cent. are Muslim and 4.2 per cent. practice other religious faiths, including Judaism and animistic religions. Historically the Ethiopian Orthodox Church has had, and today still maintains, a dominant role in the culture and politics of Ethiopia and has also traditionally been the repository of Ethiopia’s literary tradition and its visual arts. While Ethiopia’s ofﬁcial language is Amharic, over 80 languages and 200 dialects are commonly spoken in Ethiopia, which can be categorised into four main groups: Semitic (which derives from Hebrew and Arabic and is mostly spoken in the northern and central parts of the country), Hametic (mostly spoken in the east, west and south and of which Oromifﬁa is the predominant language), Omotic (mostly spoken in the southwest and the Omo River area) and Nilo-Saharan (which is spoken along the Sudan border). English, Italian and French are also widely spoken.

24 Education Ethiopia’s education sector has undergone significant reform in the past two decades and the Government is committed to increasing investment in education in Ethiopia. In 1994, Ethiopia issued the National Education and Training Policy and Strategy (the ‘‘ETP’’), which set out the objectives for education reform in Ethiopia, including achieving universal primary education. This commitment by the Government is also iterated in the 1994 Constitution of Ethiopia which affirms its obligation to allocate increasing resources to provide public health, education and other social services. In 1997, the Government launched a 20-year education reform programme articulated in a series of four comprehensive Education Sector Development Programs (‘‘ESDP’’). The first five-year EDSP (ESDP I) was initiated in 1997/98. Ethiopia joined the Global Partnership for Education in 2004 when ESDP III was endorsed by its development partners. The current programme, ESDP IV, covers the years 2007 to 2015. Each of the ESDPs identified the challenges which that ESDP aimed to address in the context of the progress which had been made under the preceding ESDP. ESDP IV identifies the main goals for 2014/2015 as, among others, (i) improving access to quality basic (or primary) education (which covers grades 1 to 8 or approximate ages 7 to 14), (ii) sustaining equitable access to quality secondary education (i.e., reducing ‘drop-out’ rates) and (iii) improving the quality of the education services which are provided. Expanding early childhood education (i.e., pre-primary and kindergarten services) has also been identified as an important development goal. Significant progress has been made under the ESDPs, particularly with respect to access to education and maintaining the enrolment ratio for primary education (referred to as the Gross Enrolment Ratio or ‘‘GER’’). In 2012/13 the actual GER for primary education was 95.1 per cent., which enrolment level has remained relatively consistent being 95.4 per cent. in 2011/12 and 96.4 per cent. in 2010/11. ESDP IV reported an annual average primary education GER growth rate of 8.0 per cent., with the primary education GER being 79.8 per cent. in 2004/05 and 94.2 per cent. in 2008/09. While the GER as a statistic has its limitations, it is an indication that significant progress has been made in expanding access to primary education in Ethiopia. Another indicator of increasing access is the number of primary schools, which according to ESDP IV increased from 16,513 in 2004/05 to 25,217 in 2008/09. Secondary education (grades 9 to 10 or ages 15 to 16) has also improved in recent years although there are still challenges with the delayed promotion of students from primary to secondary education. ESDP IV indicates that the GER for secondary education rose from 27.3 per cent. in 2004/05 to 38.1 per cent. in 2008/09 and the number of secondary schools increased from 706 to 1,202 during the same period. The expansion of secondary education has given rise to an increase in overall enrolment levels and has been accompanied by lower student-to-teacher ratios. Despite these achievements, significant regional disparities remain and the availability of secondary education in rural areas remains limited, more so than primary education. ESDP IV indicates that the secondary education GER target for 2015 is 62.0 per cent. rising to 100 per cent. in 2020. Higher education in Ethiopia is concentrated in the cities and urban areas, and there are 94 accredited Higher Education Institutes in Ethiopia of which approximately 35 are public universities. Overall undergraduate enrolment increased from 149,694 students to 319,217 students during the ESDP III period (2004/05 to 2008/09), equating to a GER of 5.3 per cent. in 2008/09. Enrolment in post-graduate programmes reached 10,125 in 2008/09. ESDP IV sets a target for undergraduate enrolment of 467,445 (or a GER of 9.3 per cent.) and post-graduate enrolment of 16,100 for 2014/15. According to the CSA, in 2011, 65.0 per cent. of men and 38.4 per cent. of women were literate (i.e., aged 15 or over and able to read and write).

Health The Government has prepared a 20-year health development strategy to be implemented through a series of four consecutive 5-year investment programmes, each known as a Health Sector Development Programme (‘‘HSDP’’). The HSDPs focus on Ethiopia’s most pressing public health problems, which are largely attributed to preventable communicable diseases and causes of maternal and child mortality. Ethiopia has successfully implemented three HSDPs. The major objectives of the soon-to-end HSDP IV (2010/11 to 2014/15) are primary health care expansion, health system strengthening, and maintaining/achieving health-related MDGs targets. Additional objectives are to build on achievements in the areas of HIV/AIDS, tuberculosis, malaria, maternal health and child health and to introduce initiatives to reduce the burden of non-communicable diseases. Signiﬁcant

25 investments have been and are being directed at improving the quality and equitable delivery of health services in the aforementioned key areas, with a strategic emphasis on the crucial, interrelated elements of accessibility, affordability, and sustainability.

The Government’s main programme aimed at improving accessibility and expanding primary health care delivery at the local level is its flagship Health Extension Programme (‘‘HEP’’) which involves training and deploying health extension workers (‘‘HEW’’). HEWs are full-time, Government-salaried civil servants, two of whom are placed in each Kebele (see ‘‘– The Political and Administrative System of the Federal Democratic Republic of Ethiopia’’ for a description of Kebeles) and who teach healthy behaviours and help to improve access to and the utilisation of basic health services by the community through a referral system. The Government has trained more than 38,000 HEWs in the last three years which has almost doubled Ethiopia’s health workforce during this period. Significant additional fiscal resources have also been committed and are being used to expand training, deployment, and retention of other key health professionals such as doctors, midwives, and nurses.

In addition to strengthening the health workforce, the Government has continued to invest in expanding the healthcare infrastructure in Ethiopia. The number of Government-owned health centres increased from 644 at the beginning of HSDP III in 2005/06 to 3,245 in 2013/14. During the same period, the number of public hospitals also increased, from 79 to 126, with another 185 currently under construction.

The Government has also provided funding to enable priority public health services to be exempt from payment, including immunisation, counselling, testing and treatment for HIV/AIDS and tuberculosis, prevention of mother-to-child transmission of HIV, the treatment of ﬁstula and the control of epidemics. In addition, those who cannot afford to pay for health care are protected through the fee waiver system, through which local administrations absorb the costs of providing curative services.

Overall, access to and the utilisation of health services and the population’s overall health status has improved over the course of the last two decades through the implementation of the HSDP. The most recent Ethiopian demographic and health survey (‘‘EDHS’’) records that, between the 2000 EDHS and the 2011 EDHS, infant mortality declined by 39.0 per cent. from 97 deaths per 1,000 live births to 37 deaths per 1,000 live births and under-ﬁve child mortality declined by 47.0 per cent. from 166 deaths per 1,000 live births to 88 deaths per 1,000 live births in the same period. In addition, access to primary health care services and coverage of the Expanded Programme on Immunisation were 92.1 per cent. and 74.5 per cent., respectively, and the estimated life expectancy at birth is 54 for males and 57 for females.

Though steadily growing, Ethiopia’s health spending is not yet adequate for the financing of essential health care services. Financing continues to come from multiple sources including household out-of- pocket spending, the Government treasury (federal, regional, district, and municipal levels), bilateral and multilateral donors, nongovernmental organisations (‘‘NGOs’’) and private enterprises. Per capita spending on health in 2007/08 was US$16.1, which was far less than the World Health Organisation (‘‘WHO’’) recommended US$34.0 in 2001, which was revised to US$60.0 by 2015. To rectify this, the Government has introduced a wide range of health financing reforms aimed at increasing financing for delivery of essential health care services, thereby improving quality and equity in the provision of health care. These reforms, which include retention and use of internally generated revenue in Government-owned health facilities, are generating additional resources, which have been used to improve the quality of health care in Ethiopia.

Social Security The Constitution (as deﬁned below) states that all Ethiopians have the right to social services including health care, education and good nutrition. Important social support mechanisms often exist within the extended family and local community and while Ethiopia does not have a comprehensive and integrated social protection system, it does have a number of support mechanisms, programmes, action plans and interventions that serve a variety of social protection purposes which are summarised as follows:

26 * Social Insurance Scheme (Pension) The Social Insurance Scheme is a contributory pension scheme for employees of Government and parastatal institutions which provide benefits in old age and in case of invalidity and employment injury. Almost all self-employed and unemployed people have no access to any kind of formal social insurance and employees of private or charitable institutions (one per cent. of the working population) have access to some limited employment benefits. * National Nutrition Programme Established in 2004, the Targeted Supplementary Feeding programme is a free service which aims to reduce morbidity and mortality amongst children and lactating mothers screened for acute malnutrition. Every six-months, free food is distributed to malnourished children and lactating mothers in targeted areas of Ethiopia. This programme reaches approximately 2.9 million children and 0.6 million pregnant and lactating mothers on a regular basis. In addition, community feeding of severely malnourished children has also been implemented by HEWs and between 20,000 and 40,000 children every month receive ready-to-eat therapeutic food at local health posts. * Support for Vulnerable Children The Bureaus of Labour and Social Affairs, together with the Bureau of Women, Children and Youth are helping Kebeles establish social protection committees that raise resources communally to support the most vulnerable children in the Kebele. The 2007 census counted 3.8 million orphans and in 2010 approximately 8.5 per cent. (325,201) of the orphans received support for buying school material and 6.0 per cent. (229,287) received food and shelter. * Disaster Risk Management (‘‘DRM’’) Approximately 13.2 million people in Ethiopia have required support through disaster risk management support coordinated by the Government. Such support includes both food transfers and non-food emergency resource transfers such as the provision of health and nutrition, water and environmental sanitation, and agriculture and livestock services. DRM also supports early warning, contingency planning and financing, and strengthening institutional arrangements and capacity. There has been a recent shift in approaches from managing disasters to a multi- sectoral and multi-hazard focused disaster risk reduction strategy. * Support for Persons with Disabilities Over the last ten years, the Government has expanded prosthetic and orthotic services including physical rehabilitation centres, infrastructure and machineries, and has provided increased training for healthcare personnel. Interventions in this area generally focus on creating an enabling environment whereby persons with disabilities are able to access physical rehabilitation services. To promote the rights, equal opportunities and participation of persons with disabilities, a proclamation for the Right to Employment of Persons with Disabilities was issued. A National Physical Rehabilitation Strategy has also been developed. A more specific directive to enable wheelchairs and crutches to be imported tax-free has been passed and is in the process of being implemented. Financial and technical support is also provided to various associations of persons with disabilities but yet the numbers of beneficiaries is minimal compared to the total number of persons with disabilities. * Urban Housing and Grain Subsidies The Government has adopted several programmes to improve access to urban housing for poor people by replacing slums with condominiums. City administrations are improving urban slum areas by building access roads, providing public toilets and improving the public tap water supply. However, there is still a shortage of housing in urban areas. The Government has also taken measures to stabilise food price inflation. These measures include subsidising grain costs for low income households, reducing taxes on grains, and regulating grain exports. * Community Based Social Support In addition to the various Government programmes and initiatives, there is a wide range of support mechanisms in Ethiopian extended families and other social institutions within the local communities. During the lean season, it is customary either to transfer resources (usually grains) to people who are experiencing difficulties or to lodge with family members or relatives. Remittances from relatives living abroad are increasingly important, and labour pooling

27 institutions ensure households against labour deﬁcits such as in harvest times and house construction. In some regions, community care coalitions and Kebele level social protection committees collect voluntary contributions that are allocated for social protection actions. These are important social support mechanisms in Ethiopia that form the bedrock of social protection in the country.

Millennium Development Goals The MDGs are a set of eight interdependent goals aimed at reducing poverty and improving the quality of life, particularly of the rural poor, and represent a global partnership resulting from the Millennium Declaration at the UN Millennium summit of 2000. All 193 UN member states and at least 23 international organisations have agreed to achieve these goals by the year 2015. The MDGs are internationally considered as benchmarks of the progress a country is making towards sustainable development and Ethiopia is on course to meet all eight of the MDGs by 2015. The MDGs are: Eradicating extreme poverty and hunger The proportion of people living below the poverty line in Ethiopia has declined from 45.5 per cent. in 1995/96 to 27.6 per cent. in 2011/12 and again in 2012/13 to 26.0 per cent., which represents a significant reduction of 42.2 per cent. since 1995/96. Ethiopia is therefore on course to meet the target of 24.0 per cent. headcount poverty by 2015. Food poverty is also declining in Ethiopia. The hunger index, weighted equally on three indicators consisting of malnourishment, children who are underweight and child mortality, declined from 43.2 per cent. in 1990 to 28.7 per cent. in 2010/11 but was recorded at 31.8 per cent. in 2012/13. In addition, the number of ‘stunted’ children (under the age of five) declined from 57.8 per cent. in 2000/01 to 44.4 per cent. in 2010/11 and again in 2013/14 to 40.0 per cent.. This analysis indicates that significant progress has been made to reduce hunger and malnourishment in Ethiopia following the adoption of the MDGs. Achieving universal primary education Ethiopia is on track to achieve this MDG. The Net Enrolment Ratio (‘‘NER’’) in the primary school cycle (grade 1 to 8 or ages 7 to 14) increased from 85.3 per cent. in 2010/11 to 85.9 per cent. in 2012/13 and again in 2013/14 to 94.8 per cent. In the upper cycle of primary education (grade 5 to 8 or ages 10 to 14) the NER decreased from 47.3 per cent. to 47.2 per cent. and increased to 48.5 per cent. during the same period. Although school dropout rates have been declining, there are still a substantial number of children who dropout of school after grade five. On the other hand, the completion rate for Grade 8 rose from 49.4 per cent. in 2010/11 to 52.8 per cent. in 2013/14 similarly, the completion rate for females at Grade 8 increased significantly from 46.6 per cent. in 2010/11 to 52.8 per cent. in 2013/14 and is expected to increase further as the Government accelerates the implementation of interventions aimed at increasing enrolment and educational progression of children from poor families. See ‘‘– Population, Education and Social Security – Education’’ Promoting gender equality and empowering women The progress of Ethiopia’s performance on this goal has been significant given its low baseline. The gender parity (ratio of girls to boys) in primary education has improved from 0.85 in 2006/07 to 0.93 in 2011/12 and to 0.94 in 2013/14. Ethiopia is on course to achieve gender parity in primary education; however more progress is required to raise progression from primary to secondary schools among girls in order to eliminate gender disparities at secondary and tertiary levels. Early marriages, especially among children from rural and poor households, tend to inhibit educational progression among girls from primary to secondary level. Fertility rates are highly correlated with educational attainment by women, where women without formal education have a higher total fertility rate of about 5.8 compared to 1.9 and 1.3 among women with secondary education and post-secondary education, respectively. Reducing child mortality rates and improving maternal heath Under-five child mortality has substantially declined to 88 per 1,000 live births in 2010/11 from 123 per 1,000 live births in 2004/05, registering a 28.4 per cent. reduction over the period. However, the level of decline varies by household wealth category, level of mother’s education and place of residence.

28 According to the result of EDHS conducted in 2010, the under-five mortality rates are higher among children from poor families than those from more prosperous families. For example, under-five mortality rate amongst the children from the wealthiest quarter of the population is only 86 per 1,000 live birth compared to 137 per 1,000 live births for children from the poorest quarter of the population. Similarly, children whose mothers completed higher education had the lowest under-five mortality rate 24 per 1,000 live births) compared to children whose mothers had no formal education 121 per 1,000 live births. There are significant variations between rural and urban settings with child mortality rates in urban area estimated at 83 per 1,000 live births compared to 114 per 100 in rural areas. Infant mortality has declined from 97 per 1,000 live births in 2000/01 to 37 per 1,000 in 2010/ 11. The HEPs and the expansion of health facilities have played a significant part in reducing child mortality rates in Ethiopia.

Combating HIV/AIDS, malaria, and other diseases The MDG on combating HIV/AIDS, Malaria and tuberculosis sets out three specific targets. Two targets on HIV/AIDS aim at halting and beginning to reverse the spread of HIV/AIDS and to ensure universal access to treatment of HIV/AIDS. The third target seeks to halt and begin to reverse the spread of malaria and tuberculosis by 2015. Ethiopia has made significant progress towards meeting these targets, and it is estimated that HIV/ AIDS prevalence amongst the adult population has dropped to 1.5 per cent. in 2010/11 against the MDG target of 2.5 per cent., indicating that Ethiopia has exceeded this target. Malaria control and prevention is one of the core interventions of the country’s primary health care system. The percentage of children under the age of five that sleep under insecticide treated nets increased from 3 per cent. in 2005 to 33.0 per cent. in 2010/11 according to the Malaria Indicator Survey in 2011. The distribution of insecticide treated bed-nets has been a major factor in reducing malaria deaths, which have fallen by over 50.0 per cent. since 2007/08. The national tuberculosis detection and treatment success rates are estimated to have reached 63.0 per cent. and 88.0 per cent. in 2011/12 respectively, placing the country on track towards to achieve the national target of 90.0 per cent. detection and cure rate by 2015. See ‘‘– Population, Education, Health and Social Security – Education’’

Ensuring environmental sustainability The MDG on ensuring environmental sustainability sets out four speciﬁc targets. The ﬁrst of these targets requires Ethiopia to integrate the principles of sustainable development into national policies and programmes and to reverse the loss of environmental resources. Through its medium-term strategy and Climate Resilient Green Economy strategy, Ethiopia has made important steps towards mainstreaming principles of sustainable development in its development process. The second target relates to the need to reduce biodiversity loss and the third and fourth targets seek to halve the proportion of people without access to safe drinking water and basic sanitation and to improve the lives of slum dwellers by 2015. With respect to access to safe drinking water, the percentage of households with access to improved and safe drinking water improved from 52.1 per cent. in 2010/2011 to 58.3 per cent. in 2011/12 and was 68.5 per cent. in 2012/13 and 76.7 per cent. in 2013/14. See ‘‘The Economy – Infrastructure – Access to Water Supply’’. Rural and urban sanitation coverage improved from 60.0 per cent. and 80.0 per cent. in 2010/11 to 64.0 per cent. and 86.0 per cent. in 2011/12, respectively. The national sanitation coverage has increased from 63.0 per cent. in 2010/11 to 67.0 per cent. in 2011/12. Similar improvements have been made in construction of housing units in urban areas of the country. Ethiopia had the lowest carbon emission rates per capita in the world at less than 2.0 tonnes in 2011. Overall, total emissions of around 150 metric tonnes CO2 represents less than 0.3 per cent. of the global emissions target.

Developing a global partnership for development Significant progress has been made in creating, maintaining and expanding global partnerships for development, especially in the context of securing debt relief and ensuring debt sustainability, as well as expanding access to information and communication technologies. The flow of Official Development Assistance (‘‘ODA’’) to Ethiopia reached US$2,617.9 million and accounted for approximately 11.0 per cent. of the country’s national budget in 2011/12. While this amount of ODA appears to be large in absolute terms and in comparison to many countries in Sub-

29 Saharan Africa, Ethiopia’s per-capita ODA is US$31.5 compared to the US$52.2 average for Sub- Saharan Africa. Ethiopia’s export earnings have also increased signiﬁcantly over the last decade, accounting for 17 per cent. and 14.0 per cent. of GDP in 2010/11 and 2011/12, respectively compared to 6.8 per cent. of GDP in 2005/06. Overall, Ethiopia has managed to register broad-based economic growth over the past years. The consistent focus on poverty reduction programmes and the political commitment to achieving all the MDGs has resulted in signiﬁcant gains on six of the eight MDG targets. Additional efforts are required to advance and accelerate progress on achieving the MDG targets on gender equality, women’s empowerment, and improved maternal health where progress is less satisfactory.

The Political and Administrative System of the Federal Democratic Republic of Ethiopia Ethiopia adopted a new federal constitution on 8 December 1994, which came into effect on 21 August 1995 (the ‘‘Constitution’’). In addition to the Constitution, each of the nine states in Ethiopia has its own state constitution. Ethiopia is a Federal Democratic Republic, and the Constitution recognises separate legislative, executive and judicial powers and institutes a bi-cameral parliamentary democracy. The President of Ethiopia, currently President Mulatu Teshome Wirtu, is the ofﬁcial head of state, and the Prime Minister of Ethiopia, currently Prime Minister Hailemariam Desalegn, is the head of the executive branch of Government. Ethiopia is comprised of nine federal or regional states known as ‘Killil’ (the ‘‘States’’): Tigray, Afar, Amhara, Oromia, Somali, Southern Nation Nationalities and Peoples Region (‘‘SNNPR’’), Benishangul-Gumuz, Gambella, and Harari, and there are also two self-governing city administrations; Addis Ababa, the capital, and Dire Dawa (the ‘‘City Administrations’’). The States and City Administrations are subdivided into 817 administrative ‘Woredas’ (or districts). A Woreda is the basic decentralised administrative unit and is governed by an administrative council comprised of elected members. The 817 Woredas are further divided into about 16,253 ‘Kebeles’, which is the smallest administrative unit in the governance. Under the Constitution the rights of the federal States to determine their own affairs in accordance with their own State constitution are guaranteed.

The Executive Branch Executive power is vested in the Prime Minister of Ethiopia and the Council of Ministers (which is the equivalent of the cabinet of ministers in other parliamentary democracies). The President is the head of state and is elected by a two-thirds majority vote of a joint session of the House of Peoples’ Representatives and the House of Federation for a six-year term and is eligible for a single second term. President Mulatu Teshome Wirtu was elected on 7 October 2013 and succeeded President Girma Wolde-Giorgis, who had previously been elected in 2001 and served the maximum two terms. The Prime Minister is elected by members of the House of Peoples’ Representatives and power of Government is assumed by the political party, or the coalition of political parties, which constitutes a majority in the House of Peoples’ Representatives. The Prime Minister is the Chairman of the Council of Ministers and the Commander-in-Chief of the National Armed Forces. His term of office is for five years. Prime Minister Hailemariam Desalegn Boshe has served as Prime Minister since 21 September 2012 when, as the then Deputy Prime Minister, he succeeded Prime Minister Meles Zenawi Asres who died while in office on 20 August 2012. The Council of Ministers is comprised of the Prime Minister, the Deputy Prime Minister and various Ministers and other members as determined by law. Among other roles and responsibilities, the Council of Ministers ensures the implementation of laws and decisions adopted by the House of Peoples’ Representatives; determines the organisational structure of ministries and other organs of Government responsible to it; prepares the annual federal budget and, when approved by the House of Peoples’ Representatives, implements the budget; formulates the country’s foreign policy and exercises overall supervision over its implementation; submits draft laws to the House of Peoples’ Representatives on any matter falling within its competence, including draft laws on a declaration of war and carries out other responsibilities that may be entrusted to it by the House of Peoples’ Representatives and the Prime Minister.

The Legislative Branch The Constitution established two representative bodies for the federal Government; the House of Federation and the House of Peoples’ Representatives.

30 The House of Federation, or the ‘upper chamber’, currently has 135 members. Each officially recognised ethno-national group is represented in the House of Federation by at least one member, plus one more representative for every one million members of that ethno-national group. Members are elected either indirectly by the state council or directly by the people for a term of five years. The House of Federation is not vested with a general legislative power but rather has a constitutional role to safeguard the interests of the nations and nationalities of Ethiopia, interpret the Constitution and also to ‘determine the division of revenues from joint Federal and State tax sources and subsidies that the federal Government may provide to the States’. The House of Peoples’ Representatives was established on 21 August 1995, when the newly elected Members of Parliament met, to set up this highest authority of the Federal Government. The House of Peoples’ Representatives, or the lower chamber, has 547 seats (of which 22 seats are reserved for representatives of minority nationalities and peoples) and its members are directly elected by popular vote in a ‘‘first-past-the-post’’ electoral system from single-member districts to serve five-year terms. The House of Peoples’ Representatives has legislative and oversight functions. The Constitution makes the House of Peoples’ Representatives accountable in several ways. Individual members, elected for a term of five years, may be recalled or removed by their constituencies. Although substantial power resides in the Prime Minister and Council of Ministers, these officials are elected to their positions by the House of Peoples’ Representatives and are called before that body to regularly to report on their activities. The most important function of the House of Peoples’ Representatives is to enact laws on matters assigned to federal jurisdiction. The House of Peoples’ Representatives also exercises other important functions including the appointment of federal judges, the ratification of international agreements and the investigation of the conduct of members of the Executive. In May 2010, elections were held to elect members of the House of Peoples’ Representatives and the state councils. 79 political parties participated in these elections, both at federal and state level and 499 members of the EPRDF were elected to the House of Peoples’ Representatives, along with 24 members of the Somali People’s Democratic Party and 24 members from other political parties. The next general elections will take place in 2015 and a number of political parties are expected to participate.

The Judicial Branch Ethiopia has a dual judicial system with two parallel court structures, i.e., the federal courts and the State courts, each of which have their own independent structures and administrations. Judicial powers, both at federal and State levels, are vested in the courts. The Constitution provides for the establishment of three levels of State courts: the State Supreme Court (which also incorporates a cassation bench to review fundamental errors of State law), High Courts, and First-Instance Courts. State Supreme Courts sit in the capital cities of the respective States and have final judicial authority over matters of State law and jurisdiction. State High Courts sit in the zonal regions of States while State First Instance Courts sit at the lowest administrative levels of States. The Federal Supreme Court sits in Addis Ababa with national jurisdiction and until recently, the Federal High Court and First Instance Courts were confined to the City Administrations of Addis Ababa and Dire Dawa. In recent years, Federal High Courts have been established in five States. Federal courts at any level may hold circuit hearings at any place within the State or ‘‘area designated for its jurisdiction’’ if deemed ‘‘necessary for the efficient rendering of justice.’’ Each court has a civil, criminal, and labour division with a presiding judge and two other judges in each division. The Federal Supreme Court includes a cassation division with the power to review and overturn decisions issued by lower federal courts and State Supreme Courts containing fundamental errors of law. The Cassation Division of the Federal Supreme Court is also responsible for the interpretation of laws which are binding on federal as well as State courts. The Constitution prohibits the removal of judges before retirement age except for violation of disciplinary rules, gross incompetence or inefficiency, or illness that prevents the judge from carrying out his or her responsibilities. Such determinations are made by the Federal Judicial Administration Commission, which also decide issues of appointment, promotions, disciplinary complaints, and other conditions of employment. The decision to impeach and remove a judge from office is made by the Federal Judicial Administration which is then approved by the House of Representatives, but the impeachment and removal of members of the judiciary is very rare. The Federal Judicial Administration Commission is a nine-member body comprising of six federal judges and three members of the House of People’s Representatives.

31 There are several legislative reforms which are currently being prepared and implemented in Ethiopia which include, amongst others, an Evidence Act and revised Criminal Procedure Code. The revised Criminal Procedure Code will introduce reforms which are intended to improve the functioning and fairness of the criminal justice system and remedy deﬁciencies which international commentators and critics of the system have noted. Other reforms which will be implemented or are ongoing include police reform and prison reform as well as the introduction of the Freedom of Information Act and legislative protections for whistleblowers.

State Institutions The Constitution provides that the nine States of the federation shall have legislative, executive and judicial powers over matters falling under State jurisdiction. Within their legislative mandate, the States have the power to enact and execute state constitutions and all States have enacted their respective constitutions. The State constitutions provide the details of the legislative, executive and judicial branch of State administration. The Constitution also empowers each State to establish a legislative body called the ‘State Council’, which is comprised of representatives accountable to the people of the State. The State Council represents the highest level of State authority, and has the power of legislation on all matters falling under State jurisdiction. The State Council is also given the power to draft, adopt and amend the State constitution. State constitutions provide the number of the members of the State Councils in each State and the modalities of their election. Most States have only a single parliamentary Council that both enacts laws and decides State constitutional issues. However, in at least two States, second legislative houses have been established to decide State constitutional issues, similar to the role of the federal House of Federation. Where they exist at the State level, these separate constitutional decision-making parliamentary bodies are known as the House of Nationalities. Each State has a Chief Administrator, or Regional Administrator. The Chief Administrator is elected among members of the State Council by a political party or coalition of political parties that constitutes a majority in the State Council. The Chief Administrator establishes the State executive council and nominates its members. The members of the State executive council (the Chief Administrator, Deputy Administrator and the heads of the various regional bureaus) need to be conﬁrmed by the State Council. State executive councils have the power to implement laws and policies enacted by the State Council and the federal legislature. The State executive structure is replicated in lower State administration levels such as the Woredas.

Federal and State Responsibilities The Government is responsible for formulating and implementing the Ethiopia’s policies, strategies and plans with respect to overall economic, social and development matters; establishing and implementing national standards and deﬁning the basic policy criteria for public health, education, science and technology as well as for the protection and preservation of cultural and historical legacies; formulating and executing the country’s monetary and foreign investment policies and strategies; establishing and administering the national defence and public security forces as well as a federal police force; formulating and implementing foreign policy, including negotiating and ratifying international agreements; levying taxes and collecting duties on revenue sources reserved for the federal Government; and enacting laws on all matters assigned by the Constitution to federal jurisdiction. The regional States are responsible for establishing a state administration that best advances self- government which is a democratic order based on the rule of law; protecting and defending the federal constitution; enacting and executing the state constitution and other laws; formulating and executing economic, social and development policies, strategies and plans of the State; administering land and other natural resources in accordance with federal laws; levying and collect taxes and duties on revenue sources reserved for the States; and preparing and administering the State budget.

Foreign Relations Ethiopia plays an active role in regional, African and global politics and in 2002, published its Foreign Affairs and National Security Policy and Strategy, which identiﬁes the basis of Ethiopia’s foreign and security policy as being the achievement of economic development and democracy within the framework of globalisation. Ethiopia was a founding member of the UN and has played a signiﬁcant role in all subsequent efforts to ensure the success of collective security including

32 participating in the UN operations in Korea and then in Congo, as well as later in Rwanda, Burundi, Liberia and Sudan. Ethiopia was also a founding member of the Organisation of African Unity (the ‘‘OAU’’) in 1963, and Addis Ababa is the seat of the African Union, which is the successor organisation of the OAU. Addis Ababa is also the headquarters of the UN Economic Commission for Africa and other international bodies. Ethiopia maintains diplomatic relations with over 150 countries and has diplomatic missions in 39 countries across ﬁve continents.

Regional Relations Economic development in Ethiopia and the Horn of Africa is the cornerstone of Ethiopia’s foreign relations policy and as such, Ethiopia’s primary policy is to maintain good diplomatic and trade relationships with its neighbours, focusing on peace and mutually-beneﬁcial economic development. Ethiopia currently has good relations with all of its neighbours, with the exception of Eritrea. In addition, the Government is heavily investing in building infrastructure across Ethiopia, including roads, railways and electricity transmission networks, to better connect the country with its neighbours and increase the volume of cross-border trade. Ethiopia also plays a large role in peace-keeping and security in East Africa and its active participation in the African Union has contributed to the creation of a cooperative framework among countries in the region on issues of common concern including peace initiatives and conﬂict early warning systems. Ethiopia is currently a host to over 700,000 refugees, primarily from neighbouring countries, and has set up housing and education programmes for its refugee population with support from the international community. Extremism and terrorism remain a threat requiring regional cooperation.

Somalia Ethiopia has been active in working on the resolution of conflicts in Somalia which have arisen since the overthrow of President Siad Barre in 1991. Since the early 1990s, Ethiopia has hosted successive peace conferences aimed at bringing together different parties to the conflict as well as accepted over 100,000 refugees from Somalia. Ethiopia also accepted the request of the Somalia transitional federal government to send peace-keeping forces to Somalia in December 2006. In addition to cooperation with, and support for, the transitional federal institutions, Ethiopia also maintains a close cooperative relationship with Somaliland on a range of issues. Ethiopia has made it clear that it will continue to extend every support it can to help find a lasting solution to the conflicts in Somalia. The situation in Somalia has improved in recent years although terrorism remains a threat to domestic stability, however, the Government of Ethiopia does not foresee a high risk of conflict contagion or movement of terrorist factions across the border into Ethiopia.

Sudan and South Sudan Ethiopia, Sudan and South Sudan share more than 1,600 kilometres of border and have a record of chequered bilateral relations. However, since 1999 there has been a new chapter of cooperation. In addition to security cooperation and the continuing joint effort to accurately demarcate their common boundaries, the countries are aware of the potential for mutually beneﬁcial economic cooperation. Ethiopia currently imports 75.0 per cent. of its gasoline imports, of which gasoline represents approximately 10.0 per cent. of Ethiopia’s petroleum product imports, from Sudan, and exports electricity, cereals and sesame to Sudan and cereals and sesame to South Sudan and also conducts a small proportion of its foreign trade activity through Port Sudan. See ‘‘Risk Factors – Risks Relating to the Federal Democratic Republic of Ethiopia – Ethiopia exports certain products to and imports certain products from Sudan, which is subject to a comprehensive U.S. sanctions programme administered by OFAC’’. Ethiopia has a dual role as a peace mediator and a peace-keeper in respect of the tensions between Sudan and South Sudan both prior to and post South-Sudanese independence from Sudan following a referendum in January 2011. Both Sudan and South Sudan experience domestic tensions and the threat of instability, including from terrorist factions, however Ethiopia maintains positive diplomatic relationships with both countries and, at the request of the Security Council and with the consent of both Sudan and South Sudan, has deployed signiﬁcant number of peace-keeping forces in both countries.

