Turning the Tide Ethiopia’s $2 Billion Logistics Drain, the Race for Economic Revival

For several years, Ethiopia has suffered a silent but devastating financial bleed. The culprit is a broken logistics system, costing the national economy an estimated USD2 billion annually. This staggering sum—lost through stranded coffee trucks and missed industrial export deadlines—matches or even exceeds any other single competitiveness constraint the nation faces.

The government now tackles this systemic failure head-on, deploying a bold wave of reforms designed to reduce logistics costs to below 15% of its expenditure. This is not merely about moving goods faster; it is about ending a vicious logistical cycle, unlocking Ethiopia’s vast economic potential, and turning a profound national drain into a powerful growth engine.

The crucial question remains: can these reforms finally halt the economic haemorrhaging and save the vital USD 2 billion annual losses? EBR’s Abel Kindie has spoken with industry leaders and policy experts to understand the scale of the problem and offer this report.

The Exporter’s Anguish: The Cost of Waiting

At a warehouse near Addis Ababa, Yosef Tesfaye manages coffee sacks destined for global markets. Working as an agent for the Sucafina Group, a Geneva based coffee roster established in 1977, he constantly battles the delays that plague the delivery of Ethiopia’s prized coffee to international buyers. His frustration is encapsulated in a simple, potent analogy: “If I order an umbrella for the summer and it arrives after the rainy season, what use does it serve me?” This dilemma perfectly captures Ethiopia’s enduring logistics problem: goods routinely arrive too late, failing to meet crucial international demand and timelines.

Tameru Tadesse, a young entrepreneur and former lecturer, focuses on exporting specialty coffee, primarily from Sidama, to the rapidly growing market in China. He acknowledges the business has seen improvement since the currency floatation policy was introduced on July 29, 2024. However, when pressed about his most significant obstacle, his reply is immediate and stark: “logistics.” He clarifies that persistently high logistics costs actively erode export profitability, undermining the positive gains made in currency reforms and market access.

The movement of coffee from Ethiopia’s diverse regions to the international market involves several costly steps. Coffee must first travel from rural collection points to cleaning plants near Addis Ababa before heading to Djibouti. Tameru explains that each stage adds significant, often unnecessary, logistical expenditure.

The current transportation system presents exporters with difficult choices and steep tariffs. Trucks typically take up to five days to travel from Addis Ababa to Djibouti, a journey frequently complicated by unforeseen delays. Exporters now overwhelmingly favour rail for container transport to Djibouti, which costs a fixed rate of USD 765 per 20-foot container. This makes trucking costs considerably higher, yet even the rail system is subject to delays and idle fees that compound the overall expense.

Tameru highlights that the largest single cost occurs at the Port of Djibouti. Due to the endemic inland logistical chaos within Ethiopia, cargoes frequently arrive late and miss their scheduled vessels. “If your cargo misses a ship,” Tameru points out, “you may need to wait for a month to get another ship.” For that entire month, the cargo stays at the Port, incurring huge daily payments. Exporters must also contend with loading, unloading costs, and what Tameru describes as several unnecessary fees imposed by Djiboutian authorities.

One of the key bottlenecks is the sheer unpredictability of the entire trade corridor, amplified by total dependence on a single port. The unpredictability directly translates into excessive dwell times and high demurrage costs. Logistic experts’ advice Ethiopia to transition from sequential, point-to-point transport to fully integrated multimodal systems and implement Electronic Data Interchange (EDI) solutions comprehensively. They recommend synchronising customs and transport documentation, ensuring cargo transfer between road, rail, and port is seamless and immediate to addresses the root cause of the demurrage fees at Djibouti.

The Macroeconomic Drain

For decades, these logistical inefficiencies have systematically drained Ethiopia’s economy of approximately USD2 billion annually. This enormous figure highlights how weak logistics remains the nation’s largest hidden cost, severely threatening the feasibility of ambitious plans such as participation in the African Continental Free Trade Area (AfCFTA). The World Bank’s Ethiopia Logistics and Trade Integration Assessment strongly support this view, warning that unless logistics is tackled as the primary structural obstacle, Ethiopia’s ability to compete internationally will continue to be fatally undermined.

