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Making ADLI Work: Viable option for

combating recurrent famine in Ethiopia

Rufael Fassil, DENGO, Bremen University


January, 2004
Bremen, Germany
Outline

Introduction
Basic Facts on Ethiopia economy
Why making ADLI work Crucial in Ethiopia?
Limitations/challenges of the policy
Conclusion & Recommendations
1. INTRODUCTION

 Location: Ethiopia is located in Eastern Africa, in the so-called "Horn of


Africa" .

 Population:70 Million (2003): 83.8% resides in rural areas

 Age structure:0-14 years: 47.18%


15-64 years: 50.03%
65 years and over: 2.79%

 Population growth rate:2.3% (2002)

 Natural resources: small reserves of gold, platinum, copper, potash,


natural gas, hydropower

 Agriculture productions: cereals, pulses, coffee, oilseed, sugarcane,


potatoes; hides, cattle, sheep, goats.

 Industrial productions: food processing, beverages, textiles, chemicals,


metals processing, cement
2. Basic Facts on Ethiopia Economy

Indicator (2002) Ethiopia SSA World


(48)

GDP per capita 683 1797 7416


(Current US Dollar, not 1995 )

Life -expectancy 44 46 59
Access to safe water 28 42 76
Population living under 44 40 ---
the poverty line
Average GDP growth 4% 2% 3%
(1991-2001)

Total debt (US $ billion) 10.4 224 ---


 In terms of broad social indicators or narrow economic aggregates, Ethiopia is
one of the poorest countries in the world and highly indebted.

 The low level of social and economic development is also reflected in the
structure of the economy, in which agriculture constitutes about 50 per cent of
GDP and around 85 per cent of employment.

GDP-composition by sector (2000) compared SSA


 Agriculture: 52.3% (17%)
 Industry: 12% (31%)
 Services: 35.7% (53%)

 Exports: US$ 984 million (2000)


Commodities: coffee, gold, leather products, oilseeds

 Imports: US$ 1.9 billion (2000)


Commodities: food and live animals, petroleum and petroleum
products, chemicals, machinery, motor, vehicles (2000)

 Such low level of development is also reflected in acute resource gaps at the
macro economy level, which made the country dependent on external financial
flows in the form of loans, grants and aid.
3. Policy Changes introduced to address these issues

 To address the above economic problems the government


introduced new policy measures in 1991(new regime). These
policies include: devaluation of the domestic currency,
removing price controls, liberalizing trade, and opening up the
economy for foreign investment.

 But most importantly, it adopted what it called an Agricultural-


Development-Led Industrialization (ADLI). The policy aims to
improve the lively-hood of the rural population by enhancing
rural productivity and hence ensuring food security.

 In addition to its role in reducing poverty, ADLI is accorded the


role of Serving as both medium- and long -term growth
strategy. Further, the government claims that education, health
and other social sector programs are designed in conformity
with ADLI
4. Why making ADLI work Crucial for Ethiopia ?
 A Sustained and permanent alleviation of poverty, requires that
the economy, overall, and not only the agriculture sector grow

 Agriculture has been the “leading” sector that has accelerated


growth in countries such as China, India…..

But it has not always been the case


 In 18 and 19 century Europe=industrial innovations

 In other countries, it has been exports (manufacturing or


agricultural or of labor) /services (tourism)=Korea, Malaysia or
Spain

 However, when the main productive sector in the economy is


agriculture, rapid growth will not occur unless agricultural
productivity increases (recurrent Famine).
4.1 What Determines Agricultural Growth?

Agricultural growth (productivity) is accounted by:

 Availability of standard inputs= such as land, labor and capital in


the agriculture sector (the more land, the more you can produce,
etc.)
 Improving research and extension= (some studies indicate a
return of 50% to expenditures on research)
 Rural infrastructure= (rural roads, rural telephones, electricity,
irrigation)
 Education= (and also health)
 Structural factors= For instance, the structure of land ownership
 Institutional factors= such as change to market mechanisms
 The functioning of input and output markets= (input distribution
and access to markets).
 Role of cooperatives and the functioning of the financial markets
and particularly improving the availability of rural financing……
4.2 How Agricultural Growth Affects Rural Poverty?
 By increasing farmers income=directly through the adoption of improved
techniques which increases agricultural output and therefore their
revenue

