Africa’s oldest independent country (existing since about 800 B.C.) has been undergoing a successful restructuring of its economy from the beginning of the 1990s, after the fall of the Marxist Derg regime. The country has sustained some of the highest economic growth rates on the continent over the past decade, with double-digit growth in most of those years.  The global economic recession did affect growth, causing a minor slow down, but in 2011, GDP growth was relatively high, at 8%.  In 2012, with a growth rate of 6.9%, Ethiopia was the 12th fastest growing economy in the world, according to World Bank data.  Real GDP growth has been projected at 6.6% for 2013, and 4.3% for 2014.

Ethiopia has battled with high inflation rates. In 2008/09, inflation averaged 36%, mainly driven by food prices.  Although inflation has since come down significantly, it remains high at 10.3% during the first quarter of 2013.  It is expected to come down to 8.7% in 2014.  This has threatened the country’s economic and social gains over the years, and has affected lending activities of banks,

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Africa’s oldest independent country (existing since about 800 B.C.) has been undergoing a successful restructuring of its economy from the beginning of the 1990s, after the fall of the Marxist Derg regime. The country has sustained some of the highest economic growth rates on the continent over the past decade, with double-digit growth in most of those years.  The global economic recession did affect growth, causing a minor slow down, but in 2011, GDP growth was relatively high, at 8%.  In 2012, with a growth rate of 6.9%, Ethiopia was the 12th fastest growing economy in the world, according to World Bank data.  Real GDP growth has been projected at 6.6% for 2013, and 4.3% for 2014.

Ethiopia has battled with high inflation rates. In 2008/09, inflation averaged 36%, mainly driven by food prices.  Although inflation has since come down significantly, it remains high at 10.3% during the first quarter of 2013.  It is expected to come down to 8.7% in 2014.  This has threatened the country’s economic and social gains over the years, and has affected lending activities of banks, with a general downward decline in new loan disbursements, as the National Bank of Ethiopia (NBE) imposed quantitative lending ceilings on private banks.  The cost of living across Ethiopia, and especially in its capital, Addis Ababa, is high, and many people struggle to afford the basic necessities.

In September 2010, the central bank devalued the Ethiopian Birr by 20%.  This was intended to boost the competitiveness of Ethiopia’s exports.  It had a positive effect on remittances, but on the flipside made the price of imported building materials more expensive.  A threat to devalue the currency again at the end of 2011 did not come about.

Access to finance 

Traditionally the banking sector has been dominated by the state.  Comparative statistics such as the number of bank branches per number of individuals show the sector performing poorly, even by Sub-Saharan country standards. Nevertheless Ethiopia’s banks are highly profitable, and have managed to pay dividends of more than 30% on share prices.  The National Bank of Ethiopia reports that at the end of September 2012, there were 18 banks, of which 15 were privately owned.  Of the 15 insurance companies, 14 were privately owned. The largest is the government-owned Commercial Bank of Ethiopia (CBE), which accounts for 37.5% of the total capital of the banking system and has over 695 branches, as of July 2013.  The bank has expanded rapidly: over the past three years CBE opened 150 branches, and in the current financial year they opened 148 branches. The Development Bank of Ethiopia and the Construction Bank of Ethiopia together account for 15.6% of the total capital of the banking system.  In 2013, Ethiopia rose 48 places on the World Bank’s Doing Business indicator for ‘ease of getting credit’, from 152nd to 104th place out of 185 countries.

The banking sector performed well during the 2011/12 financial year.  Deposits from the banking sector increased by 29% to Birr 199.7 billion (US$11 billion).  Loan collection increased by 16.4% to Birr 17.1 billion (US$900 million) during 2012/13.  At the close of the 2011/12 financial year, banks’ return of capital stood at 55.69% and their return of assets at 3.9%.  Loans disbursed by the banking sector made up a total of Birr 18.4 billion (US$985 million) during the 2012/13 year. The Construction Bank of Ethiopia’s share in total disbursements reached 41%, while loans to public enterprises were 25.4% and to the private sector were 74.6%.