33 Kenya Ethiopia and Kenya enjoy excellent bilateral relations. Both countries are active members of and play a signiﬁcant role in the African Union and have steadily deepened their economic cooperation and people-to-people relations. Cooperation in security and in infrastructure is growing steadily, and Ethiopia fully appreciates the value of further strengthening relations in the areas of road transport, the use of ports and in energy. Both countries have spent millions of dollars in infrastructure development aimed at further extending the beneﬁts of their long-term relationship. The building of the Gil gel Gibe III dam, for example, is regarded by both countries as another milestone in enhancing bilateral relations.

Djibouti Ethiopia shares long-standing cultural, historic and economic ties with Djibouti. The two countries are reliant on each other for trade and the Port of Djibouti remains Ethiopia’s largest outlet to the rest of the world accommodating approximately 90.0 per cent. of Ethiopia’s exports which amounts to approximately 80.0 per cent. of Djibouti’s port trafﬁc. Ethiopia is also the biggest importer of goods from Djibouti. The Addis Ababa – Djibouti railway corridor is currently approximately 50.0 per cent. complete and is expected to be fully operational by October 2015. Ethiopia and Djibouti also have close ties in security and various other areas, are committed to fostering economic integration in the region, and have co-operated on other regional issues including the instability in Somalia. Along with Yemen, Sudan and Djibouti, Ethiopia is involved in the Sana’a Forum for Co-operation (established in 2002).

Eritrea In 1993, Eritrea became independent of Ethiopia after a war that lasted for more than three decades and ﬁnally culminated in a referendum on Eritrean independence. In 1998, border disputes around the town of Badme erupted into open hostilities and became what is commonly referred to as the Eritrean-Ethiopian War. Following the Eritrean-Ethiopian War, which ended in June 2000 with the signing of the Algiers Agreement, relations between the two nations remain strained, particularly with respect to disputed border regions which remains unresolved. The Government has expressed its will to hold peace talks with Eritrea to resolve the decades-long border dispute and while such dispute remains unresolved, it is currently at a stand-still and Ethiopia does not anticipate future conﬂict with Eritrea.

Rest of the World UN Ethiopia was a founding member of the UN, signing its Charter on 13 November 1945. Ethiopia is also a signatory of and a party to numerous declarations, conventions and protocols of the UN and a member of numerous UN organisations including the Economic and Social Council, the UN Development Programme (the ‘‘UNDP’’), the UN Council on Human Rights, the Food and Agriculture Organisation and the UN International Emergency Fund. Ethiopia maintains strong relations with the UN and cooperates with the UN on a number of security issues, including working with the UN and the African Union on a range of conﬂict situations in Africa, such as in Somalia, Sudan and South Sudan. The UN and its agencies and institutions, such as the UNDP, provide important assistance to Ethiopia’s development. The presence in Ethiopia of the UN Economic Commission for Africa, as well as other UN institutions, facilitates interaction and cooperation between the Government and the UN. The UN is Ethiopia’s partner in its campaigns against HIV/AIDS and malaria as well as in its efforts to achieve food security. Another area in which Ethiopia and the UN work together is climate change. The Government is keenly aware of the potentially devastating effects of climate change and of the pivotal role the UN plays in creating a common platform through which an internationally accepted and legally binding agreement can be reached. In 1995, Ethiopia made a commitment to the MDGs and the Millennium Declaration at the UN’s Millennium Summit of 2000. See ‘‘– Millennium Development Goals.’’

World Trade Organisation The WTO General Council accepted Ethiopia’s application for observer status in October 1997. Ethiopia remained an observer until 2002 and then formally submitted a request for accession to the organisation in January 2003.

34 Ethiopia’s decision to join the WTO is based on four inter-related Government economic objectives; to accelerate economic growth and development, to attract foreign investment, to secure predictable and transparent international market access, and to inﬂuence the speed, nature and direction of globalisation. Ethiopia’s progress towards WTO accession has passed through several stages since February 2003. Following the establishment of a WTO working party in February 2003, Ethiopia submitted its Memorandum of Foreign Trade Regime in 2007 to commence multilateral track negotiations. Ethiopia has since participated in three working party meetings and has responded to three rounds of requests, with the fourth set of responses to requests currently being prepared in anticipation of a fourth working party meeting, after which Ethiopia will progress to bilateral negotiations with certain interested members.

African Union Ethiopia’s Foreign Affairs and National Security Policy and Strategy attaches great importance to the country’s relations with other African countries both at the level of bilateral relations and in the context of the African Union. Ethiopia was a founding member of the Organisation of African Unity in 1963, and Addis Ababa is the seat of the African Union. Ethiopia fully subscribes to the African Union’s vision for an integrated, prosperous and peaceful Africa providing and representing a dynamic force in the global arena. Ethiopia is committed to making sure the African Union fulﬁls its role as a forum of debate to enhance Africa’s share, and that of its member states, in the process of globalisation as well as in the promotion of peace. Ethiopia also works closely with the African Union and its institutions in seeking peaceful solutions to the conﬂicts in various parts of Africa. It is actively involved in peacekeeping operations in Darfur and has supported the African Union’s mission in Somalia.

Common Market for Eastern and Southern Africa Ethiopia is a member of the Common Market for Eastern and Southern Africa (‘‘COMESA’’) trade bloc. Currently Ethiopia has been taking practical measures to join the COMESA free trade area on the basis of the recommendation of the impact assessment study which recommended a step-by-step approach to joining the free trade area. Ethiopia has signed and ratiﬁed the Abuja Treaty that aims to establish an Africa Economic Community among the continent’s 54 countries. The Abuja Treaty emphasises the importance of the coordination, harmonisation, and progressive integration of the activities of regional economic communities. Ethiopia’s average applied tariff rate was 17.5 per cent. in 2012/13. Goods imported from COMESA members are granted a 10.0 per cent. tariff preference. Ad valorem duties range from zero per cent. to 35.0 per cent., with a simple average of 16.8 per cent. Since February 2007, the Government has levied a 10.0 per cent. tax on selected imported goods, with the proceeds designated for distribution of subsidised wheat in urban areas.

European Union The EU-Ethiopia development partnership formally started when Ethiopia signed the Lome´ Convention in 1975. The European Commission established its Delegation in Ethiopia in 1975 and has taken the lead in supporting Ethiopia’s economic development both ﬁnancially and technically. Overall cooperation between the EU and Ethiopia has been growing from time to time and is considered a very strong partnership. The EU provides funding to support Ethiopia through the European Development Funds (‘‘EDF’’). The latest allocation (10th EDF) of these funds provided c644.0 million for the country in areas such as transport, rural development, decentralised social services, trade, gender-equality, and environmental conservation. The European Commission manages the funds and jointly implements the projects. The EDF budget for Ethiopia has been supplemented by direct support from European Commission budget lines (food aid and food security). As part of the continued cooperation between the European governments and the European Commission, the two parties agreed to make c745.2 million available under the 11th EDF to support Ethiopia’s development endeavour in priority areas of the country for 2014 to 2020. The 11th EDF allocation is anticipated to provide macroeconomic support, sector-speciﬁc polices, programmes and projects that will complement the ongoing effort of the Ethiopian Government to implement GTP I and the upcoming GTP II.

35 The EU is one of Ethiopia’s major trading partners both in terms of export and import. The Trade Capacity Building Programme; Micro-and Small Enterprise Development Programme; Economic Partnership Agreement Impact Assessment Studies; WTO Impact Assessment Project and NGO Projects on Micro-Financing are major means of partnership in the private sector development and trade sector. The European Investment Bank has also provided important lines of credit to Ethiopia, including loans directly to the private sector for commercially viable projects. Such loans to Ethiopia have supported projects in the fields of energy and airport development. In addition, a global loan was provided to the DBE for onward lending to small and medium sized enterprises. The DBE has focused mainly on vital sectors such as agriculture, industry and infrastructure development. United States US-Ethiopia official relations commenced in 1903 and remained in good standing until the Italian occupation of Ethiopia in 1935. After the Second World War, the two countries re-established their diplomatic relations, and in 1951 signed a treaty of amity and economic relations. The US and Ethiopia share a history of strong and longstanding partnership. Today the partnership between the two countries focuses on the following pillars: economic growth and resilience in rural areas, increased utilisation of quality health services; improved learning outcomes; improved governance for sustainable development; and regional peace and security. Furthermore the United States and Ethiopia work together to enhance food security, promote trade, and expand development. The United States has welcomed Ethiopia’s dedication to maintaining security in the region, including through peacekeeping missions in Somalia, Sudan and South Sudan. The US-Ethiopia partnership is important in the success of US initiatives in the greater Horn of Africa because of Ethiopia’s size, location and potential. Ethiopia has been a key player in trying to improve the ability of the countries in the region to prevent conflicts and avoid crises which has plagued the region. The United States has provided emergency resources to Ethiopia in times of hardship in the form of food aid and humanitarian assistance. US development assistance to Ethiopia is focused on reducing famine vulnerability, hunger, and poverty and emphasises economic, governance, and social sector policy reforms. Some military training funds, including training in such issues as the rule of law and observance of human rights, also are provided but are explicitly limited to nonlethal assistance, training, and peacekeeping support at present. Ethiopia is eligible for preferential trade benefits under the African Growth and Opportunity Act, which is a United States Trade Act that enhances US market access for 40 Sub-Saharan African countries. US exports to Ethiopia include aircraft, wheat, machinery, low-value shipments and repaired products, and vegetables. US imports from Ethiopia include coffee, niger seeds and textiles. The United States has signed a trade and investment framework agreement with COMESA, of which Ethiopia is a member. The current cooperation agreement between the US and Ethiopia is for the period of 2011 to 2015 and it involves a cooperation agreement for US$1.5 billion. Since the 1950s, the US has several programmes of cooperation with Ethiopia in fields such as agriculture, health, education, industry, transportation, relieve and rehabilitation. China China and Ethiopia formally established diplomatic relations on 1 December 1970. The two countries are parties to numerous economic cooperation agreements including medium term comprehensive agreements in which six priority areas of cooperation have been identified and which were signed in May 2014. The six priority areas are: cooperation in development of natural resources; agriculture; manufacturing/industrial development including the development of industrial zones; infrastructure development; tourism development; and education and capacity building. The latest round of agreements includes loans and cooperation agreements for the construction of roads, railways and industrial zones in Ethiopia. China has also been involved in building and developing Ethiopia’s infrastructure including roads, hydroelectric power, transmission lines of various levels, telecommunications, water-infrastructure development, and manufacturing as well as other areas. The Bole Airport expansion project was one such area of cooperation and assistance. China’s assistance to Ethiopia is aimed at helping Ethiopia move along a sustainable development path. In this regard, China’s support is also targeted towards improved livelihood and social infrastructure. With the aim of improving productivity in the

36 agriculture sector, China has continued to support Ethiopia in the establishment of agricultural demonstration centres and the provision of agricultural experts. With respect to health, China has sent numerous medical doctors to Ethiopia, serving in different hospitals and medical centres across the country. China has been a generous supplier of medical equipment and anti-malaria medicine in support of the effort to eradicate malaria and has also provided numerous scholarships and contributions to the construction of technical and vocational education and training in Addis Ababa, agricultural technical and vocation training colleges in various parts of the country, and numerous volunteer trainers and teachers at different levels. Many Ethiopian journalists have acquired training in China, and there is a ﬂourishing relationship between the Ethiopian News Agency, and the Chinese Agency, Xinauhu. Ethiopia and China have also signed an agreement on approved tourist destination status to encourage Chinese tourists to visit Ethiopia. The establishment of the China-Africa Co-operation Forum in 2000 (and of which Ethiopia was co- chair during 2003 to 2006) created an important platform for collective dialogue and the effective mechanism of practical cooperation between African states and China. This has been instrumental in the ever growing China-Africa cooperation in general and that of Ethiopia in particular.

37 THE ECONOMY

Overview Ethiopia has sustained an average annual GDP growth rate of 10.9 per cent. over the past decade, with the average GDP growth rate for each of the last four consecutive years being 10.3 per cent. for 2013/14, 9.8 per cent. for 2012/13, 8.7 per cent. for 2011/12 and 11.4 per cent. for 2010/11. Such average annual growth rate exceeds that of Ethiopia’s peers, of whom Ghana had an average annual growth rate of 8.8 per cent., Rwanda had an average annual growth rate of 8.0 per cent. and Kenya had an average annual growth rate of 4.6 per cent., each for the years 2008 to 2012 according to the IMF. Ethiopia’s GDP per capita was US$631.5 in 2013/14, which represented a 13.3 per cent. increase from US$557.6 in 2012/13, which, in turn, represented a 6.5 per cent. increase from US$523.5 in 2011/12. Agriculture is the primary sector of the Ethiopian economy, contributing 40.2 per cent. to GDP in 2013/14, which is a gradual decline from 42.0 per cent. of GDP in 2012/13 and 43.1 per cent. in 2011/12. In 2013/14, the services sector, which comprises wholesale and retail trade, hotels and restaurants, transport, financial services, real estate, public administration, education and others, contributed 46.2 per cent. to GDP while industry contributed 14.3 per cent. for the same year. The agriculture, services and industry sectors of the economy have all contributed to the economic growth of the country, with agriculture growing by 5.4 per cent., services growing by 11.9 per cent. and industry growing by 21.2 per cent. in 2013/14. One of the Government’s objectives, set out in the GTP, is a long-term shift in the fundamental structure and diversification of the economy away from such a concentration on the agriculture sector by increasing the productivity and output of other sectors such as manufacturing, energy and services in a manner which promotes sustainable growth and economic development. Ethiopia’s goal is to become a lower-middle income economy by 2025 and as such, Ethiopia’s economic policies are geared towards its long-term development objectives in accordance with the GTP. See ‘‘The Federal Democratic Republic of Ethiopia – Growth and Transformation Plans’’. The Government’s main economic policy objectives are to increase agricultural productivity, by introducing more widely the use of modern agricultural technologies and increasing irrigation, develop the manufacturing sector and increase exports of raw materials and ‘value added’ products. To achieve these objectives, the Government has allocated, 57.9 per cent. of budgetary spending to capital expenditure (as opposed to recurring expenditures) in 2013/14, 59.3 per cent. to capital expenditure in 2012/13 and 58.7 per cent. to capital expenditure in 2011/12. Such capital expenditures have been for investment in Ethiopia’s economy, infrastructure and the skills and resources of its workforce. Infrastructure investment initiatives include, among others, the development and expansion of roads schools and health facilities and expanding telecommunication facilities as well as public housing schemes. Ethiopia ranks third-largest in the world in terms of public investment as a share of GDP according to the IMF, with public investment increasing from 19.6 per cent. of GDP in 2011/12 to 26.5 per cent. in 2012/13 and reducing to 20.0 in 2013/14. Ethiopia’s fiscal deficit was birr 27.4 billion or 2.6 per cent. of GDP in 2013/14 and birr 16.8 billion or 1.9 per cent. of GDP in 2012/13. Total public debt (including both external and domestic debt of the central government and SOEs) was US$25.7 billion or 46.8 per cent. of GDP in 2013/14 and US$22.1 billion or 46.6 per cent. of GDP in 2012/13; of this amount total external debt was US$14.0 billion or 25.5 per cent. of GDP in 2013/14 and US$11.2 billion or 23.7 per cent. of GDP in 2012/13. The challenges for Ethiopia are to further diversify its economy, to continue to invest in infrastructure as a driver of economic growth, to further improve agricultural productivity and increase the competitiveness of the economy as well as to ensure that the country’s balance of payments and levels of debt remain at manageable levels. The Government is committed to implementing economic policies and reforms that are consistent with its objectives of economic development and macroeconomic stability based on good governance and social welfare.

GTP II 2015 to 2020 The main macroeconomic objective of GTP II will be maintaining macroeconomic stability. Such macroeconomic stability is essential for achieving sustained, rapid and inclusive economic growth which is necessary to enable Ethiopia to increase employment and reduce poverty. The preparation of the macroeconomic framework of GTP II is now at its ﬁnal stage. The framework will soon be approved by the Government, and based on this approved macroeconomic framework, a draft

38 containing key macro and sector-speciﬁc targets will be prepared for national and regional consultations. The results of such national and regional consultations will be considered during the preparation of an elaborated draft of GTP II which will be ﬁnalised and ready for Government approval by June 2015.

Gross Domestic Product GDP is a measure of the total value of final products and services produced in a country in a specific year. Nominal GDP measures the total value of final production in current prices whereas real GDP measures the total value of final production in constant prices of a particular year, thus allowing historical GDP comparisons that exclude the effect of inflation. Ethiopia’s GDP grew on average by 10.9 per cent. from 2003/04 through 2013/14 compared to the 6.1 per cent. growth forecast for Sub-Saharan African countries. The growth was mainly driven by the agricultural (9.0per cent.) and industrial (13.7 per cent.) sectors. The following table sets out certain information about Ethiopia’s GDP by sector for the fiscal years indicated:

2009/10 2010/11 2011/12 2012/13 2013/14

Total...... 422.7 478.9 519.9 571.4 630.8

Less FISIM1...... 2.9 3.2 2.9 3.5 4.2 Real GDP (in birr billions) ...... 419.8 475.7 517.0 567.8 626.6 Growth in Real GDP (in per cent.)...... 10.6 11.4 8.7 9.8 10.3 Mid-year population (in millions)...... 78.8 80.7 82.7 84.8 87.0 Share in GDP (in per cent.)2 Agriculture...... 46.2 44.7 43.1 42.0 40.2 Industry ...... 10.3 10.5 11.5 13.0 14.3 Services ...... 43.8 45.5 45.9 45.6 46.2 Agriculture (in per cent.) Absolute Growth...... 7.6 9.0 4.9 7.1 5.4 Industry (in per cent.) Absolute Growth...... 10.8 15.0 19.6 24.1 21.2 Services (in per cent.) Absolute Growth...... 13.2 12.2 10.6 9.9 11.9

1 Financial Intermediation Services Indirectly Measured (‘‘FISIM’’) 2 The total of Agriculture, Industry and Services exceeds 100 per cent. as it is calculated as a percentage of total GDP less FISIM. Principal Sectors of the Economy Agriculture Agriculture is the primary sector in Ethiopia’s economy representing approximately 40.2 per cent. of GDP in 2013/14, 42.0 per cent. of GDP in 2012/13 and 43.1 per cent. in 2011/12. Agriculture also accounted for 74.1 per cent. of exports in 2012/13 and 74.3 per cent. of exports in 2011/12. The overall decrease in the agriculture sector’s contribution to GDP over the last three years is a result of the deliberate diversification of the economy in Ethiopia and the increased output from other sectors such as industry and services. Overall the agriculture sector has continued to grow in recent years and growth in the sector was 14.3 per cent. in 2013/14, 7.9 per cent. in 2012/13 and 4.9 per cent. in 2011/12. with growth in the agriculture sector being recorded at 5.8 per cent. in 2011/12 and 8.2 per cent. in 2012/13. The consistent growth in the agriculture sector over the last three financial years is a result of increased adoption of technology with increased usage of agricultural inputs like seeds and artificial fertiliser, improved agricultural practices, which is happening through improved extension service through the strategy of scaling up of good practice, mainly in crop production. Irrigation, particularly small scale irrigation projects, have been expanding and in 2013/14 the amount of land which has access to irrigation reached 2 million hectares. The agriculture sector comprises grain crops (including cereals, pulses and oil seeds), livestock farming and forestry agriculture, of which crop farming is the largest, accounting for 28.4 per cent. of GDP or 1.9 per cent. of GDP growth in 2013/14, 29.4 per cent. of GDP or 2.4 per cent. of GDP growth

39 in 2012/13 and 29.8 per cent. of GDP or 1.5 per cent. of GDP growth in 2011/12. Livestock farming accounted for 8.3 per cent. of GDP or 0.2 per cent. of GDP growth in 2013/14, 8.9 per cent. of GDP or 0.5 per cent. of GDP growth in 2012/13 and 9.3 per cent. of GDP or 0.5 per cent. of GDP growth in 2011/12. Forestry agriculture contributed 3.5 per cent. to GDP or 0.2 per cent. of GDP growth in 2013/14, 3.7 per cent. of GDP or 0.1 per cent. of GDP growth in 2012/13 and 3.9 per cent. of GDP or 0.1 per cent. of GDP growth in 2011/12. Agriculture is expected to continue to be the primary source of economic growth in Ethiopia and the Government expects the sector to grow by a minimum of 8.6 per cent. per annum during the GTP II period. The Government’s policy priorities in respect of the agriculture sector are to increase crop production and productivity by educating small holder farmers and making agricultural technologies more widely available, improving livestock productivity through improvement of local breeds and health services, improving natural resource conservation and utilisation by extending irrigation schemes and encouraging private investment large scale agriculture and value addition of in the agriculture sector. In 2013/14, the total cultivated land area was 14.3 million hectares compared to 14.1 million hectares in 2012/13 and 13.7 million hectares in 2011/12. The 14.3 million hectares of cultivated land in 2013/14 represents approximately 27.5 per cent. of the 51.3 million hectares of arable land in Ethiopia. The increases in cultivated land are attributable to the Government’s policies relating to addressing land degradation, amelioration of vertisol through management of water logging and acidic soil through improving natural resource conservation. Smallhold and Commercial Farmers The majority, approximately 90.0 per cent., of the arable land in Ethiopia is owned and farmed by ‘smallholder’ farmers of whom approximately 82.3 per cent. own less than 2.0 hectares per farming family with the remaining 16.0 per cent. owning holdings of between 2.0 and 5.0 hectares. Land which is owned by smallholder farmers is not permitted to be sold under Ethiopian law, but may be leased and a change of ownership of the land is effected via inheritance from one generation to the next, or where there isn’t anyone to inherit the land, it will be reallocated by the local community. Smallholder farmers are the main sources of production, for both crop and livestock, in Ethiopia and the Government’s strategic focus is on increasing the productivity, efficiency and production of smallholder farmers. Such productivity increases are expected to result from increased access by smallholder farmers to training and education about farming techniques and improved technologies and by cooperatives and unions making agricultural inputs (fertiliser, seeds and machinery) available to smallholder farmers as well as increased irrigation of arable land. In 2012/13 approximately 96.2 per cent. of total crop production was produced by smallholder farmers with the remaining 3.8 per cent. being produced by commercial farms.The majority of commodity exports including coffee, sesame and pulses are provided by the smallholder farm agricultural cash-crop sector. An increase in the productivity of smallholder farmers will directly benefit smallholder farmers as well as contributing to export and GDP growth of the sector. Commercial farms currently contribute less than 5.0 per cent. to total production on average. The Government is undertaking a number of programmes designed to attract foreign and domestic investment in commercial farming enterprises. Suitable agricultural land has been identified in various regions of the country and put in a ‘land bank’ for investment purposes. Further studies are being conducted to ascertain the suitability of remaining un-surveyed land for inclusion in the land bank. The current undertaking of a country-wide soil mapping analysis is also expected to provide a better understanding of various areas of land with respect to their suitability for commercial crop and livestock farming development. Since most of agricultural investors currently in operation are local investors with little capital and management capabilities, comprehensive packages are being implemented in order to provide increased access to finance, production methods, and managing labour issues, including education, all of which is in keeping with the code of practice developed in accordance with the Government’s ‘Good Agricultural Practice’ framework.

40 Crops Ethiopia produces a wide variety of crops, both for domestic use and export, largely as a result of the wide range of climatic conditions in the country, making certain areas and regions more suitable for different types of crops and agricultural activity. In general, the following crops and agricultural activities correspond to the indicated regions of the country, the topography of which is shown in the below map.

The highlands of Ethiopia, which are mainly at elevations of 1,500 to 3,000 meters are divided into ‘north to central’ and ‘south’ by the rift valley extending from north east to the south. Due to moderate to cool temperatures in the highlands, the majority, approximately 85.0 per cent., of Ethiopians are resident in the highlands and the region is also home to the majority of smallholder farms. This is due to the climatic conditions which are conducive to growing a wide range of cereal crops including teff, barley, wheat, maize and sorghum as well as pulses including horse beans, ﬁled peas, haricot beans and chick peas. In addition, the region accommodates the rearing of a range of livestock species and breeds.

The majority of the coffee produced in Ethiopia grows best at altitudes between 1,300 and 1,800 meters. Coffee grows in various parts of the country but wild coffee can still be found in the south western part of Oromiya and SNNPR. Most Ethiopian coffee is produced in the Oromiya and in the SNNPR region and although in less amounts, is also produced in Gambela, Benishangul Gumuz, Amhara, Tigray and Harari Regions.

The north-west of Ethiopia is the region in which the majority of Ethiopia’s sesame production is based. The region has a more humid climate making it suitable for the production of oil seeds. The western lowland regions have similar ecological condition with enough rainfall and fertile land while having a very low population. Hence, most of the potential arable land is found in the western lowland regions of Amhara, BenishangulGumuz, Gambela and extending up to SNNPR. These are areas also endowed with large perennial rivers, thus with the right infrastructural investment, have high potential for irrigated agriculture.

41 The following table sets out productivity by crop type for the periods indicated (see ‘‘The Federal Democratic Republic of Ethiopia – Climate’’)

Productivity in 2010/11 (100kg/hectare) Productivity in 2011/12 (100kg/hectare) Productivity in 2012/13(100kg/hectare)

Com. Com. Com. Crop type Smallholder farmers farms Average Smallholder farmers farms Average Smallholder farmers farms Average

Meher Belg Meher Belg Meher Belg Season Season Season Season Season Season Major crops...... 17.2 7.67 20.62 16.49 18.08 5.82 16.65 16.99 18.83 7.96 17.43 17.82 Cereals ...... 18.32 8.64 33.62 12.42 19.61 6.51 26.69 18.64 20.46 8.76 27.26 19.59 Teff ...... 12.6 5.55 14.48 12.42 12.80 4.18 14.28 12.58 13.79 6.43 14.09 13.55 Barely...... 16.27 6.94 24.75 15.03 16.72 5.77 24.43 15.47 17.48 7.07 24.43 15.97 Wheat ...... 18.38 9.85 33.03 18.41 20.28 8.91 26.19 20.07 21.10 — 25.69 20.50 Maize ...... 25.39 9.50 48.05 22.5 29.53 7.15 31.48 25.11 30.59 9.49 32.5 26.12 Sorghum ...... 20.85 7.0 24.06 20.5 20.53 2.99 23.52 20.03 21.05 5.36 24.88 20.87 Pulses ...... 14.38 4.3 16.29 13.05 14.32 3.87 15.92 12.91 14.76 5.43 17.89 13.72 Horse Beans...... 15.19 4.7 17.50 15.10 15.62 1.90 17.29 15.47 16.44 3.92 17.45 16.33 Filed Peas ...... 12.60 6.61 23.70 12.39 12.36 5.28 15.02 11.88 12.79 7.78 15.17 12.44 Haricot Beans...... 14.33 4.55 17.14 10.18 11.69 3.85 17.51 8.73 12.62 5.40 17.13 10.10 Chick peas ...... 15.49 2.39 15.97 15.12 17.30 9.90 15.76 17.06 17.1 9.04 15.85 16.83 Oils seeds ...... 8.18 0.55 11.66 8.83 8.29 — 7.96 8.10 8.87 0.29 7.97 8.5 Niger seed...... 5.8 — 6.5 5.85 6.02 — 6.93 — 6.99 — 7.02 7.0 Linseed...... 8.8 — 17.88 8.83 9.67 — 15.85 9.60 9.54 — 14.42 9.56 Groundnuts ...... 14.43 — 17.20 14.47 16.05 — 15.88 15.05 13.8 — 16.22 13.92 Sunflower...... 9.23 — 17.99 9.34 10.85 — 17.99 12.16 11.63 — 16.44 10.93 Sesame ...... 8.52 0.61 11.67 9.45 7.25 — 7.67 7.30 7.75 0.42 7.80 7.54 Total agricultural grain crop production increased by 18.7 per cent. amounting to 4.3 million tonnes in 2013/14 and production was recorded as 1.7 tonnes per hectare. Cereal production accounted for 85.3 per cent. of the total grain crop production during the period. Pulse production increased by 12.1 per cent. as cultivated land area for pulses increased by 10.0 per cent., while oil seeds reflected a moderate increase of the total crop production by 29.5 per cent., as the cultivated land area for oil seeds increased by 37.8 per cent. for the year 2013/14. Export receipts from the sale of coffee amounted to US$714.4 million in 2013/14, which is a 4.3 per cent. reduction from US$746.6 million in 2012/13, which, in turn, was a decrease by 10.6 per cent. compared to 2011/12. The decrease in export revenue from 2013/14 is attributable to a 4.6 reduction in the volume of coffee exported, whereas the reduction from 2012/13 to 2011/12 was due to a 23.8 per cent. fall in the international price of coffee despite a 17.6 per cent. increase (to 200,000 tonnes) in the volume of coffee exported in the same period. The other primary crop commodities which Ethiopia exports include oil seeds, pulses and chat. Oil seeds accounted for US$651.9 million in export receipts in 2013/14 and US$443.5 million in export receipts in 2012/13. The increase from 2012/13 to 2013/14 is attributed to a 11.9 per cent. increase in the volume of oil seeds exported and a 31.6 per cent. increase in the average unit price from 2012/13 to 2013/14. Pulses accounted for US$250.7 million in export receipts in 2013/14 and US$233.3 million in export receipts in 2012/13, with the increase attributed to a 10.6 per cent. increase in the average unit price from 2012/13 to 2013/14, which offset a 2.9 per cent. reduction in the volume of pulses exported during the period. Chat accounted for US$295.1 in export receipts in 2013/14 and US$270.6 million in export receipts in 2012/13, with such increase attributed to a 47.9 per cent. increase in the volume of chat exported which offset a 26.3 per cent. decrease in the average unit price from 2012/13 to 2013/14. The Ethiopia Commodities Exchange (‘‘ECX’’) The ECX was the first such commodities exchange in Africa and was established by proclamation 2007-551 in April 2008, with the stated objective of ensuring the development of an efficient modern trading system that would protect the rights of sellers, buyers, intermediaries and the general public. The ECX operates on a membership basis, whereby members of the ECX can sell and/or purchase on behalf of themselves or others. Commodities to be traded on the ECX are brought by sellers to one of the ECX’s 16 warehouses (located in Oromiya, Amhara, Tigray, SNNPR, BenishangulGumz, Diredawa and Addis Ababa), graded, certified, weighed and stored in the warehouse so as to enable the ECX to ensure quality, delivery to the buyer and supply availability. Buyers’ funds are transferred into a pre-trade cash account that is used for exchange trading purposes only and which redirects payment to the seller the day after the trade. The operation of the ECX has formalised the trade of commodities within Ethiopia and has helped to standardise prices across the country and increase confidence in the trading platform as an independent third party assesses quality and supply, and guarantees payment and delivery. The value of the commodities traded by ECX as at the end of 2013/14 was birr 26.2 billion.

42 Livestock Livestock farming accounted for 8.3 per cent. of GDP or 0.2 per cent. of GDP growth in 2013/14, 8.9 per cent. of GDP or 0.5 per cent. of GDP growth in 2012/13 and 9.3 per cent. of GDP or 0.5 per cent. of GDP growth in 2011/12. Ethiopia has one of the largest livestock inventories in Africa with a national herd estimated at 55.0 million cattle, 55.5 million sheep and goats, and 10.4 million pack animals, 51.4 million poultry and 5.1 million beehives. Livestock currently support and sustain livelihoods for approximately 80.0 per cent. of all rural population. Of the total population, 35.0 to 40.0 per cent. of all livestock are located in the pastoral areas (see topographical map above). Draught animals also provide power for the cultivation of the smallhold farms and for crop threshing virtually all over the country and are also essential modes of transport, transporting farmers and their families long-distances to convey their agricultural products to the market places and bring back their domestic necessities. Livestock farming is a sector with large growth potential and the Government aims to develop the sector and encourage the use of machinery for ploughing in the crops sector so that more livestock are raised both for domestic consumption and to expand the dairy industry, to increase exports of livestock and animal products and to increase the supply of raw material for leather industries as opposed to using cattle for draught-power. Of the 55.0 million cattle in Ethiopia, approximately 10.5 million are dairy cattle and approximately 2.9 billion litres of milk are produced at an average of 1.4 litres per cow per day in an average lactation period of 6 months. Market oriented milk production is located in the highlands where rainfall, temperature, and soil types are conducive to forage production. There are three main milk producing areas in the highlands; Greater Addis, Lake Tana, and Mekele / Humera. Of the 516.0 million litres produced in these areas approximately 65.0 per cent. comes from the Greater Addis milk shed. A total of 100.8 million eggs were produced in the year 2013/14 and the estimated total honey production was approximately 43.8 million kilograms in 2013/14 of which the greater portion of it is harvested from traditional hives. Approximately four ‘improved’ cattle breeds have been imported into Ethiopia since the 1930’s and are bred with various native-Ethiopian cattle breeds. Such breeds are most appropriately managed for dairy, meat and live export. The share of improved cattle as opposed to native-Ethiopian cattle is approximately 36.5 per cent. and there are programmes in place to increase breeding of improved cattle. Other programmes which are in place to support the livestock agricultural sector include programmes to ensure adequate supply of livestock feed and the promotion of the development of sustainable livestock feed by domestic farmers. In addition, programmes are in place for the production and distribution of vaccines to ensure the health and quality of livestock as well as training workers in pastoralist communities in animal health. The National Veterinary Institute, the vaccine production facility, is accredited with ISO and certified to serve as pan-African vaccine certification centre. Since 2011, approximately 265 animal health posts have been built to help ensure the health and quality of livestock owned by farmers in pastoral areas. In order to enhance and facilitate trade of live animals and meat to the Middle East and African regions international standard quarantines are being built in five export corridors. Livestock, being a high value commodity, is considered to be a driver of agricultural growth and as such, is accorded high priority. The culture of rearing livestock means that both small holder farmers and commercial producer will have increasing opportunities with expected increasing demand for livestock products both domestically and regionally.

