Q#1) Productive Capacity of various sectors & Economic Growth in Ethiopia.

Ethiopia is one of the largest least developed countries (LDCs) in Sub-Saharan Africa, with a population
of about 94 million people in 2012. After suffering economic stagnation for most of the 1970s and 1980s,
its economy began to grow in the mid-1990s. During the last decade it has become one of the fastest
growing economies in the world with an average gross domestic product (GDP) growth rate of about
10% per annum. According to the ambitious five-year Growth and Transformation Plan (GTP) that the
Ethiopian government rolled out in 2010, Ethiopia aims to attain a lower-middle-income status by 2020.
The challenge is hence not about kick-starting growth, as it was the case for most LDCs prior to 2000,
but rather about ensuring the sustainability of the current growth momentum. This is a real challenge
given the current structure of the Ethiopian economy where rain-fed agriculture continues to play a
dominant role, while manufacturing accounts for only 5% of GDP. Rodrik (2014) argues that sustaining
rapid growth in African countries is unlikely without a profound structural change in favor of
manufacturing. It is therefore very important that policymakers and development partners are clear
about the prospect of productive capacity in Ethiopia and related challenges. The latter pertain not only
to growth in overall productive capacity but also to the composition and distribution of productive
capacity by sector and type of ownership.

1. Political Economy before the 1991 Reforms

Similar to most LDCs, Table 1 shows that the Ethiopian economy performed poorly and remained weak
throughout the 1980s and in the first half of the 1990s. Per capita GDP declined by nearly 1% per annum
during the 1980s as GDP growth lagged behind population growth. Further decline in per capita income
occurred during the first half of the 1990s, by 2.8% per annum, as civil war intensified in the northern
part of Ethiopia and the country entered a period of uncertain political and economic transition.

The socialist economic system during the 1974-1991 military regime was grossly inefficient marked by
the outright discouragement of private sector participation and poor performance of State-
Owned Enterprises (SOEs). Policy choices including high import tariffs, export taxes, currency
overvaluation and the use of marketing boards for agricultural commodities, all played out
simultaneously during this period severely undermining economic growth. The violent civil war
that culminated in the overthrow of the Derg in mid 1991 was a financial burden on the
economy and a human tragedy. The sudden collapse of the military regime was also precipitated
by the disintegration of the former communist block toward the end of the 1980s and by a rare
alliance between the two insurgent groups in the north, i.e., the Eritrean People Liberation
Front (EPLF) and the Tigray People Liberation Front (TPLF), to defeat the Derg. TPLF
formed, in coalition with other ethnic based political parties, the current ruling party in
Ethiopia, i.e., the Ethiopian People Revolutionary Democratic Front (EPRDF), while EPLF
secured the secession of Eritrea in 1993. The Transitional Government of Ethiopia (TGE) was
established in 1991 based on a transition period charter in which EPRDF and other ethnic
based political parties participated. The TGE adopted a new constitution in 1994 paving the way
for the first democratic national elections in 1995, which EPRDF won by a large margin.
However, the country’s democratic process has since stalled with ever diminishing political space

1
for opposition partiesand EPRDF wining all subsequent elections. On the other hand, with the exception
of the border war with Eritrea during 1998-2000 and other sporadic low-intensity ethnic conflicts in
Oromiya and the Somali regional states, there have been no major civil wars in Ethiopia since 1991
making it one of the most stable states in Eastern Africa.

2. Economic Growth and Structural Change after the 1991 Reform

The shift in political institutions in 1991 was accompanied by major economic reforms
encompassing currency devaluation, trade liberalization, deregulation of markets,
removal of restrictions on private sector participation, and modest privatization and
reform of SOEs. Most importantly, the government demonstrated unprecedented
commitment to public investment in economic infrastructure, education and health
services. As shown in Table 1, the Ethiopian economy began to recover during 1995-99
with a 4.7% annual average growth and continued to grow at 5.5% per annum during
2000-04. Economic growth greatly intensified since 2005 at slightly above 10% per
annum in the ensuing 10 years, allowing per capita GDP to grow at nearly 8% annually.
Such performance has made of Ethiopia a symbol of economic turnaround in Africa.

There is broad consensus that the rapid economic growth in Ethiopia since 2000 is largely
driven by public investment in infrastructure (World Bank, 2009). The latter include not only
expansion of road networks but also construction of hydroelectric power plants and
transmission lines, airports, telecommunication systems, health and education facilities, and
most recently railways. For instance, a series of Road Sector Development Programs (at a cost
of more than $7bn during 1997-2010) have significantly improved road accessibility. Table 2
indicates that the proportion of roads in good conditions increased from 22% to 57% between
1997 and 2011

2
 while road density doubled from 24km to 49km per thousand square kilometers. Although ev-
idence remains scant, Shiferaw et al., 2015 find that improvements in road infrastructure have
allowed a growing number of new firms to locate outside the historical centers of manufacturing
including the capital city Addis Ababa and increased average size of startup firms.
Most of this increase is attributed to a steady increase in public investment from about 5% of
GDP in 1992-93 to 16% of GDP in 2014. Private investment, on the other hand, has been very
volatile and declining in recent years. It increased to about 15% of GDP right after the 1991-92
economic reforms but declined sharply in the second half of the 1990s. Although private
investment bounced back to 18% of GDP during 2002-2004, it steadily declined to about 14% of
GDP in 2011. It is only in 2012, half way into the first GTP, that private investment for the first
time rose above 20% of GDP. While some of the reasons behind the unimpressive and volatile
private investment will be discussed shortly, it is clear that the steady increase in public
investment has not yet attracted commensurate private investment. The unsteady and limited
expansion of productive capacity in the private sector is an important concern for sustained
economic growth of Ethiopia.

