Economic Development Project Ethiopia

Table of Contents:

Geography of Ethiopia………………………………………………..1

Social and Economic Indicators……...….…………………………....1

Dependency Ratio……………………………………………….........2

Income Distribution……………………………………………….......2

Development Data Analysis.................…………………………….....3

Obstacles to Economic Development………………………………....6

Resources and Potential…………………………………………….....8

Formal Proposal……………………………………………………….9
Geography of Ethiopia

Ethiopia is in the continent of Africa, which covers 1,000,000 square kilometers of

land and 104,300 square kilometers of water, making it the 27th largest nation in
the world with a total area of 1,104,300 square kilometers.
Ethiopia is located in the Horn of Africa. It is bordered by Eritrea to the north,
Djibouti and Somalia to the east, Sudan and South Sudan to the west, and Kenya to
the south.
Source: http://www.worldatlas.com/af/et/where-is-ethiopia.html

Social Indicators of Development

Human Development Index (HDI): 0.448, ranked 174 out of 188 countries.
Population Growth Rate: 2.5%.
School Life Expectancy: 8.4 years, average number years of students studying in
schools.
Life Expectancy at birth: 64.6 years, average Ethiopian lifetime
Total Fertility Rate: 4.28 births per woman.
Government Expenditure on Education: 4.5% of GDP
Sources: http://hdr.undp.org/en/countries/profiles/ETH,
https://data.worldbank.org/,
https://www.cia.gov/library/publications/the-world-factbook/

Economic Indicators of Development

GDP per capita: 706.76 USD

GDP per capita (PPP Adjusted): 1530 USD
GDP from Agriculture: 41.9% of whole economy
GDP from Manufacturing: 15.3% of whole economy
GDP from Services and other activities: 42.8% of whole economy
Unemployment rate: 16.8%, ranked 175th in the world.
Public Debt: 60.3%
Foreign direct investment: 3.5%
Labor force in agriculture: 72.7%
Labor force in industry: 7.4%
Labor force in services: 19.9%
Sources: http://hdr.undp.org/en/countries/profiles/ETH,
https://data.worldbank.org/,
https://www.cia.gov/library/publications/the-world-factbook/

Dependency Ratio
A nation’s dependency ratio is an age-population ratio of those who are not in the
labor force (between 15 and 64) to the people who are in the labor force (between
15 and 64). When the dependency ratio of a country is low, it means the ability of
its workers to have savings increases. Those savings then lead to investment,
higher income, greater productivity, and more economic development. Ethiopia’s
dependency ratio is 80.5%. This means that 80.5% of our population is dependent
on 19.5% who are workers.

Income Distribution

Income Distribution is how the nation’s Total GDP is divided among its
population. On the Lorenz curve, we can observe the total income is divided
between different sectors of people with different incomes.

Income Distribution in Ethiopia

Percentage of income First 20% Second 20% Third 20% Fourth 20% Last 20%

Percentage of employment 8.03% 20.64% 36.98% 68.32% 100%

Source: https://www.indexmundi.com/facts/ethiopia/income-distribution
Gini Coefficient: 0.497

Development Data Analysis

Population growth rate: Countries with higher than 1-1.5% per year population
growth rate is considered as high rates. Considering this information, Ethiopia has
2.5% population growth rate according to world bank. This number is a very high
number comparing to other countries. Ethiopia’s population rate leads to having
more than 200 million people in the country until the year of 2045. Essentially,
there will be not enough resources to fully support everyone in the country.

Dependency burdens: Developed countries’ dependency ratio is considered as

50% where half of the population is working and half doesn’t. Number higher than
that means there are some poverty happening in the country. Ethiopia has 80.5%
dependency ratio. This is high number and leads to poverty trap due to people not
having enough money for savings. Savings lead to investment, greater
productivity, accumulation of capital etc. The lower the savings the worse.
Unemployment rate: Developed countries have unemployment rate of 5-10% and
above that is high. Ethiopia has 16.8% unemployment rate, which is almost twice
as more than average. More unemployment means more people not working which
leads to fall in consumption and leading to decrease in economic growth.
Source: http://hdr.undp.org/en/countries/profiles/ETH