Historically, lending for housing (both development and mortgage finance) was carried out by a specialist lender, the Housing and Savings Bank (HSB).  It was formed in 1975 through the merger of two financial institutions, the Imperial Savings and Home Ownership Association, and the Savings and Mortgage Corporation of Ethiopia.  For about 20 years, the HSB granted long-term loans at a subsidised rate for residential housing and commercial building construction, purchase and renovation, time deposits and long-term borrowings.  It was succeeded by the Construction and Business Bank (CBB), a wholly government owned public enterprise which has the additional mandate of universal banking.  Since its establishment, the former HSB and now the CBB has extended mortgage loans for the construction of just more than 30 000 residential units.  For the 2011/12 financial year, 73.4% of CBB lending went to business loans, and 26.6% went to the construction of residential and commercial properties.  CBB offers a variety of products: working capital loans; residential loans for non-resident Ethiopians, salaried workers and businesses; and business construction loans.  Mortgage loans offered by CBB require a 30% deposit and borrowers must be formally employed.

The other major mortgage lender in the country, the CBE, disbursed 1 022 mortgage loans in 2010/11, down by 19% on the previous year. For the 2010/11 financial year, CBE had Birr 3 481.6 million loans outstanding for building and construction.

Mobilised deposits remain the major source of funding for banks in the country.  There is no stock market in Ethiopia, and treasury bills are the only active primary securities.  UN-Habitat (2011) argues that investment in the housing sector is limited due to the low level of domestic savings and a shortage of external resources.  Occasional government bonds are issued to fund short-term budgetary deficits, readily taken up by the banking sector with its excessive liquidity.  International remittances represent a huge potential finance resource for housing in the country.  Access to credit information in Ethiopia is low, with less than 1% of coverage of the adult population through the public credit registry.  In August 2011, a credit bureau and credit information system was launched, paving the way for improved financial infrastructure.  By the publication of the World Bank’s 2013 Doing Business indicators, almost 25 000 individuals and 6 413 firms were recorded on the public credit registry, representing 0.1% of the population.

Microfinance is an important source of financing, and there are 31 registered microfinance institutions in Ethiopia, serving an estimated 2.7 million low income individuals.  In 2013, some 25 MFIs were listed on the Mix Market, an online source of microfinance performance data and analysis, with a total of 881 113 active borrowers and US$182.8 million worth of loans distributed. ACSI is the largest MFI in terms of its gross loan portfolio, which stands at US$169.7 million and has 775 399 active borrowers. The average loan is US$218.  ACSI offers credit, savings and microinsurance, but no housing-specific loan products.

In an effort to increase financial inclusion in the country, Kifiya, a leading information and communications technology company in Ethiopia, has partnered with the Ministry of Communication and Information Technology to develop a mobile financial services platform, which will deliver mobile money and enable branchless banking, thus placing financial services within reach of the majority of the population.


Just under a third of the population in Ethiopia live below the poverty line, and the government has committed itself to reducing poverty to 22.2% by 2015.  Spending on initiatives to address poverty rose by 70% in 2011/12.

A key challenge to housing affordability is the absence of a diversified and flexible housing finance sector.  Further, a high percentage of households depend on informal incomes, making them ineligible for formal finance.  As a result, it is only the upper income groups and members of the diaspora who can afford newly constructed housing built by the private sector in Ethiopia.  Cash is still the predominant form for purchasing formal housing, although mortgage lending is growing. Loan-to-value ratios are moderate: a loan by the CBB, for instance, requires that a deposit of 30% is made upfront.  Loan terms are short – generally five years.

