Ethiopia is the second-most populous country in Sub-Saharan Africa with a population of about 92 million (United Nations, 2012). One of the world’s oldest civilizations, Ethiopia is also one of the world’s poorest countries. The country’s per capita income of $410 is substantially lower than the regional average (Gross National Income, Atlas Method). The government aspires to reach middle income status over the next decade.
The economy has experienced strong and broad based growth over the past decade, averaging 10.6% per year in 2004/05 - 2011/12 compared to the regional average of 4.9%. Expansion of the services and agricultural sectors account for most of this growth, while manufacturing sector performance was relatively modest. Private consumption and public investment explain demand side growth with the latter assuming an increasingly important role in recent years.
Economic growth brought with it positive trends in reducing poverty, in both urban and rural areas. While 38.7% of Ethiopians lived in extreme poverty in 2004-2005, five years later this was 29.6%, which is a decrease of 9.1 percentage points as measured by the national poverty line, of less than $0.6 per day. Using the Growth and Transformation Plan (GTP), the target is to reduce this further to 22.2% by 2014-2015.
Ethiopia has achieved the Millennium Development Goals (MDGs) for child mortality and is on track for achieving them in gender parity in education, HIV/AIDS, and malaria. Good progress has been achieved in universal primary education, although the MDG target may not be met.
For additional information about Ethiopia’s economy, please refer to the Second Ethiopia Economic Update, June 2013.
In August 2012, following the death of Prime Minister Meles Zenawi who had led the government since 1991, the appointment of his successor Hailemariam Dessalegn marked a historical moment in the country’s politics. For the first time in its modern history, Ethiopia undertook a peaceful and constitutional transition of power.
For much of the 20th century, Ethiopia was ruled by highly centralized governments. The current ruling party, the Ethiopian People’s Revolutionary Democratic Front (EPRDF) has governed Ethiopia since 1991. Since taking power, the EPRDF has led an ambitious reform effort to initiate a transition to a more democratic system of governance and decentralize authority. This has involved devolving powers and mandates first to regional states, and then to woredas, or district authorities, and kebeles, or village authorities.
Although the formal Ethiopian state structure has been transformed from a highly centralized system to a federal and increasingly decentralized one, a number of challenges remain. The national elections in 2005 and 2010, and the largely uncontested local elections in April 2008, illustrated the fragility of the democratic transition, the dominance of the EPRDF, and the weakened state of the opposition. The May 2010 parliamentary elections resulted in a 99.6% victory for the ruling EPRDF and its allies, reducing the opposition from 174 to only two seats in the 547 member lower house. The next national elections are due in 2015.
In January 2009, the Ethiopian Parliament passed legislation to regulate civil society organizations (CSOs). While many CSOs had long argued for a new and coherent framework, the new law is restrictive in demarcating areas of operations for different types of CSOs (for example by excluding those receiving more than 10% of funding from external sources from many areas of activity). The government and the Development Assistance Group (DAG), comprising bilateral and multilateral donors, have agreed that the implementation of the CSO law will be reviewed regularly through their joint High-Level Forum structure.
The main challenge for Ethiopia is to continue and accelerate the progress made in recent years toward the MDGs and to address the causes of poverty among its population. The government is already devoting a very high share of its budget to pro-poor programs and investments. Large scale donor support will continue to provide a vital contribution in the near-term to finance the levels of spending needed to meet these challenges. However, even if donor support is increased, using aid effectively will require Ethiopia to improve governance, empower local authorities, and become more accountable to its citizens.
Over the past two decades, there has been significant progress in key human development indicators: primary school enrollments have quadrupled, child mortality has been cut in half, and the number of people with access to clean water has more than doubled. These gains, together with more recent moves to strengthen the fight against malaria and HIV/AIDS, paint a picture of improved well-being in Ethiopia. Notwithstanding the progress in critical aspects of human development, Ethiopia needs considerable investment and improved policies to achieve some of the MDGs by 2015, given the country’s low starting point.
The Government of Ethiopia’s current five-year development plan (2010/11-2014/15), the Growth and Transformation Plan (GTP), is geared towards fostering broad-based development in a sustainable manner to achieve the MDGs. The GTP envisions a major leap in terms of not only economic structure and income levels but also the level of social indicators. Key goals include:
- Rapid economic growth, targeted for 11% per year at worst and, at best, to double the size of the economy by 2015, with GDP per capita expected to reach $698 by 2015
- Agricultural production is to double, to ensure food security in Ethiopia for the first time
- An increased contribution from the industrial sector, particularly focused on increased production in sugar, textiles, leather products and cement
- Foreign exchange reserves are projected to increase and the Birr is to depreciate by five percent against the dollar each year
- The roads network should increase from 49,000 km to 64,500 km by 2015
- Power generation capacity will increase from the current 2,000 MW to 8,000 MW, and the number of customers from the current two million to four million by 2015
- Construction of 2,395 km of railway line
- Achievement of all Millennium Development Goals (MDGs)
The plan also aims to reduce the maternal mortality rate by more than half from 590 per 100,000 to 267 per 100,000. While some aims are extremely ambitious, the direction of the GTP is consistent with the core priorities of the World Bank’s Strategy for Africa’s Future and responds to the needs of the country. This plan is the anchor for the Bank’s new Ethiopia Country Partnership Strategy FY13-FY16.
This Country Partnership Strategy FY13-FY16 (CPS) builds on the progress achieved by Ethiopia during the past five years. It also aims to help the Government of Ethiopia (GoE) address ongoing challenges and assist in the implementation of Ethiopia’s GTP.
The CPS was developed after intensive consultations with a wide range of stakeholders in order to gain a broad-based perspective on the Bank’s performance and development priorities. As with the previous Country Assistance Strategy, the CPS is a result-based strategy firmly anchored in the GTP as well as the World Bank Strategy for Africa.
The CPS framework includes two pillars with governance as its foundation and two cross cutting themes.
The first pillar, “Fostering competitiveness and employment,” aims to support Ethiopia in achieving a stable macroeconomic environment; increasing agricultural productivity and marketing in selected areas; increasing competitiveness in manufacturing and services, and Medium and Small Enterprises’ access to financial services; improving access to and quality of infrastructure—electricity, roads, and water and sanitation; and improving regional integration, by enhancing involvement in regional agriculture technology generation and dissemination
The second pillar aims to support Ethiopia in improving the delivery of social services and developing a comprehensive approach to social protection and risk management. This includes increasing access to quality health and education services; enhancing the resilience of vulnerable households to food insecurity; increasing adoption of Disaster Risk Management (DRM) systems and strengthening sustainable natural resource management and resilience to climate change.
The foundation of good governance and state building will focus on helping the Ethiopian government to improve public service performance management and responsiveness; enhance the space for citizen participation in the development process as well as its public financial management, procurement, transparency and accountability.
Gender will continue to be mainstreamed in the Banks’ program by ensuring projects are designed taking into consideration the needs of women as well as through individual projects focused on women.
Climate change is also considered by the Bank as an important part of the development process. Therefore, a focus on climate change will be mainstreamed into ongoing and future operations to make them more “climate smart.”
The Banks’ engagement will be provided as a combination of partnerships, knowledge and finance and will be driven by the principle of partnering with GoE to look for pragmatic solutions.
The International Finance Corporation (IFC) has re-established its role in developing the private sector and is more actively engaged in key sectors. The Multilateral International Guarantee Agency (MIGA) is also exploring new opportunities to build on its modest portfolio in Ethiopia.
Last updated October 2013