Leapfrogging to an EV future: Ethiopia’s green market model

One of the main concerns in creating an infrastructure-based market from scratch is how to ensure that all the necessary components align on schedule to make the market function effectively. 

When infrastructure is not solely dependent on public resources, then planning, licensing, incentives, legal frameworks, and regulatory support must be addressed holistically and in a timely manner. Investors need assurance that the market will materialize and be both profitable and sustainable, while suppliers and consumers want confidence that their financial commitments are secure. Delays or a lack of coordination can lead to market failures and deter these investments. Such complexities, particularly in relation to new environmentally focused markets, have been discussed in many forums and reports.

Organizations such as the OECD have published toolkits and guidelines on holistic market creation approaches to support the green transition. Additionally, research from E3G emphasizes that a successful transition requires integrating multi-level governance, aligning financial and regulatory instruments, and fostering cross-sectoral collaboration to ensure resilience and sustainability in green market development. Their framework stresses the necessity of long-term strategic planning, stakeholder engagement, and adaptable policy mechanisms to navigate the uncertainties of transitioning toward a green economy.

In this context, during my recent visit to Addis Ababa, it was interesting to delve into Ethiopia’s bold decision to ban the importation of internal combustion engine (ICE) vehicles. Since 2024, the country only permits the import of electric vehicles (EVs). The swift implementation of this decision, taken without a transition period and in the absence of the necessary infrastructure, raised concerns both within Ethiopia and internationally. Many feared this move would create transportation chaos, given the country’s limited charging stations, high electricity outage rates, and lack of a well-established EV servicing network. However, as I looked deeper into Ethiopia’s approach to this major policy shift, I found that the government’s strategy could serve as an instructive case study for other countries seeking to transition towards sustainable mobility and other sustainable markets.

Ethiopia is the second-most populous country in Africa and among the least developed nations in the world. Ethiopia's economy, which has seen rapid growth in recent years, remains highly vulnerable to climate change. A significant portion of Ethiopia’s workforce is engaged in agriculture, with nearly 80% of the population residing in rural areas. The government’s push towards a climate-resilient green economy dates to 2011 and is also set in its updated Nationally Determined Contribution (NDC) in 2021, which included an ambitious emissions reduction target of 68.8%.

The decision to ban ICE vehicle imports was driven primarily by economic and environmental factors. Ethiopian Minister of Transport and Logistics Alemu Sime Feyisa cited the country’s heavy reliance on fossil fuel imports, which exceed USD 5 billion annually, as a major motivation. These imports put pressure on Ethiopia’s foreign exchange reserves, prompting the government to seek alternatives that would reduce dependency on imported petroleum. While the transport sector accounts for a relatively small share of Ethiopia’s total greenhouse gas emissions compared to agriculture, waste, biomass, and land-use changes, shifting transportation energy demand from petroleum to electricity aligns with the country’s long-term sustainability goals.

The government aims to increase the number of imported EVs from the current 100,000 to 500,000 over the next decade, which would replace 95% of fuel-powered vehicles. Considering Ethiopia's low vehicle ownership rates - only around one vehicle per 100 people - this shift presents a unique opportunity to leapfrog directly into an EV economy. Projections by the World Bank indicate that Ethiopia’s total vehicle stock is expected to grow by over 300% between 2015 and 2035, making Ethiopia's move toward electrification very timely. Given that more than half of Ethiopia’s vehicles are registered in Addis Ababa, the government can initially focus on expanding charging infrastructure in the capital.

Nevertheless, despite its ambitious vision, Ethiopia faces several challenges in executing this transition. One of the most significant hurdles is the lack of charging infrastructure. Many areas, particularly outside urban centers, do not have charging stations, making long-distance travel impractical for EV users. To address this, the government announced plans in early 2025 to expand the national EV charging network, with new stations planned every 50 to 120 kilometers. Additionally, a regulatory framework for EV charging has been established. Ethiopia's Petroleum and Energy Authority approved guidelines for EV charging systems, covering licensing, service tariffs, power supply standards, and technical and safety standards for residential and commercial charging points. 

