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Chapter 2 2.1. Introduction
• Ethiopia is a landlocked country with a
population of over 112 million people
• Located in East Africa in the Horn of Africa
Recent Performance of • The majority of the population is rural
Different Sectors – with about 80% of people living in rural areas
• The total land area 1,104,300 square kilo
in the Ethiopian Economy metres
• Has about 38.5 million hectares of agricultural
– Agricultural sector land of which
– Industrial sector – 16 million hectares are cultivate
– Service sector – and 20 million hectares are permanent pastures
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• Arable land in Ethiopia accounts for about 34% • However, the economy slowed down in 2020 due to
the COVID-19 pandemic
of the country's total land area
• And growth is projected to be 5.3% in 2023
• Oromia, Southern Ethiopia, Amhara are key • The size of Ethiopia's economy is estimated to be
regions for agriculture – $200.133 billion (nominal, 2023 est.)
• Has a diverse climate, with – and $460.247 billion (PPP 2023 est.)
– hot, dry conditions in the lowlands – This makes Ethiopia
– and cooler, wetter conditions in the highlands • the 59th largest economy in the world by nominal GDP
• and the 56th largest economy in the world by PPP
• The economy is one of the fastest-growing in
• Industry accounts for about 15% of GDP
Africa, with GDP growth averaging 9.5% per
• And is dominated by the manufacturing sector
year from 2004 to 2019
• Produces textiles, food processing, and leather
products
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• The service sector accounts for about 45% of
GDP
• Drought:
• It is growing
– Ethiopia is a drought-prone country
• The growth is driven by tourism,
– Climate change is expected to make droughts
telecommunications, and financial services more frequent and severe.
• The economy faces various challenges, including • Conflict:
• High poverty: -
– Ethiopia has been affected by conflict in recent
• About 30% of the population lives below the national years, which has disrupted economic activity and
poverty line displaced millions of people
• Inequality: -
• the richest 10% of the population controls about 40% of
the country's wealth
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2.2. Agriculture Sector Performance • The sector is dominated by smallholder farmers
Historically, the agricultural sector has been at the core of • Smallholders produce a wide range of crops
Ethiopia’s Economy including
In the 1960s, the agricultural sector accounted for – Cereals
Over 85% of production and – Pulses
Over 95% of the population (Timmer et al., 2015) – Oilseeds
– Fruits
The sector has undergone a tremendous production and
productivity increase since the mid-1990s, – and vegetables
With a six-fold increase in agricultural production • Livestock is also an important part of the
agricultural sector
And emerging labor productivity improvement (Rohne
Till, 2022) • Is major producer of cattle, sheep, goats, and
Currently agriculture plays key role in Ethiopia
camels
– Accounting for about 40% of GDP
• Is also the birthplace of coffee, which is one of
the country's most important exports
– And employing over 80% of the population
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• Under the strategy of agriculture development–led There has been a structural shift in terms of
industrialization (ADLI), agricultural production production
increased substantially While the labor force is still predominantly engaged
• With increases in agricultural GDP averaging 7% per in agriculture many aspects of the sector are no longer
year between 2004/2005 and 2013/2014 traditional
– Fertilizer use increased four-fold since the early
• Earlier part of this period, land area expansion was 1990s
the primary contributor to increases in agri. GDP – Mechanization is increasing
– and extension program is disseminating modern
• In recent years, rising crop yields coupled with farming technologies
continuing agriculture area expansion contributed to
GDP growth
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Basic Features • Varied agro-ecology
• Most farms primarily rely on family labor
• Most of Ethiopia’s agricultural production is
attributed to smallholder farmers • While the use of hired labor is common
– Smallholders account for over 95% of production and especially for Weeding and harvesting
arable land (CSA, 2011–2013)
– The average farm size in Ethiopia is 1 ha • The share of total deployed hired labor is
small
• Larger farms (cooperatives, state farms, and private • Wage income, on average, accounts for only
commercial farms) make up less than 5%
• Ethiopian agriculture has been 10% of household income in rural areas
– rain-fed (only 3% of Ethiopia’s arable land is irrigated) (Bachewe et al., 2016)
– drought-prone • The small share of wage income indicates
– and traditional ……
leading to several instances of famine
agricultural production’s importance
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• Both total production and yields have Structure of the Agricultural Sector
• The agricultural sector of Ethiopia is composed of
increased in recent decades – the crop production
• But the number of farmers has also increased – Livestock
– forestry
more than land expansion – and fishery sub-sectors
• This has led to more smaller farms • About 65% of the sector’s GDP comes from crop-
production,
• The average farm size decreased from 1.4 ha
in 1977 to 1.0 ha in 2012 (Headey et al., • While animal husbandry contributes 25%
2014) • The remaining 10% is generated from the allied sectors,
forestry, fishing and others
• The growing rural population, combined with
a slow movement out of agriculture, likely • Currently, the following farming systems are widely
contributed to this development practiced in Ethiopia.
