Rural Urban Transformation and Agglomeration linkages in Ethiopia

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International Food Policy Research Institute (IFPRI) and Ethiopian Development Research Institute (EDRI) seminar series: October 23, 2012

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Rural Urban Transformation and Agglomeration linkages in Ethiopia

  1. 1. Rural Urban Transformation andAgglomeration linkages in Ethiopia Emily Schmidt Seminar: DFID – Ethiopia October 23, 2012
  2. 2. Presentation outline1. Ethiopia’s Changing Economic Landscape – Structural shift of the economy (declining share of agriculture) – Spatial (urbanization) – Infrastructure (expanding road networks) – Electricity generation and use – Telecommunications (mobile phones and internet)2. Key policies – Land policies – Industrial growth and constraints3. Concluding Observations
  3. 3. Ethiopia Economic Structure: 1999/00 – 2008/09 140 52 120 50 billion (1999/2000) Birr Agric Share of GDP (%) 100 48 80 46 60 44 40 42 20 40 0 38 (2008/09) 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 Agriculture Industry Electricity and Water Construction Other Private Services Public Administration Agric Share of GDP Source: Calculated from World Bank, World Development Indicators data.• Ethiopia’s share of agriculture in GDP in 2006 was highest in the world (48%) • More than double the average for low income countries (20%)• Ag share of GDP decreasing, but real ag GDP growth averaged 6.2%
  4. 4. Agricultural Share in GDP in East African Countries, 1980-2008 80 70 60 Share of GDP (%) Ethiopia 50 Kenya 40 Uganda 30 Expon. (Ethiopia) 20 Expon. (Kenya) 10 Expon. (Uganda) 0 1980 1982 1988 1990 1992 1994 1996 1998 2000 2002 2008 1984 1986 2004 2006 Source: Calculated from World Bank, World Development Indicators data. • Striking difference between Ethiopia’s overwhelmingly agriculture-dominant economy and the economies of most other developing countries.
  5. 5. Urban Economic Theory• As economy grows, structure and location of economic activity tends to move more towards diversified economy with larger urban industrial and services sectors (Kuznets, 1950’s)• New innovations in urban sector, increases in urban labor productivity and wages, make secondary cities make an attractive supplement (substitute to onfarm generation)• Ethiopia launched ADLI (1994/94): focused on increasing productivity of smallholder farmers through use of fertilizer and improved seeds, infrastructure, public services. – Agricultural growth induced by ADLI interventions would spur industrialization (agricultural input and processing industries, and consumer goods to higher household incomes and increased spending)
  6. 6. Ethiopia: comparatively slow transition• Unique Biophysical Landscape – Agricultural production is characterized by fragmented and dispersed land holdings average plot size is 0.8 hectares)• Limited Transportation Infrastructure• Level of development as function of urbanization• Political landscape and evolution of agricultural policies (Monarchic, Derg, Present Government)
  7. 7. Ethiopia: Urbanization Official Agglomeration Estimate Index (percent) (percent) 1984 11.4% 3.7% 1994 13.7% 7.1% 2007 15.9% 14.2% (mns people) (mns people) 1984 4.55 1.48 1994 7.33 3.80 2007 11.72 10.50 (growth rate) (growth rate) 1984-1994 4.9% 9.9% 1994-2007 3.7% 8.1% 1984-2007 4.2% 8.9%Ethiopia remains one of least urbanized countries in SSA, butEthiopia is urbanizing faster than people think!!!
  8. 8. Ethiopia: Alternative Urbanization Estimates 14 12 10 (millions) 8 6 4 2 0 1984 1994 2007 Agglomeration Index Official CSA
  9. 9. Travel time 1984
  10. 10. Travel time 1994
  11. 11. Travel time 2007
  12. 12. Percentage of Population by Travel Time to Agglomerations of 50,000 or more People <1 1-3 3-5 5-10 > 10 Hour Hours Hours Hours HoursEthiopia1984 6.74 1.96 9.22 41.77 40.311994 8.38 6.44 18.19 35.96 31.032007 12.48 23.56 25.73 26.03 12.20
  13. 13. Agglomeration Index 1984In 1984, Addis Ababa andother larger cities wereprimarily confined to its cityadministrative boundaries.There were only a few citieswith greater than 50,000peopleLimited road networks andmore dispersed populationcharacterized thedemographic landscape.
  14. 14. Agglomeration Index 1994By 1994, Ethiopia’s cities grew,and the country’stransportation networkexpandedUrban corridors were formedfrom Addis to the SoutheastPopulation growth andimproved transportationinfrastructure facilitatedlinkages to form an urbannetwork between Oromiyaand SNNP regions.
  15. 15. By 2007, urban linkages were Agglomeration Index 2007clearly visible throughout Oromia,SNNP, and Amhara regions.Addis Ababa expanded to connectSebeta and Bishoftu, and Asela inthe South.Addis Ababa also connected toAmbo in the west, and DebreBerhan in the eastLinkages between Arba Minch andSodo were also formingJimma had grown into asouthwestern hub withopportunities to link with Nekemteto the north.
  16. 16. Ethiopia: Percent Population connected to Urban Agglomeration 45 60% 40 50% 35 30 40%Millions of People 25 30% 20 15 20% 10 10% 5 - 0% 1984 1997 2007 Under 1 hour 1- 3 hours Share of Total Population Source: Schmidt and Kedir (2009)
  17. 17. Ethiopia: Electricity Generation Capacity 1958 to 2011* 2000 25 1800 1600 20 megawatts (mn watts) 1400 watts/person 1200 15 1000 800 10 600 400 5 200 0 0 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 Total Installed Capacity Non-Hydro Capacity Capacity/capitaSource: Calculated using CSA Survey of Manufacturing (various years) and Ethiopian Electric Power Corporation data. • Large investments in hydroelectric power: increased electricity generating capacity 29-fold between 1960’s and 2011, increase of 8.9 times on a per capita basis.
