BY GETACHEW MINAS
The Ethiopian economy is highly agrarian, with substantial food insecurity. In recent years, however, the economy has substantially transformed, with increased agricultural productivity and significant improvements in road infrastructure. While these investments have contributed to impressive poverty reduction in recent years, Schmidt and Admasu revealed that structural transformation has been inhibited by the relatively slow development of an industrial sector with modest rates of urbanization. Future development strategies will, therefore, need to strike the right balance between pro-poor investments in agriculture and rural development, and potentially more transformative investments in urban infrastructure and industry.
With the recent share of urban residents in the total population at just 21.2 percent, Ethiopia remains one of the least urbanized and most agrarian economies in the world. This implies that the rural-urban transformation in Ethiopia is still in its early stages. However, countries urbanize at different rates for various reasons. The unique geographic position of the country continues to play a major role in determining its economic transformation. The country is landlocked with both fertile and drought-prone highlands where most of the agricultural production activities take place. In this same places most of the population resides, with the pastoralists living in the semi-arid lowlands. Relative to most African countries, farms are fragmented with dispersed land holdings, with average plot size of about half a hectare. A high share of farms generates only small surpluses for market sales.
The complexity and fragility of highland environments, including fragile soils, relatively poor market access, limited potential for irrigation, and rapid population growth continue to challenge poverty reduction strategies and food security (FAO). Studies show that the sharp and rough topography, vulnerable ecological environments, and limited access to water constrain the form and features of city development as well as linkages to towns and rural areas. Its recent history shows that the country has also suffered from conflict and economic mismanagement, particularly under the previous regimes.
Those regimes inhibited both rural and urban economic development and activities. In recent years, however, the country has made remarkable progress on a number of economic fronts. All of these may lay the cornerstone for rapid economic transformation in the coming years. The current Ethiopian government has given considerable emphasis to agriculture through its development strategy. While agricultural policies still face many constraints in terms of their effectiveness, particularly in the adoption of improved technologies, the sector has grown rapidly in recent years.
There has been rapid progress in various sectors of the economy. A substantial size of the population is now residing and earning its living from urban activities. Another indicator of progress is road infrastructure due to increase in economic networks in the country. Also, there is progress in electricity supply, communications, and education, all of which can play a “transformative” role in economic development of Ethiopia. The country’s structural transformation along a number of dimensions is a testimony to its economic progress.
A study of economic transformation requires analyses of indicators of situations on several fronts. These indicators include, among others, macroeconomic variables such as output, employment, and demographic structures, as well as migration patterns. In spite of rapid economic growth in the past decade, Ethiopia remains one of the world’s poorest countries with a per capita gross national income which is below the average of low income countries (WB). Moreover, Ethiopia’s share of agriculture in the Goss Domestic Product (GDP) is high, reflecting its low level of economic development.
This share, however, has declined steadily through time, and this was associated with growth in real GDP. This is a sign that Ethiopia’s structural transformation has begun. But, there remains a striking difference between Ethiopia’s overwhelmingly agriculture dominant economy and the economies of most other developing countries. These countries experienced much more rapid decline in the share of agriculture in GDP. Industry, including mining, electricity and water, and construction, accounted for only a smaller percent of GDP in Ethiopia. The construction sector, which had accounted for less than one percent of GDP and nearly half of the industrial sector, has grown rapidly in the past two decades.
Industrial growth was spurred by inflows of foreign aid, workers’ remittances and private transfers that funded a surge in construction investment. Large and medium scale manufacturing also increased rapidly, growing in the same period. Much of the manufacturing in Ethiopia is directly linked to agriculture. Milling and food processing account for a large percent of manufacturing value added. A large share of Ethiopia’s industry is also concentrated in and around Addis Ababa, due primarily to the fact that it is, according to Schimdt and Shiferaw, the only large market for industrial products, and provides access to imported inputs through transport links to the ports and the international airport.
The services sector, comprising trade, transport and communications accounts for over one-third of GDP. The trade sector is important in that goods and services are delivered from enterprises that produce them to the market. It delivers industrial and agricultural outputs to consumers, adding values in the process. The transport sector delivers goods and services from their origin to their destination, the market where trading takes place. In this process the role of communication is crucial, without which both trade and transport activities would be futile efforts. All these sectors contribute to the GDP of a country that is in the process of development with the goal of raising the living standards and wellbeing of the people. The service sector is, therefore, crucial in promoting welfare and reducing poverty.
Welfare and poverty rates in rural areas have been consistently higher than those in urban areas in Ethiopia. However, the gap has narrowed. Studies show that rural poverty fell steadily in the last few years. Rural poverty has fallen even more than urban poverty such that the rural-urban poverty differential is getting narrower. It may be low by international standards, and in some non-monetary indicators rural areas still lag well behind urban areas. Studies suggest that malnutrition is higher in rural areas than in the urban areas. Moreover, rural access to education and health services still lags well behind urban areas.
Nevertheless, many areas of the country remain drought prone and very poor. Surveys show socioeconomic improvements on a number of fronts, including important health, nutrition and education indicators. The massive surge in primary enrollment has still not sufficed for Ethiopia to catch up to levels observed in other developing countries. Moreover, the quality of education remains a “significant” concern. Considering nutrition, health and education outcomes from surveys, total and food poverty trends, child stunting, child underweight, child wasting, low body mass, anemia among children and mothers, child mortality, diarrhea, illiteracy, Ethiopia is fighting underdevelopment, inherited from the past.
The government has embarked on urban development policy, which is operational at national level. The policy has two principal packages: the Urban Development Package (UDP) and the Urban Good Governance Package (UGGP). These packages have initiatives and targeted programs that include the strengthening of urban-rural and urban-urban linkages for sustainable development. They also included expanding growth opportunities through balanced development of urban centers. They focused on reducing urban poverty and unemployment, with increasing participation of the community in different aspects of urban development and constructing strong partnerships. Social networks are exceedingly important in the case of migration to the urban areas.
The two packages highlight the need for expansion of small and micro enterprises in urban areas. They focus on construction of low cost houses. They facilitate improved access to land for private sector investments and urban residents including the poor with expansion of social services. These packages also outline an urban development strategy with the major objective of reducing urban unemployment, developing integrated housing in order to reduce slums in Ethiopia’s main cities, improving access to urban land infrastructure and services and promoting urban-rural and urban-urban linkages. The packages also focus on “small” town development as a key instrument to enhance forward and backward economic linkages.
The strengthening of urban-rural linkage that creates connection, relation and network between production, transport, communication and marketing is crucial for economic development. This linkage promotes the use of productive resources of the country such as labor, capital, finance and managerial skills.
The Ethiopian Herald February 11/2021
