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Module 1: Accelerating Growth
and Poverty Reduction in Ethiopia
W H Y A N D H O W A G R I C U LT U R A L T R A N S F O R M...
Despite Progress, Poverty Reduction is Still an Issue
Poverty has reduced substantially over the years
The poverty rate ...
Sources of Poverty Reduction
Ethiopia’s economy grew at a rate of 8% per year
1% growth in economic growth reduced pover...
Agriculture Source of Growth
Agriculture growth alone can’t be the main driver for accelerating growth
and poverty reduct...
Ethiopia Aspires to Become a Middle Income Economy
Structure of Ethiopia’s economy must change
In 2014, Ethiopia’s econo...
Agricultural-Led Industrialization is ATA’s Strategy to achieve ends
While urban-based industrial growth is potentially l...
Agro-Based Industrialization is a Strategy
Effective and sustainable growth requires the following:
• Build on existing en...
Cluster Based Agricultural Transformation is Part of this
Agricultural-Led Growth Strategy
Agro-processing and value addi...
Investment and Regional Policy
Increase commercial crop production
Large-scale aggregation and storage
Advanced process...
Financing Plan
$550m -$650m investment from government and development partners
A matching amount from the private secto...
How does agricultural transformation program help promote
growth and poverty reduction?
A recent study examines the role ...
Rural Finance Strategy
Financial access (defined by having an account with a bank) is limited:
Ethiopia (26%), India (35%...
Does improved access to institutional finance matter?
while 47 percent of rural communities have a presence of rural fina...
Conclusion
Policy focus on growth & poverty reduction through transformation is appropriate
Agro-processing and value ad...
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Accelerating Growth and Poverty Reduction in Ethiopia (Module 1)

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The goal of this course is to provide policy analysts and project managers with the tools for evaluating the impact of a project, program or policy. This course provides information on the methods that can be used to measure the impact of a project, program or policy on the well-being of individuals and households. The course addresses the ways in which the results of an impact evaluation may be put to use – such as, to improve the design of projects and programs, as an input into cost-benefit analysis, and as a basis for policy decisions.

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Accelerating Growth and Poverty Reduction in Ethiopia (Module 1)

