Ethiopian reform lights up Africa

Ethiopia’s is quickly becoming the poster child of Africa. In the last few years, it has overhauled its economy and its infrastructure and has one of the fastest growing economies in Africa. Its remarkable success is one worth copying and a lot of countries are watching this sub-Saharan state and considering it as a role model.

However, while economic reform is bringing in new opportunities, the local accounting industry has needed a massive overhaul to take advantage. A key move was the establishment of the Ethiopian Institute of Certified Public Accountants (ETiCPA), which was officially launched in December 2025, marking a significant milestone in strengthening the country’s financial architecture. It aims to enhance financial skills, establish a system for training globally certified accountants, and address financial inefficiencies across the nation.

Speaking at the launching ceremony, Minister of Finance Ahmed Shide said that the institute will play a critical role in sustaining Ethiopia’s rapid economic growth by building robust institutions, ensuring a reliable financial system, and developing a skilled workforce. He described its establishment as a landmark in the ongoing modernisation of the financial sector. The move is vital for implementing international financial reporting and audit standards, which have been hindered by the lack of qualified professionals.

Ethiopian accountants previously had to seek certification abroad - ETiCPA will now allow professional accreditation to be conducted domestically, which will hopefully lead to a more highly skilled workforce, easing the skills shortage. While Ethiopia has many accounting professionals, the number of certified chartered accountants remains limited. Ethiopia currently has only 250 certified accountants, a stark contrast to neighbouring countries like Kenya, which boasts 45,000, and Nigeria with 60,000. This shortage has resulted in reliance on foreign accountants.

The establishment of the institute is also crucial for the implementation of the African Continental Free Trade Area (AfCFTA), as it will help produce internationally recognized Ethiopian professionals, reducing the need for foreign expertise.

A key reform for Ethiopia accounting and for attracting foreign investment, was the Financial Reporting and Presentation Proclamation No. 847/2006, which is designed to establish a comprehensive and transparent financial reporting system. However, the lack of qualified experts has hindered its full implementation. International experiences show that professional associations can produce large numbers of qualified professionals, but in Ethiopia, such associations have made limited progress due to high costs and lengthy training periods.

“The Ethiopian accountancy profession is going through an important transition,” said Tesfa Tadesse, managing partner of TAY Audit Service LLP, a Kreston member firm. “ETiCPA is still at an early stage, but its establishment is a major milestone. Since its formation, ETiCPA has focused mainly on building internal capacity, including governance structures, staffing, membership registration, training platforms, and professional policies. It has also started registering founding members and introduced the Accounting Technician Qualification pathway. While it is still too early to judge its full market impact, the early signs are positive.”

Tax reform also continues. Ethiopia has rolled out a new advanced income tax payment system requiring large taxpayers to make quarterly payments, as the government pursues a record one trillion birr (USD$7.1 billion) in tax revenue this year. The reform, anchored in the Income Tax (Amendment) Proclamation passed by parliament on July 17, 2025, is the country’s first attempt at advance tax collection. 

It is part of a broader strategy to raise the tax ratio to gross domestic product GDP by one percentage point annually, with the goal of reaching 11% within four years. Data from Ethiopia’ finance ministry shows that as of 2023, the country’s tax-to-GDP stood at 7.5%, well below the regional average.  Kenya, Rwanda and Uganda, on the other hand, report ratios between 13% and 16%, highlighting Ethiopia’s lag in domestic resource mobilisation. 

Government officials say the move will improve government cash flow, reduce arrears, and boost compliance among companies that previously paid only at year-end. Under the new directive, Category A taxpayers — those with annual turnover above ETB 2 million (USD$14,220) — will be required to make advance payments every three months in addition to their annual settlement.

The first cycle began last year, with companies using the Gregorian calendar expected to make their initial payments in August 2025.

The amended proclamation replaces key provisions of the 2016 law, introducing an alternative minimum tax, expanding coverage to the digital economy, and adjusting income tax thresholds for the first time in more than a decade.

“Regulatory oversight has also strengthened significantly,” said Tadesse. “The Accounting and Auditing Board of Ethiopia, AABE, has conducted reviews of audit firms and is enforcing compliance with ISQM 1 and ISQM 2. This is pushing firms to formalise their systems of quality management and improve audit documentation.”