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1. The smallholder farming system
3. The modern commercial farming system:
• It is the most important or dominant system • Was officially introduced during the third
• It accounts for more than 90 % of the agri production five-year plan (1968 – 73)
• About 95% of the total area under crop production
• Among the strategies envisaged
2. The pastoral/nomadic system – to modernize agriculture
– Increase marketable surplus
• About 40% of Ethiopia’s land area is in the arid and • the plan stated that available govt land be
semi-arid zones
• and is located in the lowlands below 1,500 m. utilised for the establishment of large
• There rain fed crop production is not possible because commercial farms
of low-level erratic rainfall
• And people rely more on livestock for subsistence.
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Production and Productivity • Where rain fed agriculture is the predominant
• Since 2004/2005, the agricultural sector in production system, agro ecological conditions
Ethiopia has performed well determine production patterns
– Rising crop yields the primary driver of increased agri • In the case of Ethiopia
GDP – agro ecological conditions dictate the location of major
– Followed by land area expansion economic centers and transportation corridors
• These factors contributed 60 percent and 28 • Ethiopia’s topography has influenced demographic
percent, respectively, to agricultural growth and agricultural patterns throughout its history.
• The highlands of Ethiopia, defined as
• Cereals generated more than half of crop GDP
– Locations with a minimum elevation of 1,500 meters
growth between 2004/2005 and 2015/2016 above sea level\
• The five major cereals … – More densely populated and reflect the physical and
– teff, barley, wheat, maize, and sorghum) constitute climatic advantages that led to the country’s agricultural
73 percent of total cultivated area development
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• The highlands are endowed with Contributions to real agricultural GDP, 2004/2005–2015/2016 (%)
– relatively more predictable rainfall
– and do not house vectors that carry diseases, such as
malaria or tsetse fly
• In contrast, the lowlands
• experience more erratic and limited rainfall
• and have greater risk for disease
These factors have constrained expansive development
in lowland agriculture and have greater risk for disease
Most agricultural production is in the highlands
Which constitutes the breadbasket of the country
90 percent of the area planted to cereals is found
and 89 percent of total cereal production is obtained
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Contribution of cereals and noncereals
to agricultural GDP change, 2004/200
Problems of and Possible Remedies
2013/2014 (%) for the Agricultural Sector
• Agriculture has been the mainstay of the
Ethiopian economy for decades
• Why is this so?
• What are the problems?
• What are some possible remedies?
• However, its performance in achieving food
security and generating capital for the other
sectors is poor
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• This situation has attracted the concern of policy b. Human-Made Problems
makers, experts, and international – These are negative effects that result from
organizations, who hope to change the the political, social and economic practices
situation. • These problems include:
Problems: – land fragmentation
– lack of infrastructure
• According to the studies made so far, the sector’s
problems identified fall into two major – lack of credit facilities
categories: – lack of effective land-ownership entitlement
– traditional practices
a. Natural problems –
– the use of backward technology
– Unpredictable Weather Condition
– and inadequate rural market
– Erosion and land degradation
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• Remedies: to reduce or mitigate the problems,
• Land Tenure and Fragmentation
the following possible remedies
– Land tenure issues have been a longstanding problem
in Ethiopia
– With unclear property rights leading to disputes and Reduce the prevailing heavy dependence on rain-
inefficiencies fed agricultural practices
–
– The fragmentation of land holdings among small Production of drought-resistant crops in drought-
farmers also reduces economies of scale and limits prone areas so that the recurrence of acute
their ability to invest in modern agricultural practices shortages of food will be minimized.
• Technological Adoption
– While there has been progress in adopting modern Pursue an effective land-ownership right so that
agricultural technologies, many smallholder farmers
still lack access to improved seeds, fertilizers, and
the farmers will develop long-term developmental
irrigation systems. commitments
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Promote committed literacy campaigns to help
farmers understand price and farm-technique
information
Promote infrastructure facilities as per their
Reading Assignment
availability • Industrial sector in Ethiopian
Inclusion of the issue in school curricula
Promotion of extension services supported with consistent
Economy
capacity- building tasks
• Service Sector
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2.2. Industrial Sector in Ethiopian Economy • According to Sutcliff, there are three criteria for a
country to be an industrialized
– 25% of the GDP should come from the industrial
• Ethiopia is one of the least industrialized nations in the
world sector
• The objective of any developing nations, including Ethiopia, – At least 60% of the industrial output should
is industrial development originate from the manufacturing sector
– At least 10% of the population should be engaged
• A developed industry is likely to boost the entire or employed in the industrial sector
economy by • The national income account of Ethiopia classifies the
– Making it nationally integrated industrial sector into these sub sectors:
– Flexible Manufacturing
– And capable of self-generated and self-sustained growth Mining and quarrying
Construction
• Economic development cannot be achieved without Water and energy supply
the development of this sector.
