This report provides a comprehensive analysis of the role of artificial intelligence (AI) in Ethiopia, emphasizing its potential to stimulate economic growth and tackle significant development challenges. It outlines the current state of AI adoption in the country, highlighting that while the integration of AI is still in its nascent stages, Ethiopia is making strides towards digital transformation. The report details the evolving regulatory landscape, including the introduction of the National AI Strategy and the Personal Data Protection Proclamation, which reflect a commitment to responsible governance of AI technologies. The Ethiopian Artificial Intelligence Institute (EAII) is identified as a key player in spearheading AI solutions aligned with national priorities. However, the report also notes the challenges faced, such as limited private sector participation and investment, which hinder the growth of the AI ecosystem. Furthermore, it discusses the structural barriers, including inadequate access to quality datasets and infrastructure limitations, that affect the development of AI applications in various sectors.