Chapter Five: The Rural Development Policies and Strategy of Ethiopia

 Introduction
 A strategy represents government's plan of action aimed at moving the economy further
along the path towards the goal stated in the economic policy.
 Policy can be defined as course of action selected (as by government, an institution, a
group, or an individual) from among alternatives, and in light of given conditions to guide
and usually to determine present and future decisions.
 By all measures, Ethiopia is clearly at a low level of social and economic development.
 A large part of the economy is characterized by semi-subsistence agriculture with
exceedingly low incomes and hand-to-mouth livelihoods.
 Agriculture, although the dominant sector of the economy, is constrained by age-old
production practices and structural problems.
 It has failed to provide moderate and sustained incomes for many who are engaged in
the sector
 It has even failed to satisfy national food requirements.
 The basics are not yet met within the sector, let alone that it should fulfill the vision of
a dynamic basis for growth in the entire economy.
 An extended period without appropriate development policies and strategies is one of
the main reasons for this situation.
 In the absence of proactive and well thought out policies, it is not possible to attain
accelerated development or to improve the condition of the Ethiopian people almost
half of which subsist in absolute poverty.
 This predicament can only be addressed if we can formulate and put in place an
economic policy that will accelerate economic growth, distribute the benefit of such
growth broadly to the people, and build a system that can progressively grow in
strength within the framework of the international division of labor.
 To ensure rural development effectively, it is necessary that a set of appropriate
instruments be identified for each of the objectives of the policy, and that the chosen
instruments are set at their optimal levels.
 Agricultural and Rural Development (ARD) is a fundamental component of Ethiopia’s
economic growth and poverty reduction strategy.
 Goals of the rural development policy
 Rural development policies are designed to improve the conditions under which rural
people work and live.
 The goals of policies are governed by what people desire, and the measures of policies
by what people think the government can and ought to do to bring about the desired
change.
 The major goals for rural development policies include:
 to enhance the productive capacity of smallholder farmers,
 to promoting crop diversification,
 to ensure food security at the household level and strengthening emergency
responses,
 to build up the fragile livelihoods of pastoral communities, and increasing rural water
supply coverage.
 to introduce extension and credit-led push on seed and fertilizer.
 emphasizes rural-urban linkages and the promotion of rural non-farm enterprises,
with continued efforts to tackle vulnerability and food security
 to promote gender equality is a key component of the strategy
 to ensure growth with social equity or social justice;
 to protect rural poor from adverse effects of free market responses to fluctuations of
production, price and income. Such protection can be provided only by the government
in the form of price support, insurance, and credit policies;
 to support rural income and improve its distribution through anti-poverty programs; -
As most of the rural enterprises are small, scattered and unorganized, they need policies
to improve their access to opportunities and to improve their bargaining power against
the exploitative power;
 to provide basic infrastructural facilities (e.g. roads, water) and services (health,
education, police protection, etc).
 Need for Rural Development Policy
 The individual, as a producer and as a consumer, depends more and more upon the
general conditions of the market, of employment, output, and production efficiency of
the nation as a whole, and upon the way income is distributed among the people. In
short, upon the economic welfare of the country.
 Some specific reasons favoring government intervention in the rural sector are as
follows:
 Violent Fluctuations in Agricultural Production, Prices and Incomes
 Agricultural production, being biological in nature, is more vulnerable to the
vagaries of nature than non-farm production, and hence fluctuates more violently
than does industrial production in response to erratic rainfall or other natural
phenomena.
 Fluctuations in agricultural output lead to still higher fluctuations in agricultural
prices and hence agricultural incomes.
 This is because the demand for most agricultural products is inelastic, or because of
higher price flexibility of agricultural produce with respect to changes in the supply.
Rural Poverty and Income Inequality
 The average per capita income in rural areas is not only lower than in urban areas,
but is also more unevenly distributed.
 The material blessings of development in many countries have been more bountiful
for urban people than for the rural masses.
 The injustice of the plight of rural people is reason enough for government
intervention to support rural income and improve its distribution through anti-
poverty programmes.
 Small Scattered and Unorganized Rural Enterprises
 Most rural enterprises are small, scattered and unorganized.
 Due to these characteristics, their owners have very low or practically no bargaining
power vis-à-vis those to whom they sell their produce, and from whom they buy
their supplies.
 This heightens the need for government policies aimed at equalizing opportunities,
at strengthening the bargaining power of individuals and groups in rural areas, and
restraining the powerful from exploiting the weak.
Inadequate and Poor Basic infrastructure in Rural Areas
 Rural areas are at a great disadvantage in relation to urban areas, as far as provision of
basic infrastructural facilities and services such as roads, drinking water, electricity,
schools, hospitals, police protection, transport and communications is concerned.

 Not only are these public facilities and amenities in rural areas inadequate, but they
are also very poorly organized and undependable.

 Improvement of their plight requires intensive government intervention.