3
Before the launch of the GTP in 2010, the Government of Ethiopia adhered to a development
strategy dubbed Agricultural Development Led Industrialization (ADLI) that emphasized
improving agricultural productivity. Major interventions under ADLI included provision of
fertilizers, improved seeds and extension services to smallholder farmers. These interventions
coupled with better road connectivity and favorable rainfall for most of the post-reform period facilitated
faster growth in agriculture, especially after 2003 (See Figure 2 and Table 1). Other interventions that
are believed to have contributed to better agricultural performance include the donor supported Public
Safety Nets Program (PSNP) which aimed at building farmers’ productive assets in drought prone areas.
Given that agriculture accounts for about 80% of employment, growth in agriculture (about 6% per
annum) is believed to have greatly benefited rural households in Ethiopia.

While ADLI is credited for improved agricultural productivity and poverty reduction in rural
areas, it did not lead to agricultural based industrialization as initially anticipated. As shown in
Table 1, industry value added stagnated at about 12% of GDP since the mid 1990s. The share of
agricultural value added declined from 56% during 1980-84 to 45% during 2010-14. With no
change in the share of industry value added, the 10 percentage point reduction in agriculture’s
share reflects rapid expansion in the services sector which increased from 34% of GDP during
1980-84 to about 44% in 2010-14. Since the mid 1990s, the service sector’s growth was about 3
percentage points faster than growth in the industrial sector. Faster growth in services is
attributed to growing public and private spending on education and health sectors, expansion of
financial services as well as growth in distributive services such as transportation and domestic
trade. The reason why growth in services outstripped that of industry is a critical question which
has implications on the sustainability of Ethiopia’s rapid economic growth.

The nature of structural change in Ethiopia also differs from the experiences of most East Asian
countries where rapid economic growth has been accompanied by sharp increases in the share
of manufacturing. Given the capital intensity of manufacturing industries relative to rain-fed
agriculture and services, it is very important to explore why productive capacity in
manufacturing is lagging behind and some of the actions that can be taken to strengthen it.

2.1 Financing domestic investment

Credit to the Private Sector

LDCs are often characterized by low domestic savings and underdeveloped financial institutions. As
shown earlier in Figure 1, the domestic savings rate in Ethiopia declined from 15% of GDP during the
1980s to about 12% during the 1990s. Savings increased above 15% of GDP only after 2010. It is evident
from Figure 1 that movements in aggregate investment were closely correlated with the savings rate up
until the late 1990s, suggesting a binding constraint on investment imposed by low domestic savings.
Since the year 2000, however, the gap between domestic investment and savings widened substantially.
While domestic investment doubled from 20% of GDP in the early 2000s to 40% of GDP in 2014, the
increase in domestic savings was rather muted. It is clear that foreign aid (including concessional loans)
has been playing an increasingly important role in domestic investment finance. Recent studies have
examined developments in the Ethiopian financial sector and the private sector’s access to credit (IMF,
2013; Zewdu, 2014; World Bank, 2015). These studies highlight the fact that the Ethiopian financial
sector remains closed to foreign banks and that the quality of its services compare poorly with respect to
other African countries. There are about 16 privately owned commercial banks as of now, accounting for

4
less than 30% of the sector’s financial assets. The state-owned Commercial Bank of Ethiopia (CBE)
overwhelmingly dominates the market. Private banks function under stringent financial regulations that
restrain financial intermediation. The government justifies strict regulations on the grounds of financial
stability.

2.2 Private Investment in Manufacturing:

Given the historically low manufacturing base in Ethiopia, the intensity of firm-level investment
will undoubtedly play a critical role in industrial expansion. Unfortunately, private investment in
Ethiopian manufacturing remains relatively weak. Shiferaw (2015) finds that about 50% of
Ethiopian manufacturing firms have a zero investment rate at any point during the period 1996-
2007. This proportion rises to 70% among small firms that employ less than 50 workers. Among
firms with a positive investment rate, the majority has investment rates that are far below the
frequently used 10 % depreciation rate.

