Feature Article Feature Article

Aid Effectiveness in Ethiopia

Introduction

 

Our country is one of Africa’s rising stars. Ethiopia has achieved outstanding growth rates for over a decade, making significant inroads into poverty. With a clear national development vision, the country is making major efforts to overcome its development challenges and achieve its vision of reaching middle-income status by 2025.

 

International development partners namely the World Bank, the African Development Bank and some other bilateral and multilateral partners have been a reliable partner of Ethiopia for over half a century.For instance, Ethiopia is one of the largest recipients of African Development Fund resources, with an active portfolio of $1.7 billion at the end of 2014 (AfDB, 2015). Ethiopia’s strong economic growth provides an excellent platform for tackling the country’s many development challenges. Its public investment program is equal to one-third of its GDP, well above the regional average. Pro-poor budgets and investments have helped to ensure that growth is inclusive: millions of Ethiopians have been lifted out of poverty over the past ten years. Ethiopia has also done well in creating employment. A rapidly growing middle class offers an increasingly attractive market for goods and services, bringing further growth prospects.

 

In the first Growth and Transformation Plan 2010–2015,Ethiopia recognized the importance of structural transformation and the need to accelerate the transition to modern agricultural practices. Shifting more of the workforce into agro-processing and other light manufacturing is key to linking Ethiopia into global value chains and creating lasting prosperity. In the area of infrastructure, it will be important to continue the high rate of investment, especially to encourage private sector development and provide spatial inclusion to the rural population.

 

The development partners have been working to support Ethiopia’s development plans. The bulk of the supports go towards developing infrastructure, namely road construction,agricultural productivity, improving basic services, electricity and transport, with a focus on improving citizens’ life. The partnersare working closely with the Ethiopian Government to promote inclusive growth by boosting the accessibility and quality of local services, creating a supportive environment for the private sector and promoting the sustainable management of the country’s ecosystems.

 

Finance for Development

 

Ethiopia stands out as one of the continent’s strongest performers. A clear national development vision, combined with strongly pro-poor budgets and investments, has helped Ethiopia make major inroads into poverty. Moreover, Ethiopia is one of the fastest growing economies in the world, averaging 10% growth over the past decade. Even with high population growth, the country’s per capita income has tripled over the last ten years. This strong economic performance has provided the Ethiopian Government with a platform for pursuing its national development agenda. The country’s public investments were equivalent to one-third of the GDP.

 

Ethiopia’s investment has a strong pro-poor focus, emphasizing infrastructure and agriculture. This has helped to ensure that growth is inclusive, benefiting both urban and rural communities. As a result, over the past ten years millions of people have been lifted out of poverty, and the proportion of Ethiopians living below the poverty line has fallen steadily. In addition, Ethiopia reduced unemployment to a lower level, helping to create a vibrant middle class that is an increasingly attractive market for goods and services.

 

These achievements are all the more remarkable, given Ethiopia’s many development challenges. Ethiopia lacks the mineral resources that have driven growth in many other African countries. It remains heavily dependent on rain-fed agriculture, and adverse weather still brings serious problems of food insecurity. The Government has prioritized helping farmers move from subsistence to commercial farming through a wide range of measures, as part of its goal of achieving middle-income country status by 2025.

 

One of Ethiopia’s central priorities is infrastructure development. The road density has doubled over the past tenyears, improving connections across the country and in the region. The trunk road network is in relatively good condition. Renewableenergy is an important driver of growth. Almost all of Ethiopia’s electricity comes from hydropower, and its generation capacity has tripled since 2005. This has translated into dramatic benefits for the population. Access to clean water is also higher than the regional average.

 

In the social service fields, there have been major efforts to improve the coverage of health services across the country. Infant mortality is steadily declining, and life expectancy is on the rise. Devoting an impressive amount of its public expenditure to education, Ethiopia has succeeded in raising the primary completion rate over the past tenyears. It has made progress in promoting the education of girls,although literacy rates for women still lag behind those of men. The Ethiopian Government is working hard to raise the quality of teaching and learning. With nearly three quarters of Ethiopians under 30 years of age, youth unemployment remains a very serious challenge. The Government is increasing its investment in technical and vocational training, to help prepare young people for work.