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1. Industry Sector Output Contribution:
The Role of the Industrial Sector in the
Ethiopian Economy The manufacturing sector is characterized by
• The Ethiopian industrial sector is composed of The physical or chemical transformation of materials
into new products
• Mining and quarrying Whether the work is performed by power-driven
• Manufacturing machines or by hand
• Electricity And whether it is done in a factory or in the
• Water supply worker’s home
• Construction • The manufacturing sector can be classified into groups of
• food and beverage
• The manufacturing sub-sector is • Textiles
• leather and
• the most dominant • Footwear
• and dynamic component of the industrial sector, • wood and furniture
• paper and printing
• Chemicals
• non-metal and metals
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• In terms of the value added the food and 2. Employment Contribution:
beverage industrial group is the leading
• For example in 2007/08, the contribution of • The industrial sector, (the manufacturing sub-
sector in particular) important sources of
the food and beverage industrial group was employment
50.7%
• Especially for the rapidly growing urban
• Revenue obtained from sales, the food and population in Ethiopia
beverage industrial group generated around
8.3 billion Birr • In 2007/08, there were 1,677,906 persons
• which is close to 48.5% of the total revenue engaged
obtained from large and medium scale
manufacturing in 2007/08 • Out of which 678,911 were employees in the
industrial sector
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• The employment capacity of each in the 3. Foreign Exchange Contribution:
manufacturing sector, as of 2007/08 • The poorly developed industrial sector
• The food and beverage group employed • Contributes very little to the foreign currency
50% earnings
• The non-metal 14% • According to CSA, 2009
– textiles generate 41.5% of the sector’s foreign
• Paper and printing industrial groups 10.9% exchange
• The rest of the industrial groups, in terms of – Which is the largest contribution
employment • Food and beverages 32.9%
– 2.1% in wood and furniture • leather and footwear 10.8%
– 8.8% in textile-product manufacturers • This pattern has remained almost the same in
recent years
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• The only noticeable change is in the wood and
furniture and chemical groups
• The total value in 2007/08
– Wood and furniture Birr 43,269.7
– Chemical exports Birr 30,198.9
• This is an indicator of the potential the
nation has in bringing in foreign currency
from non-traditional commodities
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• Major Components of the Industrial Sector (as • As indicated in Table
% of total industrial GDP) the GDP contribution of large- and
medium-scale manufacturing industries
declined for the three decades of 1980 -
2008
The share of small-scale and handcrafts
showed marginal increments
‘Other’ sub-sectors which, together,
contributed about 20.3% and 58.6% to the
total industrial GDP during the periods of
1991-1999 and 2000 -2008, respectively,
include mining and quarrying, water, and
electricity.
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Table - Structure of the Manufacturing Sub-Sector by Number of
The sectoral structure of the manufacturing Establishments, 2007/08
sub-sector, 2007/08 based on numbers
establishments
food and beverage accounted for 52% of the total
manufacturing enterprises
while textiles accounted for 22%
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4. Problems of and Possible Remedies for the The agricultural sector not been capable of generating
Industrial Sector the required surplus because of
its subsistence nature and
backwardness
• The manufacturing sector of Ethiopia is in its
infant stage Other commodity-producing sectors, especially the
manufacturing industry, are underdeveloped
• Faces many interrelated problems And most public enterprises are heavy users of foreign
• These problems are generally related to exchange hence have no surplus
– That is, they are highly import-dependent. This means that
a. Lack of Finance: they have not been net savers and
• The possible sources of this finance have
been • Given such a low saving rate, it is difficult to
undertake industrial investment
– agricultural • High collateral requirements by the formal lending
– and non-agricultural-commodity producing sectors institutions aggravated the problem of financial shortage
in the economy
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b. Market-Related Problems c. Technology-Related Problems
• According to CSA, 2000, market-related problems • It is argued that it is impossible to think of
accounted for 39.5% of the underutilization of the
capacity observed in the large- and medium-scale industrial development without the application
manufacturing establishments of modern science and technology.
• Market-related problems arise due to the following • Technological problems reveals themselves in
factors: one of the following ways:
– Weak domestic demand for manufacturing output — this is
due to the subsistence nature of agriculture on which the – Lack of sufficient information on appropriate
vast majority of the people rely for food, etc technology
– As a result, the purchasing power of the people is very low.
– The technology we have today is not developed
– Lack of marketing information about both local and export
markets. based on available local raw materials
– Strong competition from cheap imports – This limits the linkage that is expected in the
– A consumer bias against local products domestic economy of the manufacturing sector
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• The technology we use is also capital D. Input-Related Problems
intensive
• Input-related problems also hamper the
• This approach is basically not recommended development of industry in Ethiopia
for economies like Ethiopia where
• This is mainly due to
unemployment is rising.
– the high cost
– shortage of foreign exchange for imported inputs
– and to the unreliability of domestic sources of
inputs and their poor quality
– The survey conducted by CSA in 2000 ranked the
shortage of raw materials as the second most
serious problem accounting for 25.9% of the total
underutilization
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e. Others
• There are also other problems like
– Policy problems and
– human-resource-related problems in relation to
– lack of skilled manpower an
– absence of industrial discipline and work ethics
• These and other problems do not only limit new
investments, but also reduce the productive
capacity of the already existing enterprises
• For instance, according to CSA (2000), the
large- and medium scale manufacturing
establishments used only 49.2% o their capacity
due to various problems
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