Rising building material costs have negatively affected affordability. The development of the Derba Cement Factory has, however, reduced the cost of cement by more than half of the prices charged during the cement shortage.  Derba announced that it would offer three months of credit to contractors who made a 50% payment and provided a bank guarantee.  Bulk orders at the reduced price are placed through the Commercial Bank of Ethiopia and Dashen Bank, given their extensive branch network, as a way to avoid middlemen and protect affordability.  Cement production was given a further boost with investments by South Africa’s Industrial Development Corporation and Pretoria Portland Cement (PPC) into the Habesha Cement Share Company.  The cement plant is planned for completion during the first half of 2014.

Housing supply

According to a UN-Habitat report, Ethiopia’s housing deficit is between 900 000 and one million units in urban areas, and an estimated 225 000 housing units a year are required to meet the Millennium Development Goals by the 2015 deadline.  The relative youth of Ethiopia’s population, with more than 50% under the age of 18, coupled with a population growth rate that could see Ethiopia’s population reach 100 million by 2020, are putting considerable pressure on the demand for housing.  It is estimated that only 30% of Ethiopia’s total housing stock is in fair condition, while the remaining 70% is in need of total replacement.  A 2007 survey noted that in Addis Ababa alone, the demand was for between 35 000 and 45 000 housing units to be supplied annually for 10 years to replace the existing dilapidated stock as well as cater for new household formation.  At the current rate of supply, even with the progress of government housing programmes, this is unlikely to be met, especially at the middle to lower income bands.

A key constraint to affordable housing delivery is the inability to access land owned by the state.  In the absence of a vibrant private sector, housing co-operatives have become the primary mode of housing construction in urban areas, making up over half of Addis Ababa’s total formal sector housing stock up until 2005. During the Derg regime, and then under the new government up until the elections of 2005, co-operatives were allocated land to develop for their members.  Since then, however, no land has been given to co-operatives.  There are also very few private real estate developers in the country, and the ones that exist concentrate on the middle to high income consumers.

In June 2013, Chinese Geo-Engineering Corporation started construction of a real estate complex which would include 21 high-rise buildings of between 12 and 15 storeys.  The target market for this development has not yet been disclosed, but the entire investment is estimated at Birr 3 billion (almost US$160 million).  While this level of supply is interesting, other ambitious plans have seen delays.  The Tedros Abebe Construction company was planning to develop 83 895 condominiums by the end of 2011.  As of February 2013, however, only 20 000 units had been completed.

The Ethiopian government has been implementing an Integrated Housing Development Programme (IHDP) since 2005, targeted at low and middle income households.  This has had a substantial impact on housing affordability for this target market.  Within Addis Ababa, the programme delivers housing at a cost of about Birr 3 000 (US$166) per square meter, versus Birr 5 500 (US$305) per square metre in the private sector.  A 100m² house delivered as part of the IHDP would therefore cost in the region of Birr 30 000 (US$1 660). The IHDP, implemented in 56 municipalities across the country, delivers condominium housing – multi-storeyed housing units for several households, where communal areas are jointly owned and managed.  The mandate of the IHDP is to reduce slum areas in the city by 50%, and the programme has a target of building 400 000 housing units nationally. Government has spent more than Birr 15.4 billion through the IHDP.  The Cities Alliance, a global partnership for urban poverty reduction, reports that the IHDP has delivered 208 000 housing units to date, about half of which are concentrated in Addis Ababa, accommodating an estimated 25% of Ethiopia’s urban population.  The programme uses a labour-intensive delivery method and has created an estimated 176 000 jobs.

