The Federal Democratic Republic of Ethiopia
Poverty Reduction Strategy Paper: Growth and Transformation Plan 2010/11-2014/15: Volume I

This strategic paper discusses Ethiopia’s growth and transformation plan (GTP) for the periods 2010/2011 and 2014/2015. The Ethiopian government’s main development agenda has been poverty eradication. The government has designed, and is implementing, strategies, policies, and plans to guide and manage the overall development of the country accordingly. The GTP envisages that, besides maintaining a fast-growing economy, better results will be realized in all sectors. Implementation of the GTP requires mobilization of financial and human resources, especially for infrastructure development.

Abstract

This strategic paper discusses Ethiopia’s growth and transformation plan (GTP) for the periods 2010/2011 and 2014/2015. The Ethiopian government’s main development agenda has been poverty eradication. The government has designed, and is implementing, strategies, policies, and plans to guide and manage the overall development of the country accordingly. The GTP envisages that, besides maintaining a fast-growing economy, better results will be realized in all sectors. Implementation of the GTP requires mobilization of financial and human resources, especially for infrastructure development.

CHAPTER 1.

ACHIEVEMENTS AND CHALLENGES UNDER PASDEP

The development policies and strategies pursued during the three year Sustainable Development and Poverty Reduction Program (SDPRP) (2002/03-2004/05), together with the vision expressed in and achievements realised by the SDPRP, were the foundation for the design of the PASDEP. The PASDEP was implemented during the five year period 2005/06-2009/10. It was prepared based on MDG targets and the government’s vision for Ethiopia’s development. Its main objectives were ensuring accelerated, sustained and broad based economic development as well as preparing the ground for the full achievement of Ethiopia’s MDG targets by 2015. To achieve these objectives the PASDEP was built on eight strategic pillars. These were

  1. Building all-inclusive implementation capacity,

  2. A massive push to accelerate economic growth,

  3. Creating the balance between economic development and population growth,

  4. Unleashing the potentials of Ethiopia’s women,

  5. Strengthening the infrastructural backbone of the country,

  6. Strengthening human resource development,

  7. Managing risk and volatility, and

  8. Creating employment opportunities.

Based on these strategic pillars, two alternative economic growth scenarios were considered. In the base case scenario, it was considered that to achieve the MDGs an average economic growth rate of 7% per annum was necessary. For the high case scenario, which aimed beyond achievement of MDGs targets, a 10% annual average economic growth target was set so as to lay the foundation for the realization of the development vision of the country.

1.1. Macroeconomic Performance

The Ethiopian economy has shifted to a higher growth trajectory since 2003/04. This has been sustained, and during the last five years, overall real GDP has grown rapidly at an average of 11% per annum (See Table 1. and Figure 1. below.). Agriculture, Industry and Services have registered an average annual growth rate of 8.4%, 10% and 14.6%, respectively.

Table 1.

Growth in Gross Domestic Product and Main Sectors Share as Percent of GDP

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Figure 1.
Figure 1.

GDP Growth by Economic Sector (%)

Citation: IMF Staff Country Reports 2011, 304; 10.5089/9781463922047.002.A001

Table 1 above illustrates that, with the exception of the industrial sector, the over all and sectoral performances achieved were well above the targets set in both the base case and high case scenarios. This has been particularly pronounced in the service sector. Although the growth rate in the industrial sector is below the planned target, the sector achieved a significant average growth rate.

The contribution (percentage share) of each of the three sectors (agriculture, industry and service) to overall GDP at the end of the plan period was 41.6%, 12.9% and 45.5%, respectively (See Figure 2).

Figure 2.
Figure 2.

Percentage share of GDP by Economic Sector

Citation: IMF Staff Country Reports 2011, 304; 10.5089/9781463922047.002.A001

The planned targets were 43.9%, 16.5% and 39.6% for agriculture, industry and services respectively. The actual shares were not as planned, as services achieved a higher, and industry a lower share of GDP than planned. In terms of structural change the PASDEP assumed that a decline in the agricultural sector’s share of GDP would be taken up by the industrial sector. However, underperformance of the industrial sector was more than compensated by increased growth in the service sector, indicating that the structural shift was not, as yet, in the desired direction.

From the demand side, GDP at current market prices has increased by about 29.6 percent per annum during the PASDEP period. At the same time, gross capital formation, total exports and total imports, registered an annual average growth rate of 28.3, 27.1% and 27.6% respectively.

Owing to the increased pent up consumption demand, the domestic saving rate remained lower than the PASDEP target. The domestic saving rate was 5.9% at the beginning of the PASDEP period and remained at 5.5% in 2009/10. Likewise, consumption remained at much the same level throughout the PASDEP period leaving no room for growth in saving. This suggests that greater efforts are needed to increase the rate of domestic saving in order to meet the growing investment needs of the country.

A number of policy and administrative measures were taken to improve domestic tax revenue collections during the PASDEP period. These included strengthening the capacity of tax collection agencies, expanding the tax identification number system throughout the country, strengthening the value added tax system, increasing tax compliance and taking stringent legal measures against tax evasion. As a result, domestic revenue achieved an annual average growth rate of 26% surpassing the PASDEP target of 20%. However, domestic revenues as a share of GDP has marginally declined during the same period. As Table 3 below illustrates, total revenue as a share of GDP fell from 18.9% to 17.3% over the plan period, with domestic revenue marginally falling from 14.6% to 14.0% over the same period.

Table 2.

Percentage Share of Aggregate Consumption & Savings to GDP @CMP

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Table 3.

Percentage Share of Revenue, Expenditure and Deficit to GDP @CMP

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On the expenditure side, the government has been prudent in its fiscal management by closely monitoring revenue performance and adjusting its spending in line with its development priorities during the PASDEP period. In 2004/05 the share of total and poverty oriented expenditures as a percent of GDP were 23.5% and 13.2%, respectively. By 2009/10 the figures for each expenditure item are 18.6% and 12.4%. Further, the proportion of budget deficit, including grants, to GDP had declined from 4.2% in 2004/05 to 1.3% by the end of 2009/10.

Although, exports have increased during the PASDEP period, the trade balance did not improve as desired. The trade deficit widened during the period because of a significant increase in imports, an increase necessary to sustain the high economic growth levels achieved. (See Table 4 and Figure 5)

Table 4.

Import and Export trade share of GDP (%)

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Figure 3.
Figure 3.

Percentage Share of Aggregate Consumption and Savings to GDP @CMP

Citation: IMF Staff Country Reports 2011, 304; 10.5089/9781463922047.002.A001

Figure 4.
Figure 4.

Percentage Share of Revenue, Expenditure and Deficit to GDP @CMP

Citation: IMF Staff Country Reports 2011, 304; 10.5089/9781463922047.002.A001

Figure 5.
Figure 5.

Export and Import Growth (%)

Citation: IMF Staff Country Reports 2011, 304; 10.5089/9781463922047.002.A001

In terms of monetary policy, the main objective was to achieve and maintain price and exchange rate stability. During the last five years the government has taken measures that curb inflationary pressures and increase the country’s foreign exchange reserves. Fiscal and monetary policy measures as well as administrative ones were used to reduce inflation to single digit. For example, the National Bank raised the commercial banks’ reserve requirement first from 5% to 10% and then to 15% of net deposits, and raised the minimum deposit rate from 3% to 4%.

1.2. Performance of Economic and Social Sectors

1.2.1. Agriculture and Rural Development

Crop production: In 2004/05 the total land covered by the three main crops was 9.8 mln ha, by 2009/10 this area had increased to 11.25 mln ha. Total output increased from 119.1 mln qts in 2004/05 to 191 mln qts in 2009/10. Average productivity of these crops increased from 12.1 qt/ha in 2004/05 to 17 qt/ha in 2009/10. To realize these increases in production and productivity it was planned under PASDEP to supply 820,000 tons of chemical fertilizers. The actual amount supplied was 830,000 tons.

Horticulture development: It was planned to develop 419,000 ha of fruit and vegetables by 2010. The achievement at the end of the plan year was 152,600 ha. Besides, it was planned to produce 27.2 mln qts and the achievement was 12.8 mln qts.

Coffee development: It was planned to increase coffee production to 419,610 tons by 2009/10. In the event 341,000 tons was produced, 81.3% of the target.

Livestock production: The PASDEP target was to increase meat production to 837,000 tons; but only 605,000 tons of meat was produced, 72.3% of the planned target. The target was to increase milk production to 3.391 mln tons; and 96.2% of the planned target was achieved with 3.261 mln tons of milk produced in 2009/10.

In terms of animal health services, it was planned that the number of veterinary clinics would be increased to 3,600; the achievement was 2,275, 63.2% of the target. The target for livestock vaccine was to supply 289 mln doses in 2009/10; supply achieved was 96 mln doses, 33% of the target. PASDEP aimed to increase the number of pastoralist and farmer trainees on basic veterinary service delivery to 3,000 and 4,144 trainees (138%) completed this training by the end of 2009/10.

Agricultural extension services: during PASDEP it was planned to train 51,101 graduates in the fields of plant, animal and natural resource sciences and cooperatives development to support the agricultural extension services, at agricultural and vocational training colleges. At the end of the plan period 52,023 graduates had completed training in these areas. During the PASDEP period, it was planned to increase the number of minimum package trainees to 10.39 mln; the achievement was 12.7 mln. Although the aim was to increase the share of women trainees to 30% of the total, the percentage realised was 18.5%. It was planned to increase household family package trainees to 4.5 mln by the end of the plan period and the achievement was 5.4 mln, which is higher than the planned target by 12.5%

It was planned to increase the number of farmers training centres to 18,000; the number actually increased by 9,265 centres, 51.5% of the target. The necessary equipments were also supplied for these newly built training centres.

Agricultural research: Encouraging results have been achieved in agricultural research in the three agro-ecological zones on crop, livestock, soil and water conservation, forest development and agricultural extension practices. Some 409 new seed technologies have been issued in crop development; 99 new breads in livestock and 91 different research outputs were developed on soil and water conservation works.

Natural resource development and utilization: Land right certificates were issued to 12.6 mln rural household heads; 185% above the target of 6.8 mln household heads. It was planned to develop 58,750 hectares by establishing 470,000 water harvesting schemes and small irrigation systems; by the end of the plan period 122,430 hectares of land were developed by these means. During the PASDEP period, 853, 000 ha of land serviced by small scale irrigation systems was developed well in excess of the target of 487,000 ha.

Land rehabilitated by water and soil conservation: The area of land rehabilitated by water and soil conservation works during PASDEP was increased from 0.82 mln ha in 2004/05 to 3.77 mln ha in 2009/10. With regard to forest conservation and management, the country’s forest coverage was increased to 8.8 mln ha from 4.1 mln in 2004/05. And at the end of the plan period the country’s forest coverage reached 6.1 mln ha.

Food security and safety net programs: Food security interventions aimed to resettle 161,108 voluntary households of which 91,317 (56.68%) households were resettled. As of 2009/10 a cumulative of 286,920 households were food secure in resettlement areas. Productive safety net programs benefited 730,494 beneficiaries of the targeted 1.5mln. In 290 woredas the number of farmers and pastoralists who were food insecure and needed assistance was 7.1 mln in 2009/10.

Forest conservation and management: The country’s forest coverage was increased to 8.8 mln ha from 4.1 mln. And at the end of the plan period the country’s forest coverage was 6.058 mln ha.

