State of Addis Ababa 2017 Report-Web

THE STATE OF
ADDIS ABABA
2017
THE ADDIS ABABA WE WANT
© United Nations Human Settlements Programme (UN-Habitat), 2017
All rights reserved
United Nations Human Settlements Programme (UN- Habitat)
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HS Number: HS/033/17E
ISBN Number (Series): 978-92-1-133397-8
ISBN Number (Volume): 978-92-1-132745-8
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Front cover photo: © Dereje /Shutterstock
DISCLAIMER
The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever
on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area, or of its authorities, or
concerning delimitation of its frontiers or boundaries, or regarding its economic system or degree of development. The analysis, conclusions
and recommendations of the report do not necessarily reflect the views of the United Nations Human Settlements Programme, the Governing
Council of the United Nations Human Settlements Programme or its Member States.
THE STATE OF
ADDIS ABABA
2017
THE ADDIS ABABA WE WANT
FOREWORD BY UN-HABITAT
I
t gives me great pleasure to introduce the State of Addis recommendations for building an Addis Ababa that can serve as
Ababa 2017 Report – the first of its kind to provide a an engine of prosperity, as well as a centre of cultural and social
comprehensive assessment of existing socio-economic and well-being, while protecting the environment.
environmental conditions in the city and to provide evidence- UN-Habitat, the leading UN programme on sustainable
based policy recommendations for achieving more sustainable urbanization with more than forty years of expertise and as a
pathways of development. focal point for sustainable urbanization and human settlements
The report is very timely, given Ethiopia’s ongoing rapid in collaboration with other United Nations entities, is committed
urbanization and the growing economic, social and spatial to support Ethiopia’s sustainable urban development process.
transformations of the last two decades. Both the federal
government and Addis Ababa’s city administration have made
significant progress in improving economic and social conditions
for residents of Addis Ababa. At the same time, challenges remain
for Addis Ababa to become a more inclusive, safe, resilient and
sustainable city in line with the Sustainable Development Goal
11. Notably, urbanization has caused increasing pressure on the
city’s capacity for affordable and adequate housing, employment,
and access to basic services, particularly for the most poor and
vulnerable. Addis Ababa will also face additional challenges in
facilitating access to housing and land, while ensuring that
social networks are not lost, and addressing the growing desire
of the citizens of Addis Ababa to participate in decision-making
processes.
These issues are explored in-depth in the report, which are
THE STATE OF ADDIS ABABA 2017
presented in the context of the New Urban Agenda, the outcome Dr. Joan Clos
document of Habitat III, and its avenues of implementation Under-Secretary General of the United Nations
by local authorities. It thereby provides tangible and practical Executive Director UN-Habitat
ii
FOREWORD BY THE ADDIS ABABA
CITY ADMINISTRATION
T
he African Union Agenda 2063 spells out the of Understanding between the City of Addis Ababa and UN-
aspirations to be a prosperous continent, with the Habitat who have agreed to collaborate in initiatives that make
means and resources to drive its own development, with the city prosperous and liveable –socially inclusive, economically
sustainable and long-term stewardship of its resources. Structural vibrant, environmentally sustainable and well managed.
transformation is a necessary condition to translate the region’s The report is a result of a commendable effort of UN-Habitat
recent impressive economic growth rates into inclusive and to undertake in-depth data collection and analysis that give an
sustainable development. The agenda’s realization is strongly overview of the current state of the city pertaining to spatial,
linked to the way urbanization is managed, as cities are hubs of socio-economic and environmental issues.
cultural and economic activities, and Africa is urbanizing rapidly, The city administration is determined to guide the growth
projected to becoming predominantly urban within the next of Addis Ababa towards a more sustainable path. I trust that
20 years. this report will provide both the information and inspiration
In Ethiopia, the recognition of the “urban” potential for needed to continue transforming Addis Ababa into a role model
economic transformation translated into the National Urban for managing the rapid urbanization to unlock its potential for
Development Policy of 2005, and further into the Second Growth structural transformation in Africa.
and Transformation plan (GTP II). GTP II aims to transform
Ethiopia into an industrialised middle-income country by 2025
and mainstreams the sustainable development goals (SDGs), while
pursuing the strategy of fostering the governance and management
of rapid urbanization to accelerate economic growth.
Urban development strategies such as increased investment
to improve urban infrastructure, housing development and
job creation through the engaging the youth demonstrate the
commitment of the city government to transform Addis Ababa
as a hub of innovation, economic production, and as a culturally

diverse and environmentally sustainable capital city.
I am therefore pleased to introduce the State of Addis Ababa Diriba Kuma
2017 report, which has been prepared under a Memorandum Mayor of Addis Ababa
iii
ACKNOWLEDGEMENTS
This report was prepared under the leadership of Dr. Mathias Spaliviero, Senior Human Settlement Officer at UN-Habitat. He was
assisted by Prof. Fantu Cheru, Senior Researcher, African Studies Centre, Leiden University, and Senior Advisor to the UN-Habitat
Ethiopia country office. The research team was composed of experts from social, economics, and urban environment backgrounds. The
core team that undertook the research and drafted the report comprised Dr. Meseret Kassahun, Assistant Professor, School of Social
Work, College of Social Science, Addis Ababa University; Dr. Belay File, Assistant Professor of Development Economics and Urban
Development Expert, Department of Development Economics, Ethiopian Civil Service University; Marjan Kloosterboer, M.Sc, PhD
Student at the University of Glasgow in Urban Studies; and Dr. Linda Zardo, Department of Civil, Environmental and Mechanical
Engineering, University of Trento, Italy. Aklilu Fikreselassie, Habitat Programme Manager Ethiopia at UN-Habitat, played a crucial
role in coordinating the research process and providing relevant contextual feedback.
UN-Habitat is grateful for the generous financial support provided by the Sweden Embassy in Ethiopia towards the field research
as well as in the final production of the State of Addis Ababa 2017 report. Similarly, UN-Habitat also acknowledges the tremendous
political and technical support received from the Addis Ababa City Administration throughout the process.
The report was reviewed and edited by Prof. Fantu Cheru and Dr. Joseph Maseland, Human Settlements Officer at UN-Habitat,
in close coordination with Katharina Rochell, International Consultant, Regional Office for Africa, UN-Habitat, who was also
responsible for proofreading and the overall coordination of the production of the report with the assistance of Jessica Mundia, Intern
in the Programme Division at UN-Habitat. Marcia Guambe, Urban Planning and Mapping Analyst at UN-Habitat in Mozambique,
was responsible for providing GIS support and producing maps for this report.
This study could not have been completed without the dedication and contribution of Ato Demissie Damite and Abebaw Getachew
who provided statistical support. The research team is further grateful for the research assistants Milki Getachew, Serawit Umar,
Bethelhem Aschalew and Saada Ali. UN-Habitat would like to thank Mr. Geo Kalev for the courtesy of providing his photographs to
illustrate this report.
The report also benefitted from the contribution of experts from the City Government of Addis Ababa Renewal Agency, the Addis
Ababa Bureau of Finance and Economic Development, as well as from the Ethiopian Institute of Architecture, Building Construction
and City Development, the Consortium of Christian Relief & Development Associations, Cordaid, as well as the Ethiopian Cities
Association.
Finally and importantly, the contribution of renewal induced relocatees and condominium housing unit owners was absolutely
crucial to this report.
iv
CONTENTS
Executive summary.......................................................................... 1 FIGURES
Introduction.................................................................................... 3 Figure 1: Growth rate of Addis Ababa............................................. 12
1 Addis Ababa’s evolution and governance structure.................. 6 Figure 2: Share of the key economic sectors, Addis Ababa,
1.1 The evolution of Addis Ababa until 1935................................... 7 2011-2015....................................................................... 19
1.2 Urban planning in Addis Ababa................................................. 8 Figure 3: Sectoral composition of urban employment..................... 19
1.3 Land and housing policy in Addis Ababa................................... 9 Figure 4: Per capita income trends over time................................... 20
1.4 Addis Ababa today: Population and Figure 5: High PCI growth scenario 2011-2025, in USD............... 21
demographic characteristics...................................................... 11 Figure 7: Modest PCI growth scenario, 2011-2025, in USD.......... 21
1.5 The governance structure of Addis Ababa................................. 13 Figure 6: Low PCI growth scenario 2011-2025, in USD................ 21
Figure 8: Various PCI scenarios for the city of Addis Ababa............ 21
2 The economic role of Addis Ababa....................................... 16 Figure 9: Addis Ababa’s employment by major
2.1 The economic role of Addis Ababa........................................... 17 occupational group.......................................................... 23
2.2 Addis Ababa city productivity.................................................. 18 Figure 10: Urban unemployment by major occupation..................... 23
2.3 Labour markets........................................................................ 22 Figure 11: Addis Ababa’s major occupation out of total
2.4 Municipal finance and land value capture................................. 27 employment by gender (2015)......................................... 23
2.5 Revenue structure and performance......................................... 28 Figure 12: Employed population by status in employment................ 24
2.6 Land value capture: challenges and opportunities..................... 33 Figure 13: Addis Ababa's unemployment trend................................. 24
2.7 Competitiveness and drivers of economic growth..................... 35 Figure 14: Share of major revenue sources......................................... 28
2.8 Foreign direct investment......................................................... 36 Figure 15: The share of municipal revenue during GTP period......... 30
2.9 Enabling business environment and city competitiveness......... 37 Figure 16: Addis Ababa city revenue per capita in ETB..................... 30
Figure 17: Share of various expenditure components in Addis Ababa in
3 Housing to the poor............................................................ 46 total expenditure............................................................... 31
3.1 Urban planning, land and housing policies under the EPRDF Figure 18: Share of municipality revenue to total expenditure .......... 31
since 1991................................................................................ 47 Figure 19: Per capita expenditure in ETB.......................................... 32
3.2 Housing affordability............................................................... 51 Figure 20: Recurrent vs. Capital expenditure (in ETB millions)........ 32
3.3 Affordability of mortgage ........................................................ 53 Figure 21: Proportion of MSE jobs created by major sectors,
3.4 Relocation, compensations, and the socio-economic 2011-2015 ...................................................................... 35
impacts of relocation................................................................ 54 Figure 22: Perception of housing affordability .................................. 51
3.5 Accessibility and affordability of basic services.......................... 60 Figure 23: Mortgage payment defaults ............................................. 52
3.6 The urban renewal program's socio-economic impacts on Figure 24: Main sources of housing finance ..................................... 54
relocatees ................................................................................. 65 Figure 25: Inner-city land expropriation by sub-city (hectare) .......... 55
Figure 26: Number of households evicted from 2009-2013
4 The urban environment........................................................ 72 by neighbourhood ........................................................... 55
4.1 Growth, resources and equitable well-being.............................. 73 Figure 27: Satisfaction on justification on relocation and
4.2 The city we want...................................................................... 78 compensation .................................................................. 56
4.3 Strategies and policies............................................................... 80 Figure 28: Number of households compensated ............................... 57
4.4 Basic services, environment and public health.......................... 82 Figure 29: Water service dependability ............................................. 61
4.5 Towards a climate resilient Addis Ababa................................... 86 Figure 30: Electric service dependability........................................... 61
4.6 Conclusions and future directions............................................ 87 Figure 31: Service satisfaction level ................................................. 64
Figure 32: Loss perceptions due to relocation ................................... 66
5 Conclusions, recommendations and way forward: Figure 33: Prior membership in social organizations......................... 68
the Addis Ababa we want..................................................... 90 Figure 34: Formal social support extended to relocatees.................... 69
5.1 Improve the urban economy and business environment........... 92 Figure 35: Land-cover Addis Ababa 1999......................................... 74
5.2 Improve regional planning ...................................................... 93 Figure 36: Land-cover Addis Ababa 2014......................................... 74
5.3 Increase access to housing......................................................... 94 Figure 37: Ecosystem services supply in Addis Ababa per sector ....... 75
5.4 Improve urban governance and basic services delivery.............. 95 Figure 38: Total ecosystem services supply in Addis Ababa................ 76
5.5 Tackle critical environmental issues and improve Figure 39: Ecosystem services supply and demand per subcity.......... 77
urban planning and design....................................................... 96 Figure 40: Examples of new ecosystems for the city .......................... 80
5.6 Conclusions............................................................................. 97 Figure 41: Inter-linkages between basic services and a
clean environment ........................................................... 83
Executive summary
T
he State of Addis Ababa 2017 report presents a critical recommended, hence avoiding the over-concentration of capital
assessment of the city’s historical, demographic and investment, businesses and population in Addis Ababa, by
urbanization processes vis-à-vis its current socio- establishing a system of cities composed of different important
economic and environmental conditions within the city’s dynamic urban centres and poles of attraction well-distributed across the
urban governance structure, system and practices. Specifically, country and inter-linked through development/transportation
the report sheds light on the impacts of Addis Ababa’s ongoing corridors. Both federal and regional governments are urged to
urbanization on its economic development, social services develop and implement national and regional spatial plans
delivery, access to affordable housing for the poor and the urban and support their implementation through well-coordinated
environment. It provides recommendations to enhance the city’s investments, and to establish a system of cities able to sustain
liveability, productivity, competitiveness and sustainability. the national territory, with the required services and factors of
This report is based on extensive research, including: attractiveness, providing valid alternatives to Addis Ababa’s
a. A survey involving 1,315 individuals out of which 323 current primacy.
former inner city residents relocated as part of a massive Over the past twenty years in particular, Addis Ababa has
urban renewal strategy and 992 condominium winners; experienced rapid economic development. Despite the efforts of
b. Interviews with key officials from the Addis Ababa city the federal government and the city administration to diversify
administration; and the economic base of the capital, the service sector remains
c. Secondary data from city government departments and dominant while the pace of manufacturing growth has remained
the Central Statistical Agency (CSA). slow though improving in the past five years. Although the city
The quantitative and qualitative data has been integrated with government has taken significant effort to enhance local economic
critically reviewed literature and is presented as a set of coherent development through micro and small enterprise (MSE)
and evidence-based findings. In the overall drafting process, cross- development, it has yet to demonstrate the potential of MSEs
comparison and triangulation by data source has been applied to in producing broad-based inclusive sustainable economic growth.
ensure consistency, credibility and reliability of the findings. Consequently, the urban economy does not offer a sufficiently
Indeed, the economic, social and spatial transformation broad spread of job opportunities for different skill levels. Addis
of Addis Ababa over the past fifteen years has been more than Ababa, therefore, registers persistently higher unemployment
dramatic. The economy is booming; new manufacturing firms are rates than the national average. It is imperative that Addis Ababa’s
mushrooming; fiscal infrastructure has improved dramatically, economy needs to transform significantly and become more
aided by federally funded mega projects; the provision of basic competitive in order to attract investment, manufacturing in
services such as water and electricity is improving though not at particular, that would generate employment opportunities.
a scale needed; an attempt to engage citizens more in decision- Addis Ababa’s revenue raising capacity needs to better match the
making is seriously being debated though progress is far from urban economic activity. Evidence shows that the city faces critical
being fully realized. These positive developments should, however, challenges in raising the municipal (own) revenue to finance its
not be interpreted at face value that all is well in Addis Ababa. The public expenditures. The city’s current public expenditure relies
report highlights social, economic, and spatial challenges brought far too heavily on state revenues and grants, with the share of
about as a result of the rapid and unplanned urbanization. municipal revenue declining further overtime. With growing
This report is the first of its kind that tries to capture the challenges demand for better services and modern infrastructure, the
and opportunities in managing the rapid pace of urbanization city must enhance its revenue generation capacity, not only by
in Addis Ababa and to offer plausible recommendations and improving tax collection, but also by exploring other forms of
solutions for improvement. It covers five thematic areas: urban resource mobilization, including attracting more domestic and
economy and jobs; urban renewal and housing the poor; foreign investments by improving the business environment.
accessibility and affordability of basic urban services; the urban The city has also made huge investments in subsidised and
environment and quality of life; and urban governance and the affordable housing for its low- and middle-income residents.
role of citizens in influencing public policy decisions. These are The production of condominium housing has been successful in
mega challenges that cannot be solved overnight, considering the increasing the city’s housing stock and improving the physical
weak state of urban planning and poor implementation capacity urban environment through slum reduction. These efforts,
in the current governance structure of Addis Ababa. however, have been rendered less effective than anticipated as
At the national level, the rapid urbanization process experienced the housing offered is not affordable to the 20% of the city’s
by Addis Ababa needs to be tackled from a regional planning residents with incomes below the poverty line. Survey results
perspective. A more polycentric urban system of the country is show that out of 1,315 study participants living in condominium
1
housing, 41% are spending more than 30% of their household pollution mitigation, run-off regulation and the provisioning of
income on housing costs, illustrating the lack of affordability of clean water. This in turn triggers costs while impacting negatively
this (re)housing strategy to the poor. In addition, compensation on the wellbeing of the Addis Ababa residents. Neighbourhoods
mechanisms and regulations are found to be unfair by inner accommodating the more vulnerable communities have the least
city landholders as the implementation fails to take into access to green areas and the benefits of an adequate ecosystem.
consideration market values while determining compensation. Although the city administration has adopted environmental
Likewise, replacement cost calculations insufficiently reflect true policies and regulations, translating these into practical action
construction costs. It is noted here that urban upgrading and has proven a challenge due to financial and technical capacity
densification need to be explored before deciding on wholesale constraints. There is dire need to create institutional awareness
demolition, renewal and relocation as a final option. on existing policies and regulations for better implementing
Likewise the existing housing strategy should be reviewed strategies to tackle pollution, waste management, and climate
for incorporating a wider range of options beyond ownership change mitigation and adaptation.
of condominium housing units (i.e. rental housing, housing Finally, as the seat of the African Union and other international
upgrading, housing cooperatives, etc.) and to expand affordable organizations, Addis Ababa’s economic future is limitless.
housing finance. However, in order for the capital city to become a premiere global
In case of expanding basic services to the population, the picture city, the governance deficit must be overcome. At present, urban
is mixed. Although access to health and education services has governance heavily suffers from inappropriate and sometimes
increasingly improved since these two sectors have involved even corrupt practices as well as weak institutional capacity for
the private sector, improving quality remains a huge challenge, planning. This is especially the case in such critical areas as urban
particularly in new settlements where former inner-city residents land, basic urban services and housing. Any frontal attack on
have been relocated. Likewise with mobility: despite continuous corruption, rent-seeking and nepotism will require determined
efforts by the city government to promote better transportation political leadership, the tightening of flawed procurement
services including introduction of Ethiopia’s first Light Rail practices, computerization of revenue collection, besides
Train, access to efficient and affordable transportation and enforcement of the rule of law and prosecution of individuals
mobility remains problematic with high transaction cost and involved in those bad practices. Corruption is one of the main
inconvenience to the majority of the city’s residents, particularly deterrents to a conducive business environment and, by extension,
for those relocated to peri-urban zones under the urban renewal to attracting domestic and foreign direct investment flows.
programme. The city’s commitment towards improving urban governance
The one victim of rapid and unplanned urban growth has been is genuine. Over the past decade, the city administration has
the urban environment which has a huge impact on public health introduced various structural and institutional reforms as well
as well. Air and water pollution are exceeding acceptable standards as capacity building initiatives to enhance the competence and
with negative consequences for the health of the city residents. responsiveness of municipal institutions in services delivery and
The major sources of air and water pollution include the use of to reduce bureaucratic red tape that frustrates business operators
old cars, the use of charcoal for cooking and heating purposes and citizens alike. To measure progress on the same as well as
as well as the lack of proper sewage and dry waste management. citizens’ satisfaction levels, Addis Ababa should establish a system
While the challenge of air pollution is huge, the city needs to for annual feedback on services delivery for each sub-city of
better regulate pollution by enforcing existing legislation rather Addis Ababa. The current effort by the federal government in
than the introduction of new regulations. ‘deep reform and renewal’ is very much welcome, and the city
With respect to solid waste, the city administration will need administration must build on these current efforts to strengthen
to introduce best practices such as waste separation, compost institutional and planning capacity, to enhance transparency and
production, recycling and re-use. Moreover, water pollution accountability, and to improve the responsiveness of government
needs to be tackled by regulating and controlling discharges from institutions to the demands of the citizenry. These undertakings
both houses and factories. Communities themselves could be can be successful if the city administration broadens the space for
mobilised for monitoring activities to preserve the river and river citizens participation in decision-making.
banks.
Addis Ababa’s green areas and the urban ecosystem in particular
remain far below desirable standards. Trends show that the built
up areas are increasing at a speed of 4-5 km2 per year. The scarce
green areas and poor ecosystem in the city negatively affect
2
Introduction
▲
The physical transformation of Addis Ababa. © Geo Kalev
E
thiopia, the second-most populous country in Africa, has industrialization as Ethiopia strives to achieving ‘middle-income
an estimated population of 90 million (Central Statistics country’ status by 2025. The government adopted a first national
Agency (CSA), 2014). According to the CSA's 2014 annual urban development policy in 2005 which puts urbanization
statistical abstract, the majority of Ethiopians reside in rural areas. and industrialisation at the centre of national development
However, Ethiopia’s urban population more than doubled from efforts (Ministry of Finance and Economic Cooperation
4.87 to 11.86 million between 1984 and 2007 and, growing at a (MOFEC) 2015).
rate of 3.8% annually, is expected to triple by 2037 (World Bank, This major policy shift towards urbanization and industr-
2015). The level of urbanization in Ethiopia currently stands ialization has significantly contributed to rapid transformation of
at 19%, low even by sub-Saharan African standards. However, the Ethiopian economy, resulting in a noticeable shift in economic
the rate of urbanization is expected to accelerate at about 5% sectors’ contribution to the GDP – away from agriculture
annually (World Bank, 2015)1. towards services and, to a lesser extent, manufacturing (World
Until recently and given its very low level of urbanisation, Bank, 2015). High public investments in infrastructure projects
Ethiopia’s development policy was heavily biased towards have significantly contributed to subsequent economic growth.
agriculture and rural development under the umbrella of Expansion of urban infrastructure investments in particular
the Agricultural Development-led Industrialization (ADLI) demonstrate the government’s commitment to transforming
programme. This historic rural predisposition towards agriculture Ethiopian cities’ economies towards providing better business
has been a critical factor in the country’s current low urbanization environments and becoming nodes of innovation and economic
level. However, since the early 2000s, attention has shifted towards exchange. This with a view to enabling Ethiopian cities to better
3
access and exploit opportunities of the global economy (Ministry
of Urban Development, Housing and Construction (MOUDCo)
2014)2.
As part of the government’s ambitious plan to achieve ‘middle-
income country’ status by 2025, Addis Ababa has benefited from
huge investments over the past decade. Massive urban renewal and
redevelopment projects are underway across the city to improve its
competitiveness as a business location, to tackle the huge backlog
in affordable housing and basic service delivery through accelerated
investment in infrastructure and public housing programs. As a
result of these state interventions, Addis Ababa has experienced
tremendous economic dynamism, attracting both domestic and
foreign investments that generate job creation and other economic
opportunities.
Despite the actual and symbolic significance of the ongoing
urbanization that is significantly changing both the spatial and
economic landscapes of Addis Ababa, reliable empirical data is
lacking. Consequently, it is not always possible to understand and
quantify the drivers of recent growth and transformation of the
city and their socio-economic, environmental and social impacts.
Hence, the current State of Addis Ababa 2017 report is aimed at
providing a more comprehensive assessment of existing socio-
economic and environmental conditions in the city and what the
city could do to better tap into the economic opportunities and
potentials at the national, regional and global levels.
This State of Addis Ababa 2017 report consists of five sections.
The first presents the historic development of the city in the late
19th century to the present as well as its current demographic and
governance characteristics.
The second section is devoted to analyses of Addis Ababa’s
economic characteristics by critically reviewing the city’s productivity
and competitiveness. The second section further highlights the
challenges and opportunities of land value capture to enhance
municipal revenues, and other promising measures that could be
pursued to improve the city’s fiscal condition, including attracting
both more and better domestic and foreign direct investment.
Section three discusses the challenges and the progress made by
the city administration in providing affordable housing. One key
aspect of the present housing strategy is inner city urban renewal
and relocation of residents to newly-built condominium housing.
While these renewal programs are supported by the inner city
residents, the process has been fraught with challenges, including
the compensation offered, whether through replacement land or
condominium units, that has been contested by many relocatees
and land owners alike.
The fourth section discusses Addis Ababa’s alarming rate of
environmental degradation. While the city administration has
adopted environmental guidelines and regulations, translating these
into practical and strategic action has shown to be problematic

due to lack of institutional and human capacity. This section also
highlights the connectedness of the environment with basic urban
service provision as well as mitigation and adaptation mechanisms
to reduce the negative impacts of climate change on the wellbeing
of the inhabitants.
Section five concludes the report and presents actionable ▲
recommendations for each of the thematic areas covered. 2013: Streets of Addis Ababa. © Shutterstock
4

ADDIS
ABABA’S
EVOLUTION
AND
GOVERNANCE
STRUCTURE
A
ddis Ababa was established in the late 19th century
and in comparison to other capital cities it is
relatively young. Addis Ababa has evolved from a
small rural settlement up to the 1950s into a vibrant modern
metropolis today. Much of this urban transformation
began during the period of Imperial Rule but accelerated
in the post-1991 era. This section discusses and reviews
the planning approaches over time and under successive
regimes, and how these have collectively shaped today’s
socio-economic and spatial characteristics of the city.
▲
Old and new Addis Ababa. © Geo Kalev
between the settlements was left intentionally to serve as a buffer zone to avoid
1.1conflicts between landowners. This early concept

The evolution of
existing socio-political set-up gave the city’s
Addis Ababa until 1935
the Italian occupation of Ethiopia in 1935 (Mahiteme, 2007)4.
of space
A multicentred andspawled
settlement its utilization
around three bymainthepolitical,
economic and cultural nodes: the imperial palace (the Gebbi), the
land
market useandpattern
(Arada) the churchthe appearance
(St. Georgis). of
The socio-spatial
organization of the city initially reflected the traditional layout
clustered villages (Fig. 1). From Taytu’s ofsketch, it issurrounded
a military camp evidentby rural
thatvillages
the clustered
spatialin close
I
n late 19th century, Emperor Menelik II and his wife Emperess proximity to each other, rather than a strong central core and
organization
Taitu founded theof the
City city Ababa
of Addis was highly influenced
(Addis Ababa by the
means capital political2007;
city (Mahiteme, structure of 5the
Tufa, 2008) . country
‘New Flower’ in English). The emperor selected the Finfinne In 1909, a modern urban administration was established,
areaduring the time
for its fertile of climate,
land, mild Menelik. The settlements
geographically were the
strategic responsible for thespatial
day-to-dayprojections of affairs
management of the socio-of the city
and defensive position, and ancestral history. It is alleged that (Giorghis & Gérard, 2007)6. However, the city’s limited financial
thepolitical
royal couplehierarchies, which
was attracted to the Filowa show thewhich
hot springs role capacity
of local chief inpolitical
and restricted the mandate
political couldsystem.
not effectively
were believed to possess curative powers (Pankhurst, 1961; address the emerging urban challenges (Mahiteme, 2007). It was,
Proximity
Tufa, 2008)3. Addis to Ababa
the palace shows either
evolved organically withoutthe rolestherefore,
formal of the not chief in thethat
surprising palace administration
few physical improvements were
planning practices. However, historians believe that there existed realised in urban infrastructure and service delivery during the
an or loyalty
informal toplan
master theledking. The size
by Emperess Taitu,of thereferrred
often plot is reign
also ofanEmperor
important indicator
Menelik. of the
Addis Ababa’s rural power
characteristics
as ‘Taitu’s era master plan’, that guided city development until lasted well into the 1960s.
of each chief and the number of subordinates they had.
.
³³ ²
² ³² ³
³
²
³²
² ³ ²
³²³²
³
³
²
²
³
²
³²
² ³
²
³²
² ³
³
² ³
² ³
²
³
³ ²
² ³
³²
²³
³
² ²
³ ¹¹
³
²
²
³
³
²
Administrative boundary
of Addis Ababa today P
Æ
¹¹
stream
road ³
² ³
²
Æ
P Hospital
³
²
¹¹ School
Palace ³
² ³
²
Livestock house ³
²
Commercial centre
Residence for palace servants ²
³ ³
²
Workshop
Mule house ³
²
³
² Local chiefs' residential areas
³
²
1 0.5 0 1km ³
²
▲
Sketch of Taitu's era master plan (Mahiteme, 2007).
Fig. 1 Early settlements of Addis Ababa.
7
After 1896, the administration of Addis Ababa became more of a civil administration
as the population of the city started to grow due to political and natural factors. In
1.2Urban planning
in Addis Ababa
system (Pasquiali, 2015)7. Many of the major roads that still criss-
cross the city were built during the period of Italian occupation
(Duroyaume, 2015)8.
The Imperial Regime (1941-1974)

