CHAPTER 2: RECENT PERFORMANCE OF THE

DIFFERENT SECTORS IN THE ETHIOPIAN

ECONOMY
2.1. The Agricultural Sector in Ethiopian Economy

 The agriculture sector in Ethiopia contributes:

 the largest share to the GDP, export trade earnings (source of

foreign currency), and employment.

 raw materials for various industries and as source of food, and

 source of capital (transference of surpluses of savings and taxes

from the agricultural sector to other sectors).

1
 Questions:
1. Discuss the development and contribution of agricultural sector in
Ethiopian economy.
2. What do you expect the growth of our country’s agricultural
sector comparing with other developing countries?

2
 2.1.1. Structure of the Agricultural Sector

 The agricultural sector’s GDP of Ethiopia, comes about 65% from

crop-production, 25% from animal husbandry and the remaining 10%

from the allied sectors, forestry, fishing and others.
 Farming systems in Ethiopia:
 The smallholder farming system- accounts for more than 90% of
agriculture.
 The pastoral/nomadic system: in arid and semi-arid zones located in
lowlands, below 1,500 m (40%).
 The modern commercial farming system: officially introduced during the
third five-year plan (1968 – 73) of the Imperial Government of
Ethiopia.

3
 2.1.2. Specific Policies and Strategies of the
Agricultural Sector Since 1960s

 Although Ethiopia does not have a long history of adopting

economic policies, attempts begun in the 1960s in the form of

five-year development plans.

 Starting from then, both sectoral as well as national development

plans have been launched with varying priorities and institutional

frameworks.

4
 [Link]. Pre–1974 Agricultural Policies and
Strategies

 There were two policy paths for the development of the

agricultural sector in the late 1960s.

 They were large-scale mechanized commercial farms and the

establishment of package projects to assist the sector in diffusing

agricultural innovations.

5
 A. Large-Scale Mechanized Commercial Farm
 The main objective of this path was to facilitate agricultural exports
and to create new employment opportunities.
 The government took some fiscal measures such as credit

arrangements, tax holidays for the first five years for investments
in excess of 200,000 Birr, low land use fees, tax-free import of
heavy machinery, and possibilities of remitting profits to investor
countries of origin.
 As a result, some foreign-owned profitable plantations developed,
accounted for almost 5% of agricultural output and 3% of the total
area cultivated.

6
 B. Establishment and Development of Package
Projects
 The basic objective of donors and the government in initiating the
package project in Ethiopia was to repeat the success of the Green
Revolution of India in Ethiopia.
 The Green Revolution was a type of agrarian revolution
characterized by the large-scale use of improved and high yield
variety (HYV) seeds and other inputs.
 There were two types of package projects: comprehensive package
projects and minimum package projects.

7
 Comprehensive Package Projects:
 designed to supply important inputs such as chemicals, fertilizers,
improved seeds, improved farm tools, credits, pesticides, and
know-how.
 The criteria for selecting areas were the availability of adequate

rainfall, good weather conditions, fertility of soil, the possibility

that the areas are conductive for further expansion, etc.
 Accordingly, the Chilalo Agricultural Development Unit (CADU),
the Welayita Agricultural Development Unit (WADU), and the
Adaa District Development Package Project (ADDP) were
established- sponsored by SIDA and USAID.

8
 Cont.
 Some achievements: income of participating farmers increased by

Birr 340 per year, productivity in crops and livestock increased

significantly, and the adoption of modern inputs expanded in the
project areas.

 Some adverse effects: increase eviction of tenants (e.g., in 1969

and 1970, over 500 farmers were evicted from CADU) and huge
cost (cost per beneficiary farmer was Birr 15,000).

 Because of these problems, the minimum package programme,

was launched, as a substitute which covered larger areas.

9
 Minimum Package Projects (MPP):
 designed to raise production and income of smallholders quickly over a wide area

with a minimum reliance on scarce resources and involved the diffusion of a

few proven imports of agriculture such as chemical fertilizer, improved seeds,
and farm implements.

 The first MPP was established in 1971, eviction of tenants was still a problem in

some areas.

 The second phase, MPP II, launched in the first half of the 1980s, continued

well through the Military Regime, but were unsuccessful.