Agricultural market: 830,000 tons of fertilizer was supplied during the plan against the target of 820,000 tons. The Ethiopian Seed Enterprise and other improved seed suppliers supplied 527,779 qt (doesn’t include the supply by the regions) of improved seeds, against the target of 1.8 mln qt.

Agricultural cooperatives: In 2005/06 there were 20,437 cooperatives with a capital of ETB 822 mln and 3,642,602 members. By the end of 2009/10 the number of cooperatives was 33,636, their capital had increased to 1 bin birr and their membership had grown to 5,899,761. Moreover, 212 cooperative unions with 3,826 member cooperatives and a total capital of ETB 185,472,337 were established during the plan period.

Agricultural exports: The revenue generated from flower exports increased from USD 12.6 mln in 2004/05 to USD 170 mln in 2009/10. In the same period, the revenue generated from fruit and vegetable exports increased from USD 14.07 mln to USD 31.7. 357.000 live animals were exported, a substantial increase on the target of 213,000. 319,647 tons of coffee was exported against the target of 323,000 tons. Overall, 1,225,000 tons of agricultural goods generating USD 1.55 bin were exported in the plan period against targets of 1,183,000 tons and USD 1.517 bin, respectively.

1.2.2. Trade and Industry Development

The Trade Sector

With regard to trade regulation, a trade registration and licensing system was introduced throughout the country, from federal to kebele levels. Generally, measures were taken to ensure competitive trade practices and protect consumers from unfair trade practices. During the PASDEP period a lot has been done in the process of trade partnerships and negotiations to make the country benefit more and hence create new market opportunities and increase foreign direct investment flow. The preparation for the WTO accession process was finalized. Negotiations were conducted to strengthen regional trade partnerships (Inter-Governmental Authority on Development, Sana’a Forum, The Common Market for Eastern and Southern Africa (COMESA) and the COMESA-East African Community-Southern African Development Community Tripartite). In addition Economic Partnership Agreement (EPA) was reached with the European Union.

The Industry Sector

During the PASDEP period support was given to micro, small, medium and large scale industries and, particularly, to industries that used agricultural inputs and were capable of generating foreign exchange.

Micro and small scale enterprise development: As a part of PASDEP, the government took a number of initiatives to promote and expand micro and small enterprise development in different regions and city administrations. The PASDEP target was to create 1.5 million new job opportunities in the sub-sector which was more or less fully achieved during the plan period. Substantial support was provided including increased supply of credit, training, provision of production and market facilities, technology support and provision of small enterprise information services.

Textile and garment industries: During the PASDEP period textile and garment industries were expected to generate export earnings of USD 500 mln. At the end of the plan period, the sub sector had, however, only generated export revenues amounting to USD 21.8 mln, far lower than the target. The low level of development of the sub-sector at the start of the PASDEP period is one of the main reasons for this under performance. There is a clear need to increase efforts and potential to improve performance of the textile and garment industries.

It was planned during PASDEP to attract investment in new industrial factories worth USD 1.6 bin. As a result a number of investments were made, facilities developed and production contributing to exports commenced. These included: 2 weaving factories with a production capacity of 10,500 tons per annum; 3 factories with a production capacity of 16.5 mln metres of garments per annum; and, 10 sewing factories with an annual production capacity of 9.3 mln items of clothing. Those investments that, at the end of the plan period, had made investments, initiated projects and, in some cases, commenced production included: 4 factories with a production capacity of 8,225 ton trade per annum; 3 factories with the production capacity of 255 mln metre garments per annum; 3 factories producing 33 mln metres of processed garments; and 1 factory with a production capacity of 10 mln items of clothing. Those investments that had finalised the preparation and started the investment process included: 5 weaving factories with a total capacity of 84,875 tons per annum; 4 factories with annual production of 61 mln metre gray garments; 4 factories producing processed garments of 113 mln metres; and 2 factories with a production capacity of over 21.6 mln items of clothing. Other investors showed interest and pre investment processes are underway.

Leather and leather products: Leather and leather products (shoes and other leather products) were expected to generate USD 221 mln in export earnings. In the event USD 75.73 mln was earned by the end of 2009/10. It was planned to upgrade 74 unfinished leather processing factories to production of finished leather products but, in the event only 11 factories were upgraded, produced shoes and exported during the planning period; 14.9% of the target. As part of government’s efforts to develop capacity, the Leather Industry Technology Institute offered training in a 10+3 diploma and 1 year certificate diploma program levels and also some tailor made training courses on leather processing, shoe and leather products making technologies based on customers’ requests.

Sugar: During the PASDEP period, sugar industry development works included a feasibility study, irrigation and road works, sugar cane plantation development, housing development, construction and expansion of factories, and production of sugar and ethanol. It was planned to finalize the establishment of two new sugar factories in Wonji and Tenedaho and sugar factory expansion works in Metehara and Fincha. However, in Wonji, Tendaho and Fincha the percentage completion during the plan was 30%, 25% and 40%, respectively. It was planned to establish a new sugar factory capable of crushing 8,000 tons of sugar cane per day and, in this case, the target has been fully achieved. Investment licenses have been granted to plant sugar cane on 20,000 ha of land and 7,200 ha of land was planted. The existing three sugar factories were expected to produce 1,510,683 tons of sugar and 39,697 m3 of ethanol. Actual production over the PASDEP period was 1,468,915 tons of sugar and 30,124 m3 of ethanol.

Cement: The cement industry was expected to produce 4.7 mln tons of cement per year. However, the industry achieved an output of only 1.17 mln tons of cement per annum. This result suggests the need to increase the production and supply capacity of cement in order to meet the needs of the fast growing construction industry. During the early years of PASDEP implementation there was a dramatic increase in the gap between the demand for and supply of cement. This put considerable pressure on the construction sector. To ease the situation, short term and long term intervention plans were designed and implemented. The short term intervention plan involved importation of cement and construction of small scale cement industries. The long term plan involves development of new high capacity cement producing factories. Implementation of this plan is being closely monitored.

Metal & metal engineering: In the metal and metal engineering industries preliminary measures were taken to unleash their full potential contribution to the country’s development efforts. To support exporting industries, spare parts were produced locally for four textile and two leather industries. In addition, a system was put in place that allows the production of spare parts locally for sugar and cement as well as other manufacturing industries.

Training has been provided on non-destructive testing, funded by the International Atomic Agency which also supported the purchase of equipment.

Chemical industries: During the PASDEP period, support was provided to chemical industries producing inputs for leather and textile industries measures, to address the challenges they were facing.

Pharmaceutical industries: A strategic plan was developed for pharmaceutical industries to support producers of drugs and pharmaceutical equipment to allow them to import their raw material and other inputs duty free. Steps were taken to ensure that government procurement systems give precedence to local pharmaceutical companies so as to encourage local industry. In some cases technical assistance and consultancy support was also provided to pharmaceutical companies to fulfil international drug producing standards and quality.

Agro-processing industries: During the PASDEP period, an investment proposal was prepared for the government for agro-processing industries such as the sugar industry and for development of rubber tree. As a result, 3 companies created partnerships with foreign counterparts. 16 potential export projects have been designed and an assistance framework developed to help some of the projects start investment; some are now in the preparation process. Lastly, a master plan study for cereal, oil seed and coffee development has been prepared.

1.2.3. Mining

The mining sector realised some significant achievements during the PASDEP period. These include extension of the coverage of country wide geological information, hydro-geological mapping, geophysics (gravity) studies and engineering geology mapping from 38%, 27%, 65% and 6.9% in 2004/05 to 51%, 42%, 80% and 10% in 2009/10, respectively. It was planned to identify and delineate 30 areas of mineral deposits, while 34 such areas were identified and delineated by the end of the planning period. Annual investment in the mining sector increased from ETB 62 mln in 2004/05 to ETB 12.7 bin in 2009/10. Revenue generated by the sector increased from ETB 20 mln in 2004/05 to ETB 50.1 mln in 2009/10. Mining royalty revenues reached ETB 130 mln in 2009/10. Gold and tantalum exports increased from 3,439 kg and 92.5 tons in 2004/05 to 3907 kg and 202 tons respectively in 2009/10.

During the plan period it was expected that 5,000 kg of gold, purchased by the National Bank of Ethiopia from artisan miners, could be sold to foreign markets by the NBE. By the end of 2009/10, 5250 kgs of gold had been purchased by the NBE and USD 129 mln received by NBE from sales. An additional USD 2 mln was generated by sales of 4,500 kg of gemstones to foreign markets.

1.2.4. Road Development

With regard to federal roads, the plan for the 2004/05-2009/10 period was to reinforce 852 km of roads, upgrade 4,039 km, construct 2,769 km and execute temporary or heavy maintenance of 3,660 km of existing roads. Thus the plan was to construct or maintain a total of 11320 kms of federal roads, and overall 96% of these PASDEP targets were realised. In addition, 40 new federal roads were opened for traffic and more than 11,000 km of road length added to the existing network. As a result, the total road length increased from 36,400 km in 2004/05 to 48,800 km in 2009/10. These figures exclude Woreda roads. The proportion of roads assessed objectively as being in good condition increased from 64% in 2004/05 to 81% in 2009/10. The time taken, on average country-wide, to reach all weather roads has decreased from 5.7 hours in 2004/05 to 3.7 hours in 2009/10. In general, the performance of the road sector during the PASDEP period was remarkable.

1.2.5. Rail Network, Dry Port and Transport

Rail Network: For the development of the national rail network, a feasibility study was conducted using latest satellite mapping technology for three rail corridors with a total length of 2,359 kms. In addition socio-economic and environmental studies of the corridors are underway.

Dry Port: The construction of the Mojo and Semera dry ports was completed. A bilateral agreement was reached with the government of Djibouti for a joint freight service to further facilitate export and import of commodities. A cargo terminal has been built on 164,238 m2 land made available by the government of Djibouti. The terminal has commenced services and will ease the transit of export and import trade.

Road transport: During 2004/5-2009/10 a road safety council was established; on main transport corridor areas with a record of high accident levels, traffic control was strengthened; measures were taken to ensure that accident victims receive immediate medical attention and a mass media public awareness campaign was conducted during the plan period. As a result of these measures, deaths due to road traffic accidents decreased from 104 in 2004/05 to 52 per 10,000 accidents at the end of the plan period. Private companies were contracted to ensure technical inspection of vehicles. Moreover to address the transportation challenges facing the capital, Addis Ababa, the possibility of introducing mass transport system has been explored.

Air Transport: A cargo terminal for storage of perishable agricultural products was constructed at Bole International Airport and a master plan for the airport was prepared. During PASDEP it was planned to construct new or expanded airports at seven locations. At Jijiga, Humera and Assosa the air ports’ runway construction is completed. At Jima, Jinka, Kombolcha and Semera runway construction works are at different levels of construction and pre-construction phases. Mekele and Bahir Dar airports are operating to International Standards. The PASDEP strategy to increase the number of passengers and the amount of cargo has resulted in an increase of 1.55 mln in 2004/05 to 3.128 mln in 2009/10 of the former and 1.42 bin ton/kilometres in 2004/05 to 2.84 bin in 2009/10 of the latter.

