Country Office Contacts
Addis Ababa
Gelila Woodeneh
Communications Officer
+011-5-176000

Africa Avenue
(Bole Road)
Addis Ababa, Ethiopia
gwoodeneh@worldbank.org

Washington
R. Gregory Toulmin
Country Program Coordinator
+1-202-458-1747

1818 H Street NW
Washington DC 20433
rtoulmin@worldbank.org

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Ethiopia Overview

Economic Overview 

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

Political Context

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.

Development Challenges

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

World Bank Assistance to Ethiopia

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 Growth and Transformation Plan FY10-FY15 (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 including 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 Ethiopia 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

The International Development Association (IDA) is Ethiopia’s largest provider of official development assistance. The IDA has committed over $7 billion to more than 60 projects in Ethiopia since 1991, most notably for the protection of basic services, productive safety nets, and roads. The Bank has worked to promote economic growth and address systemic poverty challenges across many sectors.

IDA’s support for the education sector—including through the General Education Quality Improvement Program (GEQIP) and the Protection of Basic Services program—has helped Ethiopia expand access to quality primary education over the last nine years. Total primary enrollment went from 8.1 million students attending primary school in 2001-2002, to 17 million in 2011-2012. There has also been a considerable reduction of the gender gap for schooling. The ratio of girls to boys in primary school increased from 74% in 2001–2002, to 90% in 2011–2012 in grades 1-4, and 58% to 96% in grades 5-8. The gross enrollment rate for secondary school (grades 9–10) stood at 36.9% in 2011–2012, about double the level of 2001–2002. Educational quality, as measured by grade 5 completion rates, has also improved from 42% in 2001–2002 to 73.8% in 2011–2012, and remains a major focus for the government, IDA and their partners, through both teacher training and supply of educational materials.

The expansion of general education has occurred at the same time as a major expansion of both technical and vocational education and higher education sub-sectors, which showed an annual average increment of 8.7% and 17.1% respectively between 2007–2008 and 2011–2012.

Health

The Protection of Basic Services operations (1 and 2) have helped improve the provision of basic health service delivery at local level, through increased financing to district (woredas), by and large, for recurrent expenditures. There are now more primary health extension workers in place and medical facilities are better equipped. As a result, the child immunization rate increased from 70% in 2005 to 82% in 2011–2012, the percentage of births attended by trained health personnel increased from 9% in 2005 to 18.4% in 2009, and the percentage of pregnant women receiving iron and folate supplementation increased from 10 in 2004–2005 to 19% as of August 2009. In addition, as of 2011–2012, over 45.7 million long-lasting insecticide-treated malaria nets were purchased and distributed between helping to reduce new malaria cases.

Water and Sanitation

A number of operations have supported access to safe water sources and sanitation services, and better management of water resources. As a result, the share of citizens with access to safe drinking water increased from 53% in 2007–2008 to 71% in 2009–2010. The proportion of malfunctioning rural water facilities were reduced from 25% in 2007–2008 to 20% in 2009–2010. The proportion of households (both rural and urban) using latrines increased from 39% in 2007–2008 to 63% in 2009–2010.

Roads

Ethiopia’s development has been held back by a large infrastructure gap—it has one of the lowest road densities in Africa. IDA has invested over $1.8 billion since 1991 to address that challenge. A road sector development project supports the formulation of Ethiopia’s 10-year roads program by helping to establish a dedicated road fund for financing maintenance work and build capacity at many levels. Working in partnership with other donors -- including the European Commission, Germany, Japan, Nordic countries and the United Kingdom—IDA helped increase both the size and quality of Ethiopia’s road network. The network increased from under 20,000 kilometers of roads in 1991 to over 63,000 km in 2012, and road density has increased from 29 kilometers per 1000 square kilometer in 2001 to 57 kilometers per 1000 square kilometer by 2012.

Decentralization

Decentralization, first to the regional level in the 1990s, and now to the district (woreda) and sub-district (kebele) levels, is the centerpiece of Ethiopia’s strategy to improve responsiveness and flexibility in service delivery, increase local participation, and democratize decision-making. IDA is providing capacity-building support and financial support to local governments that is enabling them to deliver better quality basic services (health, education, water supply, etc.) to more of their citizens. Total basic services spending by regions and woredas have almost doubled, from $505 million in 2004-2005 to $1.149 million in 2008-2009. Accountability and fiduciary systems are also being strengthened in parallel to increased funding: last year quarterly audits took place for 95% of local governments nationwide (730 out of 770), and all regions and 90% of woredas posted their budgets in places accessible to the public.

Private Sector

The private sector in Ethiopia has remained small, largely informal, and concentrated in the service sector. One of the contributing factors to its small size is the fact that, despite some positive developments in industry and service sectors, Ethiopia has been a difficult place to do business, ranking 127th out of 185 economies according to Doing Business 2013. Access to finance and land have been identified as two critical constraints across sectors in Ethiopia according to the 2012 WB Enterprise Survey especially for small and medium size firms.

The Government of Ethiopia (GoE) has embarked on a series of reform programs to promote private sector development and with help from the Bank, has made some progress toward creating an enabling environment for private sector development.

The International Finance Corporation (IFC) supported the establishment of the Ethiopia Public-Private Consultative Forum which brings together representatives of the private sector in a structured dialogue with the government to improve the business environment. IDA-funded Private Sector Capacity Building Project provided support to many Ethiopian exporters to improve their competitiveness and productivity through the matching grant scheme under Ethiopia Competitiveness facility.