  18. 18. Electricity use• Survey evidence suggests that productivity effects of electrification could be very large (output per worker)• Small-scale handlooms in SNNPR: productivity per worker is about 40 percent higher for electrified versus non-electrified (Ayele et al., 2009)• In electrified villages, producers work longer hours, firms share workspaces with electric lights and lower cost
  19. 19. Ethiopia: Fixed Line and Cellular Telephones - 2003 to 2010 10 9 8 7 6 (millions) 5 4 3 2 1 0 2003 2008 2009 (plan) 2010 (plan) Cellular Phones Fixed Lines• Fixed telephone line infrastructure more than doubled from 2003 – 2008• Cell phone subscription increased from 50,000 in 2003 to 3.16 million subscribers in 2008
  20. 20. Ethiopia: Fixed Line and Cellular Telephones 2003 to 2010 2009 2010 2003 2008 (plan) (plan) Main (fixed) telephone lines Ethiopia 405 909 3,000 4,400 Africa 9,553 10,617 --- --- Mobile cellular subscriptions (000s) Ethiopia 51 3,168 7,500 9,900 Africa 35,251 245,608 --- --- Mobile cellular subscriptions (per 100 people) Ethiopia (share of total population) 0.1 3.9 9.0 11.5 Ethiopia (share in connected area) 0.1 5.3 --- --- Africa (share in connected area) 3.7 32.5 --- ---• Infrastructure plans report that cell phone subscriptions more than doubled from 2008 to 2009, and estimates of users continue to increase in future years.• Compared to SSA, Ethiopia falls behind: Share of population in connected area is 5.3 percent in Ethiopia compared to 32.5 percent of the population in SSA
  21. 21. Rural – Urban Expenditure and Welfare Poverty Incidence 50 48 46 44 42 (percent) 40 38 36 34 32 30 1995/96 1999/00 2004/05 Rural Urban Total
  22. 22. Ethiopia Food Security Index 90.0 80.0 70.0 60.0 Large 50.0 Urban 40.0 Small 30.0 Urban 20.0 Rural 10.0 0.0 2000 2005 2000 2005 2000 2005 2000 2005 Prevalence of Calorie Prevalence of Under 5 mortality rateEthiopia Food Security Undernourishment underweight among Index children < 5 yearsSource: Household Income Consumption Expenditure Survey, and the Demographic and Health Survey from1999/2000 and 2004/05*The calculated calorie-based undernutrition for Ethiopia is based on the undernourishment cutoff of 1,990kilocalories per day**Proportion of underweight children less than five years of age is calculated as a weight-for-age was less than twostandard deviations
  23. 23. Ethiopia’s Industrial Sector: Growth and Constraints• Industrial growth has occurred primarily from trading companies converting to manufacturing, rather than from small and medium firms converting to large enterprises.• Credit constraints – In 2007 the government imposed tight lending controls on private banks in an effort to curb speculative investments and inflation. In general, only large firms were able to access bank capital.• Uncertainty – There are almost no secondhand markets in machinery and equipment in Ethiopia, which contributes to irreversibility of decision making. – Possible disruption in electricity also raises risks, as productivity per work is strongly linked to electricity (Ayele et al. 2009). – Both electricity supply and the proxy measure of irreversibility have a statistically significant negative effect of on investment decisions in Ethiopian manufacturing (Shiferaw, 2009).
  24. 24. Land Policies and Migration• Regional governments proclamations restrict access to rural land by prescribing the need to be a rural resident in that particular region as a condition for acquiring rural land free of charge.• No right to transfer land right on sale or in exchange with another property• No easy transferability of land rights: transfer of use right in the form of inheritance and donation is allowed only to the right holders family members who are residing in the rural kebele and are engaged or wish to engage in agriculture.• These policies inhibit migration from rural areas – hinder labor mobility.
  25. 25. Concluding observations• Rural – Urban connectivity has increased dramatically over the last several decades – Upgraded and maintained transportation corridors and increased density on these corridors – New cities were created and economically viable cities have experienced large growth (count and density) – Dramatic increase in electricity production and cell phone subscription• Ethiopia’s level of development affects urban transition – Lack sufficiently large non-farm population to generate enough demand for its own agricultural products – Unless farmers can respond to demand from urban consumers, through access to credit, labor and inputs, local markets are limited to low-level transactions
  26. 26. Concluding Observations• Population in large cities: ample space to expand and grow its primary and secondary cities – 4 percent of the total population lives in the three largest cities – 5.4 percent live in towns greater than 20,000 people• Migration/agglomeration are potential sources of growth• But without supporting investments, there is an “urbanization of poverty” and rising urban inequality• Land and Migration Regulations: – Easing of regulations? • Prohibition of sale of land, loss of land rights for those who leave rural areas • Registration requirements for new migrants
  27. 27. Concluding Observations• Urbanization and industrialization are a crucial part of development and accelerating growth. – Urbanization reduces the rural-urban divide – Facilitate increases in economic density to create small town networks for rural service provision (healthcare, education, etc.)• However, given: – Low levels of GDP/capita in Ethiopia – A high concentration of poverty in rural areas – Realistic prospects for increasing agricultural productivity and production• Ethiopia should NOT neglect agriculture, if these countries are to rapidly increase food security and reduce poverty

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