In a notable policy shift, the Ethiopian government has increased customs duty on imported electric domestic vehicles, raising the rate from 15 percent to 20 percent. The decision to implement a 5 percent increase follows the International Monetary Fund’s (IMF) call for Ethiopia to expand its tax base. However, it may impact vehicle affordability in a country where vehicle ownership rates are already among the lowest in the world, with just one vehicle per 100 people.
This move also comes at a critical time for Ethiopia’s economy, as rapid technological developments and policy changes are creating new opportunities, particularly for U.S. businesses interested in Ethiopia’s electric vehicle (EV) market. In January 2024, as part of its bold commitment to a green economy, Ethiopia became the first country to ban the importation of internal combustion engine vehicles. This pioneering legislation has opened doors for international electric vehicle manufacturers, especially U.S. firms, to invest in Ethiopia’s emerging EV market.
With over 120 million people, Ethiopia’s tax structure has historically limited vehicle ownership due to high taxes on combustion-engine vehicles, which include up to 100% excise tax, 15% VAT, a 10% surtax, and a 3% withholding tax. In contrast, EVs benefit from considerable tax incentives, such as the elimination of VAT, excise taxes, and a reduced customs duty rate of 15% (or even 5% for partially assembled EVs). This favorable environment, coupled with an anticipated rise in electricity supply from the Grand Ethiopian Renaissance Dam, positions Ethiopia for an upsurge in EV ownership.
The number of EVs in Ethiopia has grown to over 30,000, including both passenger and commercial vehicles. The Ethiopian government projects that, by 2032, there will be 148,000 passenger EVs and nearly 5,000 commercial EVs. Addis Ababa, the capital city, is leading the way, having invested in 110 electric buses at a cost of $15 million in 2022.
To facilitate this transition, the government is making efforts to simplify the import process for EVs and EV parts. Nine Ethiopian companies currently assemble EVs from semi knock-down kits, with brands like Kia, Hyundai, Isuzu, and Peugeot now assembled locally. The government is also exploring additional privileges for EV owners, such as constructing public charging stations and offering special license plates.
However, this recent increase in customs duty for fully assembled imported EVs may impact Ethiopia’s EV adoption. Vehicle importers expressed concern that this additional cost will make electric vehicles less accessible, potentially slowing the momentum in EV sales. “The price of vehicles is likely to go up significantly, which could affect demand in the market,” one importer noted. The increase may thus challenge Ethiopia’s green energy ambitions by placing added financial burdens on consumers interested in EVs.
The growth of Ethiopia’s EV sector is still nascent, and there is room for U.S. EV manufacturers to enter this promising market, particularly in the high-end segment where premium quality is a strong market driver. With the country’s commitment to an electric future, U.S. businesses have a unique first-mover opportunity to showcase advanced EV technologies and infrastructure solutions.
As Ethiopia balances its ambitions for a sustainable tax base with its environmental goals, the increase in customs duties may lead the government to consider additional incentives to support EV adoption. The policy change, while adding to tax revenue, will also test Ethiopia’s commitment to accessible green transportation options for its people.