 The projects largely concentrated on the cooperativization process.

10
 Generally MPP is important

(i) increase the productivity and incomes of small farmers by

introducing them to fertilizer, improved seeds and other agricultural

inputs;

(ii) strengthen the institutional and technical framework to progressively

expand and improve the minimum package program; and

(iii) help to ensure long-term productivity of the land by expanding the

Borrower's soil and water conservation efforts.

11
 [Link]. Agricultural Policies and Strategies During
the Derg

 During Derg, a socialist ideology, state control of the economy was

overextended- no private-sector participation.

 The comprehensive and the minimum package projects launched

during the Imperial regime continued in the Derg period with

some adjustments.

 Finally, all these projects were transformed into Peasant

Agricultural Development Extension Projects (PADEP) which were

organized along pluralist principles.

12
 Cont.
 Some of the objectives of PADEP included decentralization of the

activities of the Ministry of Agriculture.

 These objectives resulted in the formulation of eight PADEP zones,

but by 1988, PADEP came to an end due to shortage of funds and

changes in administrative structure.

 The government also organized smallholders for collective

production and marketing of agricultural output and

distribution of inputs.

13
 Cont.
 There were three types of associations: peasant associations,

service cooperatives, and producers’ cooperatives.

 But associations could not help farmers due to their inability to

make decisions in their own affairs and the emphasis given to

politics at the expense of everything else.

 In general, agricultural sector policies of the military

government were characterized by:

 Nationalization of all private and commercial farms

 Prohibition of private investment in the agricultural sector

14
 Cont.
 Involuntary collectivisation of peasants into peasant associations,

and into producers’ and service cooperatives

 Forced villagization and settlements

 Government control of virtually all agricultural input and output

markets

 Forced food-grain quota deliveries at predetermined low prices

 Restriction of the movement of agricultural outputs from one part

of the country to another.

15
 [Link]. Post-1991 Agricultural Policies and
Strategies
 The Transitional Government of Ethiopia, in 1991, replaced the

command economy with market economy.

 Some of the changes observed in the agricultural sector include:

 dissolution of producers’ and service cooperatives;

 encouragement of smallholders and private commercial farms;

 termination of public investment in state farms; and

 abolition of compulsory food-grain quotas and restoration of

freedom of market.

16
 Cont.
 The government also adopted Agricultural Development-

Led Industrialization (ADLI) in 1993, which revolved around

enhancing the productivity of smallholder agriculture and
industrialization based on the utilization of domestic raw materials via
adopting labour-intensive technology.

 The essence of this strategy rests on better use of the massive labour

force in rural areas.

17
 Cont.
 It has internal forward and backward linkages with industrial

sector.

 Agriculture provides the domestic food requirement, supply

industrial inputs, and provide commodities for export.

 Development of agriculture expands the market for domestically

produced goods as a result of increased farmer incomes.

 In order to do this, special emphasis is given to raising production

and the productivity of farmers.

18
 Cont.
 In this regard, policies focused on designing incentive

packages, such as access to fertile land, provision of inputs,

credit and tax incentives; improving budgetary allocations;
developing human resources; and improving the infrastructure and
logistical support.

 To this end, a new system of agricultural extension activities,

named “Participatory, Demonstration and Training

Extension System” (PADETES), was formulated.

19
 Cont.
 The system is based on demonstrating to and training farmers in

proven technologies in line with the philosophy of bottom-up

development approaches.

 According to some appraisals, the strategy is effective: in the reliable

moisture areas, e.g. the results achieved in 1994 and 1995

included high output and yield.

20
 Cont.
 At the program level, ADLI consists of the following:

I. Ensuring accelerated economic growth through a rural-centred

development program strategy which mainly focuses on the
development of the agricultural sector’s output using “a
package programme”
II. Ensuring accelerated economic growth to improve the living
standards of urban dwellers
III. Adopting an effective education strategy
IV. The preventive and primary health care strategy