Industry The industry sector accounted for 14.3 per cent. of GDP and 2.8 per cent. of GDP growth in 2013/14, 13.0 per cent. of GDP and 2.8 per cent. of GDP growth in 2012/13 and 11.5 per cent. of GDP and 2.1 per cent. of GDP growth in 2011/12. During the corresponding years the industry sector grew by 21.2 per cent., 24.1 per cent. and 19.6 per cent. respectively. The largest subsector within the industry sector is manufacturing, accounting for 4.4 per cent. of GDP or 0.5 per cent. of GDP growth in 2013/14, 4.4 per cent. of GDP or 0.7 per cent. of GDP growth in 2012/13 and 4.1 per cent. of GDP or 0.5 per cent. of GDP growth in 2011/12. Also categorised as part of the industry sector in Ethiopia is the construction sub-sector, accounting for 7.6 per cent. of GDP in 2013/14, 6.1 per cent. of GDP in 2012/13 and 4.9 per cent. of GDP in 2011/12 (See ‘‘– Infrastructure’’), and the electricity and water subsectors which currently contribute an average of 1.1 per cent. to GDP over the last three years. See ‘‘– Energy’’ and ‘‘– Infrastructure – Access to Water Supply’’.

43 The Ministry of Industry and Trade has articulated three fundamental principles for the development of the industry sector in Ethiopia. The first is the principle that the development of the industry sector will be based on agriculture as agriculture is the largest sector of the economy and which has the most resources and potential. Development initiatives in agro-industry include increasing the production of both animal and phosphate fertiliser for use in crop farming which is currently almost entirely organic and thus not producing the full capacity yield. Ethiopia has a large livestock population as well as phosphate reserves which are necessary raw materials for the production of fertiliser. The second fundamental principle of developing the industry sector is that the industry sector will focus on ‘adding value’ to the raw materials which Ethiopia already produces. Examples of such activities include food processing and production of packaging for the crop commodities which are already being exported as well as the development of Ethiopia’s textile and leather based industries (such as tanning animal skins and the production of leather goods such as shoes and gloves) which manufacture the skins from the livestock reared in Ethiopia. The third fundamental principle is that the development of the industry sector will be export- orientated and will be aligned with the international trade and development policies of the Government. See ‘‘Foreign Trade and Balance of Payments’’. Manufacturing Manufacturing accounted for 4.4 per cent. of GDP in 2013/14, 4.4 per cent. of GDP in 2012/13, and 4.1 per cent. of GDP in 2011/12 with the large (i.e. more than 100 employees) and medium (i.e. 21 to 99 employees) manufacturing sector showing marginal increase in share during 2012/13 and 2013/14. During the corresponding years the large and medium scale manufacturing sector grew by 14.5 per cent., 24.2 per cent. and 15.9 per cent. respectively. The development of the manufacturing sector in Ethiopia is a key part of the Government’s goal of becoming a lower-middle income economy by 2025. Ethiopia already has or produces a lot of raw materials and the manufacturing of such raw materials into exportable products will increase export income and GDP growth. The Government has established research and development institutes of excellence to support manufacturing subsectors which will provide education and training as well as ensure that products manufactured in Ethiopia meet internationally recognised quality assurance standards. Examples of such institutes of excellence include the textiles industry development institute, leather industry development institute, metal industry development institute and the chemical and construction materials industry development institute, food, beverages and pharmaceuticals industry development institute, meat and dairy industry development institute, and Kaizen Institute for promoting productivity and quality. A further initiative implemented by the Government to encourage development of manufacturing is the partnership of subsector institutes with more developed equivalent institutes in other countries through ‘twinning programmes’. An example of such twinning programme is with the Central Leather Research Institute and the Footwear Design and Development Institute of India in respect of leather processing technology and product design and development technology in the footwear industry respectively. The Government is also creating links between industry and universities to continue to build human resource capabilities especially through technical and vocational training (‘‘TVET’’). The population of Ethiopia is relatively young and is increasingly educated and willing to be trained and the expansion of TVETs are especially promising as up to half of the training takes place in the factory, which encourages the retention of graduates from the scheme as employees. Bole-Lemi Industrial zone development has been piloted in the periphery of Addis Ababa with the construction of five factory ‘‘sheds’’, dedicated to manufacturing, all of which are either operational or close to being operational. The development of industrial zones is an effective approach to the faster and more efficient industrialisation of a country and has many benefits, including focusing the development of necessary infrastructure such as electricity and water supply, transport infrastructure for receiving raw materials and distributing finished products and telecoms infrastructure to a single area or ‘zone’. This is preferable to having factories spread out across different areas which would require more extensive infrastructure and which would take longer to develop. The pilot programme has been a success so far with all five of the ‘sheds’ being rented and the Government has commenced the construction of a further 15 sheds in the industrial zone, all of which have been rented prior to the completion of construction. In addition, the World Bank has committed US$250.0 million to support the construction of a second industrial zone in Addis Ababa, the design

44 for which has been completed and construction is due to commence during 2015. Plans for similar infrastructure and industrial zone developments are underway for three additional industrial zones in northern, eastern and southern Ethiopia. One such industrial zone which is in the planning stages is an anticipated ‘Leather City’ in which all of the tannery and leather goods manufacturing would be focused. Ethiopia currently exports processed and unprocessed animal hides for manufacturing in India and Asia. Investment is being made in the leather manufacturing subsector so that finished leather goods such as shoes and gloves are manufactured within, and exported from, Ethiopia directly. Other key targets for the development of manufacturing in Ethiopia include the following: * Leather and leather products: Ethiopia’s manufacturing industries are beginning to grow rapidly from a low base. The Huajian Chinese shoe company came to Ethiopia in 2011 and started exporting to well-known brands in the United States. Another significant investor in this sector, George Shoes from Taiwan, is also expanding its export-related capacity. The British company ‘Pittards’ invested in Ethiopia in 2009 and since then has continued to produce and export high quality leather products including high quality gloves. * Textile and apparel industry: in the first three years of GTP I implementation, the textile and apparel industry generated US$246.0 million foreign exchange revenue and over the same period the industry created approximately 12,500 new jobs. Ethiopia produces a lot of cotton and other fabrics and there is growth potential for producing clothing for export in addition to exporting textiles. * Food and beverage: Ethiopia has privatised its brewery industry which has continued to grow under private ownership. In 2012/13 the food and beverage industry generated US$173.0 million in foreign exchange revenues. In addition, two sugar refineries are expected to be built in Beles and Kuraz, which will assist with the transition from Ethiopia being a net sugar importer to a net exporter. Development projects include food processing both for domestic consumption and export, as well as the production of packaging for cash-crops such as coffee which are already being exported. * Chemical and construction industry: Several fertiliser plants are being developed and will be completed during the GTPII period, one of which will have a production capacity of 300,000 tonnes. Pre-construction preparations are also underway for a factory with a production capacity of 50,000 tone caustic soda and soda ash, and eight soap and detergent factories each with a production capacity of 156,000 tonnes commenced operation in 2012/13. A paper and pulp factory with a production capacity of 150,000 tonnes of is also currently under construction. Whilst the Government is committed to making capital investment in manufacturing, it recognises that foreign investment in the manufacturing industry in Ethiopia is vital to the country’s continued economic growth and has implemented many reforms designed to attract foreign investment and reduce the cost of doing business in Ethiopia. See ‘‘– Foreign Direct Investment’’. There has already been initial success in attracting international businesses, with companies such as ‘Pittards’, ‘George Shoes’, ‘H&M’ and ‘TESCO’ establishing offices in Addis Ababa.

Services The services sector accounted for 46.2 per cent. of GDP and 5.4 per cent. of GDP growth in 2013/14, 45.6 per cent. of GDP and 4.1 per cent. of GDP growth in 2012/13 and 45.9 per cent. of GDP and 4.4 per cent. of GDP growth in 2011/12. During the corresponding years the services sector grew by 11.9 per cent., 8.9 per cent. and 9.6 per cent. respectively. The services sector in Ethiopia encompasses a broad range of industries including wholesale and retail trade, real estate and rental, transport services, hotels and restaurants and education and health services. The service sector as a whole grew by 11.9 per cent., and accounted for about 46.0 per cent. of the economy during 2013/14. The Government sees expansion and productivity improvements in the services sector as a contributor to economic growth in the coming years. The services sector has demonstrated considerable potential for Ethiopia over the past 15 years. The services sector is the largest in terms of economic output and is the second largest employer. It accounts for most of the structural shifts in output and labour away from agriculture since 1995. Levels of labour productivity in the services sector are relatively high and labour productivity growth has been substantial.

45 Mining The mining industry in Ethiopia is still largely in its formative stages with approximately 180 international and domestic companies involved in exploration and research. The Government’s policy in respect of the mining sector is to establish laws and regulations as well as generating, collecting, analysing and interpreting geological data for the benefit of investors. Mining is viewed as one of the big growth sectors in Ethiopia and the Government expects the mining sector to contribute 10.0 per cent. of GDP by 2020 to 2023 whereas the mining sector currently contributes less than 1.5 per cent. on average. Over the last three years the mining sector has experienced growth of 37.4 per cent. in 2013/14, 73.8 per cent. in 2012/13 and 101.8 percent. in 2011/12, the majority of such growth being attributable to increased private sector involvement in exploring natural resources. The Government opened the sector to private participation in 1991, and, while gold mining and power projects have attracted major investments, there is continuing interest in mining other minerals and metals such as iron and base metals. A revised mining law was passed in August 2013, which, among other reforms, reduced the mining income tax from 35.0 per cent. to 25.0 per cent. to promote private participation, and encouraged large scale mining in various minerals despite weaker gold prices, which had previously discouraged several gold mining companies from exploring further opportunities. There is already an established, small-scale gold mining industry in Ethiopia which is primarily artisanal in nature and tends to occur in and around in river basins. The Government is committed to providing support to both reorganising local mining activities to increase productivity through commercial exploration and mining. Gold is Ethiopia’s second largest export commodity by value, and historically, high gold prices have accounted for much of Ethiopia’s export growth over the last decade. Proceeds from gold however are declining and are vulnerable to commodity price fluctuations, which have occurred in the last three years. Export receipts attributed to gold amounted to US$412.4 million in 2013/14, US$572.5 million in 2012/13 and US$580.6 million in 2011/12, despite a 1.0 per cent. increase in the volume of gold exported in the same period, due to a 21.5 per cent. decrease in the unit price. Gold accounted for 14.0 per cent. of the total exports value in 2013/14, 18.9 per cent. in 2012/13 and 19.1 per cent. in 2011/12. Ethiopia has significant gold resources and the Government estimates that there is a possibility of production rising to as much as 40.0 tonnes a year in the future from 11.7 tonnes in 2013/2014. While gold is Ethiopia’s primary export after coffee, Ethiopia’s natural resources and mining activity also include tantalum, phosphorus, iron, salt, potash, soda ash, gemstones, coal, geothermal, natural gas, other industrial and construction minerals/rocks, sand and gravel. A key part of the Government’s strategy for developing the mining sector is to improve education and increase the skills base by developing relationships with international mining industry bodies and universities. At the moment there is a ‘capacity gap’ in respect of resource exploration and extraction as well as supervision, licensing and regulation and the Government, as well as private enterprises, are investing heavily in developing the requisite capacity to develop the mining sector in Ethiopia.

Infrastructure Transport Roads The primary mode of transport within Ethiopia is via road and the Government has developed successive 5-year Road Sector Development Programmes since 1995, to develop the road network as well as set up a road fund to ﬁnance the maintenance of roads which have been built. Responsibility for road development and maintenance is shared between the federal and State governments and there are two independent organisations with different powers and responsibilities in respect of the road network; the Ethiopian Road Construction Corporation, which has the operational responsibility for road construction and maintenance, and the Ethiopian Road Authority which is the regulatory body responsible for planning and managing the federal road network and supervising roadworks at country level. Woreda Road Ofﬁces have also been established to strengthen the rural road development programme in connection with the Universal Rural Road access programme which also aims to develop the technical and volume capabilities of small and medium enterprise and local professionals and technicians who participate in the building and maintenance of community roads. The Ethiopian Road Authority is responsible for federal roads as well as major link roads, which connect two or more regional roads. The regional road authorities are responsible for feeder roads

46 which fall within a particular region. Woredas are entrusted with the responsibility of constructing and maintaining community roads which link the various Kebele’s within each respectiv Woreda. In 2013/14, the total road network in Ethiopia reached 99,522 kilometers which is an increase of 275.0 per cent. compared to the level in 1997. The Road Sector Development Programme sets out yearly targets for the construction of roads and in 2012/13 the overall target at the country level was to construct and maintain a total of 48,854 kilometers of road by federal, regional and district road authorities. During the year, construction and maintenance works were undertaken on 52,227 kilometers of roads, exceeding the yearly target by 7.0 per cent. Due to additional road construction works done in 2013/14, the stock of federal and regional road network alone increased from 48,854 kilometres to 60,500 thousand kilometres. The expansion of the road network and the road- construction industry during 2012/13 has contributed to economic growth and poverty reduction by encouraging economic transactions and providing employment opportunities for over 500,000 skilled and unskilled labourers. Road density, which is the assessment measure of road networks, is measured by road length per 1,000 persons and road length per 1,000 kilometers2. As part of GTP I, the government aimed to increase Ethiopia’s road density from 44.5 kilometers to 123.7 kilometers per 1,000 persons and from 0.6 kilometers to 1.5 kilometers per 1000 kilometers2. At the end of 2013/14, the road density per 1,000 kilometers2 had increased to 90.5 kilometers from 78.2 kilometers the previous year. The road density per 1,000 persons in 2013/14 was 1.1 kilometer, which signiﬁed an increase of 10.0 per cent. from 1.0 kilometers during the preceding ﬁscal year. The improvement in the size and quality of the road network has improved the access for the population to all-weather roads. The size of all-weather road at the Woreda level has increased from zero in 2009/10 to 39,000 in 2013/14. The proportion of Kebeles (the administrative units below the Woreda level) connected to all-weather roads has increased from 39.0 per cent. in 2009/10 to 68.0 per cent. in 2013/14. As a result the average travel time to all-weather road has fallen from 3.7 hours in 2009/10 to 1.8 hours in 2013/14. The following table sets out the achievements of the federal, regional and district roads for the periods indicated.

2010/11 2011/12 2012/13

Actual Actual Actual Activities (km) (km) (km)

Federal Roads ...... 19,159 19,092 19,500 Rehabilitation of trunk roads...... 93.7 104.5 137 upgrading of trunk roads ...... 322.8 323 214 upgrading of link roads...... 651 598 696 construction of trunk /link roads ...... 556.5 743 927 Heavy /Periodic maintenance ...... 912 905.9 816 Routine and Term Maintenance ...... 16,623 16,417.6 16,710 Regional Roads ...... 14,650 11,639 12,082 Construction of New Rural Roads ...... 3,768 838 1,345 Rural Roads Maintenance...... 10,882 10,801 10,737 Woreda Roads(URRAP) ...... 854 9,365 20,645 Construction of Woreda Roads ...... 854 9,365 20,645

Total...... 34,663 40,096 52,227

There are many challenges facing the construction and expansion of an extended road network in Ethiopia including high fuel prices, shortages of construction materials, a lack of expertise and skilled manpower, difficult project locations, lack of quality feasibility and design studies and poor contract management. In addition, currency fluctuation and inflation at the global and national levels have also been responsible for increasing costs of construction. The Government funds approximately 70.0 per cent. of the cost of new road projects and is attracting private investment and promoting competition through easing entry requirements and preparations of projects for new contractors, enhancing the capacity of the workers through education and training and the provision of various project-support mechanisms to enable the completion of projects within the time and budget. In particular, international companies from China, South Korea and Japan have won concessions to build new roads and certain projects are being sponsored by the World Bank and with support from the EU. To date, all roads are freeways except one 100 kilometer road from Addis

47 Ababa to Nazret, known as the ‘Addis Ababa – Adama Expressway’, which is a toll road. Part of the Government’s development programme for the road network is to facilitate the building of new roads which will operate as private toll roads and become a source of revenue for the owners and builders of such toll roads. The cumulative investment capital in road construction and expansion increased from birr 28.6 billion (approximately US$1.4 billion) in 2011/12 to birr 33.7 billion (approximately US$1.7 billion) in 2012/13 and again to birr 36.6 billion (approximately US$ 1.8 billion) in 2013/14. During 2014/15 fiscal year, the focus of the road sector development programme will be to complete the plan for the fifth year of the GTP I period under the fourth road sector development programme. This will be followed by GTP II which will contain its own chapter on road sector development in the coming five years. Rail Transport In the past five years, Ethiopia has commenced building an efficient national railway network. In November 2007 the Government established the Ethiopian Railways Corporation (the ‘‘ERC’’) to develop the country’s railway infrastructure. The ERC a is a commercially run state-owned enterprise and is overseen and regulated by the Ministry of Transport. The ERC’s mandate is to provide a modern, timely and cost effective passenger and freight rail service in Ethiopia. It intends to achieve those goals by building a railway infrastructure; operating cargo railway transport services; and providing passenger railway transport services. The ERC has created the National Railway Network of Ethiopia (‘‘NRNE’’) plan to develop the country’s rail network from its existing infrastructure, which consisted only of the Djiis was in Ethiopia. The NRNE has identified eight railway corridors to be constructed in order to grow the country’s rail network to 4,744 kilometers of standard gauge railways. The ERC’s strategy is to implement the NRNE in two phases over the course of 10 years: Phase I comprising five railway projects, and Phase II comprising six railway projects. The railway projects being developed by the ERC include the following projects to develop key railway corridors as a part of phase one of the NRNE project. A further six railway projects are planned for phase two of the NRNE project. The Addis Ababa-Djibouti railway project will connect Addis Ababa with the Port of Djibouti accommodating both freight and passenger trains and will halve the time it currently takes to make this journey. The Addis Ababa-Djibouti railway will be 656 kilometers long and will consist of a double track from Addis Ababa to Adama and a single track from Adama to Dewele (the Djibouti border). The railway is approximately 50.0 per cent. complete and is expected to be fully operational at the end of 2015. The project was financed by a loan secured from China and services utilising this railway track will be operated by the Ethiopian Railways Corporation. The Mekele – Tadjourah Port railway project will run from Mekele in Tigray in north Ethiopia, south via Weldiya and then east to the Tadjourah port in Djibouti. The Mekele – Tadjourah Port railway will be a 675.0 kilometer long single track railway which will accommodate both freight and passenger transportation. This railway will provide alternative port access in Djibouti, will connect north Ethiopia to central Ethiopia and should contribute to the economic development of northern Ethiopia. Construction of the railway is expected to commence during the GTP II period. The Addis Ababa – Bedele railway project will run in a southwest direction from the capital city via Seka in Oromia State to the town of Bedele and will eventually connect Ethiopia with South Sudan as well as reducing travel time to the southwest of the country. The Addis Ababa – Bedele railway will be a 496.0 kilometer single track railway which will accommodate freight and passenger transportation. Construction of the railway is expected to commence during the GTP II period. Air Transport Ethiopia has three international airports and 18 domestic airports. Its international flights link the country with over 45 cities on four continents: 26 in Africa, 12 in Asia, five in Europe and two in North America. Ethiopian authorities have expressed a commitment to expanding the country’s international services to become ‘‘Africa’s link to the world.’’ The civil aviation sector in Ethiopia was liberalised under the 2002 Investment Proclamation, although air transport services using aircraft with a seating capacity of up to 20 passengers are exclusively reserved for Ethiopian nationals. Air cargo service is open to foreign investors without any restrictions on capacity and multiple private airline companies have already emerged. The dominant airline in Ethiopia is Ethiopian Airlines, which is wholly owned by the Government and offers both passenger and cargo air transport services. Ethiopian Airlines has an operating fleet

48 of 69 aircraft including Boeing 787, 777, 767, 757, and 737 jets and operates flights to 84 international and 20 domestic destinations, with over 200 daily flights. In June 2014, the International Air Transport Association ranked Ethiopian Airlines as the number one airline in Africa and 37th in the world in terms of revenue and first in Africa and 18th in the world in terms of revenue and profit. The Ethiopian Airline is the largest and most profitable airline in Africa. On November 12, 2014, the Ethiopian Airlines was named the African Airline of the Year for 2014, by the African Airlines Association.

Access to Water Supply Ethiopia is known as the ‘water-tower of Africa’ and has 12 river basins with an annual runoff volume of 122.0 billion m3 of water and an estimated 2.6 to 6.5 billion m3 of ground water potential, which makes an average of 1575 m3 of physically available water per person per year. However, despite plentiful water resources, a lack of water storage infrastructure and large spatial and temporal variations in rainfall means that water is not evenly available to the population and farmers; the latter of whom are, on average, only able to produce one crop per year. The Government has prepared a water sector development programme as well as a water sector strategy, each of which identiﬁes the priorities of the Government’s water policy as improving access to safe drinking water, improving food security and export potential through extended irrigation and increasing the national production of electricity by constructing dams. The initial stages of implementing such water policy involved establishing effective institutions at the federal, regional and local governmental levels to oversee the development and management of water resources in their respective areas of responsibility. The Ministry of Water and Energy is the ministry responsible at the federal level for coordinating and monitoring water policy and the implementation of such policies is decentralised to regional, Wordea and community level. In addition, 12 river basin authorities are being established in respect of each of the major river basins in Ethiopia. The authority at the relevant level of responsibility (i.e. federal, river basin or local level) are responsible for implementing necessary training and recruitment programmes to strengthen technical capabilities of workers and environmental assessment programmes to assess and manage the environmental impact of the construction of water resource infrastructure and irrigation. Extensive geological surveying has also been and continues to be undertaken to identify and understand the available surface and ground water resources and potential for water and sewerage infrastructure, irrigation and hydropower. Speciﬁc development targets for Wordeas, towns, cities and regions have also been prepared based on the results of the geological surveys and estimations of population and demand growth.

Access to drinking water The Government has established three targets, against which it will measure progress and achievement with respect to increasing access to a water supply: (i) Quality, i.e. that the water supplied from improved sources should meet the drinking water standard; (ii) Quantity, i.e. that the yield from the scheme on the driest day of the year should have the capacity to provide at least 15 and 20 litres of drinking water respectively for rural and urban areas per person served by such source; and (iii) Accessibility, i.e. that the maximum distance to an improved supply should be within 0.5 kilometers for the urban population and within 1.5 kilometers for the rural population. As part of GTP I, the target proportion of the total population (urban and rural) with access to safe drinking water is 98.5 per cent. by the end of 2014/15, from 68.5 per cent. in 2009/10, comprising 100.0 per cent. of the urban population and 98.0 per cent. of the rural population. The proportion of the population with access to a water supply was 76.7 per cent. in 2013/14 comprised of 84.2 per cent. of the urban population and 75.5 per cent. of the rural population, 68.5 per cent. in 2012/13 comprised of 81.3 per cent. of the urban population and 66.5 per cent. of the rural population and 58.3 per cent. in 2011/12 comprised of 78.7 per cent. of the urban population and 55.2 per cent. of the rural population.

Irrigation and drainage development Approximately 513,000 square kilometres, or 45.0 per cent. of the land in Ethiopia is arable, of which approximately 34,200 square kilometres, or 7.0 per cent. has been irrigated. Irrigation projects are categorised as being small scale if under 200 hectares, medium scale if between 200 and 3,000 hectares and large scale if over 3,000 hectares.

49 In 2012/13, feasibility study and design works were undertaken for developing 263,645 hectares of medium and large scale irrigation schemes. In addition, construction work was undertaken on 96,650 hectares of land, of which approximately 11,655 hectares were developed by private investors. In addition, in 2012/13, a total of 1,830,000 hectares of land were developed under small scale irrigation schemes that beneﬁt smallhold farmers.

Telecommunications The state-owned Ethio Telecom has a mandate to enhance the development of the telecom sector and to support the country’s steady growth. Ethio Telecom recorded revenue of birr 16.6 billion in 2012/13 and gross proﬁt of birr 12.3 billion.

Subscribers GTP I aims to increase the number of fixed line subscribers from 1.0 million in 2009/10 to 3.1 million by the end of 2014/15. The number of mobile telephone subscribers is expected to increase to 40.0 million from 6.5 million and the number of internet users is expected to increase to 3.7 million from 187,000 over the same period. In line with GTP I interim targets, in 2012/13 the number of mobile telephone subscribers increased by 37.7 per cent. to 23.8 million from 17.3 million the previous year. Similarly, the number of internet subscribers reached 4.4 million in 2012/13 from 221,542 in 2011/12. In comparison, the number of fixed line subscribers in 2012/13 fell by 1.8 per cent. to 790,168 from 804,635 in 2011/12, mainly due to the popularity of mobile line over fixed lines and the relocation of people as a result of construction of new condominiums. The following table sets out certain data as to subscribers for mobile, fixed lines and internet as at the dates indicated:

Service Type 7 July 2012 7 July 2013

Fixed line...... 804,635 790,168 Mobile GSM(1) pre-paid...... 17,020,972 23,526,519 Mobile CDMA(2) pre-paid...... 142,086 110,488 Voice...... 19,940 11,197 Voice + Data...... 122,146 99,291

Total mobile pre-paid...... 17,163,058 23,637,007 Mobile GSM post-paid...... 86,019 107,739 Mobile CDMA post-paid ...... 8,403 11,861 Voice...... 6,017 8,595 Voice + Data...... 1,824 2,621 GOTA(3) only ...... 562 645 ALL MOBILE ...... 17,257,480 23,756,607 Broadband (EVDO, WCDMA, ADSL)(4) ...... 30,372 44,032 Narrowband (IX, dialup, ADSL 5256K)...... 191,170 177,011 GPRS(5) ...... 2,442,158 4,208,989

Total data and Internet ...... 221,542 4,430,032

Source: Ethio-Telecom (1) GSM (Global System for Mobiles). (2) CDMA (Code Division Multiple Access). (3) GOTA (Global Open Trunking Architecture). (4) EVDO (Enhanced Voice Data Optimised), WCDMA (Wideband Code Division Multiple Access) and ADSL (Asymmetric Digital Subscriber Line). (5) GPRS (General packet radio service).

Telecom Market Penetration Ethiopia’s total telecommunication penetration (i.e., the number of subscribers per 100 inhabitants) increased from 21.4 in 2011/12 to 28.5 in 2012/13. The penetration with respect to mobile lines was 20.4 in 2011/12 and 27.6 in 2012/13. In the same period, internet and data penetration also improved from 0.3 in 2011/12 to 5.2 in 2012/13. Fixed line penetration has decreased slightly 0.9 in 2012/13 from 1.0 in 2011/12 due to the high operational costs involved and accessories shortages.

50 The following table sets out the market penetration for ﬁxed line, mobile, and internet data for the periods indicated:

2011/12 2012/13(1)

Fixed line...... 1.0 0.9 Mobile ...... 20.4 27.6 Total ...... 21.4 28.5 Internet and data(2) ...... 0.3 5.2

Source: Ethio-Telecom Tele-density mobile plus ﬁxed telephone subscribers per 100 inhabitants (1) Population 84.5 million. (2) Does not take GPRS service into account.

Energy EEP and EEU are the Government-owned corporations responsible for generating, transmitting, distributing, and selling electricity. The energy sector in Ethiopia is currently undergoing reforms necessitated by economic growth and increasing demands on the sector which are aimed at increasing the institutional capacity of the power industry. EEU is responsible for the provision of electricity power services to domestic customers and EEP is responsible for the construction and the operation of generation and transmission infrastructure and substations. Ethiopia has significant potential for the production of energy from renewable sources with overall total power generation capacity estimated at 45,000 megawatt for hydroelectric power generation, 10,000 megawatt estimated for geothermal energy generation and 1.3 million megawatts estimated for wind energy generation and 5.5 kilowatt hour estimated for solar energy generation. The Government views the role of the energy sector as key to ensuring the rapid and sustainable development of the country as well as strengthening trade relationships with Ethiopia’s neighbours by exporting electricity and thereby increasing foreign exchange earnings. There are currently 13 hydroelectric power plants in Ethiopia which produce approximately 1,978 megawatts. A significant proportion of Ethiopia’s potential for power generation is from hydroelectric power, as 12 of its river basins are suitable for hydroelectric power generation. There are a number of hydropower developments which have been implemented or are currently being implemented in Ethiopia including Gil gel Gibe I, Gil gel Gibe II, Tekeze, Beles and Fincha Amerti Neshe. In addition, Gil gel Gibe III is about to be commissioned and a further 12 hydroelectric and six geothermal projects are currently the subject of feasibility studies. Both public and private financing has been secured or is being negotiated for the development of these power generation projects. The largest of the hydroelectric projects being implemented, both in Ethiopia and in Africa, is the GERD on the Abbay River, known as the Blue Nile, in the Bengi-Shangul Gumuz regional state, approximately 20 kilometers upstream of the Ethiopian-Sudan border. Once completed the GERD will have the capacity to generate 6,000 megawatt of electricity (equivalent to the capacity of the Krasoyarsk dam in Russia) which will be distributed throughout Ethiopia and exported to neighbouring countries including Sudan and Egypt, both of which are connected to Ethiopia via the Blue Nile. There have been tensions and misunderstandings between the governments of Egypt and Ethiopia in the past relating to water management and the GERD, but those have since been resolved and Egypt, Sudan and Ethiopia maintain a cooperative tri-partite dialogue in respect of the GERD and associated water management and environmental impact policies. The GERD project is wholly owned by the Government but is being implemented under the engineering procurement framework and international contractors have been involved in the design as well as the construction of the dam, including Salini Costarutori and Alstom Power. Of the 7,000 gigawatt hour produced in 2013/14, 6,440 gigawatt hour were consumed domestically and 560 gigawatt hour were exported. Demand for energy both in the domestic market and for export is expected to increase substantially over the coming decades in excess of supply capacity. Considering the increasing power demand and potential capacity shortfalls in the system, Ethiopia is looking to diversify its generation of renewable power to wind and geothermal sources. EEPCO has implemented different wind power projects in several sites throughout Ethiopia. Ashegoda Wind Farm, with a generating capacity of 120 megawatt, is the second project in the country after the 51 megawatt Adama wind farm project, which began production in 2011 and Adama II 153 megawatt of which 15 megawatt is commissioned and within the second quarter of

51 2015 the whole 153 megawatt will be in the system. In addition, Ethiopia has, as yet unexploited, solar energy potential. Currently, several solar energy projects have been designed and are projected to be implemented before the end of the GTP. As part of Ethiopia’s plans to become a major power exporter in East Africa, the country is building Africa’s largest geothermal power plant. The project will be important to Ethiopia’s economic growth and is also part of the country’s plan to be a carbon-neutral lower-middle income economy by 2025. The geothermal development is expected to help Ethiopia towards achieving a sustainable energy supply. In addition to Ethiopia’s energy generation capacity and development projects, the country is a net importer of petroleum, products including diesel and jet fuel from the Middle East and gasoline, the majority of which is imported from Sudan (see ‘‘Risk Factors – Risks Relating to the Federal Democratic Republic of Ethiopia – Ethiopia exports certain products to and imports certain commodities from Sudan, which is subject to a comprehensive U.S. sanctions programme administered by OFAC’’). Imported petroleum is sold to industrial as well as retail customers and is used for fuel. In 2012/13, a total of 2.2 million tonnes of petroleum products (including diesel, jet fuel and gasoline) were imported, a 5.5 per cent. increase from the 2.1 million tonnes imported in 2011/12. The domestic retail prices of such petroleum products are adjusted monthly in line with the global price of oil.

Electricity EEPCO and, after the planned restructuring has been implemented, the EEU, supply electricity through two different power supply systems: the Inter Connected System (‘‘ICS’’), which generates and connects power to the country’s broader power network, and the Self Contained System (‘‘SCS’’), which generates power independently from the network. The ICS constituted the major source of electric power generation. The following table sets out selected data on the electric power generation in the ICS and SCS for the periods indicated:

2010/11 2011/12 2012/13

KWH (in Share KWH (in Share KWH (in Share Source thousands) in per cent. thousands) in per cent. thousands) in per cent.

Hydro Power...... 4,922,069.4 98.8 6,239,288.9 99.3 7,384,468.3 97.4 Thermal Power...... 13,715.5 0.3 — — 37.8 — Geothermal...... 19,267.1 0.4 7,979.9 0.1 — — ICS Wind...... — — 29,256.3 0.5 191,327.8 2.5

Sub Total 4,955,052.0 99.5 6,276,525.2 99.8 7,575,833.9 99.9

Hydro Power...... 9,350.5 0.2 1,715.7 — 1,511.9 — SCS Thermal Power ...... 16,094.1 0.3 8,180.4 0.1 5,867.7 0.1

Sub Total 25,444.6 0.5 9,896.2 0.2 7,379.5 0.1

Hydro Power...... 4,931,419.9 99.0 6,241,004.6 99.3 7,385,980.1 97.4 Thermal Power...... 29,809.6 0.6 8,180.4 0.1 5,905.5 0.1 Geothermal...... 19,267.1 0.4 7,979.9 0.1 — — Total Wind...... — — 29,256.3 0.5 191,327.8 2.5

Grand Total ...... 4,980,496.6 100.0 6,286,421.3 100.0 7,583,213.5 100.0

The total amount of electric power generated in 2012/13 was approximately 7.6 billion kilowatt hour, exhibiting a 20.6 per cent. increase in comparison to 2011/12, and a 52.3 per cent. increase compared to 2010/11. In 2012/13, 97.4 per cent. of the country’s electricity was generated by hydropower, while the remaining 2.6 per cent. was generated from thermal and wind sources. The Government expects the generation of approximately 32.7 billion kilowatt hour of electricity in 2014/15. In 2012/13 there was a signiﬁcant increase in the generation of wind energy in the country. The total amount of electricity generated from wind sources increased to 191.3 million kilowatt hour from 29.3 million kilowatt hour in the preceding year, while production of wind energy did not even exist in Ethiopia in 2010/11. The number of Ethiopian cities and towns with access to electricity has reached 4,143. This ﬁgure includes only those cities and towns that have access to electricity or are connected to substations.

