How the Diaspora Is Propping Up Ethiopia's Economy

By Aksah Ltalo
Published on 07/06/25

In under half a century, Ethiopia’s diaspora has grown from a few hundred to millions, spread across continents—driven by political upheaval, economic hardship, and the pursuit of opportunity.

Over 2.5 million Ethiopians now live abroad, with major concentrations in the Middle East and North America. The exodus gained momentum in the mid-1970s amid political instability and refugee crises and has continued as skilled migrants seek better prospects abroad.

Since 2002, Ethiopia has been among the few Sub-Saharan countries actively courting its diaspora, creating institutions to boost economic engagement.

In 2022, the African diaspora sent over $95 billion to the continent, with $53 billion to Sub-Saharan Africa. While Ethiopia trails top recipients like Nigeria and Kenya, it still received over $15 billion in remittances in the past three years. North America accounted for 30%, followed by Asia (29%), Europe (23%), and Africa (18.6%).

The National Bank of Ethiopia reports that annual remittances have reached nearly $6 billion—making up 76% of the country’s foreign exchange inflows—crucial for sustaining the balance of payments.

Recognizing this impact, Ethiopian authorities have worked to improve diaspora services—introducing digital authentication, streamlined visa access, and investment facilitation.

The creation of the Ethiopian Diaspora Service (EDS) reflects the government’s push to expand the diaspora’s economic contribution. EDS Director Fitsum Aregaw recently highlighted the rise in diaspora engagement—in remittances, investments, charitable donations, and development efforts.

He also cited institutional upgrades, including improved online visa services and faster document authentication, to ease digital and in-person engagement.

According to the International Organization for Migration (IOM), diaspora communities hold untapped potential beyond remittances—including skills, expertise, and investment capital—often underestimated.

In July 2024, Ethiopia floated its currency, leading to a 135% depreciation against the U.S. dollar in just a year. This marked a shift away from Ethiopia’s tightly controlled economic model. National Bank Governor Mamo Mihretu called the monetary policy reform “historic.”

Before the policy change, the gap between official and parallel exchange rates had doubled, driving many to send money through informal channels.

EDS Director Fitsum Aregaw

The reforms aimed to improve remittance flows by allowing both residents and non-residents to negotiate deposit interest rates and currency conversions. The central bank also introduced a 100 billion Br loan program for housing and investment—available through all 31 commercial banks—to encourage official remittance use.

Additionally, the launch of Unite.et, a digital platform, now allows residents and non-residents to open foreign currency accounts remotely, easing both remittances and investments.

Finance and investment advisor Worku Lemma believes currency liberalization and market-oriented reforms have opened the door to more inflows. Still, he warns the effects are uneven.
“We’ve yet to see substantial positive shifts in long-term remittance trends,” he said.

Optimism is growing in the banking sector. Commercial banks, long starved of foreign currency, now offer incentives like flexible interest rates and foreign currency account privileges to attract diaspora deposits.

Tadesse Hatiya, president of Sidama Bank, reports a 20% rise in diaspora bank accounts and looser credit access since the reforms. Still, banks remain cautious.
“Liquidity constraints persist, and credit is still tight,” he said.

The hope is that reforms will eventually stabilize reserves and improve banking operations.

Few sectors reflect diaspora engagement as sharply as real estate. Fueled by the "homecoming" wave, property demand soared in recent years, especially during holidays like Christmas. Developers once relied on diaspora buyers for over 60% of sales.

That optimism has faded.

While reforms sought to revitalize the sector, political instability and economic unpredictability have turned many investors away. Bureaucratic delays, slow project delivery, and lack of transparency have further cooled interest.

One Ethiopian-American, who asked to remain anonymous, returned home last year with dreams of reinvestment. After decades abroad, he imagined opening a business, reconnecting with his roots, and contributing to national development.

Instead, he found a maze of bureaucracy, simmering political instability, and inconsistent systems that made basic procedures exhausting.
“Nothing was predictable. Nothing,” he said.

Disheartened, he returned to the U.S., abandoning his plans.
“I don’t plan on coming back ever again.”

His experience echoes Ethiopia’s ranking—159th out of 190—on the World Bank’s Ease of Doing Business Index.

Although the country has slightly reduced inflation, tight credit continues to strangle the real estate market—causing falling prices, shrinking demand, and distressed developers.

Flintstone Homes, one of Ethiopia’s most prominent developers, has seen a 70% drop in demand year-over-year. Board member Brook Shimeles blames credit shortages and unpredictable regulations for scaring off diaspora buyers.

“Even though prices have been slashed by 30%, demand hasn’t bounced back,” he said.

Flintstone, once praised for delivering residential villages, now struggles in a slumping market. Despite launching a 3,000-unit project with flexible down payments, buyer confidence is scarce.

With more than 60% of its historical clients from the diaspora, the fallout has hit hard. Developers have cut prices by up to 50%—with little effect. Brook says buyers are waiting for even deeper price drops.

“Diaspora buyers used to be the sector’s backbone—especially in December,” Brook said. “Now, the tide has turned.”

Unless the government ensures predictable regulations and banks ease credit access, Brook warns, the sector will continue its downward spiral.

“It’s a devastating scene for real estate,” he said.

Flintstone remains active, constructing 2,000 new homes, including 40 villas, 60 townhouses, and 467 condominium units. Yet, recovery is uncertain.

Worku, the investment advisor, explains that banks are reluctant to lend due to liquidity concerns—worsened by mandatory bond purchases previously imposed by the government.

“Quick returns and foreign exchange capacity are priorities,” Worku said, noting that even without lending caps, banks don’t have the liquidity to support long-term sectors like real estate.

He advises businesses to reset expectations:
“Profit margins must reflect reality. The days of over-gains are over.”