21
 Cont.
 During the Sustainable Development and Poverty Reduction Program
(SDPRP) of 2002-2005, the agricultural sector was the center element of the
program along with social (education and health) and physical infrastructure
such as roads.
 Despite coinciding with the industrial strategy of 2002, it does not identify the
industrial sector as a key focus of the program.
 The Plan for Accelerated and Sustained Development to End Poverty
(PASDEP), a five-year development plan for the period 2005– 2010 built on
the previous SDPRP, but one of its pillars, in relation to entrepreneurship, was
the creation of employment opportunities specifically in urban areas, focusing
on labor-intensive industries through promotion of Medium and Small
Enterprises (MSEs).
22
 Cont.
 While the economy grew on average by 11% during the PASDEP
plan period, the structural transformation from agriculture towards
industry was not achieved as hoped.
 During the first Growth and Transformation Plan (GTP) which ran
from 2010 to 2015, and the second GTP (2015-2020), the industrial
sector received substantial support while still maintaining agriculture
as the main source of growth.
 During the two GTPs a more active industrial policy, aiming to
transform the structure of the economy from agriculture to industry
and a higher value services’ sector, was emphasized.
23
 Cont.
 Various support schemes were directed towards selected export-
oriented and import-substitution sectors such as textiles, leather
goods, cement, and pharmaceuticals.
 The interventions included direct capacity building support and
fiscal incentives such as tax holidays, reduction of indirect taxes on
capital goods and preferential credit to selected sectors.
 Heavy government investment on infrastructure was also
envisaged to enhance the competitiveness of the private sector.
 The construction of industrial parks after 2015 is a typical
example of the more active industrial policy approach being
implemented more recently.

24
 Cont.
 Economic policies and strategies over the last decades have
brought fast economic growth accompanied by a substantial
reduction in poverty.
 However, the extent of public investment has been one of the key
factors which have led to concerns of debt sustainability, and the
private sector has failed to operate as expected, raising
sustainability concerns.
 Key private sector challenges have included supply–side challenges
such as logistics, foreign exchange shortages, slow customs
clearance, and the poor quality and unavailability of inputs.

25
 Cont.
 In September 2019, the government launched a three-year
comprehensive economic reform package, the Homegrown Economic
Reform (HGER) Agenda.
 The HGER envisions promoting a sustainable and inclusive private
investment-led growth that creates jobs and reduces poverty.
 The HGER therefore aims to drive reform on three fronts;
macroeconomic, structural and sectoral.
 The government of Ethiopia has developed a Ten-year perspective plan to
guide development in the country for the period 2020- 2030.
 The plan is centered around creating a stronger forward and backward
linkage among the economic sectors; provision of special support to
priority sectors such as are modern agriculture, manufacturing, mining,
and tourism.
26
 2.1.3. The Performance of the Agricultural Sector
 The performance has been unsatisfactory relative to rapidly

growing population.

 During Derg, especially from 1980/81 to 1990/91, the growth

rate of the value added in agriculture and allied activities averaged a

mere 1% per annum.

 Crop production and livestock rearing, forestry, and fishing

exhibited annual average growth rates of 0.8, 2.6 and 4.6 percent,
respectively, for the period.

27
 Cont.
 Besides population growth was about 2.9% per annum, per capita

agricultural value added increased at a less than 2% per annum.

 Between 1993/94 and 1999/2000, the average annual growth rate

of value added in agriculture was only 1.8% while that of population

growth was 2.9%.

 The economic policy and strategy reforms of the 1990s positively

influenced the performance of Ethiopian agriculture.

 However, the drought of 2002/03 weakened the capacity to

produce food and forced people to depend on food aid.

28
 The Crop Production: involves the production of food crops and cash
crops.
 Food crops: include grains, root and tuber crops, pulses and oil seeds

 Cash crops: include coffee, chat, cotton, tea, cut flowers, etc.

 Fruits, vegetables and flowers: Vegetables and fruits are not only

important for domestic consumption; they also generate some foreign

earnings.

 The Livestock Production: It is a source of food, draft power, fuel, cash

reserves, and pride.

 The food items comprise meat and meat products, milk and milk products,

eggs, honey, etc. The non-food items include draft power, hides and skins,
29 bees-wax, manure, transport facilities, etc.
 2.1.4. Problems of and Possible Remedies for the
Agricultural Sector

Problems: two major categories:

 Natural problems – Unpredictable Weather Conditions

 Human-Made Problems-These are negative effects that result

from the social and economic practices.
Remedies: possible remedies:
 Reduce the prevailing heavy dependence on rain-fed agricultural
practices
 Production of drought-resistant crops in drought-prone areas.

