Up to 30 percent of government revenue lost each year

Ethiopia is losing up to 2.2 percent of its annual GDP growth and between 10 and 30 percent of government revenue to illicit financial flows (IFF), according to data highlighted in the African Development Bank’s (AfDB) 2025 Country Focus Report on Ethiopia.

The staggering figures pose a major obstacle to economic stability and resource mobilization in a country already struggling with foreign exchange shortages, debt stress, tax collection, and conflict-induced development setbacks.

The AfDB report identifies trade mis-invoicing, particularly import over-invoicing and export under-invoicing as the dominant channels of IFF, accounting for 55 to 80 percent of the total illicit outflows from Ethiopia.

These illegal practices, largely tied to cross-border commerce and financial crime networks, result in the loss of billions of Birr in taxable revenue and cripple Ethiopia’s public investment capacity.

“Currently, these deep financial movements are not formally documented,” a financial intelligence expert told The Reporter. “There’s no reliable registration process. The routes used may or may not be lawful—but we simply can’t be sure. That’s the nature of these crimes—they’re hidden, sophisticated, and deeply embedded in international networks.”

Despite legal reforms such as the 2013 Money Laundering and Terrorism Financing Proclamation, implementation challenges persist.

Ethiopia’s efforts to curtail IFF remain constrained by weak enforcement, poor inter-agency coordination, and inadequate financial intelligence frameworks, according to sources familiar with the sector.

While institutions like the Ministry of Revenues and the Addis Ababa Revenues Bureau are stepping up collaboration, critics say this is not enough.

“We need sector-specific studies, deeper investigations, and stronger international collaboration,” the expert added. “Right now, Ethiopia doesn’t even have a comprehensive integrity index specific to financial crimes in Ethiopia.”

However, the African Development Bank country report noted that Ethiopia’s revenue shortfalls are not due to IFF alone.

AfDB also cited inefficient tax law enforcement, unchecked tax incentives, and logistical constraints as barriers to domestic resource mobilization.

While the government has introduced reforms such as the digitization of tax collection, autonomy for the Ministry of Revenues and Customs Commission, and revised VAT policies, these efforts have not been enough to close revenue leaks.

“The legal framework exists, but the capacity to enforce and trace violations needs improvement,” said an official close to the National Financial Intelligence Committee, which is chaired by the Prime Minister. “Trade-based money laundering, in particular, is now being recognized as a standalone criminal methodology. It requires systemic, multi-stakeholder responses.”

Ethiopia’s mining sector, for instance, has long been vulnerable to informal transactions and unregulated exports. Although it contributes 14 percent of exports, its share in GDP and government revenue has still yet to reach one percent. Reports indicate that this is as a result of widespread illegal mining, institutional gaps, and regulatory inconsistencies.

The country’s ambitious goal to boost the mining sector’s GDP share to ten percent by 2030 remains out of reach without major reforms in transparency and investment governance, analysts warn.

On the other hand, the bank’s report also indicated that illicit financial flows and policy weaknesses have compounded Ethiopia’s difficult business climate. It states that between 2021 and 2023, business registrations dropped by nearly 20 percent, from over 3.8 million to 3.1 million.

In Addis Ababa alone, new license registrations fell by 39 percent, while license renewals declined by 28 percent over a three-year period, it noted.

In a report last year, officials at the Addis Ababa City Administration Trade Bureau stated they had issued close to 81,000 new business licenses over a nine-month period, while more than 27,000 traders had voluntarily canceled their business permits. Trade officials also conceded that a similar number of licenses had been withdrawn over the preceding year.

Still, the AfDB notes promising developments: the government is pushing for a market-determined exchange rate, expanding digital financial services, and preparing to launch the Ethiopian Securities Exchange (ESX)—a move that could diversify business capital and reduce dependence on informal financing.

Investigations into suspicious financial flows, including one case involving large sums of undeclared cash at Bole International Airport, are ongoing—but fragmented, sources told The Reporter.

“There are red flags everywhere,” the financial intelligence expert stressed. “But we lack a full picture. There’s no definitive data on how widespread these activities are, who is involved, or the actual volume of capital loss. More work—much more—is needed.”

International frameworks such as the Financial Action Task Force (FATF) are aiding Ethiopia’s intelligence-sharing efforts. However, enforcement remains mostly reactive, triggered only when illicit flows pass through formal banking systems.

Analysts caution that until systemic monitoring and real-time financial intelligence become standard practice, the Ethiopian economy will remain vulnerable to external leakages and internal inefficiencies.

With annual GDP and revenue losses running into tens of billions of birr, experts warn that unless comprehensive reforms are implemented, these “hidden drains” will continue to stunt Ethiopia’s fiscal growth and social progress.

“Illicit finance is no longer a shadow issue—it’s a structural one,” the official said. “It’s time Ethiopia treated it as such.”