Ethiopia has a poverty-stricken economy, highly based upon agriculture, which contributes 47% to GNP, more than 80% of exports and employs 85% of the population. Recurrent droughts, combined with inefficient cultivation practices and the 1999-2000 war with Eritrea, have been hard on the economy.
The major agricultural export crop is coffee, providing 35% of Ethiopia's foreign exchange earnings, down from 65% a decade ago because of the slump in coffee prices since the mid-1990s. Continually low market prices for coffee have forced some farmers to switch to 'chat' (qat), a tropical evergreen plant whose leaves are used as a stimulant, to bolster their income. Other traditional major agricultural exports are hides and skins, pulses and oilseeds. Sugar and gold production has also become important in recent years.
In 2001, Ethiopia qualified for debt relief from the Heavily Indebted Poor Countries initiative. Under Ethiopia's current land distribution system, the government owns all land and sells long- term leases to tenants. This hampers industrial growth, as entrepreneurs cannot use land as collateral. Normal weather patterns from 2004 to 2007 helped the economy begin to recover after years of drought but 2008 and 2009 have seen the country to annual food deficits.
The current government has embarked on a cautious program of economic reform, including privatisation of state enterprises and rationalisation of government regulation. While the process is still ongoing, so far the reforms have attracted only meager foreign investment, and the government remains heavily involved in the economy.
Gold, marble, limestone, and small amounts of tantalum are mined in Ethiopia. Other resources with potential for commercial development include large potash deposits, natural gas, iron ore, and possibly oil and geothermal energy. Although Ethiopia has good hydroelectric resources, which power most of its manufacturing sector, it is totally dependent on imports for its oil.
A landlocked country, Ethiopia has relied on the port of Djibouti since the 1998-2000 border war with Eritrea. Ethiopia is connected with the port of Djibouti by road and rail for international trade. Of the 23,812 kilometers of all-weather roads in Ethiopia, 15% are asphalt. Mountainous terrain and the lack of good roads and sufficient vehicles make land transportation difficult and expensive. However, the government-owned airline's reputation is excellent. Ethiopian Airlines serves 38 domestic airfields and has 42 international destinations.
Dependent on a few vulnerable crops for its foreign exchange earnings and reliant on imported oil, Ethiopia lacks sufficient foreign exchange earnings. The financially conservative government has taken measures to solve this problem, including stringent import controls and sharply reduced subsidies on retail gasoline prices. Nevertheless, the largely subsistence economy is incapable of meeting the budget requirements for drought relief, an ambitious development plan, and indispensable imports such as oil. The gap has largely been covered through foreign assistance inflows.