The government has developed three housing sub-programmes under the new urban housing policy and strategy framework.  The programmes include the delivery of affordable housing, the purchase of which is then financed at subsidised interest rates.  The first is known as the ‘40/60’ programme.  Targeted at middle to higher income earning households, the programme requires 40% savings upfront or over five years, realising a 5.5% interest on savings.  Households then get a loan for the remaining 60% of the purchase price, which they repay over 17 years at a rate of 7.5%.  The second is targeted at low income earners, primarily civil servants, earning a monthly income below Birr 1 000 (US$54), and is known as the ‘10/90’ programme.  This requires households to save 10% of the purchase price for two years, realising 5% interest on their savings.  The remaining 90% of the purchase price is then paid back over 25 years at a rate of 9.5%.  The total cost of the house is set at Birr 76 615 (US$ 4 166), for a one-room, 29m2 apartment.  The third programme, ‘20/80’, requires households to provide a 20% deposit, and then a 20-year loan is provided for the remaining 80% of the purchase price at a rate of 9.5%.  The Commercial Bank of Ethiopia has seen a total of 862 216 Addis Ababa residents open special saving accounts for the 10/90 and 20/80 housing schemes.  The bank will finance between 80% and 90% of the total cost of the houses while the rest is covered by residents in the form of a down payment.

In Addis Ababa there have been three phases of the programme: infill, expansion and urban renewal.  During the first two phases, condominium sites were developed on vacant plots – in the first phase, in the city, and in the second phase, on the urban periphery.  In the third phase, the emphasis of the programme has shifted to urban renewal, and is being used to clear inner-city slum areas and develop these for condominium housing, private sector developments, social infrastructure and other land uses.  In August 2012 alone, the Addis Ababa City Administration transferred 7 300 condominium housing units to beneficiaries.  More than 72 000 condominium houses have been built and transferred to beneficiaries since the start of the project in 2005.  In the coming three years, the City has plans to construct over 170 000 housing units.

The Addis Ababa Land Development & Urban Renewal Agency was established in 2001 to renew Addis Ababa through developing old parts of the city.  Their mandate was to help establish an effective land provision system by 2012.  The Agency has transferred 453 hectares of land for micro and small enterprises, condominium construction and the 40/60 housing scheme since September 2012.

The IHDP programme is facing a number of challenges, however.  While delivery has been substantial, it has been neither sufficient nor has it met the needs of the lowest income earners.   Affordability for the housing units delivered through the programme has been limited to lower middle and middle income earners, primarily because of the limitations created by the deposit requirements – an amount that exceeds the savings capacity of low income households.  Also, households that are informally employed, with erratic incomes, cannot manage to meet the monthly loan requirements.  A second challenge relates to the long-term sustainability of the programme’s financing approach, especially if non-payment increases.  Lastly, the urban renewal approach of recent years has been criticised for failing to engage appropriately with the transitional implications as residents wait for their housing to be built.  A series of project-specific issues have also been raised, relating to the location of housing and the overall quality of the built environment.  An evaluation of the IHDP, undertaken by the Ministry in 2010, has recognised these and other issues.

Government also provides what it calls real estate development support for housing delivered by the private sector.  In this case, the buyer is required to pay a 30% deposit.  The remaining 70% of the purchase price is financed with a five-year loan at 9.5%.  Such support is targeted at middle and high income households.

Property markets 

There is some evidence of a growing property market in the country’s urban areas, including a surge in building activity.  Manufacturing related to the construction industry, including the cement, lime, plaster, structural clay and glass industries, constitutes one of the largest and fastest growing industries in Ethiopia.  CBB reports that in 2011/12, 73.4% of long-term loans were disbursed towards the construction of residential and commercial buildings.

In the World Bank’s 2013 Doing Business report, Ethiopia ranks 127th out of 185 countries overall, a slight decrease from 125th place in 2012.  Registering a property in Ethiopia requires 10 procedures, takes 41 days and costs 2.1% of the property value – for this, Ethiopia ranks 112th. With more procedures, Ethiopia’s property registration process is still faster than the Sub-Saharan African average, by 24 days.  It is also cheaper at just over a fifth of what it costs in the rest of the region.