Agricultural Production: Developed countries have between 0-10% of their GDP

consisting of Agricultural Production. Taking this as average, above 10% means
high dependence of agricultural production. Ethiopia has 41.9% of their GDP
depending of Agricultural Production meaning that their GDP partially depends on
weather and crops. It’s risky and everything can happen, every loss in crop
production is decreasing GDP. The Ethiopian economy is heavily dependent on the
trade of its primary products. Among the country's limited tradable goods, coffee
alone generates about 60 percent of Ethiopia's total export earnings.
Source: http://hdr.undp.org/en/countries/profiles/ETH

Imperfect Markets: Corruption perceptions index are showing the amount of

corruption in the country. It is scaled from 0-100 and close to 100 being less
corrupt; close to 0 being more corrupt. While developed countries have corruption
perceptions index above 70, Ethiopia has 34. This number is very high and it
affects economy in a negative way.
Source: https://www.transparency.org/

Dependency on foreign developed countries: In November 2007, the magazine

The Economist reported that there was evidence that the foreign aid given to
Ethiopia reaches the people it is meant to, based on a visit to the south of the
country. Roads, schools and water systems are being built and there are few
complaints about corruption. The money that Ethiopia is getting from aid is not
going to only some people’s pockets. It is used for infrastructure and capital and
only good for people.
Source: Edmond J. Keller, Revolutionary Ethiopia: From Empire to People's
Republic

Every country has its income poverty line, as in Germany it is 30$ a day, and its
population living below the income poverty line is 16.3%. Whereas income
poverty line in Ethiopia is 1,90$. With this condition, the population living below
the poverty line in Ethiopia is 33,5%. On top of that, as the poor sector of income
is having 3,10$ per day, 75,3% of population living in poor conditions. Because of
that, the Multidimensional Poverty Index (MPI) equals to 0,54. Which is very
bad, compare to other countries, like China, where the MPI is equals to 0,023.
Source: http://hdr.undp.org/en/countries/profiles/ETH

There is also a problem with inequality in Ethiopia. As there is most of the

households are men, which is 75%. There is also a minority of women in the
Ethiopian parliament. There are only 38.8% of women in government. Another
problem that proves a huge gap in inequality, is the Gross National Income for
each gender. Obviously male has more GNI per capita, which is 1,886$, than
female, which has only 1,161$.
Source: http://hdr.undp.org/en/countries/profiles/ETH

Another huge problem in Ethiopia, is the education. Government can only provide
very little money on education, as children are most likely to work in the primary
sector, where they will not need for too much information. The Government
expenditure on Education is 4,5% of GDP, which is low compared to more
developed countries like China. There is also a big problem with student-teacher
ratio, as there are 65 students in Ethiopia per one teacher. Therefore, it is hard to
study proper lessons in schools. The average schooling years for male is 8,8 years
and for female is 7,9 years.
Source: http://hdr.undp.org/en/countries/profiles/ETH

Another major problem in Ethiopia is a health of the population. Only 2,9% of

GDP goes to public health expenditure. Statistics show, that every 16 children in
Ethiopia dies, at the moments of birth. It is very shocking number, which shows
how at which level health in this country is.
Source: http://hdr.undp.org/en/countries/profiles/ETH

Productivity in Ethiopia is very low. There is only less than 10 dollars of value
created per hour.
Obstacles to Economic Development
Domestic Obstacles
Development of a country starts from the education. Education is base of
everything and if it is lacking the country will face serious problems in
development; such in Ethiopia.
According to the research, Ethiopia’s literacy rate in 2015 was 49.1% which means
nearly half of the population don’t know how to read and write. This is very poor
result compared to most of the African countries. Education also affects on levels
of health as there will be more skilled doctors. Still, only 4.5% of Ethiopia’s GDP
is spent on education.
Source: http://hdr.undp.org/en/countries/profiles/ETH

Health care is another huge part of development and combined with greater
education opportunities it will have an enormous impact on economic
development. If we go through Ethiopia’s health care statistics we can observe that
life expectancy at birth is 64.6 years and infant mortality rate is 41.4 which are
poor results.
Source: http://hdr.undp.org/en/countries/profiles/ETH