52 The number of customers who use electric power reached 1.9 million in 2012/13, of which 163,848 were new customers who gained access during the ﬁscal year 2012/13. Ethiopia currently exports electricity to 100 megawatts to Djibouti and 100 megawatts to Sudan, and is expected to commence export of electricity to Egypt and Kenya by 2020, and to increase its export capacity to 200 megawatts for Djibouti and 150 megawatts for Sudan. A number of infrastructure projects are underway to achieve this objective, and range from increasing electric power generation capacity to transmission infrastructure which will connect with neighbouring countries’ grids, or in the case of Egypt, will be transmitted via Sudan.

Privatisation In 1994 the Government established the Privatisation and Public Enterprise Supervising Agency (‘‘PPESA’’) to identify and recommend SOEs for privatisation. The Ethiopian Privatisation Agency (‘‘EPA’’) is responsible for managing the sale of SOEs once a decision has been made by the Government that an SOE will be privatised. In general, SOEs can be sold via an asset sale, an employee and management buy-out a joint venture with strategic investors, management contracts and/or the competitive sales of shares There are currently 30 SOEs in Ethiopia, certain of which have been retained as Government holdings as they are considered to be strategic holdings, either because of the importance of the SOE to the economy or the relevant industry sector, however other ancillary services or roles within a sector may be provided by private companies in conjunction with the SOE. Examples of such strategic SOEs include telecoms in respect of which Ethio Telecom is a SOE but downstream services have been opened for private sector operations. EEPCO, which is responsible for power generation and distribution, is also a SOE, but the electricity sector has been liberalised, with the Government allowing private investors to participate in generating electric power by setting up power plants, although the transmission and distribution of electrical energy is reserved for the Government. The Government does not currently have any plans to privatise strategic SOEs. Privatisations have been undertaken in almost every sector of the economy since the establishment of the PPESA. Between 1995 and 2014 EPA privatised a total of 277 SOEs, including hotels, retail businesses, warehouses and small and medium-sized factories.

Employment and Labour The employment-to-population ratio for Ethiopia is reported to be 76.2 per cent. This means about 76.2 per cent. of the country’s total population aged 10 years and over were working during the 2013 labour survey. The employment-to-population ratio for rural and urban areas are 81.6 and 55.5 per cent., respectively. The highest employment-to-population ratio was registered in the Amhara region at 80.4 per cent. and the lowest in Addis Ababa City Administration at 47.6 per cent. Relatively low employment rates in urban areas seem to be partially explained by labour market segmentation, which has weakened in recent years but remains significant. Relatively high wages in the public sector are likely to drive up formal private sector wages, thereby limiting labour demand. Consequently, the informal sector is the only option for a large part of the population; yet given the relatively high degree of competition among relatively undifferentiated and low productivity informal sector operators, many face unemployment or become discouraged workers. The Ethiopian index of employment rigidity, i.e., the facility to hire and fire employees, is very low. Employers can hire employees who are suitable for the role from the open labour market and the Government does not intervene in such hiring practices. The same law also allows employers to recruit foreign experts who are required for skilled work, who have specialist knowledge, experience or skills, and for jobs that require technology and that will transfer skills to the local workforce. The labour law has clearly stipulated how such mechanism functions in articles 172-173. With regard to the termination of employment, with the exception of respecting the employee’s fundamental rights at work (which are defined by the International Labour organisation, of which Ethiopia is a member), the employer largely has autonomy to terminate the employment of workers who are not considered ‘fit’ as a result of low productivity, inadequate contributions or receptiveness to training, not being suited to the competiveness of the business, or who commit acts which warrant disciplinary measures. The labour law also provides that the employer can terminate a contract of employment on grounds connected with the worker’s conduct or with objective circumstances arising out of his ability to do his work or the organisational or operational requirements of the business.

53 FOREIGN TRADE AND BALANCE OF PAYMENTS

Trade Policy The national trade policy of Ethiopia is based on free market principles and Ethiopia’s trade policies are found in various development and sectoral strategies of the country including in the Industrial Development Strategy, Foreign Affairs and Security Policy and Strategy; and the Agricultural and Rural Development Strategy. Ethiopia’s trade policy is principally export driven with an element of import substitution, and focuses on areas of comparative advantage which are believed to accelerate the process of Ethiopia’s economic development by augmenting its competitive capacity and efﬁciency at the international level. Ethiopia’s trade policy also provides due emphasis on integrating Ethiopia into the multilateral trading system.

Imports and Exports Ethiopia recorded a trade deficit of US$10.5 billion 2013/14 compared to US$8.4 billion in 2012/13. The trade deficit is largely a result of imports required for developmental projects and is financed by a combination of private transfers (remittances and NGO transfers), public transfers (official development assistance), foreign direct investment (‘‘FDI’’), and external borrowing. Current account including official transfers (deficit) to GDP ratio reached 8.6 per cent. in 2013/14 from 6.0 per cent. a year ago. The IMF estimates the current account deficit norm for Ethiopia at approximately 5.1 per cent. of GDP, reflecting a net import of oil to support growth and major capital projects and receipt donor funding. The following table sets out certain data in respect of Ethiopia’s external trade as a percentage of GDP for the periods indicated:

2010/11 2011/12 2012/13 2013/14

(per cent. of GDP) Particulars Exports...... 8.6 7.3 6.5 5.9 Imports...... 25.8 25.5 24.2 25.0 Trade Balance ...... (17.2) (18.3) (17.7) (19.1) Net Services and income...... 2.2 0.2 1.0 1.0 Net Private Transfers...... 8.6 7.5 7.6 7.4 Current Account Deficit (excluding official transfers)...... (6.5) (10.6) (9.2) (10.7) Current Account Deficit (including official transfers) ...... (0.7) (6.5) (6.0) (8.6) Exports Ethiopia has experienced an increase in export earnings over the past decade, with revenues growing more than five times from US$600.4 million in 2003/04 to US$3.3 billion in 2013/14, which is primarily due to the diversification of its export commodities. Coffee remains the largest export item, but its share of export value is decreasing due to the increasing share of non-traditional exports including leather, horticulture and livestock products. In 2003/04, coffee accounted for 37.2 per cent. of Ethiopia’s exports whereas it contributed 22.0 per cent. of exports in 2013/14. The proportion of export value attributed to coffee continues to decrease steadily and such decline corresponds to the increase in other commodities being exported. Coffee represented 22.0 per cent. of export value in 2013/14, 24.2 per cent. of export value in 2012/13 and 26.4 per cent. of export value in 2011/12. The proportion export value attributed to gold was 14.0 per cent. in 2013/14, 18.8 per cent. of export value in 2012/13 and 19.1 per cent. in 2011/12.

54 The following table sets out the values of Ethiopia’s major export items by product type for the periods indicated:

2011/12 2012/13 2013/14

Per cent. Per cent. Per cent. US$ millions share US$ millions share US$ millions share

Particulars Coffee ...... 833.1 26.4 746.6 24.2 714.4 22.0 Oilseeds...... 472.3 15.0 443.5 14.4 651.9 20.0 Leather and Leather products ...... 109.9 3.5 122.1 3.9 129.8 4.0 Pulses...... 159.7 5.1 233.4 7.6 250.7 7.7 Meat & Meat Products ...... 78.8 2.5 74.3 2.4 74.6 2.3 Fruits & Vegetables...... 44.9 1.4 43.9 1.4 45.9 1.4 Live-animals ...... 207.1 6.6 166.4 5.4 186.7 5.7 Chat...... 240.3 7.6 271.3 8.8 297.3 9.1 Gold ...... 602.4 19.1 578.8 18.8 456.2 14.0 Flowers...... 197.0 6.3 186.7 6.1 199.8 6.1 Others ...... 207.1 6.6 215.4 7.0 247.4 7.6

Total Exports...... 3,152.7 100.0 3,081.2 100.0 3,254.8 100.0

Europe is the largest export market for Ethiopia, accounting for 37.7 per cent. of the country’s total exports in 2013/14, 43.4 per cent. of total exports in 2012/13 and 47.1 per cent. of total exports in 2011/12. Asia (including the Middle East) accounted for 34.5 per cent. of total exports in 2013/14, 30.5 per cent. of total exports in 2012/13 and 30.1 per cent. in 2011/12. During the same period, Africa accounted for 22.6 per cent. of total exports in 2013/14, 21.3 per cent. in 2012/13 and 18.9 per cent. of total exports in 2011/12 5.2 per cent. of Ethiopia’s total exports in 2013/14 were sold to the Americas. Of the 37.7 per cent. of the country’s total exports to Europe in 2013/14, the primary European markets were Switzerland which represented 37.4 per cent. of the European exports in 2013/14, mainly purchasing gold and coffee, and Netherlands accounted for 15.9 per cent. of European exports in 2013/14, which primarily comprised coffee, ﬂowers, oilseeds and pulses. Within Asia, China represented 35.8 per cent. of total exports to Asia in 2013/14 with exports mainly including oilseeds, mineral products, leather and leather products, textile and garments, natural gums and coffee. The next key Asian market was Saudi Arabia representing 16.4 per cent. of exports to Asia, which imported items including coffee, meat and meat products, oilseeds, ﬂowers and live animals. Within Africa, the key export partners were Somalia, Sudan, Djibouti and Egypt, together accounting for 87.9 per cent. of exports to Africa and mainly consisting of exports of live animals, vegetables, coffee, spices, pulses and cereals.

Imports Ethiopia’s main import commodities are capital goods, which accounted for 32.8 per cent. of the total value of imports in 2013/14, 31.2 per cent. in 2012/13 and 26.8 per cent. in 2011/12, and petroleum products, which accounted for 18.2 per cent. of the total value of imports in 2013/14, 18.6 per cent. in 2012/13 and 18.8 per cent. in 2011/12. The primacy of these import commodities as well as the increase in proportion of import values is attributed to the necessity of these commodities to Ethiopia’s large public investment projects. Consumer durables and non-durables together constituted 27.9 per cent. of the total value of imports in 2013/14, 30.1 per cent. in 2012/13 and 31.9 per cent. in 2011/12. Semi-ﬁnished goods (including fertilisers) constituted for 15.3 per cent. of the total value of imports in 2013/14, again 15.3 per cent. in 2012/13 and 17.7 per cent. in 2011/12.

55 The following table sets out the value of Ethiopia’s major imports by product type for the periods indicated:

2011/12 2012/13 2013/14

Per cent. Per cent. Per cent. US$ millions share US$ millions share US$ millions share

Raw Materials ...... 199.7 1.8 145.6 1.3 165.2 1.2 Semi-ﬁnished Goods...... 1,957.2 17.7 1,753.9 15.3 2,098.1 15.3 Fertilisers ...... 604.6 5.5 291.8 2.5 398.9 2.9 Fuel...... 2,124.8 19.2 2,163.9 18.9 2,543.2 18.5 Petroleum Products ...... 2,078.3 18.8 2,128.2 18.6 2,494.9 18.2 Others ...... 46.4 0.4 35.7 0.3 48.4 0.4 Capital Goods ...... 2,961.7 26.8 3,572.6 31.2 4,500.3 32.8 Transport...... 809.7 7.3 903.1 7.9 1,084.3 7.9 Agricultural...... 119.5 1.1 129.9 1.1 166.8 1.2 Industrial ...... 2,032.5 18.4 2,539.6 22.1 3,249.2 23.7 Consumer Goods ...... 3,531.7 31.9 3,452.4 30.1 3,834.1 27.9 Durables ...... 1,105.3 10.0 1,089.8 9.5 1,501.1 10.9 Non-durables ...... 2,426.4 21.9 2,362.6 20.6 2,333.0 17.0 Miscellaneous...... 286.3 2.6 378.9 3.3 581.0 4.2

Total Imports...... 11,061.2 100.0 11,467.3 100.0 13,721.9 100.0

The proportion of imports attributed to capital goods increased by 4.4 percentage points from 2011/ 12 to 2012/13 and by 1.6 percentage points from 2012/13 to 2013/14 largely due to a 3.7 and 1.6 percentage points rise in the share of industrial goods, respectively, in 2012/13 and 2013/14. Merchandise imports grew by 3.7 per cent. from 2011/12 to 2012/13 and by 19.7 per cent. from 2012/ 13 to 2013/14. The continued demand for capital goods and related services is driven by substantial public infrastructure projects. European countries accounted for 20.3 per cent. of Ethiopia’s total import bill in 2013/14, of which 17.9 per cent. was attributed to Italy, 16.2 per cent. was attributed to Turkey, 12.3 per cent. was attributed to Germany and 10.7 per cent. was attributed to Ukraine, all of which were mainly for machinery and aircraft equipment, road and motor vehicles, grain, metals and metal manufacturing, and electrical materials. African countries accounted for 3.0 per cent. of Ethiopia’s total import bill in 2013/14, 30.3 per cent. of which was attributed to Egypt and 29.3 per cent. to South Africa, which jointly accounted for 59.6 per cent. of the total import from Africa. The major imported items were road and motor vehicles, food and live animals, machinery and aircraft equipment, medical and pharmaceutical products, metal and metal manufacturing, paper and paper manufacturing, fertiliser, grain and beverages. The Americas accounted for approximately 6.0 per cent. of Ethiopia’s total import bill in 2013/14, of which the US and Brazil accounted for approximately 94.1 per cent. of such imports. Glass and glassware, machinery and aircraft equipment, road and motor vehicles, grain and medical and pharmaceutical were the major items imported from that region. The Government’s efforts at containing imports include attempts to increase exploration and generation of bio-fuel production, as well as the use of sustainable renewable energy to substitute fuel imports.

Balance of Payments Overview The overall balance of payments (current account balance plus capital account balance plus errors and omissions) witnessed a deficit of US$91.4 million in 2013/14, US$6.5 million in 2012/13 and US$972.8 million in 2011/12, having deteriorated from a surplus of US$1.4 billion in 2010/11 and US$316.6 million in 2009/10. The trade deficit was the result of the increased amount of infrastructure and other development projects being undertaken in Ethiopia from 2011 to 2014, which gave rise to an increase in imports for developmental projects, which were financed by a combination of private transfers (remittances and NGO transfers), public transfers (official development assistance), FDI and external borrowing.

56 The following table sets out certain information about Ethiopia’s balance of payments for the periods indicated:

2009/10 2010/11 2011/12 2012/13 2013/14

(Millions of US dollars, unless otherwise indicated) Current account balance ...... (1,193) (211) (2,800) (2,820) (4,704) (Per cent. of GDP) ...... (4.1) (0.7) (6.5) (6.0) (8.6) Current account balance, excl. official transfers...... (3,099) (2,071) (4,588) (4,349) (5,865) (Per cent. of GDP) ...... (10.5) (6.6) (10.8) (9.2) (10.7) Trade balance ...... (6,265) (5,506) (7,908) (8,386) (10,467) Exports of goods ...... 2,004) 2,747 3,153 3,081 3,255 Imports of goods ...... (8,269) (8,253) (11,061) (11,467) (13,722) Services (net)...... 513 758 171 572 712 Exports...... 2,044 2,586 2,811 2,853 3,174 Imports ...... (1,531) (1,828) (2,639) (2,281) (2,462) Income (net) ...... (55) (70) (96) (113) (153) Private transfers (net) ...... 2,708 2,747 3,246 3,578 4,042 Official transfers (net)...... 1,906 1,861 1,788 1,530 1,162 Capital account balance...... 1,996 2,535 2,120 3,226 3,902 Foreign direct investment (net) ...... 956 1,243 1,072 1,232 1,467 Other investment (net)1 ...... 1,044 1,450 1,169 2,086 2,370 Official long-terms loans...... 857 1,019 938 1,688 1,287 Disbursements...... 894 1,055 1,007 1,743 1,374 Amortisation ...... (37) (35) (69) (56) (87) Other public long-terms cap. net...... 186 430 231 399 1,083 Monetary Authority ...... — — — — — Short-term capital...... (3.8) (157) (121) (92) 64.3 Errors and omissions ...... (486) (941) (293) (413) 711 Overall balance...... 317 1,384 (973) (7) (91) Financing ...... (317) (1,384) 973 7 91 Reserves...... (305) (1,376) 981 16 95 Central bank...... 58 (932) 847 (57) (48) Reserves ...... (398) (1,065) 810 (127) (95) Liabilities...... 456 133 37 70 47 Commercial banks ...... (362) (444) 134 73 143 Debt Relief ...... (12) (8) (8) (9) (3) (Actual percentage change, unless otherwise indicated) Memorandum items: Exports of goods ...... 38.3 37.1 14.8 (2.3) 5.6 Export volume index ...... 10.5 8.9 (0.4) 14.0 — Imports of goods...... 7.0 (0.2) 34.0 3.7 19.7 Import volume index...... 14.1 (3.8) 25.9 6.8 — Services exports ...... 5.7 26.5 8.7 1.5 11.3 Services imports...... 1.1 19.4 44.4 (13.6) 7.9 Exports of goods and services (per cent. of GDP) ...... 13.6 16.7 13.8 12.5 11.7 Imports of goods and services (per cent. of GDP) ...... (33.0) (31.5) (31.6) (29.1) (29.5) Gross official reserves (millions US dollars) 2,017 3,049 2,262 2,368 2,463 (Months of following year imports of goods and services)...... 3.1 3.2 2.5 2.3 2.3 Terms of trade index ...... 38.3 23.5 8.2 (10.3) — GDP (millions of US dollars) ...... 29,706 31,957 43,314 47,306 54,910

Sources: Ethiopian authorities and IMF staff estimates and projections. 1. For 2008/09 and 2009/10, other investment (net) includes a correction for the timing difference between entry of ETC imports and corresponding loan disbursements.

Current Account Ethiopia’s current account deficit was 8.6 per cent. of GDP or US$4.7 billion in 2013/14, 6.0 per cent. of GDP or US$2.8 billion in 2012/13 and 6.5 per cent. of GDP or US$2.8 in 2011/12. In 2011/12 the current account balance recorded a deficit of US$2.8 billion, or 6.5 per cent. of GDP, reflecting a higher increase in merchandise imported to support the country’s large infrastructure development projects. In 2012/13, the current account balance remained at the same deficit of US$2.8 billion, or 6.0 per cent. of GDP, as exports of goods slightly fell 2.3 per cent. year-on-year while imports grew 3.7 per cent. on continued demand for capital goods and fuel. In 2013/14, the

57 current account balance deﬁcit increased to US$4.7 billion, or 8.6 per cent. of GDP because the increase in exports was overshadowed by the surge in imports such as capital goods required for infrastructure investment and development projects.

Capital Account In 2012/13, increased loan disbursements to the Government and public entities and higher FDI resulted in a capital account surplus of US$3.2 billion, or 6.8 per cent. of GDP, which was approximately 52.2 per cent. higher than that of the previous year, owing to a rise in ofﬁcial and other public long term net capital inﬂows by 79.9 per cent. and 72.8 per cent, respectively.

Foreign Direct Investment FDI amounted to US$1.5 billion in 2013/14 which was an increase of 19.1 per cent. compared to FDI of US$1.2 billion in 2012/13 and which was an increase of 14.9 per cent. compared to FDI of US$1.1 billion in 2011/12. Increasing FDI is beneficial for Ethiopia’s execution of planned projects as well as supporting its balance of payments, given its high imports requirements for infrastructure development projects. There has been an increase in FDI across heavy industrial and small-scale sectors in recent years. FDI flows in labour-intensive industries like leather and textile manufacturing, with improving electricity and transport networks, provide the potential for increasing exports. In addition to the FDI that Ethiopia has successfully attracted for small-to-large scale manufacturing, mining, exploration of oil/gas and hydropower, FDI inflows and projects undertaken by China have been substantial in recent years. China has emerged as a key developmental partner in the execution of Ethiopia’s GTP objectives and a key source of FDI, often providing sizeable financing tied to infrastructure projects undertaken by Chinese firms. The importance of China as a development partner is also evident in significant Chinese funding of Ethiopia’s external debt. Of the US$2.7 billion of new disbursed external loans in 2012/13, China accounted for 25.0 per cent, after the International Development Association (‘‘IDA’’), which accounted for 29.0 per cent. China and Chinese entities accounted for 69.0 per cent. of the US$7.8 billion in new external loan commitments in 2012/13. The following table sets out certain new loan commitments from Chinese sources in 2012/13:

Amount in Lending Entity US$ millions Borrower / Section

EXIM Bank of China ...... 293.3 Electricity Light & Power Product China Electric Power ...... 1,003.0 Electricity Distribution EXIM Bank of China ...... 220.5 Rail Transport Infrastructure EXIM Bank of China ...... 981.3 Rail Transport Infrastructure EXIM Bank of China ...... 1289.0 Rail Transport Infrastructure Huawei (Chinese telecom company ...... 800.0 Telecommunication ZTE (Chinese telecom company)...... 800.0 Telecommunication

Total Chinese new loan commitments ...... 5,387.0

Per cent. of new external loan commitments...... 69 Chinese ﬁnancing in infrastructure is mainly seen in the form of commercial loan ﬁnancing tied to the projects undertaken by Chinese contractors and supplier credits. For example, of the four key planned railway infrastructure construction contracts negotiated by the ERC during 2011/12, three were awarded to Chinese contractors (China Railway Engineering Corporation, China Civil Engineering Construction Company and China Communication Construction Company) with an approximate contract cost of US$4.2 billion covering the three projects.

58 PUBLIC FINANCE

Fiscal Performance Overview As an emerging market economy, Ethiopia faces certain structural economic challenges, including widening the tax base, diversifying the economy and high capital spending requirements to address inadequate infrastructure. As a result, the central Government budget is focussed on facilitating the achievement of the development objectives set out in the GTP and implementing the macroeconomic fiscal framework for the Government’s long-term development objectives. Ethiopia’s fiscal policy is expansionary, given its need for, and the development of, significant state- led public infrastructure investments, particularly in energy and transport development, as well as poverty-reducing projects and is consistent with Ethiopia’s current developmental phase. Ethiopia ranked third-largest in the world in terms of public investment as a share of GDP, with public investment increasing from 15.0 per cent. of GDP in 2009/10 to 26.5 per cent. in 2011/12. The Government has been prudent with respect to the execution of the central budget and has permitted only moderate levels of fiscal deficit, which were recorded at 1.7 per cent. of GDP in 2009/ 10 and 1.6 per cent. of GDP in 2010/11. The deficit was reduced to 1.2 per cent. of GDP in 2011/12 because of a tighter implementation of the budget, which included a slower-than-budgeted execution of recurrent expenditure and coincided with an increase in tax revenue as a result of the implementation of certain reforms in respect of tax administration and collection. In the following years 2012/13 and 2013/14, high capital expenditures by public enterprises and reduced support from grants due to a change in the donor-funded protection of basic services (which changed from a grant- based project to a loan-based project) resulted in the deficit for 2013/14 being higher at 2.6 per cent. of GDP. The high capital expenditure by public enterprises is primarily financed by concessional and non-concessional borrowing and is used for investment in priority infrastructure projects which are being implemented to develop the private sector (particularly with respect to growing traditionally weaker sectors of the economy such as manufacturing) and generate foreign currency income, which income will be used to service the debt raised to finance the implementation of such projects.

59 The following table sets out details of the central Government budget for the ﬁscal years indicated:

2009/10 2010/11 2011/12 2012/13 2013/14

(in birr Millions except as otherwise indicated) Nominal GDP...... 379,219 515,078 747,327 864,673 1,047,393 Nominal GDP (US dollar millions)...... 30,002 31,957 43,314 47,305 54,910 Real GDP growth per cent...... 10.6 11.4 8.7 9.8 10.3 Total Revenues and Grants...... 66,240 85,611 115,659 137,192 158,077 Total Revenues and Grants per cent. GDP ..... 17.5 16.6 15.5 15.9 15.1 Revenue...... 53,864 69,120 102,864 124,077 146,173 Revenue per cent. GDP ...... 14.2 13.4 13.8 14.3 14.0 Tax Revenue...... 43,318 58,981 85,740 107,010 133,118 Tax Revenue per cent. GDP ...... 11.4 11.5 11.5 12.4 12.7 Non-tax Revenue...... 10,546 10,139 17,124 17,067 13,055 Non-tax Revenue per cent. GDP...... 2.8 2.0 2.3 2.0 1.2 Grants ...... 12,376 16,491 12,795 13,115 11,904 Grants per cent. GDP ...... 3.3 3.2 1.7 1.5 1.1 Total expenditure and net lending (cash basis) 72,598 93,943 124,417 154,009 185,472 Total expenditure and net lending (cash basis) per cent. GDP ...... 19.1 18.2 16.6 17.8 17.7 Recurrent expenditure ...... 32,537 40,660 51,445 62,746 78,087 Recurrent expenditure per cent. of GDP ..... 8.6 7.9 6.9 7.3 7.5 of which: Interest payments...... 1,587 1,913 2,230 2,931 3,794 Domestic interest and charges...... 1,220 1,300 1,388 1,792 2,290 External interest payments1 ...... 368 613 842 1,139 1,504 Capital expenditure ...... 40,061 53,283 72,971 91,263 107,385 Capital expenditure per cent. GDP ...... 10.6 10.3 9.8 10.6 10.3 of which: poverty-reducing expenditure2 32,794 43,372 62,574 76,334 88,641 Poverty-reducing capex per cent. GDP.... 8.6 8.4 8.5 8.8 8.5

Overall ﬁscal balance (incl. grants)...... (6,358) (8,332) (8,758) (16,816) (27,395) per cent. GDP...... (1.4) (1.6) (1.2) (1.9) (2.6)

The Budgeting Process The financial management function of the Federal Government of Ethiopia is regulated by the Federal Government of Ethiopia Financial Administration Proclamation No. 57/1996. The proclamation is the legislative authority of the MoFED to collect and allocate taxation revenue, and outlines the budgetary process, fiscal calendar and related deadlines as well as the relationship between the MoFED and parliament. Accordingly, the MoFED issues directives and regulations required for proper implementation of the tax collection, administration and allocation functions of the Government and its agencies. The budget is prepared annually by the MoFED after a budget consultation process with federal, state, regional and local authorities as well as public bodies, each of which submit a budget request to the MoFED and are given the opportunity in a ‘budget hearing’ to justify the request which has been made. Such process serves as the basis for allocation of available funds and provides for effective communication among all administrative levels in the budgeting process. Once the MoFED has prepared the draft budget following this consultation process, the budget is in the first instance granted support by a decision of the Council of Ministers and is then sent to the House of Peoples’ Representatives for approval.

60 Deficit Financing Ethiopia’s budget deficit is typically financed through a combination of external concessional debt and domestic debt as part of an initiative whereby the NBE issues treasury bills on the domestic markets on behalf of the MoFED. The buyers of treasury bills include commercial banks and non-bank institutions such as insurance companies and pensions funds. The fiscal deficit in 2013/14 (including grants), was financed through external borrowings (birr 21.9 billion), and the remainder was covered through net domestic borrowing (birr 13.5 billion) whereas the fiscal deficit in 2012/13 (including grants) was financed mostly through external borrowings (birr 18.0 billion) and the remainder was covered through net domestic receipts (birr 1.8 billion) and privatisation receipts (birr 1.2 billion).

Budget Revenue 84.0 per cent. of the Government’s revenue and grants in 2013/14 was comprised of tax revenues with the remaining revenue attributable to non-tax income and grants. The Government’s revenue sources fall into the following broad categories: * direct taxes (30.0 per cent. of 2013/14 total revenue and grants), comprising taxes on personal income, income from rentals, business, withholding gains, agriculture, interest income, capital gains, and fees on rural and urban land use; * domestic indirect taxes (26.0 per cent. of 2013/14 total revenue and grants), and includes revenue collection from indirect taxes, such as VAT, turnover taxes and excise taxed on goods and services; * import duties (29.0 per cent. of 2013/14 total revenue and grants) including customs duties, VAT and excise taxes on imported goods; * non-tax revenue (8.0 per cent. of 2013/14 total revenue and grants), comprising charges and fees, sales of goods and services, reimbursements, interest and other miscellaneous receipts; and * grants from external sources (8.0 per cent. of 2013/14 total revenue and grants).

61 The table below sets out details of central Government revenue and its composition for the periods indicated and displays a shift towards direct and indirect taxes in the Government’s revenue composition, indicating a trend of reduced reliance on grants and non-tax income between 2011/11 and 2013/14:

Fiscal years ending July 2010/11 2011/12 2012/13 2013/14

(birr Per cent. (birr Per cent. (birr Per cent. (birr Per cent. millions) mix millions) mix millions) mix millions) mix Tax Revenues...... 58,981 69 85,740 74 107,010 78 133,118 84 Per cent. growth ...... 36 — 45 — 25 — 24 — Direct taxes ...... 19,550 23 28,858 25 36,393 27 47,021 30 Income tax and proﬁts tax ...... 18,809 22 27,877 24 35,355 26 45,709 29 Personal income...... 5,733 7 8,900 8 11,567 8 13,796 9 Rental income tax...... 277 0.3 393 0.3 618 — 756 0.5 Business proﬁts ...... 10,055 12 15,540 13 19,437 14 26,910 17 Withholding income tax on imports...... 1,488 2 1,533 1 1,774 1 2,215 1 Agriculture income ...... 311 0.4 322 0.3 365 0.3 306 0.2 Other income ...... 749 1 894 1 1,240 1 1,219 1 Interest income tax ...... 152 0.2 205 0.2 252 — 386 0.2 Capital gains tax...... 43 0.1 89 0.1 102 — 121 0.1 Rural land use fee...... 317 0.4 320 0.3 341 — 326 0.2 Urban land lease fee...... 424 0.5 660 1 697 1 986 1 Domestic indirect taxes...... 15,705 18 23,326 20 32,440 24 40,499 26 Sales/TOT/excise taxes.... 9,829 11 12,335 11 16,666 12 18,536 12 Petroleum products...... 33 — 32 — 128 — 265 0.2 Alcohol and tobacco...... 786 1 2,383 2 2,740 2 3,089 2 Other goods ...... 9,010 11 9,919 9 13,798 10 15,181 10 Services TOT / sales tax . 5,443 6 10,405 9 15,032 11 21,105 13 Stamp duties ...... 433 1 586 1 742 1 858 1 Import duties and taxes...... 23,726 28 33,556 29 38,177 28 45,599 29 Custom duties...... 7,717 9 11,091 10 12,761 9 15,372 10 Sales / excise taxes ...... 11,539 13 15,941 14 17,973 13 21,328 13 Surtax on imports...... 4,470 5 6,525 6 7,443 5 8,900 6 Export taxes ...... ————— — —— Coffee duties...... ————————

Non-tax revenue...... 10,139 12 17,124 15 17,067 12 13,055 8

Charges and fees...... 970 1 1,127 1 1,088 1 1,527 1 Sales of goods and Services...... 1,775 2 1,738 2 1,999 1 2,538 2 Residual surplus, Capital Charge, interest payments, and state dividend...... 4,476 5 9,179 8 8,348 6 3,563 2 Reimbursement and property sales...... 194 0.2 451 0.4 177 — 245 0.2 Miscellaneous...... 1,707 2 2,456 2 3,197 2 2,645 2 Other extraordinary...... ———————— Other revenue ...... 1,018 1 2,173 2 2,258 2 2,537 2

Total revenue ...... 69,120 81 102,864 89 124,077 90 146,174 92

External grants ...... 16,491 19 12,795 11 13,115 10 11,904 8

Grants in kind / earmarked ...... 6,859 8 8,089 7 9,699 7 9,394 6 United cash & CPF / grants ...... 9,633 11 4,706 4 3,4161 2 2,510 2

Total revenue and grants..... 85,611 100 115,659 100 137,192 100 158,077 100

Per cent. growth ...... 29 — 35 — 45 — 15 — US dollar equivalent (in millions) ...... 5,942 — 6,843 — 7,750 — 8,486 —

Historically, Ethiopia has beneﬁtted from substantial budget support from donors. The amount of income from grants has, however, decreased from birr 16.5 billion in 2010/11 which was 19.0 per

62 cent. of Government revenue or the equivalent of 3.2 per cent. of GDP, to birr 11.9 billion in 2013/ 14, which was 7.5 per cent. of Government revenue or the equivalent of 1.1 per cent. of GDP. The Government’s reforms have introduced tax collection and administration systems which have resulted in improvements in tax collection and an increase in tax revenue. During the period 2010/11 to 2013/14, on average birr 96.2 billion was collected as taxation each year. In 2013/14 a total of birr 133.0 billion was collected in tax revenue. The primary factors for the improvement in tax revenue were the deepening of effective tax administration system, expansion of public education on taxation and strengthening of an enforcement of tax legislation. Tax revenue as a percentage of GDP was 11.5 per cent. in 2010/11, 12.4 per cent. of GDP in 2012/13 and has further increased to 12.7 per cent. in 2013/14. Even though, nominal tax revenue has been increasing rapidly, the growth rate was not proportionate to the rapid expansion of the size of the economy. In order to attain the GTP target of 15.0 per cent. of tax to GDP ratio by 2014/15, the Government intends to further strengthen the tax collection and administration systems, expand public education campaigns, strengthen enforcement of penalties for tax evasion and build the capacity of the taxation institutions.