Frequent electricity outages in Ethiopia pose another major obstacle to EV adoption. While the country has invested in large-scale renewable energy projects such as the Grand Ethiopian Renaissance Dam (GERD) and the Koysha Hydropower Dam, ensuring a stable electricity supply remains a work in progress. 

Furthermore, the limited availability of trained EV mechanics and servicing centers presents an additional challenge. Unlike traditional ICE vehicles, EVs require specialized diagnostic tools and software integration with manufacturers, most of whom are currently based abroad. With the majority of Ethiopia’s imported EVs coming from China, the country has become dependent on foreign expertise for maintenance and spare parts. While partnerships between foreign manufacturers and local technicians could provide long-term solutions, Ethiopia should develop domestic technical capacity to reduce reliance on foreign expertise and to leverage this policy change to create green jobs and an industry around the electrification transition.

Financial constraints also make EV adoption challenging for Ethiopian consumers. EVs remain significantly more expensive than their ICE counterparts, and traditional financing mechanisms are often inaccessible. To address this, the Ethiopian government has introduced tax incentives: fully assembled EVs are subject to a 20% customs duty, while semi-assembled (semi-knocked-down) EVs incur a 5% duty. Locally assembled EVs from completely knocked-down (CKD) kits are exempt from customs duties altogether. 

Despite these incentives, high upfront costs and concerns about battery longevity deter potential buyers. EVs are known to depreciate faster than conventional cars in other markets. Addis Fortune has reported that this has led financial institutions and insurance providers to respond cautiously. Credit providers are tightening lending policies and imposing shorter repayment periods on EV loans while insurance providers are grappling with the challenges of limited knowledge about EVs and the increased costs of spare parts, leading to higher insurance premiums. 

To ease affordability concerns, innovative financing solutions such as the Utopia Green Fund have been introduced. Launched in January 2025, this initiative offers interest-free lease payments and savings-based financing options, enabling customers to spread payments over extended periods of up to 10 years. In the short term, however, the ban on ICE vehicle imports has led to an increase in demand for used ICE cars. With a finite supply of these vehicles, prices have surged, creating a challenge for consumers unable to afford EVs. 

During my short visit in Ethiopia, I have heard that while locals understand the rationale of this policy shift, they are also very frustrated because of the inconveniences they face in the present. Michael Tesfaye, who co-founded  Ethiowander, shared how dependent his company is on transportation in Addis Ababa and around Ethiopia,and highlighted his concerns over the rising cost of used ICE vehicles and the high price of EVs. Tesfaye also pointed out that while the government’s financing solutions are appreciated, they are not sufficient for many struggling with the cost of living. He also raised doubts about whether existing road infrastructure can support widespread EV adoption and hopes that continued government investment in infrastructure and incentives will ease the transition.

Looking ahead, Ethiopia's success in establishing an EV-based economy will depend on the government's ability to maintain a holistic policy approach. By simultaneously addressing infrastructure expansion, regulatory frameworks, financial incentives, capacity building, and domestic manufacturing, Ethiopia can lay the groundwork for long-term success. The government is pushing to develop local EV battery manufacturing by leveraging the country's mineral resources. This appears to be the right move to help Ethiopia strategically reduce reliance on imports and along with locally assembled EVs, position itself as an EV hub in Africa.

While challenges remain, Ethiopia's comprehensive approach to transitioning to EVs suggests a promising trajectory. The coordinated efforts to address infrastructure gaps, provide market incentives, and enhance technical capacity indicate that this ambitious policy could indeed transform the country’s transport sector. It also creates opportunities for investments in the country. In addition to market mechanisms and developing infrastructure, it is important not to neglect enhancing vocational education and training for EV technicians and other professionals in the field, just as EVTech conducts in Europe. 

If successful, Ethiopia will not only achieve energy independence in its transport sector, maintain its foreign currency reserves, and reduce air pollution and GHG emissions, but also set a precedent for other developing nations seeking to transition toward sustainable mobility while at the same time developing a market based on local industry and know-how. In the meantime, other countries should take note of Ethiopia's experience to develop their own sustainable infrastructure markets. 

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