 In fact, the government has intervened by launching pro-grammes like the Minimum
Needs Programme and the Applied Nutrition Programme
 Predominant Place of Agriculture in the Economy
 Agricultural and rural development is the center of national development.
 Therefore, a meaningful strategy of national development must have agricultural
and rural development as one of its major planks.
 Agricultural Development Led Industrialization (ADLI)
 The Ethiopian economy is heavily dependent on agriculture as the main source of
employment, export foreign earning, and food security for a vast majority of its
population.
 Unlike other emerging African countries, the process of economic growth is driven
mostly by public investments in infrastructure and the improvement of productivity
especially in the agricultural sector.
 In addition, like many other developing countries in Ethiopia also, the fights to
achieve food and nutritional security as well as prosperity for the country will be
won or lost in the agricultural sector.
 However, the performance of agriculture was not satisfactory as poverty continue to be
the important feature of the country in the world.

 In this regards, lack of appropriate policies and strategies was considered as the
ultimate reason for the sectors past stagnation.

 Consequently, to solve this problem and promote growth in agriculture to serve as an

engine for the sector and overall economy, government devised the national
development strategy called Agricultural Development Led Industrialization (ADLI).

 Ethiopia’s ADLI (definition): “The development strategy that aims to achieve initial
industrialization through robust agricultural growth and close linkage between the
agricultural and the industrial sector.
 The strategy was also complemented by different plans so as to realize its objectives of
transforming the country from economy dominated by agriculture sector to the
economy dominated by the industrial sector.

 Even though ADLI argues for a mutually re-enforcing transformation of agriculture and
industry, the primary goal of ADLI was to alleviate absolute poverty and bring
progressively takeover of industry in the national GDP.

 Core ADLI
 Increase agricultural output and productivity
 Increase industrial output and productivity
 Close input-output linkage between the two sectors
 ADLI: Motivation, Flexibility, Time Scope
 Poor, landlocked agrarian society => Peasants and pastoralists should be the
growth engine; maximum use of abundant resources (labor & land), creation of
commercial farmers.
 ADLI is an evolving strategy which can respond to changing circumstances and
ideas. (1994 Strategy => SDPRP => PASDEP => PASDEP II )
 Initial stage only: “Thus if ADLI strategy is successfully applied it will be changed
to industry led development strategy.
 Additional Requirements of ADLI
 Leading role of private sector
 ADLI link (use of domestic materials)
 Export orientation
 Focus on labor-intensive industries
 Proper roles of local and foreign direct investment (FDI) firms
 Strong state guidance
 Mobilization of all social forces

 Formulation of ADLI
 An Economic Dev. Strategy for Ethiopia (1994) “
 …productivity improvement of smallholder agriculture and industrialization based
on utilization of domestic raw materials with labor-intensive technology.
 The strategy is akin to what is known … as ADLI, framed into the Ethiopian
context.
 Two-pronged approach:
 Smallholder agriculture – better agronomic practices, more labor use, research &
extension, technology transfer, rural infrastructure.
 Extensive mechanized agriculture and intensive farming – efficient land
allocation, labor supply, health, and road for new lands, research and training,
quality, marketing, etc.
 Agricultural Development Led Industrialization’s (ADLI) programs
 Participatory Demonstration and Training Extension System (PADETES)
 This was an extensive extension program which had been launched in 1994/95.
 In this system, packages of fertilizer, improved seed and credit, as well as
information on input use and better agricultural practices were delivered to vast
majority of smallholders in the rural areas by government.
 In this regards, improvement of productivity through extending the use of modern
technology had attracted the attention of government.
 However, even though government had extended different packages particularly fertilizer
credit package, the average agricultural output fail to bypass high population growth.

 Sustainable Development and Poverty Reduction Program (2002/03-2004/05):

Supply-side agricultural support
 SDPRP was an integrated rural and agriculture development strategy launched in
2002 on account of the limited success of PADETES.
 It was the first full Poverty Reduction Strategy Paper (PRSP) developed and
implemented by the Ethiopian government through
 strengthening agricultural extension services;
 training extension agents in technical and vocational education and training (TVET)
and training farmers in Farmers Training Centers;
 water harvesting and irrigation;
 improved marketing opportunities;
 restructuring peasant cooperatives; and
 supporting micro-finance institutions.
 In addition, following the drought of 2002/03, government initiated a safety net
program aimed at protecting and building the asset of food insecure households.
 Furthermore, resettlement, and soil and water conservation (especially water
harvesting) were widely practiced.
 However, heavy dependency of agricultural sector on the amount and timing of rainfall
makes the output to continuously fluctuate.
 In addition, agricultural sector’s productivity did not show significant improvement.
 Limitation on exclusively rural focus.