1.2.6. Telecommunications

During the PASDEP period the mobile telecommunications network capacity was increased from 0.5 mln users in 2005/06 to 25 mln in 2009/10. The number of telecommunication customers increased from 0.56 mln in 2004/05 to 6.5 mln in 2009/10. In the Universal Access Program, a CDMA wireless network which covers 90% of the country has successfully been installed and the system enables voice and data service availability to every kebele. The number of fixed line and mobile phone users was 0.62 mln and 0.02 mln, respectively in 2004/05 and these increased to 1 mln and 0.187 mln, respectively in 2009/10. The percentage of the rural population with access (within 5 kilometres radius) to a telephone service increased from 13% in 2004/05 to 62.14% in 2009/10.

To connect the country’s main communication infrastructure, about 10,000 km of fibre optic cable (with high level information transmission capacity) was installed and has commenced rendering services. A National Network Operation Centre that enables the central administration of the network was established and the capacity to control service quality standard and management of service failure information was put in place.

1.2.7. Energy

The construction of new hydropower plants, including Tekeze, Gilgel Gibe II and Tana Belese plants, enhanced Ethiopia’s hydropower generating capacity. In 2004/05 the total hydropower generation capacity country-wide was 714 MW. The PASDEP target was to increase power generation capacity to 3,270 MW by the end of 2009/10. The power generation capacity actually achieved was 2,000 MW at the end of 2009/10 amounting to 62% of the target. The total power generated in 2004/05 was 3,112 GWH. It was planned to generate 10,907 GWH by the end of 2009/10, however, only 7,689 GWH (71%) was generated. During the PASDEP period, to conserve electric energy, 4.6 mln energy saving bulbs were distributed to customers. It was planned to increase power transmission lines constructed from 8,380 km in 2004/05 to 14,792 km in 2009/10. The total power transmission line constructed was 12,147 km in 2009/10, which is 82% accomplishment of the PASDEP targets. It was also planned to increase power substation lines constructed from 25,000 km in 2004/05 to 136,320 km in 2009/10. By the end of 2009/10, the total power substation lines constructed were 126,038 km, 93% of the target.

During the plan period the rural electrification program aimed to increase the number of towns and rural villages which have access to electric power from 648 to 6,000. Accordingly 5,163 towns and rural villages had gained access to electricity by 2009/10 amounting to a 78% realisation of the PASDEP target. The total number of registered customers of electricity increased from 952,000 in 2004/05 to 2 mln in 2009/10, 77% of the planned target. It was also planned during the PASDEP period to distribute 3 mln improved energy saving biomass ovens and these have been distributed as planned. As a result, it is estimated that about 26,176 ha of forest have been conserved from deforestation and carbon dioxide emissions have been mitigated by about 36,575 tons. About 10,081 rural families have benefited from distribution of home solar systems and 238 Rural Health Stations and First Cycle Schools have been provided with solar electric power. During the plan, the petroleum reserve storage capacity increased from 279,800 m3 to 369,800m3.

1.2.8. Water and Irrigation Development

Water supply: During PASDEP access to potable water increased from 35% to 65.8% in rural areas and from 80% to 91.5% in urban areas. Overall nationally, access to potable water has increased from 36% to 68.5%. The increase in rural access to potable water over the five year period is attributable to the provision of 793 very deep wells, 3,353 medium deep wells, 8,762 hand dug wells, 8,195 water fountain enhancement works, 478 water harvesting ponds, 3,294 rain water collection and, 7 run-off water harvesting systems. The number of malfunctioning water stations was reduced from 30% of the total to 20% in the plan period.

Irrigation: Irrigation development measures were taken during PASDEP to put in place small, medium and large scale irrigation schemes. At the start of 2004/05 it was planned to carry out irrigation scheme pre feasibility studies covering 177,998 ha, detailed studies for 464,051 ha, and initiation of irrigation works over 430,061 ha of land. The achievement by the end of the PASDEP period was 178,000 ha, 462,114 ha, and, 65,243 ha of land for small, medium and large scale irrigation schemes, respectively.

1.2.9. Construction and Urban Development

Urban Development: During 2004/05-2009/10, it was planned to construct 396,000 new houses, establish 10,000 small urban-based enterprises, and create job opportunities for 200,000 urban city dwellers. By the end of the PASDEP period 213,000 houses had been built in various regions and city administrations. In addition as a result of the housing development program, 4,306 small construction enterprises were established, while 176,000 permanent and temporary jobs were created. Of the houses constructed 72,000 were handed over to the beneficiaries and ETB 931 mln was received in pre payment from beneficiaries for the houses.

A program to build capacity for decentralized service delivery was initiated within 18 cities with a total outlay of ETB 142.1 mln. The project completed improvements to 14 city markets as well as drainage and road rehabilitation projects and purchases of vehicles and equipment. Through the Urban Local Government Development Project infrastructure development works with a total outlay of USD 150 mln (funded by the World Bank) were implemented in 19 major cities, including Addis Ababa. As part of this initiative and additional USD 53 mln was provided by regional states and towns and this was allocated to construction of cobble stone interior roads, sewer line construction, small enterprises production and market place facilities, improvement of market places, development of parks and water supply and sanitation works. A total of Birr 997 million was invested on these infrastructure creating 51,905 job opportunities through this initiative.

Construction industry development: In order to develop the capacity of domestic private contractors providing construction services 752 new contractors were given licenses and provided with training. Financial support and training were provided to these construction companies to enhance their capacity. Capacity building services were provided to 147 experts organised as 43 consulting firms and, as a result, the number of consultants working in the construction industry increased from 177 in 2004/05 to 254 in 2009/10. Permits to import machineries with long term payment modalities were awarded to increase the supply of construction machineries and address transportation problems. During the planning period 1,075 freight transportation vehicles, 1,000 dump trucks, 350 loaders, 100 rollers and 25 low-bed trucks were imported and distributed to domestic private companies on credit modalities. In addition 65 crushers and 125 loaders were distributed to companies of gravel suppliers.

To address the shortage of construction materials and ensure sustainability for the fast growing construction industry, the government imported cement, steel and other construction material, while encouraging domestic production of these items in the medium term. As a result very large quantities of cement and steel were purchased and distributed locally during the plan period. Many micro and small scale enterprises received training, financial and administrative support to increase their role in the supply of particularly local construction materials.

1.2.10. Education

Primary School Education (Grade 1-8): The number of primary schools increased from 16,513 to 25,217 in the PASDEP period. Consequently, the number of classrooms increased from 161,795 to 247,698. The gross enrolment rate for grades 1-8 increased from 79.8% to 94.2% and the primary net enrolment rate increased from 68.5% to 87.9%. The disparity in enrolment rates between male and female students gross enrolment ratio narrowed from 0.75:1 to 0.93:1.

Secondary School Education (Grade 9-12): There were 706 secondary schools in 2004/05 and this number increased to 1,202 in 2009/10. In 2004/05 the gross enrolment ratio for secondary schools (9-10) was 27.3%; it increased to 39.7% in 2010. The Net Enrolment Rate for secondary schools (9-10) increased from 11.8% to 12.6% during the same period.

Education Quality: The primary school (Grade 1-8) student-teacher ratio decreased to 57:1 by 2009/10 and the secondary school student-teacher ratio reached 43:1. The student-class ratio, in primary schools (Grade 1-8), fell from 69:1 in 2004/05 to 62:1 in 2009/10, while in secondary education (Grade 9-12) it fell from 78:1 to 68:1 in the same period.

Technical and Vocational Education and Training: The number of trainees undertaking TVET increased from 106,336 to 717,603 during the plan period. More than 50% of TVET trainees during PASDEP were female. The number of government TVET facilities reached 253 in 2009/10.

Higher Education: The number of undergraduate students in public universities was 78,232 in 2004/05. This increased to 185,788 in 2009/10. The proportion of undergraduate female to male students in the public universities increased from 24% to 29%, and the number of students in graduate school increased from 3,604 to 9,761. The proportion of female to male students at the graduate school increased from 9% to 11.3%. During the PASDEP period the number of public universities increased by 13, and the total is now 22.

With regard to building the capacity of university teachers, the number of university teachers increased from 4,847 to 11,238 in the plan period. Of these 5,706 (50.8%) hold a first degree, 4,528 (40.3%) hold a second degree and 1,004 (8.9%) hold a PhD.

1.2.11. Health

The main objectives of the health sector component of the PASDEP plan were to reduce child mortality, improve mothers’ health and combat the spread and prevalence of HIV/AIDS, TB and malaria. To achieve these strategic objectives and to ensure full health service coverage in all rural kebeles, a health extension strategy was designed and implemented. During the PASDEP period one of its targets was to train 30,000 health extension workers. In the event, 33,819 were trained and deployed in rural kebeles all over the country. The number of health posts and health centres increased from 4,211 and 644 in 2004/05 to 14,416 and 1,787 in 2009/10, respectively. The number of public hospitals increased from 79 to 111 in the plan period.

During the PASDEP period the number of women of child bearing age and using contraceptives increased from 15% to 32%, prenatal service coverage increased from 46% to 63%, postnatal service coverage increased from 15% to 30%, and trained birth assisted delivery increased from 13% to 25% - although the target was to reach 32%. In general the number of deaths of mothers which were related to delivery decreased from 871/100,000 in 2005 to 590/100,000 in 2010. The under-five mortality rate decreased from 123/1000 to 101/1000.

By 2009/10 about 10 mln households living in malaria infested areas had received 2 mosquito bed nets each and by this means the coverage of mosquito net usage has increased from 1% to 100% in the plan period. Also during the PASDEP period, the cure rate for TB increased from 65% to 67% and the incidence of HIV decreased from 0.68 to 0.28. The PASDEP target was to halt the HIV prevalence rate at 3.5% of the population and a better result was achieved with the prevalence rate dropping to 2.4% in 2009/10. In general, the health service coverage increased from 30% to 89% during PASDEP.

1.3. Cross Cutting Sectors

Women and Children: The government has placed strong emphasis on the participation of women in the political, economic and social affairs during the PASDEP period. In this respect, following the enactment of the national policy on Ethiopian women, organizational structures responsible for women’s affairs were strengthened at federal, regional, and local levels. The family law and criminal were amended to fully ensure the rights of women.

Efforts have also been undertaken to ensure the benefits of women in economic growth and social development. For instance the participations and benefits of women in agricultural packages were significantly increased. To ensure that equal benefits from land rights accrue to husbands and wives, land utilization certificates bearing both husband’s and wife’s name are now being issued by regional governments. In food security programs vulnerable children and female headed households were given priorities.

Similarly, in urban areas women were supported to organize themselves under micro and small enterprises so as to enhance their economic empowerment. The integrated housing development project which was launched in 2003/04 gave precedence to female applicants for 20-30% of newly built houses and for the remaining 70% of houses, women competed equally with males.

Youth and Sports: During the PASDEP period, a total of, 3,435,049 youths participated in various training sessions. More than 708,116 youths received training in management skills and 444,595 youth association organizers received training for the preparation and design of strategic plans, finance management and administration and related subjects.

To organize and support sport associations 200 leaders were trained, 11,193 sport associations were established from national to kebele level of which 26 were established and registered at national level. To expand and strengthen sport and fulfil communities’ training and public sport ground needs, 7,567 different sports grounds were created in suitable locations.

