The World Bank in Ethiopia

With about 123 million people (2022), Ethiopia is the second most populous nation in Africa after Nigeria, and one of the fastest-growing economies in the region, with an estimated 6.4% growth in FY2021/22. However, it also remains one of the poorest, with a per capita gross national income of $1,020. Ethiopia aims to reach lower-middle-income status by 2025.

Ethiopia’s strong growth rate builds on a longer-term record of growth over the past 15 years where the country’s economy grew at an average of nearly 10% per year, one of the highest rates in the world. Among other factors, growth was led by capital accumulation, in particular through public infrastructure investments. Ethiopia’s real gross domestic product (GDP) growth slowed down from FY2019/20 to FY2021/22 due to multiple shocks including COVID-19, with growth in industry and services easing to single digits. However, agriculture, where over 70% of the population is employed, was not significantly affected by the COVID-19 pandemic, and its contribution to growth slightly improved compared to previous years.

The consistently high economic growth over the last decade resulted in positive trends in poverty reduction in both urban and rural areas. The share of the population living below the national poverty line decreased from 30% in 2011 to 24% in 2016 and human development indicators improved as well. However, gains are modest when compared to other countries that saw fast growth, and inequality has increased in recent years. Furthermore, conflicts in various parts of Ethiopia risk undermining the economic and social development progress the country has achieved. 

The government has launched a 10-Year Development Plan, based on its 2019 Home-Grown Economic Reform Agenda, which runs from 2020/21 to 2029/30. The plan aims to sustain the high growth achieved under the Growth and Transformation Plans of the previous decade while facilitating the shift towards a more private-sector-driven economy. It also aims to foster efficiency and introduce competition in key growth-enabling sectors (energy, logistics, and telecom), improve the business climate, and address macroeconomic imbalances.

Development Challenges

Ethiopia seeks to chart a  development path that is sustainable and inclusive in order to accelerate poverty reduction and boost shared prosperity. Significant progress in job creation, as well as improved governance, will be needed to ensure that growth is equitable across society. Achieving these objectives will require addressing key challenges including the following:

• Addressing macroeconomic distortions that constrain private sector development, structural transformation, and generation of jobs.
• Reducing the incidence of conflict that has been having a substantial impact on lives, livelihoods, and infrastructure. The cessation of hostilities in the North in November 2022 is an important step in this direction.
• Overcoming the effects of the COVID-19 pandemic. Like the rest of the world, Ethiopia has been experiencing the unprecedented social and economic impact of the pandemic. While exports and foreign direct investment rebounded in 2020/21 and jobs have been recovering, some lasting scars are likely to remain. Urban employment levels have not recovered fully, some households and firms continue to report income losses, and poverty is estimated to have increased.
• Addressing food insecurity, which is growing due to adverse weather events, locust invasion, conflict, and global conditions leading to high inflation of food prices. Frequent severe weather events alongside long-term impacts of climate change undermine agriculture and pastoral livelihoods as well as food security.  The 2022 drought is the worst in forty years, severely affecting millions in the southern and eastern parts of the country. Overall, more than 20 million persons are facing severe food insecurity in 2023.
• Improving human capital. Ethiopia’s Human Capital Index is at a low 0.38 (2020) which means that a child born in Ethiopia today will be 38% as productive when s/he grows up as s/he could be if s/he enjoyed complete education and full health. This is lower than the average for the Sub-Saharan Africa region but slightly higher than the average for low-income countries. Learning poverty stands at 90% and 37% of children under 5 years of age are stunted.
• Generating good jobs. The country’s growing workforce (with roughly 2 million persons reaching working age per year) puts pressure on the absorption capacity of the labor market, necessitates improving current jobs, while creating sufficient new jobs.

Last Updated: Sep 28, 2023

The World Bank Group’s (WBG) strategic focus is to assist Ethiopia in forging a more inclusive and sustainable growth path, supporting the objectives of the Home-Grown Economic Reform Agenda and the current 10-Year Development Plan. The WBG supports a more spatially inclusive approach to development, one that leverages national programs to provide quality services to all areas of the country. The WBG is helping to promote structural and economic transformation through increased productivity in rural and urban areas by focusing on basic education, access to markets, and job opportunities for youth. It is also helping to build resilience and inclusiveness (including gender equality) by improving safety nets, investing in productive landscapes, and focusing on the Early Years Agenda.

The WBG also supports institutional accountability and assists in combating corruption by focusing on improving governance and promoting social accountability. The private sector is expected to be a key contributor to Ethiopia’s future development, and prominent roles are being played by the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) towards supporting private domestic firms and foreign investors.

WBG programming has been adjusted in the past year and a half towards a more people-centric approach that focuses on delivery of basic services, food security, and addressing the needs of vulnerable populations (especially internally displaced persons (IDP) and women, including survivors of gender-based violence) while retaining a long-term development focus.

As of September 19, 2023 the World Bank’s portfolio in Ethiopia consists of 42 lending operations with $13.7 billion in commitments, complemented by $979 million in trust fund financing. The portfolio includes financing for conflict-afflicted communities and IDPs, national programs on social safety nets, agriculture, sustainable land management, basic service delivery (including health, education, and water and sanitation), as well as support in the energy, transportation, trade logistics, digital development, and financial sectors.

The International Development Association (IDA), the World Bank’s fund for the poorest, also provides analytics and advisory services to support evidence-based decision-making and stronger implementation on a wide range of development issues. IDA is Ethiopia’s largest provider of official development assistance. It has committed more than $26 billion to nearly 155 projects in Ethiopia since 2000, most notably the:  Enhancing Shared Prosperity through Equitable Services Program, COVID-19 Emergency Response Project, Rural and Urban Productive Safety Net Programs, Flood Management Project, Locust Emergency Response Project, Agriculture Growth and Food System Resilience Projects, Response–Recovery–Resilience for Conflict-Affected Communities Project, Digital Foundations Project, as well as several important energy, water, and transportation sector projects.

