Ethiopia

Chart 1 is a political map of Ethiopia.

Ethiopia’s long-term development trajectory to 2043 will be shaped by a set of structural conditions that are as important as macroeconomic policy itself. These include its strategic geographic location in the Horn of Africa, its ethnofederal political system, its highly diverse and still predominantly rural social composition, its sharply varied topography, and its growing exposure to climate and land-related pressures. Together, these factors define the opportunities and constraints within which development policy must operate. Any credible assessment of Ethiopia’s future must therefore begin from the recognition that economic transformation will depend not only on growth-enhancing reforms, but also on how effectively the state manages territorial diversity, infrastructure connectivity, ecological stress and social cohesion.

Ethiopia’s geography gives it both considerable strategic weight and a persistent structural disadvantage. With a land area of about 1.104 million square kilometres (km²), it is one of Africa’s largest states and occupies a pivotal position in the Horn, bordering Eritrea to the north, Djibouti and Somalia to the east, Kenya to the south, South Sudan and Sudan to the west. Although landlocked, Ethiopia sits close to the Red Sea and Gulf of Aden trade system and remains the principal economic and political anchor of the wider Horn of Africa. Addis Ababa is not only the national capital but also a continental diplomatic centre, while Dire Dawa functions as an important commercial gateway on the eastern corridor. Other major urban centres, including Adama, Hawassa, Mekelle and Bahir Dar, reinforce the country’s internal economic geography. In practical terms, Ethiopia’s dependence on external corridors, especially the Addis Ababa–Djibouti corridor, means that logistics performance, dry port efficiency, customs reform and cross-border cooperation will remain central to the country’s development strategy. Geography does not condemn Ethiopia to underdevelopment, but it does mean that competitiveness will depend heavily on transport reliability, corridor diversification and regional diplomacy.

The political context is equally foundational. Ethiopia is widely recognised as Africa’s oldest independent state and has long drawn political legitimacy from its history of resisting colonial domination, particularly after the defeat of Italy at the Battle of Adwa in 1896. Yet contemporary Ethiopia is defined less by that historic continuity than by the institutional architecture established under the 1995 Constitution. The constitution defines the country as a federal and democratic state and establishes a parliamentary federal system with a ceremonial president, an executive prime minister, a House of Peoples’ Representatives and a House of Federation. What distinguishes Ethiopia’s federal system is that it is explicitly organised around ethnolinguistic identity and the constitutional recognition of “nations, nationalities and peoples.” This makes federalism not merely an administrative arrangement, but the core framework through which state authority, political representation and territorial self-rule are negotiated.

This system has created both opportunities for inclusion and enduring tensions around governance and state cohesion. Ethiopia’s current federal structure comprise of twelve regional states and two chartered city administrations.  The reconfiguration of the former Southern Nations, Nationalities and Peoples’ Region was completed through the creation of the Sidama, South West Ethiopia Peoples’, South Ethiopia and Central Ethiopia regions. These changes reflect the continued dynamism of Ethiopia’s federal compact, but they also highlight how unsettled aspects of that compact remain. The ongoing work of the Ethiopian National Dialogue Commission points to the fact that questions of representation, constitutional interpretation and intergovernmental relations are still live political issues. Fiscal decentralisation further complicates this picture. Regional governments carry major expenditure responsibilities in core sectors such as health and education, while the federal government retains control over defence and strategic infrastructure. For long-term planning, this means Ethiopia’s political stability will depend not only on constitutional design, but also on whether fiscal federalism becomes more transparent, rules-based and capable of managing tensions across regions.

Ethiopia’s social structure adds another layer of complexity to the development challenge. The country is exceptionally diverse in linguistic, ethnic and religious terms, and that diversity is embedded in both society and the state. More than 80 languages and numerous ethnic communities coexist within the federation, with Oromos and Amharas generally regarded as the largest groups, alongside Somali, Tigrayan, Sidama and many others. Religious diversity is also significant, with Christianity and Islam forming the two major pillars of the country’s social landscape. At the same time, Ethiopia remains predominantly rural, even as urbanisation is accelerating. This matters because the country’s social cleavages are not only ethnic or religious; they are also spatial and economic, reflecting uneven development, land access, youth unemployment, service delivery gaps, displacement and the legacy of conflict. Internal displacement remains especially important because it links insecurity directly to welfare outcomes, labour market vulnerability and local service demand. Looking ahead to 2043, the key issue will be whether urbanisation, education expansion and structural transformation reduce identity-based competition by widening opportunity, or intensify it by deepening already existing inequalities.

Ethiopia’s physical geography reinforces these development pressures. The country has one of the most varied landscapes in Africa, shaped by a high plateau split by the Great Rift Valley and marked by sharp contrasts between cool, densely settled highlands and hot, drier lowlands. The highland systems of Simien and Bale support dense settlement and agricultural production, while the Afar-Danakil depression contains some of the lowest terrain on the continent. This topographic diversity is not just a physical characteristic; it has direct developmental consequences. It influences where people live, what crops are grown, the cost of building infrastructure, patterns of disease exposure and the viability of transport networks. Ethiopia’s hydrology is equally strategic. The country functions as a regional water tower, with major river systems originating within its borders, most notably the Abay/Blue Nile. This gives Ethiopia significant hydropower and irrigation potential, illustrated most clearly by the Grand Ethiopian Renaissance Dam (GERD), which is central to its future energy ambitions and regional electricity strategy.

At the same time, the ecological base that sustains this potential is under growing strain. Deforestation, land degradation and soil erosion continue to undermine agricultural productivity and environmental resilience. This is not a marginal issue. Because such a large share of the population still depends directly or indirectly on land-based livelihoods, ecological degradation has macroeconomic implications through food systems, rural poverty, migration and conflict risk. Ethiopia’s topography will therefore remain both an asset and a constraint: the highlands support population concentration, water systems and hydropower generation, but also raise infrastructure costs, while the lowlands contain pastoral, mineral and strategic potential but are more exposed to climate stress and political fragility.

Climate conditions further intensify these structural pressures. Ethiopia’s climate is highly variable and strongly shaped by elevation. The traditional climatic zones of dega, woina dega and qola capture the way altitude structures temperature, rainfall, livelihoods and settlement patterns. Rainfall varies enormously across the country, from relatively high precipitation in the southwestern highlands to extremely arid conditions in the southeastern and northeastern lowlands. Drought remains the most destructive climate hazard, but flooding, erosion and landslides also impose high economic and social costs. This variability makes climate risk a central development issue rather than a secondary environmental concern.

Looking ahead to 2043, Ethiopia is warming, climate risks are intensifying, and the development consequences will be substantial if adaptation remains uneven. Rising temperatures, water stress, more frequent shocks and expanding urban exposure all threaten to slow poverty reduction and place additional pressure on already stretched institutions. Ethiopia has established an ambitious climate policy framework, including the Climate-Resilient Green Economy (CRGE) strategy, the National Adaptation Plan (NAP),  the updated Nationally Determined Contribution (NDC) and the long-term low-emissions strategy (LT-LEDS). The central challenge, however, is no longer policy design but implementation. By 2043, Ethiopia’s resilience will depend less on the existence of these frameworks than on whether they are translated into effective action across agriculture, water management, urban planning, energy systems and subnational governance.

Taken together, these structural features show that Ethiopia’s development future will be shaped by more than economic growth alone. Strategic location gives the country regional leverage, but landlockedness makes connectivity and diplomacy indispensable. Federalism offers a framework for representation, but also demands stronger intergovernmental coordination and more credible fiscal management. Social diversity is a potential source of strength, yet it requires inclusive service delivery and economic transformation to avoid deepening fragmentation. Varied topography and abundant water systems create opportunities in agriculture and energy, but ecological degradation and infrastructure costs limit those gains. Climate change, finally, cuts across all these issues, making resilience a central test of state capacity. Accordingly, the country’s success to 2043 will depend on whether it can convert these structural realities from sources of fragility into foundations for inclusive, territorially balanced and climate-resilient development.

Chart 2 presents the Current Path of the population structure from 1990 to 2043.

Ethiopia’s population has expanded rapidly over the past three decades, rising from about 47.6 million in 1990 to 135 million in 2025, and exceeding 138 million by April 2026, with a median age of roughly 19.3 years. This makes Ethiopia the most populous country in the Horn of Africa and the second most populous in Africa after Nigeria. The Current Path shows a further increase to approximately 196 million people by 2043.

The deeper significance of this trend lies not only in the size of the population but in the gradual change in its age structure. Ethiopia’s population profile is shifting from a strongly child-heavy structure towards a more working-age-dominant one. In 1990, children under the age of 15 accounted for about 46.2% of the population, compared with 38.8% in 2025, and this share will decline further to roughly 32.1% by 2043 under the Current Path. Over the same period, the share of the working-age population rose from 51.1% to 57.9%, and will expand further to roughly 63% by 2043. The elderly population remains comparatively small, but is also increasing gradually, from 2.7% in 1990 to 3.3% in 2025 and a forecasted 4.9% by 2043.

This transition is being driven primarily by declining fertility. Ethiopia’s total fertility rate (TFR) fell from about 7.2 births per woman in 1990 to roughly 3.9 in 2025, and will decline further to 2.7 by 2043 under the Current Path. This trajectory brings the country closer to replacement-level fertility (TFR of 2.1) over the longer term and implies that population growth will gradually slow, even though the absolute number of people will continue rising for decades. Falling fertility narrows the base of the population pyramid, reduces the relative share of dependants, and increases the proportion of working-age people, thereby making the age structure progressively more favourable to growth.

However, fertility decline has been uneven across social groups and regions, which means the demographic transition is neither automatic nor uniform. The 2019 Ethiopia Mini-DHS shows that modern contraceptive use among married women rose from 14% in 2005 to 41% in 2019, but uptake was significantly higher among urban, wealthier and better educated women than among rural, poorer and less educated groups. Regional disparities remain especially pronounced. Contraceptive use was lowest in Somali and Afar, and more recent spatial analyses continue to identify Somali, Afar, parts of Oromia and parts of the former Southern Nations, Nationalities and Peoples (SNNP) area as relatively high-fertility zones. This suggests that future demographic change will depend heavily on whether Ethiopia can sustain gains in female education, reproductive health access, delayed marriage and family planning, particularly in lagging regions.

These age and fertility shifts are already reducing demographic pressure on the working-age population. Ethiopia’s dependency ratio declined from 0.96 in 1990 to 0.73 in 2025 and is forecasted to fall further to 0.59 by 2043 under the Current Path. This means that the number of dependants relative to every 100 working-age people is falling, potentially improving the economic balance between consumers and producers. A dependency ratio approaching 0.50 is often considered favourable at a macroeconomic level because it can support higher savings, stronger domestic demand and a broader tax base. Be that as it may, such a demographic structure does not by itself guarantee faster development. It becomes an asset only when the economy can absorb the expanding labour force into productive employment.