The average firm-level investment rate is about 12% of the capital stock. Such limited private
investment in manufacturing is inconsistent with the emphasis placed on this sector by the GTPs.
Previous studies lamented that the size and investment rates of African firms are restrained by a
weak aggregate demand and poor infrastructure (Collier, 2000). While this might explain
conditions in most African countries during the 1980s and 1990s, it stands at odds with recent
experiences of rapid GDP growth and improved infrastructure in countries like Ethiopia. To
better understand current investment patterns, Shiferaw (2015) compares the investment
responses of private enterprises in Ethiopia, with and without access to credit, using initial
relationship with banks as a proxy for potential credit constraints. This is based on the
assumption that borrower-lender relationships tend to be sticky (Chodorow-Reise, 2014)1.
According to this proxy, about 60% of private manufacturing firms do not have ties with
commercial banks implying that they are potentially credit constrained. Interestingly, the
average investment rate among firms with initial bank ties (14%) is twice that of firms without
bank ties (See Table 3). Unsurprisingly, investment rate among large firms (16.4%) is higher
than that of small firms (9.3%). The former are also significantly less likely than the latter to
have zero investment episodes. Shiferaw (2015) also finds that although access to credit
increases with firm size, small firms with bank ties are at least as responsive to investment
opportunities as large firms are, who enjoy better access to credit. Most importantly, having a
relationship with banks seems to allow firms to implement large (lumpy) investment projects that
exceed 20% of initial capital stock.2
1 Chodorow-Reise (2014) finds that US firms who borrowed from less financially healthy banks
before the 2008 financial crisis experienced stronger contraction of employment during the
2008-09 recession than firms who borrowed from healthier banks.
2 In the Ethiopian case, firms with such lumpy investment account for about 70% of total private
investment in manufacturing although they account for less than 15% of the Shiferaw (2015)
shows no significant difference in investment opportunities among firms with and without bank
ties, suggesting that the difference in actual investment rate lies in the ability to capture invest-
ment opportunities, which at least in part depends on access to credit. The key message is that
private investment in manufacturing and its contribution to GDP seems to be constrained

5
 substantially by limited access to credit for private enterprises, particularly small firms. This
observation is consistent with a recent study by the World Bank which finds that 56% of small
medium enterprises in Ethiopia, (not just in manufacturing), are credit constrained far above the
African average (World Bank, 2015). This study also finds extremely high collateral
requirements as well as stringent financial regulations on private commercial banks. This
situation has led to a steady decline in private sector borrowing from the banking sector as
percentage of GDP. Details on financial sector developments will be provided in section six.

3.2 Diversification of manufacturing firms

There is growing evidence that economic prosperity is strongly associated with the pace at
which new products are added to an economy and its exports basket (Imbs and Wacziarg, 2003).
Most importantly, the higher the technological content of the newly added products, the faster
the expected rate of growth in income per capita (Hausmann et al., 2012). At the micro level,
evidence shows that multi-product firms are larger, more productive and export-oriented than
single-product firms (Bernard et al, 2010; Goldberg et al. 2010). In the Ethiopian context,
Shiferaw (2010) shows that multi-product firms account for about 34% of manufacturing firms
and 42% of manufacturing sales. Interestingly, the rate of transition from single- to multi-
product firm is strongly associated with the incidence of lumpy investment (Shiferaw, 2010). In
other words, adding a new product at the firm level is associated with a major increase in
investment spending. Unfortunately, only 13% of firms exhibit lumpy-investment rate (often
defined as investment rate exceeding 20% of capital stock). The process of adjusting the product
basket at the firms’ level also accounts for 30% of growth in manufacturing output which is
greater than the contribution of net firm entry. The lackluster investment activity highlighted
above not only undermines industrial expansion through the intensive margin but also through
the extensive margin.

3.3 Job creation

The other major challenge for Ethiopian manufacturing is the ability to create jobs. The
employment share of manufacturing remains below its 5% contribution to GDP. One
contributing factor for this outcome is the extremely low graduation rate of small enterprises
into medium and large size categories. Shiferaw and Bedi (2013) find that among small firms
that employ less than 30 workers, only 7 percent managed to employ more than 50 workers after
10 years. This suggests that small firms contribute to job creation primarily at the time of entry
but much less through post-entry expansion. Most of the job creation in Ethiopian
manufacturing actually occurs among large firms. This underscores the need to increase the
average size of manufacturing startup firms and/or to create a business environment that allows
small entrants to grow faster.

3.4. Industrial zones and foreign direct investment in manufacturing

While privately owned local firms do not seem to feature prominently in Ethiopia’s
industrialization process, the government continues to take some bold initiatives to accelerate
growth in manufacturing and achieve the GTP targets. One such initiative is the
establishment of major industrial zones around Addis Ababa, such as Bole Lemi industrial

6
 park funded in part by the World Bank Group. These facilities are intended to provide
investors with ready-made factory sites, basic utility services, and are particularly attractive
for foreign firms who may not be familiar with the local bureaucracy and business practices.
One of the largest foreign firms in Bole Lemi industrial park is the Taiwanese Shoe factory
George Shoe PLC, established at a cost of around $120 million. In addition to attracting
more foreign direct investment (FDI), the government also uses industrial zones to create
clusters of related industrial activities. The Bole-Lemi industrial zone hosts firms in the
textile, garments and leather industries. Similarly, the Kilito industrial zone will host firms in
the agro-processing, food, beverage and pharmaceutical industries. Such clusters may
facilitate the flow of information and technology across firms in closely related industries
that may in turn increase collective efficiency beyond intra-firm productivity gains. This
would be particularly likely if the industrial parks could accommodate both local and FDI
firms, which unfortunately is not the case at the moment.
Further integration in global value chains would allow Ethiopian firms to not only increase their
access to foreign markets but also to acquire much needed technological capabilities. However,
this process is at an incipient stage and a lot needs to be done to secure a stable and profitable
position in value chains in its low-technology industries.