30
 Cont.
 Pursue an effective land-ownership right so that the farmers will

develop long-term developmental commitments.

 Promotion of extension services supported with consistent

capacity- building tasks.

 Promote committed literacy campaigns to help farmers

understand price and farm-technique information.

 Promote infrastructure facilities as per their availability.

 Inclusion of the issue in school curricula.

31
 2.2. Industrial sector in Ethiopian Economy

 The national income account of Ethiopia classifies the industrial

sector into: manufacturing, mining and quarrying,

construction, and water and energy supply.

 Ethiopia has a long tradition in handcrafts and cottage

manufacturing activities such as weaving, blacksmithing, pottery,

and woodwork.

 But the introduction of modern industries began at the end of the 19th

century.

32
 Cont.

 Particularly, the following two major early 20th century events

contributed to the introduction of modern manufacturing industries in

Ethiopia: the emergence of a strong central government,
which resulted in political stability and the construction of the
Ethio-Djibouti railway.

 These events gave way to establishment and expansion of cities and

settlement of foreigners, mainly from Armenia, Greece, Italy, and

India, which in turn created the basis for industrial development.

33
 Cont.
 According to Sutcliff, there are three criteria for a country to be

industrialized.
 25% of the GDP should come from the industrial sector.

 At least 60% of industrial output should originate from

manufacturing sector.
 At least 10% of the population should be engaged in industrial

sector.

 Hence, Ethiopia is one of the least industrialized nations in the

world.
34
 2.2.1. The Role of the Industrial Sector in the
Ethiopian Economy
 During the years 1991/92 - 1997/98, large and medium-scale

manufacturing contributed 38.4% of the gross value of industrial

production, while small-scale manufacturing and handcrafts
contributed around 18.7%.

 The contributions of mining, quarrying, and electricity-supply

activities were 3.9%, 15.8%, and 23.2%, respectively.

 That means manufacturing sub-sector dominated the Ethiopian

industrial sector, providing more than 57% of the sectoral output.

35
 Cont.
 Since the manufacturing sub-sector is the most dominant and dynamic

component of the industrial sector, and also due to availability of time

series data, we will concentrate on this sub-sector.

 Output Contribution: the manufacturing sector is characterized

by the physical or chemical transformation of materials or

components into new products, whether the work is performed
by power-driven machines or by hand, and whether it is done in
a factory or in the worker’s home.

36
 cont.
 The manufacturing sector groups: food and beverage,

textiles, leather and footwear, wood and furniture, paper and

printing, chemicals, non-metal and metals.

 According to CSA, 2008, food and beverages accounted for

about 48% of the gross value of output of manufacturing

establishments in 2007/08, followed by non-metal and chemicals.

 The food and beverage industrial group was the leading one in

value added in 2007/08, the contribution was 50.7%, generated

around 8.3 billion Birr.
37
 Cont.
 Employment Contribution: In 2007/08, there were

1,677,906 persons engaged, out of which 678,911 were

employees in the industrial sector.

 The number of persons engaged and employees during this period

showed an increase of 6.4 and 5.8 percent, compared to that of

2006/07, respectively, attributed to the increase in the number of
establishments created in 2007/08 (CSA, 2009).

38
 Cont.
 Foreign Exchange Contribution: industrial sector of Ethiopia

contributes very little to the foreign currency earnings.

 According to CSA, 2009, textiles generate 41.5% of the sector’s

foreign exchange, which is the largest contribution.

 Food and beverages, leather and footwear follow as the second

and third with 32.9% and 10.8%, respectively.

 The total value of wood and furniture and chemical exports in

2007/08 was Birr 43,269.7 and 30,198.9, respectively.

39
 2.2.2. Industrial Development Strategies since 1960s

 The policies are one of the major factors influencing the

development of the industrial sector of a nation.

 In Ethiopia, various industrial development strategies have been

employed in order to develop and direct this sector since the

1950s.

40
 [Link]. Industrial Development Strategies During
The Imperial Period

 Industrialization in Ethiopia was at an incipient stage.

