The World Bank in Ethiopia

Ethiopia’s location gives it strategic dominance as a jumping off point in the Horn of Africa, close to the Middle East and its markets. Ethiopia is landlocked, bordering Eritrea, Somalia, Kenya, South Sudan, and Sudan, and has been using neighboring Djibouti's main port for the last two decades. However, with the recent peace agreement with Eritrea, Ethiopia is set to resume accessing the Eritrean ports of Assab and Massawa for its international trade.

With more than 112 million people (2019), Ethiopia is the second most populous nation in Africa after Nigeria, and the fastest growing economy in the region. However, it is also one of the poorest, with a per capita income of $850. Ethiopia aims to reach lower-middle-income status by 2025.

Ethiopia’s economy experienced strong, broad-based growth averaging 9.4% a year from 2010/11 to 2019/20, Ethiopia’s real gross domestic product (GDP) growth slowed down to 6.1% in 2019/20 due to COVID-19 (cornaviruspandemic. Industry, mainly construction, and services accounted for most of the growth. Agriculture was not affected by the COVID-19 pandemic and its contribution to growth slightly improved in 2019/20 compared to the previous year. Private consumption and public investment explain demand-side growth, the latter assuming an increasingly important role.

The consistent higher economic growth brought with it 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. The government has launched a new 10-year perspective plan which will run from 2020/21 to 2029/30. The plan aims to sustain the remarkable economic growth achieved under the Growth and Transformation Plans, while putting more emphasis on the private sector.

Development Challenges

Ethiopia’s main challenges are sustaining its positive economic growth and accelerating poverty reduction, which both require significant progress in job creation, as well as improved governance. The government is devoting a 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 cost of pro-poor programs. Key challenges are related to:

• Like the rest of the world, Ethiopia has been experiencing the unprecedented social and economic impact of the COVID-19 pandemic. The COVID-19 shock is expected to be transitory with potential recovery possible in 2021, but the overall adverse economic impact on Ethiopia will be substantial. The economic impact of COVID-19 includes the increased price of basic foods, rising unemployment, slowdown in growth, and increase in poverty.
• Ethiopia has been experiencing the worst locust invasion in decades. This may undermine development gains and threaten the food security and livelihoods of millions of Ethiopians.
• Political disruption, associated with social unrest, could negatively impact growth through lower foreign direct investment, tourism and exports.
• Limited competitiveness, which constrains the development of manufacturing, the creation of jobs and the increase of exports.
• An underdeveloped private sector, which would limit the country’s trade competitiveness and resilience to shocks. The government aims to expand the role of the private sector through foreign investment and industrial parks to make Ethiopia’s growth momentum more sustainable.

Last Updated: Mar 18, 2021

World Bank Group (WBG) Assistance to Ethiopia

The Country Partnership Framework (CPF) FY18-FY22 builds on the progress achieved by Ethiopia during the past five years. The CPF was developed after intensive consultations with a wide range of stakeholders to gain a broad-based perspective on the WBG’s performance and development priorities. The CPF is a result-based strategy, firmly anchored in the government’s Second Growth and Transformation Plan (GTPII).

The CPF is designed to assist Ethiopia in forging a more inclusive and sustainable growth path. Particularly, it supports a more spatially inclusive approach to development, one that leverages national programs to provide quality services to all areas. The CPF 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 CPF 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 the CPF envisages prominent roles for the International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA), the WBG institutions that focus exclusively on it.

Last Updated: Mar 18, 2021

As of March 22, 2021, the World Bank’s portfolio consists of 35 lending operations with $10.61 billion in commitments complemented by $818.9 million trust funds. The portfolio includes financing for national programs on agriculture, sustainable land management, basic service delivery (including health, education, and water and sanitation), as well as support in the energy, transportation, trade logistics, and financial sectors.

Development policy operations in FY19-20 total nearly $2 billion in support of critical reforms for power sector sustainability, improving the investment climate, providing for the development of public-private partnerships  and developing the financial sector, as well as improving transparency and accountability. This includes a $250 million operation supporting these reforms while helping to mitigate impacts of the COVID-19 (coronavirus) pandemic, which was approved and disbursed in June 2020.

The International Development Association (IDA) also provides analytics and advisory services to provide support for evidence-based decision-making and stronger implementation on a wide range of development issues. IDA is Ethiopia’s largest provider of official development assistance. IDA has committed more than $22 billion to nearly 149 projects in Ethiopia since 2000, most notably for the Growth and Competitiveness Programmatic Development Policy, the Enhancing Shared Prosperity through Equitable Services program, Productive Safety Net, Urban Institutional and Infrastructure Development Program as well as Energy, Water  and Road sector development projects. 

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 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 2019. As a result, net enrollment rates in primary education and secondary education have increased to about 95% and 25% respectively. Through the Country Partnership Framework (CPF), the Bank is working to improve the quality of and equitable access to education to address issues including high dropout rates and low learning outcomes, especially for girls. In addition, IDA supports the technical and vocational education and training and higher education sub-sectors through its regional projects – East Africa Skills for Transformation and Regional Integration Project – to increase the access and improve the quality of 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 investment in Ethiopia’s water supply and sanitation sector has helped the country make significant progress in improving services in the past 10 years. More than  52 million people in Ethiopia now live within 1.5 kilometers of an improved drinking water source compared with only six million people in 1990. Over the same period, rates of open defecation fell by 63%, which was the largest decrease observed in the world. About 67 million people gained access to a latrine, at an average rate of 2.6 million people per year. Under the Country Partnership Framework, which guides the World Bank’s engagement in Ethiopia, the Bank continues to support the government’s  goal to provide 100% national potable water supply and sanitation access by 2030.

Roads

Roads are a critical lifeline for a country like Ethiopia that is landlocked, and that relies heavily on agriculture, and now more increasingly with the push of an industrialization agenda. To address constraints in the road sector, mainly low road coverage and poor condition of the road network, the government formulated the Road Sector Development Program (RSDP) in 1997. To date, approximately 160,000 km have been built and upgraded under RSDP. For its part, IDA has invested more than $2 billion in the road sector 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 other bilateral partners in building country capacity in areas like road asset management (including piloting of performance based contracts), road safety, enhancing climate resilience, boosting road agency safeguards management, and expanding on the Expressway Development Program. Current efforts will build on this work including enhancing the country’s logistics efficiency on the Addis-Djibouti corridor under the Horn of Africa Initiative, and a nationwide program for results operation planned in the road sector that will improve connectivity, reduce travel times, and reduce transport related costs for farmers, producers and resident populations in the country.

Last Updated: Mar 18, 2021

Several donors are active in Ethiopia, with external aid of $4.9 billion in 2019. 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 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 World Bank Group (WBG), with the United Nations Development Programme 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. Through DAG there are efforts to make 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 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 International Development Association (IDA) support. Such approaches are used in the Enhancing Shared Prosperity through Equitable Services, the Productive Safety Nets Program 4; 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 supervision.

Last Updated: Mar 18, 2021