Claim: Ethiopian Prime Minister Abiy Ahmed (PhD) claimed that Ethiopia’s GDP doubled in five years.
Verdict: Misleading. Ethiopia’s GDP did not double in five years, either in real GDP or US dollars.
On the 116th Ethiopian Military Day on October 26, 2023, Prime Minister Abiy Ahmed (PhD) said: “Ethiopia, for the first time in its history, had doubled its GDP within five years, despite challenges due to COVID-19, war, and foreign countries’ pressure. To those who say Ethiopia is not progressing, I am proud to tell you that Ethiopia has doubled its GDP in five years for the first time. Our progress will continue. No challenge will stop us.”
[YouTube video: Fana Television]
Ethiopia was one of the fastest-growing economies in the world from 2004 to 2019. The period spanning 2004 to 2011 saw Ethiopia registering double-digit economic growth, according to data from the National Bank of Ethiopia.
However, since 2016, Ethiopia has been grappling with severe crises, leading to widespread instability. Popular protests and social unrest shook the country to its core, compelling the then-ruling Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF) to initiate sweeping reforms. This period of upheaval has led to the appointment of Abiy Ahmed, PhD, as the party’s chairman. Subsequently, the Parliament endorsed him as Prime Minister in April 2018.
Upon his accession, Prime Minister Abiy Ahmed pledged to undertake substantial political and economic reforms, a move that garnered him widespread support. Despite these promises, the nation continued to experience turmoil. The political and economic landscape was significantly disrupted by the standoff and eventual conflict with the former dominant Tigray People’s Liberation Front (TPLF), culminating in a war in November 2020.
The ensuing armed confrontations, particularly in the Amhara and Oromia regional states, have persisted, often involving the government forces and various insurgent groups. In response to the armed conflict with the TPLF and the ongoing conflict, Western countries, notably the United States and the European Union, have exerted pressure on the Ethiopian government to pursue peaceful resolutions. Some of these efforts have extended to imposing sanctions, citing the government’s failure to address and resolve the conflicts through peaceful means.
The convergence of the war, continuous instability, the COVID-19 pandemic, and sanctions from Western countries have had a detrimental impact on the Ethiopian economy.
It is within this context that Prime Minister Abiy claimed that Ethiopia’s GDP had doubled in five years.
Gross Domestic Product (GDP) serves as the overarching measure of a country’s economic activity, representing the total market value of all final goods and services produced within a nation’s borders over a specified period, typically one year.
The significance of GDP lies in its role as a principal indicator of economic health; it provides insights into the pace of economic growth and offers a snapshot of the size and efficiency of economic performance. An ascending GDP trajectory generally denotes a robust economy characterized by increasing income levels and burgeoning employment prospects.
GDP is reported through two primary methods: nominal GDP and real GDP.
Nominal GDP accounts for the aggregate value of all goods and services produced within a country during a particular year, priced at current market rates. However, it only offers an accurate gauge of economic growth over time, as it fails to adjust for price-level fluctuations caused by inflation or deflation. Consequently, even if the actual volume of goods and services produced remains constant year over year, nominal GDP may still report growth simply due to inflationary pressures.
To illustrate, a 10% rise in nominal GDP juxtaposed with a 10% inflation rate within the same time frame implies that real economic growth is effectively nil.
In contrast, real GDP delivers a more refined measure by valuing the total output of goods and services using constant prices from a fixed point in time, thus neutralizing the distortive effects of inflation. For example, if Ethiopia’s nominal GDP escalates from 100 billion USD in 2020 to 150 billion USD in 2023, with inflation running at 50% over this interval, the real GDP for 2023, adjusted for inflation, would equate to 75 billion USD.
Nominal GDP, therefore, can offer a misleading interpretation of economic performance in times of significant price level changes. Real GDP is the superior indicator of economic growth as it incorporates adjustments for inflation, providing a more authentic representation of an economy’s true output.
To achieve a doubling of real GDP within five years, the economy would need to sustain an average annual growth rate of approximately 14%.
| Fiscal Year | Real GDP growth rate | Nominal GDP growth rate |
| 2017/18 | 7.7 | 20.2 |
| 2018/19 | 9.0 | 22.4 |
| 2019/20 | 6.1 | 25.5 |
| 2020/21 | 6.3 | 28.6 |
| 2021/22 | 6.4 | 41.8 |
Nonetheless, Ethiopia has experienced an average annual economic growth rate of 7.1% over the past five years. With this expansion rate, approximately ten years would be necessary to double Ethiopia’s real GDP.
Inflation erodes the purchasing power of money, which can skew the figures for nominal GDP, resulting in potentially deceptive evaluations of an economy’s health and growth. This decrease in currency value signifies that consumers must spend more to obtain the same quantity of goods and services, potentially inflating GDP figures without any corresponding real growth in economic output. To illustrate, a devaluation of the Ethiopian Birr may artificially inflate the nominal GDP, even without any increase in the volume of goods and services produced.