AABE has also issued a draft roadmap for the phased adoption of IFRS S1 and IFRS S2, which is expected to create growing demand for sustainability and climate-related reporting services.

“In addition, reporting entities are increasingly expected to file audited financial statements with AABE before submitting them to other users such as tax authorities, banks, and regulators,” said Tadesse. 

Demand for accounting and audit services continues to grow, mainly driven by bank loan requirements, tender participation, tax matters, shareholder expectations, and emerging capital market needs.

“Fee pressure remains a major challenge, largely because some practitioners compete mainly on price,” said Tadesse. “This creates risks of low-balling and could affect audit quality unless supported by stronger regulatory intervention.”

The launch of the Ethiopian Securities Exchange, the listing pipeline for banks and other institutions, and the opening of additional sectors to foreign investors are expected to increase demand for audit, IFRS reporting, valuation, due diligence, governance, tax, and advisory services.

“Consolidation among audit firms remains limited, but regulatory pressure, quality management requirements, technology costs, and talent shortages may gradually push firms toward collaboration, merger, specialisation, or international network affiliation,” said Tadesse.

While Ethiopia has not seen the private equity feeding frenzy that has affected other countries, that could be about to change. East Africa has secured USD$4.1 billion in investments between 2021 and 2025, as economic reforms begin to inspire confidence in investors.

Analysts say the surge in investment comes from aggressive capital market reforms, improved governance and foreign exchange liberalisation. These moves have made it easier for investors to enter and exit markets while reducing uncertainty that previously slowed capital flows. As a result, East Africa is now being seen as one of the continent’s most promising growth zones.

Although Kenya remains the biggest destination for capital deployment, investors are increasingly moving into frontier markets such as Ethiopia, Tanzania and Rwanda. This regional expansion is supported by a fast-growing private credit market, where deal volume has risen by 30% year-on-year.

The Ethiopian government continues to open up its economy to foreign investment. Last year, it introduced Directive No. 1082/2025, bringing important adjustments to the country’s investment framework. The directive opens several key trade sectors previously limited to domestic investors to foreign participation. The reforms aim to attract foreign capital, boost competition, and strengthen Ethiopia’s position as a destination for foreign direct investment (FDI).

Foreign investors are now allowed to participate directly in the export of strategic commodities, including raw coffee, oilseeds, khat, pulses, hides and skins, forest products, poultry, and livestock. 

This change significantly expands foreign involvement in Ethiopia’s agricultural and natural resource exports, which were previously heavily restricted under earlier regulations.

The import sector has also been broadly opened to foreign investment. Foreign investors may now import most goods, with a few exceptions such as fertilisers and petroleum products, which remain restricted. For the first time, Ethiopia’s retail sector is open to foreign investors, subject to specific conditions.

While the rate of change might be bewildering and perhaps frustrating for businesses, Ethiopia’s rapid economic transformation and large-scale infrastructure development are positioning the country as a model for the rest of the continent. Executive Chairman of the network Africa Prosperity, Gaby Asare Otchere-Darko, has said in interviews that Ethiopia has demonstrated remarkable progress over the past decade, particularly in industrialisation and infrastructure expansion.

The Africa Prosperity Network (APN) is a non-profit organization, founded with the objective of advancing the vision of “The Africa We Want” as outlined in the African Union’s Agenda 2063, with particular focus on promoting Africa’s prosperity and economic integration.

Otchere-Darko said that Ethiopia is well-positioned to assume greater continental leadership, calling for continued liberalisation in key sectors such as telecommunications, banking, and financial technology.

Ethiopia is transforming the country digitally, which is good news for a local accounting industry that is increasingly relying on technology to stay competitive. It has placed digital sovereignty at the heart of its national digital transformation agenda with the launch of the Digital Ethiopia 2030 Strategy.

The central pillar of the strategy is to ensure that Ethiopian data is owned, managed and protected within national borders, with the establishment of a sovereign national cloud and the strict enforcement of data sovereignty laws form the backbone of the strategy. Digital Ethiopia 2030 aims to shift the country from reliance on external digital platforms to full control over its own digital systems.

It can only be hoped that with reforms of the financial system finally being implemented that local firms will be in the position to cash in as Ethiopia’s star continues to rise.