Infrastructure is an obvious reason why it affects development as with better roads

and better public transport allow children to go to school, adults to go work and
potential consumers to go to markets and shops. Developed internet and television
network creates wider community and makes people to link up with each other.
Internet users in Ethiopia consists of only 11.6% of the population which is a poor
result comparing to developed countries.
Source: http://hdr.undp.org/en/countries/profiles/ETH

In a country five times as large as the UK, but without an extensive rail network,
road transportation in Ethiopia is paramount.
Countries that have political stability are more likely to attract foreign investors
and domestic savings which will then lead to development in economy. However,
in Ethiopia, on 5th of August 2016 protests broke out across the country and
dozens of protesters were shot and killed by police over the following days. The
protesters demanded an end to human rights abuses, the release of political
prisoners, a fairer redistribution of the wealth generated by over a decade of
economic growth.
Source: http://www.agri-learning-ethiopia.org/wp-
content/uploads/2016/06/AKLDP-El-Nino-Review-March-2016.pdf

There are high levels of corruption in Ethiopia. Examples of corruption include

facilitation payments and bribes being necessary to keep land leased from the state
or in order to obtain government contracts.
One of biggest problems in economic development is that foreign banks are not
permitted to provide financial services in Ethiopia and the market is closed to
foreign retail banks.
Source: https://www.export.gov/article?id=Ethiopia-Banking-Systems

Higher income tax level of taxation is 35% which is high comparing to developed
countries and this is one of the main reasons why the people don’t have enough
money for savings. Which then leads to consumption and investment and it causes
the development in economy.
Source: https://addisbiz.com/ethiopian-business-news/325-new-tax-rate-in-
ethiopia-employment-salary-business-building-rental-tax-rate-revision-in-ethiopia

There is no doubt that giving women more empowerment especially in terms of

education, will lead to an economic development. In LDC countries like Ethiopia
women are mainly not educated and the statistics from UNDP website proves it.
Female mean years of schooling is only 1.6 and unemployment rate female to male
is 2.7. These results are very low compared to many other countries.
Source: http://hdr.undp.org/en/countries/profiles/ETH

International Obstacles
Ethiopia’s economy mainly depends on the export of agricultural products and
almost nothing else. Therefore, a decrease in the price of these products will show
negative effect upon Ethiopia’s economy. And as 72.7% of all employed people
are working in the Agricultural sector, it will cause even bigger damage to them. It
will possibly also cause an increase in an unemployment sector.
Most of the Economy of Ethiopia is based and depend on agriculture and primary
products. Agriculture contains almost the half of the GDP of the country, 42%.
However, one of the main primary product in Ethiopia is, of course, is the coffee.
If demand for this product will fall, and the decrease in price will not change
anything, the country will lose its main revenue from its export.
Ethiopia is also having a problem with accessing the international markets because
of the transportations. Not having the full access to the sea and poor transportation
level, causes the decrease in the competitiveness compare to other countries. Along
with that, Ethiopia is a poor country, therefore, they have poor technological level.
This causes the lower quality of the products, which is also barrier for better access
to international markets.
Ethiopia is not having too many planes for a long-term change in term of trade.
One of the only ones, happened in 2012, when Ethiopia’s government decided to
change the exchange rate, which increase the export performance in the next few
years.
Source: https://ethiopiaadevelopingnation.weebly.com/part-2-barriers.html