Culture and Tourism: During the PASDEP period, the average annual number of tourists visiting Ethiopia was 324,666 and they generated annual average revenues of ETB 1.61 bin. This achievement represents an increase in the annual average number of tourists and revenue generated of 21% and 16.3%, respectively. Specific initiatives undertaken during the five year period included strengthening of wild life conservation areas, expanding infrastructure and tourist facilities, improving national parks management and control, and giving particular attention to community tourism. These initiatives resulted in the establishment of facilities for national parks at Alateshi, Borena Sainte, Maze, Chebera Churchura, Kafeta Sheraro and Gerale. Border demarcation of wildlife control areas was completed for Simien Mountains National Park, Bale Mountains National Park, Senkele rhino shelter, Shigesha and Tulu lodge. At the Simien Mountains National Park 147 households were voluntarily resettled to a pre-arranged settlement site. Two investors have built lodges at Awash and Simien mountains national parks that contribute to expansion of the available facilities and create an encouraging environment for more tourism. At Senkele a rhino shelter recreation centre has been built and, in schools which are close to wildlife conservation areas, nine natural resources conservation clubs have been strengthened and given awareness creation training related for wildlife development and protection.

Science and Technology: The national science and technology policy document was reviewed, revised and presented to government, taking into account the current situation and technological developments. A database was established that identifies science and technology related capacity building requirements. To build national research capacity and support active researchers, training was given to young researchers and research institutions. Weekly radio programs and printed information sheets entitled “From science and technology archive-kesaynese mahider” have been distributed to enhance awareness of and develop interest in science and technology issues.

Environment: A woreda environment management planning manual was prepared. The manual aims to improve rural environments, contribute to sustainable development, improve living standards and ensure gender equality. About 1,450 environmental experts received training on environmental management planning based on the manual. During PASDEP the target was that more than 125 woredas prepare an environmental management plan; by the end of 2009/10, 116 woredas had prepared and implemented environment management plans. A dry waste management strategy was prepared and a related proclamation was issued. Awareness creation training on the dry waste management proclamation was given to 65 experts’, while 12 environment impact assessment manuals were prepared and made available.

1.4. Good Governance and Democratization

The good governance and democratisation strategies adopted during PASDEP aimed to build the capacity of the civil service to strengthen key public services that support and enable democratic institutions, improve service delivery in the same areas, and continue to strengthen the ongoing democratisation process. The democratic institutions addressed included those created before 2004/05 such as the Ombudsman, Human Rights Commission and Anti Corruption Commission. These organisations were established to monitor the system for administration of justice, provide social accountability and to ensure a sustainable, transparent and accountable public administration.

The main focus of the five year plan was to give woreda administrations increased authority and responsibility and grant city administrations’ and mayors’ offices an appropriate right for self administration. Within an overall objective of ensuring delivery of public services of high quality to the people, the focus has been to enhance the PASDEP implementation capacity at the local administrative level, address the shortage of skilled manpower, and improve the rural communication infrastructure. The governments’ strategies to fight corrupt practices, among citizens and public servants show encouraging signs of improvement in terms of identifying corrupt persons, practices and organisations and bringing them before to the courts.

Awareness creation sessions were provided for those people engaged in the PASDEP preparation and monitoring with the aim of building public support and confidence through citizens’ participation in the PASDEP preparation and implementation initiatives. A business process reengineering exercise was carried out by every government agency, as well as by woreda and kebele administrations, to improve public service delivery and ensure transparency of operations and good governance.

Extensive capacity building programs have been implemented to strengthen the efficiency and accountability of the justice system with significant achievements during the planning period. Awareness creation workshops were conducted to address problems within the justice system. A conflict prevention and resolution strategy was designed and implemented. A number of measures were also undertaken to strengthen relations between regional governments so as to build a strong and stable federal democratic system. Cases related to human rights and administrative biases were given precedence in the decision making process so that appropriate solutions could be quickly put in place.

1.5. Challenges and Good Practice in Implementing the PASDEP

1.5.1. Major Challenges Encountered

Implementation capacity: There were capacity constraints among leaders and public servants, at different administrative levels, involved in key aspects of PASDEP implementation. To address this challenge during PASDEP, the government launched a number of process reengineering and training programs to improve skills and ensure appropriate implementation capacity.

Finance mobilisation: Low mobilization of domestic financial resources was another implementation challenge encountered during PASDEP. Of course domestic revenue and particularly tax revenue have been increasing over the years following the reform and administrative measures taken by the government. Yet they remain low compared to the requirements of the development programs of the country. A related constraint that contributed to difficulties in mobilising adequate resources was the low level of domestic savings needed to support the huge demand for investment required for the country’s accelerating growth and development.

Inflation: A major challenge encountered during the implementation of PASDEP was a significant increase in inflation. This was a potentially serious challenge to maintaining the macroeconomic stability. The government reacted in time with effective fiscal and monetary policies as well as administrative measures to reduce inflation to single figures.

Rain: In some areas of the country, delayed arrival of rainy seasons, early withdrawal and poor distribution of rain were challenges from which important lessons have been gained.

Industrial sector: The under performance of the industrial sector was due to inadequate technical and managerial skills in the sector, foreign exchange shortages to import essential raw materials, spare parts and other inputs, power disruptions, constraints of access to efficient and effective credit services, and power disruptions

1.5.2. Good Practices Learned

The lessons drawn from the implementation of PASDEP and which formed one of the inputs to the design of the 2009/10-2014/15 Growth and Transformation Plan (GTP) are the following.

Leadership, management and organisation: Many useful experiences have been gained during PASDEP on leading and managing the economy, on how to coordinate and mobilize the public at large, the private sector and non government organizations for accelerated and sustained growth.

Agricultural productivity, production and scaling-up ‘best practices’: During PASDEP, a number of model farmers who registered very high levels of productivity and production have emerged. The “best practices” of these model farmers have been analysed and documented for scaling up tothe rest of the other farmers during GTP period. This is expected to increase productivity and production of most of farmers, and bring them closer to the performance of the model farmers.

Mobilising domestic resources: Significant experiences are gained during PASDEP as to how best to mobilize domestic resources and as to how to use domestic capacity most effectively to accomplish developmental interventions. These experiences are now integrated into the strategies and programs of the GTP for the next five years.

Good governance: The introduction of the good governance package in the PASDEP resulted in a range of key interventions that contributed significantly to human development, democratization, enhancing peoples’ participation, building well integrated institutional capacity building and ensuring transparency and accountability. The next five year plan will build on and expand the good governance initiatives.

Industrialisation: As there was not significant growth in the industry sector and more specifically in the manufacturing sub-sector, the lesson is taken onboard that, in the next five years, more must be done to increase the percentage share of the industrial sector in GDP.

Social sector and infrastructure: Remarkable achievements have been realised in the PASDEP period with regard to significantly increasing access to infrastructure and social services, particularly education and health services. Thus consolidating the achievements gained so far in terms of expanding infrastructure and social services and improving the quality of social services and infrastructure have stood out as one of the pillar strategies of GTP.

CHAPTER 2.

BASIS, OBJECTIVES AND STRATEGIC PILLARS OF THE GTP

2.1. Basis of Growth and Transformation Plan

The country’s vision, the achievements of PASDEP, and the lessons drawn from its implementation, were the basis for formulation of the next five year (2010/11-2014/15) Growth and Transformation Plan (GTP). Factors which constrained growth and external shocks were taken into account in the formulation of the GTP.

Ethiopia’s vision which guides the GTP is:

to become a country where democratic rule, good-governance and social justice reign, upon the involvement and free will of its peoples, and once extricating itself from poverty to reach the level of a middle-income economy as of 2020-2023.”

The country’s vision specifically on economic sector includes:

“building an economy which has a modern and productive agricultural sector with enhanced technology and an industrial sector that plays a leading role in the economy, sustaining economic development and securing social justice and increasing per capita income of the citizens so as to reach the level of those in middle-income countries.”

From 2003/04, the economy shifted to a higher growth trajectory and the growth momentum was sustained during the PASDEP period. Infrastructure development and social services have expanded. The participation of private investors and the community in general was very substantial. Domestic resource mobilization increased the capacity of the country to finance development projects itself. The process of laying-out a foundation for democracy and good governance was given due attention in reform programs undertaken during the PASDEP period.

Among the major challenges encountered during the PASDEP implementation period were the high inflation pressures on the balance of payments; the inadequate levels of, and constraining factors in, both official development assistance and a lower level of domestic revenue collection than expected, (which led to difficulties in mobilizing financial resources to meet the growing development needs of the country); and the unpredictability of rainfall.

The GTP will contribute to achievement of Ethiopia’s vision and to sustaining rapid and broad based economic growth. The experiences gained in resolving challenges that arose during, and lessons learned from, the implementation of the PASDEP were a starting point for formulation of the GTP. In summary, the overall objective of the GTP, over the five year period, is to sustain broad based, fast, and equitable economic growth so as to eradicate poverty in due course.

2.2. Objectives of the Plan

The GTP has the following major objectives.

  1. Maintain at least an average real GDP growth rate of 11% and attain MDGs;

  2. Expand and ensure the qualities of education and health services and achieve MDGs in the social sector;

  3. Establish suitable conditions for sustainable nation building through the creation of a stable democratic and developmental state; and

  4. Ensure the sustainability of growth by realizing all the above objectives within a stable macroeconomic framework.

2.3. Strategic Pillars

Ethiopia’s objectives and strategies for sustaining rapid and broad-based economic growth path are dependent on the following GTP’s strategic pillars.

  1. Sustaining rapid and equitable economic growth,

  2. Maintaining agriculture as major source of economic growth,

  3. Creating conditions for the industry to play key role in the economy,

  4. Enhancing expansion and quality of infrastructure development,

  5. Enhancing expansion and quality of social development,

  6. Building capacity and deepen good governance, and

  7. Promote gender and youth empowerment and equity.

Each of the strategic pillars is elaborated as follows.

2.3.1 Sustaining rapid and equitable economic growth

In order to achieve the vision of the country and, in due course, eradicate poverty and so improve the livelihood of citizens, it is imperative to sustain the higher economic growth of the last 5 years and beyond. For this reason, investments in growth enhancing sectors such as infrastructure and social sectors will continue at a larger scale. Economic growth is central in creating growing employment opportunities and Ethiopia’s transformation into a middle income country.

The agricultural sector will continue to be the major driver of economic growth. Industrial growth will be given particular focus. Rapid growth of an industrial sector that increases the competitiveness of Ethiopia’s exports and results in import substitution will be encouraged. This approach is expected to result in the rapid and broad based economic growth that will provide a foundation for structural transformation. The government’s efforts to eradicate poverty and create employment will be pursued by sustaining rapid and broad based economic growth in a more coordinated and structured manner.

2.3.2 Maintaining agriculture as a major source of economic growth

The experiences gained from the agricultural development program, and lessons drawn from implementation of the PASDEP, were an input to the GTP agricultural development strategy. This strategy will support strongly the intensified production of marketable farm products for domestic and export markets, by small farm holders and private agricultural investors. Fundamentals of the strategy include a shift to production of high value crops with a special focus on potential high productivity areas, intensified commercialisation, and support for development of large-scale commercial agriculture, where feasible. The commercialisation of smallholder farming will continue to be the major source of agricultural growth. Concerted support will be given to increase private investment in large commercial farms too. A range of public investments will be undertaken to scale-up the successes realised so far. Further strategies include development of a more transparent and efficient agricultural marketing system and increased investment in marketing infrastructure.

To ensure that agriculture becomes the main source of growth for the next five years the key strategy that will be pursued concerns scaling up of best practices of model small holder farmers. Thus the best technologies and practices of the model farmers will be scaled up for use by all other farmers during the GTP period. This will in turn increase agricultural productivity and production. It is very essential also to strengthen the government structures at all levels so as to provide effective services that increase agricultural productivity. Although the emphasis will be on scaling up the best technologies and practices of model farmers, new technologies will also be developed and disseminated to farmers and pastoralists.