 

The Development partners’ contribution

 

From development finance effectiveness point of view, bilateral and multilateral development partners including the World Bank, Africa development Bank and European Union played significant role in the development of Ethiopia. When we look at the development finance from the AfDB (Africa Development Bank) perspective in the past 40 years, the Bank has been one of the leading providers of development finance in support of Ethiopia’s national development agenda, with 118 projects at a total value of $4 billion (AfDB, 2015). The lion’s share of the support goes into infrastructure, particularly electricity supply, water and sanitation and transport, including regional connections. The Bankalso has projects in the agriculture sector and in governance, as well as a number of multisector interventions.The support is closely aligned with Ethiopia’s national development strategies.

 

As per a founding member of the World Bank, Ethiopia has a long standing partnership and cooperation with the World Bank Groups since 1945. Ethiopia became the founding member of the International Bank for Reconstruction and Development (IBRD) in 1945. Ethiopia was the first African Country to receive funding from the World Bank in 1950. The first two funding for Ethiopia were a US$ 5 million credit for rehabilitation and maintenance of roads and a US$ 2 million credit for the establishment of a Development Bank (World Bank, 2014).

 

Therefore, starting from this time, Ethiopia received development aid and loan from International Financial Corporation, International Development Association, and other multilateral financial institutions. Since then, the economic cooperation and development partnership between the two parties has been increasing in depth and width in major economic sectors such as in infrastructure, agricultural development, and basic services just to name a few of the main areas of cooperation. (A Brief History of Ministry of Finance, 1984.Unpublished).

 

When we look at the Africa Development Bank (AfDB) performance, the bank’s investments have made a substantial contribution to expanding Ethiopia’s road infrastructure. Over the past ten years, the Bank has built or rehabilitated 389 km of roads, while helping to create the institutional capacity to maintain them. Major investments included the Wach-Maji road upgrade and improvements to the road between Butajira and Sodo. The investments have provided farmers and businesses with year-round access to inputs and markets, bringing more economic activity into rural Ethiopia. The Bank is also contributing to constructing or rehabilitating 345 km of cross-border roads, helping to improve Ethiopia’s connections to regional markets and to the port at Mombasa. Overall, AfDB helped to provide over 7.5 million people with improved access to transport (Ibid).

 

In a report (World Bank, 2014) to assess the year 2013-16 Country Partnership Strategy (CPS) the World Bank asserted how the Country Partnership Strategy goes in line with the poverty focused strategy of the Government in the following quotation:- “WBG country strategy is well aligned with these ongoing drivers of poverty reduction: 46% of commitments are focused on agricultural growth and helping the poorest meet their basic needs, and a further 38% in dimensions that make such spending more effective (increasing the capacity of GoE to provide basic services and creating an enabling environment for growth)”.

 

The World Bank is one of the major development partners for Ethiopia, and the Bank has been instrumental in mobilizing large amount of resources in support of Ethiopia's GTP I. The Bank's support went to finance infrastructure, social services, agriculture, urban development, tourism, and job creation.

 

From infrastructural point of view, the Africa Development bankalso has made a substantial contribution to Ethiopia’s impressive results on electrification. The development finance has provided nearly 40,000 people with electricity connections. Another 140,000 people are expected to benefit in the coming years from the Bank’s ongoing energy projects. The Bank supported the development of the East Africa regional power pool, which enables the countries of the region to trade power and achieve substantial cost savings. Itfinanced a 283 km high-voltage transmission line between Ethiopia and Djibouti, providing Djibouti with cheaper, renewable electricity and generating revenues for Ethiopia’s electrification program. Moreover, the bankinvested in a 1045 km transmission line between Ethiopia and Kenya, with substantial economic benefit to both countries (AfDB, 2015).

 

AfDB’s support for national water and sanitation programs has made a major contribution to health outcomes, while reducing the heavy burden on rural communities – especially women – of fetching water. Since 2005, the bank has achieved the target of providing improved water and sanitation to 250,000 people in Ethiopia. It built piped water systems for Harar and four neighboring towns and helped to build the institutional capacity required to operate and maintain them. In rural areas, the bank has rehabilitated water supply, built latrines for schools and health centers and promoted better hygiene practices. The Bank has made a particular effort to engage Ethiopian women in the management of community water supply, which helps to promote sustainability. Over the next three years, the Bank expects to provide 1.9 million people with access to improved water supply services (AfDB, 2015).

 

Among the development partners EU (European Union) is worth to be mentioned. The cooperation between Ethiopia and the European Union has been a long standing collaboration that covers almost four decades before it reached such a magnitude that could be estimated in hundred million Euros development assistance.