The quest to modernize the City of Addis Ababa continued
The Italian Occupation (1935-1941) in the post-Italian occupation era - the period of Imperial Rule.
T
he first attempt to incorporate Ethiopia into Italy’s During 1956-1966, three foreign urban planners proposed
overseas colonial territories was aborted in 1896 after different master plans for Addis Ababa following the British
Ethiopia defeated Italy at the Battle of Adwa. Prior to town planning model. The first master plan, prepared by the
the outbreak of the Second World War, Italy occupied Ethiopia famous British town planner Sir Patrick Abercrombie, proposed
in 1935 and administered it as a colony for five years (Pankhurst, decentralized city development through planned neighbourhood
1961). During this short occupation, western urban planning units, land zones and six satellite towns in the city’s periphery
practices were introduced. Two attempts to prepare a master (Ahderom, 1986; Wubneh, 2013)9. While Abercombie’s plan
plan for the City of Addis Ababa were made: by architect Le was based on a low estimation of population growth, the second
Corbusier in 1936 and by architects Guidi and Valle in 1938. master plan prepared by the British consultancy firm Bolton
The 1936 master plan sketch by Le Corbusier was rejected since Hennes & Partners proposed a similar plan but based on a higher
it did not take the city’s topography into consideration and could population growth projection (Yitbarek, 200810; Ahderom,
therefore not be applied practically (Tufa, 2008). In 1938, the 1986)11. The third master plan, prepared in 1965 by Luis de
second attempt to prepare a master plan was inspired by the Marien, a French consulting team, was based upon the visions of
previous work of Le Corbusier. Guidi and Valle proposed a plan; its two predecessors (Mahiteme, 2007). However, none of these
that is, broadly an orthogonal street plan, based on the layout of three plans were implemented due to the lack of financial and
the overnight camps of the Roman Legions. This second master technical capacity. The dilapidated condition of Addis Ababa until
plan, in redevelopment of Arada
addition, proposed housing centre and
development with Churchill
residential Road without
very recently paying the
is, therefore, much
resultattention to
of the combination of lack of
segregation of natives and Europeans (Mahiteme, 2007), waste appropriate spatial development plans and shortfalls in resources
the rest
management, of construction
road the city (Tesfaye 1987).transportation
and a public and personnel required for theirs plans’ effective implementation.
Legend
Railway
Stream
Road network
Administrative zone
Expansion area
Green Zone
Handcraft zone
Industrial zone
Low density
high density
Sport field
airport
4 0 4 8km
▲
Fig. 7 Addis Ababa's development as revised by LE. De. Marien, 1966-1974Proposed master plan by L. De Marien, 1965 (Mahiteme, 2007).
8
Fig. 7 Addis Ababa’s development as revised by LE. De. Marien, 1966-1974

The Dergue Era (1974-1991)
The Dergue Regime replaced Imperial Rule in 1974 and
declared socialism as its major ideology to guide the economic
and social development of the nation (Wubneh, 2013; Ejigu,
1.3Land and housing policy
in Addis Ababa
2013)12 and transformed Ethiopia’s landownership system.
Under the popular phrase ‘land to the tiller’ all rural and urban
land was nationalized in 1974. The ‘famous’ Proclamation No. Land and housing policy during the
47 “Government Ownership of Urban Land and Extra Houses” was Imperial Regime
issued in 1975 and outlawed both private ownership of land and
H
income from sub-letting of houses to enforce a fairer distribution ousing delivery during the Imperial Regime was directly
of land and housing across urban areas (Yitbarek, 2008). related to landholding policy. The land tenure system
The Dergue Regime also attempted to develop a master plan of the Feudal regime allowed private land ownership.
for Addis Ababa. Two different plans were proposed in 1978 Each land holder was required to be in possession of a title deed
and in 1986. The Hungarian Planner C.K. Polonyi led a team showing the land size, boundaries and the number of buildings
of Ethiopian planners and architects in 1978 to prepare a master on the property (Giorghis & Gérard, 2007). Groups and
plan under the direction of the Ministry of Urban Development individuals with strong connections to the monarchy controlled
and Housing (Wubneh, 2013). The plan proposed two major most of the land in Addis Ababa. This practice continued until
interventions: (1) development of Addis Ababa’s inner-city the 1974 socialist revolution that abolished private ownership of
areas, particularly the redevelopment of Meskel Square as a land (UN-Habitat, 2007)13.
place for public gatherings; and (2) megalopolis development by Feudal lords engaged in rental housing development and were
integrating and linking Addis Ababa with the surrounding towns the sole distributors of land. Until the nationalization of land
to strengthen rural-urban linkages (Ahderom, 1986). Like the in 1975, the relationship between the landlords and those who
master plan under previous regimes, the megalopolis concept was acquired a piece of land from them resembled tenant-landlord
never put into practice since it was considered too ambitious and relationship as regular tributes were paid to the landlord rather
beyond the financial means of the government. than to the municipal government. These land transactions and
The 1986 master plan, developed by a team of Ethiopians and tributes were never registered in the municipality’s data bank. The
Italians, covering the period 1986-2006, was based on Polonyi’s loss of significant revenue deprived the city authorities the very
original idea (Mahiteme, 2007). The new plan focused on resources needed to improve basic services and housing. Thus,
integration of Addis Ababa with the surrounding regions and during the Imperial era, some 60% of the housing stock in Addis
development of urban centres in the city’s periphery to promote Ababa consisted of rental units14, suggesting that housing supply
decentralization and to provide services for the surrounding areas was predominantly controlled by the elites who had the monopoly
(Wubneh, 2013). The plan, however, had one major shortcoming: on land ownership. This created a situation under which low-
it failed to address the city’s housing, sanitation and infrastructure income populations had the sole option of rental housing rather
shortages. Moreover, the plan was not officially approved until than owning their dwelling.15
1994, by which time it was out-dated (Mahiteme, 2007). Although private real estate developers were involved in housing
The failure of the Dergue Regime to timely implement a master supply during the Imperial period, their contribution towards
plan contributed to uncontrolled sprawl of the city (Tufa, 2008). alleviating the housing problem of low-income populations was
By 1994, when the 1986 master plan was officially approved by negligible. They exclusively catered for high-income groups and
the Ethiopian People’s Revolutionary Democratic Front (EPRDF) the economic elite who could afford to pay. It is therefore not
regime, the housing and infrastructure conditions of the city surprising that an estimated 90% of the population in urban
were deplorable. In response, the EPRDF government undertook areas of Ethiopia lived in substandard housing until very recently.
remedial measures, such as the upgrading of deteriorated housing In Addis Ababa, the only project focused on low-income
and road networks, as well as construction of new housing units housing provision that is worth mentioning is the Kolfe Housing
in the city outskirts (Mahiteme, 2007). In the inner-city areas, Project which involved delivery of 911 low-income houses
upgrading of mud (chika) houses was prohibited. Redevelopment constructed with financial support from the United States
of inner city areas and construction of condominium housing government (Palen, 1974)16. The Imperial Regime had failed to
and provision of modern services became the hallmark of the develop a coherent land and housing policy, thereby creating a
post-1991 government. Huge public investments have been severe housing crisis in the 1970s. Despite commendable efforts
made to improve water supply, sanitation and waste collection in recent years by the EPRDF government the housing problem
systems, drainage and road networks, as well as condominium persists (Palen, 1974). With increasing demand and higher
housing to improve the quality of life of urban residents rental prices today, a significant proportion of the people in
(Yitbarek, 2008). Addis Ababa shares shelters that are of less quality and without
relevant facilities.
9
▲
Kebele house today. © Geo Kalev
Land and housing policy during the Dergue The Dergue Regime offered incentives to encourage develop-
Period ment of housing cooperatives to expand the housing supply.
The Dergue Regime introduced new housing delivery systems Firstly, land was allocated without charge for the construction
and abolished private sector rental or real estate development of owner-occupied dwelling units. The maximum plot size for
throughout the country. The nationalization of land and private cooperative housing was 500 square meters during the 1975-1986
property resulted in a significant loss of income to former period. However, with the adoption of Proclamation 292/1986,
landlords (Ejigu, 2013). Moreover, house owners were never that ceiling has been reduced to 250 square meters. Secondly,
compensated for their loss of land or housing. This situation building materials were subsidized. Cooperatives were given
was further exacerbated as the Dergue froze wages and salaries in priority access to construction materials from government retail
1974 despite rising inflation. As a result, the purchasing power of enterprises at a cost which, on the average, was less than 65% of
households steadily declined (Kebbede & Jacob, 1985)17. the market value. Thirdly, mortgage loans from the Construction
The Dergue Regime, in line with its socialist ideology, took and Business Bank were made to cooperatives with households
the decision to distribute urban land and housing equitably to earning at least ETB 250 per month substantially below market
the city’s inhabitants. To achieve this objective it introduced interest rates.
two types of housing associations. The first was the Agency for As a result of these state interventions, a significant increase
the Administration of Rental Houses (AARH) responsible for in housing supply was recorded (Tesfaye, 2007). From 1986 to
the administration of government-owned rental housing with a 1992, in Addis Ababa alone, nearly 60,000 households were
monthly rental fee above ETB 100. The second housing delivery organized in cooperatives to build their own homes and between
system was the Kebele Rental Housing, administered by Kebele 1975 and 1992 produced 40,539 housing units (UN-Habitat,
Administration (urban dwellers association) and fetching a 2011). Despite these efforts, however, significant unfulfilled
monthly rent of less than ETB 100 (Yitbarek, 2008)18. According demand for affordable housing persists until today as demand
to Tesfaye (2007) the kebeles controlled 93.87% (142,095 units) outstrips the supply.
of the total government owned housing stock of 151,372 in
Addis Ababa.
10
1.4 Addis Ababa today:
Population and demographic
characteristics TABLE 1: ADDIS ABABA ESTIMATED POPULATION
(IN THOUSANDS, 1889-2016)
(Estimated) population
Urban population demographics Year
A
ccording to the CSA July 2015 estimate, Ethiopia’s 1889 15,000
total population is about 90 million people. Of the 1910 65,000
total population 19.5% (17.5 million people) live in
1930s 80,000
urban areas. This number is rising fast due to an annual urban
1935 140,000
population growth of 4.89%. Ethiopia’s urban population is
expected to triple by 2037 (World Bank, 2015)19. Addis Ababa 1960s 300,000 – 400,000
hosts an estimated 3.238 million people, which is a 17% share 1961 455,490
of Ethiopia’s total urban population. Currently, Addis Ababa is 1967 683,530
experiencing an annual growth rate of 3.8% and is estimated to 1979 1.27 million
reach 4.7 million inhabitants by 2030.
1984 1.42 million
There is no reliable comprehensive statistical data to show Addis
Ababa’s population trends since its establishment. The first census 1994 2.11 million
data was obtained only in 1961. However, several researchers 2007 2.7 million
have provided estimated population numbers for the city since 2010 3.3 million
1889 (See Table 1).
(Source: Addis Ababa City Government (2002), CSA (2012), Mahiteme (2007), Palen (1974))
▲
Condominium housing constructed in response to housing demand. © Geo Kalev
11
FIGURE 1: GROWTH RATE OF ADDIS ABABA
10
Growth rate
8 6.9
Percentage
6
4.5
4 3.5 3.2
2.1 2.0
2
0
1961-1962 1962-1978 1978-1984 1984-1994 1994-2007 2007-2013
Sources: FEDB, 2009; World Bank, 2010, Wubneh, 2013
As shown in Table 1, an estimated 15,000 permanent

residents were believed to live in Addis Ababa around the time
of establishment in 1889. Palen argues that the city’s population
had tripled by 1910 and grew to 80,000 just before the Italian
occupation in the 1940s when this number nearly doubled to
140,000 people. It had more than doubled again by the early
1960s to approximately 300,000 people (Mahiteme, 2007).
Furthermore, official population censuses (1961, 1967, 1984,
1994) showed that the population of Addis Ababa grew quickly,
accumulating to a total of 2.11 million in 1994. In the past
two decades urban growth has decelerated in Addis Ababa and
according to CSA (2013)20 data, the Addis Ababa population
now stands at 3,195,000.
Despite the significant population growth of Addis Ababa in ▲
absolute terms, the population growth rate has declined from Public sanitation facility. © Geo Kalev
6.9% annually over the 1961-1962 period, to 3.5% over the

1978-1984 period, to 2.1% annually in 2007-2013. The periods
from 1978-1984 and 1984-1994 saw the Dergue Regime, the
severe drought in 1984 that drove people out of rural areas to the economic growth, the urban poverty incidence is on the rise
cities, as well as a change in the change in government in 1991 (UNEP, 2014)22.
which had effects on still relatively high growth rates amidst an This population growth will put further and continued
overall trend of decelerating growth rates. Since the 1990s and challenges and pressure on the city administration to provide
2000s urban growth has slowed down in Addis Ababa (see Figure efficient and affordable basic services and housing in sufficient
1). This can also be explained in terms of the federal system quantities. To do so would require a doubling of the city capacity
that encouraged the emerging regional cities and the deliberate in urban planning, management and effective implementation,
promotion of regional towns. Furthermore, the rise in living cost, supported by strong political leadership from the top. It would
the housing crisis, unemployment and shortage of infrastructure also require prioritization of key investment decisions to enhance
and services in Addis Ababa seemed to be discouraging migration the competitiveness of the city and attract investment that
to the capital city (Wubneh, 2013). generates more job opportunities for its growing population.
In more recent years however, this annual growth rate has Failure to plan ahead may have catastrophic impacts; both on the
accelerated. The city of Addis Ababa’s current population growth economy and on the welfare of its citizens.
rate is estimated at 3.0% by the CSA and 3.8% by the World Fortunately, Ethiopia is well on its way to building the
Bank (2015). Since fertility rates have steadily declined in Addis basic policy and institutional foundations for kick-starting an
Ababa due to family planning campaigns (Finance and Economic industrialization path that could lead to structural transformation
Development Bureau (FEDB), 2009)21 natural increase only of its economy and towards more inclusive development. The
contributes modestly to current city’s population growth. Rather, priority for the city administration of Addis Ababa would be
rural-to-urban migration is now the significantly contributing to build on recent gains by investing heavily in infrastructure
factor to the city’s population growth. and other key growth drivers and to continue strengthening the
Between 1995 and 2000, 58% of the average growth of the effectiveness and responsiveness of key municipal institutions
city was attributed to migration (World Bank, 2015). Since this that deliver essential services to the population and the (potential)
fast urban population growth is not supported by equal socio- business community.
12
1.5The governance structure
of Addis Ababa
and assigned autonomy and functions to federal authorities and
the nine autonomous states in the country (World Bank, 2015).
An exception, however, applies to the cities of Addis Ababa and
Dire Dawa, who are both granted the same autonomy level as
state governments.
Each regional state government is sub-divided into zones which,
in turn, are sub-divided into Woredas - semi-independent localities
E
thiopia has increasingly been improving in ensuring good with their own legal status and leadership structure (councils).
governance, as reflected in various policy and strategy Woreda council members are independently elected to represent
documents. Although the term ‘governance’ is a broad each of the Kebele sub units (wards). However, the cities of Addis
concept and subject to interpretation, in the Ethiopian context it Ababa and Dire Dawa are allowed to establish local structures
refers to “the efficiency, effectiveness and accountability of public (sub-cities) and then Kebeles as the smallest administration unit.
institutions in service provision, transparency and participatory Recently, Kebeles are being replaced by Woredas in Addis Ababa
interaction between the public sector and diverse stakeholders in and other major cities, and the structural arrangement is thereby
decision-making”. formed by the city administration, sub-city, and Woreda.
The 2005 Urban Development Policy is the first official Based on the Ethiopian constitutional framework that
document to integrate all principles of good governance in its offers regional states the autonomy to establish urban local
strategy. In subsequent years, the government implemented governments at the lowest administrative structures, Addis Ababa
several initiatives demonstrating its commitment to effective has developed an urban local government structure that reflects
and sustainable decentralization and to creating the conditions its dual mandate as a federal capital as well as its autonomous
for improving urban governance so that cities can become municipal functions. As stated clearly, “state” and “municipal”
more competitive and productive. The most significant reform functions are different. Accordingly, state responsibilities include
initiatives undertaken by the government to date include: social service delivery including education and health. Municipal
• The 2006 Urban Good Governance Package; responsibilities include most infrastructure service delivery such
• The Urban Local Government Development Program as physical infrastructures, transportation, roads and solid waste
(ULGDP) developed in 2008; management (World Bank, 2014)23. Table 2 below breaks down
• The Ethiopian Cities Prosperity Initiative (ECPI) state and municipal responsibilities implemented by urban local
(2013/14–2025); and governments (ULGs) of large cities such as Addis Ababa.
• The Urban Developmental Good Governance Strategy
2014 (World Bank & Cities Alliance, 2015). Local governance capacity
These strategy documents collectively emphasize the need to Ethiopia’s efforts to institute urban governance show both the
enhance citizens’ participation and civic engagement and promote opportunities and challenges. A recent study on the economic
transparency and accountability in decision-making. impact of local government capacity-building concluded that
increased autonomy along with improved fiscal and other
The governance structure of Addis Ababa capacities among Ethiopian city authorities generates better
Ethiopia has a three-tier government structure: federal, regional economic outcomes and helps to close regional spatial inequalities
and local. The 1995 Federal Constitution officially promulgated (Chaurey and Mukim, 2015)24. The study found that cities that
TABLE 2: STATE AND MUNICIPAL FUNCTIONS OF URBAN GOVERNMENTS

Urban local government dual responsibilities
State functions (executed by ULGs) Municipal functions of ULGs
Functions prescribed by federal law to regional governments as their core Functions which are assigned to ULGS by regions through city proclamations
responsibilities and assigned by regions to ULGs (and to Woredas, in rural areas). include, among others:
The key functions of this type are: • Housing supply;
• Expansion and management of primary and secondary education; • Land supply and servicing;
• Expansion and management of primary health care and services; • Supply and quality of water, electricity and telephone services;
• Management of police and courts; • Road construction and road lights;
• Support to micro and small enterprises. • Drainage and sewerage;
Regions retain decision-making powers and administrative control over these • Solid waste disposal systems;
functions. Budgetary approval of expenditures is required by the city council, • Poverty reduction;
but otherwise there is a chain of management and reporting that proceeds from • Maintaining vital statistics;
separate line of officers within the city administration to regional authorities. • Marriage, birth and death certificates;
• Abattoirs;
• Bus terminals and market places;
• Combating soil erosion, landslide disasters and environmental pollution.
13 Source: World Bank, 2015, p. 63

performed poorly before reforms did significantly better in efficiently, opening the door for rampant corruption to take root
the post-decentralization era because of their newly-acquired that undermines good governance and the implementation of
administrative autonomy and improved capacities. policies, strategies and programmes.
Nevertheless, Ethiopia’s local authorities continue to face
challenges. Key among them is a severe institutional capacity Concluding notes on governance
gap, particularly a lack of well-trained personnel capable of The dual identity of Addis Ababa, both as a federal capital and
implementing urban development policies, strategies and an autonomous administration with equivalent status of a ‘State’,
programs. In addition to human resource capacity limitations, contributes to a blurring of roles and responsibilities between
urban institutions lack adequate material resources such as, for the federal and municipal governments. Despite structural and
instance, adequate computerized systems. As a result, urban institutional reforms over the past two decades, a lot more must
local governments are underequipped to execute comprehensive be done to clarify the confusing effect of the dual mandate of
infrastructure investment plans; lack the capacities for assets Addis Ababa. Due to rapid population growth, coupled with
management and maintenance to enforce laws and regulations, as unprecedented spatial expansion of Addis Ababa, the city
well as to monitor progress and to identify emerging challenges. administration could end up shouldering the burden of service
Urban local governments further lack the capacity to generate delivery; a responsibility beyond its financial and administrative
revenues to pay for programs and projects. Moreover, local capacity. For this reason, continuous review and adaptation of
authorities also lack adequate monitoring systems. the urban governance structure of Addis Ababa is required to
The absence of skill, revenue-raising, technological and other flexibly delineate roles and responsibilities between the federal
capacities impacts the ability of Urban Local Governments to government and the Addis Ababa city administration over time
effectively run their jurisdictions and to deliver basic services and as the realities on the ground dictate.
ENDNOTES CHAPTER 1
1 World Bank Group (2015) Ethiopian Urbanization Review: Renewal in Ethiopian. In: Prunier, G. and Ficquet, É. 15 UN-Habitat 2011: Condominium Housing in Ethiopia: the
Urban Institutions for a Middle-Income Ethiopia. World eds. Understanding Contemporary Ethiopia: Monarchy, Integrated Housing Development Programme. Nairobi,
Bank, Washington D.C. Revolution and the Legacy of Meles Zenawi. London: Hurst Kenya.
2 Ministry of Urban Development, Housing and Construction Publishers, pp. 395-414. 16 Palen, J. J. (1974). Housing in a developing nation: The
(MUDHCo). (2014) National Report on Housing and 9 Wubneh, M. (2013) Addis Ababa, Ethiopia – Africa’s case of Addis Ababa. Land Economics, 50 (4), 428-434.
Sustainable Urban Development., Federal Democratic diplomatic capital. Cities 35 (2015) 255-269., Ahderom, 17 Kebbede, G. & Jacob, M. (1985) Urban growth and the
Republic of Ethiopia T. (1986) Basic Planning Principles and Objectives Taken housing problem in Ethiopia. Department of Geography,
3 Pankhurst, R. (1961) Menelik and the foundation of Addis in the Preparation of the Addis Ababa Master Plan, Past & Mount Holyoke College, South Hadley, MA 01075 USA.
Ababa. The Journal of African History, Vol. 2, No. 1 (1961), Present. In: Proceedings of the International Symposium on Butterworth & Co (Publishers) Ltd.
pp. 103-117; Tufa, D. (2008) Historical Development of the Centenary of Addis Ababa, November 24-25, 1986. 28 Kebeles are the smallest units of local government
Addis Ababa: Plans and realities. Journal of Ethiopian 10 Alemayehu, Elias Yitbarek (2008) Revealing Responses. administration.
Studies, Vol. 41. No. ½, Special Thematic Issue on Urban upgrading in tenantdominated inner-city 19 World Bank (2015) Ethiopia Urbanization Review: Urban
Contemporary Urban Dynamics (June-December 2008), settlements, in Addis Ababa, Ethiopia. Thesis for the Institutions for a Middle-Income Ethiopia.
pp. 27-59. degree of philosophie doctor. Trondheim, February 2008. 20 FDRE, Central Statistical Agency (2013) Population
4 Mahiteme, Y. (2007) ‘Carrying the Burden of Long-term 11 Ahderom, T. (1986) Basic Planning Principles and Objectives projection of Ethiopia for all regions. At Woreda Level from
Ineffective Urban Planning’ An Overview of Addis Ababa’s Taken in the Preparation of the Addis Ababa Master 2014-2017. August 2013, Addis Ababa.
Successive Master Plans and their Implications on the Plan, Past & Present. In: Proceedings of the International 21 FEDB (2009) Addis Ababa Population Images 2009.
Growth of the City. Working papers on population and land Symposium on the Centenary of Addis Ababa, November Population Affairs Coordination Sub process Finance and
use change in central Ethiopia, nr. 7. Acta Geographica- 24-25, 1986. Economic Development Bureau.
Trondheim, Series A, No. 16, October 2007. 12 Ejigu, AG (2013), History, Modernity, and the Making of 22 UNEP (2014) Building Urban Resilience: Assessing Urban
5 Ibid; and: Tufa, D. (2008). Historical Development of Addis an African Spatiality: Addis Ababa in Perspective Urban and Peri-Urban Agriculture in Addis Ababa, Ethiopia.
Ababa: plans and realities. Journal of Ethiopian Studies, Forum. 23 World Bank. (2014). Ethiopia Local Government Revenue
40(1/2), 27-59. 13 UN-Habitat (2007) Situation Analysis of Informal Study, Part II: A Situational Analysis of Urban Local
6 Giroghis, F. & Gérard, D. (2007) The City & Its Architectural Settlements in Addis Ababa. Addis Ababa Slum Governments in Ethiopia: The Institutional, Governance,
Heritage: Addis Ababa 1886-1941. Cbp: Engineering Upgrading Programme. Cities Without Slums Sub-Regional and Fiscal Context of Local Governments. Washington, DC,
Capacity Building Program. Shama Books. Programme for Eastern and Southern Africa. 2014.
7 Pasquiali, M.C. (2015) Addis Ababa; End of an Era. Shama 14 Tesfaye, A. (2007) Problems and prospects of housing 24 Chaurey, R., Mukim, M. (2015) Decentralization in Ethiopia-
Books. Addis Ababa. development in Ethiopia", Property Management, 25(1), -Who Benefits?. World Bank, Washington, DC. World Bank.
8 Duroyaume, P. (2015) Addis Ababa and the Urban pp.27-53
14
15

THE
ECONOMIC
ROLE OF
ADDIS ABABA
16
▲
Sunny day at the International Airport of Addis Ababa. © Shutterstock
2.1 The economic role of
Addis Ababa
to inter-governmental organisations like the African Union,
the United Nations Economic Commission for Africa, which
collectively create strong demand for goods and services.
However, Addis Ababa’s huge urban primacy and the
geographically uneven domestic development implied is being
challenged. A current surge in the growth of Ethiopia’s secondary
cities, like in so many other African nations, is unfolding with
A
ddis Ababa’s attractiveness to businesses, companies, higher population growth rates in these cities than in Addis
individuals and foreign direct investment has enhanced Ababa. Rural population pressures, improved infrastructure and
its importance in the domestic economy. Based on the modern communication technologies all facilitate migration
urban employment and unemployment survey (CSA 20151), from rural areas to nearby urban centers. The attractiveness of
the overall primacy index of Addis Ababa is 24.8. The city is such secondary cities as Adama, Bahir Dar, Hawassa and Mekelle,
simultaneously experiencing high rates of economic growth and particularly to rural-urban migrants, is significant and increasing
urbanization, suggesting a likely further rising dominance of Addis (see Table 3).
Ababa in Ethiopia’s economy as well as growing agglomeration of
economic activities in and around the city. TABLE 3: POPULATION GROWTH OF SECONDARY CITIES AND THE
According to the State of Ethiopian Cities 2015 report2, Addis PRIMATE CITY
Ababa’s share in GDP accounts for 29% of the total urban centers. Urban
Furthermore the recent World Bank’s Ethiopia Urbanization Proportion of population
Review (2015)3 shows that 20% of the country’s urban labour rural-urban growth rate
force is employed in Addis Ababa and the city is home to 68% of Population migrants in the over the last
the country’s urban jobs, particularly in real estate, information Urban centre size (2014) city (%) 10 years (%)
and communication, and in financial services. Mekelle 273,601 52.4 6.2
The implementation of publicly financed mega urban
Hawassa 212,665 60.1 6.1
projects, such as condominium housing, the Light Rail Transit,
the international airport and industrial zone development, Dire Dawa 262,884 46.6 4.3
have significantly contributed to the city’s overall economic Adama 271,562 59.2 4.2
performance. Most of the international large and medium-size Bahir Dar 191,016 55.6 3.7
enterprises are located in and around Addis Ababa, creating huge Addis Ababa 3,040,740 47.6 2.1
opportunity for employment creation and technology transfer.
Furthermore, Addis Ababa is, besides many embassies, also home Source: CSA, 2014
▲
Light Rail Transit around Mexico Square, Addis Ababa. © Geo Kalev
17
▲
Booming construction sector in Addis Ababa. © Geo Kalev
2.2
Addis Ababa city
productivity
O
The unfolding population dynamism of secondary cities may wing to its central geographic location, Addis Ababa
erode Addis Ababa’s attractiveness as the preferred primary is on the crossroad linking all the corners of Ethiopia.
destination for investors, not only because of Addis Ababa’s Most goods and services produced in the country end
growing housing and environmental challenges but also because up marketed in Addis Ababa. The city enjoys superior access to
of the easier access to land in such secondary and tertiary cities. ICT services, roads, utilities and other infrastructure compared to
Since much of Ethiopia’s urban population growth will, in the the regional capitals. Hence, the economic agglomeration effect is
foreseeable future, take place in its secondary cities, enhancing significant as compared to other Ethiopian cities. Agglomeration
the urban planning and management capacities of these growth economies occur where transport infrastructure “clusters”
centres will be critical for orderly urban development and to economic activities and connects firms at lower cost. This
facilitate the desirable domestic geographic distribution of typically leads to higher productivity. Agglomeration benefits
economic growth and employment generation. The trend is very are also derived from the concentration of population through
clear: Ethiopian secondary and tertiary cities are demonstrating common infrastructures, increasing the availability and diversity
their potential to serve as new and additional engines of economic of labor and market size.
growth under the unfolding national shift from a predominance Following the Growth and Transformation Plan I (2011-
of the agriculture sector to more productive urban economies. 2015)4, Addis Ababa has shown an impressive macroeconomic
This trend should be encouraged in the interest of developing performance significantly exceeding the national average or
a more balanced domestic urban hierarchy and more even those of individual regional capitals. Based on data from the city
distribution of employment, wealth and well-being. administration’s Bureau of Finance and Economic Development
18
FIGURE 2: SHARE OF THE KEY ECONOMIC SECTORS, ADDIS ABABA, FIGURE 3: SECTORAL COMPOSITION OF URBAN EMPLOYMENT
2011-2015
100 Agriculture 2%
Percentage
80 Government 4%
6%
Finance
60
8% 31%
Others
40
Construction 12%
20
Community services
0 Manufacturing 14% 23%
2011 2012 2013 2014 2015
Service share Industry share Trade