3.5 The Sugar Sector Mega Projects

While industrial parks are established primarily to attract more FDI in manufacturing, the
government is also heavily investing in sugar production. Until recently, Ethiopia has been a net
importer of sugar as the two old sugar factories (Wonji and Metehara) have limited capacity to
meet domestic demand. However, one of the targets of the first Growth and Transformation
Program (GTP I) is to expand the sugar sector with the ambition for Ethiopia to become one of
the top ten sugar exporters in the world. This plan involves the construction of ten large sugar
plantations and factories in different parts of the countryto be implemented by the state-owned
Ethiopian Sugar Corporation (ESC). The assumption is that the domestic private sector does not
have the managerial and investment capabilities to undertake such a large project and hence a
decision was made to create a number of state-owned enterprises under the Sugar Corporation.

4. Growths and Diversification of Exports

4.1 Overall growth
We now turn to the performance of the exports’ sector both in terms of growth and composition
of the exports’ basket. Figure 3 shows a dramatic increase in export earnings in Ethiopia since
2005 against a backdrop of nearly zero growth for the preceding ten years. In five years export
earnings doubled from $1bn in 2005 to $2bn in 2010, and doubled again in the four following
years. This shows a 20% annual growth in exports since 2005, which is twice the rate GDP
growth. This trend suggests strong improvements in the competitiveness of the economy and the
reallocation of resources toward tradable sectors.

4.2 Export performance by commodity

Like most LDCs, Ethiopia relies heavily on a few primary export commodities exposing its
economy to volatility of international markets and declining terms of trade. During the 1970s
and 1980s, coffee and oilseeds accounted for nearly 85% of exports in which the coffee’s share
was 65%. While coffee remained the dominant source of export earnings until 2000, this started

7
to change in subsequent years as the share of non-coffee agricultural exports surged. Figure 4a
shows this clearly with a secular decline in the share of coffee from about 65% in 1995 to about
20% in 2014. In the meantime, the share of non-coffee agricultural exports increased to 60% in
2014 from only 15% share in 1995. Figures 4a and 4b reveal remarkable shifts in the
composition of the export basket within the agricultural sector. Although the share of agriculture
in GDP is declining over time as shown earlier, its contribution to export earnings seems to be
rising. Further research will be needed on how much of this outcome is the result productivity
gains in agriculture, favorable commodity prices

4.3 Growth in the Extensive Margin

Based on UN-COMTRADE data, Figure 1 indicates that the number of 6-digit Harmonised System (HS)
export items in Ethiopia doubled from about 45 in the late 1990s to about 90 products in 2009. This
suggests that the rapid growth in total export earnings has also been accompanied by expansion of the
extensive margin. This is consistent with Imbs and Wacziarg (2003) who show that the process of
economic development involves building productive capacity in a growing number of products, rather
than specializing in a narrow range of products as implied by traditional trade theory.

Figure 1 Number of Six- digit (HS )export commodities.

Q#2) Overview of Ethiopian Economy and its Development.

Ethiopia has registered remarkable economic performance with annual growth averaging 10.9% over the
past ten years. This is double the Sub Sahara Africa and triples the world average growths over this period
and has led to Ethiopia being rated as one of the fastest growing economies in the world. Huge public
investments with focus on infrastructure and pro-poor sectors explain much of the economic performance
from the expenditure side. Government investments have mainly been carried out from domestic resource
mobilization and augmented by external resource inflows. Domestic savings has been growing
significantly in the past few years from 12.8% of GDP in 2010/11 to 17.7% of GDP in 2012/13. The
newly introduced savings instruments (bonds) and expansion in financial services through the aggressive
opening of banking branch networks have contributed to the surge in the domestic savings. From the
production side, looking at the Major sectoral classifications the growth remained robust and broad based

8
as all sectors registered positive and significant growth. The growth in the industry sector was very strong
in the past three years. This sector was the highest performer in 2012/13 by registering 18.5% annual
growth rate, which was buoyed by the construction boom and expansion in mining and manufacturing
subsectors. Agriculture grew by 7.1%, recovering from 4.9 % growth in the previous year mainly
attributed to increased crop production as a result of Increases in productivity and expansion of area under
cultivation. 1 The main reasons for the increase in the agricultural productivity and production were
favorable weather and good rainfall, strengthened agricultural extension services, better access to
agricultural inputs, improved access to market and pursue of enhanced policy and advocacy. In 2012/13
the service sector registered 9.9% 9.9% annual growth and stood out in terms of its contribution to the
overall output.

 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.

