Identify and explain the major challenges of development (the major 2022

cause under development)in Ethiopia

Contents
1. Introduction.........................................................................................................................................2
1.2 Development Challenges...................................................................................................................3
1.3 What are some key economic challenges facing Ethiopia?................................................................4
2. Conclusion...........................................................................................................................................6
3. REFERENCES........................................................................................................................................7

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Identify and explain the major challenges of development (the major 2022
cause under development)in Ethiopia

1. Introduction
Ethiopia’s location gives it a strategic position as a jumping off point in the Horn of Africa, close
to the Middle East and its markets. Ethiopia is landlocked, bordering Eritrea, Somalia, Kenya,
South Sudan, and Sudan, and has been using neighboring Djibouti's main port for the last two
decades for its international trade. However, with the recent peace agreement with Eritrea,
Ethiopia is set to resume accessing the Eritrean ports of Assab and Massawa, as well.
Furthermore, the country is exploring additional options  including Berbera, Port Sudan, and
Lamu, as well as the possibility of developing, the southern corridor to Djibouti via Dewele
(150km shorter than the northern route), .

With about 115 million people (2020), Ethiopia is the second most populous nation in Africa
after Nigeria, and still the fastest growing economy in the region, with 6.3 percent growth in
FY2020/21. However, it is also one of the poorest, with a per capita gross national income of
$890. Ethiopia aims to reach lower-middle-income status by 2025.

Over the past 15 years, Ethiopia’s economy has been among the fastest growing  in the world (at
an average of 9.5 percent per year). Among other factors, growth was led by capital
accumulation, in particular through public infrastructure investments. Ethiopia’s real gross
domestic product (GDP) growth slowed down in FY2019/20 and further in FY2020/21 due to
COVID-19, with growth in industry and services easing to single digits. However, agriculture,
where over 70 percent of the population are employed, was not significantly affected by the
COVID-19 pandemic and its contribution to growth slightly improved in FY2020/21 compared
to the previous year.

The consistently high economic growth over the last decade resulted in positive trends in poverty
reduction in both urban and rural areas. The share of the population living below the national
poverty line decreased from 30 percent in 2011 to 24 percent in 2016 and human development
indicators improved as well over time. However, gains are modest when compared to other
countries that saw fast growth, and inequality has increased in recent years.

The government has launched a new 10-Year Development Plan, based on the 2019 Home-
Grown Economic Reform Agenda, which will run from 2020/21 to 2029/30. The plan aims to

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Identify and explain the major challenges of development (the major 2022
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sustain the remarkable growth achieved under the Growth and Transformation Plans of the
previous decade, while facilitating the shift towards a more private-sector-driven economy. It
also aims to foster efficiency and introduce competition in key growth-enabling sectors (energy,
logistics, and telecom), improve the business climate, and address macroeconomic imbalances.

1.2 Development Challenges

Ethiopia’s main challenges are continuing its positive economic growth on a sustainable basis
and accelerating poverty reduction — which both require significant progress in job creation, as
well as improved governance, to ensure that growth is equitable across the society. The
government is devoting a high share of its budget to pro-poor programs and investments. Large-
scale donor support will continue to provide a vital contribution in the near term to finance the
cost of pro-poor programs. Key challenges are related to:

 Like the rest of the world, Ethiopia has been experiencing the unprecedented social and
economic impact of the COVID-19 pandemic. While exports and foreign direct
investment have rebounded in 2020/21 and jobs have been recovering, some lasting scars
are likely to remain. Urban employment levels have not recovered fully, some households
and firms continue to report income losses, and poverty is estimated to have increased.

 Frequent severe weather events alongside long-term impacts of climate change

undermine agriculture and pastoral livelihoods as well as food security.  The 2022
drought is the worst in forty years, severely affecting 7 million persons in southern and
eastern parts of the country.

 The incidence of conflict has increased, particularly in the North since November 2020,
leading to substantial impacts on lives, livelihoods, and infrastructure.

 Ethiopia’s Human Development Index is at a low 0.38 which means that a child born in
Ethiopia today will be 38 percent as productive when s/he grows up as s/he could be if
s/he enjoyed complete education and full health. This is lower than the average for the
Sub-Saharan Africa region but slightly higher than the average for low-income countries.

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Identify and explain the major challenges of development (the major 2022
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Learning poverty stands at 90 percent and 37 percent of children under 5 years of age are
stunted.

 In 2020 Ethiopia experienced the worst locust invasion in decades and its effects
contribute to threatening the food security and livelihoods of millions of Ethiopians.

 Ethiopia has a fledgling private sector, whose growth and job-creation abilities have been
hindered by constraints in the business climate and competitiveness.

 The country’s growing workforce (at 2 million per year) puts pressure on absorption
capacity of the labor market, necessitates improving current jobs, while creating
sufficient new job

 Ethiopia’s main challenges are sustaining its positive economic growth and accelerating
poverty reduction, which both require significant progress in job creation, as well as
improved governance. The government is devoting a high share of its budget to pro-poor
programs and investments.
 Ethiopia is a country in conflict with its frequent natural disasters, thus making it even
more difficult to farm in the country. Droughts, overgrazing and deforestation have degraded
Ethiopia’s land over the years. It has made it difficult for the country to feed itself.