The cooperation between the two parties has been wideningsince the signing of Lome I in 1975. Thus, they have been development partners for 40 years. Ethiopia is one of Africa, Caribbean and Pacific (ACP) member countries that benefited from European Union development assistance under the Lome Convention and the Cotonou Partnership Agreement. The cooperation between the two parties have grown from protocol to protocol in scope and coverage enabling the country to implement tremendous programs and projects which contributed to the improvement of the lives of significant number of our people. 

 

Ethiopian performance in implementing European Union Development Fund (EDF) has been promising and on the right track. Due to this track record in the previous EDFs, Ethiopia secured 745 million Euros an indicative allocation of the development assistance resource availed by EU in the 11th EDF which runs from 2014-2020.

The European Union is one of the major donor partners of Ethiopia that contributes for about 230 million Euros a year, representing 10% of the total annual Official Development Aid received by Ethiopia. Jointly with the EU Member States support, the European Union makes available around 34% of the total aid assistance, which makes on the average 800 million Euros, to Ethiopia.

 

The 11th EDF (European Union Development Fund) National Indicative Program (NIP) which covers 2014-2020 is aligned to the broad objective of Growth and Transformation Plan (GTP) and   the Climate Resilient and Green Economy (CRGE) strategy. Moreover, it deals with the specific objectives of sector plans in the focal areas of cooperation. This National Indicative Program constitutes the response of the EU to Ethiopia's medium term development vision outlined in the GTP, and is aligned to its broad objectives. It takes into account the long-term vision of Ethiopia and the continuity of its development policies.

Taking into account the GTP priorities and the medium-term development objectives of the Government, as well as the priorities driven from the EUs “Agenda for Change”, the three focal sectors are Sustainable Agriculture and Food Security, Health and Roads and Transition to Energy.

 

The development partners have contributed budget support toEthiopia’s decentralized service program, helping to meet the salary costs of teachers, health workers and other frontline service providers. The program has a strong pro-poor focus and has been a major contributor to Ethiopia’s impressive progress on the Millennium Development Goals. They have also contributed to better budgetary management at the local level, including increasing transparency and giving citizens greater say in local services.

 

The partners have supported successful private sector projects in Ethiopia. For instance, AfDB’s strategic investment in the cement industry helped to lower costs for the construction sector, promoting more foreign and domestic investment; and the investment in Ethiopian Airlines helped it to sustain its strong performance and become one of Africa’s top three international carriers. They also provided financial services to the many Ethiopians who run small and micro businesses. Their microfinance, which is supported by training in skills and business management, has benefited nearly 2 million people.

 

In conclusion, with 80% of Ethiopia’s workforce engaged in agriculture, mostly rain-fed, the development partners focused on agricultural development support on improving water-harvesting techniques, small-scale irrigation and the management of local ecosystems. Though the achievements fell somewhat short of their targets, theypromoted improved water management and reforestation. In a joint initiative with the African Union Commission to boost livestock production, Especially, AfDB developed programs to eliminate tsetse fly from areas in six African countries, including Ethiopia.

 

 

 

 

Conclusion

 

The Ethiopian government and the development partners will continue to work closely to transfer the country in to the next level. The development partner’seffort in Ethiopia over the past years has given them a strong foundation on which to build in the coming years. The government hopes the development partner’s priority continues to be helping Ethiopia to close its infrastructure gap and pursue regional integration. Moreover, they are expectedto support agriculture, basic services and the business environment.

 

The Ethiopian Government and thedevelopment partners also work together to ensure the structural transformation of Ethiopia with well aligned and coordinated performance to the country’s national plans to overcome some major challenges to achieve the structural transformation required for deep and lasting inroads into poverty. Thus, with the support of development finance, Ethiopia is ready to attain structuraltransformation and achieve its vision of middle-income country status by 2025.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References

  1. Country Development Effectiveness Review, African Development Bank Group (AfDB), 2015.
  2. Eu-Ethiopia Cooperation, Developing Ethiopia Together, 2013, Addis Ababa.
  3. A Brief History of Ministry of Finance, 1984. Unpublished, MoFED.
  4. Ethiopia and the World Bank – Over half a century of partnership towards sustainable development - 2014, The World Bank, Ethiopia.
  5. Country Partnership Strategy for the Federal Democratic Republic of Ethiopia (2013-2016), Report No. 71884.ET, August, 2012.
  6. Country Partnership Strategy Progress Report (FY2012-FY2016), Report No. 90893.ET, October, 2014.
  7. Ethiopia’s Great Run – The Growth Acceleration and How to Pace It, Report No. 99399.ET. November, 2015. The World Bank Group.
  8. www.afdb.org