 In the 1950s, the development of the industrial sector began to be

shaped by policies and strategies pertinent to the manufacturing

sub-sector.

 The main agents were foreign nationals residing in Ethiopia

with the belief that the settlement of foreigners and the expansion
of commercial farms would continue to give impetus to growth
and expansion of industrial sector.

41
 Cont.
 A number of proclamations were declared to encourage foreign

investment, and the investment proclamation was revised in

1964.

 A number of incentives such as tax holidays, easy financing loans,

exemptions from duty payments, and effective tariff protection

from foreign competition were given based on some conditions.

 E.g., a tax holiday for an initial investment of more than Birr

200,000 and duty exemption was for heavy machinery.

42
 Cont.
 During the later years of the Imperial era, the main strategy for

industrial development was import-substitution, assisted by a

system of import duties.

 The government placed much faith on private foreign investment and it

went to a considerable length to attract it.

 There was, however, an obvious neglect of small scale industries.

43
 Cont.
 Although the trend was mildly encouraging in the last few years of

the Imperial government, the actual level of manufacturing

activity and its employment creation was very low compared with
the case in other developing countries.

 Poor infrastructure facilities and the level of articulated government

economic policy towards the development of the sector were the

main constraints.

 Manufacturing can be classified into different categories by using

different criteria, vary from country to country.

44
 Cont.
 Ethiopian manufacturing sector is classified into three, namely

large- and medium-scale, small-scale and cottage/handcraft

manufacturing, mainly based on the number of people employed
and use of power-driven machinery.

 Large- and medium-scale manufacturing establishments use

power-driven machinery and employ 10 persons and above.

 Small-scale industries are those establishments that employ less

than 10 persons and use power-driven machinery.

45
 Cont.
 Cottage/handcrafts are those establishments that produce

goods and services primarily for sale but do not use power-driven
machinery, regardless of the number of persons employed.

 During the Imperial period, industrialization as inward looking

orientation based on import substitution, was pursued as a matter

of government policy.

 As a result, a good number of manufacturing enterprises were

established, including 80 factories, mostly by private businessmen

of foreign origin.
46
 Cont.
 Only eight of these were fully government-owned, while another five

were joint ventures where the government had over 50%

ownership.

 Out of 273 establishments, 178 or 65% were set up with the

assistance of foreigners, and 101 or 40% were totally owned by

foreign nationals.

 The role of the government at least as direct producers, was very

limited.

47
 [Link]. Industrial Development Strategies During
The Derg Period
 The industrial sector underwent a radical change in the structure

of ownership and management during this period.

 As a first step, the government nationalized almost all the

medium- and large-scale enterprises, private sector, on December,

20, 1975.

 It also imposed a capital ceiling on private sector investment, limited

to Birr 500,000, and no licenses for more than one line of business.

48
 Cont.
 The tax was very harsh, on personal income as high as 89%.

 The interest rate was also higher for private borrowers.

 Later on, the Ten-Year Perspective Plan (1984/85 – 1993/94)

sought to promote the production of intermediate and capital goods

and the expansion of small scale industries.

 The state took responsibility for developing and managing the

medium- and large-scale industries with wide linkages to capital-good

producing industries.

49
 Cont.
 The economic policy created different hierarchies in the industrial

sector in accordance with guidelines by the Ministry of industry.

 The plan, however, failed for various reasons including too much

government intervention and limiting the private sector.

 To support small-scale industrial enterprises, the government

established the Handicrafts and Small-Scale Industrial

Development Agency (HASIDA) in 1975.

 But this also failed due to lack of institutional and other supportive

measures.
50
 Cont.
 After the collapse of socialism, the regime tried to introduce some

liberalization by way of introducing a mixed economic policy.

 A number of constraints of private-sector development were lifted. E.g.,

capital-ceiling restriction was relaxed.

 However, goals not attained as the government diverted resources

towards civil war.

 No adequate database to analyze the growth in the number of

manufacturing establishments until the CSA surveys in 1995/96 for

each industrial groupings.
51
 Cont.
 It is only for the 10+ group (manufacturing establishments with

10 or more employees) that time series data was available.

 According to this survey, the number of manufacturing

establishments with 10 or more employees in 1975/76 was 430 and

declined to 402 in 1985/86, a decline of 0.82% per annum.