This is why Ethiopia’s demographic outlook should be read as promising but demanding. The Current Path shows that the country will move towards a more economically growth-friendly age structure, but not yet towards an automatic demographic dividend. The full demographic window is likely to open only around 2044, and its eventual benefits will depend on policy choices made well before then. Ethiopia will need to create jobs at scale, especially in labour-absorbing sectors, while also improving foundational and secondary education, expanding opportunities for women and youth, sustaining access to family planning and reproductive health services, and reducing regional inequalities in high-fertility areas. Urban planning will also become increasingly important, because much of the growing working-age population will be concentrated in towns and cities that require housing, transport, services and economic opportunities.

In a nutshell, Ethiopia’s demographic transition is creating a potentially stronger foundation for long-term growth, but the outcome will depend on whether structural change in the economy keeps pace with structural change in the population. The country’s demographic story to 2043 is neither one of inevitable crisis nor one of automatic dividend. It is, rather, a test of whether gradual improvements in population structure can be matched by equally strong progress in job creation, human capital development, territorial inclusion and institutional capacity building.

Chart 3 presents a population distribution map for 2025.

Ethiopia’s population is unevenly distributed across the territory, but highly concentrated in ecologically favourable highland zones and along major economic corridors, while vast lowland areas remain sparsely populated. This spatial imbalance has profound implications for infrastructure planning, fiscal transfers, food systems, climate exposure and territorial cohesion to 2043.

Although Ethiopia is one of Africa’s most populous countries, its urban concentration remains relatively modest by international standards. Addis Ababa accounts for approximately 4.8% of the total population, making it the country’s primate city but not overwhelmingly dominant. Other major cities, including Adama, Bahir Dar, Dire Dawa and Shashamane, each account for less than 0.5% of the national population. This reflects Ethiopia’s still predominantly rural demographic structure and a relatively dispersed urban hierarchy. Unlike highly urbanised African nations where a single city may contain 20–30% of the national population, Ethiopia’s settlement pattern remains broadly distributed, though gradually urbanising.

At the national level, population density will increase from approximately 120 people per km² to about 174 people per km² by 2043 under the Current Path. This represents a significant intensification of pressure on land, infrastructure and ecological systems. However, the national average conceals stark regional contrasts that are more relevant for policy design than the aggregate figure itself.

The most densely populated areas are located in the central and northern highlands, particularly in parts of Oromia, Amhara, Sidama and Central Ethiopia regions. These zones combine moderate rainfall, fertile soils, temperate climates and long-established agrarian settlement systems. Historically, state formation, infrastructure networks and market integration were concentrated in these highland belts, reinforcing their demographic centrality. By contrast, large areas of Afar, Somali and Gambella regions remain sparsely populated due to arid or semi-arid climatic conditions, pastoral livelihood systems, lower infrastructure density and, in some cases, historical marginalisation. The result is a sharp highland–lowland demographic divide that shapes nearly every aspect of Ethiopia’s development challenge.

This spatial distribution interacts strongly with livelihood systems. In the highlands, mixed crop–livestock agriculture dominates, supporting high rural densities but also intensifying land fragmentation and soil degradation. In the lowlands, pastoral and agro-pastoral systems require mobility and lower density, making service delivery and infrastructure provision more costly per capita. As population density rises nationally toward 2043, pressures in highland agrarian systems are likely to intensify further unless productivity growth, land restoration and non-farm employment expand rapidly. In lowland regions, demographic growth combined with climate variability may increase competition over water and grazing resources, with implications for conflict risk and displacement.

Urbanisation trends (see Chart 4) add another layer to this spatial dynamic. Although only about a quarter of the population is currently urban, cities are growing rapidly in absolute terms. The Addis Ababa–Adama–Dire Dawa corridor, linking the capital to the Djibouti port route, is emerging as the country’s most economically significant axis. Industrial parks, logistics hubs and transport investments along this corridor reinforce its demographic pull. Secondary cities such as Hawassa, Mekelle and Bahir Dar are also expanding, but their national population shares remain relatively small. This suggests that Ethiopia’s urban transition is occurring through the gradual growth of multiple nodes rather than extreme primacy, which presents both an opportunity and a coordination challenge. Balanced secondary-city development could reduce pressure on Addis Ababa, but only if urban planning, municipal finance and employment creation keep pace with migration.

The forecasted increase in population density magnifies these spatial pressures. In high-density rural zones, rising land scarcity may accelerate rural–urban migration, increase youth underemployment and intensify environmental degradation unless agricultural productivity improves. In peri-urban belts, unmanaged expansion risks informal settlement growth, infrastructure backlogs and heightened flood exposure. In arid and semi-arid lowlands, climate change may further constrain carrying capacity, reinforcing mobility patterns and increasing vulnerability to drought shocks.

From a policy perspective, population distribution is therefore not simply a demographic statistic but a territorial development issue. Infrastructure planning must account for both density and dispersion. High-density corridors require investments in mass transit, housing, water systems and waste management, while low-density pastoral regions require adaptive service-delivery models, including mobile health and education services. Fiscal federalism must reflect the cost differentials associated with settlement patterns; sparsely populated regions face higher per-capita infrastructure costs, while densely populated regions face congestion and land-pressure challenges.

Climate adaptation planning must also be spatially differentiated. Highland zones are vulnerable to soil erosion and land degradation, while lowland areas face drought intensity and water scarcity. Urban areas, particularly those expanding informally, face increasing flood and heat risks. Integrating spatial population data with climate-risk mapping will be essential to prevent future humanitarian and fiscal shocks.

Looking to 2043, Ethiopia’s rising population density will test the country’s ability to align territorial planning with demographic realities. The key strategic questions are whether growth will be channelled into productive, well-serviced urban corridors; whether rural transformation can absorb labour productively rather than simply fragmenting landholdings; and whether historically peripheral lowland regions can be integrated through infrastructure, climate resilience and market access without destabilising pastoral systems.

Chart 4 presents the urban and rural population in the Current Path, from 1990 to 2043.

Ethiopia’s urban transition is real, but it is still unfolding from a very low base. The urban share of the population almost doubled from 12.6% in 1990 to 24% in 2025. The Current Path shows a further increase to 33.8% by 2043, implying that Ethiopia would still be majority rural at the end of the third Agenda 2063 implementation term.

In absolute terms, the Current Path shift will be large enough to be transformational even though it will not make Ethiopia predominantly urban. The urban population will more than double from roughly 32.4 million in 2025 to about 66.3 million by 2043, while the rural population will increase by approximately 29.3 million from roughly 102.6 million to 130 million. The most important policy implication is therefore not ‘urban instead of rural’, but the simultaneous management of very rapid urban growth and continuing large-scale rural demand for land, services and livelihoods. 

The Current Path trajectory is consistent with the World Bank’s 2024 Country Climate and Development Report (CCDR), which forecasts Ethiopia’s urban population growth to 83.9 million by 2050, raising the urbanisation rate from about 23% in 2020 to 39% by 2050. The CCDR is useful because it frames urbanisation not as a side trend, but as a central part of structural transformation, climate resilience and territorial development.

The factors driving the trend are more complex than simple rural-to-urban migration. The World Bank’s Ethiopia Urbanisation Review found that, in the earlier phase of urban growth, natural increase was the largest contributor to urban population growth, accounting for around 40% of annual urban growth before 2018, while migration to existing urban centres and statistical reclassification of rural settlements as towns also made major contributions. The same review forecasted that rural-to-urban migration would become the leading driver after 2018, accounting for 41–47% of annual urban population growth through 2032. This helps reconcile two seemingly different narratives: Ethiopia’s urbanisation is increasingly migration-led, but it has also been produced by natural population growth within towns and the formal upgrading of settlements into urban centres. 

At the same time, Ethiopia remains predominantly rural because agriculture and land-based livelihoods still anchor the economy and shape household decisions. The CCDR notes that agriculture still employs about 64% of the workforce and accounts for 38% of GDP, which helps explain why urbanisation, though rising, has not yet produced a wholesale shift out of rural livelihoods. The Urbanisation Review also found that rural-to-urban migration in Ethiopia has historically been lower than in many other developing countries, partly because land institutions and insecure transfer arrangements create disincentives for rural households to move permanently to cities. That means Ethiopia’s urban transition is occurring alongside, not instead of, a large rural society whose transformation depends on agricultural productivity, rural non-farm employment and stronger rural-urban linkages.

Urban growth is also highly patterned rather than evenly distributed. UN-Habitat describes Ethiopia as having an unbalanced urban system with one primate city, Addis Ababa, plus a relatively thin layer of medium-sized cities and many small towns. This is most likely why the government’s own Ten-Year Development Plan (TYDP) places such strong emphasis on a “balanced and decentralised system of urbanisation,” the development of small and medium-sized towns, and coordinated infrastructure networks between and within cities and towns. This perspective makes sense because if urban growth continues to be concentrated in Addis Ababa and a few connected corridors, issues such as congestion, land informality, and regional inequality will worsen. However, if growth is more evenly distributed across secondary cities and rural service centres, urbanisation can contribute to a more balanced structural transformation. 

Conflict, displacement and climate stress are now major additional drivers of settlement change and must be treated as part of the urbanisation story. The June 2025 Ethiopia refugees and IDPs statistics sheet reported 1.92 million Internally Displaced Persons (IDPs) and 2.81 million IDP returnees, while its historical trend graphic shows IDPs at around 3.3 million in 2024. OCHA’s June 2024 internal displacement overview uses a wider humanitarian estimation approach and places total displacement at about 4.5 million people. The methodological difference matters, but the policy message is the same: displacement is reshaping settlement patterns, placing additional pressure on urban and peri-urban services, and making urban growth more fluid, uneven and vulnerable than a simple demographic trend line suggests.

The quality of urbanisation is therefore at least as important as its pace. The CCDR warns that only 12% of urban parcels are registered and that informal settlements cover an estimated 74% of urban areas, with many settlements encroaching on wetlands, flood-runoff zones and other hazard-prone spaces. It also notes that under a pessimistic climate scenario, capital damages in Addis Ababa from pluvial flooding could double by 2050, while proactive adaptation could reduce additional losses by about 90%. This is a critical policy point for the Current Path. Ethiopia’s urban transition, if unmanaged, can deepen flood exposure, land conflict, exclusion from basic services and costly retrofitting obligations for the government. Urbanisation is not automatically developmental; it becomes developmental when land management, housing supply, utility networks and climate adaptation move ahead of settlement expansion rather than behind it.

The government’s own targets provide a useful benchmark against which to assess the Current Path. In the TYDP, Ethiopia aims to raise the rate of urbanisation from 21.4% in 2020/21 to 35% by 2029/30, reduce urban and rural population growth rates to 4.2% and 1.3% respectively, guide around 4 000 towns and 14 000 rural development centers through integrated urban development plans, increase cadastre and land registration coverage from 3% to 60%, meet 80% of urban housing demand by building more than 4.4 million houses, and require municipal governments to finance at least 60% of their expenditures from own-source revenues. These targets are ambitious but analytically coherent: they recognise that the challenge is not merely to increase the urban share, but to make cities more planned, more productive, more financially viable and more connected to surrounding rural areas.

