Can Ethiopia’s economic liberalisation lead to a jobs boom?

Since coming to power in 2018, Ethiopia’s Prime Minister Abiy Ahmed has embarked on an programme of economic liberalisation in a bid to position the nation as one of Africa’s fastest-growing economies.

Pivoting from the state-led model which has dominated the Ethiopian economy for decades since the communist revolution of 1974, Abiy has opened strategic sectors such as banking and telecommunications to foreign competition for the first time.

The floating of the Ethiopian birr in July last year was a particularly painful experience: it immediately devalued by more than 30% against the dollar, prompting an increase in inflation to 17.5%. But these liberalising measures have allowed the Ethiopian government to access billions of dollars in funding from international partners to support macroeconomic stability and economic growth. Shortly after floating the birr, Ethiopia secured a $3.4bn financing deal from the International Monetary Fund (IMF) and a further $1.5bn from the World Bank.

These reforms have opened up opportunities for investors in Africa’s second most populous market after Nigeria, with a population of over 130m. The IMF predicts growth of 7.2% in 2025 after 8.1% last year, which would place Ethiopia among the fastest-growing economies in the region. Recent data from the Ethiopian Investment Commission (EIC) shows that foreign direct investment into the country rose by 5.6% in the 2024/25 fiscal year; the agency said that “this performance demonstrates investors’ confidence in the country’s ongoing macroeconomic reforms.”

“Through its efforts to streamline investment processes and improve service delivery, the EIC has increased investor confidence by 20%.” But one crucial area is lagging: job creation. Bernard Laurendeau, managing partner at consultancy firm Laurendeau & Associates, explains that the country’s huge young population and its imminent entry into the workforce means that millions of new jobs are required.

The unemployment rate in Ethiopia last year was approximately 3.4%, with youth unemployment slightly higher at 5.4%. But in a young country with a median age just under 20, more than 2m job seekers are entering the labour market every year. Particularly in Ethiopia’s urban areas – where the population is projected to nearly triple by 2034 – it is critical for the country to create a sufficient number of jobs to match the growth of the employment market.

Speaking to African Business in Addis Ababa, Laurendeau, who previously served as a senior advisor to Ethiopia’s Jobs Creation Commission, says that “Ethiopia has an urgent need to generate millions of jobs annually to match its youth bulge.”

“The numbers are stark: Ethiopia needs to create more than 10,000 jobs every single day to provide enough employment for its citizens,” Laurendeau adds. “If we do not succeed in this, the risks are not just economic: high rates of unemployment, particularly among young men, are a recipe for disorder and social unrest. Mass unemployment could also trigger higher outward migration flows at a time when governments across Europe and the United States are under political pressure to reduce levels of immigration.”

Job creation schemes launched

The Ethiopian government appears to recognise this and has cooperated with international organisations on a range of job creation schemes. It recently worked with the World Bank on the Urban Institutional and Infrastructure Development Programme, an $850m project which was also supported by the French development agency AFD. This involved working with local government bodies across Ethiopia to enhance their urban development capabilities, support infrastructure investment and job creation.

Similar programmes have also been set up with organisations such as the Mastercard Foundation, which says it aims to create training and job opportunities for 42,000 people across the country.

While such initiatives can play a role in boosting employment, Laurendeau believes there should be a firmer focus on unleashing growth in the private sector to create the required jobs.

“The scale of job creation Ethiopia – and indeed much of Africa – needs cannot be achieved through the usual approaches that depend on foreign assistance or philanthropic efforts,” Laurendeau says. “Governments can set the vision and create the right enabling environment, but it is the private sector – startups, innovators and entrepreneurs – that will be the real engines of economic growth and job creation.”

Startups and digital growth could help

Laurendeau is optimistic that the country’s “Startup Act”, which was passed in July this year, is a step in this direction. The new law offers a formal definition for startups in Ethiopia and introduces a regulatory framework, including a National Startup Council, that puts these companies on a firmer legal footing.

Bodies like the new council will also implement a range of initiatives aimed at supporting the growth of startups, such as facilitating access to investment funding, creating incubation spaces and providing tax incentives. A new Ethiopian Startup Fund will provide an initial $36m in grants and soft loans to qualifying ventures.

Entirely new types of work

Laurendeau hopes that the recent legislation will “represent a turning point in how the government thinks about job creation. For too long African governments have viewed employment through a linear lens: tied to traditional industries and incremental growth,” he says. “By contrast, the potential of innovative startups is enormous: technology can allow us to leapfrog and create entirely new types of work.”

The Ethiopian government has sought to emphasise its commitment to the tech sector by focusing on training young people with the digital skills required to participate in this emerging economy.

For example, last year, in partnership with the government of the United Arab Emirates, Ethiopia launched its “five million coders” initiative, aimed at training young people on subjects such as web programming, data science and artificial intelligence.

Partly as a result of Ethiopia’s liberalising reforms and other measures, many analysts expect the country’s digital economy to continue growing. According to a report by the state-run Ethio Telecom company, the digital economy could add up to $10.8bn to the country’s GDP by 2028.

Presuming this growth does transpire – and there remain some obstacles to this, not least ongoing security concerns within Ethiopia and the potential for macroeconomic instability – the key task will be ensuring this translates into jobs.

Change of mindset needed

Laurendeau argues this will depend on successfully building a market where startups and businesses can thrive. “Despite the challenges, there are lots of things going in Ethiopia’s favour. The opening up of the second largest market in Africa can be an attractive proposition for investors if we can get the conditions right,” he says.

“We must channel this momentum into entrepreneurship – giving businesses access to the capital, mentorship and markets they need to grow. When startups begin to scale widely, they create value chains and jobs that multiply across the economy.”

He argues that, more broadly, a change in mindset is also required after decades of state dominance of the economy. “Entrepreneurs are not only crucial but simply necessary for a country to grow. Entrepreneurs are, after all, the ones who take risks and create the jobs we desperately need.”

“In Ethiopia, the word ‘entrepreneur’ is misunderstood. People relate an entrepreneur only with a young graduate student dropout coding away on a laptop decorated with lots of stickers. They do not see [Nigerian billionaire] Aliko Dangote as an entrepreneur. The word ‘startup’ is unfortunately misunderstood as well.”