Budget Expenditure Recurrent and capital expenditures made up on average 42.0 per cent. and 58.0 per cent. of the Government’s total expenditures between 2009/10 and 2013/14, respectively. Expenditures have primarily been channeled towards public infrastructure and state-led poverty-reduction projects in the ﬁelds of education, health, agriculture, water, roads, and food security. The following table sets out details of the composition of Ethiopia’s budgetary expenditures:

2009/10 2010/11 2011/12 2012/13 2013/14

Composition Recurring expenditure (per cent. of total expenditure)...... 45 43 41 41 42 Capital expenditure (per cent. of total expenditure)...... 55 57 59 59 58 Poverty-reducing expenditures Total poverty-reducing expenditures (recurring + capex) in birr millions 47,790 62,439 87,568 107,779 126,366 Per cent. of total expenditures ...... 65.8 66.5 70.4 70.0 68.3 Per cent. of GDP...... 12.6 12.1 11.7 12.5 12.1 Social programmes accounted for 66.0 per cent. of total expenditures in recent years, which reﬂects the Government’s strategic focus to maintain expenditures on social initiatives at approximately 12.0 per cent. of GDP. The Government has stated that tightening the budget is a focus area, which has been executed through reducing non-priority recurring expenditures while maintaining the share of poverty-reducing programme expenditures at historical levels, and allocating spending to developmental infrastructure projects.

Poverty-Reducing Expenditures Reducing, and ultimately eradicating poverty is the primary goal of the Government’s development agenda. Poverty is a multidimensional problem and the Government is implementing a variety of programmes to address the numerous factors that constitute poor people’s experience of deprivation, such as poor health, lack of education, inadequate living standards, lack of income and disempowerment. The economic dimension of poverty is being addressed through the inclusive economic growth initiative, with a focus on encouraging increased agricultural productivity to better ensure income and food security for farmers (see ‘‘The Economy – Agriculture’’), coupled with increased and wider access to basic services and infrastructure such as education, health care and water. See ‘‘The Federal Democratic Republic of Ethiopia – Millennium Development Goals’’. As part of this effort the Government has prioritised expenditures to address poverty and economic inequality, which are key focus areas of the GTP and approximately 70.0 per cent. of the Government budget is being spent on average each year on reducing poverty in these social and economic sectors.

Capital Expenditure (Includes Poverty-Reducing Expenditure) Historically, capital expenditure has been 10.0 per cent. of GDP and within capital expenditures, poverty-reducing capex has been maintained at approximately 8.5 per cent. of GDP. Capital expenditure amounted to birr 91.2 billion in 2012/13.

63 The following table sets out details of the composition of the Government’s capital expenditures for the periods indicated:

2009/10 2010/11 2011/12 2012/13 2013/14

(birr Per cent. (birr Per cent. (birr Per cent. (birr Per cent. (birr Per cent. millions) mix millions) mix millions) mix millions) mix millions) mix Economic development.... 27,083 68 35,307 66 50,401 69 64,351 71 73,462 68 Agriculture ...... 4,810 12 5,413 10 7,652 10 10,642 12 12,904 12 Natural Resource...... 4,229 11 5,269 10 9,112 12 11,190 12 12,303 11 o/w Water...... 3,365 8 4,682 9 7,757 11 9,364 10 9,735 9 Mines & energy...... 1,183 3 1,180 2 1,114 2 1,118 1 1,097 1 Trade, industry & tourism ...... 1,200 3 1,945 4 1,676 2 3,128 3 2,436 2 Urban development & housing ...... 977 2 2,212 4 1,722 2 3,568 4 4,525 4 Road construction...... 13,797 34 18,318 34 28,510 39 34,089 37 38,132 36 Transport & communication...... 889 2 971 2 617 1 618 1 2,067 2 Social development ...... 10,113 25 14,699 28 17,971 25 21,132 23 26,200 24 Education...... 7,429 19 10,974 21 13,523 19 14,342 16 18,214 17 Health ...... 2,531 6 3,398 6 3,778 5 6,072 7 7,088 7 Social welfare ...... 14 0 27 0 83 0 182 0 272 0 Culture & sport...... 140 0 302 1 587 1 535 1 626 1 General development...... 2,865 7 3,276 6 4,599 6 5,780 6 7,723 7

Total Capital Expenditures ...... 40,061 100 53,283 100 72,971 100 91,263 100 107,385 100

Per cent. growth ...... 31 33 37 25 18 US dollar equivalent (in millions) ...... 3,401 3,699 4,318 5,150 5,765 Funded by: Domestic sources ...... 30,685 77 38,326 72 57,439 79 68,632 75 82,175 77 External assistance...... 4,930 12 6,521 12 8,089 11 9,699 11 9,394 9 External loan ...... 4,446 11 8,436 16 7,443 10 12,933 14 15,816 15

Total Funding...... 40,061 100 53,283 100 72,971 100 91,263 100 107,385 100

The Government allocated 58.0 per cent. of the 2013/14 budget towards capital expenditures (‘‘capex’’) for infrastructure improvement such as roads and the infrastructure necessary for human resource development such as universities, training colleges health facilities and agricultural development. These projects are primarily ﬁnanced through domestic resources with shortfalls being met through external sources. Much of the capital expenditure is allocated to road construction (36.0 per cent. of 2013/14 capex), which is a key focus under the GTP, followed by education. Heavy investment in roads has resulted in an increase in the total road length from approximately 36,000 kilometers to approximately 64,522.0 kilometers between 2005/06 and 2013/14 and improved road conditions, which in turn is expected to support economic activity in agriculture and industry. The allocation of capital expenditures has also focused on natural resources, particularly water, which is another key consideration under the GTP.

Recurring Expenditures (Includes Poverty-Reducing Expenditures) Ethiopia’s recurring expenditures accounted for 7.5 per cent. of GDP in 2013/14. 55.0 per cent. of the 2013/14 total recurring expenditures is related to economic and social sector expenses and the implementation and operation of development activities. Recurring expenses have typically comprised the following categories: * General services (37.0 per cent. of 2013/14 recurring expenses), including expenses related to state administrative matters, justice, defence and public order; * Economic services (13.0 per cent. of 2013/14 recurring expenses), including expenses related to agriculture, natural resources, the provision of water, trade and industry, mines and energy, tourism, transport, communication and urban development including roads; * Social services (42.0 per cent. of 2013/14 recurring expenses), comprising expenses related to education, culture and sports, public health, labour and social welfare, and rehabilitation; and

64 * Interest charges on internal and external debt (5.0 per cent. of 2013/14 recurring expenses) and miscellaneous (3.0 per cent. of 2013/14 recurring expenses).

The following table sets out certain of the Government’s recurring expenditures by function for the periods indicated:

2009/10 2010/11 2011/12 2012/13 2013/14

(birr Per cent. (birr Per cent. (birr Per cent. (birr Per cent. (birr Per cent. millions) mix millions) mix millions) mix millions) mix millions) mix General services...... 12,788 39 15,701 39 21,159 41 23,302 37 29,194 37

Organ of the State ..... 2,560 8 2,670 7 3,351 7 3,801 6 4,472 6 Justice...... 1,383 4 1,715 4 2,338 5 2,584 4 2,986 4 Defence ...... 4,000 12 4,750 12 6,486 13 6,493 10 7,489 10 Public order...... 2,449 8 3,067 8 3,964 8 5,017 8 6,115 8 General services ...... 2,396 7 3,498 9 5,020 10 5,407 9 8,132 10

Economic services...... 4,087 13 5,371 13 6,577 13 8,408 13 10,371 13

Agriculture ...... 2,184 7 2,845 7 3,415 7 4,008 6 4,789 6 Natural Resources...... 653 2 680 2 1,056 2 1,474 2 2,013 3 o/w Water...... 260 1 356 1 643 1 1,168 2 1,110 1 Trade, industry...... 529 2 725 2 1,131 2 1,653 3 1,933 2 Mines & energy...... 70 0 68 0 58 0 69 0 68 0 Transport & communication...... 240 1 343 1 72 0 120 0 439 1 Urban development & construction...... 343 1 620 2 768 1 818 1 974 1 o/w roads...... 176 1 231 1 378 1 400 1 484 1 Economic development ...... 67 0 91 0 78 0 266 0 156 0

Social Services...... 12,587 39 16,093 40 21,055 41 26,891 43 32,519 42

Education & training . 9,820 30 12,395 30 16,246 32 20,303 32 24,301 31 Culture & sports ...... 298 1 549 1 582 1 623 1 1,104 1 Public health ...... 2,162 7 2,916 7 3,899 8 5,259 8 6,554 8 Labor & social ...... 257 1 141 0 208 0 603 1 447 1 Rehabilitation ...... 50 0 91 0 120 0 104 0 114 0

Interest & charges ...... 1,587 5 1,913 5 2,230 4 2,931 5 3,794 5

Internal debt ...... 1,220 4 1,300 3 1,388 3 1,792 3 2,290 3 External debt...... 368 1 613 2 842 2 1,139 2 1,504 2

Miscellaneous ...... 857 3 1,245 3 424 1 1,214 2 2,209 3

External assistance...... 631 2 338 1 — 0 — 0 0 0

Total Recurring Expenditure ...... 32,537 100 40,660 100 51,445 100 62,746 100 78,087 100

Per cent. growth ...... 20 25 27 22 24 US dollar equivalent (in millions) ...... 2,762 2,822 3,044 3,544 4,192

Governance Public financial governance in Ethiopia is governed by a legal and regulatory framework comprising an extensive body of laws, rules, regulations and international standards. The legal and regulatory framework covers revenue administration, budgeting, financial accounting and reporting, procurement, controls in budget execution and external oversight. The institutional framework for public financial management is well established with clear demarcation of responsibilities and roles for each of the institutions involved in the budget cycle. The House of Peoples Representatives is responsible for enforcing fiscal accountability and approves the federal budget, including subsidies to regional States. Ethiopia faces challenges with respect to public financial management in several areas, including insufficient fiscal data in some regions, improving capacity of some key oversight agencies, improving procurement capacity and increasing the implementation of audit recommendations. These challenges

65 underline the need to continue public financial management reform and capacity building efforts so as to enhance transparency and accountability. Since the mid-1990s, Ethiopia has embarked on a comprehensive programme of public financial management reforms, which aims to improve efficiency and effectiveness in public spending while enhancing transparency and accountability in the management of public finances. Diagnostic studies such as the 2007 Public Expenditure and Financial Accountability, which are conducted at federal and regional levels, detail the progress made in these reforms. Ethiopia’s annual federal budget is derived from the medium term expenditure fiscal framework, which ensures the alignment of budgetary allocation decisions to strategic policy priorities within a stable macro framework. The budget process is orderly and adheres to a financial calendar and the preparation process involves all stakeholders within the Government. The medium term planning and budgeting process at subnational levels is still in its infancy. Over the past decades, the timeliness of Ethiopia’s fiscal reporting has improved significantly, and the backlog in federal accounts has significantly decreased. Budget execution reports are prepared on a quarterly basis, which has helped to improve expenditure monitoring. In the smaller emerging regions of the country, which have historically lagged behind in budget and accounting reforms, fiscal reporting remains a challenge. Internal audit systems exist in all budgetary institutions in Ethiopia at federal and sub-national levels. However, the internal audit capacity is still maturing. This is partly due to the slow pace of professionalisation of the internal audit function. There are initiatives underway to strengthen and modernise the internal audit function to conform to international best practices. Areas prone to corrupt practices in Ethiopia include the allocation and leasing of urban land and transactions where rules and procedures have historically not clearly been defined and which have little regulatory oversight. The Government has recognised the need for vigilance and proactive actions to prevent corruption and promote high ethical standards in public administration. In 2001, the Federal Ethics and Anticorruption Commission (‘‘FEAC’’) was established with the aim of curbing corrupt practices. To date, the FEAC has successfully prosecuted several high profile cases and has received public cooperation. Further, existing rules require senior Government officials to declare their assets and liabilities and any conflicts of interest that may arise in the policy making process. Citizens may additionally seek information on the assets and liabilities of senior Government officials and redress through the court system for any wrong doing by the Government. The Government established the Financial Intelligence Centre (‘‘FIC’’) in 2009 as an autonomous government body under Article 3 of the Financial Intelligence Centre Regulation No. 171/2009. The key objectives of the FIC are to coordinate various institutions involved in the fight against money laundering and the financing of terrorism, to organise and analyse the information it receives and disseminate to law enforcement agencies the necessary information, and to perform other related tasks to enable implementation of the proclamation. The FIC has made significant progress since its establishment in 2009, including the establishment of its functions and facilities, revisions to the anti- money laundering and counter-terrorist financing (‘‘AML/CFT’’) laws, awareness raising among reporting entities, actively participating in regional croup and improving domestic coordination through weekly meetings with the federal police. The Federal Anti-Corruption Commission, Revenue and Customs Authority and the Federal Police have signed a memorandum of understanding with the FIC which provides for information exchange and requests for assistance. The Government has also established a National Council on AML/CFA which is comprised of relevant ministers and heads of other government agencies. The Council is chaired by the Minister of Finance and Economic Development and oversees the implementation of the AML/CFA Proclamation and recommendations of the Financial Action Task Force (‘‘FATF’’). The Federal Anti-Corruption Commission has pursued over 8,000 investigations of criminal activity to date, and 97,317 senior civil servants have declared their assets. In October 2014 FATF announced that Ethiopia had established the legal and regulatory framework necessary to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in June 2010. Ethiopia is therefore no longer subject to the FATF’s monitoring process under its on-going global anti-money laundering and counter-terrorist financing compliance process. Ethiopia will work with the Eastern and Southern Africa Anti-Money Laundering Group to further strengthen its anti-money laundering and counter-terrorist financing regime. The Government has, within the wider context of its poverty reduction strategy, developed strategies to address the highlighted governance challenges. The focus of the strategies encompasses civil service reform, decentralisation, urban management, judicial reform, civil society, and the promotion of

66 human rights. The success of the governance reform agenda depends on the adequacy of implementation capacity, political commitment, and the incentives for the parties involved.

67 PUBLIC DEBT

Overview Ethiopia’s debt policy primarily looks to concessional sources of funding, supplemented by private commercial sources of funding primarily for growth enhancing infrastructure projects. The policy is expected to continue and the total debt portfolio is expected to decrease to 33.9 per cent. of GDP by the year 2017/18, with the external proportion increasing to 22.6 per cent. of GDP. Ethiopia beneﬁts from strong relationships with sponsor countries and international institutions such as the IMF and the World Bank. The World Bank is Ethiopia’s largest creditor, having provided over US$4.0 billion in loans.

Public Debt Ethiopia’s total public debt includes domestic and external loans and debt issuances by the central Government as well as major SOEs to ﬁnance a variety of projects including dams, factories and housing construction. Debt incurred by SOEs includes direct credit from the Development Bank of Ethiopia and the Commercial Bank of Ethiopia, domestic bond issuances and concessional and non- concessional external loans. The majority of Ethiopia’s debt is provided by multilateral and bilateral lenders on concessional terms, with the average life of external debt over 20 years. The following table sets out the composition of Ethiopia’s total public debt as at the end of the ﬁscal year indicated. ‘‘External Debt’’ refers to public debt which is denominated in a currency other than birr and Domestic Debt refers to debt denominated in birr:

2010/11 2011/12 2012/13 2013/14

US$ US$ US$ US$ millions Per cent. millions Per cent. millions Per cent. millions Per cent. External Debt 7,807.6 53.4 8,888.7 50.5 11,222.8 50.8 14,007.0 54.5 Central Government ...... 4,725.0 32.3 5,469.3 31.1 6,831.5 30.9 8,419.2 32.8 State Owned Enterprise ...... 3,082.6 21.1 3,419.4 19.4 4,391.2 19.9 5,587.8 21.7 Domestic Debt ...... 6,826.1 46.7 8,712.0 49.5 10,862.7 49.2 11,696.2 45.5 Central Government ...... 3,789.2 25.9 4,369.7 24.8 4,996.8 22.6 5,489.8 21.4 State Owned Enterprise ...... 3,036.9 20.8 4,342.3 24.7 5,865.9 26.6 6,206.4 24.2

Total Public Debt...... 14,633.7 100 17,600.6 100 22,085.4 100 25,703.3 100

The Government has planned several large developmental projects that will require funding in the medium term. A number of these projects are within the energy sector and are primarily hydropower developments. The flagship hydropower development is the Grand Ethiopian Renaissance Dam Project, which has an estimated cost of US$4.8 billion or 8.7 per cent. of GDP for 2013/14. Ethiopia intends to primarily finance this project domestically and has issued bonds to Ethiopians living within Ethiopia and abroad. US$1.8 billion of equipment and turbines associated with the project been financed by Chinese banks. Other hydropower developments which have been implemented or are currently being implemented in Ethiopia including Gil gel Gibe I, Gil gel Gibe II, Tekeze, Beles and Fincha Amerti Neshe. In addition, Gil gel Gibe III will shortly be commissioned and potentially a further 12 hydroelectric and six geothermal projects, which are currently the subject of feasibility studies. In addition, the Ethiopian Railway Corporation has signed project contracts worth US$3.0 billion, or 5.5 per cent. of GDP for 2013/14, with Turkish and Chinese companies for the construction of railway networks in Ethiopia and the state-owned telecommunications company, Ethio Telelecom, has entered into financing arrangements with Chinese equipment suppliers for US$1.0 billion in equipment.

Domestic Public Debt Ethiopia’s domestic debt includes Government debt in the form of Government bonds, treasury bills and direct advances from the central bank, as well as signiﬁcant direct borrowings by SOEs from the CBE and the DBE. Domestic borrowing by SOEs has increased by 104.4 per cent. over the last four years from US$3.0 billion in 2010/11 to US$6.2 billion in 2013/14, an example of such SOE debt being EEPCO’s domestic borrowing through the CBE and bonds to partly ﬁnance the EEPCO GERD. Central Government debt accounts for 46.9 per cent. of total domestic debt, with the remaining 52.9 per cent. borrowed by SOEs. Central Government debt instruments for 2013/14 comprised direct

68 advances from the central bank accounting for 59.8 per cent. of total domestic debt attributed to the central Government, treasury bills accounting for 30.0 per cent. of total domestic debt attributed to the central Government and Government bonds accounting for 10.2 per cent. of total domestic debt attributed to the central Government. The majority of this debt was held by banks, with 68.2 per cent. held by the NBE, 10.7 per cent. held by the DBE, 1.6 per cent. held by the CBE, and the remainder held by other institutions as of June 2014.

External Public Debt In 2013/14, 54.5 per cent. or US$14.0 billion of Ethiopia’s total public debt was external public debt, which was equivalent to 24.9 per cent. of GDP in the same year. Of the total external public debt in 2013/14, US$8.4 billion or 60.1 per cent. was Government incurred and US$5.6 billion or 39.9 per cent. was attributed to SOEs of which, US$2.9 billion or 52.5 per cent. was guaranteed by the Government. In 2012/13, external public debt amounted to US$11.2 billion or 50.8 per cent. of total public debt, of which US$6.8 billion or 60.9 per cent. was Government incurred and US$4.4 billion or 39.1 was attributed to SOEs of which US$2.6 billion or 59.8 per cent. was guaranteed by the Government. In 2011/12, external public debt was US$8.9 billion or 50.5 per cent. of total public debt, of which US$5.5 billion or 61.5 per cent. was Government incurred and US$3.4 billion or 38.5 per cent. was attributed to SOEs of which US$2.1 billion or 61.7 per cent. was guaranteed by the Government. SOEs are increasingly using new non-concessional commercial loans to ﬁnance large acquisitions of capital goods and implement large projects. The borrowing by SOEs is monitored by the central Government and it strictly goes to ﬁnance commercially viable projects, which in many cases, is related to export earnings. The Government’s non-concessional borrowing is also closely monitored by the World Bank, which imposes annual limits on such borrowing. The effect of exceeding such limits on borrowing is that any subsequent concessional borrowing undertaken while such limit is exceeded will be made on less favorable terms than if the limit had not been exceeded. There are however, no other consequences for exceeding such borrowing limits. The following table sets out a summary of external public debt as at the end of or for the periods indicated, including loans to SOEs which are not guaranteed by the Government:

2010/11 2011/12 2012/13 2013/14

(US dollar millions unless otherwise indicated) Particulars Annual Debt Disbursement ...... 2,080.2 1,650.4 2,706.7 3,150.0 Debt Stock ...... 7,807.6 8,888.6 11,222.7 14,007.0 Multilateral...... 3,589.9 4,034.1 5,028.5 6,151.6 Bilateral ...... 1,854.7 2,282.3 3,192.3 4,509.7 Commercial ...... 2,362.9 2,572.3 3,001.9 3,345.7 Debt Service ...... 241.9 412.1 567.3 664.0 Principal repayments...... 180.2 309.1 429.0 510.2 Interest payments ...... 61.7 103.0 138.3 153.8 Debt stock to GDP ratio (In per cent.) ...... 22.2 17.9 23.5 25.5 Debt stock to export of goods and non-factor services ...... 1.4 1.5 1.9 2.1 Receipts from goods and non-factor services...... 5,605.6 5,963.2 5,928.1 6,654.9 Debt service ratio (In per cent.)(1)...... 4.3 6.9 9.6 10.0 Arrears ...... — — — — Principal ...... — — — — Interest ...... — — — — Relief ...... 9.1 17.6 9.5 2.5 Principal ...... 7.8 15.2 8.2 2.1 Interest ...... 1.3 2.4 1.3 0.4

(1) Ratio of debt service to receipts from export of goods and non-factor services

69 The following table sets out a summary of the outstanding external debt allocation by creditor type for the dates indicated:

7 July 2011 7 July 2012 7 July 2013 7 July 2014

US$ US$ US$ US$ millions Per cent. millions Per cent. millions Per cent. millions Per cent. Multilaterals 3,589.9 46.0 4,034.1 45.4 5,028.5 44.8 6,151.6 43.9 African Development Bank...... 8.2 0.1 4.7 0.1 0.5 — — — African Development Fund...... 735.3 9.4 794.0 8.9 1,003.8 8.9 1,183.1 8.5 Arab Bank for Economic Development in Africa ...... 56.7 0.7 61.8 0.7 67.5 0.6 67.0 0.5 European Investment Bank (EIB). 155.4 2.0 127.4 1.4 120.7 1.1 111.9 0.8 International Development Association ...... 2,091.8 26.8 2,522.2 28.4 3,256.2 29.3 4,185.0 29.9 International Fund for Agricultural Development ...... 157.4 2.0 157.5 1.8 213.0 1.9 233.6 1.7 International Monetary Fund ...... 297.7 3.8 283.4 3.2 281.5 2.5 289.0 2.1 Nordic Development Fund ...... 36.6 0.5 34.1 0.4 34.0 0.3 34.3 0.2 OPEC Fund for International Development...... 50.8 0.7 49.1 0.6 51.8 0.5 47.7 0.3 Bilaterals...... 1,854.7 23.8 2,282.3 25.7 3,192.3 28.4 4,509.7 32.2 Paris Club...... 468.5 6.0 408.1 4.6 401.2 3.6 391.3 2.8 Non-Paris Club ...... 1,386.2 17.8 1,874.2 21.1 2,791.1 24.9 4,118.5 29.4

Total Ofﬁcial Creditors (Multilateral & Bilateral) ...... 5,444.7 69.7 6,316.4 71.1 8,220.8 73.3 10,661.2 76.1

Commercial Banks ...... 926.0 11.9 1,213.6 13.7 1,636.0 14.6 2,030.0 14.5 Suppliers ...... 1,437.0 18.4 1,358.7 15.3 1,366.0 12.2 1,315.7 9.4 Private Creditors...... 2,362.9 30.3 2,572.3 28.9 3,001.9 26.8 3,345.7 23.9

Total External Debt...... 7,807.6 100.0 8,888.7 100.0 11,222.7 100.0 14,000.0 100

In 2013/14, 76.1 per cent. of Ethiopia’s external debt was concessional, originating from multilateral and bilateral partners primarily in China, India and the Middle East, which is a 3.8 per cent. increase from the 73.3 per cent. of concessional external debt in 2012/13, which was in turn a 3.1 per cent. increase from the 71.1 per cent. concessional external debt in 2011/12. While there has been a small increase in the proportion of concessional borrowings to private creditors over recent years, private creditors have represented 23.9 per cent., 26.8 per cent. and 28.9 per cent. of Ethiopia’s external debt in the years 2013/14, 2013/12 and 2012/11, respectively, and of private creditors, the proportion of debt originating from commercial banks has remained largely consistent, recorded as 14.5 per cent., 14.6 per cent. and 13.7 per cent. of external debt, respectively.

This increase was driven in part by debt raised by the SOE Ethiopian Airlines which was not guaranteed by the Government.

External grants as a percentage of GDP are decreasing and are estimated to reduce from 3.3 per cent. in 2010/11 to between 1.2 and 1.6 per cent. from 2013/14 to 2017/18. This decrease is partly attributed to a change in the donor-funded ‘Protection of Basic Services’ from a grants-based project to a loan-based one. The average grant element of public external debt commitments has decreased from 73.7 per cent. of loans in 2008/09 to 40.9 per cent. in 2010/11 and further to 38.9 per cent. in 2012/13.

In 2013/14, new external loan disbursements amounted to US$3.1 billion. The key sectors to which ﬁnancing was allocated were transport and communication accounting for 44.5 per cent., electricity, gas and steam accounting for 14.3 per cent. and highway infrastructure accounting for 10.1 per cent. The main lenders for the disbursements were IDA accounting for 27.0 per cent., China accounting for 42.0 per cent. and commercial banks accounting for 19.0 per cent.

The average interest rate on external debt increased from 1.3 per cent. for 2008/09 to 2.2 per cent. for 2012/13. This was a result of a shift towards non-concessional terms and a reduction in grant elements. The average maturity of external debt reduced from 27.2 years for 2008/09 to 23.8 years for 2012/13. Similarly, the average grace period decreased from 6.6 years to 6.1 years in the same period. The Government expects that all concessional and non-concessional loans will be repaid by 2062.

70 External Debt Service The following table sets forth historical long-term debt service payments in respect of Government external debt (including loans to SOEs which are not guaranteed by the Government) for the ﬁscal years indicated:

2010/11 2011/12 2012/13 2013/14

(US dollar millions) Debt Service ...... 241.9 412.1 567.3 664.0 Principal repayments...... 180.2 309.1 429.0 510.2 Interest payments ...... 61.7 103.0 138.3 153.8 Ethiopia has never defaulted on any payment of principal of, or premium or interest on, any public external debt. Ethiopia is not currently in default of any of its public external debt.

Public External Debt Service Projections The following table sets forth a projection of the Government’s external debt service from 2014/15 to 2019/20, on the basis of contractually determined exchange rates and interest rates prevailing as at the respective dates for payment.

2014/15 2015/16 2016/17 2017/18 2018/19 2019/20

(US dollar millions) Principal repayments ...... 763.5 946.8 1,156.6 1,374.4 1,538.8 1,665.9 Interest payments and charges ...... 261.6 305.7 335.8 357.2 353.6 325.2

Total ...... 1,025.1 1,252.6 1,492.4 1,731.6 1,892.5 1,991.1

Debt Relief and Restructuring Ethiopia has benefitted from debt relief and reorganisation under the Heavily Indebted Poor Countries (‘‘HIPC’’) and Multilateral Debt Relief Initiative (‘‘MDRI’’) initiatives with multilateral and bilateral lenders. The total debt relief that Ethiopia received under the HIPC and MDRI initiatives was US$6.5 billion between 2003/04 and 2012/13. The relief was at its highest in 2006/07 at US$4.1 billion, 76.0 per cent. of which was accounted for by the International Development Association (including both stock and flow and annual debt service relief). Ethiopia completed its programme under the HIPC initiative in April 2004, signifying an exit from the debt relief process and allowing the country access to approximately US$300.0 million in additional annual concessional financing. The IMF and World Bank granted full debt relief of US$1.3 billion, as well as a later relief of US$707.0 million in 2003/04 in order for Ethiopia to meet its target of a foreign debt-to-exports ratio of 174.0 per cent. Ethiopia has received debt relief from most of its creditors but has not yet reached an agreement with some commercial creditors with estimated outstanding loans of US$378.8 million according to the IMF, representing approximately 2.0 per cent. of total public debt for 2013/14 and negotiations with these creditors are ongoing regarding potential relief. The debt relief has helped to significantly lower Ethiopia’s external debt ratio from 90.1 per cent. in 2000/01 to 37.3 per cent. in 2005/06 and further to 9.6 per cent. in 2006/07. However, the external debt ratio subsequently increased from 11.7 per cent. in 2007/08 to 22.0 per cent. in 2010/11, before decreasing to 18.9 per cent. in 2012/13. The overall increase is primarily due to increased Government and SOE debt undertaken to support infrastructure projects.

71 MONETARY AND FINANCIAL SYSTEM

Monetary Policy The NBE is the central bank of Ethiopia and is responsible for the formulation and implementation of monetary policy. The NBE’s responsibilities include issuing currency, regulating applicable interest rates, managing the efficient operation of the foreign exchange system, acting as fiscal agent and financial advisor to the Government and regulating commercial banks. The NBE is governed by the National Bank of Ethiopia Establishment (as amended) Proclamation No. 591/2008, which defines the powers and responsibilities of the NBE and gives the NBE increased autonomy and authority to supervise the banking system. The primary missions of the NBE are to maintain price and exchange rate stability, to foster a sound financial system, to promote financial and monetary discipline, and to promote economic growth. The currency of Ethiopia is the Ethiopian birr. The NBE manages the birr exchange rate through the periodic monitoring of exchange rate developments and participation in the interbank foreign exchange market. The NBE targets reserve-money growth in order to achieve its objectives. The NBE pursues a monetary policy that focuses on maintaining price and exchange rate stability and supporting sustainable economic growth. Ethiopia’s monetary policy is also geared towards containing inflationary pressures. Accordingly, the NBE has been closely monitoring monetary developments so as to slow the speed of inflation and inflation expectations. Nevertheless, over the last few years broad money (as defined by the IMF) has grown faster than inflation, increasing by 22 per cent. in 2007/08, 19.9 per cent. in 2008/09, 24.4 per cent. in 2009/10, 36.5 per cent. in 2010/11, 32.9 per cent. in 2011/12 and 24.1 per cent. in 2012/13, largely as a result of growth of the banking sector and increasing monetisation of the economy. As a percentage of GDP, however, broad money has remained relatively stable over that period amounting to 28.4 per cent. of GDP at the end of 2007/08 and 27.5 per cent. at the end of 2012/13.

Inflation The rate of inflation has historically fluctuated within a relatively wide range, and Ethiopia experienced an annual inflation of 38.0 per cent., 20.8 per cent., 7.4 per cent. and 8.5 per cent., respectively in 2010/11, 2011/12, 2012/13 and 2013/14. The higher average rates during the first two years are largely explained by international commodity price increases and increased foreign exchange holdings of NBE in 2010/11. However, NBE’s tight monetary policy and lower prices of imports brought down the inflation to single digits. The following table sets out the 12 months moving average and annual inflation rates:

Indicator 2010/11 2011/12 2012/13 2013/14

12 months moving average (June) in per cent...... 18.1 34.1 13.5 8.1 Current versus last year’s similar months average (June) ...... 38.0 20.8 7.4 8.5 One of the key objectives of the GTP was to register rapid economic growth within stable prices and macroeconomic environment, however inflation remained a major macroeconomic challenge during the GTP I period. The effective policy and administrative measures that led to reduction in inflation include tight fiscal and monetary policies, financing of budget deficit from non-inflationary sources, adoption of new business registration and licensing code with the aim of establishing transparent and competitive domestic trading system, and implementation of price stabilisation programme by supplying basic food items including wheat, sugar and edible oil.

Interest Rates The NBE sets the minimum interest rate banks should pay on savings and time deposits. All the other rates are determined by market forces. In 2013/14 there was no change to the minimum and maximum interest rates banks paid on savings deposits that, respectively, remained at 5.0 per cent. and 5.6 per cent. Consequently, the average interest rate on savings deposits remained at the previous year’s rate of 5.4 per cent. The weighted annual average interest rate on time deposits increased from 5.6 per cent. in 2011/12 to 5.7 per cent. in 2013/14. The average lending rate remained constant at 11.9 per cent. in 2013/14. As a result, the real rate of interest in 2012/13 underwent an improvement from the preceding year due to the drop in the headline inﬂation rate from 20.8 per cent. to 7.4 per cent. The average real

72 lending rate was positive in 2012/13 and 2013/14. However, other real interest rates, including the yield of treasury bills, remained negative.

Exchange Rate Policy In September 2010, the NBE devalued the birr by 20.0 per cent. in order to enhance Ethiopia’s international competitiveness. The NBE continues to closely manage the birr through periodic monitoring of exchange rate developments and participation in the interbank foreign exchange market although its ability to do so and, in particular, to manage the birr’s exchange rate in times of volatility or external downwards pressure is subject to Ethiopia having sufﬁcient international reserves. As Ethiopia’s international reserves have fallen substantially in terms of months’ import coverage from 4.3 months in 2010/11 to 2.2 months in 2013/14 (See ‘‘Foreign Exchange Reserves’’), it may not be possible for the NBE to manage the exchange rate as effectively in the future as it has in the past.

During the period 2010/11 to 2013/14, the birr exchange rate has been largely stable. The interbank foreign exchange market rate of birr depreciated on average by approximately 4.7 per cent. annually after the exchange rate adjustment in September 2010. In the same period, the depreciation in the parallel foreign exchange market was 5.3 per cent. during 2013/14, the average weighted exchange rate of the birr in the inter-bank foreign exchange market stood at birr 19.0748 per US$1, depreciating by 4.8 per cent. compared to the average rate of birr 18.1947 per US$1 in 2012/13. Similarly, the average exchange rate of the birr in the parallel foreign exchange market depreciated by 2.9 per cent. annually to birr 19.8666 per US$1 during the same period. The average spread between the ofﬁcial and the parallel market rates, therefore, narrowed from 6.1 per cent. in 2012/13 to 4.2 per cent. in 2013/14 because more of the demand for foreign currency was met by the ofﬁcial banking system.