In addition to promote multiple cropping, better adaptation to climate variability and ensure food security, the GTP will intensify use of the country’s water and natural resources. Expansion of small scale irrigation schemes will be given priority, while attention will also be given to medium and large scale irrigation. Concerted efforts will be made to expand water shade management and to carry out effective water and moisture retaining works. Apart from improving productivity and living standards of the rural communities, these activities will help to cope better with the challenges of climate change. Strengthening the conservation and management of natural resource is another focus area. The conservation and management of natural resources will mainly rely on the farmers and government capacities.

Commercial horticulture will involve intensive farming and high value commodity production. It will extensively use labour and hence is likely to concentrate in highland areas and closer to the major cities of the country. It will be integrated with the surrounding small holder farming. In addition, given the expansion of infrastructure and services through out the country large scale extensive commercial farming are likely to be encouraged to grow. The other element of the agricultural development strategy is the promotion of private large scale commercial farms in areas that are not occupied or utilized by people.

During the GTP period, agriculture will shift to a high growth path in order to meet the food security needs of the country, to curb inflationary pressures on agricultural products, and broaden the export base of the country. The sector will serve as a spring board for structural transformation in the long run by adequately supplying inputs necessary for industrial growth.

2.3.3 Creating favourable conditions for industry to play a key role in the economy

Ethiopia’s narrow industrial base is a major constraint on the nation’s ability to generate foreign exchange and create job opportunities for its growing labour force. In the GTP period, the industrial sector will receive the highest level of support for export oriented and import substituting industries.

In the industrial sector, the government will focus in particular on strengthening micro and small-scale manufacturing enterprises, because they are the foundation for the establishment and expansion of medium and large scale industries, and open opportunities for employment generation, expansion of urban development and provide close support for further agricultural development. The role MSEs play in scaling up agricultural sector productivity is irrefutable and for this reason appropriate support will be provided to strengthen vertical and horizontal linkages between agriculture and industry.

The growth of MSEs and their integration with TVET system development will be instrumental in providing the necessary skills and education for technological transfer. This in an important part of the effort to support MSEs, as is the provision of capital for MSEs’ operations through saving and credit institutions in a more transparent and accountable manner. To solve the production facility problems of MSEs and those linked to identifying market opportunities, efforts will be made by regions and city administrations to provide production and marketing facilities at an affordable cost. Entrepreneurial as well as saving attitudes and behaviours will be widely promoted among micro and small business operators in particular and among the public in general.

Major support will also be given to establish and expand medium and large scale industry. It is believed that these industries will encourage technological transfer, bridge the link between micro and small enterprises and improve the competitiveness of domestic resource based large-scale industries. Medium and large scale industries will also serve well the domestic market and produce value-added products for the export market. Measures to support selected strategic import substituting industries, both within the public and private domain, will be strengthened and this will help increase the foreign exchange earnings and lay the basis for more rapid industrial development.

As is clearly stated in the Ethiopia’s Industrial Development Strategy, the value that can be added by the private sector is an important engine of the sectors’ development. The business environment has over the years been conducive to investment and the trade and investment framework has improved rapidly, thus attracting both domestic and foreign investment. The government will continue providing all the necessary facilities and support to realize the GTP’s industrial sector growth objectives.

2.3.4 Enhancing expansion and ensuring quality of infrastructural development

The expansion and maintenance of economic infrastructure such as roads, power and water supply, should be seen from the stand points of enhancing and sustaining pro-poor growth through job creation and promotion of industrial development and, by these means helping to realize poverty eradication. Even though large investments have been made over the previous plan period, the infrastructural backbone of the country has not yet reached the quantity and quality desired because of the low threshold of economic infrastructure in 2004/05. Constraints that have arisen to date in achieving the desired level of development included limited local human capacity and the large capital investments needed, combined with the high foreign currency component of those investments. During GTP period therefore emphasis will be put on both expansion and ensuring quality of infrastructure development.

The experience in implementing previous initiatives, the challenges encountered, and the unanticipated opportunities that arose, have all contributed to lessons learned that have improved the strategies adopted in the GTP. For instance, improvement in gross domestic savings is a policy initiative adopted by the GTP, in order to mobilise resources to fund investments and promotion of import substituting industries. Investment in development of roads, railway networks, energy, irrigation and telecommunication will receive due attention during GTP period. A major effort will be made to increase investment in infrastructure by: increasing domestic savings and promoting import substitution of materials that are necessary for the infrastructure development.

In the plan period, the road networks will be expanded. Every rural kebele will be connected to an all weather road and thus to the main road network. Railway lines connecting various parts of the country will be developed. To meet the country’s growing energy needs efforts will be made to increase use of alternative energy sources such as wind, geothermal and hydro energy. The ongoing telecommunication infrastructure expansion program will be concluded and good quality and efficient services will be provided by fully utilizing this countrywide and affordably priced infrastructure.

In view of the role of urbanization for economic and social development, building the necessary urban infrastructures will be given emphasis to ensure rapid and equitable growth of urban centres. The development of these urban infrastructures will be implemented in a manner that they will contribute for MSEs development and employment creation. Adequate attention will also be given to improve urban sanitation amenities to create suitable living and working environment. A comprehensive regulatory and capacity building framework will also be implemented in order to promote the development of a more productive and competitive domestic construction industry.

2.3.5 Expansion of social development and guaranteeing their quality

Improving citizens’ living standards and development of their human potential, is a key strategic pillar of the GTP. The government will take various measures to improve peoples’ health, productivity and skills. Among other benefits, these measures will increase the potential for government’s policies, strategies and programs to realize their objectives. The main initiatives that are expected to ensure that this strategic pillar is realized are improved access to good quality higher and adult education, very wide access to good quality primary health care, better access to safe water and sanitation facilities, halting the spread of HIV/AIDS and other key infectious diseases, improving food security and nutrition, and improved housing conditions.

Education and training: The progress to date has been encouraging. In order to sustain this level of progress, the government will increase its efforts to develop the country’s human resources by improving the access to and the quality of education in the next five years. To improve access to education, efforts will be made to address issues that hinder students’, especially female students’, enrolment. Appropriate importance will also be given to pre-primary and functional adult education. To improve the quality of education, measures will be taken to address existing shortcomings by increasing the number of teachers and schools. The government will expand and improve the initiatives taken to date in its General Education Quality Improvement Program.

Higher education: The key priority in the higher education system during the five year GTP will be to ensure the systems’ quality and relevance. To this end, the management and administration of universities will be improved and strengthened. Efforts will be made to ensure the Higher Education Strategic Centre and the Higher Education Quality Assurance Agency fulfil their missions. The performance and implementation capacity of technology institutes will be developed further. Adequate supply of university teachers will be ensured through the implementation of a full fledged teacher development program. The revised curricula will be implemented taking into account crucial issues such as instructional processes, assessment and examinations and student achievement. The government will launch a big push to strengthen science and technology in higher education.

Child care, special needs and adult literacy: The early childhood care and education system will be made cost effective and more participatory and be expanded in both formal and non formal education delivery mechanisms. The education strategy for children with special needs will be fully implemented. A functional adult literacy program will be expanded across the country.

Technical and vocational education & training: The TVET system will continue to be an instrument for technological transfer, through the development of occupational standards, accreditation of competencies, occupational assessment and accreditation, and the establishment and strengthening of the curriculum development system. TVET institutes will serve as the centres of technology and skill accumulation for micro and small enterprises (MSEs). Rigorous and regular monitoring and evaluation of TVET institutes will be carried out. The TVET program will be part of the government’s capacity building program to strengthen engagement with, and productivity of MSEs, as a key instrument for creation of employment opportunities.

Health Services: The GTP will focus on improving the health of the population through provision of primary health care services that will be supported by the health extension program. In addition measures will be taken to ensure quality hospital services and better supply of medical drugs. The government will strengthen the measures it takes to improve the number, skills, distribution and management of health workers, through enhanced training of physicians (specialists and general practitioners). New systems of health care financing will be explored and implemented to overcome the existing bottlenecks. An incentive package will be developed to encourage domestic production of pharmaceutical products.

To increase the contribution of the private sector to health services, efforts will made to improve and extend the delivery of services and their quality. Lessons will be drawn from other countries and integrated in the initiatives to be taken to improve the private sectors contribution to the health system. Mobilisation of external finance, together with domestic finance, in order to fund GTP health sector initiatives, will receive major attention. Private pharmaceutical factories will also be encouraged to sustainably produce and deliver quality pharmaceuticals. Generally GTP aims to fully achieve the MDG targets for the sector.

2.3.6 Strengthening good governance and capacity building

Strengthening institutional capacity is critical to implement the GTP policies, strategies and programs and there by achieve satisfactory results. Apart from other existing, structural and institutional constraints, the country’s economic growth and social development are hindered by organisational capacity constraints. Government has designed national programs, policies, and strategies that strengthen and sustain the country’s implementation capacity, institutionally and organisationally. This is a vital contribution to the on-going process of democratization. For example, during the GTP period, the implementation of Civil Service Reform Program and Good Governance packages will be strengthened to ensure efficiency, effectiveness, transparency and accountability at all levels. The capability of civil servants, at federal, regional and local levels will be strengthened. Concerted efforts to improve information and communication systems will be made that contribute to the socioeconomic transformation process.

In order to facilitate the strengthening of the stable, democratic and developmental state that creates an enabling environment for development, major emphasis will be given to strengthening democratic institutions, building up the capacity of civil service and civil society organisations and establishing a system for citizens’ access to information. Public participation will be strengthened at all levels to ensure better transparency and accountability in public decision making. In addition, the effectiveness of the justice system will be improved and laws will be amended to ensure that implementation and interpretation is in conformity with the constitution. The independence, transparency and accountability of courts and the judicial system will be ensured. Law enforcement institutions will be strengthened by improving the knowledge and skills of the human resources’ employed and by providing the equipment required. Finally, the publics’ understanding and awareness of constitutional issues will be increased and the custom and tradition of peaceful resolution of disputes improved.

Another critical element of this pillar strategy concerns ensuring transparency and accountability in public decision making, as well as preventing and controlling corruption. In this regard, the focus will be on radically improving the tax and land administrations of the country. At the center of such reforms are improving the registration and information systems of income, property and land. In addition, public education and awareness creation that bring about attitudinal and behavioural changes, as well as effective enforcement of laws will be pursued. The establishment of reliable and uniform vital statistics and identification system of citizens will also be undertaken during the plan period.

2.3.7 Empowering women and youth and ensuring their benefits

Women and Youth: The objectives of the GTP can only be achieved when the multidimensional problems faced by women and youth are addressed. To this end, the government will scale up its efforts to implement its Women’s and Youth Policies and Programs. These policies contain essential initiatives that will contribute to the participation and effective utilization of the untapped potential of these key social groups.

During the GTP period, women and youth initiatives will aim to ensure equitable socio-economic and political participation by and benefits directly for, women and youth in our society. Unleashing the potential contribution of youth and women to national development will have a profound effect on the speed, equity and sustainability of the country’s overall growth and development.

Over the last few years major efforts were made to increase the enrolment of girls in school, expand coverage of female health services, and increase extension services to women farmers in rural areas. These efforts included also legislative and institutional reforms to protect the rights of, and open opportunities for, women. Although, progress has been made there are still challenges relating to changes in attitudes and traditional malpractices. Government is committed to speeding up the pace of change through education, by increasing the participation of women in public life, and by strengthening women’s membership in gender based organizations.