Q#3) Challenges & Opportunities of Development in Ethiopia through Urban-Rural

Economic Linkages

The  challenges for developing rural Ethiopia lie in an overall increase in productivity in all

sectors in rural areas, i.e. in the agricultural, secondary, and tertiary sectors. Sustainable land
management, including soil, water and biodiversity conservation, must become the basis of
agricultural activity on all land. Policies addressing rural-urban linkages, land tenure issues,
and questions of demographic transition, as well as issues of education and health, can be
particularly supportive in accelerating this change. A sectoral transition from the dominance of
the primary sector to more emphasis on the secondary and tertiary sectors would have the
potential to accelerate change, although perhaps at the risk of social and public security, for

9
which particular care must be taken. Demographic transition, furthermore, probably reached a
peak several years ago, but may require attention until a more or less stable population number
is reached in the longer-term future. New identities may be formed during this transition, moving
from association with traditional rural Ethiopia to association with a modern, interlinked rural-
urban landscape.

 challenges of urban development in ethiopia

I was recently quizzed on what I consider to be the key urbanisation issues in Addis Ababa based
on my experience living in the city over the last year.

So here is a quick overview of five urbanization challenges facing the city from my own
perspective

1. Sustainability of buildings and infrastructure

Addis Ababa is currently undergoing a massive construction boom. Unfortunately, the design
and construction of many buildings and infrastructure is of a low quality, with insufficient
attention being paid to issues of environmental performance and life-cycle analysis.
Understandably, the government is facing pressure to meet rapidly growing demands for
housing and infrastructure and to raise living standards. However, the current short-term focus
on meeting immediate needs rather than considering longer-term issues of sustainability is likely
to prove very costly in the long-term, due to the high cost and complexity of retrofitting and
rebuilding infrastructure.

2. Urban planning and integration

The rapid growth of Addis Ababa is not being managed effectively by appropriate urban
planning mechanisms. Consequently, urban development activities are not well-regulated and
there is a lack of integration of new urban developments in transport, housing, commercial
buildings, and utility services. For example, large multi-story buildings are constructed with no
parking facilities on major roads where parking is also banned. Furthermore, there is a lack of
consideration given to the effects of urban development on the existing character of locations
and the emergence (and destruction) of precincts. Not to mention my personal bug-bear, the
virtual absence of any consideration for pedestrians in urban design and construction
management.

3. The informal sector

The informal sector plays an important role in generating employment opportunities for youth
and recent urban migrants, as well as supporting the provision of goods and services to city
residents. In particular, the flexibility and adaptability of the informal sector helps to mitigate
the effects of disruptions caused by major urban development activities. However, the informal
sector is not well-understood or appreciated by city officials and faces constant marginalization
and subordination through poorly considered regulations and lack of genuine engagement.

10
4. Environmental management

Probably the one aspect that affects most people in the city is the lack of reliable and secure
access to potable water, sanitation, and waste management services. This results in numerous
public health issues for city residents, particularly the poor. In addition, heavy rainfall causes
minor flooding, erosion of unsealed roads, overflow of sewerage systems, and disruptions to
energy supplies, due to inadequate drainage and lack of green spaces to absorb excess runoff.

5. Investment in human capital

Investment in human capital is a critical component of sustained economic growth and

development in cities and regions. However, due to underinvestment and severe capacity
constraints the quality of education, health and other social services remains poor in Addis
Ababa. Consequently, social development indicators and access to secure employment and
economic opportunities remain low for many residents of the city. Moreover, the city is heavily
reliant on technical support from foreign professionals across many key sectors and industries.

Other notable urbanisation issues include a poorly functioning urban land market,
encroachment on productive agricultural lands from urban growth, and lack of modern banking
facilities.

Well, that’s my point of view based on my personal experiences. Any feedback or comments are
most welcome.

 Challenges for developing rural Ethiopia

The first and foremost challenge for developing rural Ethiopia lies in an overall increase in
productivity and output in all sectors in rural areas. This concerns the agricultural as well as
the secondary and tertiary sectors. An increase in agricultural productivity appears simple, as
current yields are astonishingly low compared with results from other developing countries,
even in Africa. Fertilizer, improved seeds, better tillage systems, weed control, etc. are the
approaches that have been tried over the past 30 years but with only moderate success. The
problem apparently does not lie at the farm level, but has to do with the overall structure of the
agricultural sector, where 12 million farm households follow similar cropping practices in their
subsistence-oriented strategy. On the one hand, any surplus produced by a farmer always
competes with similar surplus products produced by like-minded farmers, and as a consequence,
prices on the market drop sharply when supply is too high at a given time.

Q#4) Briefly Explain about the Case Study regarding Demand & Supply in the following
sector
4.2 Demand & Supply in Energy Production..

