On Jan. 29, 2024, Alemu Sime, Ethiopia’s Minister of Transport and Logistics, announced his government’s new electric vehicle (EV) and internal combustion engine (ICE) vehicle policy. The policy, the first of its kind globally, banned the importation of diesel- and gasoline-powered ICE vehicles while dramatically lowering import tariffs on EVs. Import tariffs for completed EVs were reduced to 15%, to 5% for semi-assembled vehicles and to 0% for vehicles shipped in parts and locally assembled.

Several global players are currently benefiting from the new EV policy. For instance, international EV manufacturers have experienced substantial market growth in sub-Saharan Africa. The Toyota bZ4x EV has become increasingly popular in Ethiopia since 2024, as has the Mercedes-Benz EQ range.

The policy’s impact on the environment cannot be understated. Ethiopia aims to accommodate 60 EV manufacturing plants by 2030 and have 500,000 EVs on the roads by 2032; both aims will lead to a significant and sustainable reduction in the state’s hydrocarbon emissions. The policy, while contributing to environmental protection and the growth of international conglomerates, is also set to aid poverty reduction in Ethiopia through three distinct pathways.

Import Cost Redistribution

The new EV policy will free up significant government resources, which it can invest in vital infrastructure and social services. Before passing the EV bill, the Ethiopian government spent roughly $7.6 billion per year importing fossil fuels, approximately 5% of its GDP. This led to the accrual of billions of dollars in international debt.

Ethiopia defaulted on its sovereign bonds in 2023 and received an International Monetary Fund (IMF) bailout in 2024. Without the enormous financial pressure imposed by the cost of importing fossil fuels, the Ethiopian government will have more capital to invest in education, health care and infrastructure.

Approximately 55% of children in Ethiopia complete primary schooling. Increased investment in education could encourage school attendance by subsidizing stationery, uniforms and school meals. An increase in educational access in Ethiopia would provide a stable basis for economic development in traditionally deprived communities, contributing to the alleviation of poverty.

Job Creation

The new EV policy, through the construction of EV manufacturing plants, is set to create thousands of new jobs. The policy’s staggered import tariff favors the assembly of EVs in Ethiopia over traditional vehicle imports. As a result, many new manufacturing plants are currently being built in Ethiopia. Seventeen are currently operational.</span>

Ethiopia’s labor market is stable; unemployment sits at just 3.9%. However, the growing EV industry will provide opportunities for workers traditionally employed in agriculture to earn higher, less seasonally dependent wages in skilled secondary-sector manufacturing jobs. This will support poverty alleviation through increased wage stability.

Vehicle Distribution

Vehicle ownership in Ethiopia has traditionally been concentrated in Addis Ababa. Cars are a rare luxury in the sub-Saharan country, with just 13 cars per 1,000 people. The increase in local car manufacturing is forecast to lower vehicle prices by offsetting import tariffs and other costs.

Cheaper cars will democratize access, allowing a greater proportion of Ethiopia’s population to commute. These activities will encourage economic development in areas that have traditionally lacked strong transport links, such as deprived rural areas, thereby contributing to poverty reduction. Overall, Ethiopia’s new EV policy is set to help alleviate local poverty.

It will do so by freeing government resources for reinvestment in social infrastructure, providing secondary-sector employment and democratizing vehicle ownership. Large corporations and states, while also benefiting from the policy, are not the only actors set to benefit from EVs in Ethiopia.

– Arthur Horsey

Arthur is based in Hampshire, UK and focuses on Business and Politics for The Borgen Project.

Photo: Flickr