Children: Relative to other sections of the community, children’s vulnerability to manmade and natural disasters is higher. Efforts to date to minimise children’s vulnerability will be increased during the plan period. Primary targets included in the GTP are to ensure equitable benefits to children from development initiatives, support vulnerable children, minimise harmful traditional practices that affect children, and protect children’s rights and safety.

CHAPTER 3.

MACROECONOMIC FRAMEWORK OF THE GROWTH AND TRANSFORMATION PLAN

3.1. Macroeconomic Objectives

Macroeconomic policy objectives for the five year GTP period 2010/11-2014/15 are the maintenance of macroeconomic stability so as to encourage savings and investment by adopting appropriate policies designed to promote rapid and broad based economic growth. Fiscal and monetary policies will be managed in a manner consistent with these macroeconomic objectives.

3.2. Macroeconomic Policies and Goals

The macroeconomic goals of the GTP are synchronized with the overall policy objectives of maintaining the growth momentum witnessed during the PASDEP period, Ethiopia’s vision of becoming a middle income country, and meeting its MDG targets at a minimum.

3.2.1. Economic Growth, Savings and Investment

The Ethiopian economy has registered an average annual real GDP growth rate of 11% during the five years 2005/06 to 2009/10. The lesson learned during PASDEP and SDPRP periods, is that sustainable, rapid and equitable growth is essential to the GTP. It is growth that will help create employment and raise income, eventually eradicating poverty.

Two growth scenarios are considered in the GTP: Base Case and High Case Scenarios.

a) Base Case Scenario

Under the base case scenario, Ethiopia’s economy is projected to grow at an average annual growth rate of 11.2%. This is the average growth rate attained during PASDEP and the GTP intends to maintain this growth momentum. Under the base case scenario, it is assumed that the economy will be able to grow provided that the same stable policies and strategies are followed at macroeconomic and sectoral levels as adopted previously; that prudent monetary and fiscal policy ensures that inflation remains at single digits; and that tax collection and administration systems are strengthened so as to increase domestic revenue substantially. All MDG targets will be met under the base case scenario.

As shown in Tables 5 above, growth is expected to be broad based; agriculture is expected to grow on average by 8.6% per annum while industry and services are expected to show average annual growth of 20% and 10.6%, respectively.

Table 5.

Real GDP Projection Annual Growth Rate (%)

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To bring about structural transformation in the economy, it is expected that the industrial sector’s share of GDP will grow 12.9% to 18.8% and the agricultural sector’s share will decrease from its current 41.6% to 36.9% at the end of the plan period. The service sector’s share of GDP is projected to decrease from 45.6% to 44.3%. Achievement of these targets will provide an enabling environment for economic growth by balancing demand and supply of agriculture and industry sectors.

Looking at demand side of GDP, there are two macroeconomic balances to be considered, namely the resource gap between savings and investment and the trade balance between exports and imports (the export/import gap). In the GTP period prudent macroeconomic management will be adopted to maintain these macroeconomic balances.

A single digit inflation rate is targeted to prevail throughout the GTP period. During 2010/11 to 2014/15, GDP at current market prices is forecasted to grow at a rate of 17.2% on average, which is lower than the rate of growth during the PASDEP period. By the end of PASDEP, the share of total final consumption expenditure to nominal GDP was expected to decrease, but, it remained unchanged at around 94%. At the end of the GTP period total consumption is forecasted to reach 85% while domestic savings are targeted to increase from 5.5% in 2009/10 to 15% of GDP in 2014/15 and the five year average will be 11.9%.

Gross domestic investment is forecasted to average 27.5% of GDP during the plan period. In 2014/15 gross capital formation is projected to take a 28.2% share of GDP, rising from 22.3% of GDP in 2009/10. During the GTP period, the savings and investment gap is expected to narrow and reach 13.1% at the end of the plan period, from its present level of 19.4%. This is a reflection of the government’s intention to raise domestic savings towards the investment financing requirement. In order to effectively raise domestic savings macroeconomic stability and measures that ensure an enabling environment, such as increasing financial sectors accessibility and diversifying their services, will be taken during the plan period. (See Table 7 below)

Table 6.

Projected Trends in the Structure of GDP by Industrial origin (% share)

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Table 7.

Demand Side GDP as Ratio to GDP @ Current Market Prices (%)

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To ease the pressure on the balance of payments, policy and administrative measures that promote growth and diversification of exports will be undertaken. At the end of the plan period, the share of exports to GDP is expected to reach 22.5%, a rise from 13.6% in 2009/10. High value products such as horticulture and other new export items will receive major support from the government. Combined with these initiatives, support will be provided for import substituting industries so as to ease the shortages of foreign exchange the country is experiencing. The share of imports of goods and services to GDP at current market prices is forecasted to reach 35.7% (See Table 7 above).

b) Higher Case Scenario

The basic assumption for the high case scenario is the doubling of agricultural value added, by scaling up the level of productivity of smallholder farmers and pastoralists to the productivity levels of existing best (model) farmers. This places the economy on a higher growth path than the base case scenario. Because of the potential of multiplier effects of the smallholder farmers, the increase in agricultural supply will stimulate growth of other economic sectors. Under the high case scenario, it is assumed that the possible upward shift of demand, caused by the doubling of agricultural value added by the end of the GTP period, will be stabilized by increased supply of agricultural sector goods that will keep the inflation rate in single digits.

An annual average GDP growth rate of 14.9% is targeted under the high case scenario. Agriculture, industry and service sectors are expected to grow on average by 14.9%, 21.3% and 12.8% per annum, respectively (See Table 8 below). At the end of the plan period the percentage share of agriculture, industry and service sector are expected to be 41%, 16.9% and 42.1%, respectively. (See Table 9 below)

Table 8.

Projected Trends in the Structure of GDP growth by Industrial origin (%)

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Table 9.

Projected Trends in the Structure of GDP by Industrial origin (%share)

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The GTP five year average of total consumption expenditure, gross domestic capital formation, total export and import as a percentage share of GDP is forecasted to reach 88.9%, 22%, 19.7% and 30.5%, respectively. The gross domestic saving as a percentage of GDP will reach 17% at the end of the plan period, up from 5.5% in 2009/10, resulting in a projected resource gap of 4.1%.

3.2.2. Prospects for Growth, Wellbeing and Poverty

Macroeconomic indicators are used to understand the linkages between growth and poverty reduction efforts. Understanding poverty and wellbeing indicators and analysis of poverty enables the causes of poverty to be identified. The results of poverty analysis are important in designing policies, developing strategies and in identifying measures to be taken by the government. Analysis of poverty also helps to evaluate the success of ongoing policies and strategies, and their implementation.

Poverty analysis is multifaceted. The cost of basic needs approach is used to measure the income or consumption expenditure aspects of poverty. Consumption is preferred as an indicator of welfare, as opposed to income, because consumption better captures the long-run level of welfare than current income. Consumption also reflects better the households’ ability to meet basic needs and it reflects the extent of households’ access to credit and ability to save when their income is higher. For these reasons, consumption indicators make a better measure than income, because they reflect actual household living (or welfare) standards. For consumption to be an accurate indicator of households’ welfare it has to be adjusted to take account of the difference in the calorie requirements of different household members; for age and gender of adult members for instance. This adjustment can be made by dividing real household consumption expenditure by an adult equivalent scale that provides a proxy measure of the nutritional requirement of each family member. The adult equivalent scale will, therefore, vary for different age groups and with the gender of adult household members. For the reasons described, many of the poverty analysis instruments, such as the head count ratio, use consumption indicators rather than income indicators.

‘Total poverty’ refers to an aggregate measure of poverty that takes into account both the food and non-food requirements. At this point it is worth noting how poverty lines are established. The most widely used method of estimating poverty lines is the cost of basic needs method (minimum expenditure approach). This method is applicable because the indicators used are more representative and the threshold will be consistent with real expenditure across time, space and income groups.

Following from the above justifications for, and definitions of, the methodology adopted, the food poverty line is defined by selecting a bundle of food that is typically consumed by the poor. The quantity of the bundle of food is determined in such a way that it supplies a predetermined minimum calorie requirement level (2,100 kilocalories). This measure enables us to establish a consistent poverty line for Ethiopia. On this basis, the Food Poverty Line is determined by the minimum per capita expenditure required to acquire the bundles of food which provide 2,100 kilocalories. In addition to this measure, the total minimum per capita expenditure for basic needs (food and non-food) is used to determine the Poverty Line. Using this methodology the Central Statistical Agency carried out studies in 1995/96 that determined that the poverty head count was 45.5% and the number of people under the Food Poverty Line was 49.5%.

It is clear that, in Ethiopia, economic growth is crucial for the eradication of poverty over time, for citizens to enjoy fast growing living standards. This economic growth has to be rapid, sustainable and fair. Failure to realize such type of economic growth will place considerable constraints on the poverty eradication agenda. It is for these reasons that Ethiopia’s development policies in general, and the GTP policies and strategies in particular, place great focus on ensuring sustained, rapid, broad based, poverty reducing and fairly distributed economic growth. Such economic growth will result in jobs being created, as a result citizens’ earnings will rise and their living standards improve and this will lead to the country breaking out of the poverty trap.

The recent study conducted by the Ministry of Finance and Economic Development, “Dynamics of Growth and Poverty in Ethiopia (2008)” (based on three wide ranging studies, the Household Income Consumption And Expenditure Survey, Welfare Monitoring System and the Participatory Poverty Assessment) shows that a 1% per capita GDP increase will result in a 1.7% decrease in the poverty head count index. Based on the identified relationship between economic growth and its elasticity to poverty, it is calculated that the poverty head count ratio and the food poverty ratio have declined to 29.2% and 28.2% at the end of the year 2009/10, respectively. An updated calculation of the linkage between economic growth and poverty reduction will be determined when the current Household Income Consumption Expenditure study is completed. It is expected that the current HICE study will reveal that the poverty head count ratio, and the percentage of people living below the food poverty line, will be less than the current estimates because actual economic growth has been higher than projections for the last several years. For this reason the GTP boldly aims to achieve the MDG target of halving extreme poverty and hunger by 2014/15.

3.2.3. Fiscal policy

The medium-term fiscal policy objective is aimed at maintaining the deficit at a sustainable level. This requires inflation to be contained at single digit levels while simultaneously increasing public spending on pro-poor sectors. Among the major objectives of the fiscal policy are to strengthen domestic revenue generation capacity, finance major investment projects with own revenue, mobilize external grants, arrange external borrowing according to the borrowing policy of the country, and to mobilize domestic borrowing in a way that does not adversely affect macroeconomic stability.

On the revenue side, implementation of the on-going tax reform program will be enhanced by strengthening tax administration and collection. During the GTP period, efforts will be geared towards promoting compliance and equipping tax collection agencies with adequate enforcement powers. These strategies will further boost revenue mobilization at federal and regional levels. The government will accelerate the pace of implementation of the tax reform program by strengthening the capacity of tax collection agencies, implementing the Tax Identification Number system throughout the country, improving the presumptive tax system, developing and implementing an audit program to cover all taxes, and improving the administration of the Value Added Tax.

Efforts will also be made to improve the tax base and bring new businesses into the tax net, particularly where they were beneficiaries of tax incentives (tax holidays). As a result of these measures, it is calculated that, by the end of the GTP period, the share of total domestic revenue and tax revenue to GDP at current market prices will reach 17.1% and 15%, respectively. The share of budget deficit including grants to GDP at current market prices will be maintained at about 2% on average so as to maintain macroeconomic stability (See Table 11 below).