Resources and Potential

Ethiopia has a favorable climate, comparatively abundant land and labor as well as
reasonably good water resources, that created ample opportunities for horticulture
and floriculture production. The agro-ecological factors of the country give the
chances of all-year-round production capability.
The country has 122 billion cubic meter surface water, 2.6 billion cubic meter
ground water, 12 river basins, 18 natural lakes including the Rift Valley lakes and
a potential of 3.7 million hectares irrigable land. About 80-90 percent of these
resources are in the west and south-west of the country where close to 40 percent
of the Ethiopian population lives and 10-20 percent of these resources are in the
east and central part where most of the population has settled.
Despite the enormous potential of the country, foreign currency earning from the
horticultural sub-sector is still at a lower stage, but the trend is positive. The
growth of the export level came amid intensified efforts of the government to boost
the export of agricultural products of the country.
Ethiopia is strategically located in the Horn of Africa, at the crossroads between
Africa, the Middle East and Europe. It is situated within easy reach of the Horn’s
major ports which connects it with the Middle East and Europe, which are
Ethiopia’s traditional markets for its export products. Ethiopia’s geographical
proximity to Europe and the Middle East, has a direct implication to its floriculture
export as the major players in the global market are found in these areas.
Our economy is developing slow when we have resources such as gold, platinum,
copper, potash and natural gas. With these resources, we could increase regional
economic development as well. We also have potential extensive hydropower. If
we can get enough financial aid, we could use these expensive resources for the
benefits of our country. Having enough hydropower for everyone would mean that
families will get better chances to have electricity. Having hydropowers will also
mean that there will be some people working in there which means the
unemployment of the country will decrease. Exporting such expensive resources
will improve the life quality of the country.
One of Ethiopia comparative advantages is its leather products. it is one of the
leading leather exporter in the world. Its notable clients include Calvin Klein and
Guess. If we get enough aid, we can export our own resources and create factories
which will again create a lot of jobs for the society. This would mean families will
have enough money to support themselves and give education to their children.
Female education in Ethiopia is also high comparing to other African countries.
Not enough schools and infrastructure is preventing our children to study. Ethiopia
also has extensive network of free trade agreements, enabling companies registered
in Ethiopia to have a wide market access and to trade duty free and/or quota free.

Formal Proposal

Dams
For the past years, Ethiopia’s economy has been one of the fastest-growing,
averaging an 11 percent increase in GDP each year. Ethiopia is becoming a center
of industry and infrastructure, with the goal to achieve middle-income status by
2025. Since 2011, Ethiopia has implemented the Climate-Resilient Green
Economy (CRGE) strategy, in which clean energy sources like hydropower, wind,
geothermal, solar and biomass, are substituting fossil fuels. In addition, these
energy sources are implemented in the transport and industrial sectors. Ethiopia
has most of the richest water resources in Africa, divided across eight major basins
with hydropower potential of 45,000 MW. However, the only problem that
Ethiopia has is a lack money. With your aid, we can use these potentials to the
benefits of our society. We will use the energy to provide electricity to families, for
schools and for jobs. Due to having enough electricity in the country the education
and employment will increase leading to economic development. We want to build
a hydroelectric dam in where the river Shibeli flows to the city of Awash, in the
region of Afar where there is lack of electricity. This town has lack of education
levels and poor living standards. Electricity in this area will encourage population
more as they will have light to study and work under. This dam will take about
150,000 km2 of land built with Roller-compacted concrete which will cost about
15 billion$. The price is high due to their huge construction costs, and because
their non–power components such as irrigation. These factors would require large
subsidies from power revenues and would divert water from being turbined for
electricity generation. Roller-compacted concrete (RCC) is a special mixture of
concrete that has essentially the same ingredients as normal concrete but in
different ratios. It will take about 6 years to finish building the dam. The first 2
years of work will include finding all the equipment, choosing a correct area, then
cleaning that area for our dam. The first year will cost around 2billion$ as there
will be needed a lot of huge machinery work to cut down any obstacles for the dam
itself. The next 2 years will be spent on building the fundament of the dam and
starting to link it with electrical generators to create electricity. This process will
cost about 5 billion$ which mainly will go to setting up the electricity to the city
and connecting it to the dam itself. Last 2 years will go to building the whole dam,
then checking whole process again which will cost roughly about 8 billion$. The
volume of the dam will be about 10,000,000 m3. Surface area of the dam will be
about 1500 km2. Our goal is to increase education level in Ethiopia which will lead
to having more skilled and developed population.

