In a strategic move to enhance its influence on the continent, Ethiopia has launched an extensive international call for investment aimed at closing infrastructure gaps and modernizing its industrial sector. State Minister of Urban and Infrastructure Development, Yetimegeta Asrat, articulated a vision for Ethiopia to become the “beacon of African prosperity.”

While commending the country’s impressive progress in infrastructure development—particularly the road network, which has expanded sevenfold since 1997 to 182,000 kilometers—Yetimegeta acknowledged significant challenges ahead. Foremost among these is the $2 billion lost each year due to logistics inefficiencies, which he emphasized must be tackled through collaborative international investment and innovation.

This initiative represents a notable shift in Ethiopia’s economic strategy, as the government transitions from a “build and neglect” approach to one that prioritizes asset management and professional excellence through the Construction Industry Transformation Initiative. This was highlighted during the first Ethio-Italian Construction, Infrastructure, and Urban Redevelopment Forum held in Ethiopia.

The success of this vision will not solely depend on the quantity of asphalt and concrete laid, but on the effective integration of assets within functional and climate-resilient systems. The industrial sector is projected to grow by 8% annually through 2030. At the same forum, Maria Tripodi, Italy’s Deputy Minister of Foreign Affairs and International Cooperation (MAECI), referred to Ethiopia as the “beating heart” and a key hub for East African development.

The Ethiopian government’s ongoing commitment to bold structural reforms and its efforts to join the World Trade Organization (WTO) have positioned the country as an attractive partner for the Italian manufacturing sector. This partnership is founded on key pillars, including substantial financial support, with Italy allocating €90 million through SIMEST’s “Africa Measure” to foster innovation and training initiatives in Ethiopia.

Strategically, the collaboration emphasizes infrastructure and logistics, targeting major projects such as airport expansions and the crucial Addis Ababa-Djibouti logistics corridor. Additionally, in urban development, Italian companies are poised to deliver modern social housing and waste management solutions to help Addis Ababa cope with its burgeoning population.

Energy security remains a critical focus; leveraging Ethiopia’s leadership in renewable energy, Italian experts are set to assist in enhancing network infrastructure and energy storage systems. Maria Tripodi stressed that this “growth diplomacy” seeks to convert political agreements into concrete market opportunities, asserting that “partnering with Italy means choosing a technological ally that transforms grand projects into enduring symbols of civilization.”

8.4% of debt now in arrears

Since the launch of economic reforms approximately 18 months ago, Ethiopia’s debt has surged by nearly five billion dollars, with 8.4 percent of its total external debt now in arrears.

According to the latest debt analysis from the Ministry of Finance, the country’s outstanding debt reached 34.4 billion dollars as of December 31, 2025, up from 29.7 billion dollars at the beginning of the macroeconomic reforms initiated on July 29, 2024.

The report also indicated that external credit climbed to 4.76 billion dollars, reflecting a 16 percent increase compared to the amount when the reforms began in July 2024.

Currently, the government is in negotiations for debt restructuring under the OCC and enhanced HIPC frameworks. However, these discussions have been paused due to a default on euro bond repayments, which has resulted in arrears.

According to the Ministry of Finance, so far, 2.89 billion dollars—8.4 percent of the debt outstanding—has missed payment deadlines.

Despite being in debt restructuring negotiations, Ethiopia paid over half a billion dollars to creditors in the first half of the 2025/26 budget year.

The Ministry of Finance’s publicly available debt analysis, the first since the 2024/25 budget year’s first quarter review, noted that between July 1, 2025, and December 31, 2025, the total cost of servicing external public sector debt—including principal, interest, and fees—was 554.62 million dollars.

The analysis not only delays the publication of public debt figures but also omits key comparisons and data common in similar reports from previous periods.

It reported that the total external debt service paid by the central government was 311.41 million dollars (of which 230.26 million dollars was principal and 81.15 million dollars was interest), while state-owned enterprises, primarily Ethiopian Airlines, paid 243.21 million dollars.

Since 2017, Ethiopia has been classified as a debt-distressed nation.

Under the G20 common framework, the country has been engaged in debt restructuring negotiations with major official creditors since 2021, although a final bilateral agreement has yet to be reached.

Beginning with the 2024/25 budget year, Ethiopia has been implementing macroeconomic reforms supported by international partners providing funds to stabilize the country’s balance of payments.

The Ministry’s report indicated that in the first quarter of the budget year, the total principal payments made to external creditors were less than the total disbursements received from them. This is evidenced by net external debt resource flows (disbursements minus principal payments) of 399.34 million dollars from July 1, 2025, to December 31, 2025. Furthermore, subtracting disbursements from principal and interest payments resulted in a net resource transfer of 276.51 million dollars.

The net resource transfer is positive because the total debt service payment (principal plus interest) is less than the disbursement for the period.

According to the Ministry of Finance report, during the semi-annual period ending December 31, 2025 (from July 1, 2025, to December 31, 2025), the total amount of new loans signed was approximately USD 840.56 million. The central government accounted for 40% of this borrowing, while Ethiopian Airlines accounted for the remaining 60%. These new loans have an average grant element of 23.3% (53.26% for the Central Government and 8.24% for Ethiopian Airlines). Notably, there has been no non-concessional borrowing in the last eight years, except for Ethiopian Airlines.

Ethiopia applied for debt treatment under the G20 Common Framework on February 3, 2021, and an official creditors committee (OCC), co-chaired by China and France, was established on September 16 of the same year.

The OCC includes members from the Paris Club: Austria, Denmark, France, Israel, Italy, Japan, Korea, Sweden, South Africa, and Switzerland. Non-Paris Club members include China, the largest official creditor, as well as India, Kuwait, Saudi Arabia, and Turkey.

