About Ethiopia
    Economy

  • The government’s long-term economic development strategy – Agricultural-Development-Led-Industrialization (ADLI) – is geared to the transformation of the economic structure. The strategy involves an export-led external sector, and internal emphasis on agriculture to supply commodities for exports, domestic food supply and industrial output, and expand markets for domestic manufacturing. The development strategy is supported by an economic reform program developed in cooperation with the World Bank and the International Monetary Fund (IMF) and by a series of structural adjustment programmes. There have been major gains from the reform programme, and from liberalization of the economy, including low inflation, fiscal discipline and low government borrowing, infrastructure improvement and the growth of the private sector after a privatization program was initiated in 1995 under which a majority of former government-owned firms have been denationalized.

     

    The current Growth and Transformation Plan (GTP), finalized in November 2010, was built on the implementation of previous poverty reduction strategies, the Sustainable Development and Poverty Reduction Program for 2002/03−2004/5 and the Plan for Accelerated and Sustained Development to End Poverty for 2005/06−2009/10 (PASDEP) which laid out the directions to achieve the Millennium Development Goals by 2015 and the basis for Ethiopia to reach ‘middle-income’ status by 2020−25.  In March 2012, the IMF said Ethiopia would achieve this earlier if its rapid growth continued.

     

    PASDEP provided for substantial progress in the provision of social services such as education, health and infrastructure through investing in physical and human capital formation and allocating over 60% of the budget to pro-poor expenditure. The spending on poverty-targeted sectors (both recurrent and capital) steadily increased during this period rising from 42.0% of total expenditure in 2002/03 to over 64% and this has continued.  The effects were visible in significantly improved education and healthcare services. Primary school net enrolment rose from 77 percent in 2004/05 to 82 percent in 2009/10, and is now over 96%; completion rates also increased steadily. Secondary enrolment also rose steadily. Tertiary level education increased sharply. The proportion of fully immunized children rose from 20 percent in 2006 to 66 percent in 2010; the percentage of births attended by healthcare workers increased from 16 percent to 29 percent during the same period. In 2005 the maternal mortality was 871 per 100,000 births; this declined to 590/100,000 by 2010. Under-five child deaths fell from 200/2000 to 75/2000 in 2009. Health service coverage increased from 30% to 89% during PASDEP.

     

     In 2004, Ethiopian GDP (Gross Domestic Product) was about 63% of Kenyan GDP and 4.6% of South African GDP; by 2009, the comparison was 97% and 10.1% respectively. Per capita income had increased from $138 to $344 in 2009. In 2009/2010 the economy grew by 10.4%, compared to the estimated growth rate of 6.0% for all Sub-Saharan Africa. Agriculture and allied activities contributed 30% to the increase while the service and industry sectors provided 56% and 13% respectively. Inflationary pressure continued to ease due to prudent monetary and fiscal policies and other government measures, and annual average inflation dropped to 2.8% in June 2010 against 36.4% a year earlier. It has since fluctuated sharply, rising sharply in 2011 and remaining a serious problem in 2012.

     

    The financial sector registered robust growth in 2009/10 despite global economic shock and financial crisis. The total number of banks operating in Ethiopia reached 15 as two new private banks joined the industry during the fiscal year. The number of bank branches also increased by 45 from 636 to 681. Banks were able to register high profit, enhance resource mobilization, expand their capital level and reduce their non-performing loans to a minimum level in 2009/2010. The fiscal year 2009/2010 saw strong performances in imports and exports, a surge in services and transfers and some narrowing of the current account deficit. Export proceeds amounted to US$ 2.0 billion, 37% higher than the previous year with increases of all major export items except leather products and pulses. Service inflows rose by over 18%. The total import bill grew by 7%, reaching US$8.3 billion, due to increases in the cost of semi-finished goods, fuel, capital goods and consumer goods.