The core conclusion is that Ethiopia should not treat urbanisation as a demographic inevitability to be accommodated passively. It should treat it as a territorial transformation agenda. That means prioritising secondary-city development and corridor planning instead of excessive concentration in Addis Ababa; accelerating urban land regularisation, registration and serviced-land supply to reduce informality; linking housing policy to jobs, transport and municipal finance rather than stand-alone housing targets; building flood-resilient and climate-aware urban infrastructure before hazard exposure locks in; integrating displacement and return dynamics into urban planning and intergovernmental transfers; and, crucially, continuing to invest in rural productivity and rural service centers because the rural population will still exceed 130 million by 2043 under the Current Path. The indicators that matter most are the urban share of population, the absolute growth of urban residents, serviced land and housing delivery, the share of registered urban parcels, secondary-city job creation, flood exposure in informal settlements, and the extent to which municipal governments can raise and retain own-source revenues.

Chart 5 presents GDP in market exchange rates (MER) and growth rate in the Current Path, from 1990 to 2043.

Ethiopia’s GDP (MER) expanded from US$14 billion in 1990 to US$144 billion in 2025, reflecting an average annual growth rate of 6.7%. This long-run historical picture is one of strong expansion from a low base, but with changing drivers over time. The country’s TYDP notes that, during the two Growth and Transformation Plan (GTP I and GTP II) periods, real GDP grew by an average of 9.2% per year between 2009/10 and 2019/20, while the World Bank and  African Development Bank report average annual growth of 10.9% and 10.2% in the 2004-2014 and 2004–2018 periods, respectively. All reports concur that Ethiopia’s growth since 2003 was primarily driven by large public investment in physical and social infrastructure. The performance was impressive by regional standards. However, anecdotal evidence highlights that the growth was uneven. It relied heavily on the construction sector, agriculture, and wholesale and retail trade, while export performance was weak. Additionally, the economy struggled to generate sufficient foreign exchange to meet its investment needs. In terms of policy, Ethiopia was successful in increasing output but only partially managed to transform the production structure.

That distinction matters because it explains both the achievements and the fragilities visible in Ethiopia’s historical growth trajectory. Ethiopia’s TYDP explicitly recognises that past growth did not sufficiently create jobs, deepen structural transformation, strengthen sectoral linkages or ensure that export earnings kept pace with import needs. The same plan frames the Homegrown Economic Reform (HGER) agenda as a transition from public- to private-sector-led growth, with stronger productivity, competitiveness, financial-sector reform and export diversification. In other words, the country’s own planning documents already accept that the old growth model, however impressive in headline GDP terms, had reached its limits. A policy-oriented analysis of the Current Path should therefore focus not only on the level of GDP but on whether the composition of growth is changing in the intended direction.

The growth trajectory’s flattening relative to the most optimistic national ambition is also explained by the shocks of the early 2020s. The World Bank’s latest Ethiopia Macro Poverty Outlook argues that the former state-led investment model relied on an overvalued exchange rate and financial repression, crowded out social spending, and did not raise productivity or job growth sufficiently. It also notes that COVID-19, conflict and drought deepened macroeconomic imbalances and culminated in debt default in late 2023. The African Development Bank similarly reports that growth decelerated to about 6.8% per year during 2020–2024, while in 2023/24 growth recovered to 7.3%, led by industry at 9.2% and agriculture at 7%, with private consumption and investment driving demand. This implies that Ethiopia did not lose its growth potential, but it entered the mid-2020s carrying serious macroeconomic, political and external vulnerabilities.

Recent reforms have improved the near-term outlook, but they do not eliminate the longer-term policy gap. The World Bank forecasts a 2025 growth rate at 9.2%, supported by robust crop harvests, mining, construction and manufacturing, while the IMF states that policy actions under the Extended Credit Facility and the HGER agenda have already delivered better-than-expected results for inflation, export growth and international reserves. The IMF also emphasises that these reforms are intended to correct macroeconomic imbalances, restore debt sustainability and lay the foundation for high, private-sector-led growth. That is important because it suggests that the near-term rebound is not purely cyclical: it is increasingly tied to a deeper macroeconomic reset. But the same IMF and World Bank sources warn that sustaining reform momentum remains essential and that external and domestic risks, including foreign-exchange market distortions, conflict and regional instability, could still slow the transition.

Looking ahead, GDP will reach approximately US$553 billion by 2043 under the Current Path, implying a significantly faster average annual growth rate of 7.8% over the 2025–2043 period. The Current Path, therefore, represents a credible but conservative growth trajectory rather than a transformative one. This trajectory is robust by continental standards and would make Ethiopia overtake Algeria to become the fourth-largest economy in Africa by 2043, after Egypt, Nigeria, and South Africa, respectively. Yet it remains below the country’s TYDP target of 10% by 2030. Precisely, the Current Path forecasts an average growth rate of approximately 7.7% in the 2021-2030 period.

The growth target itself is not only about speed; it is also about composition. The TYDP envisages the share of agriculture in GDP declining from 32.6% to 22% by 2029/30, industry rising from 29% to 35.9%, and manufacturing rising from 6.9% to 17.2%. It also targets an increase in the export-to-GDP ratio to 12.9% and a shift in the structure of exports so that industrial and mining products account for a much larger share by the end of the decade. Those targets make clear that Ethiopia’s benchmark is not simply ‘more GDP’; it is more tradable production, higher productivity, a larger role for private investors, and a stronger foreign-exchange base. The Current Path, by contrast, implies progress but not full delivery on that ambition. 

Overall, Chart 5 should be read as evidence that Ethiopia is likely to remain a fast-growing economy over the long run, but one whose baseline trajectory still undershoots its national development goals because structural bottlenecks remain only partially resolved. To move closer to the official target, Ethiopia would need to do five things consistently: sustain peace and reduce conflict-related economic losses; lock in macroeconomic stabilisation and debt treatment; deepen export and foreign-exchange earning capacity; accelerate industrial and manufacturing competitiveness rather than relying mainly on construction and services; and expand the role of domestic and foreign private investment without recreating the imbalances of the earlier state-led model. Without those shifts, growth can remain high in headline terms while still falling short of the country’s ambition to become an “African Beacon of Prosperity.”

Chart 6 presents the size of the informal economy as a percentage of GDP and percentage of total labour (non-agriculture), from 2022 to 2043. The data in our modelling are largely estimates and therefore may differ from other sources.

The informal economy’s share of GDP will fall from 29.1% in 2025 to about 25.2% by 2043, while the informal share of the non-agricultural labour force will decline from 53.2% to 46.8% over the same period. This is a meaningful improvement, but it still implies that by 2043 nearly half of Ethiopia’s non-agricultural workers would remain outside formal employment relationships, tax systems and social protection arrangements.

Informality is not exceptional to Ethiopia; it is the dominant employment reality across the continent. The International Labour Organisation (ILO) estimates that around 83% of employment in Africa is informal, rising to about 85% in sub-Saharan Africa. Urban informality is also pervasive, with roughly 56% to 65% of urban workers in sub-Saharan Africa employed informally, and about half of these workers are self-employed rather than wage-employed. On that basis, Ethiopia’s forecasted decline from 53.2% to 46.8% in informal non-agricultural employment places it below the broader continental and sub-Saharan averages, but not yet in a position that would justify describing the economy as successfully formalised. This implies that Ethiopia is performing somewhat better than the regional average, but the gap mostly reflects the country’s structural transformation potential rather than the resolution of the underlying drivers of informality.

The persistence of informality in Ethiopia reflects a combination of structural and policy factors. First, the economy still has a very large low-productivity base. Agriculture remains a major employer, and many workers moving out of agriculture do not enter high-productivity formal jobs but instead shift into informal urban trade, transport, repair services, domestic work and small-scale manufacturing. Second, the pace of job creation in the formal private sector has lagged behind demographic growth. Ethiopia’s youthful population structure means that millions of young people enter the labour force each year, and when the modern sector cannot absorb them, informality becomes the default outcome rather than a temporary phase. Third, regulatory and administrative barriers continue to matter. Complex business registration procedures, limited access to finance, weak contract enforcement, low trust in state institutions, and the costs of compliance with taxation and licensing requirements all reduce the incentives for micro and small firms to formalise.

Urbanisation is a particularly important part of the story. Ethiopia remains predominantly rural (see Chart 4), but its towns and cities are growing rapidly, and much of this expansion is occurring through informal settlement and informal employment. The same structural pressures that drive urban growth, rural land fragmentation, youth underemployment, displacement and conflict also expand the pool of urban workers who depend on informal activities for survival. In that sense, informality is not only a labour-market issue; it is also a spatial development issue. If secondary cities and major corridors do not generate sufficient formal enterprise growth, urbanisation can deepen rather than reduce informalisation. This is especially relevant for Ethiopia because the World Bank’s CCDR already warns that urban land informality and climate exposure, particularly flood risk, are increasing. In practical terms, an urban economy built on insecure land tenure, weak services and informal enterprise is less productive, less resilient and harder to tax.

Gender and household structure also shape the informal economy. Across Africa, women are disproportionately represented in vulnerable and informal employment, especially in petty trade, home-based production and unpaid family work. Ethiopia is no exception. Formalisation is therefore closely linked to gender policy, including women’s access to finance, education, childcare, safe transport, market infrastructure and legal recognition of enterprises. Without targeted action, aggregate formalisation can advance while leaving women concentrated in the lowest-income segments of the labour market.

The relatively modest Current Path decline also shows that formalisation in Ethiopia is likely to be gradual rather than automatic. Economic growth alone does not eliminate informality. In fact, high-growth economies can sustain large informal sectors if growth is concentrated in capital-intensive sectors, if finance is shallow, or if labour regulation and tax systems remain poorly aligned with the realities of micro and small enterprises. Ethiopia’s past growth pattern, driven heavily by public investment, construction and a narrow set of urban activities, did not generate enough formal, labour-absorbing employment. That is precisely why the TYDP and the HGER agenda place so much emphasis on private-sector-led growth, manufacturing, Micro, Small, and Medium Enterprises (MSMEs) development, digitalisation, export competitiveness and job creation. This shows that Ethiopia’s development strategy increasingly recognises that reducing informality is central to productivity growth, tax mobilisation and social inclusion.

This is also where national targets matter. While Ethiopia does not always state a single headline informality target in the same way it does for GDP growth or industrial expansion, the direction of policy is explicit. The TYDP aims to accelerate structural transformation, raise productivity, expand formal private employment and strengthen domestic revenue mobilisation. The HGER agenda reinforces this through financial-sector reform, better business conditions, more competitive markets and stronger support to private enterprise. Digital public infrastructure also matters here. Measures such as digital ID expansion, tax administration reform, electronic payments and business registration platforms can lower the costs of formalisation and improve state visibility over firms and workers. But formalisation will not succeed if it is pursued only through enforcement. It has to be linked to tangible benefits, access to credit, market access, legal protection, infrastructure, and inclusion in public services and procurement systems.