4.3 Demand & Supply in Steel Market.

4.1 Demand & Supply in Cement Market

11
Cement is one of the most consumed construction material. The production of cement is
accountable for 5% of global carbon dioxide emissions. The cement industry is one of the most
energy consuming industry. However, the cement demand around the globe is increasing in a
rapid phase. Cement production is dependent on factors like social, economic and geographical.
And the other features of cement production is that cement plants are not uniformly distributed.
Ethiopia is located in the Eastern part of Africa and it is one of the Sub Saharan African
countries. Ethiopia is the second most populous nation in Africa next to Nigeria. The current
population of Ethiopia is estimated to be around 100 Million. In recent years, Ethiopia has been
registering double-digit economic growth and the country is expected to continue to sustain this
impressive economic growth. And become one of the fastest growing countries in African
Economies. The cement industry is one of the rapidly growing industry in Ethiopia[2]. The
construction of new mega-projects like the Grand Ethiopian Renaissance dam, several industrial
parks, sugar factories, highway and railway roads, and private sector projects caused an
increase in cement demand. A lot is expected from the cement industry to fulfill all these
demands in order to sustain economic growth of the country. The Sub-Saharan African countries
have the lowest per capita cement consumption compared to other African countries. But still,
Africa has the lowest per capita cement consumption. In Ethiopia, the per capita cement
consumption is estimated to be 62kg, which is way below than the global average per capita
consumption of 500kg. The cement demand in Sub-Saharan African countries is expected to
increase by 50% from 2015 to 2025. There are only a limited number of resources and
information on the cement industries in Ethiopia. This paper tries to review the cement
industries in Ethiopia about its history, production, resources, technologies, and energy uses.
 Cement production in Ethiopia
The cement industry in Ethiopia has changed from being an importer of cement to be an
exporter of cement to its neighboring countries like to South Sudan, Djibouti, Somalia, and
Kenya. The past few years, Ethiopia's cement production has shown an increase in its
production capacity because of the opening of new cement companies and also upgrade of the
old cement factories. Ethiopia has become one of Africa's largest market for the cement industry
following Nigeria, Tanzania, and South Africa. The number of cement factories in Ethiopia has
increased to 20 from which 16 are integrated plants and the rest are grinding plants. At the end
of the 2014, Ethiopia’s cement factories have a total capacity of around 12.6 million metric tons
per year. In 2017, Ethiopia has produced 10 million tons of cement and by 2020 it is expected to
produce 12 million tons of clinker per year. The table shows the list of cement factories and their
respective clinker production capacity in Ethiopia. For the period of 2015 to 2025 the Federal
Democratic Republic of Ethiopia (FDRE) Ministry of Industry has developed new strategies to
guide the growth of Ethiopia’s cement industry. The cement consumption of the country by the
end of 2025 is projected to be 19.97 million tons, whereas the capacity that is required is
projected to be 25.16 million tons. This indicates that by the end of 2025 there will be some
additional capacities of 8.01 million tons. By the year 2025, per capita cement consumption is
expected to increase from 62kg to 179kg. One of the strategic plans by the government is to
improve the Ethiopian cement industry by promoting the production of green cement.

 Availability of cement raw materials in Ethiopia

12
  Generally, limestone deposits which are the major ingredients for the production of
cement are common in Africa. Ethiopia has a huge amount of reserve of raw materials
for the production of cement. The major raw materials for the production of cement are
limestone, clay, silica sand, gypsum, and pumice. The reserve amount of limestone, clay,
silica sand, gypsum and pumice is 171,000,000metric tons, 21,600,000 metric tons,
3,400,000 metric tons, 57,400,000 metric tons and many million tons respectively.
 Cement Technologies and Energy use in Ethiopia
In the past decade, the cement industry in Africa has risen by 5% per year. Ethiopia and
Nigeria have become the major exporters of cement industry in the region. In Ethiopia, due to
high investment and infrastructure growth, the cement demand has increased compared to other
Sub-Saharan African countries. Ethiopia is one of the highest cement consumer nations next to
Nigeria, South Africa, and Angola. Even if the cement consumption within the regions is
increasing the per capita consumption is way below than the global consumption average.
However, the cement production in Sub-Saharan African countries is growing but the total
output production of cement in this region is only around 2.9% of the world total. This is
because of the underutilized capacity and under investments of the sector; which is the major
cause of high production costs. Due to this, the cement sector became unable to compete with
the global cement market. This is one of the major challenges the Ethiopian cement industry is
facing. The current cement production capacity utilization rate in Ethiopia is only 50%.
4.2 Demand & Supply in Energy Production
Ethiopia is one of the least developed countries in the world. Approximately 34 % of its over 100
million inhabitants live below poverty line. It has one of the lowest rates of access to modern
energy services, whereby the energy supply is primarily based on biomass. With a share of
92.4% of Ethiopia’s energy supply, waste and biomass are the country’s primary energy
sources, followed by oil (5.7%) and hydropower (1.6%). At the same time the economy is one of
the fastest growing in the world, with an average growth of 10,8% since 2005. Besides it has
ambitious plans to achieve a climate resilient development till 2025. It was the first developing
country which submitted its NDC (Nationally Determined Contribution) at the UNFCCC
(United Nations Framework Convention on Climate Change) and therefore takes a leading role
in climate policy of the most vulnerable countries to climate change.

 Energy Situation
Ethiopia has a final energy consumption of around 40,000 GWh, whereof 92  % are consumed by
domestic appliances, 4 % by transport sector and 3 % by industry. Most of the energy supply
thereby is covered by bioenergy, which in case of domestic use is usually stemming from
unsustainable sources. The produced electricity of ~ 9000 GWh/a is mainly generated by hydro

13
energy (96 %) followed by wind energy (4 %), whereof in total 11 % get exported. In contrast
the major share of energy supply for transport is imported in forms of petroleum.

Ethiopia is endowed with renewable energy sources. These include first of all hydro, but also
wind, geothermal, solar as well as biomass. Only a small portion of the potential is harnessed
today. Due to its fast economic growth the energy demand is increasing enormous. Therefore it
is expected to rise by a rate of 10 -14 % per year till 2037. 