The following table sets out the exchange rates in the inter-bank and parallel foreign exchange market for the periods indicated:

Ofﬁcial Market Average Weighted Parallel Market Period Rate (birr/US$) Average (birr/US$)

2010/11 16.1178 16.5292 Quarter I...... 14.5535 14.9833 Quarter II ...... 16.4667 16.9567 Quarter III...... 16.6342 17.1067 Quarter IV ...... 16.8169 17.0700 2011/12 17.2536 17.9883 Quarter I...... 17.0011 17.3900 Quarter II ...... 17.1522 17.8333 Quarter III...... 17.3107 18.2400 Quarter IV ...... 17.5503 18.4900 2012/13 ...... 18.1947 19.3025 Quarter I...... 17.8705 18.4400 Quarter II ...... 18.0782 18.7333 Quarter III...... 18.2971 19.8367 Quarter IV ...... 18.5331 20.2000 2013/14 ...... 19.0748 19.8666 Quarter I...... 18.7384 19.7621 Quarter II ...... 18.9390 19.5372 Quarter III...... 19.1819 19.8222 Quarter IV ...... 194400 20.3448 Foreign Exchange Reserves NBE follows a prudent reserve-money growth target to address issues of macroeconomic stability. As a result, managing its international reserve has been one mechanism by which the NBE controlled reserve money growth. Foreign exchange reserves therefore decreased from US$2.9 billion (or 4.3 months of imports) in 2010/11, to US$2.2 billion (or 2.4 months of imports) in 2011/12 before recovering to US$2.4 billion (or 2.5 months of imports) by the end of 2012/13 and US$2.5 billion (or 2.2 months of imports) by the end of 2013/14.

With respect to the volume of foreign exchange transactions, US$15.6 million was traded in the interbank foreign exchange market during 2012/13, which is 89.7 per cent. lower than the transaction volume in 2011/12.

73 The Banking Sector Most of Ethiopia’s rural households currently access financial services either via microfinance institutions or bank branches which cover every district in Ethiopia. Ethiopia’s banking sector remains concentrated with 19 banks operating in Ethiopia, of which 16 are private commercial banks and the remaining three are state-owned. In 2013/14, 44.6 per cent. of the total capital of the banking sector (which amounted to birr 26.5 billion) was attributable to the three state-owned banks, of which 34.1 per cent. was attributable to the CBE, 8.1 per cent. to the DBE and 2.4 per cent. to the CBB. The banking sector had a sector-wide capital adequacy ratio of 17.2 per cent. as at March 2014, exceeding the minimum local regulatory ratio of 8.0 per cent. The Government has taken several measures to promote micro-finance institutions (‘‘MFI’’), pension schemes, household savings schemes, and financial access in rural areas in addition to expanding bank branch networks. By the end of 2013/14, the number of MFIs licensed and operating in Ethiopia was 31, with total capital and total assets of birr 5.7 billion and birr 24.5 billion, respectively, representing an increase by 18.8 and 8.5 per cent. compared to 2012/13. However, the four largest MFIs accounted for 74.9 per cent. of total capital and 81.6 per cent. of the total assets of all MFIs as at the end of 2013/14, reflecting the existence of low competition in the industry. During 2013/14, 480 new bank branches were opened throughout Ethiopia, raising the total branch network in the country to 2,208 from 1,728 in 2012/13. As a result, the bank branch to population ratio declined from 49,826.0 in 2012/13 to 39,834.0 people in 2013/14. The significant branch expansion was undertaken by the CBE which opened 124 branches, followed by Oromia International Bank, which opened 44 branches, Awash International Bank which opened 38 branches, Cooperative Bank of Oromia which opened 31 branches, and Dashen Bank which opened 30 branches. Following a significant capital injection by private banks; Dashen Bank birr 501.1 million, Bank of Abyssinia of birr 417.0 million, United Bank birr 383.4 million, Awash International Bank of birr 351.3 million, and Nib International Bank birr 278.3 million, the total capital of the banking industry increased by 13.6 per cent. and reached birr 26.5 billion in 2013/14. Private banks’ share of the total capital rose to 55.4 per cent. in 2013/14 from 48.4 per cent. in 2012/13 because of a corresponding increase in capital expansion by private banks of birr 3.4 billion. Linked to the increase in the branch network of various banks during 2013/14, deposit liabilities of the banking system reached birr 292.8 billion, which is an annual growth rate of 23.5 per cent. compared to 2012/13. Of this, saving deposits increased by 37.2 per cent. followed by time deposits which increased by 23.5 per cent. and demand deposits which increased by 10.9 per cent. Demand deposits accounted for 44.0 per cent. of total deposits, followed by saving deposits which accounted for 49.8 per cent. of total deposits and time deposit which accounted for 6.2 per cent. of total deposits. Despite the opening of 346 new branches by private commercial banks, the share of private bank deposits slightly fell to 31.5 per cent. in 2013/14 from 32.3 per cent. in 2012/13. The CBE held 66.4 per cent. of the stock of total deposits due to its large branch network expansion. Total outstanding borrowing of banks at the end of 2013/14 amounted to birr 2.4 billion, a decrease from birr 2.7 billion in 2012/13. Of total borrowing, domestic borrowing (i.e. from within Ethiopia) accounted for 87.2 per cent. whereas foreign lending accounted for the balance. Loan collection by the banking system stood at birr 51.7 billion in 2013/14, an increase of 23.7 per cent. compared to 2012/13, of which 50.5 per cent. of total loan collection was collected by the public banks. Total outstanding loans and advances of the banking system (excluding lending to the Government) increased by 23.9 per cent. and reached birr 168.4 billion in 2013/14. Gross outstanding claims on public enterprises increased by 31.3 per cent, while claim on the private sector (including cooperatives) increased by 20.9 per cent. in 2013/14 compared to 2012/13. Sectoral distribution of outstanding loans indicated that credit to industry accounted for 39.9 per cent. of outstanding loans, international trade accounted for 19.4 per cent. of outstanding loans and the agriculture sector accounted for 9.4 per cent. of outstanding loans in 2013/14. Outstanding claims on the private sector including cooperatives stood at birr 114.6 billion or 68.1 per cent. of the total outstanding loans. The NBE requires commercial banks other than CBE to purchase five-year NBE-bills equal to 27.0 per cent. of their disbursements and the money raised from such purchases contributes to financing priority-sector projects. Outstanding claims of the NBE on the Government amounted to birr 73.3 billion during 2013/14, due to a 16.3 per cent. increase in direct advances during the fiscal year. Direct advances to the Government stood at birr 64.3 billion or 87.7 per cent. of the total amount outstanding, whereas bond holdings accounted for the remaining. By the end of 2013/14, the outstanding claim of NBE on

74 DBE amounted to birr 20.3 billion. Total deposits at the NBE increased by 16.6 per cent. to birr 34.4 billion. The following table sets out selected ﬁnancial data in respect of the Ethiopian banking sector for the months indicated:

Jun-10 Jun-11 Jun-12 Jun-13 Mar-141

(per cent. unless otherwise indicated) Capital adequacy Regulatory capital to risk-weighted assets..... 18.7 18.1 13.4 17.9 17.2 Regulatory Tier 1 capital to risk-weighted assets...... 18.7 18.1 13.4 14.6 17.2 Capital (net worth) to assets...... 9.1 7.8 6.7 6.6 6.8 Asset quality and composition NPLs to gross loans...... 3.5 2.1 1.4 2.4 2.9 NPLs net of provision to capital ...... 0.7 (3.8) (5.6) 1.5 4.3 Earning and proﬁtability(2) ROA...... 4.0 3.0 4.1 3.2 3.1 ROE (total capital)(3) ...... 42.2 31.5 34.2 — — ROE (core capital)(4)...... 46.4 34.9 55.8 48.0 44.6 Gross interest income to total income(5)...... 60.1 54.4 54.7 64.9 64.5 Interest margin to gross income(6) ...... 38.7 40.0 45.0 56.2 55.0 Non-interest expenses to gross income ...... 28.0 28.7 26.6 33.6 35.3 Personnel expenses to noninterest expenses... 46.0 51.1 42.3 43.3 53.3 Trading and fee income to gross income...... 61.3 52.0 55.0 — — Spread between reference loan and deposit rates ...... 6.4 6.4 6.4 — — Liquidity Liquid assets to total assets ...... 32.7 32.7 20.6 23.2 15.4 Liquid assets to short term liabilities...... 42.7 43.4 28.7 30.1 19.9 Total (non-interbank) loans to customer deposit(7) ...... 80.1 81.9 94.0 96.7 —

Source: IMF report dated October 2014 Notes: (1) Earning ratios indicated are provisional. (2) Earning ratios indicated for March 2013 are provisional. (3) The average capital used to calculate the ROE includes retained earnings, proﬁts and loss. (4) The average capital used to calculate the ROE excludes retained earnings, proﬁts and loss. (5) Total income comprises gross interest income and gross non-interest income. (6) Gross income comprises net interest income and total non-interest income. (7) Customer deposit includes time, current and saving deposits and total loans include bonds. Ethiopian banks’ returns on equity increased from 34.2 per cent. in June 2012 to 44.9 per cent. in June 2014. This was aided by limited competition in the sector.

Non-performing Loans The non-performing loans (‘‘NPL’’) ratio was 2.1 per cent. of gross loans in June 2011 and slightly went down to 2.0 in June 2014.

Regulation of the Banking Sector and Financial Transactions Regulations The legal and regulatory framework relating to regulation and supervision of banks in Ethiopia is mainly provided for under proclamation number 592/2008 (the ‘‘Banking Law’’), together with its supporting regulations and proclamations. Under the Banking Law, the NBE is empowered to assess the eligibility and suitability for and issue banking licenses and is also required to enforce the conduct requirements for banks and their employees as set out in the Banking Law. The Government and the NBE have implemented several measures to improve Ethiopia’s AML/CFT regime. In 2012, Ethiopia acceded to the UN Convention for the Suppression of the Financing of Terrorism and in 2013 a comprehensive proclamation on Prevention and Suppression of Money Laundering and Combating of Financing of Terrorism (the ‘‘AMT/CFT Proclamation’’) was enacted by the House of People’s Representatives. The AMT/CFT Proclamation covers all material elements of the Palermo and Vienna Conventions. Ethiopia takes a threshold approach to predicate offences; deﬁning predicate offences as any offence capable of generating proceeds of crime and punishable at

75 least with imprisonment for one year, and each of the designated categories of offences meet these criteria. Criminal liability and sanctions can be applied to legal persons, and persons seeking civil damages against a legal person may join their civil claim to a criminal case. The AMT/CFT Proclamation is fully compliant with FATF recommendations and in October 2014 the FATF announced that Ethiopia is therefore no longer subject to the FATF’s monitoring process under its on-going global anti-money laundering and counter-terrorist ﬁnancing compliance process. The Government has also established a National Council on AML/CFA which is comprised of relevant ministers and heads of other government agencies. The Council is chaired by the Minister of Finance and Economic Development and oversees the implementation of the AML/CFA Proclamation and recommendations of FATF.

Financial Markets The treasury bill market is the only regular market in Ethiopia where securities are transacted on a weekly basis. Although there is no secondary market for Ethiopian treasury bills, Government bonds are occasionally issued to finance Government expenditures and to absorb excess liquidity in the banking system. The amount of treasury bills offered reached birr 91.2 billion in 2013/14, which represented a decrease of 15.2 per cent. on an annual basis, while total demand for treasury bills increased by 4.0 per cent. to birr 113.5 billion. In 2011, the NBE introduced the NBE bill market in order to facilitate resources from commercial banks other than CBE for the financing of priority sectors identified by the Government as important to the Ethiopian economy. Following this introduction, the total NBE bills purchased by the banking sector reached birr 26.0 billion at the end of 2013/14. In addition, there has been a strong demand for bonds following growth in economic activity. The CBE’s bond holdings increased to birr 109.1 billion in 2013/14 from birr 80.6 billion the previous year.

76 TERMS AND CONDITIONS OF THE NOTES

The following is the text of the Terms and Conditions of the Notes which, upon issue, will represent the terms and conditions applicable to all Notes, and, subject to completion and amendment, and save for the text in italics, will be endorsed on each Certiﬁcate and will be attached and (subject to the provisions thereof) apply to each Global Note representing the Notes.

The US$1,000,000,000 6.625 per cent. Notes due 2024 (the ‘‘Notes’’, which expression shall in these Conditions, unless the context otherwise requires, include any further notes issued pursuant to Condition 15 and forming a single series with the Notes) of the Federal Democratic Republic of Ethiopia (the ‘‘Issuer’’) are issued subject to and with the benefit of a Fiscal Agency Agreement dated 11 December 2014 (such agreement as amended and/or supplemented and/or restated from time to time, the ‘‘Agency Agreement’’) made between the Issuer, Deutsche Bank AG, London Branch as fiscal agent and principal paying agent (the ‘‘Fiscal Agent’’), Deutsche Bank Luxembourg S.A. as registrar (the ‘‘Luxembourg Registrar’’), Deutsche Bank Trust Company Americas as registrar (the ‘‘US Registrar’’ and, together with the Luxembourg Registrar, the ‘‘Registrars’’), Deutsche Bank AG, London Branch and Deutsche Bank Trust Company Americas as transfer agents (the ‘‘Transfer Agents’’) and the other initial paying agents named in the Agency Agreement (together with the Fiscal Agent, the ‘‘Paying Agents’’) and the other agents named in it (together with the Fiscal Agent, the Registrars, the Transfer Agents and the other Paying Agents, the ‘‘Agents’’). The Notes also have the benefit of a Deed of Covenant dated 11 December 2014 (the ‘‘Deed of Covenant’’) executed by the Issuer relating to the Notes.

The statements in these Conditions include summaries of, and are subject to, the detailed provisions of and definitions in the Agency Agreement. Copies of the Agency Agreement and the Deed of Covenant are available for inspection during normal business hours by the holders of the Notes (the ‘‘Noteholders’’) at the Specified Office (as defined in the Agency Agreement) of each of the Paying Agents. The Noteholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Agency Agreement applicable to them. References in these Conditions to the Fiscal Agent, the Registrars, the Paying Agents and the Agents shall include any successor appointed under the Agency Agreement.

1. Form, Denomination and Title (a) Form and Denomination. The Notes are issued in registered form in minimum denominations of US$200,000 or any amount in excess thereof which is an integral multiple of US$1,000 (each, an ‘‘Authorised Denomination’’). A registered note certificate (each, a ‘‘Certificate’’) will be issued to each Noteholder in respect of its registered holding of Notes. Each Certificate will be numbered serially with an identifying number which will be recorded on the relevant Certificate and in the register of Noteholders which the Issuer will procure to be kept by each Registrar (each, a ‘‘Register’’) outside the United Kingdom in accordance with the provisions of the Agency Agreement and in which will be entered the names and addresses of the holders of the Notes and the particulars of the Notes held by them and all transfers of the Notes.

(b) Title. Title to the Notes passes only by registration in the relevant Register. The holder of any Note will (except as otherwise required by law or as ordered by a court of competent jurisdiction) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest or any writing on, or the theft or loss of, the Certiﬁcate issued in respect of it) and no person will be liable for so treating the holder. In these Conditions ‘‘Noteholder’’, and in relation to a Note, ‘‘holder’’ means the person in whose name a Note is registered in the relevant Register (or, in the case of a joint holding, the ﬁrst named thereof).

Upon issue, the Notes will be represented by Global Notes which will be registered in the name of nominees for Euroclear, Clearstream, Luxembourg and DTC. Ownership interests in the Global Notes will be shown on, and transfers thereof will only be effected through, records maintained by Euroclear, Clearstream, Luxembourg and DTC (as applicable) and their respective participants. Payments of interest and principal in respect of the Notes will be effected in accordance with investors’ holdings through participants in Euroclear, Clearstream, Luxembourg and DTC (as applicable). See ‘‘Clearing and Settlement Arrangements’’.

77 2. Transfers of Notes and Issue of Certificates (a) Transfers. Subject to Condition 2(d) and Condition 2(e), a Note may be transferred by depositing the Certificate issued in respect of that Note, with the form of transfer on the back duly completed and signed, at the Specified Office of the relevant Registrar or any of the Transfer Agents together with such evidence as the relevant Registrar or Transfer Agent may require to prove the title of the transferor and the authority of the individuals who have executed the form of transfer; provided however, that a Note may not be transferred unless the principal amount of the Notes transferred and (where not all of the Notes held by a Noteholder are being transferred) the principal amount of the Notes not transferred, are Authorised Denominations. (b) Delivery of new Certificates. Each new Certificate to be issued upon transfer or exchange of Notes will, within five business days of receipt by the relevant Registrar or Transfer Agent of the duly completed form of transfer endorsed on the relevant Certificate, be mailed by uninsured mail at the risk of the holder entitled to the Note to the address specified in the form of transfer. For the purposes of this Condition 2(b), ‘‘business day’’ shall mean a day on which banks are open for business in the city in which the Specified Office of the relevant Registrar or Transfer Agent with whom a Certificate is deposited in connection with a transfer is located. Where some but not all of the Notes in respect of which a Certificate is issued are to be transferred a new Certificate in respect of the Notes not so transferred will, within five business days of receipt by the relevant Registrar or Transfer Agent of the original Certificate, be mailed by uninsured mail at the risk of the holder of the Notes not so transferred to the address of such holder appearing on the relevant Register or as specified in the form of transfer. (c) Formalities free of charge. Registration of transfer of Notes will be effected without charge by or on behalf of the Issuer, the relevant Registrar or any Transfer Agent but upon payment (or the giving of such indemnity as the relevant Registrar or any Agent may reasonably require) in respect of any tax, duties or other governmental charges which may be imposed in relation to such transfer. (d) Closed Periods. No Noteholder may require the transfer of a Note to be registered during the period of 15 calendar days ending on (and including) the due date for any payment of principal or interest on that Note. (e) Regulations. All transfers of Notes and entries on a Register will be made subject to the detailed regulations concerning transfer of Notes scheduled to the Agency Agreement. The regulations may be changed by the Issuer with prior written notification to the Registrars. A copy of the current regulations will be mailed (free of charge) by the relevant Registrar to any Noteholder upon request.

3. Status The Notes constitute direct, general, unconditional and (subject to Condition 4) unsecured obligations of the Issuer and the full faith and credit of the Issuer is pledged for the due and punctual payment of principal and interest on the Notes and for the performance of all obligations of the Issuer in respect of the Notes and the Deed of Covenant. The Notes will at all times rank pari passu without preference among themselves and at least pari passu in right of payment with all other unsecured External Indebtedness of the Issuer from time to time outstanding; provided, however, that the Issuer shall have no obligation to effect equal or rateable payment(s) at any time with respect to any other External Indebtedness and, in particular, shall have no obligation to pay other External Indebtedness at the same time or as a condition of paying sums due on the Notes and vice versa.

4. Negative Pledge (a) Negative Pledge. So long as any Note remains outstanding (as deﬁned in the Agency Agreement) the Issuer will not, save for the exceptions set out below in Condition 4(c) create, incur, assume or permit to subsist any Security upon the whole or any part of its present or future assets or revenues to secure (i) any of its Public External Indebtedness, (ii) any Guarantees in respect of Public External Indebtedness or (iii) the Public External Indebtedness of any other person, without at the same time or prior thereto securing the

78 Notes equally and rateably therewith or providing such other arrangement (whether or not comprising Security) as shall be approved by an Extraordinary Resolution or by a Written Resolution (each as defined in Condition 13(a)). For the avoidance of doubt, any such approval shall not constitute a Reserved Matter (for the purposes of and as defined in Condition 13(e)). (b) Interpretation. In these Conditions: (i) ‘‘External Indebtedness’’ means any Indebtedness which is expressed, denominated or payable, or at the option of the relevant creditor may be payable, in any currency other than the lawful currency from time to time of the Federal Democratic Republic of Ethiopia; (ii) ‘‘Guarantee’’ means any obligation of a person to pay the Indebtedness of another person including, without limitation: an obligation to pay or purchase such Indebtedness; an obligation to lend money or to purchase or subscribe shares or other securities or to purchase assets or services in order to provide funds for the payment of such Indebtedness; an indemnity against the consequences of a default in the payment of such Indebtedness or any other agreement to be responsible for such Indebtedness; (iii) ‘‘Indebtedness’’ means any obligation (whether present or future) for the payment or repayment of money which has been borrowed or raised (including money raised by acceptances and leasing); (iv) ‘‘person’’ means any individual, company, corporation, firm, partnership, joint venture, association, organisation, trust or other juridical entity, state or agency of a state or other entity, whether or not having a separate legal personality; (v) ‘‘Public External Indebtedness’’ means any Indebtedness which (A) is expressed, denominated or payable, or at the option of the relevant creditor may be payable, in any currency other than the lawful currency from time to time of the Federal Democratic Republic of Ethiopia, and (B) is in the form of, or is represented by, bonds, notes or other securities with a stated maturity of more than one year from the date of issue which are, or are capable of being, quoted, listed or ordinarily purchased or sold, dealt or traded on any stock exchange, automated trading system, over-the-counter or other securities market; and (vi) ‘‘Security’’ means any mortgage, pledge, lien, hypothecation, security interest or other charge or encumbrance including, without limitation, anything analogous to the foregoing under the laws of any jurisdiction. (c) Exceptions. The following exceptions apply to the Issuer’s obligations under Condition 4(a): (i) any Security securing Public External Indebtedness of the Issuer or any Guarantee by the Issuer of Public External Indebtedness of any other person incurred for the purpose of financing the acquisition or construction of such property and any renewal and extension of such Security which is limited to the original property covered thereby and which (in either case) secures any renewal or extension of the original secured financing; and (ii) any Security securing Public External Indebtedness of the Issuer or any Guarantee by the Issuer of Public External Indebtedness of any other person incurred for the purpose of financing all or part of the costs of the acquisition, construction or development of a project; provided that (A) the holders of such Public External Indebtedness or Guarantee expressly agree to limit their recourse to the assets and revenues of such project or the proceeds of insurance thereon as the principal source of repayments of such Public External Indebtedness and (B) the property over which such Security is granted consists solely of such assets and revenues; and (iii) any Security securing Public External Indebtedness which arises pursuant to any order or attachment, distraint or similar legal process arising in connection with court proceedings so long as the execution or other enforcement thereof is effectively stayed and the claims secured thereby are being contested in good faith by the Issuer by appropriate proceedings.

79 5. Interest (a) Interest Rate and Interest Payment Dates. The Notes bear interest from and including 11 December 2014 (the ‘‘Issue Date’’) to but excluding the Maturity Date (as defined in Condition 7(a)) at the rate of 6.625 per cent. per annum (the ‘‘Rate of Interest’’), payable semi-annually in arrear on 11 June and 11 December in each year, commencing 11 June 2015 (each, an ‘‘Interest Payment Date’’), subject as provided in Condition 6(d). Each period beginning on (and including) the Issue Date or any Interest Payment Date and ending on (but excluding) the next Interest Payment Date is herein called an ‘‘Interest Period’’. (b) Interest Accrual. Each Note will cease to bear interest from and including its due date for redemption unless, upon surrender of the Certificate representing such Note, payment of the principal in respect of the Note is improperly withheld or refused or unless default is otherwise made in respect of payment. In such event, interest will continue to bear interest at such rate (both before and after judgment) until whichever is the earlier of: (i) the date on which all amounts due in respect of such Note up to that date have been received by or on behalf of the relevant Noteholder; and (ii) the day seven days after the date on which the full amount of the moneys payable in respect of such Notes has been received by the Fiscal Agent and notice to that effect has been given to the Noteholders in accordance with Condition 12 (except to the extent that there is any subsequent default in payment to the relevant Noteholders). (c) Calculation of Interest. The amount of interest payable in respect of each Note for any Interest Period shall be calculated by applying the Rate of Interest to the principal amount of such Note, dividing the product by two and rounding the resulting figure to the nearest cent (half a cent being rounded upwards). If interest is required to be calculated for any period other than an Interest Period, it will be calculated on the basis of a year of 360 days consisting of 12 months of 30 days each and, in the case of an incomplete month, the actual number of days elapsed.

6. Payments (a) Payments in respect of Notes. Payment of principal and interest will be made by transfer to the registered account of the Noteholder or by a cheque in US dollars drawn on a bank that processes payments in US dollars mailed to the registered address of the Noteholder if it does not have a registered account. Payment of principal will only be made against surrender of the relevant Certificate at the Specified Office of any of the Paying Agents. Interest on Notes due on an Interest Payment Date will be paid to the Noteholder shown on the relevant Register at the close of business on the date (the ‘‘payment record date’’) being the fifteenth day before the due date for the payment of interest. For the purposes of this Condition 6(a), a Noteholder’s ‘‘registered account’’ means the US dollar account maintained by or on its behalf with a bank that processes payments in US dollars, details of which appear on the relevant Register at the close of business, in the case of principal, on the second Business Day (as defined below) before the due date for payment and, in the case of interest, on the relevant payment record date, and a Noteholder’s ‘‘registered address’’ means its address appearing on the relevant Register at that time. (b) Payments subject to Applicable Laws. Payments in respect of principal and interest on Notes are subject in all cases to any fiscal or other laws and regulations applicable in the place of payment, but without prejudice to the provisions of Condition 8. (c) No commissions. No commissions or expenses shall be charged to the Noteholders in respect of any payments made in accordance with this Condition 6. (d) Payment on Business Days. Where payment is to be made by transfer to a registered account, payment instructions (for value the due date or, if that is not a Business Day, for value the first following day which is a Business Day) will be initiated and, where payment is to be made by cheque, the cheque will be mailed, on the due date for payment or, in the case of a payment of principal, if later, on the Business Day on which the relevant

80 Certificate is surrendered at the Specified Office of an Agent. If any date for payment in respect of a Note is not a Business Day, the Noteholder shall not be entitled to payment until the next following Business Day. Noteholders will not be entitled to any interest or other payment for any delay after the due date in receiving the amount due if the due date is not a Business Day, if the Noteholder is late in surrendering its Certificate (if required to do so) or if a cheque mailed in accordance with this Condition 6(d) arrives after the due date for payment or not at all. In this Condition 6, ‘‘Business Day’’ means a day (other than a Saturday or Sunday) on which commercial banks are open for general business in London, New York City and, in the case of surrender of a Certificate, in the place in which the Certificate is surrendered. (e) Partial Payments. If the amount of principal or interest which is due on the Notes is not paid in full, the relevant Registrar will annotate the relevant Register with a record of the amount of principal or interest in fact paid. (f) Agents. The names of the initial Agents and their initial Specified Offices are set out in the Agency Agreement. The Issuer reserves the right at any time to vary or terminate the appointment of any Agent and to appoint additional or other Agents; provided that there will at all times be: (i) a Fiscal Agent, (ii) a Registrar (in respect of both Restricted Notes and Unrestricted Notes, each as defined in the Fiscal Agency Agreement), (iii) a Transfer Agent (in respect of both Restricted Notes and Unrestricted Notes), (iv) a Paying Agent in a Member State of the EU (if any) that is not obliged to withhold or deduct tax pursuant to European Council Directive 2003/48/EC or any other directive implementing the conclusions of the ECOFIN Council Meeting of 26-27 November 2000 on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive and (v) such other agents as may be required by any stock exchange on which the Notes may be listed. Notice of any termination or appointment and of any changes in Specified Offices will be given to the Noteholders promptly by the Issuer in accordance with Condition 12. In acting under the Agency Agreement and in connection with the Notes, the Agents act solely as agents of the Issuer and do not assume any obligations towards or relationship of agency or trust for or with any of the Noteholders.

7. Redemption and Purchase (a) Redemption at Maturity. Unless previously purchased and cancelled as provided below, the Issuer will redeem the Notes at their principal amount on 11 December 2024 (the ‘‘Maturity Date’’). The Issuer shall not be entitled to redeem the Notes otherwise than in accordance with this Condition 7(a). (b) Purchases and Cancellation. The Issuer may at any time purchase or procure others to purchase for its account Notes in the open market or otherwise at any price and for any consideration. All Notes so purchased may be held, resold or cancelled at the option of the Issuer. Any Notes so purchased, while held by or on behalf of the Issuer or by any public sector instrumentality (as deﬁned in Condition 13(i)) of the Issuer, shall not entitle the Noteholder to vote at any meeting of Noteholders (a ‘‘Meeting’’) (or for the purposes of any Written Resolution) and shall not be deemed outstanding, all as more particularly set out in Condition 13(i). Any Notes cancelled shall not be reissued and for so long as the Notes are admitted to trading on the Irish Stock Exchange and the rules of such exchange require, the Issuer shall promptly inform such exchange of the cancellation of any Notes under this Condition 7(b).

8. Taxation (a) Payment without Withholding. All payments of interest and principal in respect of the Notes by or on behalf of the Issuer shall be made free and clear of, and without withholding or deduction for, or on account of, any present or future taxes, duties, assessments or governmental charges of whatever nature (‘‘Taxes’’) imposed or levied by or on behalf of the Relevant Jurisdiction (as deﬁned below), unless the withholding or deduction of the Taxes is required by law. In that event, the Issuer will pay such additional amounts as will result in the receipt by the Noteholders of such amounts as

81 would have been received by them if no such withholding or deduction had been required, except that no additional amounts shall be payable in relation to any payment in respect of any Note: (i) held by or on behalf of a Noteholder who is liable to the Taxes in respect of such Note by reason of his having some connection with the Relevant Jurisdiction other than the mere holding of the Note; or (ii) in respect of which the Certificate representing it is surrendered for payment more than 30 days after the Relevant Date (as defined below), except to the extent that the relevant Noteholder would have been entitled to such additional amounts on surrendering the Certificate representing such Note for payment on the last day of such period of 30 days assuming, whether or not such is in fact the case, that day to have been a Business Day (as defined in Condition 6); or (iii) where such withholding or deduction is imposed on a payment to an individual and is required to be made pursuant to European Council Directive 2003/48/EC or any other Directive implementing the conclusions of the ECOFIN Council Meeting of 26- 27 November 2000 on the taxation of savings income or any law implementing or complying with, or introduced in order to conform to, such Directive; or (iv) held by or on behalf of a Noteholder who would have been able to avoid such withholding or deduction by arranging to receive the relevant payment through another Paying Agent in a Member State of the EU. (b) Interpretation. In these Conditions: (i) ‘‘Relevant Date’’ in respect of any Note means the later of (A) the date on which the payment first becomes due and (B) if the full amount of the money payable has not been received by the Fiscal Agent on or before the due date, the date on which, the full amount of the money having been so received, notice to that effect has been duly given to the Noteholders by the Issuer in accordance with Condition 12; and (ii) ‘‘Relevant Jurisdiction’’ means the Federal Democratic Republic of Ethiopia or any political subdivision or any authority thereof or therein having power to tax. (c) Additional Amounts. Any reference in these Conditions to any amounts in respect of the Notes shall be deemed also to refer to any additional amounts which may be payable under this Condition 8.

9. Prescription Claims against the Issuer for payment in respect of the Notes will be prescribed and become void unless made within ten years (in the case of principal) and ﬁve years (in the case of interest) from the Relevant Date (as deﬁned in Condition 8).

10. Events of Default (a) Events of Default. If any of the following events (‘‘Events of Default’’) shall have occurred and be continuing: (i) Non-Payment: the Issuer fails to pay principal, premium, if any, or interest in respect of any of the Notes when due and payable and such failure continues for a period of 14 days; or (ii) Breach of Other Obligations: the Issuer fails to perform or observe any other obligations in respect of the Notes and that failure continues for 30 days after any Noteholder gives written notice to the Issuer to remedy the failure (with a copy of such notice to the Fiscal Agent at its speciﬁed ofﬁce); or (iii) Cross-Acceleration: (A) any other External Indebtedness of the Issuer becomes due and payable prior to the stated maturity thereof by reason of default, or (B) any such External Indebtedness is not paid in full at the stated maturity thereof, or (C) any Guarantee of such External Indebtedness is not honoured when due and called upon and, in the case of (B) or (C), that failure continues beyond any originally applicable grace period; provided that the amount of External Indebtedness referred to

82 in (A) and/or (B) and/or the amount payable under any Guarantee referred to in (C) individually or in the aggregate exceeds US$25,000,000 (or its equivalent in any other currency or currencies); or (iv) International Monetary Fund (‘‘IMF’’) Membership: the Issuer ceases to be a member, or becomes ineligible to use the resources of, the IMF or of any successor (whether corporate or not) that performs the functions of, or functions similar to the IMF; or (v) Moratorium: the Issuer shall have declared a general moratorium on the payment of principal of, or interest on, all or any part of its External Indebtedness (whether by a general suspension of payments, a moratorium or otherwise) or if the Issuer denies any of its payment obligations under the Notes; or (vi) Unenforceability: for any reason whatsoever (A) it shall be or becomes unlawful for the Issuer to perform or comply with all or any of its obligations set out in the Notes, including, without limitation, the payment of interest on the Notes, as a result of any change in law or regulation in the Federal Democratic Republic of Ethiopia or (B) the obligations under the Notes are declared by a court of competent jurisdiction to be no longer binding or no longer enforceable against the Issuer; (vii) Validity: if the Issuer or any political subdivision thereof contests the validity of the Notes; or (viii) Consents: if any authorisation, consent of, or ﬁling or registration with, any governmental authority necessary for the performance of any payment obligation of the Issuer under the Notes, when due, ceases to be in full force and effect or remain valid and subsisting, then the holders of at least 25 per cent. in aggregate principal amount of the outstanding Notes may, by notice in writing to the Issuer (with a copy to the Fiscal Agent), declare all the Notes to be due and payable, whereupon they shall become immediately due and payable at their outstanding principal amount together with accrued interest without further action or formality. Notice of any such declaration shall promptly be given to all other Noteholders by the Issuer. (b) If the Issuer receives notice in writing from holders of at least 50 per cent. in aggregate principal amount of the outstanding Notes to the effect that the Event of Default or Events of Default giving rise to any above mentioned declaration of acceleration is or are cured following any such declaration and that such holders wish the relevant declaration to be withdrawn, the Issuer shall give notice thereof to the Noteholders (with a copy to the Fiscal Agent), whereupon the relevant declaration shall be withdrawn and shall have no further effect (but without prejudice to any rights or obligations which may have arisen before the Issuer gives such notice, whether pursuant to these Conditions or otherwise). No such withdrawal shall affect any other or any subsequent Event of Default or any right of any Noteholder in relation thereto.