The larger development stakes are significant. A decline in informal economy would help broaden the tax base, improve productivity and expand the contributory base for social insurance. A decline in informal non-agricultural employment would also imply some improvement in job quality, labour protections and enterprise stability. However, the trend is still far from transformative. By 2043, Ethiopia would remain an economy in which informal activity plays a central role in absorbing labour, especially in urban areas. The policy lesson is that informality should not be treated as a marginal labour issue but as a core development challenge linked to industrial policy, urban planning, fiscal reform, gender inclusion and social protection.

Read in relation to Agenda 2063 and SDG 8, the Current Path is therefore one of partial progress. It moves Ethiopia in the right direction, but not fast enough to achieve the scale of productive and inclusive transformation implied by the continental ambition of decent work, rising productivity and broad-based prosperity. To outperform this path, Ethiopia would need to accelerate labour-intensive manufacturing, expand MSME upgrading, improve urban governance, reduce the cost of compliance for small firms, strengthen women’s economic inclusion, and build a more coherent bridge between informality, taxation and social protection. Without those changes, informality will continue to act as both a safety valve and a drag on structural transformation.

Chart 7 presents GDP per capita in PPP (constant 2021 International $) in the Current Path, from 1990 to 2043, compared with the average for the African income group.

Ethiopia’s GDP per capita trajectory reflects the interaction between economic growth, population expansion and macroeconomic adjustment. The series can be understood in four broad phases: a sharp contraction in the early 1990s, a slow and uneven recovery through the early 2000s, a sustained acceleration after 2003, and a Current Path trajectory of renewed expansion after 2024. GDP per capita declined from about US$874 in 1990 to roughly US$681 in 1992, reflecting political transition, conflict and macroeconomic disruption during the final years of the Derg regime and the early post-transition adjustment period. Recovery through the 1990s and early 2000s was gradual and vulnerable to drought and external shocks, with GDP per capita only returning to around US$796 by 2003.

After 2003, Ethiopia entered a prolonged period of high growth. As noted in Chart 5, real GDP growth averaged roughly 10% annually for the period 2004-2018, supported by large-scale public investment in infrastructure, expansion in agriculture, construction and services, and improvements in basic service delivery. The country moved from being the second poorest in the world by 2000 to the eleventh poorest in 2014. However, because population growth remained high, GDP per capita rose more slowly than aggregate GDP, but still improved steadily, reaching approximately US$2 896 in 2025. This is why Ethiopia can rank among Africa’s largest economies in total size while remaining relatively poor in per capita terms. Under the Current Path, GDP per capita will rise further to about US$5 675 by 2043.

From a regional perspective, Ethiopia’s per capita income remains low despite its strong aggregate growth performance. Sub-Saharan Africa’s average GDP per capita in PPP (constant 2021 US$) reached US$4 963 in 2025 from US$3 778 in 1990. This underscores that Ethiopia is a large economy in aggregate terms, but still a low-income country in per capita terms. Within the Horn of Africa, Ethiopia’s position is mixed. It has a higher per capita income than some fragile neighbours (Eritrea and Somalia) but remains below smaller, more urbanised economies such as Djibouti. The gap reflects differences in population size, economic structure, export composition and exchange rate regimes.

The Current Path forecast of US$5 675 per capita by 2043 implies continued progress in average living standards, but not at the pace envisioned in Ethiopia’s own development strategy. The TYDP frames the national ambition as becoming an “African Beacon of Prosperity” through sustained high growth, structural transformation, industrialisation, export expansion and rising productivity. Read against that ambition, the Current Path represents meaningful progress, but not a full breakthrough. Ethiopia would be substantially richer by 2043 than today, yet still below the level implied by the country’s most ambitious targets for rapid middle-income transition.

The shocks of the early 2020s help explain this more moderate baseline. Conflict, drought, the lingering effects of COVID-19, high inflation, foreign exchange shortages and debt stress all reduced the efficiency with which growth translated into household welfare. These constraints matter directly for PPP-based per capita income as well, even if less immediately than for MER measures, because inflation, weak productivity growth and supply disruptions erode real consumption possibilities. In practical terms, the Current Path assumes that Ethiopia regains macroeconomic stability and continues to grow, but that it does not fully overcome the structural and political constraints that have slowed the pace of transformation.

This is where the reform agenda becomes decisive. The HGER agenda, together with broader macroeconomic adjustment and financial-sector reforms, is designed to stabilise inflation, improve the foreign exchange regime, strengthen domestic revenue mobilisation and create a more enabling environment for private investment. If sustained, these reforms should support stronger growth in GDP per capita by improving both productivity and the efficiency of resource allocation. But reform alone is not enough. Per capita gains will also depend on whether Ethiopia can expand labour-intensive manufacturing, modern services, agro-processing and export-oriented sectors quickly enough to absorb its growing workforce.

Demography is therefore critical to the outlook. Ethiopia’s falling dependency ratio and expanding working-age population create the conditions for faster growth in income per person. But, as noted in an earlier narrative around Chart 2, this dividend is not automatic. If labour markets fail to create productive jobs at scale, much of the working-age population will remain trapped in low-productivity agriculture or informal urban employment, slowing the rise in per capita income. If, however, the economy can generate productive jobs and raise labour productivity, demographic change could become a major force pushing income per person upward more rapidly than in the past.

The policy lesson from Chart 7 is that Ethiopia’s GDP per capita at PPP (constant 2021 International$) has improved markedly since the early 1990s and is forecasted to continue rising through 2043, but the baseline remains one of gradual catch-up rather than rapid convergence. To move beyond this path, Ethiopia will need not just continued growth, but deeper structural transformation, macroeconomic stability, stronger export performance, faster productivity gains and much more effective labour absorption. Without those shifts, the country may continue to grow impressively in aggregate terms while still advancing too slowly in per capita welfare relative to its own stated ambitions.

Chart 8 presents the poverty rate and the number of extremely poor people in the Current Path from 2022 to 2043.

In June 2025, the World Bank updated its international poverty lines to 2021 PPP terms, setting the extreme poverty line at International $3.00 per person per day, alongside higher poverty lines of International $4.20 for lower-middle-income economies and International $8.30 for upper-middle-income economies. Ethiopia remains classified as a low-income economy under the World Bank’s latest income classification and, therefore, the International $3.00-a-day threshold is the most relevant international benchmark for assessing extreme poverty.

Ethiopia’s Current Path suggests a large reduction in extreme poverty over the next two decades. At the $3.00-a-day poverty line (2021 PPP), the poverty rate will fall from 29.3% in 2025 to about 6% by 2043.  In absolute terms, the number of people living below this threshold will decline from approximately 39.6 million to 11.8 million. This implies that roughly 27.8 million people would move above the extreme-poverty threshold over the forecast period.

In monetary terms, the Current Path depicts a great improvement and would place Ethiopia on a significantly better trajectory than much of sub-Saharan Africa, where extreme poverty remains both deeper and more persistent. The World Bank’s comparable estimate for sub-Saharan Africa at the same$3.00 poverty line was 45.2% in 2025, far above Ethiopia’s 29.3% in the same period, underlining the scale of the improvement implied by the Current Path.

However, monetary poverty alone does not fully capture deprivation in Ethiopia, where poverty is also expressed through deficits in education, health, nutrition, housing quality, sanitation, electricity and access to basic services. This is why Ethiopia’s monetary poverty trend must be read alongside multidimensional poverty.

The multidimensional lens is particularly important in Ethiopia because a household can rise above an income poverty threshold while remaining deprived in schooling, child nutrition, cooking fuel, drinking water, housing materials or asset ownership. The global Multidimensional Poverty Index (MPI), produced by UNDP and the Oxford Poverty and Human Development Initiative, consistently shows that a large share of Ethiopians experience overlapping deprivations rather than income shortfalls alone. According to the report, “Ethiopia’s population that is multidimensionally poor increased from 68% in 2019 to 72% in 2024, with an additional 18% susceptible to multidimensional poverty”. The country’s multidimensional poverty is especially concentrated in rural areas, among households dependent on low-productivity agriculture, and in regions with weaker service delivery and higher climate exposure. This means that even if the share of people living below $3.00 declines sharply, the pace of reduction in broader deprivation may be slower unless improvements in social services and living standards keep pace with income gains.

The policy importance of this distinction is profound. Monetary poverty tends to respond most directly to economic growth, inflation and labour income. Multidimensional poverty responds more slowly and depends heavily on public policy, especially in education, health, water, sanitation, electricity, housing and social protection. Ethiopia’s poverty trajectory since the 2000s reflects this duality. Strong economic growth helped reduce income poverty, but multidimensional deprivation remained widespread because progress in human development and infrastructure access was uneven across regions and between rural and urban areas. As a result, the Current Path should not be interpreted as meaning that poverty will simply disappear as GDP expands. Rather, it suggests that Ethiopia could make major gains in monetary poverty while still facing a more stubborn challenge in reducing overlapping non-income deprivation.

Rural poverty remains central to the outlook. Most of Ethiopia’s poor still live in rural areas, where livelihoods are highly exposed to rainfall variability, land fragmentation, low agricultural productivity and weak market integration. The World Bank’s CCDR makes clear that drought, land degradation and food price shocks remain major poverty drivers. From a multidimensional perspective, rural poverty is also associated with weak access to quality education, healthcare, safe water, improved sanitation and modern energy. This is why poverty reduction in Ethiopia cannot be achieved by income growth alone. It also requires steady improvements in service delivery, rural infrastructure and resilience to climate shocks.

Urbanisation adds a second layer of complexity. Ethiopia’s urban population is growing rapidly, and while cities offer more opportunities for wage employment and service access, they also produce new forms of multidimensional deprivation through informal housing, insecure tenure, unemployment, poor drainage, overcrowding and weak access to sanitation. The World Bank’s CCDR notes that urban land informality and flood exposure are increasing, which means some households may move out of rural income poverty only to enter urban vulnerability. This is particularly important for young migrants, displaced households and informal workers, whose welfare may improve in some dimensions but deteriorate in others.

Conflict and displacement further complicate both monetary and multidimensional poverty reduction. Internal displacement disrupts livelihoods, education, healthcare access and housing security all at once. A displaced household may lose income, but also school continuity, nutrition, shelter quality and access to water and sanitation. This is one reason why multidimensional poverty is often more sensitive than monetary poverty to conflict conditions. Ethiopia’s Current Path implicitly assumes a gradual easing of these pressures. If displacement remains widespread, both income poverty and multidimensional poverty would likely fall more slowly than projected.

Social protection remains one of the strongest bridges between the two poverty concepts. Ethiopia’s Productive Safety Net Programme (PSNP) has helped reduce income insecurity, protect assets and cushion climate shocks, especially in rural areas. But its broader value lies in the fact that it also helps prevent households from falling into multidimensional deprivation by stabilising food access, protecting children’s welfare and reducing distress coping strategies. To align monetary poverty reduction with multidimensional poverty reduction, Ethiopia will need to strengthen and modernise this system further, including better targeting, more shock responsiveness and stronger integration with nutrition, education, health and livelihoods support.