Agriculture share
Source: Own computation based on CSA (2015)

Source: Own computation based on Bureau of Finance and Economic Development (BoFED)
(2016), the GDP5 of Addis Ababa has grown, on average, by more shares with manufacturing becoming the dominant economic
than 15% over the last five years; much faster than the national sector, it is believed that this would enhance productivity and
GDP over the same period.For instance, the city registered a GDP competitiveness, strengthen technology and skills transfer and
of about ETB90.9 billion at current prices in 2015. This is about create sustainable jobs and improved incomes/livelihoods.
8% of the national GDP. The State of Ethiopian Cities 2015 report According to CSA (2015) data7, trade contributes 31% of
estimates that Ethiopian cities generated about ETB 227.3 billion. the urban jobs, whereas the manufacturing sector accounts for
In the same year, Addis Ababa’s GDP was about ETB 66.3 billion, 23%, community services 14%, and the construction sector 12%
well above 29% of the overall GDP of Ethiopian cities. (see Figure 3).
In addition, other data from the city’s Bureau of Finance and Of the 23% jobs in the manufacturing sector, most are in small-
Economic Development (2016)6, shows that Addis Ababa’s per scale industries. Clearly, large and medium-scale manufacturing
capita income has grown from USD 788.48 in 2010 to USD firms with high value-addition potential are either insufficiently
1,359 in 2015 at current prices- higher than the national average. present or creating insufficient employment (CSA, 2015).
Besides a high rate of economic growth, the city has also achieved Furthermore, wholesale and retail trade are major employers in
a decline in the poverty index from a high of 29.6 in 2012 to the services sector. Despite its contribution, the services sector
22.0 in 2014. Currently, the poverty headcount index for Addis is unsustainable and its contribution to the skill and technology
Ababa is estimated at 18.9 while the poverty gap and poverty transfer is very weak. Most service sector activities in Addis Ababa
severity account for 5 and 1.8 index points, respectively. Poverty do not require skills or technology and are prone to competition
headcount index measures the proportion of a population living from the outside world. Retailers and wholesalers in Merkato
below poverty line while poverty gap index measures the extent to (Ethiopia’s biggest open market) are vulnerable to prices of
which individuals fall below the poverty line (the poverty gaps). imported goods and services and hence making employment in
Poverty severity index measures inequality among the poor and it the sector unsustainable.
is the squared poverty gap index. Although the poverty status of
Addis Ababa is an improvement over previous years, there is still Per capita income and trends
much work to be done to curb both the incidence and severity The per capita income (PCI) of Addis Ababa residents not only
of poverty. exceeds the national average but is also growing by 10% annually
Analysis of the economic structure of Addis Ababa reveals on average (see Table 4). This illustrates the economic dominance
that the services sector dominates with industry in second place of Addis Ababa and the lobsided development of the Ethiopian
(see Figure 2). Together, the services (63%) and industry (36%) domestic economy.
sectors account for almost all of the Addis Ababa’s GDP. Over The average of USD 1,364 per capita income for Addis Ababa
the last five years the services sector has persistently dominated residents was double the national average of USD680 in 2015.
the urban economy and there is no sign of a changing trend. If it sustains the current pace of economic growth, Addis Ababa
Within the services sector, transport, communications, trade, can meet its middle-income status goal by 2025 since the pace
the hospitality industry (hotels and restaurants) and financial of growth of the PCI is positive and significantly increasing (see
intermediation constitute the largest shares, in descending order. Figure 4). Obviously, achieving middle-class status for just Addis
Booming construction activity also significantly contributed to Ababa is not and cannot be the ultimate goal for Ethiopia. Far
Addis Ababa’s industry sector, followed by manufacturing. more geographically balanced domestic distribution of income
Currently, the city administration is giving major emphasis opportunities and the associated national wealth distribution is
to tempering the economic domination of the services sector required to assure broad-based access by all Ethiopians to job
in favour of manufacturing. If the city can reverse the current opportunities, income and wealth.
19
TABLE 4: ADDIS ABABA CITY GDP AND PER CAPITA INCOME (PCI)
City GDP at Average annual

current price exchange rate
Year Population size (in ETB millions) Average PCI (ETB) ETB-USD PCI in USD
2011 2,913,745 46,763 16,049 17 931
2012 3,047,000 55,650 18,263 18 1,011
2013 3,103,673 66,264 21,350 18 1,143
2014 3,194,999 78,040 24,425 19 1,257
2015 3,273,001 90,908 27,775 20 1,364
Source: Own computation based on CSA (2015), BoFED (2016) and National Bank of Ethiopia (NBE) (2016).
FIGURE 4: PER CAPITA INCOME TRENDS OVER TIME

industrial zones to boost productivity and sustain the current
pace of growth.
2,000 With regard to population growth, the first scenario assumes
PCI in USD that despite Addis Ababa’s economic boom that has attracted
1,600 rural-urban and urban-urban migrants, the surge in secondary
cities’ population growth could possibly ease some migration
1,200
pressure away from Addis Ababa and keep its population growth
800 at the current pace. The nation-wide urbanization rate is about
5.2% (MUDHo 2015) and Addis Ababa’s growth rate of about
400 3% indicates that the relative importance of other (secondary
and tertiary) urban areas in absorbing new and additional
0
2011 2012 2013 2014 2015
urban population is growing. This trend can and should be very
deliberately reinforced by stimulating secondary and tertiary
Source: Own computation based on various sources cities through the facilitation of new employment opportunities,
by extending ICT services, improving infrastructure and other
interventions that would slowly bring Ethiopian secondary cities
Addis Ababa PCI projection for 2025 – and by extension the tertiary ones – to standards comparable
Three basic assumptions and corresponding scenarios are with that of Addis Ababa today. The aim here is multi-pronged:
used to calculate the Addis Ababa PCI projections for 2025: a) geographically spreading income opportunities, distributing
“business as usual”; b) a rapid population growth with lower GDP wealth, easing migration pressures on Addis Ababa and guiding
growth rate; and c) lower population and GDP growth rates. Ethiopia, rather than just its capital city, to a middle-class
nation status.
Scenario 1: Business as usual One note of caution is warranted. Addis Ababa may currently
• Constant city GDP growth rate of about 18% annually; have a lower urbanisation rate, but given its population size, even
• Population growth rate of 3% (CSA, 2015); and an annual the relatively low growth rate of 3% (CSA, 2015) translates into
exchange rate depreciation of 4.25% against the USD. significant absolute numbers of new and additional residents
The business as usual scenario is based on the above three that will have to be catered for in terms of housing, services
assumptions that: a) the city GDP growth remains at the same and employment.
pace, b) a steady city population growth of 3%, and c) a more or Thus, under the most ambitious scenario, in 2025 the PCI of
less linear depreciation of the ETB against the USD. Addis Ababa is projected to approach USD 3,500 (see Figure 5:
Although more than 10% GDP growth annually by itself High PCI growth scenario 2011-2025, in USD). This puts the
would be a major achievement, given the current momentum city among those cities in sub-Saharan Africa most striving to
it is assumed that the city could indeed repeat its 18% growth achieve middle-income status by 2025.
during the GTPII period. However, as noted in the city’s revenue
study (2015), there remain many untapped sources of municipal Scenario 2:
income, besides desirable enhanced ICT and infrastructure Rapid population growth and lower GDP growth
facilities as well as policy interventions and investments that will • GDP growth rate of about 11% annually (as planned by
need to be activated if Addis Ababa is to realise the projected the city administration)
growth. It would have to boost the manufacturing sector • Population growth rate of 5.2% (the current estimated
through, for example, the establishment and development of national average)
20
FIGURE 5: HIGH PCI GROWTH SCENARIO 2011-2025, IN USD FIGURE 6: LOW PCI GROWTH SCENARIO 2011-2025, IN USD
4,000 2,000
3,500 PCI in USD
PCI in USD
3,000 1,500
2,500
2,000 1,000
1,500
1,000 500
500
0 0
11
12
13
14
11
15
12
16
13
17
14
18
15
19
16
20
17
21
18
22
19
23
20
24
21
25
22
23
24
25
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Source: Own computation based on various sources Source: Own computation based on various sources
FIGURE 7: MODEST PCI GROWTH SCENARIO, 2011-2025, IN USD FIGURE 8: VARIOUS PCI SCENARIOS FOR THE CITY OF ADDIS ABABA
2,000 4,000
PCI in USD- business as usual
PCI in USD 3,500
PCI in USD @ lower population growth rate
1,500 3,000
PCI in USD@ higher population growth rate
2,500
1,000 2,000
1,500
500 1,000
500
0 0
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Source: Own computation based on various sources Source: Own computation from various sources
• Annual exchange rate depreciation of 4.25% against the likely inflation rates this figure may not put the city in middle-
USD. income status by 2025.
The second scenario assumes the city’s GDP would grow
at an annual average of 11% over the next 10 years. The city Scenario 3. Lower population GDP growth rates
administration aims at this growth target in GTPII, based on • GDP growth rate of about 11%
the assumption that the city’s GDP base will expand over time, • Population growth rate of 2.5% (lower growth rate than
reducing the pace of growth downwards from its present level to its present level)
an estimated 11% annually. • Annual exchange rate of 4.25%
The current population growth estimates for all Ethiopian The third scenario assumes that the city GDP grows by 11%
cities underlie the Addis Ababa’s population size forecast over the annually over the next decade; the population growth rate would
next decade. This assumes that the urban population growth rate be around 2.5%; and currency depreciates at a rate of about
is not just driven by demographic factors (death and birth rates 4.25%. The surging role of secondary cities in Ethiopia could
and migration), but that it will also -and potentially significantly have an impact on Addis Ababa through lowering population
- be influenced by policies (including mega projects, rural-urban growth rates. Rural-urban migrants or urban-urban migrants
and urban-urban migration policies and strategic small town might tend to stay in their respective regional capitals thereby
development interventions etc.). Considering these factors, easing the pressure on Addis Ababa. Such cities as Mekelle in the
various estimates come to a 5.2% urban population growth rate North, Hawassa in the South and Bahir Dar in the North-East
for Ethiopia. In view of its continuing economic attractiveness, are growing faster than Addis Ababa (both economically and in
Addis Ababa’s population growth estimate at par with the national terms of population size) and are expected to grow even more
urban growth projection under the second scenario appears to be according to the CSA (2014). This could lead to the assumption
a realistic assumption. that Addis may grow at a lower rate than its present level of
Analyses of the second scenario reveal that Addis Ababa’s 2025 about 3%. Under these assumptions, Addis Ababa’s per capita
PCI could be closer to USD 1,600 (see Figure 6). Considering income could reach about USD 2,000 by 2025 (see Figure 6)
21
2.3 Labour markets
T
his section discusses the nature and structure of
employment in the city and its trends, disaggregated by
sector, gender, labour force participation and activity
rate, as well as the size of the informal sector in Addis Ababa.
Specific challenges like youth unemployment and gender-biased
employment trends will also be discussed.
Labour force participation in economic activities

Healthy economic growth is normally accompanied by
decent broad-based employment generation for the citizens and
increasing the productivity so that the workforce steadily receives
better wages and gets access to more diverse employment
opportunities. On the other hand, proper management and
efficient utilization of the existing labour force is a key parameter
in the economic performance of a city. In many cases the
strength and performance of a city is measured by the number of
sustainable jobs which, in turn, sustains incomes and contributes
to poverty reduction in the medium and long term. The level
of employment within a city, however, is a reflection of not
just economic performance but also of the resource intensity of
output, income distribution and wealth redistribution.
The “activity status” reflects the degree to which the labour
force is engaging in productive activities. Based on the 2015
▲
urban employment survey, the activity rate is computed as the
2014: Women sell spices in an outdoor market in Addis Ababa. © Shutterstock. percentage of economically active population over the total of
active plus not active population aged 10 years and above. The
same report shows that 63.7% of the population aged 10 years
and above were economically active at national level. Looking at
and the city could meet its lower middle-income status target gender differences, the activity level of males is 71.1% and 57.2
by 2025. % for females at national level, implying a distinct nation-wide
Given these three scenarios, one can assert that Addis Ababa gender bias with women not benefitting at par with men.
has a fair chance of meeting its middle-income status target by The CSA's Urban Employment Unemployment Survey (CSA
2025 (see Figure 8) if the aims of scenarios 1 or 3 can be realised. UEUS, 2015) notes that the economic activity status for major
Scenario 1 - ‘business as usual’- is a bit deviant from the other towns in Ethiopia is 61.8%, while the remaining 38.2% were not
two scenarios for it portrays a very strong GDP growth of about economically active. According to the CSA (2015), economically
18% annually. To think that Addis will maintain such a growth active population comprises of all persons who furnish the supply
rate over the next decade is a strong assumption. Given the of labour for the production of economic goods and services. In
recent state of national socio-political turmoil the city may not terms of gender differences, the activity rate of males (70.0%) was
maintain such an impressive growth rate. The overall prospect higher by 15.3% than of females (54.9%). The activity rate for
for Addis Ababa to meet its goal by 2025 is a fair one, assuming the city of Addis Ababa as of 2015 is reported to be 60.8%, lower
the city administration continues its investment in essential than the national estimate of 63.7%. There is also a big gender
infrastructure, improves the efficiency and effectiveness of its gap in Addis Ababa with males accounting for 70.0% and females
decision-making and, especially, enhances its revenue collection. only 53.1% of the total. National labour force data show that
However, here too a word of caution is warranted. An exclusive the total economic activity rate in 2013 was 61.3%, a bit higher
focus on Addis Ababa is likely to significantly increase inequality than 2015. With regard to age category, the highest activity was
between the residents of the capital and those in the remainder registered in the 35-39 year and 40-44 years group, both at 86%.
of Ethiopia. This could alter the risk of civil unrest, diminished Affirmative action policies might be needed with
rule of law and, by extension, a decline in the quality of the Addis regard to gender imbalance in economic activity rates in
Ababa business and investment climate. the city.
22
TABLE 5: TREND IN URBAN EMPLOYMENT TO POPULATION RATIO FIGURE 9: ADDIS ABABA’S EMPLOYMENT BY MAJOR
OCCUPATIONAL GROUP
1999 2005 2013
0.20%
Country total 69.1 76.6 76.2 1.40%
Others Professionals
3%
Urban 48.2 50.2 55.5 6.30%
Skilled agriculture, Plants and
Rural 73 82 81.6 9.10% 28.20% forestry and fishery machine operators
Managers Elementary occupations
Addis Ababa 40.5 44.4 47.6 10.20%
Clerical support workers Crafts and related trades
10.60% 16.30%
Source: CSA, 2013
Technicians Service and
14.70%
sales workers
Source: CSA, 2015
FIGURE 10: URBAN UNEMPLOYMENT BY MAJOR OCCUPATION FIGURE 11: ADDIS ABABA’S MAJOR OCCUPATION OUT OF TOTAL
EMPLOYMENT BY GENDER (2015)
0.12%
2.20%
Others Professionals
3.60% Managers
5.50% Professionals
Managers Technicians
6.50% Technicians
30.50%
Clerical support workers
7.90% Clerical support workers Crafts and related trades
Service and sales workers
Skilled agriculture, forestry and fishery
8% Skilled agriculture, Elementary occupations Crafts and related trades
forestry and fishery
20.30% Plants and machine operators
15.40% Plants and Service and Elementary occupations
machine operators sales workers
Others
0 5 10 15 20
Percentage
Male Female
Source: CSA, 2015
Source: CSA, 2015
Employment-to-population ratio With regard to employment by major occupation in Addis

The employment-to-population ratio measures the extent Ababa, the shares of managers, professionals and technicians are
to which the population is engaged in productive activities. It estimated at 3.0%, 10.2% and 9.1% respectively. The majority
is measured as the ratio of total employed person to the total concerns low-skill, non-permanent jobs such as daily manual
population aged ten years and above (CSA, 2013)8 (see Table 5). labour or related activities. From the poverty perspective though,
The employment-to-population ratio of Addis Ababa is relatively enhancing productivity among these low-quality occupations
low compared to the urban, rural or national averages, indicating is a desirable and viable option. Similarly, the proportion of
that much more needs to be done to expand job opportunities people employed in the professional category is also low. This will
in Addis. In 2015, the figure for Addis had slightly improved to have a major impact on the ability of Addis Ababa to become
47.9%, but still remained the lower one. What is striking is that a production city instead of a consumption city. Enhancing
there is a sharp contrast between male and female employment. technical/vocational education and training could increase the
The data for 2015 shows a significant gender bias with 59.9% of proportion of technicians and professionals, thereby expanding
males versus 37.9% females engaged in productive activities. opportunities for employment in the micro and small enterprises
A closer look into the nature of jobs by major occupational (MSE) and manufacturing sectors.
group indicates that, in Addis Ababa, services and retail work Occupational classification by gender in Addis Ababa (see
dominates (28.2%), followed by crafts and related trades Figure 11) reveals that males dominate in the managerial,
(16.3%) and elementary occupations such as cleaning, loading, professional and technical categories while women’s share
unloading, vending, taking care of apartment houses and hotels, is higher among services and sales workers, elementary
garbage collection etc. (14.7%) (see Figure 9). occupations and clerical support. From the above data it is
Figure 10 compares major occupational groups in major urban clear that women are not just disproportionately represented
areas and those in Addis Ababa. For major towns, the share of in overall unemployment, but particularly also in high-quality
employment in the services and sales workers category is estimated jobs. Gender empowerment interventions such as women’s
at 30.5% followed by elementary occupations (20.3%). entrepreneurship development programs are needed to enhance
23
FIGURE 12: EMPLOYED POPULATION BY STATUS IN EMPLOYMENT
Governmnet employee
Private organization
NGOs
Domestic
Other employee
Member of cooperatives
Self employed
Unpaid family workers
Employer
Apprentices
Others
0 5 10 15 20 25 30 35
Percentage Source: CSA, 2015
the skills and job intensity towards more quality occupations

FIGURE 13: ADDIS ABABA UNEMPLOYMENT TREND
for females.
CSA 2015 data (see Figure 12) revealed that the public sector 100
Percentage
provided a mere 12% of the total employment in Addis Ababa,
while the private sector accounted for 64.2% (32.2% salaried, 75
1.4% employers and 30.6% self-employed). This is a reversal of
the situation under the past regime when the public sector was 50
37.80%
the major employment provider in Ethiopian cities as the private 31.20%
sector was then stifled by nationalisation policies. 25
24.20% 21.20%
26.40%
The relatively large share of self-employed in total employment, 20.60%
16.50% 16.80%
coupled with a small share of employers (1.4%) could indicate that
0
self-owned small businesses play a key role in urban employment. 1999 2005 2013 2015
This builds a case for enhancing small business support and hints Addis Ababa Urban Ethiopia
at a further potential for job creation and economic growth in
cities such as Addis Ababa through Micro and Small Enterprise Source: CSA, 2013; CSA, 2015
(MSE) development programs.
State of unemployment
The unemployment rate is a measure of the number of people Employment in the urban informal sector
who are both jobless and looking for a job, expressed as a share Evidence shows a declining trend in Ethiopia’s urban informal
of the total labour force. This rate is calculated as the share of sector employment over time. According to CSA 2015 data,
unemployed population over the total number of economically the nationwide share of urban informal sector had gone down
active population. Addis Ababa’s unemployment rate has always to 27.8% in 2015 from a high of 50.6% in 2003, implying a
been higher than the urban Ethiopia’s unemployment rate regression in the economic importance of the informal sector.
throughout the period for which data are available. The current Moreover, 2015 data for Addis shows that the total share of
unemployment rate trend, however, seems to decline from a urban informal employment is about 13%; much lower than
high of 37.8% in 1999 to the current low of 21.2% in 2015 the national average. Stiff tax rules and enforcement measures
(see Figure 13). are the likely cause of the reduced proportion of informal sector
Most recent data for 2015 shows that the percentage of employment in Addis Ababa.
unemployed persons in Addis is significant and above the The literature takes three perspectives in defining the informal
urban average of about 16.8%. On the other hand, Addis sector: a) size definition, b) behavioural definition and c) legal/
Ababa experiences a total unemployment rate of 21.2% of institutional aspects. The size definition emphasizes the number
which males accounting for 14.4% and females 28.6% (CSA, of employees per enterprise (usually less than five), the start-
2015). The prevailing higher unemployment rate brings an up capital, the labour-intensity of products and low-tech firms
increasing challenge for the urban economy of Addis Ababa (Stewart and Ranis, 1999)9. Applying this definition of the
despite its recorded economic growth in recent years. More informal sector, a large number of formal firms in Addis Ababa
importantly, female unemployment is double that of males would be categorised as informal. The second definition focuses
in the city, suggesting limited employment opportunities on the behavioural orientation of firms: ‘survival firms’ versus
for women. growth-oriented entrepreneurs (Liedholm&Mead, 1993)10.
24
▲
Informal income earning activities: shoe shiners. © Geo Kalev
TABLE 6: DEFINITION OF FORMAL/INFORMAL BASED ON LEGAL AND INSTITUTIONAL CRITERIA
Formality status Legal status Description

An activity for which there is a legal counterpart but that does not comply with regulatory systems
Informal None
regarding licenses, permits, certificates and registration of the activity.
An activity complying with either one of the government regulations (usually local licensing without
Semi- formal Local authority license
business registration at higher government level).
Full license and Licensed enterprises with a registered business name, either as a sole ownership, private limited
Formal
registered business company, or share company that comply with government rules and regulations.
Source: Nelson and De Bruijn, 200511
According to this definition, informal sector operators are largely A problem emerges when one uses the combination of these
survival oriented and not risk takers, whereas formal firms are criteria of informality. Some countries use the registration (legal
risk takers with a strong growth motive. The third perspective aspect) and a size of 10 workers as the criteria, while others use the
emphasizes the legal and regulatory environment in defining legal aspect, a size of five employees and the type of technology
the informal sector. This perspective takes the perspective of applied by the enterprise. Therefore, the size of a city's informal
the legalist school of thought, popularized by De Soto12 in the sector as well as the intervention type varies depending on the
1980s and 1990s to distinguish between informal and formal definition used. For instance, if a country uses the legal aspects
(see Table 6). (such as registration and licensing) for defining informality, then
Countries usually define the informal sector by combining enforced registration and licensing of firms could bring down the
these three research perspectives. Consequently, the informal size of the informal sector. However, they may still operate informally
sector is often characterized by easy entry, employing labour- in the underground economy. Thus, registration and licensing
intensive and endogenous technology, small scale family-owned enforcement may merely serve as a shield against confiscation while
enterprises with unregulated and competitive markets. major transactions are still done in an informal way.
25
▲
Small and Medium Enterprise (SME) in Piazza area. © Geo Kalev
TABLE 7: SHARE OF INFORMAL SECTOR EMPLOYMENT, 2015
Country total Addis Ababa Major Urban towns
Total share of the informal sector 27.8 13 18.2

Male (%) 21.7 12.4 15.4
Female (%) 36.5 13.9 22.2
Source: CSA, 2015
The CSA definition of the informal sector based on the status just for Addis but also for other Ethiopian cities. At the country
of registration and licensing may underestimate the actual true level, in 2015, women constitute 36.5% of the urban informal
size of the informal sector in Addis Ababa. It therefore remains to sector workers while males account for 21.7%.These figures also
be seen what the size of the informal sector in the city would be indicate the importance of gender-based interventions.
if the sized-based or behavioural definitions are applied. Future Addis Ababa’s overall achievement in creating jobs through
studies should shed light on the true incidence of informality MSE development is promising, but the city needs to strengthen
using these different definitions. its efforts towards enabling more graduating MSEs and continued
CSA data, applying the legal definition, shows slight variation linkages between micro, small, medium and large enterprises to
between males and females in the proportion of informal sector create a sustainable labour market. Also, many studies indicate
workers (see Table 7). In the urban informal sector of Addis that female ownership of enterprises declines as businesses grow,
Ababa, females account for 13.9% and males 12.4%. Women calling for more action to empower women to also support
dominate in informal sector participation as well as ownership sustained growth and female ownership of businesses.
of small businesses in almost all cities in Ethiopia. This indicates
that affirmative action is needed in informal economy support not
26
2.4Municipal finance and
land value capture
to help them manage their revenue raising efforts and match
them with their ever-increasing expenditure demands. Legal and
regulatory frameworks must define local authorities’ decentralised
fiscal powers, revenue generation, budget preparation and
administration for fiscal decentralization to become effective.
The Addis Ababa City Government’s revised charter
proclamation No. 361/2003 dictates the city’s fiscal power and
F
iscal decentralization, one of the cornerstones of the jurisdictions of revenue generation. Box 1 below indicates the
decentralization policy in Ethiopia, transfers the autonomy fiscal powers of the city administration based on Article 52 of the
and responsibility of revenue raising and management Proclamation No. 361/2003.
expenditures to lower-level government bodies. Oates (1991)13 The same proclamation indicates the boundaries for revenue
argues that for local governments and private sector organizations generation whereby the city government raises its revenue from
to carry out decentralized functions effectively, they must have bodies under its charge, income-generating activities, (joint)
an adequate level of disposable own revenue, either raised locally investments, funds investments, rentals and donations. The city
or transferred from central government to make autonomous government can also make contractual agreements and undertake
decisions about their expenditure. activities to gain and generate revenue. It is also allowed to resort
Hence, for such fiscal decentralization to be effective and to sources from the federal government and also loans. However,
meet its desired objectives, it demands linking spending with where it concerns loans from abroad, the city government shall
revenue generation. For cities, fiscal decentralization is a key tool solicit the federal government to take loans on its behalf.
BOX 1: FISCAL POWER OF THE ADDIS ABABA CITY ADMINISTRATION

1) Assess and collect tax on income from employment within the city, excluding employees of Oromia Region, of the federal government and of federal
public enterprises;
2) Fix and collect land use fee within the city;
3) Levy tax on income from agricultural activities within the city;
4) Assess and collect profit, excise and turnover taxes from individual businessmen trading in the city;
5) Receive value added tax collected by the federal government from individual businessmen trading in, and public enterprises owned by, the city;
6) Fix and collect urban land rent and levy urban house tax in the city;
7) Assess and collect tax on income from rented houses and other properties in the city;
8) Assess and collect stamp duty on contracts and agreements as well as on title deeds-registration executed in the city;
9) Assess and collect profit, excise and turnover taxes from public enterprises owned by itself;
10) Fix and collect road-user-vehicles charge in the city;
11) Fix and collect rentals from houses and other properties owned by itself;
12) Assess and collect income tax, royalty and land rentals on small-scale mining operations undertaken within the city;
13) Fix and collect royalty on use of forest resources within the city;
14) Fix and collect fees on licenses issued, and services delivered, by itself;
15) Levy municipal taxes and duties as well as fix and collect service charges thereof;
16) Assess and collect income tax on gains from renting of patent rights within the city;
17) Assess and collect capital gains tax on property situated in the city.
Source: Addis Ababa City Administration Bureau of Finance and Economic Development (2016)
27
2.5Revenue structure
and performance
of incomes, profits and capital gains. The shares of value added
tax on sales of goods and services, on the average, is 4% and 26%
of total tax revenues, respectively.
Income taxes constitute the largest share in the income,
profit and capital gains component of the tax revenue. That is
understandable since taxing employees through the payroll
T
his section reviews revenue structure and expenditure is easier than taxing business profits. This implies room for
trends of the city administration. A closer look at the enhancing revenues derived from the taxation of profits, rental
actual key revenue sources of the city administration incomes and capital gains. More effort needs to be made in raising
reveals that, over the last GTP period (see Table 8), the total revenues from these ‘under-performing’ revenue components.
revenue has increased by an impressive 208% (41.6% on average) Total revenue has declined over most of the GTP years, except
in nominal terms. In real terms, however, total revenue increased for 2014. This is a matter of concern to the city administration
by 126% (25.2% on average), since the overall price level given the rapid rate of urbanization that brings mounting demand
(measured by consumer price index (CPI) during the same period for funding of new and additional infrastructure, utilities, housing
has increased by about 82%14. and poverty reduction. In contrast to the declining tax revenues,
The data shows that tax revenues constitute the major share non-tax income shows an upward trend, attributed largely to
of the revenue collected through the GTP period. The city government investment income and income from urban land leases
administration’s efforts of broadening the tax base, awareness in particular. Government investment income constitutes about
building, enhancing accountability and trust have born fruits. 66% of the total non-tax revenue, with funds derived from urban
Figure 14: Share of major revenue sources. depicts the share of the land leases nearly all (99%) of the total government investment
key revenue sources over the first GTP period. It shows that, on income, according to BoFED 2016 data15. This means that the
the five-year average, 63% of the revenue is derived from taxation non-tax revenue is basically the income from urban land leases.
FIGURE 14: SHARE OF MAJOR REVENUE SOURCES
100
Percentage
75
Tax Revenue
50
Non-Tax Revenue
Municipality Revenue
25
External Assistance
External Loan
0
2011 2012 2013 2014 2015
Source: Own computation based on BoFED data
TABLE 8: CITY ADMINISTRATION REVENUE, GTP I PERIOD (ETB MILLIONS AT CURRENT PRICES)
2011 2012 2013 2014 2015

