Ethiopia Ranks Among Africa’s Lowest for Demand Sophistication, AECI Report Finds

Ethiopia ranked in the bottom three African countries for demand sophistication, one of four pillars in the Africa Export Competitiveness Report 2024’s Index (AECI). Its overall AECI score of 28 falls below the continental average of 34.65 (out of 100), highlighting strengths in infrastructure but weaknesses in demand sophistication and export diversification.

Demand sophistication measures how income levels and spending patterns influence product innovation and consumption. Ethiopia’s score of 12.06 signals limited purchasing power, with consumers favoring low-cost goods and services. This stifles industrial innovation and high-value exports. In contrast, Ethiopia ranks 7th out of 40 countries in the Basic Infrastructure sub-pillar (score: 39.99), bolstered by strong electricity generation and transport access, though it trails leaders like Egypt (4th), which excels in broadband and shipping.

Ethiopia’s merchandise exports nearly doubled last fiscal year, reaching $8.3 billion, fueled by record gold prices and a 47-year high in Arabica coffee amid global supply disruptions. Yet gold and coffee comprised nearly three-quarters of earnings, underscoring limited diversification. This surge was also aided by a shift to a market-based exchange rate, depreciating the Birr and narrowing parallel market premiums.

The AECI report, the second annual edition by the Institute for Competitiveness Africa and partners including the African Capacity Building Foundation, aims to bolster AfCFTA implementation. It was officially launched at the 11th Africa Think Tank Summit being held at the Sheraton Addis for three days.

By addressing identified gaps, Ethiopia might be able to deepen AfCFTA linkages through actionable strategies: leveraging the Guided Trade Initiative (GTI) to enhance coffee value-addition, such as processing and regional supply chains, potentially boosting intra-African exports. Additionally, targeted infrastructure investments, like digital access and border facilities, could empower women's participation in trade, aligning with the report's gender focus and unlocking untapped potential in informal cross-border sectors where women dominate.