DEPARTMENT OF COMPUTER SCIENCE

TERM PAPER ON ECONOMIC ACTIVITY IN ETHIOPIA

COURSE TITLE GEOGRAPHY
BY GROUP - 3
GROUP MEBER

No Full Name Id No
1 Yewidiyanesh Tesfa 10872/15
2 Desta Honja
3
4
5
6

10
Table of Contents
Introduction......................................................................................................................................1
1 Mining, fishing and forestry in Ethiopia.......................................................................................1
1.1 Mining....................................................................................................................................1
1.2 Fishing....................................................................................................................................1
1.2 Forestry..................................................................................................................................2
1.3.1 Significance of forestry to the national economy and local livelihoods.........................3
2 Agriculture in Ethiopia.................................................................................................................3
3 Manufacturing in Ethiopia............................................................................................................5
4 Service sector in Ethiopia.........................................................................................................5
Conclusion.......................................................................................................................................6

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Term paper on economic activity in Ethiopia
Introduction
Ethiopia has a mixed market economy, which means businesses are owned by both the public
and private sectors. Previously, the economy was largely state-owned. Its economy has
experienced between 8% and 11% growth over the last 10 years, although for 2014 and 2015 that
rate dropped to 5.4%. It is considered one of the fastest growing economies in the world. This
growth has been driven by the agricultural and services sectors. The population here has an
extreme poverty rate of 33.5%. In 2014, Ethiopia had a gross domestic product (GDP) of $132
billion, and a nominal GDP per capita of $570. Its workforce employs 37.9 million people, and
has an unemployment rate of 24.9%. Of its employed individuals, 85% work in agriculture. This
is followed by services (10%) and industry (5%).

1 Mining, fishing and forestry in Ethiopia

1.1 Mining
Mining is important to the economy of Ethiopia as a diversification from agriculture. Currently,
mining comprises only 1% of GDP. Gold, gemstones (diamonds and sapphires), and industrial
minerals are important commodities for the country's export-oriented growth strategy.[1]

The country has deposits of coal, opal, gemstones, kaolin, iron ore, soda ash, and tantalum, but

only gold is mined in significant quantities. In Salt extraction from salt beds in the Afar
Depression, as well as from salt springs in Dire and Afder districts in the south, is only of
internal importance and only a negligible amount is exported.

Tantalum mining has also been profitable. It was reported that in the late 1980s, the mineral
industry lacked importance given that it contributed less than 0.2 percent of Ethiopia's GDP.
 Mining for gold is a key development sector in the country. Gold export, which was just US$5
[3]

million in 2001, has recorded a large increase to US$602 million in 2012. [4] 2001 gold production
amounted to some 3.4 tons.

1.2 Fishing
At present, the country Ethiopia has an estimated annual total exploitable fish potential of 51,481
tons, which can meet only 79 percent of the current actual demand, 55 percent of the projected

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Term paper on economic activity in Ethiopia
demand in 2010 and 44 percent of the projected demand in 2015, based solely on population
size. Fish is highly nutritious, so even small quantities can improve people’s diets. Fish provides
about 20 percent of animal protein intake in developing countries and this can reach 90 percent
in Small Island Developing States or coastal areas Fisheries can also contribute indirectly to food
security by providing revenue for food- deficient countries to purchase food Fish exports from
low-income, food-deficient countries are equivalent to 50 percent of the cost of their food
imports. The inland water body of Ethiopia is estimated to encompass about 7,400 km2 of lake
area and a total river length of about 7,000 km. As many other countries challenged in the world,
population rise urbanization, agricultural development, industrialization and other water resource
development activities have resulted in a decrease in the species diversity of freshwater fish
species. Fisheries production is also under-exploited while current demand exceeds supply by
about four-fold. One of the big and immediate challenges of our country is addressing the
problems of food security and poverty. Currently, about 45% of the total population is living
under poverty and the level of impoverishment is worse in rural areas, where 85% of the total
inhabitants’ dwell. Artisanal freshwater fishery is one of the most important economic activities
in Ethiopia. Improvements in fishery sector would contribute

1.2 Forestry
One of the challenges they face is that traditional economic accounting does not adequately
consider nature’s contributions to a country’s economy.
Ethiopia’s forests cover about 14.7 per cent of the country’s land area, with woodland and shrub
land accounting for another 44.7 per cent. But the value of these ecosystems to the national
economy is not well understood.
For example, Ethiopia’s System of National Accounts is used to calculate Gross Domestic
Product (GDP), but it’s uncertain whether this system fully captures the income that forests
produce.  
Official statistics from the Ministry of Finance and Economic Cooperation show the forestry
sector’s contribution to be about 3.8 per cent of gross domestic product, or GDP.
But a UN Environment report concludes that forests generated economic benefits in the form of
cash and in-kind income equivalent to 12.86 per cent of GDP in 2012 and 2013.