A Plan for Accelerated and Sustained Development to End Poverty

(PASDEP )2005/06-2009/10 (Enhanced ADLI)

 Due to their failure to improve agricultural productivity, the Ethiopian government

framed another five year plan (2005/06-2009/10) called Plan for Accelerated and
Sustained Development to End Poverty (PASDEP). \
 PASDEP 2005/06–2009/10 made important adjustments to SDPRP 2002/03–2004/05
by broadening the policy scope from smallholder agriculture to other sectors,
especially the industry sector and the urban sector
 Understanding the central role of agriculture in growth, the plan focused more on
commercialization and intensification of agriculture to better integrate farmers with
markets – both locally and globally.
 The developments of large-scale commercial agriculture were also emphasized for inter
sectoral linkages.
 To achieve these objectives the following instruments were used in the PASDEP:
 constructing farm-to market roads;
 development of agricultural credit markets;
 specialized extension services for differentiated agricultural zones and types of
commercial agriculture;
 the development of national business plans and tailored packages for specialized export
crops (such as spices, cut flowers, fruits and vegetables);
 area irrigation through multi-purpose dams;
 measures to improve land tenure security, and to make land available where feasible
for large-scale commercial farming; and
 reforms to improve the availability of fertilizer and seeds.
 Difficulty of Core ADL
 East Asia’s high performers did not rely exclusively or even mainly on Core ADLI,
although agriculture sometimes played positive roles in industrialization.
 No example in the rest of the world either.
 Productivity breakthrough and commercialization of scattered smallholder farmers
is extremely difficult.
 In Ethiopia, leather industry is building a core ADLI link successfully. But its impact
may not be large enough to lead and sustain overall industrialization.

 East Asian Experiences

 Agriculture generated foreign exchange and/or fiscal revenue for industrialization
(A=>I)
 Japan (late 19c to early 20c) —silk and tea exports paying for machinery
imports; land tax.
 Taiwan up to 1960s: rice and sugar were taxed and price controlled.
 Thailand up to 1980s (Newly Agro-industrializing Country: NAIC) processed
food export (frozen chicken, canned food, shrimp) and rice export tax; generating
F/X for import substitution industries.
 Agriculture generated some revenues first, but full-scale industrialization was FDI-led.
 Thailand since late 1980s (cars, electronics).
 Malaysia- initially rubber, tin, timber exports; since late 1980s FDI-led
industrialization in electronics.
 Vietnam- Liberalization stimulated rice and fishery exports; but industrialization
since 1990s was essentially FDI-driven.
 Rural-urban labor migration under rapid industrialization
 Observed almost everywhere in East Asia.
 Agriculture serving as a shock absorber
 Japan after war defeat (late 1940s) —food shortage and high unemployment.
 Vietnam in early 1990s —laid-off workers from SOE privatization.
 Agriculture receiving transfer from industry/ urban sector (I =>A)
 Post WW2 Japan —lagging agriculture: transfer from urban to rural sectors for
political stability.
 S.Korea 1960s-70s —Saemaul Movement: agri. support for productivity
improvement and better rural life.
Links and Transfers between Agriculture and Industry
o Besides direct input-output links (Core ADLI), the two sectors may have the
following links, which may occur directly or through fiscal or financial systems:
 Broadening of ADLI Scope
 Core ADLI is possible, but that alone may not be enough for achieving desired high
growth.
 While keeping Core ADLI, other channels should be explored to:
 Accelerate agriculture
 Accelerate industry
 Build various links between two sectors (not necessarily input-output links)
 Industrialization and agricultural/rural development may be pursued jointly or
separately.
 Export orientation, use of domestic resources, and labor-intensiveness should be
applied flexibly..
 Broadening the Policy Space
 Core ADLI (original) – strong input-output linkage between two sectors
 Enhanced ADLI (current PASDEP) – for accelerated growth, add
commercialization of agriculture.
 Further broadening – keep Core ADLI, but explore more channels for
agricultural and industrial growth, with or without sectoral linkage. Apply
strategic requirements flexibly for each case (export orientation, labor-
intensiveness, use of domestic resources).
 Growth and Transformation Program (GTP) I
 To foster broad-based development in a sustainable manner the Growth and
Transformation Plan (GTP I) (2010/11- 2014/15) was implemented following the
Plan for Accelerated and Sustained Development to End Poverty (PASDEP).
 Significantly increasing the share of industry in the economy along with the rise
in agricultural production was the aim of the plan.
 During the GTP I implementation period (2010/11-2014/15).
 Despite the significant improvements in domestic savings mobilization over the
last four years, the gap between the investment requirements and the level of
domestic savings has widened.
 The share of gross domestic investment in GDP increased from 24.7 per cent in
2009/10 to 39.3 per cent by the end of 2014/15. This is considered to be one of
the key macroeconomic challenges for the government to address in the coming
years.
 Growth and Transformation Plan, (GTP II), 2015/16-2019/20
 Over the last decades, Ethiopia as country has reduced the poverty level by half.
 There were also improvement in basic social services like education, health care
and other basic social services.
 However, other goals such as improvement of the quality of services across social
sectors, dealing with governance structure, ensuring sustainable growth and
reducing inequality related to income and gender remained challenging.
 In addition, humanitarian challenges arising from climatic change continued
affecting the economic growth of the country.
 Consequently, the Federal Government of Ethiopia in its plan to direct the country
toward becoming middle income and climate resilient country devised the second
growth and transformation plan (GTP II). It was built on the success of GTP I.
 The plan will extend up to 2020.
 In this plan, emphasize will be a high-value crops and livestock, and market
orientation
 Policy with in agriculture
 Land policy