11. Replacement of Certificates If any Certificate is lost, stolen, mutilated, defaced or destroyed it may be replaced at the Specified Office of the relevant Registrar upon payment by the claimant of the expenses (including legal expenses, if applicable) incurred in connection with the replacement and on such terms as to evidence and indemnity as the Issuer and/or the relevant Registrar may reasonably require. Mutilated or defaced Certificates must be surrendered before replacements will be issued.

12. Notices All notices to the Noteholders will be valid if mailed to them at their respective addresses in the relevant Register at the time of publication of such notice by pre-paid ﬁrst class mail (or any other manner approved by the relevant Registrar (or the Fiscal Agent on its behalf), which may be by electronic transmission). Any such notice shall be deemed to have been given on the next week day (being a day other than a Saturday or Sunday) after being so mailed. The Issuer shall also ensure that for so long as the Notes are admitted to trading on the Irish Stock Exchange and the rules of such exchange so require, notices shall be given or published in a manner which complies with the rules and regulations of such stock exchange or other

83 relevant authority on which the Notes are for the time being listed. Any notice shall be deemed to have been given on the date of publication or, if so published more than once or on different dates, on the date of the ﬁrst publication.

13. Meetings of Noteholders; Written Resolutions (a) Convening Meetings of Noteholders; Conduct of Meetings of Noteholders; Written Resolutions. (i) The Issuer may convene a Meeting at any time in respect of the Notes in accordance with the provisions of the Agency Agreement. The Issuer will determine the time and place of the Meeting and will notify the Noteholders of the time, place and purpose of the Meeting not less than 21 and not more than 45 days before the Meeting. (ii) The Issuer or the Fiscal Agent will convene a Meeting if the holders of at least 10 per cent. in principal amount of the outstanding Notes (as defined in the Agency Agreement and described in Condition 13(i)) have delivered a written request to the Issuer or the Fiscal Agent (with a copy to the Issuer) setting out the purpose of the Meeting. The Fiscal Agent will agree the time and place of the Meeting with the Issuer promptly. The Issuer or the Fiscal Agent, as the case may be, will notify the Noteholders within 10 days of receipt of such written request of the time and place of the Meeting, which shall take place not less than 21 and not more than 45 days after the date on which such notification is given. (iii) The Issuer (with the agreement of the Fiscal Agent) will set the procedures governing the conduct of any Meeting in accordance with the Agency Agreement. If the Agency Agreement does not include such procedures, or additional procedures are required, the Issuer and the Fiscal Agent will agree such procedures as are customary in the market and in such a manner as to facilitate any multiple series aggregation, if in relation to a Reserved Matter the Issuer proposes any modification to the terms and conditions of, or action with respect to, two or more series of debt securities issued by it. (iv) The notice convening any Meeting will specify, inter alia: (A) the date, time and location of the Meeting; (B) the agenda and the text of any Extraordinary Resolution to be proposed for adoption at the Meeting; (C) the record date for the Meeting, which shall be no more than five business days before the date of the Meeting; (D) the documentation required to be produced by a Noteholder in order to be entitled to participate at the Meeting or to appoint a proxy to act on the Noteholder’s behalf at the Meeting; (E) any time deadline and procedures required by any relevant international and/or domestic clearing systems or similar through which the Notes are traded and/or held by Noteholders; (F) whether Condition 13(b), Condition 13(c) or Condition 13(d) shall apply and, if relevant, in relation to which other series of debt securities it applies; (G) if the proposed modification or action relates to two or more series of debt securities issued by it and contemplates such series of debt securities being aggregated in more than one group of debt securities, a description of the proposed treatment of each such group of debt securities; (H) such information that is required to be provided by the Issuer in accordance with Condition 13(f); (I) the identity of the Aggregation Agent and the Calculation Agent, if any, for any proposed modification or action to be voted on at the Meeting, and the details of any applicable methodology referred to in Condition 13(g); and (J) any additional procedures which may be necessary and, if applicable, the conditions under which a multiple series aggregation will be deemed to have been satisfied if it is approved as to some but not all of the affected series of debt securities.

84 (v) In addition, the Agency Agreement contains provisions relating to Written Resolutions. All information to be provided pursuant to paragraph (iv) above shall also be provided, mutatis mutandis, in respect of Written Resolutions. (vi) A ‘‘record date’’ in relation to any proposed modification or action means the date fixed by the Issuer for determining the Noteholders and, in the case of a multiple series aggregation, the holders of debt securities of each other affected series that are entitled to vote on a Multiple Series Single Limb Extraordinary Resolution or a Multiple Series Two Limb Extraordinary Resolution, or to sign a Multiple Series Single Limb Written Resolution or a Multiple Series Two Limb Written Resolution. (vii) An ‘‘Extraordinary Resolution’’ means any of a Single Series Extraordinary Resolution, a Multiple Series Single Limb Extraordinary Resolution and/or a Multiple Series Two Limb Extraordinary Resolution, as the case may be. (viii) A ‘‘Written Resolution’’ means any of a Single Series Written Resolution, a Multiple Series Single Limb Written Resolution and/or a Multiple Series Two Limb Written Resolution, as the case may be. (ix) Any reference to ‘‘debt securities’’ means any notes (including the Notes), bonds, debentures or other debt securities issued by the Issuer in one or more series with an original stated maturity of more than one year. (x) ‘‘Debt Securities Capable of Aggregation’’ means those debt securities which include or incorporate by reference this Condition 13 and Condition 14 or provisions substantially in these terms which provide for the debt securities which include such provisions to be capable of being aggregated for voting purposes with other series of debt securities. (b) Modification of this Series of Notes only. (i) Any modification of any provision of, or any action in respect of, these Conditions or the Agency Agreement in respect of the Notes may be made or taken if approved by a Single Series Extraordinary Resolution or a Single Series Written Resolution as set out below. (ii) A ‘‘Single Series Extraordinary Resolution’’ means a resolution passed at a Meeting duly convened and held in accordance with the procedures prescribed by the Issuer and the Fiscal Agent pursuant to Condition 13(a) by a majority of: (A) in the case of a Reserved Matter, at least 75 per cent. of the aggregate principal amount of the outstanding Notes; or (B) in the case of a matter other than a Reserved Matter, more than 50 per cent. of the aggregate principal amount of the outstanding Notes. (iii) A ‘‘Single Series Written Resolution’’ means a resolution in writing signed or confirmed in writing by or on behalf of the holders of: (A) in the case of a Reserved Matter, at least 75 per cent. of the aggregate principal amount of the outstanding Notes; or (B) in the case of a matter other than a Reserved Matter, more than 50 per cent. of the aggregate principal amount of the outstanding Notes. Any Single Series Written Resolution may be contained in one document or several documents in the same form, each signed or confirmed in writing by or on behalf of one or more Noteholders. (iv) Any Single Series Extraordinary Resolution duly passed or Single Series Written Resolution approved shall be binding on all Noteholders, whether or not they attended any Meeting, whether or not they voted in favour thereof and whether or not they signed or confirmed in writing any such Single Series Written Resolution, as the case may be. (c) Multiple Series Aggregation – Single limb voting. (i) In relation to a proposal that includes a Reserved Matter, any modification to the terms and conditions of, or any action with respect to, two or more series of Debt Securities Capable of Aggregation may be made or taken if approved by a Multiple

85 Series Single Limb Extraordinary Resolution or by a Multiple Series Single Limb Written Resolution as set out below, provided that the Uniformly Applicable condition is satisfied. (ii) A ‘‘Multiple Series Single Limb Extraordinary Resolution’’ means a resolution considered at separate Meetings of the holders of each affected series of Debt Securities Capable of Aggregation, duly convened and held in accordance with the procedures prescribed by the Issuer and the Fiscal Agent pursuant to Condition 13(a), as supplemented if necessary, which is passed by a majority of at least 75 per cent. of the aggregate principal amount of the outstanding debt securities of all affected series of Debt Securities Capable of Aggregation (taken in aggregate). (iii) A ‘‘Multiple Series Single Limb Written Resolution’’ means each resolution in writing (with a separate resolution in writing or multiple separate resolutions in writing distributed to the holders of each affected series of Debt Securities Capable of Aggregation, in accordance with the applicable bond documentation) which, when taken together, has been signed or confirmed in writing by or on behalf of the holders of at least 75 per cent. of the aggregate principal amount of the outstanding debt securities of all affected series of Debt Securities Capable of Aggregation (taken in aggregate). Any Multiple Series Single Limb Written Resolution may be contained in one document or several documents in substantially the same form, each signed or confirmed in writing by or on behalf of one or more Noteholders or one or more holders of each affected series of Debt Securities Capable of Aggregation. (iv) Any Multiple Series Single Limb Extraordinary Resolution duly passed or Multiple Series Single Limb Written Resolution approved shall be binding on all Noteholders and holders of each other affected series of Debt Securities Capable of Aggregation, whether or not they attended any Meeting, whether or not they voted in favour thereof, whether or not any other holder or holders of the same series voted in favour thereof and whether or not they signed or confirmed in writing any such Multiple Series Single Limb Written Resolution, as the case may be. (v) The ‘‘Uniformly Applicable’’ condition will be satisfied if: (A) the holders of all affected series of Debt Securities Capable of Aggregation are invited to exchange, convert, or substitute their debt securities, on the same terms, for (1) the same new instrument or other consideration or (2) a new instrument, new instruments or other consideration from an identical menu of instruments or other consideration; or (B) the amendments proposed to the terms and conditions of each affected series of Debt Securities Capable of Aggregation would, following implementation of such amendments, result in the amended instruments having identical provisions (other than provisions which are necessarily different, having regard to the currency of issuance). (vi) Any modification or action proposed under paragraph (i) above may be made in respect of some series only of the Debt Securities Capable of Aggregation and, for the avoidance of doubt, the provisions described in this Condition 13(c) may be used for different groups of two or more series of Debt Securities Capable of Aggregation simultaneously.

(d) Multiple Series Aggregation – Two limb voting. (i) In relation to a proposal that includes a Reserved Matter, any modiﬁcation to the terms and conditions of, or any action with respect to, two or more series of Debt Securities Capable of Aggregation may be made or taken if approved by a Multiple Series Two Limb Extraordinary Resolution or by a Multiple Series Two Limb Written Resolution as set out below. (ii) A ‘‘Multiple Series Two Limb Extraordinary Resolution’’ means a resolution considered at separate Meetings of the holders of each affected series of Debt Securities Capable of Aggregation, duly convened and held in accordance with the procedures prescribed by the Issuer and the Fiscal Agent pursuant to Condition 13(a), as supplemented if necessary, which is passed by a majority of:

86 2 (A) at least 66 /3 per cent. of the aggregate principal amount of the outstanding debt securities of affected series of Debt Securities Capable of Aggregation (taken in aggregate); and (B) more than 50 per cent. of the aggregate principal amount of the outstanding debt securities in each affected series of Debt Securities Capable of Aggregation (taken individually). (iii) A ‘‘Multiple Series Two Limb Written Resolution’’ means each resolution in writing (with a separate resolution in writing or multiple separate resolutions in writing distributed to the holders of each affected series of Debt Securities Capable of Aggregation, in accordance with the applicable bond documentation) which, when taken together, has been signed or confirmed in writing by or on behalf of the holders of: 2 (A) at least 66 /3 per cent. of the aggregate principal amount of the outstanding debt securities of all the affected series of Debt Securities Capable of Aggregation (taken in aggregate); and (B) more than 50 per cent. of the aggregate principal amount of the outstanding debt securities in each affected series of Debt Securities Capable of Aggregation (taken individually). Any Multiple Series Two Limb Written Resolution may be contained in one document or several documents in substantially the same form, each signed or confirmed in writing by or on behalf of one or more Noteholders or one or more holders of each affected series of Debt Securities Capable of Aggregation. (iv) Any Multiple Series Two Limb Extraordinary Resolution duly passed or Multiple Series Two Limb Written Resolution approved shall be binding on all Noteholders and holders of each other affected series of Debt Securities Capable of Aggregation, whether or not they attended any Meeting, whether or not they voted in favour thereof, whether or not any other holder or holders of the same series voted in favour thereof and whether or not they signed or confirmed in writing any such Multiple Series Two Limb Written Resolution, as the case may be. (v) Any modification or action proposed under paragraph (i) above may be made in respect of some series only of the Debt Securities Capable of Aggregation and, for the avoidance of doubt, the provisions described in this Condition 13(d) may be used for different groups of two or more series of Debt Securities Capable of Aggregation simultaneously. (e) Reserved Matters. In these Conditions, ‘‘Reserved Matter’’ means any proposal: (i) to change the date, or the method of determining the date, for payment of principal, interest or any other amount in respect of the Notes, to reduce or cancel the amount of principal, interest or any other amount payable on any date in respect of the Notes or to change the method of calculating the amount of principal, interest or any other amount payable in respect of the Notes on any date; (ii) to change the currency in which any amount due in respect of the Notes is payable or the place in which any payment is to be made; (iii) to change the majority required to pass an Extraordinary Resolution, a Written Resolution or any other resolution of Noteholders or the number or percentage of votes required to be cast, or the number or percentage of Notes required to be held, in connection with the taking of any decision or action by or on behalf of the Noteholders or any of them; (iv) to change this definition, or the definition of ‘‘Extraordinary Resolution’’, ‘‘Single Series Extraordinary Resolution’’, ‘‘Multiple Series Single Limb Extraordinary Resolution’’, ‘‘Multiple Series Two Limb Extraordinary Resolution’’, ‘‘Written Resolution’’, ‘‘Single Series Written Resolution’’, ‘‘Multiple Series Single Limb Written Resolution’’ or ‘‘Multiple Series Two Limb Written Resolution’’; (v) to change the definition of ‘‘debt securities’’ or ‘‘Debt Securities Capable of Aggregation’’; (vi) to change the definition of ‘‘Uniformly Applicable’’;

87 (vii) to change the definition of ‘‘outstanding’’ or to modify the provisions of Condition 13(i); (viii) to change the legal ranking of the Notes; (ix) to change any provision of the Notes describing circumstances in which Notes may be declared due and payable prior to their scheduled maturity date, as set out in Condition 10; (x) to change the law governing the Notes, the courts to the jurisdiction of which the Issuer has submitted in the Notes, any of the arrangements specified in the Notes to enable proceedings to be taken or the Issuer’s waiver of immunity, in respect of actions or proceedings brought by any Noteholder, as set out in Condition 16; (xi) to impose any condition on or otherwise change the Issuer’s obligation to make payments of principal, interest or any other amount in respect of the Notes, including by way of the addition of a call option; (xii) to modify the provisions of this Condition 13(e); (xiii) except as permitted by any related guarantee or security agreement, to release any agreement guaranteeing or securing payments under the Notes or to change the terms of any such guarantee or security; (xiv) to exchange or substitute all the Notes for, or convert all the Notes into, other obligations or securities of the Issuer or any other person, or to modify any provision of these Conditions in connection with any exchange or substitution of the Notes for, or the conversion of the Notes into, any other obligations or securities of the Issuer or any other person, which would result in the Conditions as so modified being less favourable to the Noteholders which are subject to the Conditions as so modified than: (A) the provisions of the other obligations or debt securities of the Issuer or any other person resulting from the relevant exchange or substitution or conversion; or (B) if more than one series of other obligations or debt securities results from the relevant exchange or substitution or conversion, the provisions of the resulting series of debt securities having the largest aggregate principal amount. (f) Information. Prior to or on the date that the Issuer proposes any Extraordinary Resolution or Written Resolution pursuant to Condition 13(b), Condition 13(c) or Condition 13(d), the Issuer shall publish in accordance with Condition 14, and provide the Fiscal Agent with the following information: (i) a description of the Issuer’s economic and financial circumstances which are, in the Issuer’s opinion, relevant to the request for any potential modification or action, a description of the Issuer’s existing debts and a description of its broad policy reform programme and provisional macroeconomic outlook; (ii) if the Issuer shall at the time have entered into an arrangement for financial assistance with multilateral and/or other major creditors or creditor groups and/or an agreement with any such creditors regarding debt relief, a description of any such arrangement or agreement and where permitted under the information disclosure policies of the multilateral or such other creditors, as applicable, copies of the arrangement or agreement shall be provided; (iii) a description of the Issuer’s proposed treatment of external debt securities that fall outside the scope of any multiple series aggregation and its intentions with respect to any other debt securities and its other major creditor groups; and (iv) if any proposed modification or action contemplates debt securities being aggregated in more than one group of debt securities, a description of the proposed treatment of each such group, as required for a notice convening a Meeting in Condition 13(a)(iv)(G). (g) Claims Valuation. For the purpose of calculating the par value of the Notes and any affected series of debt securities which are to be aggregated with the Notes in accordance with Condition 13(c) and Condition 13(d), the Issuer may appoint a Calculation Agent.

88 The Issuer shall, with the approval of the Aggregation Agent and any appointed Calculation Agent, promulgate the methodology in accordance with which the Calculation Agent will calculate the par value of the Notes and such affected series of debt securities. In any such case where a Calculation Agent is appointed, the same person will be appointed as the Calculation Agent for the Notes and each other affected series of debt securities for these purposes, and the same methodology will be promulgated for each affected series of debt securities. (h) Manifest error, etc. The Agency Agreement may be amended without the consent of the holder of any Note for the purposes of curing any ambiguity or of curing, correcting or supplementing any defective or inconsistent provisions contained therein or herein, to take into account further issues of notes pursuant to Condition 15 or in any manner that the parties thereto may deem mutually necessary or desirable and will not adversely affect, in any material respect, the interests of the Noteholders. (i) Notes controlled by the Issuer. For the purposes of (i) determining the right to attend and vote at any Meeting, or the right to sign or confirm in writing, or authorise the signature of, any Written Resolution, (ii) this Condition 13 and (iii) Condition 10, any Notes which are for the time being held by or on behalf of the Issuer or by or on behalf of any person which is owned or controlled directly or indirectly by the Issuer or by any public sector instrumentality of the Issuer shall be disregarded and be deemed not to remain outstanding, where: (x) ‘‘public sector instrumentality’’ means the Ministry of Finance and Economic Development, the National Bank of Ethiopia, any other department, ministry or agency of the government of the Federal Democratic Republic of Ethiopia or any corporation, trust, financial institution or other entity owned or controlled by the government of the Federal Democratic Republic of Ethiopia or any of the foregoing; and (y) ‘‘control’’ means the power, directly or indirectly, through the ownership of voting securities or other ownership interests or through contractual control or otherwise, to direct the management of or elect or appoint a majority of the board of directors or other persons performing similar functions in lieu of, or in addition to, the board of directors of a corporation, trust, financial institution or other entity. A Note will also be deemed to be not outstanding if the Note has previously been cancelled or delivered for cancellation or held for reissuance but not reissued, or, where relevant, the Note has previously been called for redemption in accordance with its terms or previously become due and payable at maturity or otherwise and the Issuer has previously satisfied its obligations to make all payments due in respect of the Note in accordance with its terms. In advance of any Meeting, or in connection with any Written Resolution, the Issuer shall provide to the Fiscal Agent a copy of the certificate prepared pursuant to Condition 14(d) which includes information on the total number of Notes which are for the time being held by or on behalf of the Issuer or by or on behalf of any person which is owned or controlled directly or indirectly by the Issuer or by any public sector instrumentality of the Issuer and, as such, such Notes shall be disregarded and deemed not to remain outstanding for the purposes of ascertaining the right to attend and vote at any Meeting or the right to sign, or authorise the signature of, any Written Resolution in respect of any such Meeting. The Fiscal Agent shall make any such certificate available for inspection during normal business hours at its Specified Office and, upon reasonable request, will allow copies of such certificate to be taken. (j) Publication. The Issuer shall publish all Extraordinary Resolutions and Written Resolutions which have been determined by the Aggregation Agent to have been duly passed in accordance with Condition 14(g). (k) Exchange and Conversion. Any Extraordinary Resolutions or Written Resolutions which have been duly passed and which modify any provision of, or action in respect of, the Conditions may be implemented at the Issuer’s option by way of a mandatory exchange or conversion of the Notes and each other affected series of debt securities, as the case may be, into new debt securities containing the modified terms and conditions if the proposed

89 mandatory exchange or conversion of the Notes is notified to Noteholders at the time notification is given to the Noteholders as to the proposed modification or action. Any such exchange or conversion shall be binding on all Noteholders.

14. Aggregation Agent; Aggregation Procedures (a) Appointment. The Issuer will appoint an Aggregation Agent to calculate whether a proposed modification or action has been approved by the required principal amount outstanding of Notes and, in the case of a multiple series aggregation, by the required principal amount of outstanding debt securities of each affected series of debt securities. In the case of a multiple series aggregation, the same person will be appointed as the Aggregation Agent for the proposed modification of any provision of, or any action in respect of, these Conditions or the Agency Agreement in respect of the Notes and in respect of the terms and conditions or bond documentation in respect of each other affected series of debt securities. The Aggregation Agent shall be independent of the Issuer. (b) Extraordinary Resolutions. If an Extraordinary Resolution has been proposed at a duly convened Meeting to modify any provision of, or action in respect of, these Conditions and other affected series of debt securities, as the case may be, the Aggregation Agent will, as soon as practicable after the time the vote is cast, calculate whether holders of a sufficient portion of the aggregate principal amount of the outstanding Notes and, where relevant, each other affected series of debt securities, have voted in favour of the Extraordinary Resolution such that the Extraordinary Resolution is passed. If so, the Aggregation Agent will determine that the Extraordinary Resolution has been duly passed. (c) Written Resolutions. If a Written Resolution has been proposed under the Conditions to modify any provision of, or action in respect of, these Conditions and the terms and conditions of other affected series of debt securities, as the case may be, the Aggregation Agent will, as soon as reasonably practicable after the relevant Written Resolution has been signed or confirmed in writing, calculate whether holders of a sufficient portion of the aggregate principal amount of the outstanding Notes and, where relevant, each other affected series of debt securities, have signed or confirmed in writing in favour of the Written Resolution such that the Written Resolution is passed. If so, the Aggregation Agent will determine that the Written Resolution has been duly passed. (d) Certificate. For the purposes of Condition 14(b) and Condition 14(c), the Issuer will provide a certificate to the Aggregation Agent up to three days prior to, and in any case no later than, with respect to an Extraordinary Resolution, the date of the Meeting referred to in Condition 13(b), Condition 13(c) or Condition 13(d), as applicable, and, with respect to a Written Resolution, the date arranged for the signing of the Written Resolution. The certificate shall: (i) list the total principal amount of Notes and, in the case of a multiple series aggregation, the total principal amount of each other affected series of debt securities outstanding on the record date; and (ii) clearly indicate the Notes and, in the case of a multiple series aggregation, debt securities of each other affected series of debt securities which shall be disregarded and deemed not to remain outstanding as a consequence of Condition 13(i) on the record date identifying the holders of the Notes and, in the case of a multiple series aggregation, debt securities of each other affected series of debt securities. The Aggregation Agent may rely upon the terms of any certificate, notice, communication or other document believed by it to be genuine. (e) Notification. The Aggregation Agent will cause each determination made by it for the purposes of this Condition 14 to be notified to the Fiscal Agent and the Issuer as soon as practicable after such determination. Notice thereof shall also promptly be given to the Noteholders. (f) Binding nature of determinations; no liability. All notifications, opinions, determinations, certificates, calculations, quotations and decisions given, expressed, made or obtained for the purposes of this Condition 14 by the Aggregation Agent and any appointed Calculation Agent will (in the absence of manifest error) be binding on the Issuer, the

90 Fiscal Agent and the Noteholders and (subject as aforesaid) no liability to any such person will attach to the Aggregation Agent or the Calculation Agent in connection with the exercise or non-exercise by it of its powers, duties and discretions for such purposes. (g) Manner of publication. The Issuer will publish all notices and other matters required to be published pursuant to the Agency Agreement including any matters required to be published pursuant to Condition 13, this Condition 14 and Condition 10: (i) through Euroclear Bank S.A./N.V., Clearstream Banking, socie´te´ anonyme and The Depository Trust Company and/or any other clearing system in which the Notes are held; (ii) in such other places and in such other manner as may be required by applicable law or regulation; and (iii) in such other places and in such other manner as may be customary.

15. Further Issues The Issuer may from time to time, without notice to or the consent of the Noteholders, create and issue further notes having the same terms and conditions as the Notes in all respects (or in all respects except for the ﬁrst payment of interest) so as to be consolidated and form a single series with the Notes. Noteholders should be aware that additional notes that are treated for non-tax purposes as a single series with the original Notes may be treated as a separate series for US federal income tax purposes. In such a case, for US federal income tax purposes, the new notes may be considered to have been issued with original issue discount, which may affect the market value of the Notes since such additional notes may not be distinguishable from the original Notes.

16. Governing Law, Jurisdiction and Enforcement (a) Governing Law. The Agency Agreement and the Notes (including any non-contractual obligations arising from or in connection with them) are governed by, and will be construed in accordance with, English law. (b) Jurisdiction. The courts of England have exclusive jurisdiction to settle any disputes that may arise out of or in connection with the Notes (including any non-contractual obligations arising out of or in connection with the Notes). Accordingly, any legal action or proceedings arising out of or in connection with any Notes (‘‘Proceedings’’) may be brought in such courts. The Issuer irrevocably submits to the jurisdiction of such courts and waives any objection to Proceedings in any such courts whether on the ground of venue or on the ground that the Proceedings have been brought in an inconvenient forum. This submission is made for the beneﬁt of each of the Noteholders and shall not prevent any of them from taking Proceedings in any other court of competent jurisdiction nor shall the taking of Proceedings in one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not). (c) Appointment of Process Agent. The Issuer has appointed the Ethiopian Ambassador to the Court of St. James’s at 17 Princes Gate, London SW7 1PZ, England as its agent for service of process in relation to any proceedings (‘‘Proceedings’’) before the English courts and hereby undertakes that, in the event of the Ethiopian Ambassador to the Court of St. James’s ceasing so to act or ceasing to be located in England, it will appoint another person as its agent for service of process in England as soon as reasonably practicable thereafter. Nothing in these Conditions shall affect the right to serve Proceedings in any other manner permitted by law. (d) Consent to Enforcement and Waiver of Immunity. Except as provided below in this Condition 16(d), to the extent the Issuer may in any jurisdiction claim for itself or its assets or revenues immunity from suit, judgment, execution, attachment (whether in aid of execution, before judgment or otherwise) or other legal process in respect of any Proceedings, and to the extent that such immunity (whether or not claimed) may be attributed in any such jurisdiction to the Issuer or its assets or revenues, the Issuer agrees not to claim and irrevocably waives such immunity to the full extent permitted by the laws of such jurisdiction (and consents generally for the purposes of the State Immunity Act of 1978 to the giving of any relief or the issue of any process in connection with any such

91 proceedings). It is understood that this waiver by the Issuer shall have the fullest scope permitted under the Foreign Sovereign Immunities Act of 1976 of the United States but will not constitute a general waiver or a waiver of immunity in respect of (i) property used by a diplomatic or consular mission of the Issuer, (ii) property of a military character and under the control of a military authority or defense agency of the Issuer or (iii) property located in the Federal Democratic Republic of Ethiopia and dedicated to a public or governmental use (as distinct to property dedicated to a commercial use) by the Issuer. The Issuer reserves the right to plead sovereign immunity under the U.S. Foreign Sovereign Immunities Act of 1976 with respect to actions brought against it in any court of or in the United States of America under any United States federal or State securities law.

17. Rights of Third Parties No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of the Notes, but this does not affect any right or remedy of any person which exists or is available apart from that Act.

18. Currency Indemnity If any sum due from the Issuer in respect of the Notes or any order or judgment given or made in relation thereto has to be converted from the currency (the ‘‘First Currency’’) in which the same is payable under these Conditions or such award, order or judgment into another currency (the ‘‘Second Currency’’) the Issuer shall indemnify each Noteholder, on the written demand of such Noteholder addressed to the Issuer and delivered to the Issuer (with a copy to the Speciﬁed Ofﬁce of the Fiscal Agent), against any loss suffered as a result of any discrepancy between (i) the rate of exchange used for such purpose to convert the sum in question from the First Currency into the Second Currency and (ii) the rate or rates of exchange at which such Noteholder may in the ordinary course of business purchase the First Currency with the Second Currency upon receipt of the sum due to it thereunder. This indemnity constitutes a separate and independent obligation of the Issuer and shall give rise to a separate and independent cause of action.

92 THE GLOBAL NOTES

The Global Notes contain the following provisions which apply to the Notes in respect of which they are issued whilst they are represented by the Global Notes, some of which modify the effect of the Terms and Conditions of the Notes. Terms deﬁned in the Terms and Conditions of the Notes have the same meaning in paragraphs 1 to 5 below.

1. Accountholders For so long as any of the Notes are represented by one or more Global Notes, each person (other than another clearing system) who is for the time being shown in the records of DTC or Euroclear or Clearstream, Luxembourg (as the case may be) as the holder of a particular aggregate principal amount of such Notes (each an ‘‘Accountholder’’) (in which regard any certiﬁcate or other document issued by DTC or Euroclear or Clearstream, Luxembourg (as the case may be) as to the aggregate principal amount of such Notes standing to the account of any person shall be conclusive and binding for all purposes) shall be treated as the holder of such aggregate principal amount of such Notes (and the expression ‘‘Noteholders’’ and references to ‘‘holding of Notes’’ and to ‘‘holder of Notes’’ shall be construed accordingly) for all purposes other than with respect to payments on such Notes, the right to which shall be vested, as against Ethiopia, solely in the nominee for the relevant clearing system (the ‘‘Relevant Nominee’’) in accordance with and subject to the terms of the Global Notes. Each Accountholder must look solely to DTC or Euroclear or Clearstream, Luxembourg, as the case may be, for its share of each payment made to the Relevant Nominee.

2. Cancellation Cancellation of any Note following its purchase by Ethiopia will be effected by reduction in the aggregate principal amount of the Notes in the relevant Register.

3. Payments Payments of principal and interest in respect of Notes represented by a Global Note will be made, in the case of payment of principal, against presentation and surrender of such Global Note to or to the order of the Fiscal Agent, or such other Agent as shall have been notiﬁed to the holders of one or more Global Note for such purpose. All payments in respect of the Notes represented by a Global Note will be made to, or to the order of, the person whose name is entered on the relevant Register at the close of business on the Clearing System Business Day immediately prior to the date for payment, where ‘‘Clearing System Business Day’’ means a day on which each clearing system for which a Global Note is being held is open for business. Holders of book-entry interests in the Notes held through DTC will receive, to the extent received by the Fiscal Agent, all distributions of amounts with respect to book-entry interests in such Notes from the Fiscal Agent through DTC. Distributions in the United States will be subject to relevant U.S. tax laws and regulations. A record of each payment made will be entered in the relevant Register by or on behalf of the Fiscal Agent and shall be prima facie evidence that payment has been made.

4. Notices So long as the Notes are represented by a Global Note and such Global Note is held on behalf of a clearing system, notices to Noteholders may be given by delivery of the relevant notice to that clearing system for communication by it to entitled Accountholders in substitution for delivery as required by Condition 12 as set forth herein. Any such notice shall be deemed to have been given to the Noteholders on the day after the day on which such notice is delivered to the relevant clearing system. Whilst any of the Notes held by a Noteholder are represented by a Global Note, notices to be given by such Noteholder may be given by such Noteholder (where applicable) through the relevant clearing system and otherwise in such manner as the Fiscal Agent and the relevant clearing system may approve for this purpose.

93 The Issuer shall also ensure that notices are duly given or published in a manner which complies with the rules and regulations of any stock exchange or other relevant authority on which the Notes are for the time being listed. Any notice shall be deemed to have been given on the day after being so mailed or on the date of publication or, if so published more than once or on different dates, on the date of the ﬁrst publication.

5. Transfers Transfers of book-entry interests in the Notes will be effected through the records of Euroclear, Clearstream, Luxembourg and DTC and their respective participants in accordance with the rules and procedures of Euroclear, Clearstream, Luxembourg and DTC and their respective direct and indirect participants, as more fully described under ‘‘Clearing and Settlement Arrangements’’.

94 CLEARING AND SETTLEMENT ARRANGEMENTS

Ethiopia has obtained the information in this section from third party sources including DTC, Euroclear and Clearstream, Luxembourg. Such information has been accurately reproduced and as far as Ethiopia is aware and is able to ascertain from information published by DTC, Euroclear and Clearstream, Luxembourg, no facts have been omitted which would render the reproduced information inaccurate or misleading, however, Ethiopia takes no responsibility for the accuracy of this information. Although DTC, Euroclear and Clearstream, Luxembourg have agreed to the following procedures in order to facilitate transfers of interests in the Unrestricted Global Note and in the Restricted Global Notes among participants of DTC, Euroclear and Clearstream, Luxembourg, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither Ethiopia nor the Fiscal Agent will have any responsibility for the performance by DTC, Euroclear or Clearstream, Luxembourg or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

DTC DTC is a limited-purpose trust company organised under the New York Banking Law, a ‘‘banking organisation’’ within the meaning of the New York Banking Law, a member of the Federal Reserve System, a ‘‘clearing corporation’’ within the meaning of the New York Uniform Commercial Code and a ‘‘clearing agency’’ registered pursuant to the provisions of Section 17A of the U.S. Securities Exchange Act of 1934, as amended (the ‘‘Exchange Act’’). DTC was created to hold securities for its participating organisations (‘‘DTC Participants’’) and to facilitate the clearance and settlement of securities transactions between DTC Participants through electronic book-entry changes in accounts of its DTC Participants, thereby eliminating the need for physical movement of certificates. DTC Participants include securities brokers and dealers, brokers, banks, trust companies and clearing corporations and may include certain other organisations. Indirect access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant, either directly or indirectly (‘‘Indirect DTC Participants’’). Because DTC can only act on behalf of DTC Participants, who in turn act on behalf of Indirect DTC Participants and certain banks, the ability of a person having a beneficial interest in a Note to pledge such interest to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate of such interest. The Rules applicable to DTC and its Participants are on file with the U.S. Securities and Exchange Commission.