Ethiopia’s logistics costs stand among the highest in Africa, representing a fundamental threat to the country’s core competitiveness. Accounting for a staggering 25% of government expenditure, logistics poses a major national challenge. The current reform agenda explicitly aims to lower this burden to under 15%. This is expected to pivot Ethiopia towards genuine global competitiveness and efficient market participation.

The structural logistics challenge is primarily rooted in Ethiopia’s landlocked status, which forces over 95% of its trade to pass through Djibouti Port. Logistical costs now account for more than 20% of Ethiopia’s GDP, a proportion that is double the average observed in successful emerging markets such as Vietnam. While some current surveys predict that cost growth may continue, the government has set a firm policy to reverse this trend.

Importers and exporters have learned to operate within this dysfunctional system by developing costly workarounds. Ashenafi Tesema, an importer of essential medical and agricultural supplies, explains that unpredictability has sadly become routine business practice. “We keep larger stocks than we need,” he told EBR, detailing how routine stockpiling is now standard practice to insulate businesses against persistent uncertainty. This practice, however, severely ties up capital, limits critical business flexibility, and unnecessarily raises consumer prices, impacting everything from fertilisers in the countryside to vital medicines in urban hospitals.

Industry insiders explain that the core solution involves establishing a predictable supply chain. This means the immediate and full operationalisation of the Modjo Green Logistics Centre which requires finalising the major expansion and modernization project, transforming the existing dry port into a state-of-the-art logistics hub. This must enable the integration of all necessary services—customs clearance, payment, and warehousing—into this one facility to eliminate uncertainty and make ‘just-in-time’ inventory management a viable option for businesses.

The Systemic Friction Points: Infrastructure and Governance

Girma Buta, a manager at Akakas Logistics with decades of experience in Ethiopia’s supply chain complexities, observes that the inefficiency is a collective problem. It stems from a coalescence of friction across several critical institutional and operational points. He identifies a major constraint in the “excessive and improper charges levied by shipping agents,” which immediately inflate the cost of imports. Externally, the frequently changing rules and complex bureaucratic procedures imposed by Djibouti Customs cause significant and costly delays for transit goods.

Domestically, the Ethiopian Railway Corporation (ERC) presents its own set of challenges. Although the rail service itself offers a smooth delivery process, its operational rules severely hinder overall efficiency. Girma notes that ERC currently mandates exporters to complete all private-sector manageable processes before they can access freight services. This policy creates unnecessary delays and overloads the public entity with tasks that private companies could efficiently handle. Furthermore, chronic issues such as the severe shortage of containers, often caused by the slow unloading and clearance process at dry ports (particularly observed between May and September), represent a substantial and recurring barrier to the timely movement of goods.

The logistical challenge’s heart lies in an aging and complex network of physical infrastructure. This includes aging roads, a severe saturation on the primary Djibouti route, the absence of a national fleet management system, and overstretched dry ports.

The distribution of industrial parks across the country also illustrates a profound infrastructure mismatch. Parks like Hawassa Industrial Park sit 718 kilometres from Djibouti Port, while the Mekelle Industrial Park is over 1,000 kilometres away. According to a World Bank study, transport costs from these distant inland parks can account for up to 27% of the total product value, compared to a maximum of 10% for parks located closer to the coast. The decision to favour regional quota balance and social inclusion in industrial park placement, while socially justified, has become a direct obstacle to export competitiveness.

Even the country’s rail infrastructure, often touted as a symbol of modern efficiency, is underperforming. The Ethio–Djibouti Railway, intended to be the backbone of national logistics, currently moves only about two million tons of cargo annually, falling far short of its 6.3-million-ton potential. This underperformance is directly attributed to a persistent shortage of operational locomotives and recurring signaling problems. International Trade Centre data also indicates that disruptions caused by bad roads significantly raise fuel and maintenance costs by up to 30% for haulers.