 It further declined to 273 in 1992/93, the lowest ever registered,

eventually growing to 642 by the time of the survey in 1995/96.

52
 Cont.
 There are several reasons that explain this decline.

 First, the decrease in the number of employees, owing to low

capacity utilization which in turn was caused by the unfavorable

government policies towards private activities to obtain foreign
exchange, credit and licences.

 Second, establishments cease operation for obvious reasons such as

war, burdensome regulations, and lack of foreign exchange.

 Third, the independence of Eritrea in 1991/92, which reduced

the number of industries by numbers existed in Eritrea.

53
 Cont.
 A few surveys conducted on handicrafts and small-scale industries

including the HASIDA in 1989 and 1991 and by CSA in 1997.

 According to HASIDA, private small-scale manufacturing

establishments are those:

 which use manually operated or motor-driven machinery;

 which employ at least one person (other than the owner and the

owner’s families); and

 those with fixed assets not exceeding a million birr, excluding land

and buildings.
54
 Cont.
 The number of private small-scale manufacturing establishments was

7,706 in 1985/86 and 7,600 in 1986/87.

 The results of the 1997 CSA survey, registered 892,719

cottage/handicrafts and 2,731 small-scale industries.

 The contribution of 10+ manufacturing firms accounted for only

9.15% of the value added of the manufacturing sector in 1975/76,

and the value has declined since then, reaching its lowest point of
3.5% in 1989/90.

 The recovery started with the new policy after 1992/93.

55
 [Link]. Industrial Development Strategies During
The Post- Derg Period

 The Ethiopian Peoples’ Revolutionary Democratic Front (EPRDF)

in 1991, sought to rationalize its role in the economy while enhancing

the active participation of the private sector.

 Accordingly, the transitional government of Ethiopia announced

an economic policy which could be described as “cautious capitalism’’.

 The government accepted the Structural Adjustment Programs

(SAPs), though with some reservations.

56
 Cont.
 The Transitional Government of Ethiopia (TGE) indicated that the

role of the state would be limited to areas of large-scale

engineering, metallurgical plants, communications, power, and
pharmaceutical industries.

 The government, undertook a Public-Enterprises Reform Program in

August 1992, which aimed at enhancing efficiency, productivity,

and competitiveness in public enterprises through granting
managerial autonomy and responsibility under the Ministry of
Industry.
57
 Cont.
 The overall management of each manufacturing enterprise was thus

put under its own board of directors and a general manager

responsible for output, price, and investment decisions as well as
appropriate market channels.

 In general, these measures were designed with the long-term

objective of raising the share of the industrial sector in the economy and
of enhancing the development of strategic industries which were
expected to have multiplier effects.

58
 Cont.
 Laws were enacted to give enterprises management autonomy, a

more flexible labor code was proclaimed, prices were largely

decontrolled, foreign trade and financial institutions including the
foreign exchange market, were particularly taken to encourage
private sector participation in the economy.

 In addition to the above measures, the government introduced the

Agricultural Development-Led Industrialization (ADLI) strategy.

 The basic assumption is that agriculture would become a source

of domestic market demand and a reliable raw material base.

59
 Cont.
 This strategy is also expected to strengthen the inter-sectoral

linkage between agriculture and industry.

 In addition, the government policy is also designed to promote

industrial exports.

 There were 1,930 large- and medium scale, 43,338 small-scale, and

974,676 cottage/handicraft establishments during 2007/08 (CSA,

2010).

 In 2007/08 food and beverage establishments accounted for 52% of

the total manufacturing enterprises, as indicated in Table 1.

60
 Cont.
 The number of large- and medium-scale establishments reached 779

in 1998/99 from its level of 642 in 1995/96, with a growth rate

of 6.8%.

 During the Imperial period, this sub-sector was dominated by the

public sector, due to various measures taken by the governments.

 The proportion of public-to-private establishments showed

continuous increase during Derg, reaching a maximum of around

120% in 1991/92, with 152 out of 279 enterprises owned by the
government.
61
 2.2.3. The Performance Of The Industrial Sector
 The performance of the industrial sector can be measured, among

others, by:

 Gross value of output (GVO) refers to the total output produced

during a given period of time;

 Value added at factor cost (VAFC) is the difference between the

gross value of output and the value of intermediate inputs, such as the
cost of raw materials;

62
 Cont.
 Value added at current market price (VACMP) is the sum of

value added at factor cost and indirect taxes, regardless of any

subsidies.