1.3 What are some key economic challenges facing Ethiopia?

Ethiopia is confronting three principal economic challenges

 its debt burden,

 foreign exchange woes stemming from poor sector performance, and
 a decline in remittances. The economic consequences of the pandemic appear to be more
protracted than health-related repercussions. This will reverse economic gains made in
the past few years, which have seen large segments of the Ethiopian population lifted
from poverty. The number of people living below the poverty line is now expected to
increase to 31 million people in fiscal year 2020-2021 from 26 million people in 2019-
2020.

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 Identify and explain the major challenges of development (the major 2022
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Ethiopia has a substantial amount of debt: external debt and domestic debt account
for approximately 30 percent and 27 percent of the GDP, respectively. Servicing external debt
was already a stretch for the government’s budget prior to the pandemic. The constraints on the
country’s balance sheet have been exacerbated in the last few months. Unless crushing debt
payments are delayed, the International Monetary Fund (IMF)’s emergency funding of $411
million and the World Bank’s $82.6 million are a drop in the bucket.

First, the country’s foreign exchange is weak and poses a significant near-term challenge to its
economy. Already, the exchange rate has fallen to 33.53 Birr/$1 at the end of April 2020,
representing a 15 to 17 percent depreciation from the same time last year, according to
conversations with the Ethiopian Ministry of Finance officials.

Second, the country’s foreign exchange status can be attributed to its poor-performing sectors,
particularly its national airline, agricultural exports, hospitality sector, and production targets

 How should the Ethiopian government and its partners address the economic crisis
stemming from the pandemic?

The Ethiopian government has responded swiftly and successfully in tackling both the health and
economic crises presented by the pandemic. This problem, however, is different from any the
country—or the world—has faced in recent times.

 Below are four steps the Ethiopian government and its partners can take to address some of
these issues.

 Widen social safety nets. Most African countries, including Ethiopia, do not have the fiscal
muscle to provide a social safety net for their citizens in the same way that developed countries
have been doing. While Ethiopia is providing food and shelter to protect the most vulnerable, the
government must further expand food assistance and social protection programs for its most
vulnerable populations. It has been encouraging to see the private sector and citizenry participate
in supporting those less fortunate in their communities.
 

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 Identify and explain the major challenges of development (the major 2022
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 Encourage private and public sector investment. While liquidity has been made available to
the banks, the impact of such measures can only be assessed in terms of their positive effects on
the businesses they were intended to reach.
 Accelerate Mobile Payment Reforms. The government has made some progress in the telecom
sector during the pandemic, particularly in digital payments. Recently proposed laws would
allow non-financial institutions into the financial services sector for the first time, including
telecommunications giant and state-controlled monopoly Ethio Telecom.
 Support International debt relief. There does not yet seem to be international political support
for an outright Highly Indebted Poor Countries (HIPIC)-like debt relief at the moment. Donor
governments such as Canada, China, France, the United Kingdom, the United States, and others
should support immediate debt moratorium for 2020 and 2021 so that countries like Ethiopia can
use their limited resources to expand social protection for their citizens.

2. Conclusion
Ethiopia has achieved some outstanding successes in recent years. Its impressive growth rates,
sustained over a decade, have been achieved without the oil and other mineral resources that
have driven growth in some other countries. High growth has Despite these successes, Ethiopia
remains a poor country with some serious challenges to meet. Food security remains a challenge,
particularly with the variable rainfall created by climate change, and agricultural productivity has
also remained at a relatively low level because of the lack of investment and the need to
modernise farming practices. While there have been some improvements to the businessenabling
environment and prospects for developing a dynamic industrial country are high, Ethiopia needs
to undertake additional measures to create many of the conditions for a competitive private
sector

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Identify and explain the major challenges of development (the major 2022
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3. REFERENCES
 North, D. C. (1990). Institutions, Institutional Change and Economic
performance .Cambridge: Cambridge University Press.
 Asefa, S. (2003). Developing Democratic Institutions in Ethiopia: The Challenge of
Building Enabling Enabling Institutions for Economic Growth and Development.
Northeast African Studies, New Series, 10, 67-113. Michigan State University Press.
Recuperado el 01 de 07 de 2019, de https://www.jstor.org/stable/41931366
 UN. (2016). Global Sustainable Development Report 2016. Department of Economic and
Social Affairs. New York: Department of Economic and Social Affairs.
 Israel, A. (1987). Institutional Development: Incentives to Performance (English).
Baltimore and London: The John Hopkins University Press.
Brooks, D. H., Hasa, R., Lee, J.-W., & Zhuang, H. H. (July de 2010). Closing
Development Gaps:Challenges and Policy Options. Economics Working Paper Series .
Manila: Asian Development Bank.
Luiz, J. M. (2009). Institutions and Economic Performance: Implications for African
Development. Journal of International Development, 21, 58-75. Muhula,
 R. (March de 2019). Pakistan @100: Governance and Institutions. Policy Note.
Washington DC: World Bank.

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