Today only 27 % of the rural population have access to electricity grid. This share is increasing
due to an extension of the national grid on the one hand, and an increasing number of Stand-
alone-systems and Mini-grids on the other hand.

1. Hydropower

Ethiopia's hydropower potential is estimated up to 45,000 MW and is the 2nd highest in Africa

(only DR. Congo has a higher potential). Approximately 30,000 MW is estimated to be
economically feasible which is equivalent to an electricity generation of 162 TWh. The current
production of 3.98 TWh thus equals to an exploitation of only 2.5%. In general, Ethiopia’s
terrain is advantageous for hydropower projects. With 10  river basins (of which the Blue Nile,
Omo and Wabi Shebelle, and Genale-Dawa are international rivers), hundreds of streams
flowing into the major rivers dissecting the mountainous landscape in every direction; and each
river basin covering massive catchment areas with adequate rainfall, Ethiopia is said to be the
“Water Tower of Eastern Africa”. This is no exaggeration given the fact that Ethiopia alone
contributes to about 86% of the waters in the Blue Nile. Moreover, studies conducted by
the Ministry of Water Resources (MoWR)  estimated that the annual run-off from the major
river basins is in the order of 122 billion cubic meters.

Besides, the mountainous landscape in the western half and some southern parts of the country
makes many of the nation’s hydro resources suitable for hydro-electricity generation of varying
sizes, i.e., ranging from  pico hydro to small and large hydropower plants. Small-scale hydro
schemes are particularly suitable in remote areas, which are not connected to the national grid.
The total theoretical potential for micro hydropower schemes is 100 MW.

Like all other natural resources, Ethiopia’s hydro resources are unevenly distributed over its
land mass. Generally speaking, the amount of rainfall and topographic conditions suitable to
hydro-electricity generation, i.e., head decrease as one moves away from west to east until it
gets totally arid, flat desert-type in the Ogaden lowlands. While rainfall is in relative abundance

14
in the western and southern parts of the country, it gets moderate in the northern highlands and
central plateau (see fig. 6). Thus, it could be argued that the distribution of Ethiopia’s hydro
resource is in contrast with that of its wind energy resource, since the former decreases while
the latter increases as we descend to the eastern lowlands. And the opposite is true in the
western, central and south western highlands.

Ethiopia’s hydropower potential has an important contribution to make to its immediate

neighbours.  Sudan, Kenya, Djibouti, Somalia and Eritrea, as they constitute a readily available
market for hydro-electric power within the region. Some of these countries are already facing
power shortages and hence are in dire need of electricity to power their economies. As of 2007,
EEPCo was undertaking small projects aimed at exporting hydro-electric power to
neighbouring Sudan and Djibouti.

2. Solar energy.
Ethiopia receives a solar irradiation of 5000 – 7000 Wh/m² according to region and season and
thus has great potential for the use of solar energy.The average solar radiation is more or less
uniform, around 5.2 kWh/m2/day. The values vary seasonally, from 4.55-5.55 kWh/m2/day and
with a location from 4.25 kWh/m2/day in the extreme western lowlands to 6.25 kWh/m2/day in
Adigrat area, Northern Ethiopia is still at its early stage.
Until recent times use of PV for meeting off-grid power needs was confined to projects funded by
donors. UN organizations such as UNICEF and WHO are few examples that had supported
projects that use PV based technologies (distance-education radios and vaccine fridges) in
remote rural areas. Moreover, the  Government of Ethiopia (GoE) with technical as well as
financial assistance from Italian government had executed a PV-based rural electrification
project in the . The rural electrification project was later abandoned and looted, during
the change of government in 1991, by the very people it was intended to serve. Such donor-
driven projects proved unsuccessful or at least unsustainable primarily because the requisite
commercial infrastructure (awareness, skilled technicians, financing mechanism, market
linkages, and supportive policies) was lacking.

Ethiopian telecom  is the major user of PV solar in the country. It uses PV solar to power its
remote rural telecom installations and this application has grown several times in recent years.
As of 2007, there were about a dozen PV dealers in the capital. Almost all of them do PV as a
side business; and the majority of them do everything from import down to installation. Efforts
made under the EU financed IGAD PV project, GEF-supported off-grid rural electrification
project and UNEP/GEF PV Commercialization project proved useful in removing some of the

15
key barriers (awareness, skills training, finance) that had hindered the development of the
commercial PV market in the country.

3. Biomass

Biomass resources include wood, agro-industrial residue, municipal waste and bio fuels. Wood
and agricultural as well as livestock residue are used beyond sustainable yield with negative
environmental impacts.

According to estimates made by a recent study, at the national level, there appears to be a
surplus of woody biomass supply. However, the same study revealed that there is a severe deficit
of supply when the data is disaggregated to lower local levels. According to this same study, 307
Woredas (districts) out of the total number of 500 Woredas are consuming woody biomass in
excess of sustainable yield.