Total Revenue 7,067.99 9,748.53 13,227.02 19,095.32 21,761.02
Tax Revenue 4,935.28 7,229.14 10,435.55 14,214.34 16,975.26
Non-Tax Revenue 1,025.44 1,142.31 1,096.19 1,542.00 2,312.86
Municipality Revenue 932.14 1,242.90 1,245.78 1,502.73 1,658.72
External Assistance 63.39 25.46 49.33 213.79 226.90
External Loan 68.37 70.67 353.18 1,571.93 543.54
Source: Addis Ababa City Administration; BoFED, 2016
28
Over the last two years, for example, revenues from urban if cadastres are not up to date and that transfers from central
land leases grew by 57% on average. But excessive reliance on government do not tend to be stable or predictable while such
this single-source income is not sustainable. Land is a limited transfers are often also not transparent and politicised.
resource in Addis Ababa while the value of leases is subject to In decentralized governance systems, local government
a number of factors such as the capacity of the sub-cities to is responsible for providing goods and services to the local
supply enough land to the market. There are also complex community and the users need to pay for these services. This
political factors attached to land availability. Furthermore, sky is based on the benefits-received or cost-recovery principle
rocketing urban land prices have unintended and often severe in public finance. Local government is therefore responsible
consequences for, among others, housing supply, as discussed in both for expenditure on services and utilities and revenue
the next section. Lastly, excessive dependence on income derived collection. If the revenues fall short of expenditure, the central
from urban land leases could jeopardize the administration’s government ideally comes in and transfers resources. However,
efforts towards exploring innovative ideas on generating this is frequently problematic. Therefore, it is critical for local
new revenues. government to generate sufficient revenue which is only possible
if local governments are provided with appropriate authority on
Municipality revenue revenue and expenditure management.
According to UN-Habitat (2009)16, local governments in less- The effectiveness of municipal revenue collections reflects the
developed countries face greater challenges in financing their extent to which a city administration can finance itself (besides
expenditure demands for a number of reasons. the tax components that cities collect on behalf of the federal
Firstly, the revenue base of local governments is usually and regional government and have to pass on). Addis Ababa is
weak compared to that of the federal government. Secondly, an exception to this. Although Addis Ababa can retain the state
municipalities often have few ‘own source’ revenues, lack revenue it collected, municipality revenue still remains vital for a
incentives to generate own revenues and often do not fully number of its discretionary expenditures. With a current rate of
exploit the existing revenue potential from sources. The report urbanization of about 3% annually (according to CSA, 2015),
further notes that property taxes – a key revenue source for many the city has to aggressively work on raising municipality revenues.
municipalities around the world – are difficult to administer Table 9 illustrates the key municipal revenue components over the
▲
Informal income source, drying and selling spices. © Geo Kalev
29
TABLE 9: MUNICIPALITY REVENUE DURING GTP I (IN MILLIONS OF ETB AT CURRENT PRICE)
2011 2012 2013 2014 2015

Municipality revenue 932 1,243 1,245 1,502 1,658
Municipality tax revenue 165 167 245 306 433
Municipality rent revenue 169 177 188 187 201
Municipality service charge 97 152 112 113 164
Sale of goods and city services 489 743 685 884 825
Source: BoFED, 2016
FIGURE 15: THE SHARE OF MUNICIPAL REVENUE DURING THE GTP PERIOD FIGURE 16: ADDIS ABABA CITY REVENUE PER CAPITA IN ETB
100
Percentage
79 78 10,000
City Revenue per capita in ETB

80 74 74
70
8,000
60 6,649
5,977
6,000
40
4,262
4,000 3,199
20 13 13 2,373
9 8 8
2,000
0
2011 2012 2013 2014 2015
0
Share of Municipality Revenue Share of tax revenue 2011 2012 2013 2014 2015
Source: Own computation based on BoFED data Source: Own computation based on BoFED data.
last five years taken from the Bureau of Finance and Economic Addis Ababa because it can retain all state revenue collected, this
Development. municipal budgetary uncertainty is worrisome.
The data reveal that sales of goods and city services make the The Bureau of Finance and Economic Development of the City
largest share (about 55% on average over the last five years) Administration in its 2015 revenue enhancement plan18 cites
followed by municipal tax revenue. Municipal rent revenues and five major reasons for low performance in municipality revenue
services charges constitute the lowest share, indicating that these collection: (a) weak institutional and human resource base, (b)
are potential areas to be explored more forcefully. low tax base and rates, (c) low tariffs, (d) low charges and fees for
What is more important, however, is to look into the trend of utilities, and (e) weak debt collection and non-recovery of major
municipality revenue shares over time (see Figure 15).The share investments.
of municipality revenue has been declining while the tax revenue With regard to institutional and human resource capacities,
is increasing. If the city did not have the privilege of retaining Addis Ababa’s city administration lacks skilled personnel and
state revenue, like other secondary cities in the country, it would appropriate data management facilities and equipment. The city
have been very hard for Addis Ababa to finance its expenditure administration collects land rents at rates set long ago and can
demands. therefore not reap the full benefits of its agglomeration economy
In the case of Ethiopia’s secondary cities the state (direct and and the recent economic boom. Land rents, roof tax and rental
indirect) tax revenue goes to the federal and regional governments income on city-wide properties are all well below today’s market
whereby the city gets a share of what it has collected on behalf of rates and need upward revision if the city is to enhance its revenue.
the higher government level. The grants transferred to the cities Low performance in municipal revenue is further attributable
are in most cases lower than the state revenue collected because to low tariff charges on utilities and services such as water supply
other cities are also considered while redistributing grants. The and solid waste management services. Although most of these
State of Ethiopian Cities 2015 report17, for example, indicates utilities and services are subsidised on the assumptions of pro-
that over the period of 2013 -2014, all other regional cities except poor spending, the collection has been inefficient and the rates
Dire Dawa received less than 100% grant transfer from the state are obsolete. Moreover, a blanket city-wide application of low
revenue that they collected. The shares varied from 22% to 68% recovery charges also subsidises those who could easily afford to
in 2013 and from 8% to 56% in 2014. Over the same period, pay more.
however, some cities received a transfer grant exceeding 100% Addis Ababa’s revenue per capita is among the highest if
of the state revenue collected. The key problem with such state compared to secondary cities. Since the city retains the state
transfers is that they are not clearly predictable. This adversely revenue collected and there are no transfers, revenue per capita
affects financial planning. While this may not be the case for is computed as the ratio of total annual revenue over the total
30
FIGURE 17: SHARE OF VARIOUS EXPENDITURE COMPONENTS IN ADDIS ABABA IN TOTAL EXPENDITURE
100
Percentage
75
50 Administration and
General service
Economic
25
Social
0 Municipality
2011 2012 2013 2014 2015
Source: BoFED
population size. The data reveals that revenue per capita grew by
FIGURE 18: SHARE OF MUNICIPALITY REVENUE TO TOTAL EXPENDITURE
about 30% on average and it was highest during the period 2014
with a 40% growth rate. Figure 16 illustrates revenue per capita Percentage 20
for the five-year period 2011-2015.
Share of Municipality Revenue to Total Expenditure
The State of Ethiopian Cities 2015 report compares city 15
15
revenue per capita based on 2013 data. The report shows that
Addis Ababa’s larger and stronger economy generated a revenue 11
10
per capita exceeding ETB 4,000 while almost all other cities, 8 8
including regional capitals, scored less than ETB 2,000.
5
Expenditure
0
UN-Habitat’s ‘Guide to Municipal Finance’ notes that although
2012 2013 2014 2015
the functions of municipal governments differ among countries,
they generally include transportation and environmental services
Source: Own computation based on BoFED.
(including water, sewerage and solid waste collection and
disposal), protection (including policing and fire protection),
recreation and culture, planning and economic development,
social services, housing and health. and their share. The data makes clear that expenditure on
Based on the principle of cost-recovery, local government- “municipality”ranks the lowest while the economy and social
provided services should be paid for on the basis of benefits services ranked first and second respectively.
received. The extent to which municipalities can actually recover With regard to revenue and expenditure, the key question is to
the costs is influenced by a number of factors. It is dependent what extent the municipality can generate the revenues for its own
on the municipality’s institutional and human resources capacity expenditures. The ability to finance the expenditures from its own
to enforce tax-laws and revenue collection, as well as to create revenue is one indicator of a city’s strength and competitiveness.
accountability and transparency. Capacity constraints are usually Figure 18 shows the trend for the share of Addis Ababa’s municipal
cited as the most impeding factor. Education and training, revenue to total expenditure. The data reveals that the share of
introduction of modern information and communication municipality revenue is declining and that Addis Ababa cannot
technologies together with tax reforms reportedly have positive finance its expenditure from its own municipal revenue alone.
impacts on increasing revenue generation and the collection of Actually, on the average over the past four years, only about 10%
user fees, especially for water and sewer services. It is particularly of its total expenditure is covered by the municipal revenue. State
important to enhance transparency and accountability of city revenues covered about 83% of the total expenditure over the
revenue raising and expenditures. same period. This strengthens the argument that the city needs to
The structure of expenditure obviously reflects the priority strengthen its own municipal revenue generation.
areas that a city emphasizes. Over the data period observed, Addis Addis Ababa’s booming economy and infrastructure develop-
Ababa’s expenditure in the urban economy took the highest share ment is reflected in the city’s per capita expenditure. The primacy
with the construction sector taking the lion’s share in the total and economic importance of Addis is shown by a huge gap in per
economy expenditure. On average, the spending on construction capita expenditure if compared with Ethiopia’s secondary cities.
was more than 60% of the total economy expenditure over the According to the 2015 State of Ethiopian Cities report, most
last four years. Figure 17 illustrates major expenditure categories Ethiopian cities had per capita expenditure below ETB 1,500
31
FIGURE 19: PER CAPITA EXPENDITURE IN ETB FIGURE 20: RECURRENT VS. CAPITAL EXPENDITURE (IN ETB MILLIONS)
20,000
10,000
16,000
7,500
6347 12,351
11,574
5638 12,000
5,000 7,857
4039
8,000
8,424
2732 4,748
6,440
2,500
4,000 4,679
3,576
0
0
2012 2013 2014 2015
2012 2013 2014 2015
Recurrent Expenditure Capital Expenditure
Source: Own computation based on various sources Source: Own computation based on BoFED.
over the period 2012-2014 while that of Addis exceeded ETB positive multiplier effect in the long run. Figure 20 shows the
4,000 on the average (see Figure 19). pattern of both expenditure types.
An increase in expenditure per capita requires an increase The data, as expected, shows that capital expenditure by far
in revenue per capita to finance the increased city expenses. exceeds recurrent expenditure. The huge expenditure on road
Although there is a positive trend in the overall growth of Addis construction is one manifestation of this. Although the trend
Ababa’s city revenue per capita, any fall in municipality revenue is positive and justifiable from the long-term productivity-
could be a hurdle for city’s sustainable growth. enhancing infrastructure investment point of view, the city
Another category of expenditure component concerns the needs to seek a more sustainable way of financing its recurrent
amounts the city has spent on recurrent expenses or capital expenses. Also, over time investment in infrastructure could reach
investments. While both these expenditures are perceived to a saturation point when further investment benefits will become
support city growth, capital expenditure is assumed to enhance marginal in relation to the costs. This demands careful analysis
the urban economy through its impact on long-term productivity. of the true economic and social benefits vis-à-vis the costs of
Investment in infrastructure and utilities is expected to yield a infrastructure investment that draws capital from the city.
32
▲
Cleared land in Addis Ababa before outleasing. © Geo Kalev
2.6Land value capture:

challenges and
In many advanced nations value capturing is realised through
public land sales. According to Peterson (2008), if the public
sector owns the land it can internalize the benefits of public
investment and capture the gains through land sales/land lease.
opportunities For countries like China, for instance, where land is publicly
owned, the municipality typically transfers the land to a public-
private development corporation which, in turn, can borrow
against the land as collateral to finance the infrastructure on the
T
he concept of land value capture emphasizes that urban land it obtained from the municipality. The corporation repays
infrastructure investments would add value to the land. its debt with the proceeds of either selling or by leasing the land
The principle of land value capture therefore is based which value has increased. On the one hand, the municipality
on netting the additional land value created through urban has improved its infrastructure and better urban utilities; on
infrastructure investment. One such mechanism, according to the other, the private sector has benefited through the process.
Peterson19 (2008), is betterment levies. This method of capturing This approach could be considered for Addis Ababa, where the
the land value is based on imposing a one-time tax or charge on municipality has total control over the land, albeit that public-
gains in land value. Landowners are taxed a fixed proportion (i.e. private partnerships are not so strong.
30-60%) of the gain in land value attributable to infrastructure Another approach to betterment fees is applied in Bogota, where,
investments. the city residents pay an ‘acceptable’ fee for the city infrastructure
However, several questions remain unanswered with the without delineation of a specific location in an urban area.
application of betterment levies, and such levies have become This method might be acceptable politically and increases the
a contentious issue for many reasons in many countries. The willingness of paying betterment levies, but the effectiveness of
basic problem is determining what the real gain in land value is delivering infrastructure services could be jeopardised as resources
attributable to an infrastructure investment. This proves difficult are spread over a wide area as opposed to a specific urban locality.
to establish under many circumstances and makes it hard for the The key question with land value capture is whether an
authorities to determine a tax levy without an appropriate tax base. inventory of land assets/registration of fixed property system
33
▲
Construction under way in Addis Ababa. © Geo Kalev
exists for the city. For a city administration to yield good land expectations of future land price increases. Secondly, land sales
value capture, it must have (or put) in place updated property often lack transparency and accountability. The entity that
registration, land use plans, estimate the market value of land has legal title to the land could be corrupted unless there is a
through a process of land valuation, among others. Against this transparent public accounting system on revenue obtained from
background, Addis Ababa is at an infant stage. land lease. Finally, public authorities could drive up land prices
According to a city administration land management report by restricting the supply of land leases to the market. This could
(2016), although there is an established systems of land banking be a deliberate act or could be an outcome of low municipal
and counting parcels of land, property registration is still in its early institutional capacity to provide an adequate and timely supply
stages and would not effectively and accurately facilitate estimating of land for leasing. Either way would have negative repercussions
the value that accrues to land through urban infrastructure on the local economy and hurt urban development.
investments. This is worrisome since clear, comprehensive
and updated land registration can yield important municipal
income. That is especially critical since it can facilitate meeting
the infrastructure and utilities financial demands associated with
rapid urbanization. Fortunately, various GIS-based technologies
make the establishment of a clear, comprehensive and updated
urban land register significantly less cumbersome than before the
availability of these new technologies.

Although land value capture is generally a novel idea that cities
must resort to, in practice there are many hurdles. Firstly, urban
land markets are volatile and current transaction could indicate
a bubble and not a sustainable source. The municipality has to
be careful in utilizing the money obtained from land leases for
investment in infrastructure and avoid becoming dependent
on it as an operating budget or have unrealistically optimistic
34
2.7Competitiveness
and drivers of
TABLE 10: TREND IN INCOME INEQUALITY IN ADDIS ABABA
Year
1996
Gini coefficient
0.353
2000 0.423
economic growth 2005 0.455

2011 0.336
2015 0.324
T
his section discusses enabling business environments, Source: BoFED, Interim poverty assessment (2016)
performance of key sectors such as the micro and small

enterprises (MSEs) and the trends of foreign direct
investment in Ethiopia.
FIGURE 21: PROPORTION OF MSE JOBS CREATED BY MAJOR SECTORS,
Micro and small enterprise development 2011-2015
Sustaining economic growth through a focus on local economy
development has been a guiding principle in the Addis Ababa
city administration. This very objective is derived through the 6%
development of MSEs. It is based on the notion that MSE Trade 8%
development would bring economic growth through reducing Urban Agriculture
unemployment and enhancing equitable growth. Addis Ababa Services 16%
experiences modest income inequality distribution of about 0.3, 54%
on average. The Bureau of Finance and Economic Development Manufacturing
interim poverty assessment of 2016 computes the trend in income Construction 16%
inequality (measured by Gini-coefficient) which has been rising
from 0.353 in 1996 to 0.455 in 2005 (see Table 10). After 2005,
the Gini-coefficient started to decline to 0.342 in 2015. The MSE
development programs have been intense over the last decade. Source: Addis Ababa Micro and Small Enterprise Development Agency (2016).
During the last GTP period alone, the city administration has
created 482,078 permanent and 248,824 temporary jobs or a
total of 730,902 jobs, according to the Addis Ababa Development
Agency (2016)20. This might have partly contributed to a decline graduate to the next higher level. In this regard MSE linkages with
in income inequality over the last decade. medium and large enterprises would prove useful. Government
The construction sector takes the lion’s share of MSE jobs created support is needed in enhancing not only the skill and finance,
by about 54%, followed by services (16%) and manufacturing but MSEs need to have national as well as international market
(16%) (see Figure 21). The housing construction boom and linkages, technology transfers and subcontracting arrangements.
government condominium housing projects might have played It is worth noting that in Addis Ababa MSEs have performed
important roles in this regard. A remaining question is whether better in graduating enterprises to the next higher level. Over
the construction sector provides sustainable employment after the GTP period, about 1,217 MSEs have become medium-size
saturation of the sector. The MSEs may need support packages enterprises, higher than the city administration’s target of 831
that would enable them to sustain their income and strive to over the last 5 years.
35
2.8 Foreign direct investment
attraction is expected to rise due to its relatively good services and
infrastructure, as well as demand for goods and services. The city’s
inward FDI has created about 83,664 permanent jobs or about
30% of the total permanent jobs created. Inward FDI has not
created as many jobs in Addis Ababa as in localities in and around
F
oreign direct investment (FDI), depending on the type the city, possibly indicating Addis Ababa oriented FDI may be
of investment, can be useful to enhance employment more capital intensive.
opportunities, technology transfer and thereby increase The data covering the past two decades on the origin of major
productivity as long as the receiving country has a good inward FDI sources shows a strong domination of China (927
absorptive capacity. Attracting investment, however, requires a projects), followed by Sudan (370), India (346 projects) and
favourable business environment and a stable macro-economy. the USA (242 projects) over the last two decades. China’s FDI
Policy interventions can help create such conditions. In the (excluding joint ventures with Ethiopia) constitutes about 20%
World Bank’s 2016 Doing Business report Ethiopia ranks 146th of the number of projects operating in Ethiopia, about 14% of
among 189 economies surveyed for ease of doing business. This is total permanent jobs created and about 17% of total FDI projects
an improvement over the 2015 report in which Ethiopia ranked (including the pre-implementation and under implementation
148th. Starting a business, obtaining credit, trading across borders projects). In terms of value, China’s registered capital makes up
and registering property however, were found to be critical about 17.32% of the total FDI value invested excluding joint
impediments to doing business in Ethiopia according to the ventures with other countries. With joint ventures included
same report in 2016. These factors have adversely affected inward China’s FDI investment value increases up to about 21.85% of
FDI flows into both Ethiopia and Addis Ababa.21 Based on data the total investment value. The US investment value is closer
from the Ethiopian Investment Agency (2015), Addis Ababa, as to about 1.43 of the total FDI investment value excluding joint
could be expected, ranks first in FDI inflows if compared to other ventures. With joint ventures, the figure for US increases to about
Ethiopian cities or regions (see Table 11). 2.23% of the total FDI value.
In Addis Ababa, about 1,500 FDI projects are operating, For most countries operating projects are less than half of
about 61% of the total number of FDI in the country, further the total projects licensed with China, Germany, Italy and The
consolidating Addis Ababa’s importance in the domestic Netherlands, doing better in terms of getting the FDI into
economy and urban system. In terms of invested capital amount operation in Ethiopia. This low performance in the proportion of
Addis Ababa constitutes about 37.8% of the total FDI invested FDI projects operation could be attributed to the poor enabling
amount. Addis Ababa’s relative position and future share in FDI business environment.
TABLE 11: LICENSED FDI PROJECTS BY REGION AND STATUS (1992-2016)

Pre-
Region Total implementation Implementation Operation
Capital in Millions Permanent Temporary
No of projects
of ETB employment employment
Addis Ababa 2,718 746 457 1,515 34,751.6 83,664 73,248
Afar 25 7 7 11 383.37 841 1,995
Amhara 214 85 62 67 9,185.4 21,579 15,585
B.Gumze 35 16 11 8 186.4 315 2,274
Dire Dawa 60 28 19 13 863.6 1,534 272
Gambella 34 24 4 6 1,059.6 474 3,600
Harari 10 6 3 1 2.500 5 5
Multiregional 306 85 72 149 3,998.6 89,406 110,182
Oromia 1,633 604 413 616 36,788.7 69,660 65,929

SNNPR 172 73 38 61 2,678.9 8,362 22,082
Somali 26 16 7 3 212.8 2,072 2,080
Tigray 84 26 26 32 1,699.9 4,116 6325
Grand Total 5,317 1,716 1,119 2,482 91,811.5 282,028 303,577
Source: Ethiopian Investment Authority, 2016
36
TABLE 12: FDI BY SECTOR (1992-2016)
Pre-
Sector Total implementation Implementation Operation
Capital in Permanent Temporary
No of projects
ETB Millions employment employment
Agriculture 823 329 218 276 8,700.0 12,4317 18,3632
Manufacturing 2,343 773 488 1,082 62,166.4 11,5921 57,176
Mining 32 8 6 18 568.7 815 327
Electricity
(Generation, transmission 4 3 1 1. 10 5
and distribution)
Education 121 35 32 54 377.3 2,122 1,119
Health 105 15 35 55 468.1 1,741 372
Hotels and restaurants 296 104 66 126 1,734.6 3,794 2,410
Tour operation, transport and
131 41 25 65 227.7 781 490
communication
Real estate, machinery
and equipment, rental and 984 266 129 589 6,295.2 12,342 13,151
consultancy services
Construction contracting
390 130 99 161 10,609.2 18,663 39,454
including water well drilling
Others* 88 12 21 55 663.1 1,522 5,441
Grand total 5,317 1,716 1,119 2,482 91,811.5 28,2028 30,3577
Source: Ethiopian Investment Authority (2016)
FDI by sector
The nature of foreign direct investment that comes into an
economy might influence its long term sustainability (in terms
of economic sustainability) through its effect for example on the
2.9Enabling business
environment and city
environment. Key elements to probe the quality of FDI might
include such issues as what proportion of FDI operates on clean competitiveness
energy, environmental sustainability and investments that would
consider climate change.
T
It has been observed that inward FDI in Ethiopia is largely he business regulatory environment is a key determinant
dominated by manufacturing (44.0%), real estate (18.5%), encouraging or discouraging investment flows and, by
agriculture (15.4%) and construction (7.3%). FDI licensed on extension, a city’s competitiveness. A variety of institutions
clean energy generation, health and tourism accounts for only apply different methodologies to rank city competitiveness. The
4.5% of the total FDI (see Table 12). Clearly, there is room Global Cities competitiveness report (2016)22, for example,
for enhancing FDI flows aiming at enhancing sustainability in compares cities based on an indexed score for business activities,
Ethiopia. human capital, information exchange, cultural experience and
political engagement. A number of indicators underlie an index
that determines the city ranking. Addis Ababa was ranked 121st
from among 125 cities surveyed in the Global Cities 2016
competitiveness report, better only than Dhaka, Khartoum,

Lagos and Luanda.
The World Bank in its Doing Business report of 2015 reviews
11 areas through a business’s life cycle to judge how enabling
the business environment of countries or cities is in: 1) starting
a business, 2) dealing with construction permits, 3) getting
electricity, 4) registering property, 5) getting credit, 6) protecting
minority investors, 7) paying taxes, 8) trading across borders,
37
TABLE 13: DOING BUSINESS RANK FOR MAJOR TOPICS
Doing Business Rank 2016 Doing Business Rank 2015 change
Starting a business 176 170 -6

Dealing with construction permits 73 70 -3
Getting electricity 129 127 -2
Registering property 141 140 -1
Getting credit 167 165 -2
Protecting minority investors 166 165 -1
Paying taxes 113 113 No change
Trading across borders 166 165 -1
Enforcing contracts 84 84 No change
Resolving insolvency 114 118 +4
Source: World Bank Doing Business report, 2016
TABLE 14: DOING BUSINESS RANK AND DISTANCE TO FRONTIER

Doing Business 2016 Distance to Doing Business 2015 Distance to
change
Frontier (% points) Frontier (% points)
Starting a business 62.45 59.11 +3.34
Dealing with construction permits 71.05 70.62 +0.43
Getting electricity 58.10 57.29 +0.81
Registering property 50.04 50.02 +0.02
Getting credit 15.00 15.00 No change
Protecting minority investors 35.00 35.00 No change
Paying taxes 68.95 69.11 -0.16
Trading across borders 39.80 39.80 No change
Enforcing contracts 59.06 59.06 No change
Resolving insolvency 37.81 37.39 +0.42
Source: World Bank Doing Business report, 2016
9) enforcing contracts, 10) resolving insolvency and 11) labour business environment with a good global ranking attracts FDI,
market regulation. The World Bank compares and ranks 189 and foreign exchange earnings for that matter.
economies based on the ease of doing business over various years. Despite lagging in many ranking areas, Ethiopia has progressed
Comparator countries are used to analyze the state of doing with respect to construction permits, starting a business, getting
business of a given economy. For the purpose of this report the electricity, registering property and resolving insolvency (World
most recent data in the 2016 report was used to understand the Bank, 2016)24. On the other hand, there was, over the last two
state of doing business in Ethiopia23. years, no significant change in access to credit, protection of
A closer look into both relative and absolute values of the doing small investors, trading across borders and enforcing contracts.
business indicators for Ethiopia gives a clear picture of areas that If Ethiopia and Addis Ababa are seriously attempting to increase
should be addressed to enhance the competitiveness of Addis the inward FDI flows, the lagging or stagnant score areas shown
Ababa and the country as a whole. The rankings provide a relative in Table 13.
measure of where the country stands among 189 economies Starting a business in Ethiopia is clearly challenging and not
around the world and points to areas where improvements getting any easier over time. The World Bank report (2016) reveals
will enhance its competitiveness. Table 13 reveals that over the that Ethiopia is ranked 176th out of a total of 189 economies in
last year, Ethiopia has progressed only in the area of resolving starting a business; a deterioration from the already poor score of
insolvency. This is indeed an important matter when it comes to 170th place in in 2015.
attracting FDI, which often relies, among other things, on global The same report compares the procedures, the time, cost and
rankings in conduciveness of the business environment. A good capital required to start a business in Ethiopia with the sub-Saharan
38
TABLE 15: STARTING A BUSINESS: ETHIOPIA AND SUB-SAHARAN AFRICA COMPARED
Indicator Ethiopia Sub-Saharan Africa OECD high Income
Procedures (number) 11 8 4.7
Time (days) 19.0 26.8 8.3
Cost (% of income per capita) 76.1 53.4 3.2
Paid-in minimum capital (% of income per capita) 138.9 45.1 9.6
Source: World Bank Doing Business report, 2016)
TABLE 16: CORRUPTION INDICATORS

Corruption indicator Addis Ababa Ethiopia Sub-Saharan Africa All countries
Bribery incidence (% of firms experiencing at least one bribe payment request) 28.7 26.8 25.0 17.9
Bribery depth (% of public transactions where a gift or informal payment was requested) 20.5 19.8 19.0 13.9
Percent of firms expected to give gifts in meetings with tax officials 19.8 17.4 18.1 13.0
Percent of firms expected to give gifts to secure government contract 22.5 19.7 31.7 28.4
Value of gift expected to secure a government contract (% of contract value) 0.6 0.5 2.1 1.7
Percent of firms expected to give gifts to get an operating license 2.6 2.3 17.1 14.5
Percent of firms expected to give gifts to get an import license 25.2 23.1 19.1 15.0
Percent of firms expected to give gifts to get a construction permit 55.9 51.2 29.5 23.9
Percent of firms expected to give gifts to get an electrical connection 20.6 22.3 25.6 16.5
Percent of firms expected to give gifts to get a water connection 17.8 20.7 26.7 16.5
Percent of firms expected to give gifts to public officials “to get things done” 9.4 8.3 23.9 21.5
Percent of firms identifying corruption as a major constraint 30.6 27.9 37.9 31.9
Percent of firms identifying the courts system as a major constraint 8.2 7.5 16.2 14.3
Source: World Bank Enterprise Survey, 2016
TABLE 17: CRIME INDICATORS