This is also where Ethiopia’s national development ambitions become relevant. The TYDP does not frame poverty reduction narrowly as an income issue; it links prosperity to structural transformation, human capital, productivity and improved access to services. That broader framing is much closer to multidimensional poverty thinking than to a purely monetary poverty line. Likewise, SDG 1 calls not only for ending extreme poverty, but also for reducing poverty “in all its forms,” while Agenda 2063 emphasises inclusive growth, improved living standards and human well-being. In other words, Ethiopia’s own planning architecture already recognises that poverty reduction must be multidimensional, even when headline monitoring often focuses on monetary measures.

The main policy conclusion is therefore that Ethiopia’s forecasted fall in extreme poverty is credible only if it is accompanied by an equally serious reduction in multidimensional deprivation. A decline from 29.3% in 2025 to 6% by 2043 at the $3.00 line would be a major achievement, but it will not by itself mean that deprivation has been overcome. To make poverty reduction durable and inclusive, Ethiopia must combine macroeconomic stability and job-rich growth with targeted improvements in education, health, nutrition, water, sanitation, housing, electricity and social protection. Without that broader transformation, monetary poverty may fall faster than multidimensional poverty, leaving large numbers of Ethiopians above the income threshold but still deprived of the capabilities and services that define human well-being.

Chart 9 depicts the National Development Plan (NDP).

Ethiopia’s Ten-Year Development Plan (TYDP) 2021–2030 represents a strategic shift from the Growth and Transformation Plans (GTP I and GTP II) model toward a more market-oriented, productivity-driven and structurally transformative development framework. It is both a continuation of Ethiopia’s state-led developmental tradition and a deliberate recalibration toward private-sector leadership, macroeconomic stabilisation and export competitiveness. The Plan is reinforced by the Homegrown Economic Reform (HGER) agenda and subsequent macroeconomic reform measures supported by international financial institutions. Together, these instruments define Ethiopia’s development trajectory through 2030 and shape its positioning toward Agenda 2063’s 2043 milestone.

At its core, the TYDP is built on four interlinked pillars: (1) sustaining rapid, inclusive and resilient growth; (2) ensuring macroeconomic stability and structural transformation; (3) expanding social and human capital development; and (4) strengthening institutions and governance. Unlike the GTP I and II that relied heavily on public investment and state-owned enterprises, the TYDP explicitly recognises the limits of debt-financed, import-intensive growth and calls for a transition to private-sector-led development, export diversification and productivity enhancement. The Plan targets average real GDP growth of around 10% annually over the decade, accompanied by a structural shift in GDP composition, reducing the dominance of low-productivity agriculture and expanding manufacturing, industry and modern services.

The macroeconomic framework of the TYDP is closely linked to the HGER launched in 2019. The HGER addresses foreign exchange shortages, financial repression, fiscal imbalances, debt sustainability, state-owned enterprise reform and market distortions. It aims to correct macroeconomic vulnerabilities while laying the foundation for competitive industrialisation. Key instruments include exchange-rate reforms, financial sector liberalisation, tax policy and administration reform, improved public financial management, and the gradual opening of strategic sectors, for example, telecommunications and logistics, to private and foreign investment. In effect, the TYDP provides the long-term structural vision, while the HGER provides the macro-stabilisation and institutional adjustment mechanism required to achieve it.

Structurally, the Plan prioritises industrialisation, agro-processing, manufacturing expansion, digital transformation, and climate-resilient development. Manufacturing is expected to grow rapidly, supported by industrial parks, logistics corridors, improved power generation and export promotion. Agriculture remains central but is repositioned toward productivity, irrigation expansion, agro-industrial integration and value-chain development. The Plan also integrates Ethiopia’s Climate-Resilient Green Economy (CRGE) strategy, aligning growth with environmental sustainability and low-carbon development. This dual focus on industrial expansion and climate resilience reflects recognition that Ethiopia’s growth model must balance competitiveness with vulnerability to climate shocks.

Institutionally, the TYDP strengthens monitoring and evaluation systems through alignment with national statistical frameworks and results-based performance management. Implementation is decentralised through Ethiopia’s federal system, meaning regional governments play a critical role in delivering outcomes. Fiscal decentralisation and intergovernmental transfers, therefore, become implementation instruments in their own right. Public investment planning, state-owned enterprise reform, digital governance expansion, and enhanced data systems form part of the operational backbone of the Plan.

In continental terms, the TYDP is explicitly aligned with Agenda 2063, particularly its First and Second Ten-Year Implementation Plans (FTYIP and STYIP). Agenda 2063 envisions structural transformation, industrialisation, regional integration, peace and prosperity across Africa. Ethiopia’s emphasis on industrialisation, infrastructure corridors, manufacturing competitiveness, export expansion and human capital development directly supports Agenda 2063’s Aspiration 1 (A prosperous Africa based on inclusive growth and sustainable development). The CRGE strategy aligns with Aspiration 7 (environmentally sustainable and climate-resilient economies). The TYDP’s governance and institutional reform components correspond to Aspiration 3 (good governance, democracy and rule of law). In this sense, Ethiopia’s national plan can be seen as a domesticated implementation instrument for Agenda 2063.

The Plan also aligns with the African Continental Free Trade Area (AfCFTA). Ethiopia ratified the AfCFTA Agreement in 2019, and the TYDP emphasises export diversification, logistics reform, trade facilitation and competitiveness enhancement, preconditions for benefiting from continental market integration. AfCFTA offers Ethiopia access to a market of over 1.5 billion people, but real gains depend on industrial competitiveness, customs efficiency, standards harmonisation and trade finance. The TYDP’s industrial park strategy, logistics reform and financial-sector restructuring are therefore indirectly AfCFTA-enabling instruments. However, Ethiopia’s ability to fully leverage AfCFTA will depend on resolving foreign exchange constraints, strengthening domestic production capacity and integrating regional value chains.

Regionally, Ethiopia’s strategy is closely tied to Intergovernmental Authority on Development (IGAD) frameworks and Horn of Africa integration initiatives. Ethiopia’s development is geographically interdependent with Djibouti (port access), Kenya (LAPSSET corridor linkages), Sudan and South Sudan (trade and energy interconnection), and Somalia (security and economic stabilisation). Infrastructure corridors, cross-border electricity exports (notably through the GERD), and trade integration are central to regional development strategies. The TYDP’s focus on logistics efficiency and corridor diversification, therefore, aligns with IGAD’s regional infrastructure and resilience priorities.

At the global level, the Plan is aligned with the Sustainable Development Goals (SDGs). It directly addresses SDG 1 (No Poverty), SDG 8 (Decent Work and Economic Growth), SDG 9 (Industry, Innovation and Infrastructure), SDG 13 (Climate Action), and SDG 16 (Institutions). Ethiopia’s Voluntary National Reviews (VNR) emphasise that the TYDP serves as the primary vehicle for SDG implementation. The Plan’s results framework is broadly harmonised with SDG indicators, reinforcing coherence between national and global commitments.

Financing remains a critical challenge. The TYDP assumes a combination of domestic resource mobilisation, foreign direct investment (FDI), concessional borrowing, remittances and public-private partnerships. Strengthening tax revenue mobilisation, improving state-owned enterprise efficiency and stabilising debt dynamics are essential to sustaining implementation. Ethiopia’s recent debt restructuring efforts and IMF-supported programmes are therefore part of the enabling macro-financial environment for the Plan.

The key strategic risk lies in implementation capacity and political stability. Ethiopia’s federal structure requires strong coordination between federal and regional governments. Conflict and displacement have previously disrupted investment and service delivery. Without sustained peace, macroeconomic stability and institutional coherence, the Plan’s ambitious growth and transformation targets may remain partially realised.

Overall, Ethiopia’s TYDP represents a structurally ambitious and continentally aligned framework. It integrates macroeconomic reform with industrial strategy, climate resilience, social development and governance reform. It operationalises Agenda 2063 at the national level, positions Ethiopia to benefit from AfCFTA and supports IGAD regional integration objectives. However, its success will ultimately depend on macroeconomic stabilisation, political stability, effective institutional coordination and the pace at which Ethiopia can transition from a state-driven growth model to a competitive, export-oriented and productivity-led economy.

Chart 29 presents GDP per capita in purchasing power parity (PPP) in the Current Path and each of the eight sectoral scenarios. The data is from 2022 with a forecast to 2043.

As shown earlier in Chart 7, Ethiopia’s GDP per capita at PPP will increase from US$2 896 in 2025 to about US$5 675 by 2043 under the Current Path. This represents substantial improvement in average income, but it still leaves Ethiopia below the income levels needed to achieve broad-based prosperity. The scenario comparison, therefore, helps identify which policy areas have the greatest potential to accelerate improvements in living standards.

The Governance scenario will produce the largest gain, raising GDP per capita by about US$456 above the Current Path forecast by 2043. This is an important result because governance is a cross-cutting enabler. Better governance improves the effectiveness of public investment, strengthens service delivery, reduces policy uncertainty, supports private-sector confidence, improves security and enhances coordination across institutions. In Ethiopia’s case, stronger governance would also help address several constraints that cut across the economy: conflict risk, weak implementation capacity, public financial management gaps, regulatory uncertainty and uneven subnational delivery. The result suggests that improving institutions is not a ‘soft’ reform area; it is one of the strongest levers for raising long-term income.

The Education scenario will produce the second-largest gain, at about US$323 above the Current Path by 2043. This underscores the importance of human capital in converting Ethiopia’s demographic potential into productivity growth. Higher mean years of education, better progression through the education funnel and stronger skills formation improve labour productivity, employability and the capacity of workers to move into manufacturing, services, ICT and higher-value agriculture. The result also reinforces the earlier findings (Charts 16-17) that Ethiopia’s education challenge is no longer only about enrolment, but about survival, completion, learning quality and labour-market relevance. Education gains take time to materialise, but by 2043, they will become a major driver of higher income.

The third-largest gain will come from the Agriculture scenario, which will add about US$287 above the Current Path forecast by 2043. This reflects agriculture’s central role in Ethiopia’s economy, employment structure, food security and rural livelihoods. Even as agriculture’s share of GDP declines over time, productivity improvements in the sector still have large economy-wide effects because many Ethiopians depend directly or indirectly on farming. Higher agricultural productivity can reduce food imports, improve rural incomes, lower poverty, ease food inflation, expand agro-processing and strengthen domestic demand. The strong GDP per capita gain from the Agriculture scenario confirms that Ethiopia’s transformation cannot bypass agriculture; it must begin with a more productive, climate-resilient and commercially connected rural economy.

The next group of scenarios will produce moderate but still meaningful gains. The AfCFTA scenario will add about US$243 above the Current Path by 2043, reflecting the benefits of deeper trade integration, stronger exports and improved regional market access. The Manufacturing scenario will add about US$221, showing that industrial upgrading can raise income, but that its impact depends on whether manufacturing expansion is large enough, export-oriented enough and linked to domestic suppliers. The Demographics and Health scenario will add about US$202, reflecting gains from lower mortality, better health outcomes and a more favourable age structure. These scenarios are complementary: better trade opportunities and stronger manufacturing will deliver larger income gains if Ethiopia also has healthier, better-educated workers and stronger institutions.