 Value added per person employed (VAPPE) refers to the ratio of

value added generated in a given period to the number of people

employed.

 The Ethiopian industrial sector accounted for 13.6 % of the national

GDP during the period 1961-1974.

63
 Cont.
 This share declined to 12.2% and 10.9% in the periods spanning

from 1980 - 1990 and 1991 - 1999, respectively.

 According to NBE, 2008/09, the industry share of GDP for

1999/00 – 2008/09 was 13.1%.

 We find that large- and medium-scale manufacturing accounted for

4.3%, small-scale 2.01%, and handcrafts 2.58% of GDP in 1991-

1999, major contribution from large- and medium-scale manufacturing
sector .

 It contributed around 21.6% in 2017.

64
 Cont.
 The Ethiopian large and medium-scale manufacturing sub-sector is

characterized by the dominance of four-consumer good producing

industrial groups, namely the food and beverages, textiles, and leather
and shoes groups.

 The four groups of industries accounted for 78% of the gross value

of output during the 1980s.

 However, the gross value of the output of the sub-sector declined by

about 1.6% during the1980s due to a sharp decline in the

production of the chemical and textile groups.
65
 Cont.
 The available official documents indicate that almost all large-

and medium-scale manufacturing industrial groups showed

significant improvement after the reform program was

implemented.

 The gross value of output of the large- and medium-scale

manufacturing sector registered an average annual growth rate of

20.2 % during the period covering 1991/92 - 1998/99 .

66
 Cont.
 In absolute terms, production increased from Birr 1.8 billion in
1991/1992 to Birr 7.3 billion in 1998/99 representing an annual
average growth rate of 20.5%.
 The major share of the increment in the value of production was
contributed by food, chemical, non-metal and metal, which achieved
average annual growth rates of 22.9%, 26.9%, 30.2%, and 35%,
respectively, during the period of 1991/92 - 1998/99.
 It registered an annual average growth rate of 7.8% during the
period under consideration.

67
 Cont.
 Evidence indicates that the value added in the large- and medium-scale

manufacturing declined annually at an average rate of 2.4% during

the 1980s.

 However, this trend has been reversed since economic reform.

 The value added at factor cost of large- and medium-scale manufacturing

increased from Birr 336.8 million in 1991/92 to Birr 1,982.9

million in 1998/99, representing an annual average growth rate of
25.3% during the period 1991/92 - 1998/99.

68
 Cont.
 Food, non-metal, leather and shoes, and chemicals registered high annual

growth rate of 34%, 33.2%, 27.6% and 25%, respectively, in value

added in the period spanning 1991/92 - 1998/99.

 Also, the value added by beverage and textile groups increased by 1.9%

to 11.9% annually during the same period, respectively.

 Value added per person declined at an annual average rate of 3.4%

during the 1980s.

 After the reform, however, value added per person increased.

69
 Cont.
 Labor productivity registered an annual average growth rate of 33.9%,

30.1%, and 25.6% in the metal, food, and leather and shoe
industrial groups, respectively, during the 1991/92 - 1998/99
period.

 The manufacturing sector has shown improvements in terms of gross

value of output, value added, and value added per person during the post-
reform period.

70
 Cont.
 This might be attributed to the incentive for profit and the creation

of a relatively conducive environment induced by the granting of

managerial autonomy to public enterprises; the active involvement
of a number of private manufacturing establishments; the
improved availability of inputs and spare parts; and the recovery of
the agricultural sector, which enhanced the supply of raw
materials to the manufacturing sector.

71
 2.2.4. Problems of and Possible Remedies for the
Industrial Sector
 The manufacturing sector of Ethiopia is in its infant stage due to many

interrelated problems.

 These problems are generally related to finance, technology, market, policy,

input supply and other socio-economic factors.

 There are also other problems like policy problems and human-

resource-related problems in relation to lack of skilled manpower and

absence of industrial discipline and work ethics.