Table 10.

Projected Trends in Structure of GDP from the Demand Side High Case Scenario (% share in GDP)

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Table 11.

Fiscal Projection As a Percentage of GDP at @CMP (Base case Scenario)

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On the expenditure side, resource allocations have been guided by the government’s pro-poor growth policy whereby the lion’s share of available resources are allocated to priority infrastructure and services that enhance pro-poor economic growth and social development. This policy will be applied more vigorously during the GTP period. Accordingly, the highest percentage share of total spending will be allocated to pro-poor sectors where capital expenditure as a percentage share of GDP is forecasted to reach 14.4% at the end of the plan period. (See Table 11).

3.2.4. Monetary Policy, External Sector and Financial System

Monetary Policy

Ethiopia’s monetary policy will continue to focus on maintaining price and exchange rate stability so as to create a macro economy that is conducive for rapid and sustained economic growth. Inflation will be held at single digits during the GTP period (2010/11-2014/15). Measures will be undertaken so that growth of money supply will not be in excess of nominal GDP growth. During the GTP period a stable foreign exchange rate is envisaged, which will not only encourage export growth but also import substitution. These in turn would facilitate stable economic growth and significantly minimize foreign exchange constraints by strengthening hard currency reserves.

To implement the GTP both direct and indirect monetary instruments will be used as appropriate. The government will develop and implement initiatives to encourage domestic saving and investment. In this regard real interest rates will be maintained above zero, while non-traditional sources of revenue mobilization such as bond sales to citizens at home and the Diaspora will be put in place. The contribution and coverage of social security services will be improved, while policy measures that encourage domestic savings for machinery and housing investment will be introduced.

Financial system

In the GTP period the financial sector will be strengthened with the aim of establishing an accessible, efficient and competitive financial system. One purpose of this initiative is to increase domestic saving so as to sustain the fast and sustainable growth required to provide resources for expanding and improving public services. Government will introduce capacity building measures to raise the efficiency of financial institutions and improve banking practices so as to ensure healthy competition, support private sector banks and financial institutions to improve the coverage and quality of the financial services they provide and help them to minimize non-performing loans and improve their profitability.

During the GTP period, greater emphasis will be placed on strengthening modern payment systems, developing regulations to international standards and facilitating access to financial services. It is expected that these initiatives will enable the current level of access to finance of 20% to reach 67% by the end of the plan period.

The National Bank of Ethiopia will strengthen its human resources and information technology infrastructure. The capacity of the Ethiopian Financial Institute will be strengthened. Information technology that supports the bank information exchanges system will be extended to microfinance institutions. The expansion and improvement of modern IT networks, and their effective utilization by financial institutions will ease communication and facilitate the flow of real time money from one corner of the country to another. The introduction and wider application of payments systems that use faster, electronic means, such as cards, mobile or other electronic instruments, will facilitate improved banking services and help to reduce transaction costs.

3.3. Selected Macroeconomic and Sectoral Targets

Table 12 summarizes the key macroeconomic and sectoral targets expected to be reached at by the end of the GTP period. These targets are also used to track the progress of the economy and monitor the effectiveness of the GTP impacts as measured by major indicators. Details of targets are presented in the chapters and sections that follow.

Table 12.

Selected GTP Targets

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CHAPTER 4.

FINANCING THE PLAN

Financing social and economic development programs is essential for the realization of the objectives stated in the GTP. Allocation of finance is based on the medium term Macro Economic Fiscal Framework, an instrument used by the government to frame resource expectations from domestic and external sources and allocate resources to key sectors in line with the overall development objectives of the country. The process of preparing the Macro Economic Fiscal Framework begins by identifying the overall resource envelope in the period from 3 to 5 years.

During the GTP five year period, allocation of development finance will aim to support the overriding objective of poverty eradication - within the country’s financial capacity and within the maintenance of stable macroeconomic conditions. Based on these objectives, a larger share of total government spending will be allocated for development of pro poor and growth enhancing sectors. Government recurrent expenditure will be fully financed from domestically generated revenue whilst, capital expenditure will be financed by domestic revenue and external sources.

Projections of government revenue, allocation of resources to government’s priority sectors, estimates of budget deficit, and financing under the base case scenario are presented in the following sections.

4.1. Government Revenue

Domestic revenue will be mobilized mainly from tax and non-tax sources. Estimates of revenue collected from taxes for the five year period 2010/11 to 2014/5 assume full implementation of GTP initiatives, including on-going tax reform, improvement in efficiency of tax administration, and broadening the tax base in line with the economic growth anticipated and the potential resources that can be mobilised. Non-tax sources of revenue will be mobilized from the dividends and proceeds of public enterprises.

Other initiatives to raise financing for the GTP include encouraging private savings and investment, scaling up external development assistance and increasing Foreign Direct Investment (FDI). There are sources of development finance that do not appear in government’s budget. These include off-budget financing by NGOs, local government expenditures using their own resources, and own source spending by public enterprises.

During the five year GTP period, domestic revenue, including grants, is expected to reach ETB 173 bin by the end of the plan period, up from ETB 66.24 bin in 2009/10, out of which, ETB 145.3 bin will be mobilized from domestic sources and the remaining ETB 27.7 bin ETB from external sources. (See Table 13 below).

Table 13.

Projected GTP Revenue Requirements Under Base Case Scenario (in mln ETB)

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4.2. Government Expenditure

Government developmental expenditure is determined by the financial capacity of the country where the finance is collected from tax, non tax sources of revenue and official development assistance. Government recurrent expenditure during the GTP will be based on the base year (2009/10) spending, the growth prospects of the country in the coming years and the assumption of a stable macro economy. Capital expenditure during the GTP period prioritizes the financing of ongoing projects and investments on pro-poor sectors (such as agriculture and rural development, food security, water, education, health, roads, rural electrification, etc) that will help realize development policies and strategies set by the government and described in the GTP.

By the end of the plan period, it is expected that total government spending will reach ETB 201.1 bin, up from its ETB 71.3 bin in 2009/10. ETB 78.9 bin of the expected 2014/15 expenditure will be allocated to finance recurrent expenditure and ETB 122.2 bin to finance capital expenditure. By the end of the GTP period, expenditure on poverty-oriented and growth enhancing sectors will reach ETB 146.8 bin.

In general, in order to meet the GTP objectives, a total of ETB 690.90 bin is required, out of which, ETB 406.90 bin will be used to finance capital outlays and the remaining ETB 284.0 bin will be allocated to finance recurrent expenditure. In other words of the total finance required during the plan period 58.5% will be spent on capital outlays and 41.5% on recurrent expenditure. (See Table 14 above)

Table 14.

Projected government Expenditures, Base Case Scenarios (mln ETB)

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4.3. Financing

In 2009/10, the total government revenue was ETB 66.2 bin and the total expenditure was ETB 71.3 bin. The budget deficit, including grants, of ETB 5.1 bin was financed through borrowing from both domestic and external sources. The budget deficit of ETB 28.11 bin at the end of the GTP period is expected to be financed from domestic (ETB 22.9 bin) and external borrowing (ETB 5.2 bin). During GTP period a total of ETB 75.4 bin budget deficit will be financed from domestic (ETB 50.6 bin) and external borrowing (ETB 24.4 bin).

Projected expenditures presented in table 14 and 15 are based on the estimates of the medium term Macro Economic Fiscal Framework. In contrast, Table 16 presents expenditure requirements presented by implementing agencies. Thus, an amount of ETB 756,066 bin expenditure is estimated by the implementing agencies which exceeds by ETB 65.1 bin compared to the estimate of the Macro Economic Fiscal Framework. This budget will be allocated in alignment with the government’s fiscal policy and based on the sectors’ annual plan and budget. The budget deficit from the perspectives of the resource need of the sectors during the five years period will be ETB 140.47 bin. (See Table 16 below)

Table 15.

Projected Budget Gap During GTP, Base Case Scenario (in mln ETB)

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Table 16.

Resource need by Implementing Sectors, Budget Deficit and Financing (in mln ETB)

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4.4. Off Budget Financing of Infrastructure And Industrial Programs

As shown in the following tables, the total financing requirements of infrastructure and industrial development programs which will be undertaken off government budget are forecasted at ETB 569.19 bin. The financing arrangements of these programs will be 30% from own sources of development enterprises and 70% from domestic and external borrowing. Domestic borrowing will be effected within the framework of the government’s monetary policy and a stable macroeconomic situation. External borrowing will be undertaken following the national borrowing policy. Of overall financing requirement indicated above, ETB 315.43 bin (55.42%) is required in foreign currency as indicated in the following tables.

Table 17.

Off Budget Financing Requirement of Infrastructure and Industrial Development Programs

In mln ETB

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Table 18.

Off Budget Foreign Currency Requirement of Infrastructure & Industrial Development Programs

In mln ETB

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4.5. The role of the Private Sector and the public

As pointed in the previous chapter, many development programs and projects are undertaken by the government and other development actors. Previous experience shows that the participation of the private sector, non-government organizations and the public at large in the development process has been significantly increasing. Accordingly, in the next five years, the private sector, the public and non-government organizations are expected to play a more active role and thereby significantly contribute to the success of the GTP. The contribution of the private sector, the public and non-government organizations is therefore included as one critical element of the country’s overall capacity to finance the GTP.

CHAPTER 5.

ECONOMIC SECTORS DEVELOPMENT PLAN

5.1. Agriculture and Rural Development

5.1.1 Strategic Direction

Main focuses for agriculture and rural development are increasing the capacity and extensive use of labour, proper utilization of agricultural land, taking account of different agro-ecological zones, linking specialization with diversification, integrating agricultural and rural development, strengthening the agricultural marketing system and effective implementation of the scaling up of best practices in the sector. Bearing these strategic directions in mind, the Agricultural Development-Led Industrialization Strategy emphasises that small holder farmers and pastoralists need to use efficiently available modern agricultural technologies that increase productivity and production. In addition, the private sector will be encouraged to increase its share of investment in agriculture. The remarkable growth that has been registered to date will be further strengthened in the GTP period. In order to expand Ethiopia’s export markets, initiatives will be put in place to increase penetration of international markets.

During the GTP period, a key strategic direction is to ensure smallholder agriculture becomes the main source of agricultural growth by scaling up interventions based on the experience gained, and identification of successes achieved in the previous plan period. Experience to date has shown that it is possible to increase the productivity of smallholder farmers within short period of time by better utilizing smallholders’ labour, land and by using improved but less capital intensive agricultural practices and technologies. It is also the case that there is a growing demand for agriculture products because of growth in population, growth in per capita GDP, increasing international demand and growing demand for agricultural products as raw materials inputs to the growing industrial sector. These national and international realities justify the need for increased investment in agricultural sector to increase productivity and production.

The results realised to date show that it is possible to transform subsistence agriculture to more market led production. The key derivers of this change will be improvements in farmers’ productivity and production. Thus, to lay the foundation for industrial development, to use agricultural inputs for the industries, to produce sufficient food crops and high value products for international market, agriculture will continue to play a leading role in the GTP period.

a) Smallholder Agriculture Development

Smallholder agriculture development will focus on the following three strategic directions.