The Financial Flows scenario will add about US$106, while the Large Infrastructure and Leapfrogging scenario will add about US$92, the smallest gain among the scenarios. This does not mean that finance or infrastructure are unimportant. Rather, it suggests that their direct impact on GDP per capita is more limited unless they translate into productivity, jobs, investment, exports and service delivery. For example, higher FDI raises income more strongly when the investment is export-oriented and linked to domestic firms. Similarly, broadband, electricity and clean cooking have wide social and productivity benefits, but their growth impact depends on complementary reforms in skills, enterprise development, governance and market access.

The ranking in Chart 29 indicates that Ethiopia’s largest income gains come from reforms that improve the foundations of productivity: governance, agriculture and education. These are not isolated sectors; they reinforce each other. Better governance improves agricultural policy delivery and education-system performance. A more productive agricultural sector raises rural incomes and food security, supporting human capital formation. A better-educated workforce enables manufacturing, services, ICT and trade to expand more productively. The strongest development strategy is therefore not to choose one scenario, but to sequence and combine reforms in ways that create cumulative gains.

Chart 30 presents poverty in the Current Path and for each scenario, from 2022 to 2043. The user can select the number of extremely poor people or the percentage of the population.

Under the Current Path, poverty (at $3.00 poverty line for low-income countries) in Ethiopia will decline substantially from 29.3% in 2025, equivalent to about 39.6 million people, to 6% by 2043, or roughly 11.8 million people. This is a major reduction and reflects the expected effects of continued economic growth, rising GDP per capita, demographic transition, urbanisation, improvements in education and gradual structural change. However, the fact that more than 11 million people will remain in extreme poverty by 2043 under the Current Path shows that growth alone is not sufficient to eliminate poverty.

The Education scenario will deliver the largest poverty reduction, lowering poverty to 3.9% by 2043, equivalent to about 7.63 million people. This is the strongest result because education directly improves human capital, employability, productivity and lifetime earnings. It also has strong intergenerational effects: better-educated parents are more likely to invest in children’s health and schooling, delay early marriage, adopt improved technologies, and participate in more productive labour markets. In Ethiopia’s case, where many young people still exit the education system before completing secondary school, improvements in learning, retention, completion and skills formation can have large poverty-reducing effects over time.

The Governance scenario will produce the second-largest reduction, reducing poverty to 4.64%, or about 9.1 million people, by 2043. Governance reduces poverty through several channels. Better institutions improve the delivery of education, health, water, infrastructure and social protection. Stronger security and rule of law reduce displacement and protect livelihoods. Better public financial management improves the effectiveness of public spending, while regulatory predictability supports private investment and job creation. In this regard, governance is not only an institutional outcome; it is a poverty-reduction tool because it determines whether policies reach people effectively.

The Agriculture scenario will follow closely, lowering poverty to 4.68%, or about 9.2 million people, by 2043. This reflects agriculture’s central role in Ethiopia’s poverty profile. Most poor households will remain linked to rural livelihoods, either directly through farming or indirectly through food prices and rural labour markets. Higher agricultural productivity can raise farm incomes, reduce food insecurity, lower food inflation, expand agro-processing and stimulate rural non-farm employment. The strong poverty effect of the Agriculture scenario confirms that Ethiopia’s poverty reduction strategy cannot rely only on urban industrialisation; it must also raise productivity and resilience in the rural economy.

The remaining scenarios will also reduce poverty below the Current Path, but by smaller margins. The Manufacturing scenario will lower poverty to 5.46%, or about 10.7 million people, by 2043, mainly through job creation, productivity gains and stronger linkages with services and suppliers. The Financial Flows scenario will reduce poverty to 5.53%, or about 10.9 million people, reflecting the benefits of higher aid, remittances and FDI, although the poverty effect depends on whether these flows reach households and support productive sectors. The Health and Demographics scenario will lower poverty to 5.62%, or about 10.7 million people, through better health, lower dependency burdens and improved labour-force participation. The Large Infrastructure and Leapfrogging scenario will reduce poverty to 5.68%, or about 11.1 million people, through gains in electricity access, clean cooking, broadband and infrastructure-enabled productivity. The AfCFTA scenario has the smallest poverty effect, reducing poverty to 5.81%, or about 11.4 million people, because trade gains take time to reach poor households unless they are linked to labour-intensive exports, rural producers, small firms and employment creation.

The scenarios that most directly affect people’s productive capacity and livelihoods, education, agriculture and governance, have the largest poverty-reduction effects. Scenarios that operate more indirectly through trade, finance, infrastructure or industrial expansion still matter, but their poverty impact depends on transmission mechanisms. For example, AfCFTA can reduce poverty more strongly if small farmers, agro-processors and labour-intensive manufacturers are integrated into regional value chains. Infrastructure can reduce poverty more strongly if electricity, broadband and roads support rural enterprises, schools, clinics and local markets. Financial flows can have larger poverty effects if aid is targeted to health and rural livelihoods, remittances move through formal productive channels, and FDI creates decent jobs.

Chart 31 presents GDP in the Current Path and in the Combined scenario from 2022 to 2043. The data is in US$ 2021 and at market exchange rates (MER).

The Combined scenario combines all eight sectoral scenarios: Governance, Demographics and Health, Education, Large Infrastructure and Leapfrogging, Agriculture, Manufacturing, AfCFTA and Financial Flows. The Combined scenario effectively represents a coordinated reform pathway rather than a simple aggregation of interventions.

As shown earlier in Chart 5, Ethiopia’s GDP at MER is forecasted to reach about US$553.3 billion by 2043 under the Current Path. This implies an average annual growth rate of about 7.8% between 2025 and 2043, which is strong by regional and global standards. However, it remains below Ethiopia’s more ambitious national transformation objectives, particularly the TYDP, which targets an average annual growth rate of around 10% between 2021 and 2030.

Under the Combined scenario, GDP will rise much faster, reaching US$854.3 billion by 2043. This is approximately US$301 billion above the Current Path forecast, representing a substantially larger and more diversified economy. The Combined scenario implies an average annual growth rate of about 10.3% over 2025–2043, which slightly exceeds the TYDP’s 10% target. This is important because it suggests that Ethiopia’s national growth ambition is not entirely out of reach, but it requires simultaneous progress across multiple policy fronts rather than isolated sectoral reforms.

The strength of the Combined scenario comes from cumulative and reinforcing effects. Governance improvements raise implementation capacity, reduce uncertainty and strengthen investor confidence. Agricultural productivity improves food security, rural incomes and agro-processing potential. Education and health gains raise labour productivity and support the demographic dividend. Manufacturing and AfCFTA deepen structural transformation, exports and regional market integration. Financial flows increase access to foreign exchange, investment and development finance, while infrastructure and leapfrogging improve electricity access, digital connectivity and clean energy adoption. Taken together, these reforms create a stronger growth platform than any individual scenario can deliver alone.

The gain of US$301 billion by 2043 represents the economic value of coordination. Ethiopia’s development constraints are interdependent. Manufacturing cannot expand without reliable power, foreign exchange, skills, logistics and governance. Agricultural transformation depends on infrastructure, finance, climate resilience and market access. AfCFTA gains require productive capacity and trade facilitation. Education and health gains matter most when the economy can absorb young people into productive employment. The Combined scenario captures this interaction by showing that reforms generate larger gains when implemented as a package.

The 10.3% growth trajectory is ambitious but also demanding. Ethiopia has previously recorded periods of rapid growth, especially during the public-investment-led expansion of the 2000s and 2010s. However, sustaining growth close to 10% over nearly two decades would require a more resilient and private-sector-led model than in the past. The earlier growth model delivered major infrastructure and social gains, but it also generated foreign exchange shortages, debt pressures, limited export diversification and insufficient private-sector dynamism. The Combined scenario, therefore, implies not just faster growth, but better-quality growth: more export-oriented, more productive, more inclusive and less vulnerable to macroeconomic stress.

The policy conditions behind this outcome are substantially challenging. Ethiopia would need to maintain macroeconomic stability, resolve debt pressures, improve security, deepen financial-sector reform, attract quality FDI, expand exports, improve public-sector effectiveness and strengthen domestic revenue mobilisation. It would also need to ensure that growth is not concentrated only in Addis Ababa or a few urban corridors, but spreads through rural productivity, secondary cities, industrial parks, logistics networks and regional trade links. Without this spatial and sectoral inclusiveness, high GDP growth may not translate fully into poverty reduction, jobs and improved living standards.

Chart 32 presents GDP per capita in purchasing power parity (PPP) in the Current Path and the Combined scenario. The data is from 2022 with a forecast to 2043.

Under the Combined scenario, Ethiopia’s GDP per capita at PPP will rise to approximately US$8 149 by 2043, compared with about US$5 675 under the Current Path. This represents an additional US$2 474 per person by 2043 and implies that average income would be almost three times its 2025 level. The size of this gain is significant because it shows how much Ethiopia could improve household welfare if reforms across key sectors are implemented together.

The importance of the Combined scenario is that it raises income through several channels at once. Higher agricultural productivity supports rural incomes and food security. Better education and health improve labour productivity. Stronger governance increases implementation capacity and investor confidence. Manufacturing and AfCFTA expand production and market access. Financial flows ease investment and foreign exchange constraints, while infrastructure and digital connectivity improve access to services and economic opportunities. The result is a broader and more durable increase in income than would be achieved through isolated reforms.

A GDP per capita level of US$8 149 by 2043 would not mean that Ethiopia has eliminated poverty or inequality, but it would represent a major shift in the country’s development position. Higher average income would expand household purchasing power, increase demand for better housing, education, health, transport, energy and digital services, and create a larger domestic market for firms. It would also strengthen the fiscal base, allowing the government to mobilise more revenue for public investment and social services, provided that growth is accompanied by stronger tax administration and formalisation.

The difference between the Combined scenario and the Current Path also highlights the cost of partial reform. Under the Combined scenario, coordinated reforms will lift GDP per capita by more than 40% above the Current Path forecast by 2043. This suggests that Ethiopia’s long-term welfare gains depend not only on maintaining growth, but on changing the quality of growth: making it more productive, inclusive, export-oriented, and skills-based and institutionally supported.

However, the welfare impact of higher GDP per capita will depend on distribution. If growth is concentrated in a few urban centres or capital-intensive sectors, many households may see only limited gains. To translate the Combined scenario into broad-based improvements in living standards, Ethiopia would need to ensure that rural communities, women, young people, displaced populations and poorer regions are integrated into the growth process. This requires investment in rural productivity, secondary cities, labour-intensive manufacturing, social protection, education quality, health access and basic infrastructure.

Chart 33 presents the value added by sector in the Current Path and in the Combined scenario, from 2025 to 2043. The data is in US$ 2017 and as a percentage of GDP.

Our modelling provides forecasts in six economic sectors, namely agriculture, energy, materials (including mining), manufacturing, services and ICTech.

The Combined scenario will produce a much larger Ethiopian economy by 2043, but only a modest shift in sectoral composition relative to the Current Path. This is important because structural transformation is not only about whether all sectors grow, but whether the economy moves toward higher-productivity activities, stronger intersectoral linkages and more diversified sources of value added. Under the Combined scenario, all sectors will expand in absolute terms, but the overall structure will remain heavily anchored in services.