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1.3.1 Significance of forestry to the national economy and local livelihoods
The forest resources of Ethiopia play significant roles in the livelihoods of the community and
the national economy at large. Their direct roles include provisions of energy, construction
wood, poles, timber and non-timber forest products (NTFPs) that are highly prized for their food,
medicinal and commercial values. Lack of a reliable and consistent database and proper forest
accounting system constrains the valuation of the direct and indirect values of forest resources.
Therefore, estimations of contributions of forests and woodlands are commonly reported using
only case studies and site-specific assessments. There are several case studies that show the
importance of forest resources. It has been reported that 90% of the households in Bench Maji,
Kaffa and Sheka zones, south-western Ethiopia harvest significant volumes of NTFPs including
forest coffee, forest honey, wild forest spices (Ethiopian cardamom, long pepper and turmeric)
and bamboo (FFE, 2009). The same study showed that some of the households earn up to 73% of
their annual cash income from sale of NTFPs. A conservative estimate of the Enhancing the role
of the forestry sector in Ethiopia 4 values of NTFPs produced in the country that include forest
coffee reported by FFE (2009) showed that these products have annual value of USD
249,638,556. Semiprocessed wood products, charcoal, bamboo, natural gum, ecotourism, spices
and forest coffee are some of potential forest products that can be used through a sustainable
management plan. According to FAO (2010) the sum of the values of fuel wood, industrial wood
and NTFPs of the country was estimated at USD 752,869,000, the share of fuel wood was 85%.
Compared with the total gross domestic product (GDP) of USD 12.7 billion, the contribution of
the forest sector was about 6%. Nevertheless, this figure increases when the indirect values of the
different ecosystems were taken into account. For instance, FFE (2009), based on an assumption
of 4 million ha of high forest and global environmental values of forests, estimated that the
Ethiopian high forest provides ecosystem services of USD 6,276,000,000. Regardless of the
accuracy and the accounting system, the presented figures indicate the significant contribution
and huge potential of the forest sector to the national economy and society at large.
2 Agriculture in Ethiopia

Agriculture: The agricultural sector has strong links with the forestry sector. Successful
afforestation and re-afforestation programmers positively affect the productivity of agricultural
landscapes by preventing soil erosion and downstream flooding. Forests maintain a healthy
hydrological cycle ensuring recharge and replenishment of groundwater. Moreover, availability

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of fuel wood from forests allows the use of crop residue to fertilize the farmland instead of
burning it for cooking. The desire to increase grain production may trigger expansion of
agricultural lands by converting forests and forestlands. The livestock sector is another sector
with a close link to the forest sector. Free grazing is a practice hindering natural regeneration and
survival of planted trees in the highlands. Forests provide the much needed fodder for livestock,
especially during the dry season. This is particularly true in arid and semi-arid areas where dry
forests and woodlands are sources of livestock feed all year round and trees serve as shade for
livestock.

Agriculture in Ethiopia is the foundation of the country's economy, accounting for half of

GDP, 83.9% of exports, and 80% of total employment. The main agricultural systems are the
mixed agriculture of the highlands, where crops and livestock are integrated, and pastoralism in
the lowlands. Agriculture in Ethiopia faces challenges such as drought, soil degradation, high
taxation, and poor infrastructure. Agricultural export development is done in livestock, grains,
vegetables, fruits, and flowers.

Ethiopia is endowed with abundant agricultural resources and has diverse agro-ecological zones.
Agriculture is the mainstay of the economy. The Government of Ethiopia (GOE) has identified
key priority intervention areas to increase productivity of smallholder farms and expand large-
scale commercial farms. Under the current administration, the GOE has renewed its emphasis to
develop the agriculture sector, ensure food security, and achieve import substation.  Among the
top priorities identified by the GOE include: small and large-scale irrigation development,
financing agricultural inputs, increasing productivity of crops and livestock, improving
agricultural production methods using mechanization, post-harvest loss reduction, developing a
research-based food security system, and natural resource management.  In addition, the GOE is
looking to the agro-processing sector (also a best prospect sector detailed below) as one engine
to spur future economic growth. With respect to increasing productivity, the GOE, alongside its
international partners, has made a number of interventions to support the development of the
agriculture sector.  These activities have contributed to higher yields and increased production of
both crops and livestock.  At the same time, to accelerate the country’s agricultural development,
the government established the Agricultural Transformation Institute (ATI) to address systemic