     

    Overall, during the period of PASDEP the non-agricultural sector of the economy showed a 23.6% expansion as a result of the combined effects of the growth in the industry and service sectors. The main factor for industrial growth came from the substantial investments in hydroelectric power generation.  Manufacturing showed an annual growth rate of 22.5 percent; mining surged by 95%, though construction was affected by a 1.2% slow down because of a subsequently rectified shortage of cement.  In the service sector financial intermediation showed over 30% annual average growth between 2004/5 and 2009/10 as the financial sector continued to expand along with the country’s economic growth.

     

    The growth in agricultural output was largely attributed to improved productivity aided by favourable weather conditions and appropriate economic policies. The amount of land under cultivation increased steadily between 1996 and 2008, reaching 11.2 million hectares in 2009/10. The production of major crops, including cereals, pulses and oilseeds, increased by some 5.6% that year. Total agricultural production rose from 119.1 million quintals in 2004 to 191 million in 2009 with productivity averaging 15.7 quintal/hectare (up from 12.1 quintal/hectare in 2004/05). Between 1996 and 2008, cereal yields, aided by significantly greater use of fertilizer, increased by about 40%. Agriculture averaged 8.4% growth during PASDEP (2005/6-2009/10) and provided the basis for the average double-digit economic growth after 2004/2005.

     

    The government has developed a pro-active policy for the horticulture industry, providing tax and excise duty rebates, allowing full profit repatriation, making land and finance available at low cost, and actively promoting trade standards and the creation of institutions to train skilled sta. The government has encouraged investment in agro-business projects and in land, particularly in areas where land is under-utilized or uncultivated. Some larger projects have been leased to foreign investors but most of those agreed between 2005 and 2010 involved Ethiopian investors. Largely in the southern and western parts of the country in the regional states of the SNNP, Benishangul Gumuz and Gambella, these are intended for the production of wheat, maize and rice as well as bio-fuel products sourced from sugar, jatropha, castor and palm. Generous leases with performance-linked options for renewal are tied to local employment and development as well as provision for sales to local or regional markets. Projects have to fulfil specific requirements in terms of economic benefit and sustainability with respect for the rights and interests of local populations. Any movement of people for agro-industrial development or for hydro-power projects, for example, must be voluntary. click here for more.  

     

    During the period of PASDEP Ethiopia became one of the fastest-growing non-oil economies in Africa averaging 10-11% growth rates, and the economy has continued to increase at this rate. On the basis of the achievements of the Plan for Accelerated and Sustained Development to End Poverty the aims of the Growth and Transformation Plan (GTP), 2010/11-2014/15 are to remove finally the chronic food insecurity from which Ethiopia has suffered for so long, achieve high growth of at least 11% within a stable macroeconomic framework; achieve the MDG targets particularly in the social sectors, and establish a stable democratic and developmental state. The GTP identifies sustained rapid growth, emphasis on agriculture, the promotion of industrialization, investment in infrastructure, enhancement of social development, strengthening of  governance, and the empowerment of youth and women as strategic pillars, and defines three strategic directions for strengthening governance: increasing implementation capacity; ensuring transparency and combating corruption; and securing participation in governance – all within a stable macroeconomic framework. It also underlines the importance of prioritizing public sector investment based on rigorous cost-benefit analysis, improving data quality and implementation capacity, maintaining fiscal prudence and continuing tax reform, containing inflation and promoting monetization and competition.

     

     

    By the end of the plan, the government expects to achieve inter alia a number of ambitious targets. The Growth and Transformation Plan’s base case scenario allows for an 11.2% annual growth rate; the high case scenario anticipates 14.9% growth. Either allow for significant increases in agricultural production, possibly doubling it and substantial expansion in industrialization and infrastructural development. Other targets include reaching a per capita GDP of about USD 700 (the current level is about US$ 400); over 2 000 km of new railway line, 8 000 megawatts (MW) of additional power generation, mobile phone density of 8.5 per 100 (up from the current level of 1.5); and a road network of 136 000 km (up from the current level of 45 000 km). Farmers throughout the country are to be provided with access to roads, electricity and telecommunication services.

     

     

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