The most critical bottleneck here is the over-centralisation of operational control (e.g., ERC mandating pre-clearance) combined with the strategic mismatch between industrialisation goals and logistical efficiency. Experts suggest the government to fully delegate all non-core freight processes to licensed Multimodal Transport Operators (MTOs), ensuring ERC focuses only on moving trains safely and efficiently. Crucially, future industrial development policy needs to introduce a logistical cost offset mechanism to subsidise the cost of transport from remote but socially important industrial parks, thereby reconciling the dual goals of equity and competitiveness.

Geopolitics, Governance, and the Reform Blueprint

The fragility of Ethiopia’s trade logistics is not only technical but also deeply geopolitical. The nation’s near-total dependence on Djibouti, while historically stable, carries inherent, immediate risks. “The Houthi disturbances in the Red Sea changed our daily routine into high-stakes decision-making,” says Worku Lema, a Logistics Transformation Officer at the Ethiopian Maritimes Authority. Worku explains that a simple ship delay quickly escalated into a chain reaction, affecting everything from rising insurance premiums to eroding customer trust globally. This recent regional volatility underscores the urgent need for Ethiopia to secure alternative port access.

Within the domestic system, persistent governance gaps actively exacerbate existing inefficiencies. Corruption and bureaucratic hurdles, often involving illegal checkpoints unknown to the Customs Commission, continue to terrorise logistics companies and truck drivers. Zerihun Assefa, the Commission’s Public Relations Head, notes that significant reforms have drastically improved these underlying problems. “Digitization has simplified 40% of our procedures,” Zerihun explains, citing an internal audit that confirms measurable, systemic progress. Nonetheless, rogue checkpoints and informal payments continue to add costly friction along crucial trade routes, undermining the benefits of wider reform efforts.

Until recently, Ethiopia’s logistics suffered from fragmented oversight and overlapping mandates across customs, rail, ports, and freight forwarding. The government’s 10-Year Perspective Plan (2020) strategically prioritised logistics reform as the foundation for industrial growth. Under this plan, key agencies have initiated unprecedented coordination of reforms. A major shift has been the issuance of Multimodal Transport Operation licenses to private companies.

Worku, overseeing the plan’s implementation, describes the progress as encouraging. He notes that independent assessments show Ethiopia’s Logistics Performance Index rank has improved dramatically because of 98 targeted interventions, including the strategic opening of nine new dry ports and the digital tracking of cargo movement. These comprehensive changes have already reduced port dwell times from an unacceptable 12 days to below seven, according to official data from the Logistics Cluster.

The Modjo Green Logistics Centre, financially supported by a World Bank loan, represents the next critical phase of modernisation. This facility is explicitly designed as a model dry port, integrating key services such as warehousing, customs clearance, and sustainability features, including digital management systems and solar power. When fully operational, the Modjo centre will function as a central logistics hub, efficiently connecting industrial parks in the central and southern corridors directly with Djibouti Port.

A major focus here has been the technical rehabilitation of the Ethio–Djibouti Railway. After years of underperformance, the railway is undergoing major restoration. The Ministry of Transport and Logistics reports that sixteen essential locomotives have been returned to service, alongside significant upgrades to the railway’s signaling systems. These technical improvements have already expanded critical cargo capacity and demonstrably reduced average transit times.

Beyond the rails, Ethiopia invests heavily in dry port expansion and sophisticated digital freight systems. At Modjo, the government has implemented Electronic Data Interchange systems to synchronise customs, transport, and trade documentation. The overarching goal is to achieve seamless cargo transfer between modes of transport, a global benchmark for efficiency.

Private-sector engagement is now strongly encouraged through the MTO licensing framework. The Ethiopian Freight Forwarders and Shipping Agents Association, under the leadership of Elizabeth Getahun, has actively advocated for clearer rules and standardised metrics. “Our biggest challenge is consistency,” she stated clarifying the implementation gaps routinely reduce the measurable impact of otherwise sound reforms. Her call echoes a broad industry consensus: the momentum of reform must be met with persistent, predictable execution across the entire chain.

The twin bottlenecks here, as articulated by Elizabeth, are the lack of consistent enforcement (allowing rogue checkpoints) and the implementation gap that prevents digital and physical reforms from fully integrating.