Recognizing the substantial economic impact of promoting female entrepreneurship, IDA provided ($50m) for the Women Entrepreneurship Development Program (WEDP), which aims to address the two most severe constraints to women-owned Medium and Small Enterprises (MSEs); lack of access to finance and of entrepreneurial and technical skills. Through provision of microfinance loans and other suitable financial instruments, WEDP aims to provide at least 17 thousand loans over five years. WEDP is expected to deliver entrepreneurship skills enhancement to 20 thousand women entrepreneurs providing them with training and support in most basic aspects of developing, running and growing a business.

The World Bank Group (WBG) is also actively supporting the implementation of the 2009 National Tourism Development Policy, through the Ethiopia Sustainable Tourism Development Program and policy dialogue supported by the recently published analysis “Ethiopia’s Tourism Sector: Strategic Paths to Competitiveness and Job Creation” (June 2012).

Still, more needs to be done to improve the investment climate and raise business confidence in Ethiopia. The Bank will continue supporting GoE to address the remaining challenges and enable the private sector to unleash its full potential.

Regional Cooperation

Historically, there has been strong tension over water usage rights between upstream Nile riparian’s such as Ethiopia, which contributes 85% of Nile waters, and downstream countries such as Egypt, for which the river is the lifeblood of its economy. The Nile Basin Initiative (NBI) aims to foster cooperation among nations through which the Nile runs, and to find win-win opportunities for better management of the river. So far, the success of the NBI in building cooperation among Nile countries has opened the possibility for Ethiopia to draw on the waters of the Nile in new ways, and on a larger scale.

The Eastern Electricity Highway Project (EEHP) is an example of what regional cooperation can achieve. It is a transformational initiative that will connect Ethiopia’s electrical grid with Kenya, create power-sharing between the two countries, reduce energy costs, promote sustainable and renewable power generation, better protect the region’s environment, and pave the way for more dynamic regional cooperation between the countries of East Africa.

The project is financing construction of a cross-border power line, an interconnector, to be built according to strong social and environmental safeguards. Ethiopia will benefit through the sale of energy to Kenya, which faces severe power shortages, and is among the five African countries considered likely to achieve middle-income status in the next decade provided it can grow at 6% annually, significantly expand its electricity supply and improve its transport links. Both countries will benefit from additional jobs created by construction and installation activities.

Another example of World Bank support to regional collaboration is the East Africa Agriculture Productivity Project (EAAP), which enhances regional specialization in agricultural research and facilitates increased sharing of agricultural technologies across national boundaries, by upgrading existing national agricultural research institutions in Ethiopia, Kenya, Tanzania and Uganda into Regional Centers of Excellence.

Governance and Aid Effectiveness

After dialogue within the country and with development partners, including the World Bank, the government committed to a series of governance reforms in its current poverty reduction strategy. These reforms include: civil service and public sector capacity building; financial management; human rights and conflict prevention; democratic representation; access to information; the justice system; decentralization; and civil society participation. The Bank is supporting the government in implementing these reforms through programs that seek to protect basic services (PBS) and build capacity in the public sector, such as the Public Sector Capacity Building Program and the Urban Local Government Development Project. The Bank is taking a lead role in interventions to help strengthen key areas of economic governance—such as building institutional capacity for decentralization, supporting private sector growth, and improving transparency and accountability, including social accountability.

Last updated October 2013

Official development assistance (ODA) to Ethiopia has been increasing steadily since 2000. A large number of donors are active in Ethiopia, with external aid averaging more than US$3.8 billion per year between 2008 and 2011. Both the government and the majority of international partners are keen to deepen the harmonization process in the spirit of the Paris Declaration (2005) and Accra Agenda for Action (2008). Ethiopia is a pilot country for the Organization for Economic Co-operation and Development (OECD) Development Assistance Committee (DAC) harmonization agenda, and for the European Union’s initiative on donor division of labor. Partners are currently considering how to build on this progress in light of the Accra Agenda.

The Bank, with the United Nations Development Programme (UNDP) and one bilateral donor, is one of the rotating co-chairs of the Development Assistance Group (DAG), the main forum for donor coordination in Ethiopia. Under the DAG, efforts are under way to make strong progress on the implementation of commitments in the Paris and Accra Declarations, including joint economic and sector work (much of the Bank’s major analytical work has already been prepared jointly with partners) and joint missions. Much of the collective effort is focused on furthering harmonization through a few major multi-donor programs and policy areas of importance.

The World Bank has taken the lead in developing a set of multi-donor programs to reduce transaction costs, align support with the country’s decentralized model, and enhance the predictability of aid. These instruments allow for large-scale leveraging of International Development Association (IDA) support. Such approaches are used in: the Protection of Basic Services (PBS) program, the Public Sector Capacity Building Program (PSCAP), the Productive Safety Nets Program (PSNP); the Water Supply, Sanitation, and Hygiene Universal Access Program (WaSH-UAP), the Sustainable Land Management Project (SLM), and the Agricultural Growth Program.

For more traditional projects, such as roads, action plans are being implemented to harmonize implementation procedures (for example, common environmental assessment procedures) with a focus on three priorities – disbursement procedures and financial reporting, monitoring and evaluation, and procurement (starting with standard documents for goods, works, and consulting services for national competitive bidding).

LENDING

Ethiopia: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments

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