  1. 1. Module 1: Accelerating Growth and Poverty Reduction in Ethiopia W H Y A N D H O W A G R I C U LT U R A L T R A N S F O R M AT I O N C O U L D M AT T E R ? SHAHID KHANDKER INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE (IFPRI)
  2. 2. Despite Progress, Poverty Reduction is Still an Issue Poverty has reduced substantially over the years The poverty rate was 31% in 2011 compared to 56% in 2000 as per the poverty line of US$1.25 PPP per person per day Poverty reduced by some 2.5 percentage points per year during this 11-year period It’s a remarkable achievement only as par Senegal (with GDP double the size of Ethiopia) Only Uganda has higher annual poverty reduction during this period in SSA But reducing poverty further with inclusive growth is a major challenge in Ethiopia--- why? PAGE 2
  3. 3. Sources of Poverty Reduction Ethiopia’s economy grew at a rate of 8% per year 1% growth in economic growth reduced poverty by 0.15%, which is lower than the global average Agricultural growth is found a key source of poverty reduction, as growth in agriculture was more broad-based and inclusive For every 1% growth in agricultural output, poverty was reduced by 0.9% Poverty reduction was the highest among the self-employed agricultural households over the last few years PAGE 3
  4. 4. Agriculture Source of Growth Agriculture growth alone can’t be the main driver for accelerating growth and poverty reduction without structural transformation of the economy Agriculture accounted for 44% of GDP in 2014 as compared to 54% in 2000 While the service sector accounted for 37% of GDP in 2000 it explained 47% in 2014 Industry share of GDP marginally increased from 10% in 2000 to 14% in 2014 Truth is that neither service nor agriculture growth can be the drivers for accelerating further growth and poverty reduction That means, Ethiopia needs to accelerate growth in the industry sector PAGE 4
  5. 5. Ethiopia Aspires to Become a Middle Income Economy Structure of Ethiopia’s economy must change In 2014, Ethiopia’s economy consisted of ◦ Service-45% ◦ Industry-11% ◦ Agriculture-44% Target Structure of a Middle Income Economy ◦ Service -40% ◦ Industry-40% ◦ Agriculture-20%  How could Ethiopia turn into a middle-income country?
  6. 6. Agricultural-Led Industrialization is ATA’s Strategy to achieve ends While urban-based industrial growth is potentially limited, urban-led growth in the service sector is also not a way to promote large-scale growth and poverty reduction—as ATA asserted Agricultural-led industrialization (e.g., agro-processing) is therefore an important step toward industrialization, because of potential high linkages of agriculture with export-led growth Can agricultural-led growth and industrialization accelerate income growth and poverty reduction in Ethiopia? PAGE 6
  7. 7. Agro-Based Industrialization is a Strategy Effective and sustainable growth requires the following: • Build on existing endowments • Reduce constraints to industrialization • Produce sufficient technology and skills to catalyze industrial growth o Export-oriented agro-processing and value addition on and off farm provides a way to promote industrialization o It optimizes use of endowments, accelerate specialization, and diversification and commercialization o Growth of agro-industrial enterprises reduces constrain to industrial growth and generates spillovers to promote overall industrial growth PAGE 7
  8. 8. Cluster Based Agricultural Transformation is Part of this Agricultural-Led Growth Strategy Agro-processing and value addition as an entry point to catalyze rural transformation and industrialization Active agro-industrial policy to rapidly increase agro-processing and value addition Geographic cluster-based approach to implement multiple interventions Interventions include develop contract farming, facilitate access to finance, build infrastructure including agro-processing industries, and improved access to production inputs such as fertilizer Interventions also include capacity building and strengthening enabling environment
  9. 9. Investment and Regional Policy Increase commercial crop production Large-scale aggregation and storage Advanced processing, marketing, and export 16 clusters of 10-12 woredas identified from 5 regions as pilot projects Commodity based cluster approach: ◦ Sesame (western Tigray) ◦ Maize (South west Amhara) ◦ Wheat & barley (Eastern Oromia) ◦ Coffee (Eastern SNNP) ◦ Livestock (Northern Livestock)
  10. 10. Financing Plan $550m -$650m investment from government and development partners A matching amount from the private sector About $75 million investment per cluster (16 clusters) It consists of $30 million for basic infrastructure (road, electricity, water, irrigation and sewerage) $40 million for agro-processing and value addition infrastructure (general and cold storage, processing and packaging etc.) $2 million for capacity building (human and institutional)  $3 million for access to finance (input credit and value chain financing)
  11. 11. How does agricultural transformation program help promote growth and poverty reduction? A recent study examines the role of farm and nonfarm income growth and its linkages on overall income growth and productivity; 25-35% of rural income is accounted by nonfarm income; Nonfarm growth is highly influenced by farm income growth; Agricultural potential is a better predictor of farm income; it is also a contributing factor to nonfarm growth Agricultural potential with urban proximity contributes further to overall income growth; Peri-urban areas have higher incidence of nonfarm activities; Hence, agricultural transformation program can provide both backward and forward linkages to industrialization
  12. 12. Rural Finance Strategy Financial access (defined by having an account with a bank) is limited: Ethiopia (26%), India (35%), Bangladesh (40%), and Kenya (42%). Agriculture while it contributes 45% of GDP and 85% of employment, receives only 10% of institutional loan Only 11% of loan requirements for smallholders is met by institutional lenders ATA identified two barriers to higher access: (1) lack of access to financial services; (2) lack of liquidity to meet rural demand for credit ATA identified two-prong financial inclusion policy: (1) Build strong network of rural financial institutions (separate apex organization for MFIs and cooperatives); (2) Ensure sufficient liquidity with RFIs.
  13. 13. Does improved access to institutional finance matter? while 47 percent of rural communities have a presence of rural finance institution, only 15 percent of rural households have an access to institutional finance. Yet improved community access means better household access to institutional finance, which also means higher household income, especially nonfarm income. But expanding rural branches of commercial banks does not help reach the goal. It is rather improved access to microfinance and cooperatives that matters most in improving rural financial access and welfare. Therefore, a financial inclusion policy that addresses the delivery channel of rural finance is likely to generate greater benefits.
  14. 14. Conclusion Policy focus on growth & poverty reduction through transformation is appropriate Agro-processing and value addition can facilitate this process Cluster-based strategy must be shown as an effective tool to achieve ends But such policy can only be validated through strong M&E and IE strategy in place Monitoring must be highly focused, well-defined, and systematic Monitoring (M&E) easier and less expensive than carrying out impact evaluation (IE) Yet selective IE necessary for judging whether and how such interventions matter, and how they matter IE requires planning and resource allocation for better use of resources.

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