The Blue Book is an annual economic publication by First Consult that intends to aggregate and connect the dots between various reports and studies while contextualizing them with insights and perspectives from ground-level economic agents. First Consult aims to serve as an aggregator of topical knowledge generated during the year, be it academic, statistical, media-driven or based on project-level data.

Various economic analyses and media reports regularly cover developments in the Ethiopian economy, both at a macro and micro level. However, forming a coherent picture and translating developments into their causes and effects is not a straightforward exercise. In a rapidly changing and complex economy such as Ethiopia’s, it is not always clear how the developments are perceived by and impact on economic agents (businesses and consumers) on the ground. Nor is it clear how they will react and adapt.

First Consult is a leading economic development consulting organization with two decades of experience in Ethiopia. It combines insights and experiences from analysis and research (proprietary and third party) together with a rich set of data and findings collected in the process of implementing multi-year development projects across the country in sectors ranging from enterprise development, agriculture, investment & export promotion, financial sector development, workforce development and job creation. It works with development partners, government, businesses, and individuals and has physical presence in 17 cities and towns across Ethiopia. This puts First Consult in a unique position to connect the dots by triangulating evidence from macroeconomic analyses & developments as well as their implications at firm and individual level.

This year’s edition of The Blue Book: “How firms are coping with changes and uncertainty: covers the year 2015 in the Ethiopian calendar (2022-2023 Gregorian calendar). It aims to contribute to the existing discourse by linking the impact of macroeconomic trends and shocks on businesses and consumers. As such, this year’s edition surveyed 312 micro and small businesses in Addis Ababa, Adama, Hawassa and Dire Dawa. The key findings of the study indicate.

1.     The Ethiopian economy is passing through major changes, but the fundamental structure remains unchanged.

2.     Despite the systemic challenges Enterprises/MSEs remain critical economic actors particularly in terms of job creation and means of livelihood. And despite their number the penetration of enterprises/enterprise formation/entrepreneurship is far from its peer. (A2F, working premises and market linkages being the major constraints)

3.     Majority of firms start with their own savings during start-up phase and gradually go to formal financial institutions where they face higher probability of being rejected or waiting time reaching up to 6 months to access credit. This is unsustainable and unlikely to enable them to achieve their potential and developmental objectives.

4.     More than half of MSEs rely on imported inputs and 40% of firms rely on imported items for more than 75% of their inputs. This exposes them to international price, exchange rate, extended lead time and supply chain risks which lead into annual raw material inflation reaching up to 100%. Only a small proportion of firms (less than 10% import themselves while the majority buy it from wholesalers or retailers).

5.     Most firms transfer in full or the most part of the price hike to their consumers with a proportional increase in their selling price and therefore maintaining their profitability. This has impacted overall demand, but their scale of operations has been affected in less proportion.

6.     The disparity between rate of inflation and increase in income has led to a marked shift in the consumption patter of the public. Most consumers reduced their quantity, switched to less expensive options and bulk purchases. Considerable number of consumers has dipped in to past savings and increasingly relying on support from other family members.

7.     Cautious optimism is the overall sentiment of the enterprises which led to a conservative investment, expansion and hiring plans.