Crime indicator Addis Ababa Ethiopia Sub-Saharan Africa All countries
Percent of firms paying for security 53 55.3 64.9 55.6
Security costs (% of annual sales) 0.5 0.6 2.9 1.6
If the establishment pays for security, average security costs (% of annual sales) 1.1 1.1 4.9 3.2
Percent of firms experiencing losses due to theft and vandalism 4.7 6.5 22.1 19.4
Losses due to theft and vandalism against the firm (% of annual sales) 0.1 0.2 1.4 0.8
If there were losses, average losses due to theft and vandalism (% of annual sales) 1.5 3.4 7.3 4.8
Products shipped to supply domestic markets that were lost due to theft
0.8 0.5 1.5 0.8
(% of product value)
Percent of firms identifying crime, theft and disorder as a major constraint 1.1 2.4 16.4 19.2
39
TABLE 18: FINANCE INDICATORS
Finance indicator Addis Ababa Ethiopia Sub-Saharan Africa All countries
Percent of firms with a checking or savings account 92.2 92.6 85.9 86.7
Percent of firms with a bank loan/line of credit 30 32.8 22.7 34.6
Proportion of loans requiring collateral (%) 82.9 85.8 83.5 78.7
Value of collateral needed for a loan (% of the loan amount) 301.8 296.2 214.2 205.1
Percent of firms not needing a loan 34.2 32.8 36.8 46.4
Percent of firms whose recent loan application was rejected 16.9 15.1 14.4 11.6
Percent of firms using banks to finance investments 12.3 12.9 19.1 25.3
Proportion of investments financed internally (%) 82.6 83.3 75.8 71.4
Proportion of investments financed by banks (%) 7.5 7.8 9.7 14.4
Proportion of investments financed by supplier credit (%) 0.3 0.3 4.6 4.8
Proportion of investments financed by equity or stock sales (%) 0.8 0.8 5.0 4.7
Percent of firms using banks to finance working capital 13.6 16.4 21.8 30.5
Proportion of working capital financed by banks (%) 7.8 8.7 8.4 11.7
Proportion of working capital financed by supplier credit (%) 3.2 2.9 8.3 10.9
Percent of firms identifying access to finance as a major constraint 20.0 20.3 36.8 25.7
African average, as shown in Table 15. By all standards, Ethiopia’s Addis Ababa, on the other hand, has a competitive advantage
performance in starting a business is also below the sub-Saharan in the crime indicator (see Table 17) with a relatively low score
average. Clearly, there is significant room for improvement. in security costs, theft and vandalism, as well as theft and
Among the four indicators of starting a business, Ethiopia disorder compared to sub-Saharan African average and global
is better only in the number of days it takes to start a business standards. Safety and security are attributes that many African
compared to the sub-Saharan African standard. The paid-in cities lack and that the city of Addis Ababa needs to emphasize
minimum capital in Ethiopia is one of the worst in sub-Saharan as an important competitive advantage when seeking to
Africa. This is the most important factor in terms of adversely attract FDI.
affecting competitiveness. It is not easy for firms to start a business Provision of loan/credit to firms is a key factor contributing
largely because of the initial capital requirements and the poor to city competitiveness for a number of reasons: firstly, credit
credit system. The financial sector is immature and so weak that helps firms invest in new expansion projects with a potential
its outreach to private firms with long term loans and provision to hire more workers. Secondly, credit allows firms to purchase
of various financial services is inadequate. More importantly, technology and then adopt new methods of production that
the required collateral asset value that businesses are required to could lead them towards a competitive edge, enabling them to
bring is among the highest, estimated at about 173% of the loan garner a greater share of the market. This is why banks need
(World Bank, 2013)25. Small businesses in particular face a major to provide credit and financial services to firms in need at
hurdle in accessing financial services because banks perceive them considerable ease. Table 18 above indicates that firms in Addis
as risky. Therefore, most micro and small enterprises start their face severe challenges of getting loans compared to average sub-
operations with funding from family and friends or informal Saharan African firms. A typical firm in Addis Ababa needs to
loan sharks. By necessity, starting capital is therefore typically bring collateral valued about 301% of the loan amount to banks
small and does not allow for purchasing the latest technology, and this makes it difficult for many businesses to access financial
negatively affecting their competitiveness (World Bank, 2013). services. As a result Addis Ababa has only about 13.6% of firms
The World Bank (2016)26 survey (see Table 16) on corruption getting finance for their working capital from banks and only
found that both incidence and depth of bribery are worse in 12.3% are financed by banks for investment purposes according
Ethiopia compared to the sub-Saharan African average. Addis to the World Bank’s (2016) enterprise survey report. This pales
Ababa is doing worse in corruption related to construction permits, in comparison to the sub-Saharan average of about 21.8% and
import licenses, securing government contracts and bribing of tax 19.1% respectively.
officials. A significant number of firms cite corruption as a major Infrastructure provision is one of the key elements for private
impediment to business expansion, implying that interventions sector development and hence for a city's competitiveness. Firm
are required if the Ethiopian and Addis Ababa competitiveness productivity gains are directly related to the level and quality
is to be enhanced. Issues of good governance, accountability and of infrastructure, for it has implications on productions costs,
transparency are central to bringing down both incidence and technology and labour productivity. Addis Ababa’s provision
depth of bribery. of utilities is one of the most modest compared to the regional
40
TABLE 19: INFRASTRUCTURE AND CITY COMPETITIVENESS
Infrastructure indicator Addis Ababa Ethiopia Sub-Saharan Africa All countries
Number of electrical outages in a typical month 6.7 8.2 8.5 6.4
Duration of a typical electrical outage (hours) 4.8 4.6 4.2 2.4
If there were outages, average duration of a typical electrical outage (hours) 6.0 5.8 5.6 4.4
Losses due to electrical outages (% of annual sales) 4.2 4.6 5.5 2.6
If there were outages, average losses due to electrical outages (% of annual sales) 6.4 6.9 8.8 4.7
Days to obtain an electrical connection (upon application) 216.8 194.3 33.0 31.5
Percent of firms identifying electricity as a major constraint 29.1 33.3 38.3 30.9
Number of water insufficiencies in a typical month* 2.7 2.7 1.8 1.0
Proportion of products lost to breakage or spoilage during shipping to domestic
1.1 1.2 1.9 1.2
markets (%)*
Percent of firms identifying transportation as a major constraint 7.5 8.3 22.8 18.1
TABLE 20: INNOVATION AND CITY COMPETITIVENESS

Innovation and technology indicator Addis Ababa Ethiopia Sub-Saharan Africa All countries
Percent of firms with an internationally-recognized quality certification 4.7 4.3 14.7 17.6
Percent of firms using technology licensed from foreign companies 12.9 7.7 17.5 14.9
Percent of firms having their own website 39.6 34.8 32.9 45.1
Percent of firms using e-mail to interact with clients/suppliers 84.5 74.0 60.2 72.6
Percent of firms with an annual financial statement reviewed by external auditors 61.0 58.1 49.0 49.3
TABLE 21: REGULATIONS AND TAXES

Regulations and taxes Addis Ababa Ethiopia Sub-Saharan Africa All countries
Senior management time spent dealing with the requirements of government
12.7 11.9 7.6 9.9
regulation (%)
Number of visits or required meetings with tax officials 1.5 1.6 2.2 1.6
If there were visits, average number of visits or required meetings with tax officials 3.8 3.7 3.1 2.6
Days to obtain an operating license 4.8 5.4 19.1 30.0
Days to obtain a construction-related permit 43.5 47.5 44.5 70.8
Days to obtain an import license 11.5 12.8 14.6 18.2

Percent of firms identifying tax rates as a major constraint 23.5 22.8 33.2 29.5
Percent of firms identifying tax administration as a major constraint 18.4 17.1 26.3 19.2
Percent of firms identifying business licensing and permits as a major constraint 7.6 6.4 17.1 12.5
41
TABLE 22: TRADE LOGISTICS AND CITY COMPETITIVENESS
Trade indicator Addis Ababa Ethiopia Sub-Saharan Africa All countries
Days to clear direct exports through customs 9.8 7.7 10.2 7.5
Percent of firms exporting directly or indirectly (at least 1% of sales) 8.1 8.9 13.8 19.0
Percent of firms exporting directly (at least 1% of sales) 7.5 7.5 9.0 13.8
Proportion of total sales that are domestic sales (%) 93.5 92.9 93.2 91.3
Proportion of total sales that are exported directly (%) 6.0 5.9 3.9 5.9
Proportion of total sales that are exported indirectly (%) 0.6 1.3 2.9 2.8
Days to clear imports from customs* 16.5 19.2 16.3 10.8
Percent of firms using material inputs and/or supplies of foreign origin* 63.4 36.7 59.0 61.2
Proportion of total inputs that are of domestic origin (%)* 67.9 82.5 66.1 64.2
Proportion of total inputs that are of foreign origin (%)* 32.1 17.5 33.9 35.8
Days of inventory of main input 72.9 56.7 24.2 34.4
Percent of firms identifying customs and trade regulations as a major constraint 14.2 13.5 23.0 16.0
average but there is a stark contrast in the areas of; for example; foreign inputs severely hurts businesses in Addis Ababa. This
the number of days required to obtain an electrical connection. especially hampers competitiveness when coupled with poor
In Addis Ababa, this takes about 217 days on average to obtain performance in the average time needed to clear imports (which
electricity connection compared to the regional average of about has worsened from 14.1 days in 2008 to 16.5 days in 2016) and
33 days and the world average of 31.5 days (World Bank 2016 average time to clear direct exports through customs (which
enterprise survey). Addis is also not competitive in the provision has deteriorated from 4.3 days in 2008 to 9.8 days in 2016).
of enough water on a regular basis as its score for the number of Therefore, if the national goal of becoming a middle-income
insufficiencies in a typical month is higher than the sub-Saharan country by 2025 is to be achieved, policy interventions would
African average as can be seen in the table above. be appropriate.
In innovation and technology Addis Ababa scores a low
comparative advantage. It has few firms with internationally Concluding notes
recognized quality certification; much lower than the regional By virtue of its advantageous geographical location and as a result
average. The number of firms using technology licensed from of the massive investment and policy reforms undertaken by the
foreign companies is only about 13 % compared to a regional government over the past decade to position Addis Ababa as the
average of 17.5% and a world average of 15% in 2016 (see Table economic hub of the country, the city’s economic performance over
20). There is some progress in terms of websites to communicate the past decade and half has been spectacular. Huge investments in
with clients if compared with 2008 which was only 18.0% roads, public transport, telecommunications, electricity, drainage
according the World Bank (2006)27 survey report. system, public housing, coupled with an improved legal and
The regulatory environment plays a very important role in regulatory environment have unleashed the economic potential of
competitiveness through its effect on direct and indirect costs. The Addis Ababa. But more still remains to be done.
regulation and tax indicators are within the average regional and The priority task for the coming decade should be for the
global values. Recent tax reform in Ethiopia has contributed to a city administration to build on recent gains by improving
better business environment compared to 2008. The percentage the efficiency, effectiveness and responsiveness of municipal
of firms identifying tax administration as a major constraint institutions in service delivery. The cost of doing business needs to
dropped from 29.1% in 2008 to only 18.4% in 2016; relatively be eased by undertaking deep reforms to facilitate access to land,
good if compared to the regional and global averages of 26.3 % credit, investable capital, as well as by eliminating bureaucratic
and 19.2 % respectively (see Table 21). red tape and corruption.
With regard to trade-related activities, Addis Ababa performs Equally important is the need to reduce the transaction cost
poorly in its reliance on foreign supplies for its material associated with environmental degradation by expediting the
inputs. The World Bank survey report (2016) (see Table 22) implementation of existing laws and regulations on pollution
reveals that about 63.4% of the surveyed firms depend on control, energy efficiency, improvement of mass transit to reduce
imported inputs, compared to regional and global average of congestion and carbon emission, expanding the size of green
59% and 61.2% respectively. Given the difficulty of obtaining space in the city, and creating the conditions for the city to
hard currency and weak product competitiveness, reliance on become more socially inclusive.
42
ENDNOTES CHAPTER 2
1 CSA (2015) Urban unemployment survey, Addis Ababa. 11 Nelson, E. and De Bruijn (2005). The voluntary formalization 20 Addis Ababa Micro and Small Enterprise Development
2 Ministry of Urban Development and Housing (2015). State of enterprises in a developing economy- the case of Agency (2016). Report on Growth and Transformation Plan
of Ethiopian Cities Report. Addis Ababa. Tanzania. Journal of international development. 17, 575- I. Addis Ababa.
3 World Bank (2015). Ethiopian Urbanization Review: Urban 593 21 Ethiopian Investment Agency (2015) Licensed FDI projects
institutions for a middle income Ethiopia. Washington D.C. 12 De Soto, H. (1989). The other path: the invisible revolution by region and status. Addis Ababa.
4 Addis Ababa City Administration (2015) Report on the first in the third world, Landon: Taurus. 22 Atkearney ( 2016) Global Cities 2016: which global cities
Growth and Transformation plan. Addis Ababa. 13 Oates, E. (1991). An Essay on Fiscal Federalism: Journal of are performing best today, which have the best long term
5 The city administration computes its own GDP (City GDP Economic Literature, vol. 37; 1121. potential, and what makes a smart-city?
every year) based on the national MoFEC’s methodology 14 http://data.worldbank.org/indicator/FP.CPI.TOTL.ZG/ 23 As the sample was entirely taken from the capital
6 Bureau of Finance and Economic Development (2016). countries/ET?display=graph Addis Ababa, the doing business report for Ethiopia is
Poverty level assessment of Addis Ababa. 15 Bureau of Finance and Economic Development (2016). a representative of the state of doing business for the
7 CSA (2015) Urban unemployment survey. Addis Ababa. Poverty level assessment of Addis Ababa. capital.
8 CSA (2013) Report on National Labor force Survey. Addis 16 UN Habitat (2009): Guide to municipal finance. Nairobi. 24 World Bank (2016). Doing Business Report. Washington
Ababa. 17 Ministry of Urban Development and Housing (2015), State D.C.
9 Stewart and Ranis (1999). “V-goods and the role of Urban of Ethiopian Cities Report, Addis Ababa. 25 World Bank (2013) Light Manufacturing in Africa: Targeted
informal sector in Development”. www.journals.uchicago. 18 BoFED (2015), Revenue Enhancement plan of the city policies to enhance private investment and create jobs.
edu Administration, Addis Ababa. Washington D.C.
10 Leidholm and Mead (1998).The dynamics of micro 19 Peterson, George. E. (2008) Unlocking land values to 26 World Bank (2016) Enterprise Survey. Washington D.C.
and small enterprises in developing countries.World finance urban infrastructure, trends and policy options 27 World Bank (2006).Enterprise Survey. Washington D.C.
development vol.26, no.1, pp.61-74 series: Washington D.C.
43
▲
Aerial view of the city of Addis Ababa. © Shutterstock
44
45

HOUSING TO
THE POOR
R
apid urbanization and unprecedented population
growth over the past decades have created
enormous pressure on Addis Ababa’s capacity to
provide affordable housing and access to basic services for
the citizenry, especially for the low-income households.
The gap between demand and supply of land and housing
is growing day by day (Eshete and Teshome, 2015)1 and
has led to the growth of informal land transactions and
to an alarming proliferation of squatter and unplanned
settlements (Fransen, 2008).2
46
▲
2010: Construction site in the centre of Addis Ababa. © Shutterstock
3.1 Urban planning, land and
housing policies under the
culture and sports functions; 70 years for an industry; and 60
years for commerce. Urban land leases can be acquired through
award, tender or allotment in accordance with the land grade and
the lease benchmark price (Proclamation 721/2011)5.
Despite the introduction and implementation of various
EPRDF since 1991 proclamations related to the market-oriented land lease system,
the approach has so far failed to expand affordable housing
options to the residents of Addis Ababa of all income groups.
W
ith the overthrow of the Dergue regime in 1991, It is not only just the very poor that are affected by the housing
many aspects of their socialist policies and programs crisis; teachers, nurses and others in the ‘middle class’ are unable
were quickly abandoned. The one exception was state to access affordable housing, forcing many of them to seek a
control of land which the EPRDF maintained. In subsequent second employment just to stay afloat. Lack of a strategic and
years, however, the EPRDF-led government introduced a comprehensive approach to housing policy were cited as major
market-oriented approach to land holding, particularly after the factors why Ethiopia has performed poorly in terms of the
introduction of a new urban land leasehold system in 19933. provision of affordable housing to the poor. Since the introduction
Proclamation No. 80/1993 transformed the land tenure system of the 2005 urban development policy, however, major policy
from the traditional “rent” system to a market system of long- changes can be observed. The following section discusses the
term lease while forbidding the sale of freehold land. evolution of housing policy and strategies from 2002 to 2010.
In 2002, the government enacted Proclamation No. 272/02 on
urban landholding that reinforced the earlier 1993 Proclamation Evolution of urban housing in key policy strategies
which established the market-oriented landholding system.4 In Although the housing crisis had been identified by the
2002, the government issued Proclamation No. 721/2004 which government as early as 2002 during the drafting of the first
clarified the period of lease holding for different types of housing, strategic Sustainable Development and Poverty Reduction Plan,
based on the type of sector or service type. For instance, there is a comprehensive approach was not presented until the adoption
a 90-year land lease for applicants to land for education, health, of the 2005 Urban Development Policy white paper. Subsequent
THE STATE OF ADDIS ABABA2017
▲
Condominium housing © Geo Kalev.
47
TABLE 23: SUMMARY OF HOUSING CONSTRUCTION FROM 2006-2010
Type of Dwelling Addis Ababa Other Regions Total
Commercial 5,592 3,787 9,379
Studio 12,968 102,014 23,182
One bedroom 31,169 25,164 56,333
Two bedroom 23,430 18,333 41,763
Three bedroom 7,086 5,059 12,145
Total 80,245 62,557 142,802
Source: MUDHCo, National progress report on achievements of the past year, 2014
national plans brought more clarity and strategic guidance on

how to address the land and housing crisis. TABLE 24: HOUSING CONSTRUCTED UNDER GTP I
Number of
Sustainable Development and Poverty Reduction Type of project Housing Unit
Plan SDPRP 10/90 Low income condominium housing development 24,288
The Sustainable Development and Poverty Reduction Plan 20/80 Condominium housing development 70,712
(SDPRPP) of 2002 identified that most of the housing problems
40/60 Saving housing development 1,233
in the country are “directly or indirectly related to affordability
either to buy, construct, or rent a house, in the open market” (p. Source: MUDHCo, National report on housing and sustainable development, 2014
126). Despite emphasis on the urgency of introducing appropriate
housing standards to enhance housing affordability, the SDPRP
did not offer a relevant strategic roadmap on how to ease the spread over thirty different sites. It was alleged, however, that
housing problem. The sole exception was the city of Addis Ababa the condominium programme, limited as it was, minimized
where a ‘condominium housing project’ was launched in 2004 as the city’s housing shortage with at least 17.6% (Addis Ababa
part of its inner city upgrading development City Government, 2002, Wubneh 2013, MoWUD 2013)6.
In addition, until 2010, the IHDP created until 2010 already
Plan for Accelerated and Sustained Development 176,000 jobs in the construction industry (UN-Habitat, 2011)7.
Program (PASDEP)
A more comprehensive policy and strategic framework on The Growth and Transformation Plans (GTP)
housing emerged after the introduction of Ethiopia’s first I & II)
comprehensive urban development policy in 2005 which Building on the lessons of IHDP, the first Growth and
informed the drafting of the Plan for Accelerated and Sustained Transformation Plan (GTP I) introduced a slightly different mode
Development Program (PASDEP). Unlike the SPRPR, the 2006 of housing delivery. As an input to GTP I, the Ministry of Urban
PASDEP clearly laid out a strategy on how to curb the challenges Development and Housing developed a new housing strategy in
of access to urban housing and urban land. The Ethiopian 2009. Unlike IHDP, the strategy also offers included mechanisms
government launched one of the most expansive and large-scale to provide housing for the ‘poorest of the poor’ through two types
public housing projects: the Integrated Housing Development of condominium housing developments.
Program (IHDP), a multi-sectoral project that aimed to supply The 10/90 and 20/80 condominium schemes target low-
residential units through the construction of condominium income households earning below ETB 1,000 per month and the
housing, while also providing infrastructure, services and job 40/60 condominium schemes target the middle-income group
opportunities. households (MUDHCo, 2014). The 10/90 and 20/80 schemes
The IHDP specifically targeted at low- and middle-income are highly government subsidized and, through a cross-subsidy
households, with the aim to clear all slums and contribute to strategy, studio’s and one-bedroom apartment units can be
Ethiopia’s desire to become a middle-income country by 2025 purchased through a pricing strategy at a lower price than their
(UN-Habitat, 2011). The multi-story commercial/-residential construction at below-cost prices, while two- and three-bedroom
condominiums also promote more efficient use of urban units are sold for a higher price than their construction cost to
space through densification (Ministry of Work and Urban compensate for the below-cost 10/90 apartment scheme (UN-
Development (MoWUD) 2013). This program initially aspired Habitat, 2011).
to constructing 400,000 condominium housing units between Furthermore, the GTP I acknowledged and encouraged
the year 2006 and 2010 (UN-Habitat, 2011b). However, housing development by the private sector and cooperatives to
country-wide, the programme only delivered 142,802 housing complement the government-driven condominium scheme.
units between 2006 – 2010 (see Table 23). Of these, a little over According to a MUDHCo (2014) report, by September 2014, a
80,000 were built between 2003 and 2010 in Addis Ababa, total of 96,233 housing units had been constructed (see Table 24).
48
GTP II, which covers the years 2016 – 2020, aims to expand the civil servants and the “newly” initiated “low-cost” condominium
housing development programs to reduce the demand and supply housing. In 2004, for example, formal sector housing delivery
gaps in urban houses. Specifically, GTP II aims at increasing the systems constituted the larger share of the housing stock (47 per
construction of urban residential houses from 157,070 – 750,000 cent) in the city of Addis Ababa
houses by 2020. The total numbers of houses constructed by 2014
were very small compared to what was planned (see Table 24). •• Private housing cooperatives
The GTP I period also witnessed the emergence of a new master The private housing cooperative is one of the major formal
plan for Addis Ababa and its surrounding areas (The Integrated housing delivery mechanisms. It is a continuation of a housing
Master Plan for Addis Ababa and Surrounding Oromia Special delivery system introduced during the Dergue regime. Post-1991
Zone) as part of the country’s ambition to become a middle- private housing cooperatives made 75 to 250m2 plots of land
income country by 2025. The new master plan has the following available for individual households.9 Under the private housing
major objectives: cooperative system groups of individuals establish cooperatives
• Improvement of waste collection and waste treatment for which then request leased land from the government. Land
Addis Ababa; allocation is based on a lottery system. Tesfaye (2005)10 reports
• Increased green area coverage; that between 1995 and 2002 this system helped deliver 2,049
• Strengthened rural-urban linkages; plots to housing cooperatives in Addis Ababa. Between 2004
• Development of a polycentric city with a main and 2005, that number increased significantly to 60,000 plots
metropolitan centre and sub-centres; awarded to about 2000 cooperatives.11 As shown in Table 25,
• Development of a mass transit systems and promotion of private cooperatives contributed significantly to formal housing
non-motorized mobility; supply (about 25% of the total housing supply) during the past
• Provision of affordable and standard housing; decades. This delivery mechanism effectively provides housing
• Urban densification; and ownership to parts of the population previously neglected.
• Construction of additional health centres to improve
access to services evenly distributed across the city. •• Real estate housing
The Integrated Master Plan replaced the outdated 1986 Although the housing stock delivered by the private real estate
Master Plan (revised in 1999). This master plan introduced sector is minimal (see Table 25), the sector has significantly
relevant urban planning tools, such as a structure plan and Local grown in the post-1991 period, focusing primarily on high-
Development Plan (LDP). By the early-2000s, however, these income households in Addis Ababa in particular. Consequently,
planning tools were inadequate to address the myriad of Addis the real estate sector contributes little to reducing the housing
Ababa’s urban challenges given the pace of urban growth that the demand by low-income households. The low contribution of
city had experienced over the previous 25 years. The limited space the private real estate sector in low cost housing persists in spite
of Addis Ababa was inadequate to accommodate the multiple of attempts by the Addis Ababa city administration to attract
demands for land by residents, industry and commerce. The private real estate development to the low-cost housing market by
Integrated Master Plan is a response to the increasing demand for offering affordable land lease arrangements and other incentives.
urban land. The absence of affordable mortgage finance has been identified
as a key impediment for these providers to enter into low-cost
Housing stock in Addis Ababa and housing housing sector.
typology
As shown above, post-1991 Ethiopia witnessed an increased •• Government rental housing
need for urban planning and housing development. However, Government rental housing concerns delivery of housing
comprehensive, up-to-date data on the city’s housing stock is owned and managed by public institutions. Accordingly, the
unavailable. Likewise, there is also no reliable information on Agency for the Administration of Rental Houses (AARH) and
existing housing types and tenure forms. Despite this lack of Kebele Administrations are the two public institutions that
information, it is possible to broadly describe housing typologies manage and administer government-owned housing units.
in Ethiopia: a) housing delivered by the formal sector, i.e. by AARH and Kebele housing was established during the Dergue
private housing cooperatives and by the real estate housing sector; regime after nationalization of urban land and urban houses
b) government rental housing; and c) informal settlement and (Yitbarek, 2008)12. The classification of Kebele housing units and
slums (Mathema, 2004, p.10)8. public housing administered by AARH is based on the amount
of rent these residential units produce. Hence, housing with a

•• Formal sector housing monthly rental below ETB 100 was labelled ‘Kebele housing’ while
Formal housing refers to housing owned by individuals, housing with a monthly rental exceeding ETB 100 was under the
private investors and by government and that complies with all responsibility of the AARH (Yitbarek, 2008). More than 90% of
legal standards - the land lease law as well as building codes and the government-owned housing units are administered through
standards (Mathema, 2004). Housing delivery systems under this Kebele schemes. They are usually of low-standard, constructed
group include: housing cooperatives, privately owned individual with mud and sticks. As shown in Table 25, Kebele housing
houses, private real estate development, government housing for constitutes more than 30% of the housing stock in Addis Ababa.
49
TABLE 25: ADDIS ABABA INFORMAL AND SLUM HOUSING AND THEIR •• Informal settlements & slums
In Ethiopia, informal housing refers to residential units built
SHARE IN THE TOTAL STOCK
on illegally-occupied land and/or without conformity to the land
Typology No. of units Percentage use or zoning system and other regulations (Mathema, 2004).
Informal housing 130,000 20 Despite what the term may appear to convey, informal housing
(Organized, built to standard units is not always below standard in terms of quality. They are often
and plots, illegal land occupation)
built by the owner-occupant with local or adapted construction
Slums (disorganized, below 60,000 9
materials. Often, the owner-occupants gradually improve the
standard units, on (il)legal land
occupation) structure over time by investing in new widows, bathroom
fixtures and other amenities. Therefore, informality of housing
Total 180,000 29
refers to the lack of legality in one sense or the other, rather than
Source: World Bank, 2005, p.2 substandard construction per se.
Unlike informal settlements in the outskirts of Addis Ababa,
those in the city are typically better serviced with infrastructure,
electricity, water and garbage collection. According to a report
by UN-Habitat (2011), between 1996 and 2003, about 34.1%
of the housing supply in Addis Ababa was informal. Evidence
suggests that the government’s inability to deliver formal land
and housing in a timely manner and in sufficient quantities has
significantly contributed to the proliferation of informal housing
in Addis Ababa (World Bank, 2015)13.
Alongside informal housing is the prevalence of sub-standard
housing units built on illegally or legally occupied land, giving
rise to the proliferation of slums. In the case of Addis Ababa,
the majority of Kebele houses are sub-standard and are often
characterized as slum houses since they do not conform with
municipal building standards (MUDHCo, 2014)14. Slums
constitute about 9% of the total housing stock in Addis Ababa.
According to World Bank (2005), informal settlement and slums
▲ together constitute nearly 30% of the total Addis Ababa housing
Informal shelter. © Marjan Klosterboer.
(see Table 25).
▲
Public state housing. © Geo Kalev.
50
3.2 Housing affordability
FIGURE 22: PERCEPTION OF HOUSING AFFORDABILITY
T
he Ethiopian government is committed to expanding Somehow affordable 15%
access to affordable housing for the poor. Ethiopia’s major
Affordable
policy strategy documents provide a conceptual and
operational definition of what constitutes housing affordability. Unaffordable over time 20% 45%
Any attempt to measure housing affordability, however, needs to Not affordable
recognize the difficulties that households often face in balancing
their housing costs (rent, purchase or mortgage repayments) and
20%
non-housing expenditures vis-à-vis the expendable income. This
is often constrained by very low earning capacity (Stone, 2006)15.
A review of literature highlights that in many countries a ratio
approach is commonly used to calculate housing affordability. Source: State of Addis Ababa Survey, 2016
According to Gan and Hill (2008), the ratio approach determines
the proportion of the income that should go toward housing costs
relative to non-housing expenditures (Gan and Hill, 2008).16 In the absence of a nationally accepted standard to measure
A 30% maximum of household income for housing costs is housing affordability, effort has been made in this study to capture
considered appropriate. peoples’ own perception of housing affordability. In this regard,
In the African context, however, settling on a 30% threshold the household monthly mortgage expenditure as a proportion
is often impractical because of the difficulties of obtaining of household income has been used to determine affordability.
adequate and accurate information on household income. The data gathered from the survey shows that, out of the 992
Given the prevalence of low incomes and depressed wages, even condominium owners who participated, 48.7% spends less than
spending 30% of income on housing, let alone a higher share, is 25% of their income on housing. On the other hand, 41.3%
not sustainable. of the respondents spends more than 30% of their income on
▲
Recently constructed condominium housing © Geo Kalev.
51
TABLE 26: HOUSING AFFORDABILITY MEASURED BY SHARE OF HOUSING COSTS IN HOUSEHOLD INCOME
Affordability Share of housing costs (mortgage payments) in household income
<25% Excellent 25‐ 30% 30‐35% Good 35‐40% Fair 40‐45% >45% Severe
Very good Burdened
Percentage of households with 48.70% 9.90% 8.10% 5.80% 4.60% 22.80%
Source: State of Addis Ababa Survey, 2016
TABLE 27: CONDOMINIUM HOUSING UNIT MONTHLY MORTGAGE PAYMENTS