Reservoirs
As we have already mentioned almost half of Ethiopia’s economy is dependent on
agriculture, which means that extreme weather conditions can affect the economy.
Example to such conditions can be no rain for weeks - drought. We cannot
intervene with weather and change it but we can be prepared for it. In the situation
of drought, which Ethiopia is experiencing as one of the highest in Africa, we can
prevent the consequences of it damaging the economy. Creating water reserves
will help farmers to water the products even without rain. Due to Ethiopia having a
lot of water supplies in various rivers and lakes, it will not be that hard to create
water basins and reserves. We want to build a reservoir for the times when there is
no rain. To create such a reservoir, we need big supply of river basin, in our case
we will take Blue Nile near to the point where it meets the city called Bahir Dar.
Blue Nile is a great place to build reservoir as it has 325,000 km2 of basin size. To
build a reservoir we need at least 2km3 of free land, and the budget of 500,000$
will be quite enough. It will take up to 2 years to build the reservoir and after that it
will be used for the benefits of society. Main part of the money will go to buying
concrete and cleaning the area for reservoir. We estimate that out of 500,000$,
300,000$ will be spent for buying the equipment and 200,000$ will be spent for
cleaning and polishing the area for reservoir. First year of work will go to buying
all the products needed for the project and start building the fundament. Second
year will go to building the reservoir itself and testing it couple of times. By having
these reservoirs, we will make sure that even at the times of drought our
agricultural sector will not stop and continue to crop. As the reservoir will be filled
with clean water, it might also be used as clean water storage. This will help the
poor in the country to have access to clean water, which will lead to development
in the economy. It will also increase the health care standards of the country.

Hospitals
More hospitals are essentials of having economic development as they increase
both health care levels and create jobs for people. We want to build several
hospitals across the country and one of them being in town called Koraro, where
there is no hospital in the entire village. It is a great place to build hospital due to
its lack in health standards. It has 55,000 residents and is in the north of Tigray
Region. The hospital will be located near to the center of the village and it will
have more than 200 workers inside it. Including nurses, doctors, technicians etc.
The whole project will cost about 1 million$ and will be done in 3 years. The
money will go to equipment in the hospital including beds, medicine and the
devices for patients. Money also includes salaries of workers for a year. First year
of work will be done to build fundament and order all the equipment. This will
take up to 200,000$. Second year will be spent for building the hospital itself with
4 floors which will cost about 500,000$. Third year will be for providing
electricity, clean water, food storage and finding the workers which overall will
cost around 300,000$. The benefits from building hospital in this area is huge as
people will start to work in the hospital which will decrease the unemployment
levels as well as increasing health standards. The project will increase life
expectancy rate and decrease infant mortality rate of the village.

Schools
As we know, Ethiopia is having a huge problem with the Education. Firstly, there
is an enormous ratio between the student and teacher. According to the UN data,
an average ratio is equals to 1:65, which is 6th worst ratio in the world. Just to
compare, the teacher to student ratio in Austria is 1:11. One of the solutions, is
creating trainings for teachers; they will increase the number of teachers in a
country. This will not cost as much money, as the next solution for the upcoming
problem.
Another big problem related to the Education in Ethiopia is that an average
schooling years. According to the same UN data, an average schooling years in
Ethiopia is equals to 8,4. Compare to the other countries, it is low. The reason for
that is a lack of schools in a country. The total number of public schools in
Ethiopia is 30. Most of them are in the capital city, Addis-Ababa. In fact, some
people want to get an education, but because there are no local schools to go, only
some of them can graduate only by moving to other cities. One solution for most of
the problems, is building more schools throughout the Ethiopia. People will get
motivated and an average schooling years will increase. Therefore, it increases the
number of educated people in the country. In addition, it will also solve another
problem, which is decrease in an unemployment level. The solution for this
problem requires a lot of money. To open just one public school in only one region
will take at least 30,000 US dollars, which will include equipment such as tables,
chairs, boards etc. It will also take 2 to 5 years to finish building it. There are 11
regions in Ethiopia, seven of them has a population over 3 million people. We
would like to increase the number of public schools up to the 100, by the 2020. 25
of them will be built in Oromia region, 15 in Amhara, and other 15 will be equally
divided by the rest of the regions. We will spend first half of the year on planning
and designing the main infrastructure and calculate the size of the classrooms. Next
half we be spent on setting basement, and ordering/manufacturing the equipment
for the classrooms, such as tables, chairs, blackboards etc. Ideally, in another 2
years school will be built and ready for opening.