RURAL ECONOMIC DEVELOPMENT

‘Broad-based growth in Ethiopian agriculture’

Ethiopia is among the poorest countries in the world. The agricultural sector accounts for 40 percent of national GDP, 90 percent of exports and 85 percent of employment. Agriculture's performance, therefore, is of crucial  importance for decreasing poverty and stimulating economic growth.

The majority of Ethiopians live in rural areas, often at distances of more than half a day’s walk from an all weather road. In 2000, 58 percent of the rural population lived below the poverty line, while 38 percent of rural households were extremely poor and lived below the food poverty line. In 2007, over 7 million people were still dependent on food aid to complement their subsistence.

Long-term trends in the economic development of Ethiopia can be summarized by: structural low productivity in the agricultural sector (0.2-0.6% growth per year), high population growth (2.5% per year), and continuous degradation of natural resources (soil, water and biodiversity). These trends add up to a negative spiral of poverty and regular periods of hunger.

However, contradicting the long-term negative trend, the past five years, 2003-2007, have been positive. GDP rose with 8-10% (IMF figures), and international trade flourishes. These positive trends are based particularly on growth in non-traditional sectors as horticulture, construction, infrastructure and the services sector. The total agricultural production also rose, be it at a more reduced per capita level.

The year 2008 has seen a weakening of economic growth and increasing food and fuel prices, in line with international developments. Inflation increased sharply to 60%, and food inflation even more. The situation coincided with a drought period, especially in the South and South-Eastern regions of Ethiopia, causing an additional 5 million people to depend on food aid. This shows the vulnerability of the agricultural system. However, the current forecasts for economic growth remain high (7-8% for 2009 and 2010). Agricultural growth is foreseen in cash crops as flowers, fruits and vegetables, oilseeds and pulses.

The Rural Economic Development policy of the Embassy aims to support broad-based growth for Ethiopia involving increased food security, higher productivity, an improved business climate and better market integration. The conceptual framework (below) highlights the different segments of households in Ethiopia (in green) against the background of natural resources and the business climate.

 The bottom millions are households that are structurally depending on food aid. They consist of 7-12 million people and face great problems in natural resource degradation and market integration. The Netherlands is part of the multi-donor Productive Safety Net Programme and focuses on graduation to Growth 1 and improvement of market integration, so that donor driven food aid and social support are needed temporarily and not structurally.

The second category, ‘Growth 1’, consists of the majority of rural households, approximately 65 million that have just enough to live off, but face serious productivity problems. In addition, market integration is poor and natural resources are degrading. Main challenges are to transform subsistence and improve market linkages. The Growth 1 Agenda is gradually evolving; current activities that focus on agro-diversity, growth corridors and development domains show potential. A comprehensive multi-donor agenda is foreseen in which pooled funding fine-tuned with government capacity is envisaged.

The third category, ‘Growth 2’, applies to 3-5 million people that have better market integration and are involved in (semi-)commercial production, such as leather, flowers, oilseeds and coffee. The biggest aim here is to improve quality and increase added value. The Growth 2 Agenda focuses on strengthening value chains and improved market integration. We will further expand on the successes in the horticultural sector and also develop public-private partnerships for oilseeds and the seed supply sector.

At the background of this, business climate is currently hampering private sector development through regulatory obstacles, untransparant procedures and land tenure problems. Improving business climate and private sector development is key to the economic development of Ethiopia. Instruments used for this are public-private partnerships, increased support to business membership organisations and a fund for assistance to government economic reform.

With these combined efforts the Netherlands Embassy in Addis Ababa aims to contribute to broad-based growth, increasing food security and productivity; and improving the business climate and market integration.