Scaling up of best practices: The productivity of most average farmers is two to three times lower than that of best farmers. Scaling up of best practices to bring up the productivity of most average farmers closer to those of best farmers is the first strategic direction to be pursued during the GTP period. To realize this strategic direction, public capacities at all levels, the agricultural extension services system and the skills of development agents will be strengthened. Although the key direction is efficiently and effectively utilizing available technologies and practices adopted by model farmers through scaling up strategy, continuously building technological capacities is also important. Thus intensifying use of good agricultural practices, adoption of new technologies by farmers and pastoralists will be encouraged. To ensure agricultural growth is sustainable, capacity to adopt and utilise new and proven technologies will be continuously strengthened. New technologies will be developed and tested and, where results are encouraging, will be disseminated to farmers and pastoralists.

Expand Irrigation Development and Improve Natural Resources Conservation:

Accelerated and sustainable agricultural growth will be secured by natural resources conservation, development and improvement of water utilization, and expansion of irrigation coverage. These areas will remain focus areas during the five year plan period and will include development of underground and surface water, irrigation development and natural resource conservation. These in turn entail capacity building for farmers and of government support structures.

Production of high value crops: A further implementation strategy is a focus on improving the incomes of farmers and pastoralists. Farmers and pastoralists will be encouraged to shift gradually from production of low value to high value products. This strategy will be implemented gradually and will take account of geographic differences on specializations and existence of favourable market and infrastructural factors.

b) Pastoral Development

Activities implemented in pastoral areas mainly focus on livestock resource. In that sense priority is given to water development adequate both for the local community and livestock. This activity will be implemented in relation to the improvement of pastoral land irrigation development. Activities related to food security will be implemented mainly in connection with infrastructure developments.

In areas convenient to irrigation development, resettlement of pastoralists on voluntary basis will be another task to be undertaken. Identifying, selection and dissemination of improved livestock breeds will be strengthened, and improved mobile veterinary services will be given. At local levels, emphasis will be given to increasing the number of professionals and strengthening their capacity so as to enable them give support to pastoralists.

To benefit the pastoralists from their livestock wealth, marketing system will be improved. Thus standard livestock centers will be built, pastoralists will be encouraged to organize themselves into cooperatives. To implement these activities close support will be given by the government. Extension systems will be strengthened; research centers will be expanded in a way to adopt appropriate technologies that give solution to local problems. Generally all possible measures will be facilitated to expand the extension system integrated with the pastoralist livelihood.

c) Private Sector Agricultural Development

Agricultural development policy explicitly states that private investors can participate in the nation’s agriculture development endeavours. As a result of the efforts exerted to implement this policy success has been realised in the floriculture. The participation of private investors has been minimal in areas where extensive agriculture could be practiced, but where physical infrastructure is weak and, as a result, the government has been investing more in basic infrastructure in these areas. Where infrastructure has been expanded in rural areas the increase in private sector investment has gradually increased. The increase in demand for raw agricultural inputs for the growing industrial sector has also encouraged private investment in the sector. Infrastructure improvements have increased interest in investments in agriculture from abroad and domestically. In the five year plan period, more effort will be made to improve and increase the role of the private sector in the agriculture sector, in lowland areas where land for large scale commercial farming is in demand. In addition, in the highlands and areas close to major cities, private investment will be steered towards high value horticulture products that can be produced on limited land, using abundant labour (thus generating significant employment) as well as increasing supply of produce for export. This type of private investment will require considerable expansion of basic infrastructure and a plentiful supply of labour. These investments will be integrated with smallholder agriculture and help to provide sustainable markets for smallholder farmers.

5.1.2 Objectives

The broad objective of agriculture and rural development in the next five-years is to achieve accelerated and sustained growth that contributes to poverty eradication and achievement of MDGs. The excellent results of, and experiences gained from, the implementation of earlier as well as ongoing programmes will support the attainment of agriculture and rural development sectoral objectives and of MDG targets by 2015.

During the plan period natural resources and soil conservation, enhanced use of appropriate technologies and practices as well as market oriented production will serve as the instruments to ensure rapid agricultural growth. A focus on export led production will compliment increased productivity and ensure accelerated development of the sector. Agriculture will continue to be the major source of economic growth while small holder farming will be the major source of agricultural growth. The private sector’s role in the sector will also be promoted in order to secure sustained agricultural and rural development.

5.1.3 Major Targets

Major targets for agriculture and rural development are indicated in the following table.

Table 19.

GTP Targets for Agriculture and Rural Development

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5.1.4 Implementation Strategies

a) Small holder agriculture

The major implementation strategy for agriculture and rural development in the GTP five year period is to scale up the best practices identified to date. Agricultural technologies that proved to be viable and beneficial, when tested by model farmers, will be transferred to other farmers as quickly as possible and the design and capacity building activities necessary to implement this strategy will be undertaken.

Crop production and productivity: As a result of the performance in agriculture and rural development, and the experiences gained, many of the conditions that are important to accelerate agricultural growth have been identified. It is possible to increase the productivity of smallholder farmers within a short period of time, by better utilizing smallholders’ labour, land and with the efficient use of available technologies as well as introduction of improved agricultural practices and technologies. To ensure in particular effective scaling up of the best practices the extension system will be continuously improved, while the capacity of extension agents will be continuously strengthened.

Adequate moisture areas: In areas with adequate moisture the focus during GTP implementation will be on the scaling up strategy. Successful experiences, such as efficient ways of utilizing rain water and use of beneficial technologies, together with improved agricultural practices, will be expanded to increase crop production and productivity to the highest levels possible.

The core element of the scaling up strategy is to extend those improved agricultural technologies and practices that have been tested and used by model farmers to all other farmers. To put these into practice, and overcome the constraints that arise while doing so, continuously improving the extension system, strengthening capacity building, organisational and support services will be important.

The main mechanism adopted to implement the scaling up strategy will be to bring together best experiences according to technology types. This formulation process will be continuous as additional best experiences emerge during the implementation process. When improved technologies and agricultural practices are identified, training to introduce and improve skills will be provided to development specialists and farmers at farmers training centres and demonstration farms. Where technological problems are identified, appropriate measures will be taken to resolve and replace them with workable solutions. Solving attitudinal and skill related problems can develop a stronger commitment to and demand for technology. For this reason, measures will be taken to have an adequate supply of technology to meet the demand created. Appropriate adjustment measures will be taken to fine tune the system of technology inputs to the scaling up strategy. A transparent, efficient and effective agricultural marketing system will be put in place in order that market capacity meets increased production following the scaling up strategy.

Implementation agencies and professionals will, at different stages, have to use best/model farmers’ in the training process so that practical experiences are shared in a learning process. To ensure the benefit of experience is transferred effectively, the support of specialists will be provided by the extension system. At the end of the plan period, it is expected that, as a result of these measures, of those farmers who participate in the scaling up program, 90% will record productivity results that meet the model farmer benchmark.

In order to increase crop production and productivity, technologies and practices that improve soil fertility will be encouraged. Parallel to an increased use of chemical fertilizers, government will introduce activities to create awareness and develop skills to increase the amount and coverage of organic fertilizer use. In areas where moisture is adequate modern, drainage methods will be introduced in order to get full benefit from Vertisols. Steps will be taken to gradually change the existing blanket fertilizer application system to one based on soil fertility testing that identifies different agro-ecological areas, soils and suitability for major crop types. The aim is for 90% of fertilizer use to be preceded by this type of procedure and thus increase benefits from fertilizer application. In addition, action will be taken to increase distribution and use of organic fertilizers, such as bio-fertilizers, that can easily be used by farmers.

In adequate moisture areas, in order to increase crop production and productivity, improved agricultural practices will be applied. These include: the selection of crop varieties suitable for the soil type, adequate and timely farm preparation, use of the right planting time, the right quality and quantity of the planting input, and modern planting/sowing practices. In order to increase crop production and productivity, implementation of appropriate weeding frequency is considered important. Continuous assessment of pest infestations will be conducted, and measures taken when there is an infestation. Emphasis will be given to harvesting, storing and using matured crops in places and conditions where the crop is not exposed to pests.

While giving appropriate focus to the use of rain water, actions will also be taken to bring about significant change in water use by expanding the area of irrigation schemes. In places where it is easy to access underground water, farmers will be supported to construct hand dug wells, and use them for production of garden vegetables and permanent crops. Special attention will be given to small scale irrigation schemes development. Technologies that improve access to and use of water resources will be widely encouraged and applied.

The combination of scaling up the lessons learned from best farmers with increased irrigation is expected to double agricultural production. Other interventions will be integrated with these implementation activities, such as Vertisol drainage and development of double cropping systems based on Vertisols.

Technology multiplication, supply and distribution: Expansion of the use of technology and of its’ supply and distribution systems is crucial to increased crop production and productivity. For this reason, during the GTP period, improved technologies will be applied to ensure the supply of the required quantity and quality of fertilizer, improved seeds, and small farm machineries.

Natural resources management: In areas with adequate moisture, appropriate conservation practices will be scaled up. During the GTP, soil and water conservation works will be implemented using organized community participation, in those areas where such works are required. Forestry development, protection and utilization works will be carried out in a similar way.

Livestock resources development: Livestock development is expected to be promoted along side the scaling up strategy of crop production in areas with adequate moisture. The focus will be on the expansion of livestock fattening and dairy development technology. Improved technologies for honey production and poultry resources development will also be introduced. The success of these technologies will require strengthening of support for breed improvement, pasture development and animal health.

In the case of cattle breed improvement a strong focus will be given to artificial insemination breeding techniques and the implementation of better local breeds’ selection and distribution. Because both improved and existing breeds become more productive when they receive adequate and balanced feed, homestead pasture development, improvement of grazing land, use of forest hacks, and development of pasture crops for zero grazing, will be undertaken.

Focus will also be given to preventative animal health services such as the provision of vaccination services (before incidence of disease), additional capacity for vaccine storage, training adequate animal health specialists, and expanding service delivery facilities, including mobile services.

In adequate moisture areas, based on the principles of specialization, adequate support will be provided to farmers through the extension system to enable them increase the production and productivity of high value products. Extra focus will be given to production of coffee, sesame, cotton, spices, vegetables and fruits. Broad support will be provided for preparation and formulation of packages to scale up outstanding experiences, and for the completion and expansion of these in order to increase the productivity and quality of outputs and to ensure farmers realise increased incomes.

Research-extension-farmers linkage: Strengthening the linkages between research, extension services and farmers is essential to the wider use of improved technologies and practices. Help for farmers’ to absorb technology, scaling up use of improved technologies, and support for the technology distribution and operating systems will be further reinforced. The research-extension-farmers councils that are coordinating this initiative at different levels will be strengthened in their capability and capacity to identify technological problems, to promote joint solutions, to identify appropriate mechanisms and to become more results-orientated.

Initiatives to identify, test, produce and disseminate new technologies will be introduced. These initiatives include research on crop, livestock, natural resources and agricultural mechanization. Supply of new technologies will include the importation and adaptation of existing proven technologies and their local production. Another initiative will involve application of modern research techniques aimed at shortening the time it takes to supply technology for irrigation.

Moisture deficit areas: The government strategies for agriculture development interventions in moisture deficit areas will take into account what is necessary for adequate moisture areas. Some of these strategies are to enhance the development agents and farmers’ skills, strengthen the organisational capacity of the extension system, and focus on the scaling up of outstanding experiences. The necessary work will be done to multiply technologies suitable for these areas and to supply and distribute the same as well as establish a comprehensive input and marketing system.

Appropriate efforts have been taken earlier t