In share-of-GDP terms, agriculture will record the largest relative gain, increasing by 1.47 percentage points above the Current Path forecast for 2043. This suggests that the Combined scenario strengthens agriculture more than the baseline, likely through productivity gains, improved food-system performance, rural infrastructure, better market access and stronger agro-processing linkages. This is significant because agriculture remains central to employment, poverty reduction, food security and rural incomes, even as its long-term GDP share declines. A stronger agricultural sector in the Combined scenario, therefore, supports a more inclusive form of transformation, rather than one driven only by urban services.

ICT will record the second-largest gain, rising 0.56 percentage points above the Current Path. This is also important for structural transformation because ICT is an enabling sector. Its contribution goes beyond its direct share of GDP: digital infrastructure, mobile money, broadband, e-government, data systems and digital platforms can raise productivity across agriculture, manufacturing, trade, finance, logistics and public services. The ICT gain therefore points to the role of leapfrogging technologies in supporting a more modern and connected economy.

By contrast, several sectors will record lower shares of GDP than under the Current Path by 2043. Services will decline by 0.38 percentage points, materials by 0.36, energy by 0.48, and manufacturing by 0.82. These declines should not be misread as sectoral contraction. They reflect compositional effects in a much larger economy, where agriculture and ICT will grow slightly faster in relative terms.

The decline in manufacturing’s share is particularly important to interpret carefully. Manufacturing will still expand strongly in absolute value, but its share will be lower than in the Current Path by 2043 because other sectors and GDP will grow even faster under the Combined scenario. This suggests that Ethiopia’s transformation in the Combined scenario is broad-based rather than narrowly manufacturing-led.

The absolute changes confirm this. By 2043, the services sector will remain the largest and fastest-growing in terms of value added, with an increase of approximately US$187.5 billion compared to the Current Path. Agriculture is forecasted to grow by an additional US$41.7 billion, followed by ICT at US$27.6 billion, manufacturing at US$27.3 billion, materials at US$12.3 billion, and energy at US$4.6 billion. The significant growth in the services sector indicates that Ethiopia's future economy will predominantly be service-oriented. This aligns with global development trends; however, the quality of service growth will be crucial in determining whether this transformation is productive or merely absorptive.

The main policy issue concerns the nature of service expansion. If the growth of services is primarily driven by informal trade, low-productivity personal services, and public administration, its development impact will be limited. However, if it is fueled by logistics, finance, ICT-enabled services, education, health, tourism, professional services, and trade-related activities, it can become a powerful engine for productivity and job creation. In this respect, Ethiopia's structural transformation will rely not only on increasing manufacturing but also on upgrading the service economy and enhancing its connections with agriculture, industry, and trade.

The Combined scenario also shows why agriculture will remain a strategic sector. Although structural transformation usually involves a declining agricultural share over time, Ethiopia’s large rural population means that agricultural productivity gains will remain essential for poverty reduction and inclusive growth. The additional US$41.7 billion in agricultural value added indicates that a more productive rural economy can coexist with broader economic diversification. If linked to agro-processing, cold chains, logistics, exports and urban food markets, agriculture can support both rural incomes and industrial development.

Manufacturing’s absolute gain of US$27.3 billion will remain important, even though its GDP share will be lower than under the Current Path. This indicates that industrial expansion still contributes to the Combined scenario, but it does not dominate the structural shift. Ethiopia will therefore need to ensure that manufacturing growth is more export-oriented, labour-absorbing and connected to domestic suppliers. Without stronger industrial linkages, the economy risks becoming larger but still insufficiently diversified in terms of productive employment and exports.

Overall, Chart 33 suggests that the Combined scenario delivers strong economy-wide expansion and modest structural transformation. Services will remain the backbone of Ethiopia’s economy, agriculture and ICT will gain relative importance, and manufacturing will grow substantially in absolute terms despite a lower GDP share. The central policy message is that Ethiopia’s transformation by 2043 is likely to be broad-based rather than sectorally concentrated. To make it developmentally meaningful, Ethiopia must raise productivity within sectors and deepen linkages between them: agriculture with agro-processing, manufacturing with domestic suppliers, ICT with firms and public services, and services with trade, logistics and finance.

Chart 34 presents the size of the informal sector in the Current Path and the Combined scenario, from 2022 to 2043.

The informal sector’s contribution to GDP will fall to 20.8% by 2043, which is about 4.3 percentage points lower than the Current Path forecast. At the same time, informal employment in the non-agricultural labour force will decline to 33%, approximately 13.7 percentage points below the Current Path. This indicates that the Combined scenario does more than raise economic output; it also changes the structure and quality of employment.

The decline in informal GDP suggests that a larger share of Ethiopia’s economic activity would shift into more formal, regulated and taxable sectors. This is important because high informality limits productivity, weakens labour protection, reduces tax revenue, constrains access to finance and makes it harder for firms to grow. Informal firms often operate at a small scale, use limited technology, have weak links to formal value chains and face barriers to credit, training and markets. A reduction to 20.8% of GDP, therefore, implies a more organised and productive economy, with stronger potential for domestic revenue mobilisation and private-sector development.

The larger improvement will be seen in employment. Reducing informal non-agricultural employment to 33% by 2043 would represent a major shift in the labour market. This matters because Ethiopia’s structural transformation challenge is not only to move workers out of agriculture, but to ensure that they enter more productive and better-protected forms of work. Without formal job creation, urbanisation and sectoral change can simply move people from rural underemployment into urban informality. The Combined scenario suggests a stronger outcome, where manufacturing, services, ICT, infrastructure, trade, financial flows and better governance jointly create more formal employment opportunities.

The result reflects the interaction of several reforms. Better education will improve workers’ skills and employability. Stronger governance will reduce regulatory uncertainty, improve business conditions and encourage firms to register and expand. Manufacturing and AfCFTA will create opportunities for formal wage employment and supplier development. Financial flows will improve access to investment, working capital and foreign exchange. Infrastructure and digital connectivity will reduce the cost of doing business, while agriculture-led growth will support rural incomes and agro-processing. Together, these reforms will make formalisation more attractive and feasible for both firms and workers.

However, the persistence of informality even under the Combined scenario shows that formalisation will remain a long-term challenge. A GDP share of 20.8% and non-agricultural informal employment of 33% are improvements, but they still point to a sizeable informal economy by 2043. This is likely to be concentrated among microenterprises, own-account workers, casual labourers, women, young people, migrants and workers in low-productivity urban services. Formalisation, therefore, cannot rely only on enforcement. It must also reduce the costs and risks of becoming formal.

The policy priority should be to make formality beneficial rather than punitive. Ethiopia can support this by simplifying business registration, reducing compliance costs for micro and small enterprises, expanding digital tax and licensing systems, improving access to finance, strengthening social protection for informal workers, and linking small firms to public procurement, industrial parks and larger value chains. Labour-market policies should also support apprenticeships, skills certification, job matching and entrepreneurship, especially for young people and women.

Chart 35 presents poverty in the Current Path and the Combined scenario, 2025 to 2043.

At the $3.00 poverty line for low-income countries, the poverty rate will fall to approximately 1.2%, equivalent to about 2.2 million people. This is 4.8 percentage points lower than the Current Path forecast and means that an additional 9.6 million people would be lifted out of poverty by 2043. The result is significant because it suggests that extreme poverty could become a relatively residual condition if Ethiopia implements a coordinated package of reforms across governance, agriculture, education, health, trade, manufacturing, infrastructure and financial flows.

The strength of the Combined scenario comes from the fact that poverty is reduced through several channels at once. Higher agricultural productivity raises rural incomes and improves food security. Better education and health increase employability and labour productivity. Stronger governance improves service delivery, security and implementation capacity. Manufacturing, AfCFTA and financial flows support investment, exports and job creation, while infrastructure and digital connectivity improve access to services and economic opportunities. This combination matters because poverty in Ethiopia is multidimensional; it is linked not only to low income, but also to weak access to education, health, land productivity, markets, electricity, clean cooking, finance and secure livelihoods.

The scenario will also improve inequality outcomes. The Gini coefficient will decline to 0.3 by 2043 under the Combined scenario, compared with an increase to 0.32 under the Current Path. Although the change appears small, it is important because rapid growth can sometimes widen inequality if gains are concentrated in urban areas, capital-intensive sectors or better-connected regions. The Combined scenario instead suggests a more inclusive growth pattern, where rural productivity, human capital, infrastructure access and better governance help spread the benefits of growth more widely.

This inclusive effect is crucial for Ethiopia. A larger economy does not automatically reduce poverty unless poor households are connected to the sources of growth. The Combined scenario performs strongly because it includes reforms that directly affect poor and vulnerable groups: rural households benefit from agricultural transformation; young people benefit from better education and skills; informal workers benefit from formalisation and job creation; and remote communities benefit from infrastructure and service expansion. In this sense, the poverty impact is not simply the result of faster GDP growth, but of broader participation in that growth.

However, reducing extreme poverty to 1.2% by 2043 would still require deliberate policy effort. The remaining 3.05 million people are likely to be among the hardest to reach: households in conflict-affected areas, displaced populations, pastoralist communities, people with disabilities, remote rural households, female-headed households and those facing overlapping deprivations. Reaching them will require targeted social protection, rural livelihoods programmes, health and nutrition interventions, education support, climate adaptation and conflict-sensitive service delivery.

Chart 36 compares life expectancy in the Current Path with the Combined scenario from 2022 to 2043.

Under the Current Path, life expectancy will rise from 65.9 years in 2025 to 72 years by 2043. Under the Combined scenario, it will increase further to 75.1 years, adding 3.1 years above the Current Path. This is a major gain because life expectancy summarises the combined effects of health services, nutrition, income, education, sanitation, security, maternal and child health, disease prevention and broader living conditions.

The improvement under the Combined scenario reflects the cumulative effect of reforms across sectors. Better health services reduce preventable deaths, especially among infants, children and mothers. Improved education supports healthier behaviour, later fertility, better nutrition and stronger use of health services. Higher household incomes reduce vulnerability to food insecurity and improve access to care. Expanded electricity, clean cooking, water and sanitation reduce exposure to respiratory and communicable diseases. Stronger governance improves service delivery, security and public-health coordination, while agricultural gains support nutrition and rural livelihoods. Life expectancy, therefore, rises not because of health-sector interventions alone, but because the broader determinants of health improve together.

The forecasted outcome is strong in comparative terms. World Bank estimates put global life expectancy at about 73 years in 2024, compared with 63 years for Sub-Saharan Africa and around 65 years for Eastern and Southern Africa. Ethiopia’s 75.1 years by 2043 under the Combined scenario would therefore place the country well above today’s African peer-group averages and above the current global average. This would represent a significant shift in Ethiopia’s human development profile.