 Therefore, in order to create accelerated industrialization in Ethiopia, it is

imperative to identify and tackle the problems that are hampering the
72
development of this sector.
 2.3. Service Sectors in Ethiopian Economy

 The service sector includes: trade, hotels and restaurants, transport and

communication, education, banking and insurance, public administration and defence,

health, and other services.

 According to the Ethiopian National Income Account classification, the first

five sub-sectors are referred to as distributive services while the remaining are in
the ‘Other’ service sector.

 According to MOFED, 2009/10, the GDP share of the service sector increased

from 41.1% in 2002/03 to 46% in 2009/10.

73
 Cont.

 This is mainly the result of the fast growth in the areas of real estate,

hotel and restaurant, education, and health.

 However, the World fact book (2019) reported that the

contribution of this sector to GDP was 43.6%.

 There are a number of ways to consider the service sector.

 The service division includes a wide variety of industries, but they

can be categorized into primarily consumer-oriented, primarily

business-oriented or mixed (providing services to both businesses and
consumers).
74
 Cont.

 The activities of the services division can be described in reference to their

economic activities as:

 Physical activities (working with objects, e.g. repairing cars, hairdressing,

and cooking).

 Intellectual activities (providing education or training).

 The aesthetic activities (providing consumers with artistic experiences).

 such as offered by museums, theatre performances, art shows, and

musical performances.

75
 2.3.1. The Role of the Service Sector in the
Ethiopian Economy
 Output contribution: in 2008/09 and 2009/10, the output

contribution was about 45% and 46%, respectively.

 Employment contribution: the second largest sector, next to

agriculture, in terms of absorbing a significant part of the labor.

 Foreign exchange contribution: The value of exports of services

increased from $261 million in 1980 to $348 million in 1998

while in 2008/09, foreign exchange income earned from service
providers collectively reached nearly 2 billion dollars.

76
 Cont.
The Education Sector in Ethiopia: Education in Ethiopia dates
back to the 4th Century. For about 1,500 years, the church
controlled most of the traditional educational institutions.

 Formal education began in 1908.

The Health Sector in Ethiopia: Remains very poor and is not yet
large enough to meet demand.

 Definite policies and strategies for the development of health

service were not formulated until 1963.

77
 Cont.
The Transport Sector: is fundamental to civilization.

 In Ethiopia, the early means of transportation were foot and pack animals.

 During the Military Government, the transport sector was under state

control.

The Communication Sector: telecommunication, postal and media

services.

 Having basic telephone access in villages allows farmers to get information

on prices for their crops and livestock products; improves the efficiency of
local administration; encourages the development of trade and small
businesses; and facilitates the provision of social services such as health,
78 education and agricultural extension.
 Cont.
 The history of the communication service in Ethiopia dates back to

1894 when various innovations were introduced in Ethiopia

during Emperor Menelik II.

 A telegraph line from Addis Ababa to Djibouti was installed

parallel to the construction of the then Franco-Ethiopian Railway,

 The first telecommunication and postal administration started in

1909 and was completed in 1911.

 Ethiopia became a member of the Universal Postal Union (UPU)

and the International Telecommunication Union (ITU) in the years

79
1908 and 1932
 Cont.
 The first telephone subscriber in Addis Ababa was the then Bank of

Abyssinia.

 The first automatic telephone exchange system was installed in

Addis Ababa and Asmera in 1941.

 In 1981, the Board of Telecommunication was renamed as the

Ethiopian Telecommunication Service Organization.

 the organization came to be known as the “Ethiopian

Telecommunication Authority”.

80
 Cont.
The Tourism Sector: the movement of people away from their
normal residence for: business, conference, vacation, transit, visiting
relatives, and other purposes.

 Ethiopia started a tourism industry in the 1960’s .

 During the Derg government (from 1974 to 1991), Ethiopia’s

tourism industry suffered from the adverse effects of a prolonged

civil war, recurrent drought and famine, strained government
relations with tourist-generating countries, and restrictions on the
entry and movements of tourists.
81
 Cont.
 In recent years, due to the development of infrastructures, like

roads and hotels, and to the crucial role of the government in

marketing and changing the image of the country through its
embassies, tourism has shown significant growth.

82