Round Year Monthly mortgage payment (ETB)
Studio 1-Bedroom 2-Bedroom 3-Bedroom
Rounds 1 –3 1998 -2000 665 665 950 1,140
Round 4 2001 1,100 1,414 1,728 1,807
Round 5 - 6 2002-2003 1,450 1,865 2,280 2,385
Round 7 2004 1,480 1,931 2,523 2,633
Round 8 - 9 other sites 2005 1,869 2,491 3,426 3,581
Round 7 (Lideta site) 2004 1,982 2,642 3,633 3,798
Round 8 -11(Lideta) 2005 -2008 2,036 2,714 2,732 3,902
Source: Addis Ababa City Housing Development Administration Agency
mortgage. As a result, the latter are burdened and severely stressed

FIGURE 23: MORTGAGE PAYMENT DEFAULTS
to keep up with their monthly payments (Table 26).
It must also be pointed out that, due to low incomes, a large
majority of the urban poor can barely afford the minimum down Have you ever fallen short of paying your mortgage?
payment of ETB 65,000 for a studio apartment in the highly
subsidized condominium scheme. Accordingly, out of 1,184
current condominium unit owners who participated in the survey, Yes
528 (44%) households are of the opinion that the condominium
No
housing schemes are unaffordable. This finding is consistent
with those in a recent World Bank and Cities Alliance (2015)17 48% 52%
report as well as the poverty level assessment report by the Addis
Ababa Bureau of Finance. Both studies concluded that the price
of highly subsidized housing units in the city is unaffordable to
most residents.
With increasing housing shortages, affordability is taking on
new dimensions. Even survey participants who previously stated
that condominium housing is affordable have now changed their Source: State of Addis Ababa Survey, 2016
mind with the escalating cost of monthly mortgages. Of the 1,184

households surveyed, 228 (or 20%) reported that condominium
housing has become unaffordable over time (see Figure 22). This Bank (2015)18, the construction cost for condominium housing
information is consistent with data and findings from secondary in Addis Ababa has more than tripled from ETB 1,000 per square
sources. meter in 2005 to over ETB 3,000 in 2014, p. 97). Increasing
Data from the city’s Housing Development and Administration construction costs, in turn, translate into higher monthly
Agency shows a significant increase in condominium unit prices mortgage payments for condominium owners. Out of 1,181
between the years 2006 and 2013. This partially explains the new condominium unit owners, 648 (52%) reported that they had
unaffordability (see Table 27). For instance, during these years, defaulted paying their mortgage (see Figure 23). On the other
the monthly mortgage unit price that was set for a studio, one- hand, nearly 36% condominium owners reported that they
bedroom, two- bedroom, and three-bedroom steadily increased have paid off their condominium mortgage debts way before the
by 183, 274, 260, and 214 percent respectively (see Table 27). scheduled grace period.
An additional factor for housing cost escalation is persistent Unaffordability of condominium housing is the major pushing
inflation over the past couple of years. According to the World factor for most low-income households to choose Kebele houses
52
▲
Informal settlement and construction in Addis Ababa. © Geo Kalev.
when relocated, despite knowing that all Kebele houses in the

inner city would end up being demolished sooner or later and,
ultimately they will be forced to register for condominium
housing after all.
3.3 Affordability of mortgage
A
ccess to affordable housing finance also remains a major
obstacle in Ethiopia. Due to the limited number of
housing finance institutions, the few that exist can
“We know all Kebele houses will be demolished charge higher mortgage interest rates and demand high collaterals
in the future; since I don’t have the economic that few people can afford. On the other hand, large commercial
enterprises and government-led mega development schemes are
capacity to afford a condominium house, I am given priority in securing bank financing. Moreover, formerly
forced to choose a Kebele house.” subsidized mortgages disappeared in the post-1990 period as
(Interview with public tenant, relocated and part of the financial reforms introduced by the government. For
compensated with Kebele house.” example, between 1997 and 2001, interest rates were revised,
ranging from 10.5% to 15% making it difficult for private
housing cooperatives and individual homebuilders to access
housing finance.
The social groups most affected by escalating housing costs
include women-headed households, elderly on a small pension,
as well as households making a living from informal businesses. “It was extremely hard for me to cover the down-
Households without financial or physical assets or with poor social payment, so I borrowed money from my relatives and
capital often struggle to pay their mortgage. On the other hand, friends”. (Interview with private landholder, relocated)
households with financially capable relatives who can help them

pay their monthly mortgages have been less burdened. There is,
therefore, a strong case to be made that households need external More recently, however, a few privately-owned banks have
support from the government for access to affordable housing. started to engage in mortgage lending, albeit for business
A free-market approach to housing provision is not feasible in a construction and condominium housing projects only.19 The
poor developing country like Ethiopia. A more suitable approach current government-led condominium housing strategy uses a
that takes into account Ethiopia’s particular condition will be financing structure that includes loans from the Central Bank
discussed in the conclusion of the report. of Ethiopia. Citizens who apply for condominium housing are
53
▲
Relocation map within Addis Ababa's boundaries. Source: Marjan Klosterboer and Linda Zardo
3.4
FIGURE 24: MAIN SOURCES OF HOUSING FINANCE
Relocation,
Remittance 8.3
Loan from informal sources 11

compensations, and
Relatives' support the socio-economic
53.2
Own saving
27.6
impacts of relocation
I
n Addis Ababa, nearly 80% of the inner city areas are defined
as slum. Nearly 70% of the houses are dilapidated and lacking
basic facilities and urban infrastructure services. The majority
of these dilapidated houses are Kebele (government) owned (UN-
Habitat, 2011). These inner city slums are being demolished at a
rapid pace to make way for the development of new and modern
required to make a down payment (e.g 10% of total cost of a housing schemes.
condominium if they are signed up in a 10/90 scheme), and the With the adoption of the Urban Development Policy in 2005,
remainder is financed through a subsidized loan secured from the the Addis Ababa city administration has been involved in a
Commercial Bank of Ethiopia. According to a city administration massive urban renewal program. The city embraced a five-year
report, ETB 9.2 billion was spent for building the condominium strategic plan covering the years 2008-2013 and introduced a
houses, excluding the additional government subsidy equivalent Local Development Plan that focused on urban re-development
to ETB 7.2 billion.20. and slum renewal21. The city administration established the Land
In addition to the subsidized government loans, a significant Development, Banking and Urban Renewal project office in
majority of the study participants reported that they use a 2008 to implement its massive urban renewal programs.
combination of own saving, relatives’ support and loans from
informal sources to finance the condominium down payment

and the monthly mortgage debts, as well as to pay off the overall
housing mortgage debts (see Figure 24). “The renewal program aims at creating a compact
city. It also helps to modernize the city for
“My daughter in Finland paid for everything, efficient and effective development that adheres
I never paid for anything myself.” to the master plan.” (Interview with Addis Ababa
(Interview with private landholder, relocated) City Administration Renewal Agency Vice Head)
54
FIGURE 25: INNER-CITY LAND EXPROPRIATION BY SUB-CITY (HECTARE) FIGURE 26: NUMBER OF HOUSEHOLDS EVICTED FROM 2009-2013
BY NEIGHBORHOOD
16
Addis Ketema 10,000
Lideta
86.4 7,500
148.2 6,619
Kirkos 6,141
5,000
Arada 4,118 Private
2,500
141.1 1,766 1,684 Public
1,527
1,040
256
0
Ideta Kirkos Arada Addis Ketema
Source: Data compiled from Addis Ababa City Administration Renewal Agency database (2016) Source: Data compiled from Addis Ababa City Administration Renewal Agency Database (2016)
The urban renewal program is part of the city government’s compensation provided to relocating households should match
plan to improve the living condition of slum dwellers through the current cost for housing construction and costs associated
ensuring delivery of affordable housing through the IHDP with removal, such as transportation and the construction of
programme and providing access to basic urban services. It new dwellings.
is also a mechanism promoted to enhance the inner city land Furthermore, recent proclamations incorporated provisions
management strategy in a sustainable manner through promoting related to notification and clearance order for a dignified eviction
compact city development (MOUDCo, 2014). Accordingly, from process. Consequently, massive consultative meetings with
2009 to 2015, the city has expropriated 392 hectares of inner-city potential relocatees in all urban renewal sites were conducted.
land and demolished a total of 23,151 dilapidated houses in 23 These amendments are significant improvements from the first
Urban Renewal Project sites. This took place in the sub-cities of generation urban renewal programs that were essentially top
Lideta, Kirkos, Arada, and Addis Ketema (see Figure 25). down and did not involve the affected communities. Through
The demolitions in these sub-cities affected a total of 23,151 a process of ‘learning by doing’, the city administration is
households. Of which 4,746 (20.5%) were private tenure to be commended for these significant improvements in the
occupants and 18,405 (79.5%) were occupants of publicly-owned implementation of urban renewal projects.
houses (see Figure 26). The exact number of uncompensated
relocated households is not known. Notification and relocation experience
Urban renewal involves expropriation of land, house demolition, Despite efforts by the city government and a local level
relocation and compensation of displaced residents depending government structure to enhance wider acceptance of the urban
on their tenure ownership position. In the case of Ethiopia, renewal schemes relocatees irrespective of their prior tenure status
Proclamations 80/1993 and 455/2005 set out procedures for questioned the sincerity of the public meetings. All relocatees who
expropriation of landholdings for public purposes and payment of participated in the survey characterized the overall consultation
compensation. In subsequent years, several articles were added to process as top down. Accordingly, the consultation meetings were
these proclamations to clarify notification procedures, eligibility a forum for officials to communicate what the government had
for compensation, and compensation mechanisms. For instance, already decided, rather than a genuine attempt to illicit alternative
Proclamations 455/2005 and 721/2011 clearly articulate that solutions from the citizens through constructive dialogue.
BOX 2: COMPENSATION MECHANISMS FOR INNER CITY RELOCATEES

Proclamation N0. 455/2005, article 8, sub article 4 (a) and (b), the compensation mechanisms for private inner city indicate: an urban landholder
whose landholding has been expropriated under this Proclamation shall:
a) Be provided with a plot of urban land, the size of which shall be determined by the urban administration, to be used for the construction of a
dwelling house; and
b) Be paid displacement compensation equivalent to the estimated annual rent of the demolished dwelling house or be allowed to reside for one year
in a comparable dwelling house owned by the urban administration.
55
Rather they were used to inform us of the
FIGURE 27: SATISFACTION ON JUSTIFICATION ON RELOCATION
AND COMPENSATION governments’ decision and what was expected
from us. Simply, they told us how the
200 relocation would happen. They also promised
Number of respondents
many things just to take our land. After we

152
150
came here, we found that all the meetings were
100
lies. They promised that they would relocate
88
74 us to a better place and provide roads and
50 electricity. After we came here, the situation
was completely different. Roads were not built
0
Highly To some extent Not at all and we did not have access to electricity (…)”
Source: State of Addis Ababa Survey, 2016 (Focus group discussion participants)
The survey found that out of 323 relocated inner city dwellers, Compensation mechanisms
314 were aware of the overall purpose of inner city renewal Compensation to residents who were affected by urban
programs. However, some 28% (88 households) of the relocatees renewal programs took many forms: an offer of substitute land;
were not convinced by the justifications given for relocation by condominium housing for those who can afford mortgages;
the officials (see Figure 27). and Kebele housing for those who cannot afford mortgages. A
total of 2,406 households affected by the evictions received
“The meetings were not to enhance substitute land in the outskirts of Addis Ababa. In addition,
participatory local development outcomes. 11,998 former public housing occupants who could afford the
▲
Half demolished Kebele house. © Geo Kalev.
56
FIGURE 28: NUMBER OF HOUSEHOLDS COMPENSATED Non-transparent compensation system for
landholders and public tenants
5,000
4,367 “(…) Land location value should have been
4,000
3,348
included in calculating the compensation or
3,000
2,741 replacement value. This has been often explained in
2,000 terms of the injustices when it comes to comparing
1,542
1,000
1,189
842 845
Condominium what relocatees receive as compensation vs. what
474 Kebele house
0
372 207
0 0 Plot of land
the city government gains through auctioning
Ideta Kirkos Arada Addis Ketema
expropriated inner city land.”
Source: Data compiled from Addis Ababa City Administration Renewal Agency Database
(Interview with representative of academia)
mortgage payments were compensated with condominium units. The relocation of tenants under the urban renewal projects
Another 1,523 households who could not afford to pay the down started long before the federal government adopted clear
payment for condominium units were provided with alternate guidelines on mechanisms of compensation. In the absence of
Kebele housing (see Figure 28). For the latter group, relocation to guidelines, local authorities had discretionary power to determine
Kebele housing is a temporary solution as they will more likely be the amount of compensation without taking into account current
affected by future demolitions as the city administration expands market conditions. In most cases, these decisions were arbitrary
its urban renewal project. This research has uncovered quite a and favouritism played a big role in the final compensation
significant number of people who have been relocated three times package given out to individuals.
as a result of multiple urban renewal projects.
▲
Private landholder unable to afford construction. © Meseret Kassahun.
57
In 2007, the Federal Democratic Republic of Ethiopia Council do not deserve. After going through several
of Ministers adopted Regulation No. 135/2007, Payment of processes, I ended up with 90 m2.”
Compensation for Property Situated on Landholdings Expropriated (Interview with relocated woman private
for Public Purposes. The regulation spelled out clear compensation
calculation formulas. However, inner city residents who were land holder).
relocated and compensated before the enactment of this regulation
did not benefit since the new regulation did not retroactively
apply to them. They are not entitled to a recalculation of the
compensation they received prior to the adoption of Regulation “I expected to get 150 m2 as compensation for
No. 135/2007. my expropriated land. However, when we came
Former inner city private landholders, relocated and
here, I realized that the land I received was
compensated with private land, were also frequently disappointed
with the compensation procedures. Their discontent emanates smaller. What I have now is 90 m2.
from the exclusion of urban land location value in compensation I filed my grievances, but I did not receive fair
determination, as well as the government’s inability to improve judgment. I wasted my time.”
service for the resettlement sites prior to relocation. As a
(An interview with a woman relocated
result, many ended up spending a significant portion of their
compensation payments on renting temporary housing elsewhere, from inner city)
rather than building their own residential house, or using the
money to improve their condominium units if they choose for
that option instead of land.
Relatively, inner city residents who were tenants in government “I filed a complaint when they gave me
owned properties (under Kebele scheme or the AARH (kiraibetoch) 75 m2 as a replacement for my 300 m2.
and relocated between 2009 and 2015 to condominium housing, When I complained, the officials’ threatened
had done better, although they complained about the timing of
relocation and that the interior of the apartments were unfinished me and told me that the government would
when they moved in. They were, therefore, forced to incur sell the land by lease with good price if I
additional costs to finish the interior of the apartment units. refused to take it.”
Furthermore, many complained that the high upfront down
payment and monthly mortgage payments are far beyond what (Interview with a woman relocated and compensated
they previously paid in monthly housing expenses. with plots of land)
Administration and outcome of grievances

The city administration established a separate institution to
manage relocatees’ grievances. Accordingly, clear procedures Private landholders are compensated with replacement land
for appeal and grievance mechanisms are put in place at local smaller than the size of their original holding and received
(Woreda) level, sub-city and city administration level. However, replacement payment for lost property. The money alone is,
relocatees reported that their appeals did not result in a positive however, inadequate to build a single room house given the current
response. Rather they felt faced with more injustice with their construction costs. The compensation also does not consider the
time and energy wasted for nothing. The following quotes current location value of the expropriated inner city land; the
are from private landholders about complaints regarding the government uses different lease benchmark prices for inner city
compensation determination process: land dependent on the location, and therefore ‘grade’ the land far
below the actual value. This basically relates to the government’s
urban land holding policy that fails to commoditize land. As a
result, the compensation law does not entertain location and land
“First, I was told that I would get 150 m2 as as compensable property interest.
compensation. After I signed and received the As indicated in recent proclamations, public housing tenants
compensation payment, I went to get my land who can afford the down payment received a facilitated purchase
of a condominium unit in the expansion areas without any

certificate, I was told that a mistake had been compensation. Public housing tenants who cannot pay the down
made during measurement and that I would payment were relocated to another Kebele house or to a temporary
only get 90 m2 instead of the 150 promised. I shelter subject to demolition in the near future. Relatively
filed complaints. It took a year and I did not speaking, public tenants appeared benefiting from the renewal
process in so far that they received alternative accommodation
get any justice. The local officials treated me that was already built, with increased tenure security and, lastly,
badly as if I was claiming something that I the opportunity of tenure ownership of one’s own home. Two
58
▲
Homeless families due to renewal now living behind Chinese construction of high rise building © Geo Kalev.
criticisms were, however, recurrently heard from the respondents: to secure accommodation as per the housing policies and
firstly, the location of the condominium units (in most cases) in programmes of the Urban Local Government” (p.19).
the outskirts of the city has fewer socio-economic infrastructure
and, secondly, affordability problems related to both the down The first provision aims at improving informal settlers
payment and monthly recurring mortgage payments. livelihoods so that they will be able to provide for alternative
shelter, whereas the second provision allows for compensation of
Compensation to informal inner city landholders informal settlers affected by the renewal program as per the urban
and sub tenants local government housing plan. These two provisions, however,
In addition to private landholders and public tenants, the were not supported in any of the expropriation of landholdings
urban renewal program displaced significant numbers of informal for public purposes and payment of compensation proclamations.
settlers who occupied inner city land without legal title. There Hence, no other guideline elaborates how the RFP provisions can
are no data available on the number of these informal settlers. In be carried out. Hence, it is not clear whether the RFP alone is
addition, the inner city also used to accommodate the sub-letters legally binding or not.
of individual house owners and public housing tenants.
The proclamations on expropriation of landholdings for
public purposes and payment of compensation neglected this “I have not been informed at all, I found
segment of society from both relocation and compensation out about the demolishment of my house
mechanisms. These people are only mentioned in the 2008 when they took the roof off. We didn’t
Urban Local Government Development Plan and Resettlement
have any money to rent anywhere else, so
Policy Framework (RFP). According to the RPF, inner city
residents without legal title will be assisted in maintaining their we simply stayed here.”
livelihoods. In terms of securing accommodation, the RFP offers (Interview with an informal settler affected
two provisions:
a) Providing job opportunities in the renewal project area by renewal)

through the MSE development program where they
can be targeted in the training. In addition, they will be
assisted with easier access to credit, marketing support to Qualitative data from the survey shows that informal settlers
establish businesses and business premises; and affected by the renewal process were never contacted or consulted
b) Assistance by the project to those displaced persons who in relation to the relocation processes. The compensation
are not urban landholders and who, as a result of project mechanisms did not treat informal landholders clearly. They
activities, lost fixed improvements on the land they occupied, were never invited to the local government consultative meetings.
59
▲
Access to water. © Linda Zardo.
Some stayed in the demolished area in plastic shelter despite

frequent warnings and threats from the local administration.
In some cases, sub-letters and informal households took their
grievances to the city administration. However, none of them
3.5Accessibility and
affordability of
received a proper solution as a deserving citizen except for one
lady with a disabled spouse who were given a Kebele house. basic services
The overall conclusion from this in-depth study on relocation
and compensation is less than flattering. While city residents
overwhelmingly support urban renewal to better their living Accessibility of basic services
T
conditions, the procedure has been plagued with many his study found that the city government has increasingly
bureaucratic problems. The practice has been quite disorganized, invested in enhancing city dwellers’ access to basic social
top-down, and left very little room for genuine and transparent services. There is ample evidence from secondary sources
discussions with the affected populations. Policies and strategies that the coverage of social services has improved significantly,
were developed 'on the go', paying scant attention to the need particularly during the GTP period. However, quality remains
to develop strategies founded on evidence-based research. The a major challenge and the level of citizens’ dissatisfaction with
approach of 'learning by doing' did not sufficiently consider service delivery remains high.
the transaction costs for the people affected, their livelihoods,
and the inevitable destruction of social capital built up over •• Water services
generations. The findings in this report offer valuable lessons Among the basic services provided in relocation areas, access
for the city administration to change the manner in which the to water has been high in comparison to electricity, roads,
municipality should plan and execute future urban renewal and transport, health and education. Satisfaction with access to
relocation programs. water is consistent with the increase of delivery by half from
17% in 2000 to 34% in 201022 and the current coverage
in urban areas is 93.7% nationwide. In Addis Ababa, water

services coverage is almost universal (99.9%) with access to
none-shared taps increasing from 20% in 2007 to 42% in
2011.23
However, a tap is only as good as the water it provides and
despite the increased coverage in water services network, the
supply has increasingly become unreliable. The situation is worst
for relocatees in peri-urban areas with more frequent supply
60
FIGURE 29: WATER SERVICE DEPENDABILITY (IN DAYS WITHOUT WATER FIGURE 30: ELECTRICITY SERVICE DEPENDABILITY (IN DAYS WITHOUT
PER WEEK) ELECTRICITY PER WEEK)
100 100
Percentage of households
Percentage of households
75 75
59.6
55.9
50 50 45.7
31.7 40
29.2 28.7 26.9
25 25
24
9.2
13.6 3.7
10.8 4.7 12.29
2
0 0
No outage 1-2 days 3-4 days 5-6 days No outage 1-2 days 3-4 days 5-6 days
Inner city/before relocation Resettlement area Inner city/before relocation Resettlement area
Source: State of Addis Ababa Survey, 2016 Source: State of Addis Ababa Survey, 2016
interruption in the resettlement areas compared to relocatees’ to a report by Addis Ababa Bureau of Finance and Economic
experience prior to their relocation. Development (2016), 61.8% and 36.7% of the study participants
As shown in Figure 29, out of 1,315 survey participants, reported access to metered private and metered shared electricity
732 (55.6%) reported no water service disruptions before their supply, respectively. Although the use of electricity as a source
relocation. However, 360 (29.2%) reported no water service of lighting has remained relatively stable, power supply to cover
disruptions after relocation. The percentage of households who both lighting, cooking and refrigeration remain inadequate.
reported 1 or 2-day disruptions increased from 24% to 31.7% Most urban residents have switched from charcoal and wood
after relocation. Similarly, the number of households who for cooking to modern electric cooking appliances. Due to
reported a 3 to 4 and 5 to 6-day interruption in water service the increased demand, power outages have become a regular
supply has significantly increased. phenomenon.
Power outages have become a regular phenomenon in Addis
•• Electricity service Ababa. The number of households who reported 1-2 days, 3-4
In the city of Addis Ababa increased investments have been days, and 5-7 day power outages per week increased from 491
made to enhance access to electricity infrastructure. According (40%) before relocation to 716 (55.9%) in resettlement areas
▲
Waste and electricity supply. © Geo Kalev.
61
TABLE 28: SCHOOL AGE POPULATION AND NET ENROLMENT FOR PRE-PRIMARY TO SECONDARY LEVELS
Education level School age population Net enrolment rate (%)
Age Male Female Total Male Female Total
Pre-Primary 4-6 84,963 84,766 169,729 79.45 77.44 78.45
1st cycle Primary 7-10 86,343 87,942 174,285 95.25 98.84 97.06
2nd cycle secondary 11-14 82,596 85,644 168,241 88.95 94.62 91.83
Secondary 1 cycle
st
15-16 43,184 49,793 92,978 Grade 9 -12
Secondary 2nd cycle 17-18 43,485 53,798 97,282 53.52 56.38 55.05
Source: Compiled from Addis Ababa City Administration Education Bureau Annual Statistical Abstract (2014/15) report
and from 150 (12.2%) in the inner city to 345 (26.9%) in strengthen the capacity of small operators rather than relying on
the resettlement areas (see Figure 30). This significant increase modern and capital or energy-intensive waste collection services
in electric power disruption has huge social and economic and imported heavy trucks.
consequences to residents of the city and business establishments In sum, the provision of adequate and quality waste
alike. Continued electricity disruptions shall undoubtedly have management services remain a critical challenge for the
significant impact on the economic competitiveness of Addis Addis Ababa city administration. As a federal capital and the
Ababa, diminishing the city’s capacity to attract investments, diplomatic hub of the African continent, improvement in
weakening its tax base and lowering its ability to generate badly sanitation and waste management services is both an economic
needed job opportunities for its residents. and political imperative. A comprehensive approach is urgently
needed to guide the development and management of the
•• Sanitation, sewage services and dry waste management sanitation, waste collection and processing sector, supported
One of the most critical challenges that the city of Addis Ababa by strong institutional arrangements to ensure enforcement
is confronted with is the provision of adequate and reliable and compliance by all stakeholders who rely on the services. As
sanitation services. Sanitation is often discussed in terms of the industrial base of the city of Addis Ababa expands, much
access to such basic facilities as piped water, toilets and bathing greater attention is also required to control illegal dumping of
and cooking facilities that influence the quality of life of their hazardous wastes.
occupants24. Although significant improvements have been
achieved over the past decade, the depth of the sanitation crisis - •• Education services
particularly access to basic toilet facilities and regular collection of The city of Addis Ababa’s 80% level of literacy is higher
household garbage - remain a threat to public health. According than that in other parts of the country. Over 20% of the Addis
to the 2012 CSA Welfare Monitoring Survey, an estimated Ababa population has more than secondary level education. The
72.27% of Addis Ababa residents are without access to adequate 2014/2015 report from the city’s Bureau of Education shows a
toilet facilities because the personal hygiene infrastructure of the significant increase in education coverage at all levels with the
city is highly inadequate25. net enrolment rate at pre-primary, 1st cycle elementary, 2nd cycle
The current sewerage system of Addis Ababa has very limited elementary and secondary education at 78.5%, 97.1%, 91.8, and
capacity to receive and process waste material generated by 55.1%, respectively. The same report revealed that the completion
households, hospitals, industrial and construction firms (World rate at grade 5 for both sexes is 84%. The city has achieved gender
Bank & Cities Alliance, 2015). Hence, the city is overly- parity at 1st and 2nd cycle elementary education, however, the
dependent on pit latrines and septic tanks. According to a key completion rate for girls after grade 5 is 79% compared to 89%
informant from the Addis Ababa Municipality, the city’s current for boys, suggesting a need for further investigation on why girls
standardized sewage system provides service to only 10% of the do not continue after grade 5 (see Table 28).
population, which indicates great urgency to scale up investments In addition to impressive achievement in enrolment at all levels,
in sewage infrastructure to process both solid and liquid wastes. the city has also shown significant improvement in educational
The city’s capacity to collect, sort, process, recycle and dispose of infrastructure that, in turn, improved accessibility. Accordingly,
household and industrial waste is also extremely limited. Improper the standard class size is 21 for elementary and 40 for secondary
waste collection and disposal methods impact negatively on the level education. With increased expansion of school facilities,
city’s environment. According to World Bank and Cities Alliance over-crowding in each class has reduced significantly.26
(2015), the city has only capacity for picking up 45-80% of solid Another indicator of improved education service delivery is the
waste. The report revealed that solid waste management in the teacher-pupil ratio. At pre-primary, primary and secondary this
city of Addis Ababa is largely dependent on micro enterprises is 1:21; 1:28; and 1:21, respectively. The teacher-pupil ratio for
that provide door-to-door waste collection services. Involving pre-primary and secondary is up to standard except for primary
micro-enterprises is an opportunity for the city administration to education level, which should also aim for 1:21.
62
TABLE 29: PROMOTION IN SCHOOL LEVEL CERTIFICATE EXAMINATION AT EACH EDUCATION LEVEL
Education level % of promotion in school leaving certificate
Male Female Total
Primary education 77.08 69.7 72.87
Secondary 1st cycle 29.22 36.5 65.72
Secondary 2nd cycle 48 52 57.45
Source: Compiled from Addis Ababa City Administration Education Bureau Annual Statistical Abstract (2014/15) report.
TABLE 30: HEALTH FACILITY TO POPULATION RATIO