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bottlenecks in the agriculture sector by supporting and enhancing the capability of the Ministry
of Agriculture (MOA) and other public, private, and non-governmental implementing partners. 
3 Manufacturing in Ethiopia
The growth of the manufacturing sector within industry is essential to build national
technological capacity, industrial capability and create broad based job opportunity and improve
income. In addition to this, the development of the manufacturing industry helps to improve the
total factor productivity and competitiveness of the overall economy and its trickledown effect to
up and down the supply chain. Because of existence of a number of comparative advantages in
the country and to strengthen its competitiveness the Government of Ethiopia offered multiple
incentives for the growth of the manufacturing sector. Though the manufacturing sector is a way
out for sustainable economic development its growth is not without challenges. The major ones
include unskilled labor forces with limited experience; limited infrastructure; external pressure
from global market, shallow industrial research and development activities, underdeveloped
market information system, problems related to trade logistics and limited promotion made on
the resources and other opportunities. So, this study is therefore proposed to develop
recommendations based on the national and international experiences and identification of the
pros and cons of the manufacturing sector in Ethiopia and other developing countries. The study
seeks to propose some intervention measures so as to alleviate these challenges which include
but not limited to entrepreneurial, managerial and technical skill development together with the
introduction of the philosophy of kaizen; establishment of plug-and-play integrated agro-
industrial parks to address multiple constraints; alleviate trade logistics by regional integration
along key business corridors by improving connectivity through development of hard
infrastructures like multimodal trucking system; railways, airways and shipping. Simplify
custom procedures and leverage information and technology capacity building; strengthening
industrial input supply system; expedite the development and promotion of lease financing and
evaluation of the government incentive mechanisms.
4 Service sector in Ethiopia
Ethiopia attracts international attention, mostly due to its economic and recent political steps.
Being a predominantly agrarian state, Ethiopia has established itself as a provider of valuable
agricultural products such as flowers and oil seeds. Considerable investments were made to
revive the manufacturing sector. The services sector has shown a modest increase and Ethiopia

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even close to becoming a services economy. Comparably, India is a powerful example of a
rapidly developing economy with the services industry in its center. However, each developing
country in Asia, Africa and beyond follows a different economic path. By developing the
services sector, Ethiopia can diversify its sources of income, attract new investments, and create
new jobs; however, even with an advanced services industry, Ethiopia is likely to retain its
agrarian and manufacturing status.

As the Ethiopian economy is growing, the government, citizens, economists and scholars want to
understand what factors or changes in the country’s economic structure will secure its transition
from an underdeveloped to a developed status. Services are among the most problematic but still
most promising sectors in Ethiopia. The services sector had been steadily growing. Since the
middle of the 1990s, the sector was growing by approximately 3 percent per year. Growth in
services sector is attributed to the 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. In many respects, the pace of change in Ethiopian services has
outstripped that in the manufacturing industry.

The development of service sector provide finance, marketing, transport insurance, education,
health provide ultimate contribution to the growth of Ethiopian economy and life standard of the
people and It plays major role in Reducing inequality distribution of income in the economy.
Conclusion
The Ethiopian economy has been growing on the average in double digits for more than 11
years and similarly, due to prudent fiscal and monetary policy measures, inflation has been
brought down to single digits after being a threat for macroeconomic development for some
years back. The country has now become the 7th biggest economy in Africa and the 69th in the
world. Sector wise, Agriculture which is the main stay of the economy grew by 6.6 percent while
industry and services expanded by 20.2 and 10.8 percent, respectively revealing the fact that the
economic growth in Ethiopia has become broad based. Even though the country is blessed with
natural resources, the manufacturing sector hasn’t contributed more than 5 percent to GDP. This
is mainly attributed to low productivity of labor force including entrepreneurial and managerial
skills limitations, obsolete technologies used, limited infrastructure development including trade
logistics, limited access to finance, insignificant research and development work done so far to

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the sector, poor institutional framework and poor market information system. Even though the
manufacturing sector in Ethiopia is at its infant stage, it has been contributing a lot to economic
growth and the transformation process. To leverage its comparative advantage as compared to its
regional peers, the following recommendations are made to accelerate its growth.

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