Overview

Economic Overview

Ethiopia is the second-most populous country in Sub-Saharan Africa with a population of 97.0 million, and population growth rate of 2.5% in 2014. One of the world’s oldest civilizations, Ethiopia is also one of the world’s poorest countries. The country’s per capita income of $550 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 10.8% per year in 2003/04 - 2013/14 compared to the regional average of 5.0%. 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 government’s goal is to reduce this further to 22.2% by 2014-2015.

Ethiopia has achieved the Millennium Development Goals (MDGs) for child mortality and water. There has also been encouraging progress particularly in gender parity in primary education, HIV/AIDS, and malaria. Positive results have also been achieved in universal primary education. Ethiopia is now strategically planning for the Sustainable Development Goals. For additional information about Ethiopia’s economy, please refer to the most recent economic updates for the country: Laying the Foundation for Achieving Middle Income StatusStrengthening Export Performance through Improved Competitiveness and Overcoming Constraints in the Manufacturing Sector.

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 reach its development objectives, given the country’s low starting point.

Last Updated: Apr 07, 2016

World Bank Group (WBG) Assistance to Ethiopia

The Country Partnership Strategy FY13-FY16 builds on the progress achieved by Ethiopia during the past five years. The CPS was developed after intensive consultations with a wide range of stakeholders in order to gain a broad-based perspective on the WBG’s performance and development priorities. As with the previous strategy, the CPS is a result-based strategy firmly anchored in the government’s Growth and Transformation Plan (GTP), and the WBG Strategy for Africa.

The CPS framework includes two pillars with governance as its foundation and two cross cutting themes:

Pillar I: 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

Pillar II: 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 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 equality will continue to be mainstreamed in the WBGs’ 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 WBG 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 WBGs’ 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: Apr 07, 2016

The International Development Association’s (IDA) support for the education sector—including through the General Education Quality Improvement Program (GEQIP) and the Promoting of Basic Services program, has helped Ethiopia expand access to quality primary education over the last nine years.Net primary enrollment went from 77.5% in 2006 to 90% 2014. There has also been a considerable reduction of the gender gap for schooling. The ratio of girls to boys for grades 5-8 increased from 86% in 2007 to 98% in 2013. The gross enrollment rate for secondary school (grades 9–10) increased from 37.1% in 2007 to 39.3% in 2013. Educational quality, as measured by primary school completion rate (grade 5) has also improved from 69.1% in 2007 to 76.1%  in 2013, 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.

Water and Sanitation

A number of operations have supported access to safe water sources and sanitation services, and better management of water resources, including providing 4.2 million rural people with access to improved water supply by 2013.

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 $2 billion since 1991 to address that challenge. Ethiopia’s Road Sector Development Program 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.

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 citizens.

Private Sector

The private sector 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 132nd  out of 189 economies according to Doing Business 2015.

Regional Cooperation

The Regional Pastoral Livelihoods Resilience project focuses on enhancing the resilience and coping capabilities of pastoral and agro-pastoral communities living in drought areas and enable their governments and regional institutions to respond effectively to emergencies, including weather crisis and cross-border animal diseases. 

The Eastern Electricity Highway Project (EEHP) 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.

Last Updated: Apr 07, 2016

The International Development Association (IDA) is Ethiopia’s largest provider of official development assistance. The IDA has committed over $12 billion to more than 70 projects in Ethiopia since 1991, most notably for the protection of basic services, productive safety nets, and roads. The WBG has worked to promote economic growth and address systemic poverty challenges across many sectors.

Official development assistance (ODA) to Ethiopia has been increasing steadily since 2000. A large number of donors are active in Ethiopia, with external aid of $3.8 billion in 2013. 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 WBG, 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 WBG’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 WBG 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  Promoting Basic Services Program Phase III Project, the Productive Safety Nets Program 4 (PSNP4); the Water Supply, Sanitation, and Hygiene Universal Access Program (WaSH-UAP), the Sustainable Land Management Project II (SLMPII), and the Agricultural Growth Program II (AGPII).

The launch of the Expressway Development Support Project (EDSP) marked a historic moment in the WBG’s partnership with Ethiopia, as it is the first project co-financed with China EXIM Bank and South Korea EXIM Bank. The project brings together traditional and non-traditional development partners to work on a single project, with standardized design, safeguards, and joint-supervision.

Last Updated: Apr 07, 2016


LENDING

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

*Amounts include IBRD and IDA commitments