Primary health
Population Hospitals Health centers Health posts care coverage
No. Ratio No. Ratio No. Ratio
Addis Ababa 3,122,000 11 1:283,818 62 1:50,355 - - 79.40%
National 85,729,000 127 1:675,031 3,245 1:26,416 16,048 1:5,342 93.60%
Source: Ministry of Health, Health and Health Related Indicators 2012/13 report, p. 50.
TABLE 31: PHARMACEUTICAL RETAIL OUTLETS BY OWNERSHIP, ADDIS ABABA
Pharmacy Drug store

Public NGO Other Private Total Other NGO Private Total
Governmental Governmental
Agency Agency
31 5 1 189 226 0 0 190 190
Source: Ministry of Health; Health and Health-related Indicators 2012/13 Report, p.61
The current completion rates for primary education are service coverage to 92 %. However, Addis Ababa for the same
72.87%. At primary level, the promotion of girls (69%) is year has only expanded its health infrastructure with 62 health
significantly less than boys (77%). Promotion rates for secondary centers, bringing services coverage to 62% (see Table 30).28
1st cycle, and secondary 2nd cycle school leaving certificate is As indicated in Table 30, private and public hospitals, health
low at 65% and 57% implying lower promotions of students centres and health posts account for 79.4% of health coverage
from secondary 1st and 2nd cycle programs. Promotion of in the city of Addis Ababa. Compared to the national coverage,
girls from secondary 1st and 2nd cycle education is higher Addis Ababa city falls behind by 14.2%. On the other hand,
(see Table 29). private vendors dominate the distribution of pharmaceutical
products, as shown in Table 31. Public pharmacies only deliver
•• Health services 13.71% of the service for the city’s residents.
Provision of urban health services is another important indicator With demand for better health services growing exponentially,
of a city’s ability to improve the quality of life of its residents. there is considerable room for both the federal government and
Ethiopia’s national health care policy advances a decentralized city administration to develop policies and strategies to encourage
approach that empowers regional governments and districts in more private sector participation in the health care sector.
the delivery of preventive health care services to their citizens.27 Currently, a significant amount of foreign exchange is being
Hence, national emphasis has been given to the establishment lost as those who can afford to do so go on ‘medical tourism’ to
of lower-level health facilities in both urban and rural areas that the Gulf States and Asia in search of better medical treatment.
include health posts, clinics and health centers and training With proper policy and foresight, and with already excellent
facilities for health professionals. air connectivity, Addis Ababa itself could become a regional
A 2012/3 report prepared by the Ministry of Health points hub for high quality medical services for Ethiopians and non-
out that, as of the 2012, the national health infrastructure has Ethiopians alike.
increased by 3,245 health centers and four hospitals, raising its
63
TABLE 32: MONTHLY EXPENDITURE ON BASIC SOCIAL SERVICES BEFORE AND AFTER RELOCATION
Monthly expenditure on water, electricity, and transportation

Number of respondents Before relocation Number of respondents After relocation
to this survey question mean price in ETB to this survey question mean price in ETB
Water and sanitation services 948 20.10 1247 35.66
Electricity 871 61.54 1233 109.70
Transportation 1161 242.30 1212 675.14
Source: State of Addis Ababa Report Survey, 2016
FIGURE 31: SERVICE SATISFACTION LEVEL BEFORE AND AFTER RELOCATION
100
Percentage
72.6
75
60 57.4
58 49.7 50.2
47.5
50 43.7
38.3
34.8
30.8
22.4
21.6 18.8
25 17.7
24.5
0
e
ly
ity
t
n
ion
ion
ke
ag
pp
itio
alt
ric
ar
ain
ct
at
su
He
nd
m
ct
uc
lle
Dr
Ele
er
co
od
co
Ed
at
Fo
d
te
W
a
as
Ro
yw
Dr
Before relocation After relocation
Affordability and client satisfaction of basic social area. They report that road conditions and the neighbourhood
services drainage in the resettlement area are of high quality compared
to inner city neighbourhoods. On the other hand, high levels of
•• Affordability of basic urban services dissatisfaction were reported on electricity and waste collection
This study explored whether urban renewal and relocation services, and some dissatisfaction with water services (see Figure
affected the share of household income devoted to paying basic 31). Out of 1,313 survey respondents, those satisfied with water
utilities (electricity, water and waste collection, transport, and services decreased from 57.4% before to 38.3% after relocation.
security related fees) before and after relocation. As shown on Electricity and waste services also showed low satisfaction levels
Table 32, expenditure on basic utilities has increased significantly after relocation, 27.3% and 12.9 % respectively. Likewise with
after relocation. The mean price for water, electricity, and access to education and health services, although dissatisfaction
transportation before relocation was ETB 20.10; ETB 61.54; is likely to diminish once the planned construction of schools,
and ETB 242.30 per month respectively. According to the survey hospitals and water infrastructure by the municipality are
participants, the price for these three basic services has increased completed to accommodate the growing population. As the
significantly. In percentage terms, after relocation, the estimated resettlement areas become more established, market stalls and
monthly expenditure on water, electricity, and transportation other services are expanding quickly and this is likely to further
increased by 77.4%, 78.3% and 178.6% percent, respectively reduce public complaints about lack of basic food shops and
(see Table 32). other neighbourhood facilities.
In sum, it is fair to say that, over the past decade, the city
•• Satisfaction in basic urban services administration has invested heavily in improving basic services
On the one hand, urban renewal projects are seen positively coverage, such as water, electricity, education, health and
by the residents relocated within the Addis Ababa metropolitan transport for the Addis Ababa residents. In this respect, the track
64
▲
2013: Street scene - men sewing textiles. © Shutterstock.
3.6
record of the government is impressive given the deplorable state
of basic services in Addis Ababa when the EPRDF government
took power in 1991. Needless to say, quality and affordability of The urban renewal
the services still remain problematic for the vast majority of the
urban poor due to their low earning capacity and high inflation. program's socio-economic
Given the pace of growth of Addis Ababa, both in terms of
population and the business sector, enhancing the quality and
impacts on relocatees
affordability of municipal services while increasing the services
U
coverage should remain a priority area for the city administration. rban renewal and redevelopment programs have both
This will require huge financial investments in new and expanded positive outcomes in terms of improving the physical
infrastructure that may very well be beyond the capacity of the conditions of dilapidated neighbourhoods and
Addis Ababa city administration. Therefore, in the short- and enhancing the living conditions of those resettled. The Addis
medium-term, better use of existing investment capacity based Ababa urban renewal process has helped improve the housing
on the highest ‘efficiency gain’ may be the best solution. This conditions of a significant number of public housing tenants
will demand deep administrative and institutional reforms at the relocated to condominium housing units. Even though they have
city government level, complemented with better planning and to carry out the finishing of the condominiums themselves at
enhanced investment strategies. additional cost, their new accommodation is much better than
the one they left behind.
On the other hand, the renewal process has exacerbated

the poor housing condition for some private tenure holders
compensated with substitute land, but unable to afford the
construction of a new dwelling that meets the high municipal
standards. Consequently, they are forced to live in sub-standard
shelter on the land they received as a compensation. In a sense,
these relocatees now find themselves worse off than before.
65
TABLE 33: IMPACT OF RELOCATION ON HOUSEHOLD ECONOMIC ACTIVITY
Items Categories Frequency %
Has your ability to earn income been affected by your relocation? Yes 187 57.9
No 136 42
Total 323 100
Did you own a private business in your previous site? Yes 92 29
No 230 71
Total 323 100
Were you able to relocate and sustain your business? Yes 12 13.5
No 77 86.5
Total 89 100
Economic impact
FIGURE 32: LOSS PERCEPTIONS DUE TO RELOCATION
Most inner city residents depend on the informal economy,
which is mostly neighbourhood based. The major urban renewal
Safety and security enhanced the developments of satellite cities far away from the city
Portion of land 29.4% centre. Hence, renewal induced displacement that compromised
the economic ties with neighbourhoods and the city centre.
Basic services 31.1% 82.4% Out of 323 households that participated in the survey, 187
Means of Livelihood (57%) reported that they could not generate income in the
36.8%
Location in city/accessibility new resettlement area. Of these 323 relocated households, 92
Strategic location for my business 63.9% (41.3%) had their business in the inner city and only 12 (3.7%)
42.9%
could sustain their businesses in the resettlement area. For 88
Friendship 57.4% households (29.1%) the resettlement area cannot provide income
opportunities (see Table 33).
Source: State of Addis Ababa Survey, 2016 Qualitative survey data also confirms that those who had been
operating informal businesses lost their income sources despite
efforts to sustain their economic activity in the resettlement
areas, because their income economic activities depended on a
In addition, public housing tenants who chose not to be neighbourhood-based clientele network lost in the renewal and
moved to condominiums because they could not afford the down relocation process.
payment and monthly mortgage payments, have been relocated to Estrangement in the new neighbourhood and difference in
Kebele houses of low quality and often too small to accommodate the ways and standard of living significantly hampered easy
the household. They too are worse off than before relocation. blending into and restarting economic activities. Specifically,
The urban renewal programs clearly have further unintended the resettlement area does not actually require the business types
negative consequences for quite a few relocatees. Redevelopment that relocatees operated in the inner city. Particularly, business
often uproots people’s network of social and economic ties that skills that helped their inner city informal activity appeared
are usually neighbourhood-based. Regardless of the fact that incompatible in a new and entirely different socio-economic
urban inner cities mostly constitute substandard housing and environment.
lack proper physical and social infrastructures, the communities’ Relocated residents often also mention the incompatibility
social networks and economic relationships are a vital part of the condominium design with the local culture. As a result,
of livelihoods and often constitute an indispensable coping condominium living forced them into different lifestyles.
mechanism for survival. Relocatees formerly dependent on house rent could not regain
Survey results show that, out of 323 relocatees, 82% ranked this source of income and these households are now in abject
destruction of social networks as a major loss and, in an order poverty unable to meet their basic needs.
of severity, 63.9% ranked loss of strategic location for private
business as the second-most important damage. Lost location in
the city accessibility and loss of means of livelihood were ranked
third and fourth respectively (see Figure 32).
66
▲
Girl making spices in front of a condominium. The design of condominium housing is often incompatible with local culture. © Geo Kalev.
“When we were in the city, we would find a “I can’t work from where my condominium is
way to make some income on a daily basis. located. My house is on the fourth floor, there is
What we used to do is based on the informal no place to cook and run my restaurant.”
network we established over the years. We (Interview with public tenant, relocated).
are now newcomers and the area is like rural
area (…) and there is nothing we can do here
“I had three extra rooms and used to live with my son
(…). Women who used to sell and make a
and sister using the rent money. The house we had
living are now jobless. Many men who used to
near Meskal Square was spacious and clean. We had a
make money in the city are now just working
beautiful life there. We used to have better household
as security guards for mostly unfinished
equipment. Now, look at us (…) look at this house
buildings. Some of us are just sitting idle (…)
(a shelter made of used corrugated iron sheet). Now,
(Focus group discussion participant).
we are dependent on our two elder sisters generous
enough to supply our food needs (…).
“I used to manage with the money I earned (Interview with private landholder, relocated, and
with a small stall in front of the house, now I

compensated)
am dependent on my daughter, who works at a
government office.”
(Interview with private landholder, relocated). Impact of urban renewal on social relations
Inner city residents’ social networks are particularly vital during
economic and social challenges such as celebrations, childbirth,
death and other family circumstances (Yintiso, 2008)29. Findings
67
TABLE 34: RELOCATEES’ ABILITY TO JOIN NEW SOCIAL ORGANIZATIONS AND LEVEL OF SOCIAL INTERACTION
Response Frequency %
Have you relocated with the neighbours you lived with prior to relocation? Yes 140 43.6
No 181 56.3
Were you able to join a new social group in the resettlement area? Yes 125 38
No 200 62
What were your social interactions with your neighbours before relocation? High level of interaction 289 90
Moderate 22 6.8
Low level of interaction 10 3.1
relocatees do not have a social network system that they could

FIGURE 33: PRIOR MEMBERSHIP IN SOCIAL ORGANIZATIONS rely on in the resettlement area for informal companionship, and
instrumental as well as psychosocial support. Hence, many could
Other 0.8% not maintain their Iddir and Mahibers (or mutual aid community
Religious fellowship group
organizations), which are very important social capital.
Although a significant number of people could not maintain
Equb 16.1%
their social networks after relocation, some have joined new ones to
Mahiber 37.5%
cope with the loss. As shown (see Table 34), only 38.9% managed
to join new social networks in the resettlement areas. Regardless
Iddir 20.3%
of prior tenure type, relocatees often establish a development
committee out of necessity. These development committees
25.3% often serve as organized ‘interest groups’ that work to enhance
a smooth relocation experience by demanding local government
response in servicing the resettlement areas. Development
Source: State of Addis Ababa Survey, 2016 committee members from public housing tenants compensated
with condominiums tend to work with condominium
managers representing them. The relocated private landholders’
from this study confirm that membership of various social development committees often liaise with former Woreda or sub-
groups is social capital that sustains people. Established inner city city administrators to make sure basic services demands are met.
social networks used to offer residents the much-needed social However, committees’ satisfaction level on the administration’s
organization to support individual and communal needs (see response is very low. This suggests the need for further studies on
Figure 33). the level of interaction and sense of belongingness of relocatees,
Unfortunately, the city’s renewal and relocation strategy failed because of the new social structure and the fact that the organizing
to recognize the importance of relocating inner city dwellers as development committee was not internally driven.
a group. Relocatees’ limited options in choosing the site of their
condominium was a major social relations’ disruptive factor for the
majority of public housing tenants. Such life-long relationships “Our development committee members have
cannot easily be reconstructed. Condominium housing units been relentlessly working to make our voice
were allocated through a lottery system, and recipients were heard. The relocation area was underserviced
consequently assigned random locations. The government also
which is contrary to what the government
used the lottery system in distributing replacement plots of land
for private landholders, although landholders could decide the promised (…) When we received the land,
resettlement area. In both cases, long sustained neighbourhood displaced farmers crop was on it. The committee
friendships and established informal social networks could not members have to go back and forth to the
survive relocation.
government office with their own cost to get what
In addition to membership status, 289 (90%) of relocatees
reported that they had a high level of interaction with members we have now (…) however, the neighbourhood
of the social organization before relocation. However, because of feeling is much different now compared to the
the lottery system, significant numbers of relocatees (i.e. 56% out friendship I had before relocation. I do not feel
of 321 survey respondents on this particular question) did not
that I am with my friends (…)
relocate with their neighbours, therefore, making the relocation
and resettlement experience more challenging. In addition, some (An elderly participant of the focus group discussion).
68
The role of these committees is like that of a formal institution FIGURE 34: FORMAL SOCIAL SUPPORT EXTENDED TO RELOCATEES
trying to handle the development of new settlement areas
through mediating between relocatees and local governments in Formal social support received 4%
matters like servicing the area with roads, electricity and other
Formal social support not received
development-related issues they consider important. However,
the low-level response from local authorities has discouraged
many committee members. In spite of the negative impacts
of relocation, some positive experiences in relation to social 96%
networking were observed. The continuation of pre-existing
networks in the resettlement area and the ability to form new
relationships, as well as readiness to accept change and getting
used to a new lifestyle appear to contribute to positive experiences Source: State of Addis Ababa Survey, 2016
for some relocatees.
Availability of formal social support city officials had visited them in the resettlement areas over the
Undoubtedly, urban renewal relocations have disintegrated last five years nor had they been consulted on how they could
social capital. Local authorities should better assist relocatees in improve their living situation once resettled.
handling the unintended negative impacts of their resettlement
through professional facilitation of the relocation experience.
Assessment of formal support to help relocatees cope with the “They [the officials] do not care whether we are
negative impacts on their livelihoods and social/communal gaps making it through. Did they come to check
during and after relocation revealed that 96.0% reported that on us? None of the Kebele or sub-city officials
local authorities had made little effort (see. Figure 34)
visited us after we arrived here. In our previous
The survey showed that almost none of the in-depth interviewed
received any formal support from local authorities. They were neighbourhood, they used to encourage us to
left to struggle with their personal economic and social crises organize ourselves in groups and to receive
experienced due to relocation. Public housing tenants relocated financial support to do business. After we came
and compensated with condominium housing units or whether
here, I never heard anything like that (…) let
relocated to Kebele housing and remaining in the inner city were
not supported to smoothly resettle. Relocated private landholders them come and see how we are living first (…).
compensated with land reported that, neither Kebele nor sub- (Focus group discussion participant)
ENDNOTES CHAPTER 3
1 Eshete, Z.S., and Teshome, K.W. (2015). Performance, city Cause and Practice: the case of Kolfe Keranyo Sub City. Development Bank of Ethiopia have been participating in
challenges and prospects of real estate financing in Addis Addis Ababa offering financial lending services.
Ababa: Micro- and macro economic implications. American 11 Addis Ababa City Administration (2006). Performance 20 Interview with the Addis Ababa City Administration
Journal of Economics, Finance, and Management, 1(1), pp. Report (Jan/2003 - September /2006). Addis Ababa Construction & Housing Development Bureau head
1-9 12 Alemayehu, Elias Yitbarek (2008) Revealing Responses. 21 Addis Ababa City Administration (2008). Strategic Plan of
2 Fransen, J. (2008). Introduction. In van Dijk, M. P., and Urban upgrading in tenant dominated inner-city Addis Ababa 2008/09-2012/13, Strategic Plan Document,
Fransen, J. (2008). Managing Ethiopian Cities in an Era settlements, in Addis Ababa, Ethiopia. Thesis for the Addis Ababa City Administration, Addis Ababa.
of Rapid Urbanization. Eburon Uitgeverij BV. Institute for degree of philosophie doctor. Trondheim, February 2008. 22 World Bank (2015)
Housing and Urban Development Studies 13 World Bank Group (2015) Ethiopian Urbanization Review: 23 CSA (2012).
3 Tesfaye, A. (2007) The changes and prospects of housing Urban Institutions for a Middle-Income Ethiopia. World 24 UN-Habitat. (2004). Urban Indicators Guidelines:
development in Ethiopia. Property Management, 25(1), pp. Bank, Washington D.C. Monitoring the Habitat Agenda and the Millennium
27-53 14 Ministry of Urban Development, Housing and Construction Development Goals, Nairobi.
4 FDRE Proclamation, Re-enactment of Urban Lands Lease (MUDHCo). (2014) National Report on Housing and 25 CSA. (2012). Welfare Monitoring Survey- 2011, Addis
Holding Proclamation No.272/2002. Negarit Gazeta. Year 8, Sustainable Urban Development., Federal Democratic Ababa.
No. 19. Republic of Ethiopia 26 MOUDCo, (2014).
5 Proclamation 721//2011 titled “A Proclamation to Provide 15 Stone, M. E. (2006). What is Housing Affordability? The 27 El-Saharty, S. Kebede, S., Dubusho, P. O., and Siadat, B.
for Lease Holding of Urban Lands” Case for the Residual Income Approach. Housing Policy (2009). Ethiopia: Improving Health Service Delivery, HNP
6 Wubneh, M. (2013) Addis Ababa, Ethiopia- Africa’s Debate, 17(1), 151-184. Discussion Paper.
diplomatic capital. Cities 35 (2015) 16 Gan, Q., and Hill, R.J. (2008). Measuring Housing 28 Ministry of Health (MOH). Health and Health Related
7 UN-Habitat. (2011) Condominium Housing in Ethiopia Affordability: Looking Beyond the Median Indicators 2012/13.
-The Integrated Housing Development Programme, United 17 Cities Alliance Annual Report 2015: Cities without slums. 29 Gebre Yintiso. (2008). Urban Development and
Nations Human Settlements Programme, Nairobi World Bank and Cities Alliance. Displacement: The Impact of Resettlement Projects on
8 Mathema, A. (2014). Ethiopia: Housing in Addis Ababa, 18 World Bank Group (2015) Ethiopian Urbanization Review: Low- Income Households. Eastern Africa Social Science
The World Bank/ Danish Trust Fund Urban Institutions for a Middle-Income Ethiopia. World Research Review, Vol. 24, N o. 2, pp. 53-77.
9 Tesfaye (2007) Bank, Washington D.C
10 Tesfaye, E. (2005). Illegal Land Sub division in Addis Ababa 19 Banks such as Commercial Bank of Ethiopia and
69
▲
Woman sitting outside her house before relocation. Socializing with neighbours often gets lost in relocation areas. © Geo Kalev.
70
71

THE URBAN
ENVIRONMENT
72
▲
2015: Menelik II equestrian statue in Addis Ababa. © Shutterstock
4.1 Growth, resources and
equitable well-being
growth and the geographical expansion of city’s boundaries are
not based on a long-term environmental vision (Gallent & Shaw,
2007)3. Massive and rapid urbanization increasingly demands
more water, energy, food, land and housing, causing rapid land-
cover change and alterations in biogeochemical cycles and hydro
systems, loss of biodiversity and soil degradation (Grimm et al.
U
rban ecosystems, referring to all green and blue areas in 2008; Xiao et al. 2013)4.
the city (e.g. parks, private gardens, rivers, ponds and More importantly, the downward trend in Addis Ababa’s
riverbanks) and the environmental services they provide ecosystems significantly weakens the resilience to stress and
(such as food, fuel, clean water, clean air and hazards mitigation) shocks of the whole urban system (such as urban food insecurity
represent a condition sine qua non for human life. Local and and vulnerability to droughts or floods) and worsens the likely
regional ecosystems provide important functions that benefit impacts of climate change related hazards on the city. Hence, in
urban residents including providing a habitat for biodiversity, a rapidly urbanizing space city planners are expected to consider
primary productivity, storm water absorption and retention, air how ecological resources can be strategically developed and
pollution removal and heat mitigation (Bolund & Hunmannar, managed to meet the needs of the urban population of today and
1999)1. The absence of functional ecosystem services incurs health in the future and to improve the short-and long-term wellbeing
costs for citizens and government. Addis Ababa is sprawling in of citizens (McPhearson et al. 2013)5.
height and width, modifying the landscape and the land cover in Figures 35 and 36 show the land-cover change of Addis
and around the city. With an increasing built up area, the city is Ababa over the past 15 years resulting from its demographic and
experiencing a decrease in the critical functions of its ecosystem economic growth. A critical look at the situations in 1999 and
services. This compromises the health and wellbeing of the city 2014 shows that the built-up area increased from 134 to 200
residents and their future livelihoods. The city’s current land use km. This implies that the city is consuming the ecosystems at a
decisions are taken mainly in response to changes in the agricultural speed of 4.5 km2 annually. Such a rapid decrease of the ecosystem
economy and the housing market (Bown et al 2013)2. Urban area impacts negatively on the supply of environmental services.
▲
Patches of urban agriculture provide ecosystem services © Geo Kalev.
73
FIGURE 35: LAND-COVER ADDIS ABABA 1999
Built up area 1999: 134.0 Km2

Source: Linda Zardo and Marcia Guambe
FIGURE 36: LAND-COVER ADDIS ABABA 2014
Built up area 2014: 201.0 Km2

74
FIGURE 37: ECOSYSTEM SERVICES SUPPLY IN ADDIS ABABA PER SECTOR (BY ES SUPPLY SCORE FROM 0-10)
Carbon sequestration supply (37a) Carbon storage supply (37b)
Gulele
Gulele
Yeka
Addis Ketema Addis Ketema Arada Yeka
Arada
Lideta Lideta
Colfe Keranio Colfe Keranio
Kirkos Kirkos Bole
Bole
Nifassilklafto
Nifassilklafto
Akaki Kality
0
Akaki Kality 1
0 9
10 10
No Data No data
Gulele
Yeka
Addis Ketema Arada
Lideta
Colfe Keranio 0
Kirkos
Air pollution removal supply (37c) Bole 4
10
No data
Nifassilklafto
Akaki Kality
Runoff mitigation supply (37d) Local climate mitigation supply (37e)
Gulele Gulele
Yeka
Addis Ketema Addis Ketema Yeka
Arada Arada
Lideta Lideta
Colfe Keranio
Kirkos Bole Colfe Keranio Kirkos
Bole
Nifassilklafto Nifassilklafto
Akaki Kality
Akaki Kality
±
0
3
6 0
10 10
No data No data
75
FIGURE 38: TOTAL ECOSYSTEM SERVICES SUPPLY IN ADDIS ABABA (BY ES SUPPLY SCORE FROM 0-10)
Gulele
Yeka
Addis Ketema Arada
Lideta
Colfe Keranio
Kirkos Bole
Nifassilklafto
0
Akaki Kality 2.2
2.6
9.8
No data
The costs and benefits of growth: An ecosystem- type. This method was applied to five ES crucial for the urban
based perspective environment (Bolund & Hunhammar, 1999; McPhearson et al.,
Ecosystems are not only an environmental matter; they also 2013) and adapted to the context of Addis Ababa.
represent economic value. The presence or absence of functional The ES analyzed included: 1) carbon sequestration; 2) carbon
ecosystems and their environmental services have impact on the storage, 3) air pollution removal (PM10); 4) air temperature
strength of the economy and on the wellbeing of people (e.g. regulation; and 5) runoff mitigation. McPhearson’s values for
air purification, noise reduction, urban cooling and absorbing these ES were adopted except for air temperature regulation,
storm/flood water runoff) (Bolund & Hunhammar, 1999). For since that heavily depends on the climate type. Instead, the values
instance, the air purification performed by ecosystems in Barcelona for air temperature regulation in Addis Ababa were taken from a
represents economic values of over EUR 1 million of avoided costs previous study7.
for the city (Gomez-Baggethun and Barton, 2013)6. In Chicago, Figure 37 shows the city mapped according to five ES supply:
the cooling value of each tree corresponds to USD 15 of avoided carbon sequestration (37a), carbon storage (37b), air pollution
air conditioning costs and hospitalization expenditures due to heat- removal (37c), runoff mitigation (37d) and local climate
related diseases (Gomez-Baggethun and Barton, 2013) Obviously, mitigation (37e). From these maps, it is evident that the major
even bigger costs and values are related to flood mitigation. Hence, ES supply takes place far from the city centre. Thus, it is mainly
the presence of functional urban ecosystems represents significant located outside the city where the largest and most healthy
economic and health benefits, while their absence implies costs. ecosystems are found today: mainly in the North, Southeast and
In this report, the demand and supply of ecosystem services a few in the West.
(ES) for the city of Addis Ababa was assessed and mapped to Additionally, comparing carbon sequestration (37a), air
determine whether these are strong or weak. Supply and demand pollution removal (37c) and local climate mitigation (37e)
were calculated independently; next supply and demand with carbon storage (37b) and runoff mitigation (37d), it
information was overlayed to identify where demand matches emerges that not all ecosystems are providing ES supply to the
supply and where either low demand and high supply or high same extent. While carbon sequestration, air pollution removal
demand and low supply occurred. This provided insights into and local climate mitigation are mainly supplied in the North,
locally determined needs and can serve as an indicator of socio- carbon storage and runoff mitigation are supplied in a more
environmental inequalities across the city besides identifying homogeneous way within the city boundaries.
priority areas for intervention. Figure 38 maps the average ES supply values in Addis Ababa
The ES supply assessment was based on the land-cover. The considering the sum of the five specific ES supply –namely, carbon
methodology developed by McPhearson et al. was adopted sequestration, air pollution removal, local climate mitigation,
which assigns an ES supply score from 0 to 10 to each land-cover carbon storage and runoff mitigation.
76
FIGURE 39: ECOSYSTEM SERVICES DEMAND AND SUPPLY PER SUBCITY (BY ES SUPPLY SCORE 0-10)
Ecosystem services supply Demand for ecosystem services
Gulele Gulele
Yeka Yeka
Addis Ketema Arada Addis Ketema Arada
Lideta Lideta
Colfe Keranio Colfe Keranio
Kirkos Kirkos
Bole Bole
Nifassilklafto Nifassilklafto
Akaki Kality Akaki Kality
4.9
0.0 6.6
0.1 6.8
0.4 7.4
0.6 8.0
2.0 8.4
2.9
8.5
3.7
4.5 9.4
7.9 9.4
10.0 10.0
Based on demand analysis, three major components of and the highest demand is Addis Ketema followed by Kiros,
vulnerability among individuals and communities in Addis Ababa Arada, Lideta, Colfe Keranio, Nifassilk, Lafto, Akaki Kality and
were identified: people with low income, children and elderly8. Bole. Gulele and Yeka, on the other hand, show best situations
These three groups are in general more vulnerable and have less with the highest scores in the city (10 out of 10) for total ES
adaptive capacity in the case of stress or shocks. The mapping was supply. The high scores or Gulele and Yeka are due to the fact
done per sub-city, by using two sources: Poverty Level Assessment that these are the less urbanized areas in the city and consequently
of Addis Ababa 2015 (for income determination) and data from they present a high surface of ecosystems. While if we zoom on
the Central Statistical Agency (CSA). most urbanized sub-cities, the difference between the lowest
Figure 39 shows the demand of ES by subcity. The map shows scores (e.g. Kiros, Arada and Lideta, with scores below 1 out
vulnerability weighted according to the population density per of 10) and the average scores (e.g. Bole, with a score around 3
sub-city. It shows that Addis Ketema has the highest demand for out of 10) is due to the physical characteristics of the sub-city,
ES. This is mainly the outcome of high vulnerability and high most of the time related to the socio-economic features of the
population density, followed by Arada and Lideta. Nifassilk sub-city. More specifically, the sub-cities with lowest scores are
Lafto, Kolfe and Gulele show somewhat average scores. On the those with very low income, where housing is poor and there is
other hand, Yeka, Kirkos and Akaki Kality represent the better no space for private gardens or parks, while high income sub-
off scenarios, while Bole has very low demand score because of its cities present more ecosystems thanks to the presence of gardens
residents’ low vulnerability. and street trees. Comparison of demand and supply shows
Figure 39 also shows the overall supply of ES per sub-city. It is need for urgent interventions in Addis Ketema, Arada, Lideta
important to highlight that the sub-city with the lowest supply and Kirkos.
77
▲
Green space in the middle of Addis Ababa. © Kelly Leviker.
4.2 The city we want