To address these complex policy bottlenecks, the creation of a powerful, policy experts recommend central National Logistics Coordination Council with cross-ministerial authority to enforce standardised operating procedures and eliminate bureaucratic overlaps. They also suggest that the Customs Commission must rapidly scale its digitization efforts to cover all border and inland checkpoints, using GPS tracking and digital logs to actively eliminate illegal checkpoints and enforce accountability.

AfCFTA, Global Benchmarks, and the Road Ahead

The African Continental Free Trade Area presents Ethiopia with both an enormous opportunity and intense competitive pressure. With its 1.4 billion consumers and a projected 45% increase in intra-African trade, AfCFTA could redefine Ethiopia’s export map. Yet, Solomon Tilahun, a logistics expert and researcher at the Policy Studies Institute (PSI), warns that without efficient logistics, this promise could be lost. “Competing means improving customs efficiency, infrastructure quality, and shipment timeliness,” he warns. “We can’t afford to lose time on what others solved a decade ago.”

AfCFTA also places a direct test on Ethiopia’s ability to successfully handle regional corridors. The Mombasa–Addis and Berbera–Addis routes are finally emerging as essential alternative gateways that could drastically reduce the risky reliance on Djibouti. However, these corridors require heavy investment in roads, rail, and complex customs harmonization agreements with partner nations. For now, most of the Ethiopia’s trade remains critically tied to a single, fragile artery.

During the National Railway Business and Investment Summit last October, the State Minister of Transport and Logistics, Dhenge Boru, heavily stressed the role of railways as the true driving force behind Ethiopia’s national logistics leap. Dhenge announced that several plans are underway to substantially reduce Ethiopia’s huge logistics costs. “Our strategy revolves around advancing with innovative technology and policy, connecting industrial parks, processing centres, and trade corridors,” he stated, “ultimately creating a unified and efficient national logistics ecosystem.” The central vision to expand the Addis-Djibouti railway to a massive 5,000-kilometre line under the national master plan.

Early signs of progress are visible, but the transformation remains structurally incomplete. “Recovering the $2 billion Ethiopia loses annually could finance our next phase of industrial growth,” Solomon notes. Government officials share this optimism but caution strongly against any form of complacency.

Ethiopia’s 10-Year Perspective Plan has set ambitious benchmarks: lowering logistics costs to 15% of GDP, doubling cargo volume through the Ethio–Djibouti corridor, and expanding digital clearance systems to cover all border points. Achieving these targets will require not only significant funding but also unprecedented coordination across ministries, agencies, private actors, and neighbouring countries.

The final structural reform involves the creation of the National Logistics Coordination Council. This body will oversee policy alignment, detailed performance tracking, and crucial dispute resolution. Such a powerful council could effectively bridge the gap between abstract planning and tangible execution, which has been one of the sector’s most recurring historical weaknesses. Concurrently, private investment is expected to play a decisive and central role. The MTO reform allows the opening of the logistics market for companies specialising in freight forwarding, port operations, and warehouse management. This essential market shift is anticipated to improve efficiency and drive innovation, as competition naturally incentivises service quality and cost reduction.

Ethiopia’s logistics sector stands decisively at a crossroads. On one side lies the structural inertia of decades-old inefficiencies, while on the other, a meticulously crafted blueprint for national transformation is being executed. The government’s clear recognition of logistics as an economic backbone—rather than a mere afterthought—marks a definitive turning point in national policy. The story that began with Yosef’s “umbrella” analogy is, in many ways, a metaphor for Ethiopia’s broader economic evolution. Once, goods consistently missed their market window because the internal system was utterly broken. Now, targeted reforms are finally beginning to close that debilitating gap.

Trains are moving with renewed capacity, dry ports are expanding rapidly, and digital systems are replacing costly, manual paperwork. Yet, persistence will ultimately determine the level of final success. Promises and plans documented on paper must be institutionalised, rigorously monitored, and efficiently scaled across all corridors.

If Ethiopia manages to align infrastructure development, governance enforcement, and market efficiency, it can transform its logistics system from a devastating USD2 billion drains into a powerful and sustainable driver of growth. With that shift, the next shipment of specialty coffee may arrive on time. EBR