Development Economics in Ethiopia Grade 12 Economics Case Study

1. Overview of Ethiopia

Ethiopia is currently fifth-fastest growing economy out of the other 188 IMF countries, with a growth rate between 8% and 11% for over a decade. Although one of the poorest countries in the world, Ethiopia has the lowest levels of income-inequality in Africa, with a Gini coefficient comparable to that of Scandinavian countries. They have been experiencing strong levels of growth particularly due to the expansion of the services and agricultural sector. Fluctuations in rainfall has resulted in a terrible drought in 2015/2016, causing serious food insecurity and famine for millions of Ethiopians. Ethiopia is also among the countries that have made the greatest progress toward achieving the Millennium Development Goals (MDGs). Over the past two decades, there has been significant progress in key human development indicators: primary school enrolments have quadrupled, child mortality has been cut in half, and the number of people with access to clean water has more than doubled. Ethiopia still faces challenges in achieving the maternal mortality and gender inequality. The government are aiming to transform Ethiopia to a lower-middle-income economy by 2025.

GDP per capita on x-axis and Gini coefficient on the y-axis

2. Comparing Development

Very low literacy rate and life expectancy in comparison to Singapore.
Relatively high maternal mortality rate, appears around average in Africa. Primary school completion rate of just above 60%, indicates a fairly uneducated population.

3. Domestic factors leading to Economic Development

Expanding Education

  • Net enrolments in primary schools have almost tripled since 1994
  • The gender gap has recently reduced, allowing more females to partake in jobs and contribute to the economy
  • Continued problems with the quality of education in Ethiopia

Property Rights

  • Issues of inequitable land
  • Government has recently recognised the pressing issue of property rights, attempted to mend it
  • Gini coefficient indicates fairly equal distribution of income

The use of appropriate technology

  • Lack of technology in Ethiopia
  • Less of a pressing issue for the government in comparison to famine, poverty and women's rights

Access to credit

  • No recent attempt to introduce micro-credits
  • The Ethiopian government planning to do so in the future

Women’s empowerment

  • Greater access to healthcare and education
  • Rapidly improve gender parity in Ethiopia
  • Legislation and active measures from the government imposed to address the issue
  • More women employed

4. International Trade and Economic Development

  • Ethiopia, though rich in natural resources, have consistently had a trade deficit for many years now
  • Relatively low levels of "trade openness"
  • Blocked by being on of the "least globally developed countries in the world"
  • Recent increase for FDI, but still too many imports and not enough exports, resulting in a trade deficit
  • Ethiopia is somewhat landlocked, making it difficult to partake in international trade
  • Rich in natural resources, they suffer from high price volatility
  • Unequal terms of trade between agricultural commodities and capital goods
  • The recognition of the unequal terms of trade is pushing the the government to pursue policies of trade protectionism

5. Growth and Development Strategies Aimed at Increasing Trade

Import-substitution

  • The increase of import-substitution policy is being implemented by the government, however this was largely a failure in Ethiopia
  • One of the benefits of import-substitution is that it diversifies and develops the domestic economy by providing employment in different industries
  • Import-substitution requires a relationship between various sectors of the economy, including the agriculture and manufacturing sectors. As Ethiopia is experiencing fast-paced economic growth, the linkage between the economic sectors is therefore not in par with the demand in the macro/micro economies
  • As such, import substitution was seen as mostly a failure by the government, as the agricultural sectors were not developed enough to address the demand for their goods
  • Substituting imported commodities by local ones is not an easy process. Locally produced commodities are expected to meet the international standards and quality to avoid rejection both at the local and international markets. Therefore, substituting imports implies competitiveness, competence in quality and standards, efficiency, timeliness as well as meeting ISO managerial and quality standards
  • These have been especially difficult for Ethiopia to keep up with

Trade liberalisation

  • Trade liberalisation would have been a preferred approach to tackling Ethiopia's economic growth
  • One primary danger with trade liberalisation is the notion of over-specialisation that comes into play
  • The main ways to liberalise trade include the reduction of tariffs, quotas, and any other barrier put in place
  • Trade liberalisation was adopted by Ethiopia under the recommendation of the World Bank, as it allows them to produce goods at a lower opportunity cost and expand their exports
  • Given that Ethiopia has been facing a current account deficit while being rich in natural resources, trade liberalisation may help in increasing their exports

6. Aid, Trade and FDI

Foreign Aid

  • Ethiopia are very dependent on foreign aid
  • US, UK and the World Bank have contributed 3.5$ billion in recent years, representing 50 to 60 percent of Ethiopia's annual budget
  • Ethiopia are one of the top ten recipients of gross ODA
  • ODA, mainly in the form of humanitarian aid, has had some negative effects. One

7. Impact of Debt on Economic Development

"In 2015 Ethiopia public debt was 34,539 million dollars, has increased 8,843 million since 2014. This amount means that the debt in 2015 reached 56.05% of Ethiopia GDP, a 9.75 percentage point rise from 2014, when it was 46.3% of GDP. If we check the tables we can see the evolution of Ethiopia debt. It has risen since 2005 in global debt terms, when it was 9,695 million dollars although it has fallen as a percentage of GDP, when it amounted to 78.24%. According to the last data point published, Ethiopia per capita debt in 2015 was 348 dollars per inhabitant. In 2014 it was 265 dollars, afterwards rising by 83 dollars, and if we again check 2005 we can see that then the debt per person was 129 dollars . The position of Ethiopia, as compared with the rest of the world, has worsened in 2015 in terms of GDP percentage. Currently it is country number 112 in the list of debt to GDP and 32 in debt per capita, out of the 184 we publish. In this page we show you the progression of the public debt in Ethiopia. You can see debt in other countries in Public debt and see all the information about Ethiopia in economy of Ethiopia."

Source: http://countryeconomy.com/national-debt/ethiopia

Credits:

Created with images by D-Stanley - "Sunrise Over Lake Abaya" • neiljs - "Addis Ababa, Ethiopia" • D-Stanley - "Farmer Keeping Watch" • D-Stanley - "Jacaranda Tree" • Heiss - "axum ethiopia spurge tree" • Public_Domain_Photography - "ethiopia peace hand" • john-i - "coffee map ethiopia"

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