Registration of Title Registration of title to Notes in a name other than that of the Relevant Nominee will not be permitted unless DTC notifies Ethiopia that it is unwilling or unable to continue as a clearing system in connection with a Global Note or DTC ceases to be a clearing agency registered under the Exchange Act and in each case a successor clearing system is not appointed by Ethiopia within 90 days after receiving such notice from DTC or becoming aware that DTC is no longer so registered. In these circumstances, title to a Note may be transferred into the names of holders notified by the Relevant Nominee in accordance with the Conditions, except that Certificates in respect of Notes so transferred may not be available until 21 days after the request for transfer is duly made. The relevant Registrar will not register title to the Notes in a name other than that of the Relevant Nominee for a period of 15 calendar days preceding the due date for any payment of principal, or interest in respect of the Notes.

Euroclear and Clearstream, Luxembourg Euroclear and Clearstream, Luxembourg hold securities for participating organisations, and facilitate the clearance and settlement of securities transactions between their respective participants, through electronic book entry changes in accounts of such participants. Euroclear and Clearstream, Luxembourg provide to their participants, among other things, services for safekeeping, administration, clearance and settlement of internationally traded securities and securities lending and borrowing. Euroclear and Clearstream, Luxembourg interface with domestic securities markets. Euroclear and Clearstream, Luxembourg participants are recognised ﬁnancial institutions such as underwriters, securities brokers and dealers, banks, trust companies and certain other organisations

95 and include the Joint Lead Managers. Indirect access to Euroclear or Clearstream, Luxembourg is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodian relationship with a Euroclear or Clearstream, Luxembourg participant, either directly or indirectly.

Book-Entry Ownership Euroclear and Clearstream, Luxembourg The Unrestricted Global Note will have an ISIN and a Common Code and will be registered in the name of a nominee for, and deposited with a common depositary on behalf of Euroclear and Clearstream, Luxembourg. The address of Euroclear is 1 Boulevard du Roi Albert II. B1210 Brussels, Belgium, and the address of Clearstream, Luxembourg is 42 Avenue J.F. Kennedy. L-l855, Luxembourg.

DTC The Restricted Global Notes will have a CUSIP number and will be deposited with a custodian (the ‘‘Custodian’’) for and registered in the name of Cede & Co., as nominee of DTC. The Custodian and DTC will electronically record the principal amount of the Notes held within the DTC system. The address of the DTC is 55 Water Street, New York, New York 10041, USA.

Relationship of Participants with Clearing Systems Each of the persons shown in the records of Euroclear, Clearstream, Luxembourg or DTC as the holder of a Note evidenced by a Global Note must look solely to Euroclear, Clearstream, Luxembourg or DTC (as the case may be) for his share of each payment made by Ethiopia to the holder of such Global Note and in relation to all other rights arising under the Global Note, subject to and in accordance with the respective rules and procedures of Euroclear, Clearstream, Luxembourg or DTC (as the case may be). Ethiopia expects that, upon receipt of any payment in respect of Notes evidenced by a Global Note, the common depositary by whom such Global Note is held, or nominee in whose name it is registered, will immediately credit the relevant participants’ or account holders’ accounts in the relevant clearing system with payments in amounts proportionate to their respective beneﬁcial interests in the principal amount of the relevant Global Note as shown on the records of the relevant clearing system or its nominee. Ethiopia also expects that payments by direct participants in any clearing system to owners of beneﬁcial interests in any Global Note held through such direct participants in any clearing system will be governed by standing instructions and customary practices. Save as aforesaid, such persons shall have no claim directly against Ethiopia in respect of payments due on the Notes for so long as the Notes are evidenced by such Global Note and the obligations of Ethiopia will be discharged by payment to the registered holder of such Global Note in respect of each amount so paid. None of Ethiopia, the Fiscal Agent or any Agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of ownership interests in any Global Note or for maintaining, supervising or reviewing any records relating to such ownership interests.

Settlement and Transfer of Notes Subject to the rules and procedures of each applicable clearing system, purchases of Notes held within a clearing system must be made by or through direct participants, which will receive a credit for such Notes on the clearing system’s records. The ownership interest of each actual purchaser of each such Note (the ‘‘Beneficial Owner’’) will in turn be recorded on the direct and indirect participants’ records. Beneficial Owners will not receive written confirmation from any clearing system of their purchase, but are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the direct or indirect participant through which such Beneficial Owner entered into the transaction. Transfers of ownership interests in Notes held within the clearing system will be effected by entries made on the books of participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in such Notes, unless and until interests in any Global Note held within a clearing system are exchanged for interests evidenced by a definitive note certificate. No clearing system has knowledge of the actual Beneficial Owners of the Notes held within such clearing system and their records will reflect only the identity of the direct participants to whose accounts such Notes are credited, which may or may not be the Beneficial Owners. The participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by the clearing systems to direct participants, by

96 direct participants to indirect participants, and by direct participants and indirect participants to Beneficial Owners, will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. The laws of some jurisdictions may require that certain persons take physical delivery in definitive form of securities. Consequently, the ability to transfer interests in a Global Note to such persons may be limited. Because DTC can only act on behalf of DTC Participants, who in turn act on behalf of Indirect DTC Participants, the ability of a person having an interest in a Restricted Global Note to pledge such interest to persons or entities that do not participate in DTC, or otherwise take actions in respect of such interest, may be affected by a lack of physical certificate in respect of such interest. Investors that hold their interests in the Notes through DTC will follow the settlement practices applicable to global bond issues. Investors’ securities custody accounts will be credited with their holdings against payment in same-day funds on the settlement date. Investors that hold their interests in the Notes through Clearstream, Luxembourg or Euroclear accounts will follow the settlement procedures applicable to conventional Eurobonds in registered form. The interests will be credited to the securities custody accounts on the settlement date against payment in same-day funds.

Secondary Market Trading Since the purchaser determines the place of delivery, it is important to establish at the time of trade where both the purchaser’s and seller’s accounts are located to ensure that settlement can be made on the desired value date.

Trading between DTC Participants Secondary market trading between DTC Participants will be settled using the procedures applicable to global bond issues in same-day funds.

Trading between Euroclear and/or Clearstream, Luxembourg participants Secondary market trading between Euroclear participants and/or Clearstream, Luxembourg participants will be settled using the procedures applicable to conventional Eurobonds in same-day funds.

Trading between DTC seller and Euroclear or Clearstream, Luxembourg purchaser When Notes are to be transferred from the account of a DTC Participant to the account of a Clearstream, Luxembourg or Euroclear participant, the purchaser will send instructions to Clearstream, Luxembourg or Euroclear through a Clearstream, Luxembourg or Euroclear participant, as the case may be, at least one business day prior to settlement. Clearstream, Luxembourg or the Euroclear operator will instruct its respective depositary to receive the Notes against payment. Payment will include interest accrued on such beneﬁcial interest on the Note from and including the last interest payment date to and excluding the settlement date. Payment will then be made by the depositary to the DTC Participant’s account against delivery of Notes. After settlement has been completed, the Notes will be credited to the respective clearing system, and by the clearing system, in accordance with its usual procedures, to the Clearstream, Luxembourg or Euroclear participant’s account. The securities credit will appear the next day (European time) and the cash debit will be back-valued to, and the interest on the Note will accrue from, the value date (which would be the preceding day when settlement occurred in New York). If settlement is not completed on the intended value date (i.e. the trade fails), the Clearstream, Luxembourg or Euroclear cash debit will be valued instead as of the actual settlement date. Euroclear and Clearstream, Luxembourg participants will need to make available to the respective clearing system the funds necessary to process same-day funds settlement. The most direct means of doing so is to pre-position funds for settlement, either from cash on-hand or existing lines of credit. Under this approach, participants may take on credit exposure to the Euroclear operator or Clearstream, Luxembourg until the interests in the Note are credited to their accounts one day later. As an alternative, if Clearstream, Luxembourg or Euroclear has extended a line of credit to a Clearstream, Luxembourg or Euroclear participant, as the case may be, such participant may elect not to pre-position funds and may allow that credit line to be drawn upon to ﬁnance settlement. Under this procedure, Clearstream, Luxembourg participants or Euroclear participants purchasing interests in a Note would incur overdraft charges for one day, assuming they cleared the overdraft

97 when the interest in the Note was credited to their accounts. However, interest on the Note would accrue from the value date. Therefore, in many cases, the investment income on the interest in the Note would accrue from the value date and the investment income on the interest in the Note earned during that one-day period may substantially reduce or offset the amount of such overdraft charges, although this result will depend on each participant’s particular cost of funds.

Since the settlement is taking place during New York business hours, DTC Participants can employ their usual procedures for transferring interests in the Global Notes to the respective depositaries of Clearstream, Luxembourg or Euroclear for the beneﬁt of Clearstream, Luxembourg participants or Euroclear participants. The sale proceeds will be available to the DTC seller on the settlement date. Thus, to the DTC Participants, a crossmarket sale transaction will settle no differently than a trade between two DTC Participants.

Trading between Clearstream, Luxembourg or Euroclear Seller and DTC purchaser Due to time zones differences in their favour, Clearstream, Luxembourg and Euroclear participants may employ their customary procedures for transactions in which interests in a Note are to be transferred by their respective clearing system, through its respective depositary, to a DTC Participant, at least one business day prior to settlement. In these cases, Clearstream, Luxembourg or Euroclear will instruct its respective depositary to deliver the interest in the Note to the DTC Participant’s account against payment. Payment will include interest accrued on such beneﬁcial interest in the Note from and including the last interest payment date to and excluding the settlement date. The payment will then be reﬂected in the account of the Clearstream, Luxembourg participant or Euroclear participant the following day, and receipt of the cash proceeds in the Clearstream, Luxembourg or Euroclear participant’s account would be back-valued at the value date (which would be the preceding day, when settlement occurred in New York). Should the Clearstream, Luxembourg or Euroclear participant have a line of credit in its respective clearing system and elect to be in debit in anticipation of receipt of the sale proceeds in its account, the back-valuation will extinguish any overdraft charges incurred over that one-day period. If settlement is not completed on the intended value date (i.e. the trade fails), receipt of the cash proceeds in the Clearstream, Luxembourg or Euroclear participant’s account would instead be valued as of the actual settlement date.

Finally, day traders that use Clearstream, Luxembourg or Euroclear to purchase interests in a Note from DTC Participants for delivery to Clearstream, Luxembourg participants or Euroclear participants should note that these trades will automatically fail on the sale side unless afﬁrmative action is taken. At least three techniques should be available to eliminate this potential problem:

* borrowing through Clearstream, Luxembourg or Euroclear for one day (until the purchase side of the day trade is reﬂected in their Clearstream, Luxembourg or Euroclear accounts) in accordance with the clearing system’s customary procedures;

* borrowing the interests in the United States from a DTC Participant no later than one day prior to settlement, which would give the interests sufﬁcient time to be reﬂected in their Clearstream, Luxembourg or Euroclear account in order to settle the sale side of the trade; or

* staggering the value date for the buy and sell sides of the trade so that the value date for the purchase from the DTC Participant is at least one day prior to the value date for the sale to the Clearstream, Luxembourg participant or Euroclear participant.

Settlement of Pre-issue Trades It is expected that delivery of Notes will be made against payment therefor on the Closing Date, which could be more than three business days following the date of pricing. Under Rule 15c6-1 under the Exchange Act, trades in the United States secondary market generally are required to settle within three business days (T+3), unless the parties to any such trade expressly agree otherwise.

Accordingly, purchasers who wish to trade Notes in the United States on the date of pricing or the next succeeding business days until three days prior to the Closing Date will be required, by virtue of the fact the Notes initially may settle beyond T+3, to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement. Settlement procedures in other countries will vary.

Purchasers of Notes may be affected by such local settlement practices and purchasers of Notes between the relevant date of pricing and the Closing Date should consult their own advisers.

98 TRANSFER RESTRICTIONS

Because of the following restrictions, purchasers are advised to consult legal counsel prior to making any offer, resale, pledge or other transfer of the Notes. The Notes have not been and will not be registered under the Securities Act, and may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the Notes are being offered and sold (1) in the United States only to QIBs within the meaning of Rule 144A under the Securities Act and (2) outside the United States in offshore transactions pursuant to Regulation S under the Securities Act. Terms used herein that are deﬁned in Rule 144A or Regulation S under the Securities Act are used herein as so deﬁned.

1. Transfer Restrictions A beneficial interest in the Restricted Global Notes may be transferred to a person who wishes to take delivery of such beneficial interest through the Unrestricted Global Note only upon receipt by the relevant Registrar of a written certification from the transferor (in the form scheduled to the applicable Agency Agreement) to the effect that such transfer is being made in accordance with Regulation S or Rule 144 (if available) under the Securities Act. Any beneficial interest in either the Restricted Global Notes or the Unrestricted Global Note that is transferred to a person who takes delivery in the form of a beneficial interest in the other Global Note will, upon transfer, cease to be a beneficial interest in such Global Note and become a beneficial interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to a beneficial interest in such other Global Note for so long as such person retains such an interest. Ethiopia is a foreign government as defined in Rule 405 under the Securities Act, and is eligible to register securities on Schedule B of the Securities Act. Therefore, Ethiopia is not subject to the information provision requirements of Rule 144A(d)(4)(i) under the Securities Act.

2. Restricted Notes Each prospective purchaser of Notes within the United States pursuant to Rule 144A, by accepting delivery of this Prospectus, will be deemed to have represented, agreed and acknowledged as follows: * the purchaser (i) is a QIB, (ii) is acquiring the Notes for its own account or for the account of a QIB and (iii) is aware, and each beneﬁcial owner of the Notes has been made aware, that the sale of the Notes to it is being made in reliance on Rule 144A and if it is acquiring any Notes for the account of one or more QIBs, it represents that it has sole investment discretion with respect to each such account and that it has full power to make the herein acknowledgments, representations and agreements on behalf of each such account; * the purchaser understands that such Notes have not been and will not be registered under the Securities Act and may not be offered, sold, pledged or otherwise transferred except (a) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believe is a QIB purchasing for its own account or for the account of a QIB, (b) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S or (c) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), in each case in accordance with any applicable securities laws of any State of the United States; * the purchaser understands that the Restricted Notes will bear a legend to the following effect, unless Ethiopia determines otherwise in accordance with applicable law: ‘‘THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 (THE ‘‘SECURITIES ACT’’) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT (‘‘RULE 144A’’) TO A PERSON THAT THE HOLDER AND ANY PERSON ACTING ON ITS BEHALF REASONABLY BELIEVE IS A QUALIFIED INSTITUTIONAL BUYER

99 WITHIN THE MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER, (2) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. NO REPRESENTATION CAN BE MADE AS TO THE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALE OF THIS NOTE.’’ * the purchaser understands that Notes offered in reliance on Rule 144A will be represented by a Restricted Global Note and before any interest in a Note represented by a Restricted Global Note may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in the Unrestricted Global Note, it will be required to provide the relevant Registrar with a written certification (in the form provided in the Agency Agreement) as to compliance with applicable securities laws; and * the purchaser understands that Ethiopia, the relevant Registrar and the Joint Lead Managers and their affiliates and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements. For so long as the Notes are held in global form, Noteholders may not require transfers to be registered during the period beginning on the fifteenth business day before the due date for any payment of principal or interest in respect of such Notes. Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.

3. Unrestricted Notes Each purchaser of Unrestricted Notes, by accepting delivery of this Prospectus and the Notes, will be deemed to have represented, agreed and acknowledged that: * it is, or at the time Notes are purchased will be, the beneficial owner of such Unrestricted Notes and (i) it is located outside the United States (within the meaning of Regulation S) and (ii) it is not an affiliate of Ethiopia or a person acting on behalf of such an affiliate; * it understands that such Notes have not been and will not be registered under the Securities Act; and * it understands that Ethiopia, the relevant Registrar, the Joint Lead Managers and their affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements.

100 TAXATION

The following is a general description of certain tax considerations relating to the Notes. It does not purport to be a complete analysis of all tax considerations relating to the Notes. Prospective purchasers of Notes should consult their tax advisers as to the consequences under the tax laws of the country of which they are resident for tax purposes and the tax laws of the Federal Democratic Republic of Ethiopia of acquiring, holding and disposing of Notes and receiving payments of interest, principal and/or other amounts under the Notes. This summary is based upon the law in effect on the date of this Prospectus and is subject to any change in law that may take effect after such date.

The Federal Democratic Republic of Ethiopia Article 3 of the Income Tax Proclamation No.286/2002, as amended (the ‘‘ITP’’), provides that income tax applies to (i) residents of Ethiopia with respect to their worldwide income and (ii) non- residents of Ethiopia with respect to their Ethiopian-sourced income. The ITP defines income to mean every sort of economic benefit, including nonrecurring gains in cash or in kind, from whatever source derived and in whatever form paid credited or received. Consequently, interest payable on the Notes will be subject to Ethiopian income tax unless exempted. Pursuant to Article 4 of the Proclamation on Government Bonds to be Transacted in International Capital Markets No. 867/2014 passed on 12 November 2014, recognised under Article 13(d) and (e) of the ITP, an exemption from Ethiopian income tax (the ‘‘Exemption’’) has been granted in relation to the Notes. As a result, all payments made by the Issuer of interest and principal under the Notes shall be made free of withholding or deduction for or on account of Ethiopian income tax. If the Exemption is modified or revoked or otherwise ceases to be in force for any reason, interest income earned on the Notes by a person, whether resident or non-resident could become subject to income tax in Ethiopia. In such circumstances, the Government would be obliged to deduct withholding tax at the rate then prevailing. The current rate applicable to interest income is five per cent. of the gross amount payable. Under Condition 8(a) of the Conditions, the Issuer is required to pay additional amounts so that the Noteholders will receive the full net amount which they would otherwise have received had there been no deduction of income tax.

Certain U.S. Federal Income Tax Considerations The following is a summary of certain U.S. federal income tax considerations relevant to U.S. Holders (as defined below) acquiring, holding and disposing of Notes. This summary addresses only the U.S. federal income tax considerations for initial purchasers of Notes at their issue price (as defined below) that will hold the Notes as capital assets (generally, property held for investment). This summary is based on the U.S. Internal Revenue Code of 1986, as amended (the ‘‘Code’’), final, temporary and proposed U.S. Treasury regulations, administrative and judicial interpretations each as of the date hereof and all of which are subject to change, possibly with retroactive effect. The ‘‘issue price’’ of a note is generally equal to the first price at which a substantial amount of notes are sold for money to investors (excluding sales to bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). This summary does not discuss all aspects of U.S. federal income taxation that may be relevant to investors in light of their particular circumstances, such as investors subject to special tax rules (including, without limitation: (i) certain financial institutions; (ii) insurance companies; (iii) dealers or traders in stocks, securities, or notional principal contracts; (iv) regulated investment companies; (v) real estate investment trusts; (vi) tax-exempt organizations; (vii) partnerships, pass through entities, or persons that hold Notes through pass-through entities; (viii) investors that hold Notes as part of a straddle, hedge, conversion, constructive sale or other integrated transaction for U.S. federal income tax purposes; (ix) investors that have a functional currency other than the U.S. dollar; (xi) persons that have ceased to be U.S. citizens or lawful permanent residents of the United States; and (x) U.S. expatriates), all of whom may be subject to tax rules that differ significantly from those summarized below. This summary does not address U.S. federal estate, gift or alternative minimum tax considerations, the Medicare levy on net investment income, or non-U.S., state or local tax considerations. For the purposes of this summary, a ‘‘U.S. Holder’’ is a beneficial owner of Notes that is for U.S. federal income tax purposes (i) an individual who is a citizen or resident of the United States, (ii) a corporation created in, or organized under the laws of, the United States or any state thereof, including the District of Columbia, (iii) an estate the income of which is includible in gross income

101 for U.S. federal income tax purposes regardless of its source or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or the trust has validly elected to be treated as a domestic trust for U.S. federal income tax purposes. If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds Notes, the tax treatment of the partnership and a partner in such partnership generally will depend on the status of the partner and the activities of the partnership. Such partner or entity treated as a partnership for U.S. federal income tax purposes should consult its own tax advisor as to the U.S. federal income tax consequences to the partners and the partnership of the acquisition, ownership and disposition of Notes by the partnership. This summary assumes that the Notes will have an issue price equal to their stated redemption price at maturity or will be issued with no more than a de minimis amount of original issue discount (‘‘OID’’) and, as such, assumes that the Notes will be considered to be issued without OID, which the Issuer expects to be the case. Payments of Interest Each payment of stated interest on a Note (including any amounts withheld for or on account of any tax and any Additional Amounts) will be taxable to a U.S. Holder as ordinary interest income at the time it accrues or is received, in accordance with such holder’s regular method of accounting for U.S. federal income tax purposes. Interest paid on the Notes will be income from sources outside the United States for purposes of computing the foreign tax credit allowable to a U.S. Holder. Interest income on a Note generally will be considered ‘‘passive category income’’ for U.S. foreign tax credit purposes. The rules governing the foreign tax credit are complex, and you should consult your tax advisor regarding the availability of the credit under your particular circumstances. Sale or other taxable disposition of Notes A U.S. Holder generally will recognize capital gain or loss on the sale or other taxable disposition of a Note equal to the difference between the amount realized on the sale or other taxable disposition and the U.S. Holder’s adjusted tax basis in the Note. The amount realized will not include any amount attributable to accrued but unpaid stated interest, which will be taxable as described in ‘‘Payments of interest’’ above. Any capital gain or loss will be long-term capital gain or loss if, at the time of the sale or other taxable disposition of the Note, the U.S. Holder has held the Note for more than one year. Long- term capital gain of non-corporate U.S. Holders, including individual U.S. Holders, is generally taxed at reduced rates. The deductibility of capital losses is subject to limitations. Any gain or loss realized on the sale or other taxable disposition of a Note generally will be treated as U.S. source gain or loss. Information Reporting and Backup Withholding In general, payments of principal and interest on, and the proceeds of a sale or other taxable disposition of a Note, paid within the United States or through certain U.S. financial intermediaries to a U.S. Holder, may be subject to information reporting and backup withholding unless the U.S. Holder (i) is an exempt recipient or (ii) in the case of backup withholding (but not information reporting), provides an accurate taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred. Backup withholding is not an additional tax. Any amounts withheld from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided the required information is furnished to the IRS in a timely manner. U.S. Holders should consult their tax advisors regarding the application of backup withholding, the availability of an exemption from backup withholding and the procedure for obtaining such an exemption, if available. ‘‘Specified Foreign Financial Asset’’ Reporting U.S. taxpayers who own ‘‘specified foreign financial assets’’ with an aggregate value in excess of US$50,000 (or in some circumstances, a higher threshold), may be required to file an information report with respect to such assets with their U.S. federal income tax returns. ‘‘Specified foreign financial assets’’ generally include any financial account maintained by a non-U.S. financial institution as well as any of the following assets if such assets are not held in accounts maintained by financial institutions: (i) stock or securities issued by non-U.S. persons, (ii) financial instruments or contracts

102 held for investment that have non-U.S. issuers or counterparties and (iii) interests in non-U.S. entities. Prospective investors are encouraged to consult with their own tax advisors regarding the possible implications of the foreign ﬁnancial asset reporting obligations on their investment in the Notes.

EU Directive on the Taxation of Savings Income (Directive 2003/48/EC) Under the EU Savings Directive, EU Member States are required to provide to the tax authorities of another EU Member State details of payments of interest (or similar income) paid by a person established within its jurisdiction to (or for the benefit of) an individual resident, or certain types of entity established, in that other EU Member State. However, for a transitional period, Luxembourg and Austria will (unless during that period they elect otherwise) instead operate a withholding system in relation to such payments. The current rate of withholding under the EU Savings Directive is 35 per cent. The transitional period is to terminate at the end of the first full fiscal year following agreement by certain non-EU countries to exchange information procedures relating to interest and other similar income. The Luxembourg government has announced its intention to elect out of the withholding system in favour of automatic exchange of information with effect from 1 January 2015. A number of non-EU countries and certain dependent or associated territories of certain EU Member States have adopted similar measures to the EU Savings Directive. The Council of the European Union has adopted the Amending Directive which will, when implemented, amend and broaden the scope of the requirements of the EU Savings Directive described above. The Amending Directive will expand the range of payments covered by the EU Savings Directive, in particular to include additional types of income payable on securities, and the circumstances in which payments must be reported or paid subject to withholding. For example, payments made to (or for the benefit of) (i) an entity or legal arrangement effectively managed in an EU Member State that is not subject to effective taxation, or (ii) a person, entity or legal arrangement established or effectively managed outside of the EU (and outside any third country or territory that has adopted similar measures to the EU Savings Directive) which indirectly benefit an individual resident in an EU Member State, may fall within the scope of the EU Savings Directive, as amended. The Amending Directive requires EU Member States to adopt national legislation necessary to comply with it by 1 January 2016, which legislation must apply from 1 January 2017.

103 SUBSCRIPTION AND SALE

Each of the joint lead managers named in the table below (the ‘‘Joint Lead Managers’’) has, pursuant to a Subscription Agreement entered into by them with the Issuer and dated 9 December 2014 (the ‘‘Subscription Agreement’’), severally (but not jointly) agreed to subscribe or procure subscribers for the principal amount of Notes set out opposite its name in the table below at the issue price of 100 per cent. of the principal amount of Notes, less a management and underwriting commission.

Principal Joint Lead Managers Amount

US$ Deutsche Bank AG, London Branch ...... 500,000,000 J.P. Morgan Securities plc ...... 500,000,000

Total ...... 1,000,000,000

Ethiopia has agreed to indemnify the Joint Lead Managers against certain liabilities (including liabilities under the Securities Act) incurred in connection with the issue of the Notes. The Subscription Agreement may be terminated in certain circumstances prior to payment of the net subscription money in respect of the Notes to Ethiopia. To the extent that the Joint Lead Joint Lead Managers intend to effect any sales of the Notes in the United States, they will do so through their respective selling agents or through one or more U.S. registered broker-dealers or as otherwise permitted by applicable U.S. law.

United States The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the Joint Lead Managers have agreed, severally (but not jointly), to offer the Notes for resale in the United States initially only (1) to persons they reasonably believe to be QIBs purchasing for their own account or for the account of a QIB in reliance on Rule 144A or (2) outside the United States in offshore transactions in reliance on Regulation S. Terms used in this paragraph have the respective meanings given to them by Regulation S. The Notes are being offered and sold by the Joint Lead Managers outside the United States in accordance with Regulation S. The Subscription Agreement provides that the Joint Lead Managers may, through their respective U.S. afﬁliates, resell a portion of the Notes within the United States only to QIBs in reliance on Rule 144A. In addition, until 40 days after the commencement of the offering, an offer or sale of Notes within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A under the Securities Act.

United Kingdom Each Joint Lead Manager has represented and agreed that it has complied and will comply with all applicable provisions of the United Kingdom Financial Services and Markets Act 2000 with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.

The Federal Democratic Republic of Ethiopia There are no laws or regulations currently applicable in Ethiopia which regulate the offer or sale of securities, including the Notes.

General No action has been taken by Ethiopia or any of the Joint Lead Managers that would, or is intended to, permit a public offer of the Notes in any country or jurisdiction where any such action for that purpose is required. Accordingly, each Joint Lead Manager has undertaken that it will not, directly or indirectly, offer or sell any Notes or distribute or publish this Prospectus or any offering circular, prospectus, form of application, advertisement or other document or information in any country or jurisdiction except under circumstances that will, to the best of its knowledge and belief and in all

104 material respects, result in compliance with any applicable laws and regulations and all offers and sales of Notes by it will be made on the same terms.

105 GENERAL INFORMATION

Contact Information The address of the Federal Democratic Republic of Ethiopia is: The Ministry of Finance and Economic Development, P.O. Box 1037 or 1905, Addis Ababa, The Federal Democratic Republic of Ethiopia. The telephone number for the Ministry of Finance and Economic Development is +251 11 1226698

Listing Application has been made to the Irish Stock Exchange for the Notes to be admitted to the Ofﬁcial List and trading on the Main Securities Market. The listing of the Notes is expected to be granted on or around the Issue Date. The total expenses related to the admission to trading of the Notes are expected to be approximately c5,200. Arthur Cox Listing Services Limited is acting solely in its capacity as listing agent for the Issuer in relation to the Notes and is not itself seeking admission of the Notes to the Ofﬁcial List of the Irish Stock Exchange or to trading on the Main Securities Market of the Irish Stock Exchange.

Indication of Yield Based upon a re-offer price of 100 per cent. of the principal amount of the Notes, the yield of the Notes is 6.625 per cent. per annum on an annual basis. The yield is calculated at the Issue Date and is not an indication of future yield.

Authorisations Ethiopia has obtained all necessary consents, approvals and authorisations in connection with the issue and performance of its obligations under the Notes.

Documents on Display For so long as any Notes shall be outstanding, physical copies of Ethiopia’s budget for the current and previous two fiscal years, the Agency Agreement and the Deed of Covenant may be inspected during normal business hours at the specified offices of the Fiscal Agent.

Clearing Systems The Notes have been accepted for clearance through Euroclear, Clearstream, Luxembourg and DTC. The Unrestricted Global Note has been accepted for clearance through Euroclear and Clearstream, Luxembourg under Common Code 115197487 and ISIN XS1151974877. The Restricted Global Notes have been accepted for clearance through DTC and their CUSIP number is 29766LAA4, their ISIN is US29766LAA44 and the applicable Common Code is 115289535. The address of Euroclear is 1 Boulevard du Roi Albert II, B. 1210 Brussels, Belgium, the address of Clearstream, Luxembourg is Avenue J.F. Kennedy, L-1855 Luxembourg and the address of DTC is 55 Water Street, New York, NY, 10041, USA.

Litigation Ethiopia is not involved in, and has not been involved for 12 months prior to the date of this Prospectus in, any governmental, legal or arbitration proceedings which may have or have had in the recent past a signiﬁcant effect on its ﬁnancial position nor, so far as Ethiopia is aware, is any such proceeding pending or threatened.

Material Change Since the end of the 2013/2014 fiscal year on 7 July 2014, there has been no significant change in Ethiopia’s tax and budgetary systems, gross public debt or the maturity structure or currency of its outstanding debt and debt payment record, foreign trade and balance of payment figures, foreign exchange reserves including any potential encumbrances on such foreign exchange reserves as forward contracts or derivatives, financial position and resources including liquid deposits available in domestic currency and/or income and expenditure.

Interest of Natural and Legal Persons So far as the Issuer is aware, no person involved in the offer or the Notes has an interest material to the offer.

106 Joint Lead Managers transacting with the Issuer Certain of the Joint Lead Managers and their affiliates have engaged, and may in the future engage, in investment banking and/or commercial banking transactions with, and may perform services to the Issuer and its affiliates in the ordinary course of business for which they have received, and for which they may in the future receive, fees. In addition, in the ordinary course of their business activities, the Joint Lead Managers and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of the Issuer. Certain of the Joint Lead Managers or their affiliates that have a lending relationship with the Issuer routinely hedge their credit exposure to the Issuer consistent with their customary risk management policies. Typically, such Joint Lead Managers and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in securities, including potentially the Notes. Any such short positions could adversely affect future trading prices of the Notes. The Joint Lead Managers and their affiliates may also make investment recommendations and/ or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

107 ISSUER The Federal Democratic Republic of Ethiopia The Ministry of Finance and Economic Development King George Avenue P.O. Box 1037 or 1905 Addis Ababa

FINANCIAL ADVISER TO THE ISSUER Lazard Fre`res 121 Boulevard Haussmann 75008 Paris France

JOINT LEAD MANAGERS AND JOINT BOOKRUNNERS

Deutsche Bank AG, London Branch J.P. Morgan Securities plc 1 Great Winchester Street 25 Bank Street London EC2N 2DB Canary Wharf United Kingdom London E14 5JP United Kingdom

FISCAL AND PRINCIPAL LUXEMBOURG U.S. REGISTRAR, U.S. PAYING AGENT REGISTRAR, PAYING AGENT TRANSFER AGENT, U.S. AND TRANSFER AGENT PAYING AGENT AND CUSTODIAN Deutsche Bank AG, London Branch Deutsche Bank Luxembourg S.A. Deutsche Bank Trust Company 1 Great Winchester Street 2 Boulevard Konrad Adenauer Americas London EC2N 2DB L-1115 Luxembourg 60 Wall Street United Kingdom Luxembourg New York, New York 10005 United States

LEGAL ADVISERS To the Issuer as to English law and U.S. law White & Case LLP 5 Old Broad Street London EC2N 1DW United Kingdom

To the Joint Lead Managers as to English law To the Joint Lead Managers as to Ethiopian law and U.S. law Linklaters LLP Teshome Gabre-Mariam Bokan One Silk Street PO Box 101485 London EC2Y 8HQ Kebele 02/36, No. 171 United Kingdom Kirkos Sub-City Addis Ababa The Federal Democratic Republic of Ethiopia

LISTING AGENT Arthur Cox Listing Services Limited Earlsfort Centre Earlsfort Terrace Dublin 2 Ireland

imprima — C110694