Although negotiations are nearing completion with a bilateral agreement, the Ethiopia Official Creditor Committee has agreed to suspend all debt service payments due between January 1, 2023, and December 31, 2024, for further debt restructuring. As a result, there were no payments for eligible debt service during this period.

On March 21, 2025, Ethiopia and the OCC reached an Agreement in Principle (AIP) on the key financial parameters for debt restructuring within the framework of the G20 Common Framework process.

Between July 1, 2025, and December 31, 2025, external public sector debt disbursements totaled USD 831.12 million, with the IMF and the World Bank IDA accounting for the majority of this amount. Most of the financing was directed toward balance of payment support and federal government projects, including aircraft purchases. Aside from Ethiopian Airlines, there were no external debt disbursements for State-Owned Enterprises (SOEs), which have not obtained any new loans in the past eight years.

Ethiopia’s banking sector surged ahead in 2024 with net loans and advances climbing 15.5 per cent to ETB 1.44 trillion, outpacing real GDP growth of 8.1 per cent despite 19.9 per cent inflation, according to Deloitte East Africa’s 2026 Banking Industry Outlook.

Customer deposits mirrored the expansion, rising 15.3 per cent to ETB 2.49 trillion and maintaining a stable loans‑to‑deposits ratio of 1.73 – a sign of strong resource mobilization fueling credit to agriculture, manufacturing and construction sectors.

Profitability proved resilient: return on assets (ROA) held steady at 2.0 per cent, while return on equity (ROE) edged down to 24.6 per cent from 25.7 per cent, reflecting larger capital bases and higher provisioning against risks.

Asset quality showed strain, however, with the non‑performing loans (NPL) ratio ticking up to 3.9 per cent from 3.6 per cent – still below regional red lines but signaling credit pressures amid economic headwinds.

The Commercial Bank of Ethiopia (CBE), the sector behemoth, leads digital modernization by piloting generative AI to summarize regulatory documents and boost efficiency, alongside early cloud infrastructure shifts to ease data center loads.

Deloitte highlights Ethiopia’s banks embracing regional trends: Gen AI for fraud detection and customer service; data analytics for behavioral credit scoring; and hybrid phygital models blending branches with mobile apps amid fierce deposit competition.

Regulators like the National Bank of Ethiopia (NBE) are tightening with AI guidelines and Basel III alignment, while banks eye diversification into bancassurance and fintech to offset net interest margin squeezes.

With global shocks like Middle East conflicts hitting oil importers, Ethiopia’s banks must sharpen risk management and fee‑based revenues to sustain momentum into a Basel‑heavy 2026.

The Gambela Investment Commission has issued a strong critique of MIDROC Investment Group for its large-scale agricultural projects that have been stalled for the past decade, despite the group acquiring extensive land. The Commission has formally requested a clear plan for the future of these rice and cotton development initiatives, which were once projected to be the largest in East Africa.

Lou Obup, Commissioner of the Gambela Investment Commission, expressed concern about the lack of progress at the Saudi Star project in the Alwero and Abobo areas. Saudi Star, a subsidiary of MIDROC, began operations ten years ago with the goal of establishing Gambela as the regional hub for grains and crops.

The investment included the construction of a large dam capable of developing 10,000 hectares of land, a 35-kilometer canal system, and a unique rice threshing factory in East Africa. However, Lou noted that the project has been “diminishing and weakening,” stating, “These assets are currently non-functional. Your involvement in the region’s agricultural sector has dwindled. What is your plan to revive this investment?”

Jamal Ahmed, CEO of the Group, attributed the project’s setbacks to research gaps, natural conditions, and labor shortages. He acknowledged that the initial rice production study was a “flawed study” concerning the crop growth cycle in Gambela’s lowlands. Although MIDROC constructed a 35-kilometer irrigation canal, moisture levels fell just as the rice reached the critical “milking stage,” and unpredictable rainfall during harvest complicated crop collection.

Additionally, environmental and social factors presented significant challenges. “Migratory birds during the dry season were a major issue,” Jamal remarked. He also revealed a serious labor retention crisis in the region, explaining that due to an insufficient workforce, cotton fields remained unharvested.

Despite these challenges, MIDROC has no plans to abandon the region. Jamal Ahmed introduced a “re-engineered investment plan” aimed at addressing previous labor and climate issues. This plan includes importing small-scale harvesting technology from Vietnam, tailored to the moisture conditions of Gambela’s rice fields. To tackle the labor shortage that has left cotton to spoil, the group intends to fully mechanize operations at the Abobo farms, replacing manual labor with modern harvesters.

While the Commission invited MIDROC to explore opportunities in Gambela’s gold mining and hotel sectors, Jamal emphasized that their immediate focus remains on stabilizing existing agricultural operations.

These discussions occurred during the 4th “Invest in Ethiopia” Forum, under the theme “Ethiopia is Ready for Investment.”

During the forum, Madalo Minofu, Country Manager for the International Finance Corporation (IFC), clarified that the institution’s investments are not confined to the capital. The IFC is working to establish “risk-sharing facilities” with local banks and microfinance institutions to ensure credit reaches agricultural and mining entrepreneurs throughout all regions.

This strategy aims to address the financing challenges faced by economic actors in rural and remote areas. However, investors at the forum highlighted that overcoming infrastructure deficits is fraught with challenges.

Concerns were raised about “bitter truths,” including the high logistics costs associated with Ethiopia being a landlocked country, a shortage of specialized skills in modern construction and pharmaceutical manufacturing, and an urgent need for transparent and predictable policy consistency.

To address these various concerns, the IFC and its sister organization, the Multilateral Investment Guarantee Agency (MIGA), are providing guarantee coverage to protect foreign capital from non-commercial risks. This initiative is designed to safeguard investors entering the Ethiopian market for the first time.