 By increasing the assets farmers= Switch from unproductive to


productive savings (bank vs. jewelry)

 Enhanced property rights= through land distribution/land reform

 Human capital= (education, health)

 By generating non-agricultural employment as a source of additional income

 By Keeping domestic prices for staple foods stable

 By Shifting production to high value intensive agricultural commodities


that stimulate demand for agricultural labor
Therefore, in an overwhelming agricultural country, such as Ethiopia as agriculture accounts for
50% of GDP, 90% of exports, and 80% of total employment, agricultural growth (i.e. This does not
mean neglecting industrial development which is key to the diversification and long-term
structural transformation of the economy) is an essential ingredient for growth and for
alleviating poverty – as China ,India …shown us…..
Cases from other countries (20 years) Experience

Share of GDP Growth rate of GDP/capital


Country in Agriculture Agriculture income
1980 2000 1980 2000 1980 2000

China 30.1 15.9 5.2 220 840


India 38.6 24.9 3.2 270 450

Ethiopia 56.1 52.3 1.2 _ 167


Sudan 32.9 37.2 n.g 470 310
5. Factors inhibiting positive roles of the current policy
(i.e. making ADLI not effective?)
I. Internal Factors:
Although government development strategy favours agriculture over other
sectors, actions are not commensurate with rhetoric:
 The economic reform program has failed to direct available credit to
the agricultural sector. EX-1991-98 Credit to Agriculture(14.7%), domestic
trade ( 32.2%), industry (13.2%).

 The volatility of prices for agricultural products is another


problem. Prices fell by up to 25 percent, during the 1996 and 2001
bumper harvest years

 Weak Rural-urban linkages (interface of rural-urban sectors )

 Policy and institutional configuration: land policy (insecurity, absence


of land markets, diminishing size holding, inhibiting migration, powerlessness);
**Agriculture Development Led Industrialization (only technology improvements
emphasized without institutional and structural change)

 Structure of production: micro and decreasing size holding, low


technology, low skill, rain dependent agriculture
II. Challenges beyond /externalities

 Huge amount of debt

 The total debt accumulated reached 10.4 billion US$ by 1998. This
represents 149.5 per cent of GDP. The magnitude of the debt in 1975
was only US$371 million. More than half (US$4.744 billion or 54%) of the
total debt was contracted for defense purposes.

 Clearly, the debt contracted until the 1990s was largely used for defense
purposes (54% directly contracted and 30% ) helped neither in improving
the productive capacity of the economy nor in alleviating poverty.

 The scheduled debt service is about 54 per cent of current export


earnings. To cope with its unsustainable debt, Ethiopia has been
engaged in negotiations with its creditors since 1992. Consequently, a
total of US$ 372.89 million was agreed to either be cancelled (US$
101.60 million) or rescheduled (the remaining US$ 271.29 million) ( i.e.
only 1%)

 Fair Trade
 (Export….Coffee (57%)Ex-Empirical study (For every dollar spent on
coffee, only 20 cents go to the farmer and the remaining 80 cents go to
distribution and marketing charges )
6. Conclusion and Recommendation

1) Land reform

So there is a need to revisit the land tenure issue and change it so it is


more flexible, more dynamic and provides greater security (through
issuing land titles for collateral and certificates). ….

2) Encouraging institutions and technologies that increase


productivity and improve the weak linkages within the rural
economy

 developing or strengthening marketing and credit institutions that


provide market access and opportunities for the poor in the farm and
non-farm sectors

 improving the research and extension system (not rain fed..)

 Public and private investments must be channeled to overcome the


weak linkages that exist in the rural economy
(Example-expanding agro-industries, cottage industries, the development of
small towns in rural areas, the release (through encouraging migration) of the
over-populated rural population …(Lewis Model)
3) ADLI strategy’s emphasis is on inputs (Export) , the
demand side should also be properly addressed

 The government has focused on success in agricultural exports


leading to demand for locally produced industrial goods..
( High transportation cost and 70 percent of household budgets )

4) In the context of enhancing accountability of the


government to the public and in the fight against
corruption action must be Taken and the government
should be engaged seriously in negotiations with its
creditors and improve fair trade/add value (Minimum
level of Gov’t intervention and regional trade )…..recurrent
famine
THANK YOU!