Last Updated: Sep 28, 2023

Education

IDA’s support for the education sector — including through the General Education Quality Improvement Program for Equity and the Enhancing Shared Prosperity Through Equitable Services Program — has helped Ethiopia expand access to quality pre-primary and primary education over the last ten years. There has been significant expansion of the general education system, increasing from 7.1 million learners in 2000 to 26 million in 2020. As a result, net enrollment rates in primary education and secondary education have increased to about 95% and 25% respectively. In addition, IDA supports the technical and vocational education and training, and higher education sub-sectors through its regional projects — e.g., East Africa Skills for Transformation and Regional Integration Project — to increase access and improve quality of Technical and Vocational Education and Training (TVET) programs in selected Regional Flagship TVET Institutes and to support regional integration in East Africa; and Eastern and Southern Africa Higher Education Centers of Excellence Project — to strengthen selected institutions to deliver quality postgraduate education and build collaborative research capacity in the regional priority areas.

Water and Sanitation

IDA’s support to the water and sanitation sector has helped the country make significant progress in improving services in the past decade. More than 60 million people in Ethiopia now live within 1 kilometer of an improved drinking water source and open defecation rates fell by 63%, which was the largest decrease observed in the world. About 101 million people gained access to any type of latrines, specifically, at least basic (11.1 million), shared (9.8 million) and unimproved (80.2 million). With the rapid increase in population, however, around 60 million people remain without access to drinking water and over 112 million have no access to at least basic sanitation and over 22 million people are still practicing open defecation. Current projects addressing these challenges include the:

One Wash National Program (OWNP)-Phase II ($300 million), Second Urban Water Supply and Sanitation Project ($445 million), and Ethiopia Horn of Africa Groundwater for Resilience Project ($210).

These projects are also providing COVID-19, drought, and post-conflict emergency response support.

The OWNP Consolidated WASH Account Project plays a catalytic role in sector financing, attracting $257.3 million of finance from seven other donors and international financial institutions into a pooled fund that is managed under the Bank’s oversight. OWNP-CWA creates a unique platform for coordinating WASH sectors and harmonizing development partners in the sector.  It is focused on enhancing climate resilience and access to water supply service, quality, and sustainability, as well as providing equitable access to improved urban and institutional sanitation services – targeting 4.1 million people with improved water supply and 4.75 million with improved sanitation.

Transport

The transport program in the country aims to improve access and mobility (rural and urban), enhance safety, and increase climate resilience while strengthening the capabilities of the sector institutions to deliver and manage transport infrastructure and services. The active portfolio amounts to $1.6 billion and includes: urban mobility and road safety, supported by the Transport Sector Improvement Project (TRANSIP), rural access and regional connectivity, supported by the Road Sector Support Project (RSSP), the Expressway Development Support Project (EDSP), and Horn of Africa Initiative: Regional Economic Corridor Project (HoA-RECORD); policy dialogue and other institutional support in the areas of rural connectivity for food security, road safety, climate resilience, Public Private Partnerships (PPP), urban mobility, logistics efficiency, and railway reforms. As of 2021, over 166,000 km of roads have been built and upgraded under the government-led Road Sector Development Program (RSDP) initiated in 1997. IDA has invested more than $2 billion to support the government’s efforts over the past two decades of the RSDP period. IDA has worked with other development partners including the African Development Bank, European Union, and bilateral partners in building country capacity in areas like road asset management (including piloting of performance-based contracts), road safety, urban transport planning and management, enhancing climate resilience, boosting road agency safeguards management, and expanding the Expressway Development Program.

COVID-19

The IDA funded Ethiopia COVID-19 Emergency Response Project assisted the country in filling critical financing gaps in implementing the government’s Emergency Preparedness and Response Plan (EPRP) providing over $690 million in financing for Ethiopia’s COVID-19 emergency preparedness and response that supported:

• Ethiopia to establish COVID-19 testing, screening points, and enhance risk communication and community engagement.
• the training for health workers on COVID19 vaccine deployment and conduct awareness raising campaigns.
• the development of the national COVID-19 Vaccine deployment strategy.
• and financed the purchase of 45 million doses of COVID-19 vaccines and supported Ethiopia’s vaccine deployment strategy; so far 53.5 million doses of COVID-19 Vaccines have been administered.

Last Updated: Sep 28, 2023

Several development partners are active in Ethiopia and most international partners are keen to strengthen the process of harmonization of development support efforts, 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) Assistance Committee 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 and a bilateral donor, is one of the rotating co-chairs of the Development Partners Group (DPG), the main forum for donor coordination in Ethiopia. Through the DPG, efforts are made to advance 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 with its partners) and joint missions. Much of the collective effort is focused on furthering harmonization through 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, aligning support with the country’s decentralized model, and enhancing the predictability of aid. These instruments allow for large-scale leveraging of IDA support. Such approaches are used in several IDA-supported programs including: Enhancing Shared Prosperity through Equitable Services; the Productive Safety Nets Program; the Water Supply, Sanitation, and Hygiene Universal Access Program; the Sustainable Land Management Project II; and the Agricultural Growth Program II.

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 implementation support.

More recently, the WBG is coordinating with the United Nations Office for Project Services (UNOPS), which has been contracted by the Government of Ethiopia to implement the Response-Recovery-Resilience for Conflict-Affected Communities in Ethiopia Project in areas of high risk of conflict. The project supports efforts to address the immediate needs of communities, rehabilitate infrastructure destroyed by conflict, and increase community resilience to the impacts of conflict in a sustainable manner.

Last Updated: Sep 28, 2023