Overview of Ethiopia’s Economy
Ethiopia has seen a sustained and upward growth trajectory during the recent three successive plan periods (SDPRP, PASDEP and GTP I), average growth during these periods being 10%+. This growth is also sustained in the two years of GTP II plan period and the prospects for 2018/19 is upbeat. The country was not only able to see robust consistency in its GDP and GDP per capita growth, but it is also recording a growth trajectory unheard of in the country’s history. The best average growth the country has ever recorded for successive years before these plan periods was only 3%, during the Imperial period in 1967-74.
Ethiopia’s economy grew from a mere Birr 336 billion in 2006/7 to Birr 1.8 trillion Birr economy in 2017/18. The real GDP growth during these plan periods not only was humongous but also consistent, unlike what was seen in the past. The growth achieved has quintupled the size of the economy in just 12 years.
During the same period, the Real GDP per Capita also grew from a mere Birr4,277 to Birr 18,218 showing a whooping annualized growth of 12%.
In spite of some binding problems that have emerged recently, such as foreign exchange shortage, a very low tax base which is resisting the change effort to broaden it and increase its volume and the political and social unrest and/or uncertainty which has persisted for the last 3 years, which may dampen investment and growth, many projections expect the growth both in GDP and GDP per Capita to continue unabated.
 Sustainable Development and Poverty Reduction Program (SDPRP) is the successor program of SAP while Plan for Accelerated and Sustained Development to End Poverty (PASDEP) is the successor of the latter and Growth and Transformation Plan( GTP I) is the successor plan of PASDEP.
 Eshetu Chole and Mekonnen Manyazwal in their paper entitled “THE MACROECONOMIC PERFORMANCE OF THE ETHIOPIAN ECONOMY 1974-90” put the GDP growth for the years between 1967-74 at an average of 3% and in the years between 1974-90 at an average of 1.9.
 The World Economic Prospectus and Situations-2018-a report launched by the UN puts 7%+ growth for the years 20018/19.
Table 1: Economic Growth (GDP growth adjusted for inflation) In Birr and GDP per Capita at Current Prices in Birr
GDP Growth (%)
GDP Per Capita real in birr
* Source: National Bank of Ethiopia, Quarterly Bulletin p.79, 80 &83
** Forecasts from www.imf.org
This growth bodes well for the development of banking business in general and for the demand in housing finance, as the GDP growth translates in to more monetization of the economy and the GDP per capita growth implies more saving/investment by the populace, which both require banking intermediation. Indeed, that is exactly what has happened in the last 12 years or so.
With the growth of income, more and more households are turning to savings and investment and the acquisition of assets, especially construction and purchase of houses and condominiums. According to a study undertaken by the European Commission, 22 major and minor cities, including Addis Ababa, have seen their stock of house supply increase by 250,000 plus units through the IHDP program supervised by the MoHUD and financed by the Commercial Bank of Ethiopia. Of these close to 50,000 units were distributed to households in 22 cities outside Addis, from 2012-14.
In spite of an improved housing production and provision that the country has seen through all means, in the last two decades, housing deficit is still persisting and a lot is required to meet pent up demand.
While there are many structural barriers to be overcome, in recent years Ethiopia’s economic growth has made the country one of the few countries successively mentioned for recording growth of GDP of 8%+. The growth forecast also continues to be good and GTP II aspires to create a middle income country by the end of the GTP plan period. As the countries stride towards a middle income country continues and urban population grows, the urgency for a more robust housing finance will strengthen.
Ethiopia was one of the few African countries that saw the need for a housing finance scheme and that created two institutions dedicated for providing finance for the construction and acquisitions of houses and other business properties. And that is well before the decolonization of most of the African countries.
It is recorded that two such institutions the Imperial Savings and Home Ownership Public Association (ISHOPA) and Saving and Mortgage Corporation of Ethiopia were formed in 1963 and 1965 respectively for doing exactly that. The Bole Homes project and the high class European Brick Houses built around the Old Airport area are credited to ISHOPA, while some notable property and hotel developments were credited to the Savings and Mortgage Corporation. The role played by these housing finance institutions in terms of size and number was not much and they were later merged into Housing and Savings Bank S.C, during the nationalization of banks, by the socialist regime.
Of all the housing finance institutions, the Housing and Savings Bank has had notable impact on the development of modern housing, especially in the financing of cooperative housing projects that were common during the socialist period. During this period the socialist government took the responsibility of the administration and development of housing and it encouraged the establishment of housing cooperatives to which it allocated land, provided building material with subsidy and arranged financing at a subsidized interest rate. This initiative, by embedding sanitation and other utilities in the design of the houses, has in particular impacted the landscape of Addis Ababa and improved the housing condition in certain localities to acceptable standards.