Among the key issues that characterize the Ethiopian energy sector, the following are some that
stand out:

 The energy sector relies heavily on biomass energy resources,

 The household sector is the major consumer of energy (which comes almost entirely from
biomass) and,
 Biomass energy supplies are coming mainly from unsustainable resource base (which
has catastrophic environmental implications).
Ethiopia’s biomass energy resource potential is considerable. According to estimates by Woody
Biomass Inventory and Strategic Planning Project (WBISPP), national woody biomass stock
was 1,149 million tons with annual yield of 50 million tons in the year 2000. These figures
exclude biomass fuels such as branches/leaves/twigs (BLT), dead wood and homestead tree
yields. Owing to rapidly growing population, however, the nation’s limited biomass energy
resource is believed to have been depleting at an increasingly faster rate. Regarding the
regional distribution of biomass energy resources, the northern highlands and eastern lowlands
have lower woody biomass cover. The spatial distribution of the "deficit" indicated that areas
with severe woody biomass deficit are located in eastern Tigray, East and West Harerghe, East
Shewa and East Wellega Zones of Oromiya and Jigjiga Zone of Somali Region. Most of Amhara
Region has a moderate deficit but a small number of Woredas along the crest of the Eastern
Escarpment have a severe deficit.
4. Wind Energy
Ethiopia has good wind resources with velocities ranging from 7 to 9 m/s. Its wind energy
potential is estimated to be 10,000 MW. The Ethiopian National Meteorological Services
Agency (NMSA) began work on wind data collection in 1971 using some 39 recording stations
located in selected locations. Ever since the establishment of these stations, wind velocity is
measured and data made available to consumers. However, the number of stations established,

16
quality of data (in terms of comprehensiveness) and the distribution of the stations leaves much
to be desired.
5. Geothermal Energy
In looking at the possible future uses of these sources, three potential types of applications can
be considered: in conventional rural electrification; in complementary rural electrification; and
in the provision of non-electrical energy. One of the most important weaknesses in the work
carried out to date is an almost complete lack of analysis of the economic viability of renewable
energy applications and their competitiveness relative to their conventional alternatives. Nor
has there been any significant amount of investigation into whether potential markets exist for
the technologies or how such markets might be developed. Hence it is very important to consider
facilitating for proper and sustained mechanisms for data collection, analysis and knowledge
management to establish the feasibility and market potentials of different RE applications. etc.
4.3 Demand & Supply in Steel Market.
Steel and basic metal industries are key ingredients for economic growth.
These industries are produce an essential input for manufacturing and processing
industries, building infrastructure, telecommunication and other sectors for economic
development. The industries requires a large number of basic metal products for the expansion
and transformation of them from one stage to the next. Since over the past decade, the steel
industry has experienced an unprecedented expansion in production capacity, as many
developing economies entered a metal intensive stage of growth. However basic metal industries
have to needs to efficient and effective capacity in order to perform and stay in business
success. In reality, the performance of manufacturing industries determined in resource
utilization, product quality, profit margin , sale growth, delivery time, interims achievement of
demand an supply. Even though the market shearing, performance, GTP contribution of basic
metal industries are poor. Since, analysis and evaluating the efficiency of an industry is
essential for the overall organizational performance and competitiveness. While, in order to
compete with other manufacturing firms in international market, business organizations, it is
crucial for analysis demand-supply performance of Ethiopian basic metal products. Thus, the
major objectives of this study is to examine the demand and supply performance
of basic metal products and develop a strategies how they balance demand and supply to
improve the competitiveness of the sector by filling the gaps. Since, it is hoped that insights
gained from this study may contribute to the important, contribute for demand and supply
performance impacts on manufacturing industries.

5 Briefly explain about the major Import & Exports in Ethiopia Trading.
In 2019 Ethiopia was the number 62 economy in the world in terms of GDP (current US$), the number
132 in total exports, the number 110 in total imports, the number 168 economy in terms of GDP per
capita (current US$) and the number 108 most complex economy according to the Economic Complexity
Index (ECI).

17
 EXPORTS
The top exports of Ethiopia are Coffee ($837M), Other Oily Seeds ($347M), Gold ($256M), Cut Flowers
($238M), and Zinc Ore ($199M), exporting mostly to China ($518M), United States ($484M), United
Arab Emirates ($251M), Saudi Arabia ($197M), and South Korea ($159M).

IMPORTS
The top imports of Ethiopia are Planes, Helicopters, and/or Spacecraft ($717M), Gas Turbines ($608M),
Packaged Medicaments ($402M), Electric Filament ($266M), and Cars ($225M), importing mostly from
China ($2.37B), India ($828M), United Arab Emirates ($788M), France ($787M), and United Kingdom
($622M).

LOCATION
Ethiopia borders Djibouti, Kenya, Somalia, South Sudan, and Sudan by land.

In 2019 Ethiopia imported $8.95B, making it the number 110 trade destination in the world. During the
last five reported years the imports of Ethiopia changed by -$5.22B from $14.2B in 2014 to $8.95B in
2019.

The most recent imports of Ethiopia are led by Planes, Helicopters, and/or Spacecraft ($717M), Gas
Turbines ($608M), Packaged Medicaments ($402M), Electric Filament ($266M), and Cars ($225M). The
most common import partners for Ethiopia are China ($2.37B), India ($828M), United Arab Emirates
($788M), France ($787M), and United Kingdom ($622M).RTS

18