Ethiopia has been facing persistent high inflation, which can be described as chronic and surging, with the inflation rate reaching 33.8% in the fiscal year 2021/22.
| Fiscal Year | Nominal GDP in Birr | Inflation Rate | Real GDP in Birr |
| 2017/18 | 2,202,373,000,000 | 14.60 | 1,719,491,000,000 |
| 2018/19 | 2,696,223,000,000 | 12.60 | 1,874,689,300,000 |
| 2019/20 | 3,374,747,000,000 | 19.90 | 1,989,519,000,000 |
| 2020/21 | 4,341,387,100,000 | 20.20 | 2,114,163,000,000 |
| 2021/22 | 6,157,538,000,000 | 33.80 | 2,248,571,000,000 |
As the data above shows, from 2018 to 2022 reveals an average inflation rate of 20.22%. Such a rate suggests that nominal GDP would rise by the same percentage annually, even in a scenario where the production of goods and services remains static.
Furthermore, Ethiopia’s nominal GDP, denominated in Birr, has escalated from 2.2 trillion Birr in the fiscal year 2017/18 to 6.15 trillion Birr in 2021/22.
However, when evaluated in terms of the US dollar, the increase in Ethiopia’s GDP appears more moderate, moving from 84 billion USD in 2017/18 to 126.8 billion USD in 2021/22. This discrepancy is attributable primarily to the depreciation of the Ethiopian Birr relative to the US dollar.
| Fiscal Year | Nominal GDP in Birr | Nominal GDP in USD | Exchange rate (USD/ETB) |
| 2017/18 | 2,202,373,000,000 | 84,355,600,000 | 26.1 |
| 2018/19 | 2,696,223,000,000 | 95,951,0000,000 | 28.1 |
| 2019/20 | 3,374,747,000,000 | 107,673,000,000 | 31.3 |
| 2020/21 | 4,341,387,100,000 | 111,271,200,000 | 39 |
| 2021/22 | 6,157,538,000,000 | 126,783,000,000 | 48.57 |
Fact-checking PM Abiy Ahmed’s Claim:
Ethiopian GDP didn’t double in five years in terms of real GDP.
Ethiopia’s real GDP did not double in five years because it only grew from 1.7 trillion Birr in 2018 to 2.2 trillion Birr in 2022.
If Ethiopia’s real GDP had doubled in five years, it would have been 3.4 trillion Birr in 2022.
Ethiopian GDP didn’t double in five years in terms of US dollars.
Ethiopia’s nominal GDP more than doubled in terms of Birr from 2010 to 2014, but it did not double in terms of US dollars. This is because the value of the Ethiopian Birr has decreased significantly over time.
Why did Ethiopia’s GDP double in five years in terms of Birr but not US dollars?
This is because the value of the Ethiopian Birr has decreased significantly over time. In other words, inflation has eroded the purchasing power of the Birr.
For example, in 2018, 26.1 Birr could buy 1 US dollar. This means Ethiopia’s GDP of 2.2 trillion Birr in 2018 was equivalent to 84 billion US dollars.
In 2022, it took 48.57 Birr to buy 1 US dollar. This means Ethiopia’s GDP of 6.16 trillion Birr in 2022 was only equivalent to 126 billion US dollars.
Example 2: Suppose Ethiopia produced 100 cars in 2018 and sold each car for 1 million Birr. Therefore, Ethiopia’s total revenue (GDP) was 100 million Birr, or 3.83 million USD, since the USD to Birr exchange rate was 26.1.
Suppose again that Ethiopia produced 100 cars in 2022 and sold each car for 2 million Birr. Ethiopia’s total revenue (GDP) was 200 million Birr, or 4.1 million USD, since the USD to Birr exchange rate was 48.57.
According to the above premises, in terms of Birr, Ethiopia’s revenue doubled (from 100 million to 200 million). However, in terms of USD, it did not double (it only slightly increased from 3.8 million to 4.1 million).
The same principle applies to Ethiopia’s GDP. The value of the Birr has depreciated significantly over time, which is why Ethiopia’s GDP has not doubled in five years in US dollars, even though it has more than doubled in terms of Birr.
Conclusion:
GDP is the total value of goods and services produced in a country in a year. Economic growth means an increase in the production of goods and services, not in prices. Therefore, real GDP, not nominal GDP, is always the accurate measure of economic growth.
Based on available data, Ethiopia’s GDP did not double in five years in terms of real GDP. While nominal GDP showed substantial growth, this was largely due to inflation. When adjusted for inflation, the real GDP growth did not meet the doubling claim.
In terms of US dollars, the devaluation of the Birr also played a significant role. While nominal GDP dramatically increased in Birr, it did not double when converted to US dollars.
Verdict:
Therefore, Prime Minister Abiy Ahmed’s claim that “Ethiopia’s GDP doubled in five years” is MISLEADING.
Disclaimer: The data used in this article is obtained from the Ethiopian government (National Bank of Ethiopia). HaqCheck does not guarantee the accuracy of this data.