However, when viewed nationwide, the contribution of all these institutions over many decades, in helping reduce housing demand and needs of the populace is limited. Even the cooperative movement of housing launched during the socialist period was not able to provide adequate solution to the housing demand. According to one study by UN-HABITAT, “Between 1975 and 1992 housing cooperatives produced a mere 40,539 units”, that is to say that only 2,500 houses were produced annually and were available to habit.
While there were other major factors which hampered the expansive production of housing by the cooperatives, financing and mortgage loan was also a cause for the lackluster provision of housing, during this period.
A more coordinated and focused housing provision by mustering the financing support of a bank started after the Integrated Housing Development Program (IHDP) was launched, with a pilot in 2004 and then in a large scale implementation in 2006, in 56 towns, including Addis Ababa. Under this program Government of Ethiopia (GoE), through the appropriate designated ministry, coordinates the construction of condos with Regional States and then transfers these condos to users via a credit arranged with the Commercial Bank of Ethiopia. The credit is assumed by end-users.
The plan in the IHDP (During PASDEP and GTP I) was to produce 570,000 condo units, out of which 40,000 units are shops. Of this, 345,000 units were planned for Addis Ababa, while the remaining 185,000 units were planned for the rest of cities covered in the program. Although there is variability in the numbers of units produced and distributed, according to the report available from MoUDH (2015), the IHDP was able to produce 189,088 condos out of which 17, 843 are shops for Addis Ababa and 61,545 units in major regional towns. The total of the units already constructed and under-construction in Addis Ababa are also noted to be 311,234 units. It is easy to note that the annual housing production and transfer has improved in the IHDP in comparison with the socialist period, bringing the annual production and distribution of housing nation-wide to approximately 25,000 units annually.
Granted that the IHDP is an improvement, but it did not make a significant dent to over 1,000,000 million accumulated housing units deficit. Actually, it does not even match the annual housing additions (100,000 units) which are needed to meet needs arising from replacement of dilapidated and aging houses and needs arising from demographic changes. This high unmeet demand for housing unites makes the business case for the establishment of a new housing bank plausible and convincing as although the issues hampering a scaled up housing production and distribution are manifold, finance and the unavailability of institutions catering for housing finance feature high in the lackluster performance.
Demand and Supply of Housing
To date, no formal demand and supply analysis of housing seems to have been made to determine the economic demand and it is impossible to pinpoint the demand-supply conflux. A study commissioned by Institute for Population Research – National Research Council (Irp-Cnr) Roma, Italy and conducted in 2001 from the perspective of needs based analysis of these elements, using quantitative and qualitative methods, posits that at least 500,000 units are required nationally to meet demand arising out of accumulated deficit and close to 75,000 units are required to match replacement and demographic requirements thenceforth.
Another study undertaken by MoFED in 2005 puts the housing deficit at 900,000 units and the annual replacement number required at 225,000. More recent indications from the MoUDH put the cumulative deficit at 1,000,000 units and the annual increment necessary for replacement around 100,000 units.
A more reliable data may emerge after the 2018 Population Census result and may guide policy on housing production and distribution for successive periods after GTP II.
That said, however, the demand and need for housing is pretty obvious and the concomitant demand for housing finance and mortgage loan, albeit not straightforward, can also be said to exist for all classes of people, especially strongly for people in the lower-middle class and middle class. Owning a house requires 5 to 6 times the annual salary of these class of populace and it is difficult to raise this kind of money outright from savings alone. It therefore becomes necessary for these groups to look for financing vehicles to own the most important asset of their life.
Now that Construction and Business Bank has folded its books and decision has been made to subsume it under the CBE, the only bank that provides housing finance and mortgage loan, and that only for condos, is the CBE. As the CBE does many policy lending, it is overwhelmed and faltering in the provision of financing for condo houses. Besides, the finance required to bring down the deficit in the accumulated housing demand and also meet the ongoing replacement and housing demand arising as a result of demographic necessity is snowballing and immense.
Be that as it may, the investment required to develop the housing need of the country is in 100s of billions of Birr. The GoE has already concluded that the housing program that the country direly needs can not be executed by the government alone and needs various stakeholders to pitch in. The aim of the GoE, under the new strategy for GTP II, is to encourage Real Estate Developers, individuals who do housing property for rent, housing cooperatives, institutional investors and foreign investors to work together, in bringing its housing program to fruition.
The conclusion that can be made is that housing finance and mortgage loan market, is a business that has a wide demand in the country.
 Ibid 6, Page 24
 UN-HABITAT (2010) The Ethiopia Case of Condominium Housing: The Integrated Housing Development Programme, 2011.
 HOUSING CONDITIONS AND DEMAND FOR HOUSING IN URBAN ETHIOPIA by Gebeyehu Abelti, Marco Brazzoduro, Behailu Gebremedhin, 2001. This important study was conducted based on the 1994 Population Census data and extrapolates demand up to 2010.
 Ministry of Finance and Economic Development MoFED. (2005). Ethiopia: The MDGs Needs Assessment and Synthesis Report.
 No other bank in the country is known to do financing of home ownership in any other form.