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.

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. 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?
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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
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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
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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. 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?
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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
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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. 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. 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. 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. 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. 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. 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.