All land in Ethiopia is owned by the state, and rights to land are granted through a lease system, from 99 years for residential housing to 15 years for urban agriculture in urban centres. Implementing the land lease has not been without problems, and it is often considered an obstacle to the development of the real estate market.  Many consider the lease prices expensive, and in general, supply of leases is slow and inadequate.  The accuracy of the lease system has also been queried, given that there are often multiple recipients to the same plots of land.  As a result, banks are said to have limited confidence in the lease system for the collateralisation of land.

According to a report by real estate consultancy Knight Frank, the property market in Ethiopia has witnessed some activity, with office construction in Addis Ababa experiencing growth.  The residential market is described as being strong, especially in the hospitality sector.  Apartments can be rented out for as much as US$6 000 per month, while houses can go for between US$3 000 and US$4 500 per month.

Policy and regulation

An urban housing policy and strategy has been developed and is awaiting approval.  Housing is included under the Ministry of Urban Development and Construction, and falls under the Land and Housing Development Coordinating Bureau.  The Bureau’s mandate is to implement housing policy, strategy and programmes, and specifically the IHDP.  The draft policy includes eight specific approaches to address the housing shortage in urban areas.  These include the IHDP, the various savings and mortgage schemes, the construction of rental housing for low income households and accommodation for university professors, and infill housing in industrial areas.

In June 2013 it was reported that a bill to regulate the rental sector was under consideration.  Of the estimated 600 000 families living in rental accommodation, 373 000 rent from the government.  Some 70% of government rental housing is made from mud and wood.  The new bill would regulate housing standards as well as rental relationships.  Two other pieces of legislation are also under consideration: a real estate law and a law that penalises those who unlawfully register or take a house.  It was expected that these would all three go before parliament in the next financial year.

The Ethiopian judiciary has benefited from recent reforms.  The World Bank funded Justice System Reform Programme, part of the Public Sector Capacity Building Programme, has been able to enhance transparency and accountability through increased access to justice information.  It has established more than 430 client information counters in courts across the nation, to make information available to the public on both individual cases and the judiciary in general.  Bench judgments are being published and disseminated, and a wide range of information about the court, including court judgments and proclamations, is now published on the website.  Ethiopia has a public credit registry but no private credit bureau.


Ethiopia clearly has a great need for affordable housing delivery – and this promises to continue well into the future as its young population becomes of house-seeking age.  To create even greater opportunities in the formal housing sector, Ethiopia needs to continue with ongoing reforms to modernise its finance and land markets. These reforms should resolve the problems of an inadequately responsive banking sector, undeveloped capital markets and the high inflationary environment that has discouraged lending, as well as those facing the system of land registration. Complemented by the high economic growth of the past, as well as increased funding inflows, housing finance markets are destined for growth at virtually all income levels, but particularly within the lower to middle income ranges.  A further asset is Ethiopia’s microfinance industry – one of the largest on the continent.  Given relative tenure security, this creates enormous potential for the development of housing microfinance products which are more appropriate for low income earners. Formal encouragement of this form of housing delivery is required, especially through regulatory reform around building standards and greater product innovation by banks.


Ayenew, M. (2009). Access to Housing Finance in Africa: Exploring the Issues (No. 9) Ethiopia. Report Commissioned by the FinMark Trust with support from Habitat for Humanity.

Construction and Business Bank (2008). Annual Report 2007/2008.

Federal Democratic Republic of Ethiopia (2010). Ministry of Works and Urban Development. Housing Development Programme: 2006-2010 Plan Implementation Report.

Federal Democratic Republic of Ethiopia (2011). Federal Negarit Gazeta of the 18th Year, Number 4, Addis Ababa, 28 November 2011.

National Bank of Ethiopia (2010). Monthly Macroeconomic Indicators for March.

UN-Habitat (2011). Condominium Housing in Ethiopia: The Integrated Housing Development Programme.

Worku, G. (2010). Electronic Banking in Ethiopia, Journal of Internet Banking and Commerce.

World Bank (2013). Doing Business Report: Ethiopia.

World Bank (2012). Reforming Ethiopia’s Justice System.