However, the gain should not be interpreted as automatic. Ethiopia still faces a double burden of disease: communicable diseases, respiratory infections, maternal and child health risks, undernutrition and WaSH-related illnesses remain important, while non-communicable diseases such as cardiovascular disease, cancers and diabetes are rising as the population ages and urbanises. Sustaining life expectancy gains will therefore require a health system that can both finish the unfinished agenda of infectious disease and child survival, while also preparing for chronic disease prevention, screening, treatment and long-term care.

The policy implication is that Ethiopia must continue strengthening primary healthcare while investing in the broader social determinants of health. This includes maternal and newborn care, immunisation, nutrition, WaSH, clean cooking, rural health extension, affordable essential medicines, NCD screening, emergency care and health financing. It also requires conflict-sensitive service delivery so that displaced and insecure communities are not left behind. Without inclusive access, national life expectancy gains could mask large regional, rural–urban and income-based inequalities.

Chart 37 compares carbon dioxide (CO2) emissions from fossil fuels (billion tons of carbon) in the Current Path with the Combined scenario from 2022 to 2043.

Ethiopia’s emissions will rise under the Combined scenario, but from a very low base. In 2025, fossil-fuel CO₂ emissions stood at about 25.5 million tons of carbon, equivalent to roughly 0.2 tons per person. This is far below the global average of about 5 tons per person and also below the African average of around 0.99 tons per person. Ethiopia’s direct contribution to global fossil-fuel emissions is therefore negligible, despite its large population.

Under the Combined scenario, fossil-fuel CO₂ emissions will rise to about 180.9 million tons by 2043, roughly 44.6 million tons higher than the Current Path forecast. This increase mainly reflects the scale of economic expansion in the Combined scenario. Faster GDP growth, industrialisation, urbanisation, transport demand, construction, manufacturing activity and higher household energy use all raise demand for fossil-fuel-based energy and transport services. The rise in emissions should therefore be interpreted as a by-product of accelerated development rather than evidence that Ethiopia is shifting toward a highly carbon-intensive growth model.

Even so, the increase matters. Ethiopia’s development strategy is strongly linked to low-carbon ambitions through the Climate-Resilient Green Economy (CRGE) strategy, renewable electricity generation, hydropower expansion, clean cooking, reforestation and climate adaptation. The Combined scenario suggests that rapid transformation can improve incomes, reduce poverty and raise life expectancy, but it can also increase emissions if energy, transport, industry and urban systems are not managed carefully. The challenge is therefore to sustain growth while reducing the carbon intensity of that growth.

The key policy issue is not whether Ethiopia should grow more slowly to limit emissions. Ethiopia has very low historical per capita emissions, major development needs and a strong equity claim to expand energy access, infrastructure and industry. The priority is instead to ensure that new growth is as clean and efficient as possible. This means expanding renewable electricity, improving grid reliability, electrifying transport where feasible, promoting energy efficiency in industry, supporting clean cooking, improving public transport, and encouraging climate-smart urban planning.

The rise in emissions also reinforces the importance of productive energy use. If higher emissions are associated with manufacturing, agro-processing, logistics, electricity access and formal job creation, the development return is stronger. If emissions rise mainly through inefficient transport, diesel generation, poorly planned urban expansion and low-productivity fuel use, the outcome is less desirable. Ethiopia’s policy task is therefore to channel energy growth into productive sectors while avoiding avoidable fossil-fuel lock-in.

Chart 38 compares energy demand and production in the Current Path with the Combined scenario from 2022 to 2043. Production is done in nine types, namely oil, gas, coal, hydro, nuclear, solar, wind, geothermal and other renewables. The data is converted into billion barrels of oil equivalent (BBOE) to allow for comparisons. Note that energy production could be for domestic use or for export.

Total energy production is forecasted to rise from approximately 151 million barrels of oil equivalent (BOE) in 2025 to about 310 million BOE by 2043 under the Combined scenario. This represents an increase of roughly 68 million BOE compared to the Current Path forecast. The majority of this increase will come from renewable sources. Approximately 82% of the additional production, or 56 million BOE, will be generated from hydropower; around 8%, or 5 million BOE, will come from solar; and a 3%, or 2 million BOE, will be generated from wind.

This production profile is consistent with Ethiopia’s long-standing low-carbon energy strategy. The country has large hydropower potential, growing wind and solar opportunities, and a policy framework that emphasises renewable energy as a foundation for industrialisation, electrification and climate-resilient development. Under the Combined scenario, the renewable share of total energy production will increase from 34.5% in 2025 to 92.1% by 2043, slightly above the Current Path forecast of 91.5%. This indicates that Ethiopia’s accelerated growth can still be supported by a predominantly renewable production base, provided investment in generation, transmission and distribution keeps pace.

Hydropower remains the backbone of the energy expansion. This reflects Ethiopia’s comparative advantage in large-scale renewable electricity and the strategic role of projects such as the GERD and other hydropower developments. However, the increasing contribution of wind and solar is also important because it diversifies the renewable energy mix. A system that relies too heavily on hydropower can be vulnerable to drought, rainfall variability and climate shocks. Expanding wind and solar would therefore strengthen resilience, especially if paired with grid upgrades, storage, regional power trade and better demand management.

The main challenge is that demand will grow even faster than production. Under the Combined scenario, energy demand will rise from about 211 million BOE in 2025 to 862 million BOE by 2043, compared with 677 million BOE under the Current Path. This surge reflects faster economic growth, industrialisation, urbanisation, population expansion, electrification, digitalisation and higher household consumption. As Ethiopia becomes richer and more productive, energy use rises across factories, transport systems, households, farms, service industries, data infrastructure and public services.

Even though production increases strongly, the gap between demand and domestic production remains large. This implies that Ethiopia will need to manage the balance through a combination of domestic generation expansion, energy imports, efficiency improvements, fuel substitution and demand-side management. Without careful planning, rapid demand growth could increase import dependence, strain foreign exchange, raise energy costs and create bottlenecks for industry and households.

The policy priority is therefore not only to produce more energy, but to use energy more efficiently and productively. Industrial energy efficiency, efficient transport systems, electrified public transport, clean cooking, modern grid management, appliance standards and better urban planning can reduce unnecessary demand growth. At the same time, expanding electricity access must be linked to productive use in agriculture, manufacturing, services and digital sectors so that rising energy consumption translates into higher incomes and jobs.

The Combined scenario also has important climate implications. As shown in the emissions analysis, faster growth raises fossil-fuel CO₂ emissions, but Chart 38 suggests that Ethiopia can still anchor its energy transition in renewables. The challenge will be to prevent rising energy demand, especially from transport, construction and industry, from increasing reliance on imported petroleum and inefficient fossil-fuel use. This requires stronger investment in renewable power, grid reliability, regional power interconnections, electric mobility, clean cooking, and climate-resilient energy infrastructure.

Chart 39: Summarises the policy recommendations for Ethiopia

The analysis shows that Ethiopia’s long-term prospects will depend less on a single sectoral intervention than on coordinated reform across governance, agriculture, human capital, industrialisation, trade, financial flows and infrastructure. The Combined scenario demonstrates that this integrated approach could raise GDP to US$854.3 billion by 2043, lift GDP per capita to about US$8 149, reduce extreme poverty to 1.2%, reduce informal non-agricultural employment to 33%, and improve life expectancy to 75.1 years. Achieving these gains will require deliberate policy action, stronger implementation capacity and sustained political commitment.

Strengthening governance and state capacity is central to this agenda. Governance produces the largest gain in GDP per capita among the individual scenarios by 2043 and remains a key cross-cutting enabler of development. Ethiopia should improve public-sector performance, intergovernmental coordination, fiscal transparency, accountability, digital governance and conflict-sensitive service delivery, since progress in education, health, agriculture, infrastructure and investment depends on effective implementation across federal, regional and local institutions.

Agricultural transformation is equally important for food security, poverty reduction and rural livelihoods. Even as agriculture’s share of GDP declines over time, Ethiopia should raise yields, expand irrigation, improve seed and fertiliser systems, scale climate-smart agriculture, reduce post-harvest losses and strengthen agro-processing. The Agriculture scenario shows that Ethiopia can reverse its widening agricultural deficit and return to self-sufficiency levels last experienced around 1976, but this requires a shift from extensive production growth to productivity-led transformation.

Human capital development will determine whether Ethiopia’s demographic transition becomes a dividend. Young people need to be educated, skilled, healthy and productively employed. Education reforms should focus on retention, secondary completion, learning quality, TVET, science and engineering, and stronger links between skills and labour-market demand. Health policy should strengthen primary healthcare, maternal and child health, nutrition, reproductive health, clean water, sanitation and disease prevention, because these investments support welfare, productivity, poverty reduction and long-term growth.

Economic diversification should focus on raising productivity across manufacturing, ICT, agro-processing and tradable services. Ethiopia’s economy will remain services-led, but structural transformation requires stronger export-oriented manufacturing, better industrial park performance, domestic supplier development, logistics reform, access to finance, reliable energy and skills upgrading. ICT should be treated as an economy-wide productivity enabler through fixed broadband, digital public infrastructure, mobile money, e-government and affordable connectivity.

Regional integration should be translated into export growth. AfCFTA gives Ethiopia access to larger markets, but market access alone will not be sufficient. Ethiopia must improve standards, customs efficiency, trade finance, cold chains, transport corridors, logistics reliability and firm competitiveness. The most promising opportunities lie in agro-processing, textiles, leather, pharmaceuticals, electricity, light manufacturing and tradable services, making AfCFTA a platform for export diversification and regional value-chain development.

Financial flows should be mobilised in ways that support productivity and resilience. Aid should be targeted to sectors with high social returns, including health, food security, rural livelihoods, humanitarian response and climate resilience. Remittances should be channelled through formal systems, lower transfer costs, diaspora investment instruments and stronger macroeconomic credibility. FDI should support productivity, exports, technology transfer, domestic linkages and decent jobs. At the same time, Ethiopia should strengthen domestic revenue mobilisation by broadening the tax base, reducing informality, improving VAT and customs administration, and building a stronger fiscal contract.

Infrastructure expansion must be aligned with energy security and climate resilience. Ethiopia should accelerate rural electrification, clean cooking, fixed broadband, transport connectivity and renewable energy, while improving reliability, affordability and last-mile delivery. The Combined scenario shows that renewable energy will dominate production by 2043, but energy demand rises even faster, making grid investment, energy efficiency, diversified renewables, clean cooking, public transport and climate-smart urban planning essential.

Inclusive growth and formalisation are necessary to ensure that transformation reaches poor, rural, displaced and marginalised communities. Ethiopia should support MSME upgrading, simplify business registration, expand access to finance, connect small firms to value chains, strengthen women’s economic inclusion and extend social protection to informal workers. Reducing informality is central to productivity, tax mobilisation and job quality.

Overall, Ethiopia’s path to 2043 is not simply about faster GDP growth, but about coordinated, inclusive and productivity-enhancing transformation. The strongest gains will come when capable institutions, productive agriculture, skilled and healthy people, competitive firms, regional trade, reliable infrastructure and better financial systems reinforce one another. Ethiopia can move well beyond the Current Path, but only if reform implementation is integrated, sequenced and sustained.