built environment growth continues at a rate of 4.5 km per
year, consuming more and more open space while the remaining
ecosystems become ever more polluted.
The threshold value of minimum green space per capita has
H
uman activities and on-going urban growth are been defined by the World Health Organisation as 9m2. Addis
threatening citizens’ quality of life in terms of health, Ababa scores poorly in this respect with between 0.4 and the 0.9
economic productivity and resilience. It must be m per capita.
understood from the outset that sustainability has nothing to do The rapid disappearance of urban green space will bring with
with stopping growth. On the contrary, it seeks to ensure that it huge transaction cost for individuals, communities and private
economic growth is compatible with social and environmental sector enterprises alike. There is evidence that the disappearance
safeguards. Therefore, this chapter identifies trends or actions of green space is responsible for 40% of the flooding and
that can lead to undesirable social, economic and environmental landslides in the city (DPPC, 2015)9. Recurrence of flooding is
outcomes. It also identifies possible strategies to rectify these already costing ETB 0.21 millions per event (and expected to be
negative externalities. Towards this end, four possible growth ETB 0.34 millions per year) for emergency assistance at the city
scenarios for Addis Ababa are being considered: administration level. In terms of average monetary loss per event,
1. business as usual and keeping the on-going trends; Yeka sub-city represents the highest monetary loss with ETB 1.21
2. intervening in practices that can damage ecosystems; millions per event and expected to be ETB 2.12 millions per year,
3. restoring damaged ecosystems; and not counting the loss of human lives, as this cannot be expressed
4. increasing the ecosystems in the city by promoting and in monetary terms. Green spaces are also the ‘lungs’ of a city.
creating new green areas to enhance the supply of ES and Therefore, the sustainability agenda should be given top priority
the benefit they provide to citizens. by the Addis Ababa city administration.
The lack of green space also has social consequences. These are
Business as usual: Keeping the on-going trend the spaces where people meet and socialize; relieve stress, satisfy
Under this scenario, current growth trajectories and levels of their recreational needs and build social bonds within their
resource consumption are assumed to continue unabated. The respective communities. In a rapidly changing city where the state
78
▲
Cars contributing to air pollution © Geo Kalev.
of sanitation and waste management is very poor or inadequate, between four to 17 times more polluted than would be allowed
the rapid disappearance of open green space as the only ‘oasis’ can under Brazilian, Chinese and U.S.A standards (Benjaminson et
have serious social and psychological impacts on the residents. al. 2012)11: The need for expanding the mass transit system is
Addis Ababa’s low environmental sustainability can, and will, well acknowledged by city authorities and new initiatives like the
compromise the city’s economic viability, worsen climate change Rapid Bus Transit System and complementing the new Light Rail
and decrease dramatically the resilience of the city to hazards if a system are now being seriously considered.
‘business as usual’ scenario is pursued.
Restoring the damaged ecosystems
Intervening in practices that damage ecosystems Under this scenario, the city adopts a proactive approach to
Under this scenario, the city would grow in height – higher restoring its degraded ecosystems. Rivers and streams in Addis
urban density being actively encouraged – so that the absolute Ababa are severely degraded due to uncontrolled dumping of
amount of green space remains stable. The city administration household and industrial wastes. In 2014, however, the city
would be actively engaged in stopping water, air and soil pollution. administration launched a river rehabilitation project aimed at
For this scenario to materialize, the city administration has to restoring nine hectares over seven years as part of the first phase
take decisive actions on many fronts. First, it should find a way of this project. The restoration project is expected to prevent
of accommodating more citizens without eliminating additional flooding, while enabling city dwellers to use land adjacent to rivers
open space. Second, all causes of ecosystem degradation should and streams for agricultural production – an activity widespread
be addressed and avoided. Major interventions would be required in Addis Ababa prior to the city’s sprawl to peri-urban areas over
to improve sewage and waste management - two major sources of the past fifteen years.
environmental degradation believed to contribute up to 30% of In addition to reducing flood risk, the river restoration project
the health risk to the Addis Ababa residents. can create new jobs and give impetus to the development of
Air pollution in the city is getting worse. Besides the smoke recreational activities around the rivers while also maintaining
from coal and wood burning for cooking, the transportation biodiversity in the green corridors. The river restoration project
sector is the main culprit of the city’s worsening air pollution would further contribute to reduction or elimination of pollutants
problems (Benjaminson et al. 2012)10. Today, Addis Ababa is in the river and streams. Thus, the project represents an important
79
FIGURE 40: EXAMPLES OF NEW ECOSYSTEMS FOR THE CITY
itigation egu
te r lat n estratio tion ioning
ctio qu iga vis
llution m
l clima
off mit
n
ion
ise redu
food pro
rbon se
o ca
un-
po
ca
Orsin
no
l r
ie
t
the area
al.
of 82 ha // produc-
2
014
GREEN ROOFS tion on 12495 t of
vegetables per year
Bowle // 77% demand for
re
a garden Bologna
ta
with more
l. 20
GARDENS than 60% trees
10
can lower the Gwa
temperature up nG Gwan G
y yu
to 4°C
ue
50 km 2
et
50 km2
t al
al
of urban agriculture, by
. 2015
of urban agriculture
. 2015
URBAN AGRICULTURE avoiding import from rural can produce 200.000
areas, would reduce the tons of crops per
Escobe CO2 of 100-000 tons
do year
per year
100%
et
al
tree coverage
. 2008
URBAN FORESTS can capture 7,4 g/

m2 of PM10
per year. Nowak
an
100%
dC
rane 2002
tree coverage
PARKS
sequestrate 0,3
Esco Kg of Carbon/m2
be
d per year
oe
14% of tree
t al
cover improves the

. 2009
STREET TREES quality of air up to 4%

during the year, Up to
10% during traffic
hours 12
Adapted from: Bolund and Hunhammar, 1999; Pulighe et al., 2016
opportunity for Addis Ababa to rehabilitate one aspect of its

natural capital that has stopped working due to human activity.
If successfully carried out, the project will have significant social,
economic and environmental benefits.
4.3Strategies
and policies
Increasing the ecosystems in the city
A more preferable scenario is based on working with nature
T
instead of against it. At the moment, however, the emphasis he city of Addis Ababa is trying to mitigate the pressure
of the government is on achieving high levels of economic on its environment through the design and application
growth regardless of its long-term environmental consequences. of sustainable practices. Over the past decade, the city
Once growth is achieved, then attention will be focused on administration has developed numerous sectoral policies and
the environment. Such an approach is naive and could lead to strategies. Environmental sustainability is recognized in both the
irreversible environmental damage, with huge consequences to Constitution and the Growth and Transformation Plan (GTP)
future city residents. Apart from avoiding such risk, the creation (Emelie and Anders, 2013)13. Despite a strong commitment
of new ecosystems can bring benefits to the city and also avoid by the government to better environmental management, there
many present costs. Figure 40 shows some existing examples. exists a huge gap between policy and practice.
80
Environmental matters are typically multi-sectoral. The emissions; and
implementation of good plans and strategies can therefore be iii) improving resilience to climate change. Currently it builds
hampered by a lack of cooperation and coordination among on an investment plan of over 60 initiatives that are, or can
sectoral ministries and departments. This is clearly the case in be, turned into funded projects.
Addis Ababa. The CRGE strategy is strongly focused on reducing greenhouse
gas emissions (GHGs). Internationally this is politically and
Overview of existing international agreements financially attractive since there is a strong global need and
Ethiopia is a signatory to a number of international environmental commitment to mitigating climate change through GHG
conventions. These include: protocols for desertification, climate emission reductions. Notable examples of projects that the CRGE
change, biodiversity and pollution through the United Nations has put into place include the National Clean Cooking Stove
Convention to Combat Desertification (1994), the United Program Ethiopia (NCCSPE), the National Biogas Program for
Nations Framework Convention on Climate Change (1994), Ethiopia (NBPE), investments in clean energy and wind power,
the Convention on Biological Diversity (1994), the Cartagena existing and planned hydro-electric dams (including Gibe III
Protocol on Bio-safety, the Convention on Biological Diversity with environmental mitigation and management as a strong
(2000) and the Stockholm Convention on Persistent Organic caveat), and the Sustainable Land Management (SLM) program.
Pollutants (Emelie and Anders, 2013). Additionally, Addis Ababa There are additional sectoral plans and environmental policies,
is a member of C40 and the 100 Resilient Cities. including the 1994 water policy, the 1997 environmental policy,
Two environmental matters are of particular importance to the Environment Impact Assessment (EIA) proclamation of 2002
Ethiopia from the international perspective: climate change and and the 2004 land use policy (2004). Environmental impact
regionally shared water resources. The impact of climate change assessment procedures are supposed to be applied consistently
is visible in Ethiopia and this is a matter of great concern. Despite when initiating any new development project. Unfortunately,
limited resources, a consistent number of measures to mitigate these regulations are not being applied because enforcement
the effects of climate change have been undertaken. With respect mechanisms are either very weak or non-existent. Without
to the use of regional water sources, Ethiopia has been taking part strengthening the enforcement arm of the environmental agency,
in the Nile Basin Initiative along with the other riparian states. none of the laws and regulations can be expected to make any
Equitable sharing of the water of the Nile has been a central real difference in improving environmental management in Addis
negotiation position of the Ethiopian government, but the matters Ababa (Emelie and Anders, 2013).
at hand are complex with deep historic roots and involve many
different states, actors and interests. (See also The State of African •• The city level: Plans and policies
Cities 2010, Box 4.9, p.165, UN-Habitat, Nairobi, 2010). The environmental policies of Addis Ababa are very much guided
by the national level plans and strategies. The city is working on
•• The national level: Plans and policies its physical structure plan which represents a good entry point
At the national level, three major cross-sectoral plans address for mainstreaming environmental matters in all programs and
the state of the environment: a) the Growth and Transformation projects considered by the Addis Ababa Environment Protection
Plan (GTP), b) Ethiopia’s Programme of Adaptation to Climate Authority (AAEPA).
Change, and c) the Climate Resilient Green Economy. The The city administration is not short on environmental
second Growth and Transformation Plan (GTP II), covering management policies and regulations. Among these are the
the period 2015-2020, has set higher growth and investment Environmental Audit Regulation; the Municipal Solid Waste
targets, including achievement of all Sustainable Development Policy and other regulations (including on waste water); the
Goals (SDGs), among which goals 11 and 13 directly address Draft Environmental Impact Assessment (EIA) and pollution
sustainable cities and climate action. control regulations; the Draft Industrial Effluent Emission
Ethiopia’s Programme of Adaptation to Climate Change and Ambient, Air and Water Quality Control regulation; and
(EPACC) is a program of action to build a climate resilient the Draft Green Area Management regulation. The critical
economy through adaptation at sectoral, regional and local challenge, however, has been harmonization of these regulations,
community levels. The EPACC replaces Ethiopia’s National inter-sectoral coordination, implementation and measuring the
Adaptation Programme of Action (NAPA), submitted in 2007 to resulting impact.
the UNFCCC Secretariat. The Climate Resilient Green Economy For this report, several representatives from different local
(CRGE) – coordinated by the Environmental Protection Agency authorities in Addis Ababa have been interviewed. Accordingly,
(EPA) and with strong political support from the Prime Minister’s major gaps to managing urban ecosystems relate to i) the
Office and the Ministry of Finance and Economic Development complexity of the Addis Ababa City Government accountability
and line ministries – provides an opportunity to promote and the frequent reorganization of sector offices; ii) a lack of staff
sustainable development in Ethiopia. with adequate capacity to deal with emerging complex issues;
More specifically, the CRGE is composed of three iii) poor coordination and integration with NGOs working on
complementary objectives: climate change.
i) fostering economic development and growth, There are a number of donor-supported programs to
ii) ensuring abatement and avoidance of future GHG strengthen the capacity of the city administration in planning
81
▲
City Resilience Action Planning meeting in Addis Ababa © Linda Zardo.
and implementing its various initiatives. These include the Urban

Development Partnership Project supported by the Government
of Canada and the Small-Scale Environmental Support Program
supported by Belgium. Addis Ababa is also part of the 100 Resilient
4.4Basic services,
environment and
Cities initiative supported by the Rockefeller Foundation and it
has implemented the City Resilience Action Planning (CityRAP)
public health
Tool in Lideta sub-city. The latter is a participatory tool which
T
enables local governments to understand risks and plan practical he problems of accessibility and affordability of basic
actions to progressively build urban resilience, developed by UN- services in Addis Ababa is extensively discussed in section
Habitat and the Technical Centre for Disaster Risk Management, 3.5 of this report where the environmental consequences
Sustainability and Urban Resilience (DiMSUR)14. are discussed in terms of deficiency in accessibility and
Increasing economic growth and attaining middle-income affordability of basic services. Indeed, over the past decade, both
country status by 2025 might result in improvements for some the federal government and the Addis Ababa city administration
environmental problems but might increase pressure on resources have invested heavily in improving basic services delivery. Despite
(such as water and energy) and increase emissions of pollutants, tremendous progress, the gap between demand and supply for
typically those linked with urban traffic, transport and industrial clean water, sanitation, electricity, open space and clean transport
production (Emelie and Anders, 2013). The majority of Ethiopian remains huge since the required investments are beyond the
industries are located in the capital, and a considerable number of financial capacity of the city. Today, Ethiopia is one of the 10
them are based close to rivers, making them prone to discharging countries in the world with the largest population lacking access
wastes into the waterways, which calls for providing practical to water and sanitation (Emelie and Anders, 2013).
alternatives and ensuring environmental law enforcement. Figure 41 shows the links between basic services management
in the city, the environment and public health. What is more, the
prevailing environmental problems in the city threaten not only
the health and wellbeing of the population but also the rights of
the future generation.
82
FIGURE 41: INTER-LINKAGES BETWEEN BASIC SERVICES AND A CLEAN ENVIRONMENT
MAJOR CAUSES OF THE BARRIERS BARRIERS TO THE GOALS GOALS FOR A

CLEAN ENVIRONMENT
NOISE
USE OF CHARCOAL INDOOR

TRANSPORTATION clean airAIR
CLEAN
AIR POLLUTION
OUTDOOR
CO2 EMISSIONS
WATER POLLUTION
clean water
CLEAN WATER
WATER AVAILABILITY
DRY WASTE
MANAGEMENT WATER
DISTRIBUTION
builtBUILT
up UP
ENVIRONMENT SEWAGE SOIL POLLUTION
MANAGEMENT
clean
clean
CLEAN
water
soil
SOIL
GREEN AREAS
SAFETY AND AVAILABILITY
SECURITY
Source: Linda Zardo
Water distribution Water pollution also constitutes a risk to Addis Ababa’s public
Addis Ababa has significantly improved its water service health, mainly in the form of a high level of organic pollutants
coverage. It has yet to improve the dependability of water and water-borne diseases. Some studies indicate that 40% of the
services. Due to faulty pipes, there are significant systemic losses vegetables supplied in Addis Ababa city are irrigated with waste
in Addis Ababa’s water supply. Only 50% of the 475,000m3 of water drawn from polluted rivers (Kebbede, 2014)15. River borne
water pumped into the network every day is reaching the taps. urban pollution reaches the downstream countryside, affects
What is worrying is that around 50-55% of the population the safety of food produced there and the health of people both
of Addis Ababa has to buy water from shops at high cost or within and outside of Addis Ababa.
access unsafe water from unprotected wells and rivers. It is Well aware of the various public health risks associated with
simple arithmetic that a well-maintained water supply network inadequate and poor quality water, the Addis Ababa Water and
would render expensive or unsafe water an issue of the past. Sewage Authority has put in place a plan to replace an average of
Moreover, it is the poor in particular who can only access 40km of pipes annually. The authority expects to have replaced
unsafe water. Addis Ababa’s water is a major public health all pipes of the network within 12 years and to reduce current
concern that could lead to the spread of cholera and other systemic water losses from 50% to 20% in five years time.
water-borne diseases. In addition, given the already problematic Furthermore, the Water and Sewage Authority is working on
trans-boundary discussion over the use of the limited volumes three new groundwater projects in the West, East and South of
of the Nile and its tributaries’ water, wasting 475 million the city which it expects to finish within three years. While these
litres of fresh water on a daily basis through systemic losses measures are commendable, Addis Ababa and its surrounding
is deplorable. region have no watershed authority to effectively manage the
83
▲
Waste management and recycling. © Linda Zardo.
water resources. It should be a priority that such an agency be Program Ethiopia (NCCSPE), is underway under the umbrella of
established as quickly as possible to manage upstream resources the CRGE.
and to ensure the sustainability of water supply for the city and
its surrounding region. Sewage and solid waste
In Addis Ababa, the sewage system and dry waste are major
Electricity or charcoal? drivers of water (rivers in particular) and soil pollution. Although
Traditional stoves and woody biomass represent the major the Ethiopian government has begun taking steps to address the
source of energy for cooking, heating and lighting among low- environmental and social challenges associated with municipal
income households in Addis Ababa. This has multiple negative waste, there remains a great deal of inefficiency and environmental
implications for the environment including deforestation, CO2 degradation as a result of current inadequate waste management
emissions and indoor pollution, to mention a few. Forests beyond practices (Regassa et al. 2011)17. More landfill sites are not a
the city boundaries are being cut at a rapid rate to cover the urban sustainable solution for the growing solid waste management
biomass demand, even though this is now an illegal practice. crisis. While the city should be commended for building its
Matters are particularly worrying in terms of indoor pollution first ‘waste-to-energy conversion’ facility, there is need for more
if we consider health impacts (SANA, 2013)16. Over 70,000 encouragement of and support for ‘at source’ waste collection and
Ethiopians die annually because of indoor air pollution. separation as well as recycling practices.
Especially women, children and elderly are exposed. Reducing Only 14% of the households are linked to the sewage system.
indoor air pollution will further yield benefits for the poor and The discharge of liquid and solid waste by industries into the river
help achieving Sustainable Development Goal (SDG) 3 (reducing and streams or, in general, in open fields and vacant lots, has
child mortality and improving maternal health) (Emelie and negative impacts on the state of soil and water and puts at risk
Anders, 2013). The increasing access to electricity supply would the health of the citizenry. With almost 40% of the vegetables
ultimately eradicate the use of woody biomass. But, there is consumed in Addis derived from fields irrigated with wastewaters,
need for policies, incentives and awareness building about the high concentration of metals in food threaten people’s health and
societal costs of the current massive use of biomass. However, wellbeing. Moreover, soil pollutants can reach ground waters,
an encouraging initiative, the National Clean Cook Stove creating a dangerous cycle with scarce reversibility.
84
Only 25 to 35% of the solid waste generated in Addis Ababa environmental problems. Accordingly, levels of carbon monoxide
is collected (UN Habitat, 2008)18, with the remainder being (CO) in the air in the city is two to six times higher than World
dumped in open sites, drainage channels and rivers. This waste Health Organization standards (Benjaminson et al., 2012). What
is composed of both biodegradable and non-degradable materials makes the air pollution situation even worse is Addis Ababa’s
and can produce negative environmental, social and economic topography: a valley surrounded by mountain peaks that trap the
effects. Although biodegradable wastes can decompose naturally, air and aggravates the problem.
they can still become a pollution problem when added to the The pollution problem in Addis Ababa is exacerbated by a lack
environment faster than they can decompose (Filaba, 2008)19. of adequate and environment friendly mass mobility services.
Currently, some 60% of the waste generated in the city is Although the city has introduced its first electrified light rail
organic, a quarter of which is recyclable. This indicates that there transit system, it is too early to determine its economic viability
is considerable room for composting and biomass production. in the long run, and whether further extension of this system to
The non-biodegradable wastes are materials that either do not other parts of the city is financially feasible. In the meantime,
decompose or decompose very slowly and become pollutants however, a Bus Rapid Transit (BRT) system is being piloted
that are extremely difficult to remove once released into the which will be integrated with the Light Rail System to improve
environment (Filaba, 2008)20. connectivity between the two and complement their geographic
In sum, the management of sewage and solid waste in Addis reaches. The gap left by the inadequate public transport system is
Ababa is worrisome and radical measures are needed to reverse the met by private minibus operators who criss-cross the city. These
on-going ecological decline of the city. Failure to do so will have minibus taxis are often overcrowded and unsafe, and contribute
huge economic consequences and, in the long-term, increasingly to the growing traffic congestion in the city.
will affect the well-being of the residents of the city. The The growing demand for an efficient, affordable and
government recognizes the urgency of the problem and is rushing environmentally friendly public transit system requires that
against time to invest in critical infrastructure and management the city administration integrates and prioritizes the expansion
capacity. According to the Addis Ababa Sewage Authority, two of public transportation and mobility in its development plan.
treatment plants are expected to be up and running in the near Besides pollution, the economic cost of congestion to the urban
future: a) the existing Kality plant is being upgraded with support economy is difficult to quantify precisely but examples from
from the World Bank, and a new plant is under construction other cities around the world indicate that the economic costs are
in Akaki. The capacity of the Kality plant would be scaled up significant. The impact of air pollution on the health and wellbeing
from 10,000 m3 to 100,000 m3 per day and, within two years, of city residents is also considerable. Outdoor pollution causes
should be able to cover 64% of the demand for sewage treatment infant respiratory mortality, lung function growth (carcinogenic)
in the city. The Akaki plant is under construction and expected and asthma (Gebreyes, 2014)21 among other negative impacts. In
to be finished in five years, further boosting Addis Ababa’s sewage Ethiopia, around 2,500 annual deaths are attributable to outdoor
treatment capacity. The challenge will be to provide capacity pollution. In comparison, in neighbouring Kenya it is 600 and
to deal with 100% of the waste generated. The next challenge in Uganda 100.
will be linking houses to the sewage network against affordable As mentioned before, the Addis Ababa city administration is
connection and service fees since the average initial connection undertaking measures to mitigate the emission of CO2 under the
cost of ETB 1,000-3,000 might be beyond the means of umbrella of its CRGE strategy. The initiative is primarily aimed
many residents. at tackling transport-related emissions. Furthermore, the city
has subscribed the Global Fuel Economy Initiative, which sets
Transportation and environment concrete goals, like improving better car fuel efficiency, increasing
As Addis Ababa lacks adequate transportation and since the the number of new vehicles and reducing traffic congestion
city’s has yet to offer affordable mass transportation, the use of (Gebreyes, 2014)22. However, the actual reduction of the number
private cars in general and gasoline-based public transportation in of old vehicles in use will take many years, particularly given
particular affects the city’s ecosystems. According to Benjaminson the unreasonable high taxes imposed on new vehicles which
et al (2012) the average age of 17 years of vehicles on the city’s discourages people from replacing their old cars. This leaves the
streets explains the high number of inefficiently functioning Ethiopian government with the question of whether lowering
motor vehicle engines that are major contributors to Addis import duties on new cars or investing in mitigation interventions
Ababa’s air pollution. is the more cost effective option.
Transport and mobility within Addis Ababa is responsible Effective implementation of existing policies and strategies
for 48% of the city’s total transport-related CO2 emissions. on air pollution will remain a challenge due to the city
The remaining 52% are from aviation and ‘out-of-boundary’ administration’s weak human and institutional capacity. The
road transportation. Roughly, 50% of the Addis Ababa vehicles city administration must try to strengthen its capacities in
produce about 90% of the hydrocarbon and carbon monoxide environmental planning, policy formulation and implementation
emissions. The Addis Ababa fleet of 275,500 vehicles is releasing management by recruiting the best and the brightest and reward
between 25,000 and 32,000 tons of hydrocarbons and 49,000 to such professionals with a competitive compensation package.
58,000 tons of carbon monoxide to the city’s air annually. These
are serious quantities of pollutants, which are causing health and
85
diseases such as malaria, dengue fever and water-borne diseases
such as cholera and dysentery.
Planning and scales of intervention for city

resilience
Urban planning can be a powerful tool in achieving sustainable
urban development and wellbeing of the citizenry. For instance,
through actions such as creating new open spaces or improving
road sections, urban planning can reduce pollution levels in the
city and ease traffic jams. This in turn not only improves the
health of people and increases the attractiveness of the city, but
also improves the health of people and the resilience of Addis
Ababa. Identifying the spatial scale of actions enables planners to
take better decisions.
Long-term planning is also about building resiliency. Urban
resilience refers to the ability of any urban system to withstand
and recover quickly from any possible hazard. Resilience is
a concept broader than disaster risk management or climate
change adaptation and can represent, at the same time, both
a goal to pursue and a tool to keep the pillars of Addis Ababa
developmental aims together towards a same coherent and strong
direction. Urban resilience is cross-sectoral and urban planning
can play a crucial role in fostering it, but cannot complete
the ride alone. The pursuit of resilience can only come from
an orchestrated effort from the urban governance side, with
adequate infrastructure and basic services, a supportive economy
▲
Patches of greenery between residential housing providing eco system services. © Geo Kalev and security, appropriate the disaster risk management and, of
course, environmental planning.
Resilient cities will have a disaster risk management system that
4.5
combines well-functioning and inclusive disaster preparedness
besides emergency response mechanisms in support of an
effective disaster prevention infrastructure. Such mechanism
Towards a and infrastructure need an integrated citywide risk assessment
climate resilient that, in turn, is further integrated in all city planning processes,
including construction, land use, socio-economic, and sectoral
Addis Ababa plans (World Bank, 2015)25. Even if floodings are the risk that
overwhelmingly affect Addis Ababa with the inherent landslides
and water scarcity, it is crucial for the city to work on its overall
C
limate change is another significant threat to the resilience to any type of shock or stress.
sustainability of Addis Ababa23. Risks associated directly The main barriers to building urban resilience in Addis Ababa
with climate change in Addis Ababa mainly consist of are the lack of technical capacity; reliable and up to date data
floods, which induce landslides and water scarcity. Addis Ababa is and information; and lack of financial resources to invest in
exposed to riverine and flash floods as well as river overflows caused critical innovative technologies. As mentioned above, efforts to
by extreme rainfall events and upper catchment area activities, overcome such barriers are ongoing, as Addis Ababa is part of the
such as land-use management or scarce watershed planning. 100 Resilient Cities Initiative and also implements the City RAP
Vulnerability to flooding is intimately linked with residential Tool, besides hosting several NGOs that work towards a resilient
development encroaching on riverbanks, non-permanent Addis Ababa.
construction materials (i.e. mud and wood), and poor drainage Summarizing, the Addis Ababa city administration is moving
systems along roadways (World Bank, 2015)24. With limited in the right direction. Most of the necessary legal and institutional
availability of drainage services and continued mismanagement frameworks to manage the city’s development in a sustainable way
of storm water drainage facilities, flash floods occur following are in place. But legislation and regulation is only as good as their
heavy rains, resulting in property damage, particularly in those enforcement and implementation. For that to materialise more
Woredas located along rivers and streams. Parts of Addis Ababa, effort is needed to strengthen the institutional capacities and to
such as Gulele, Kolfe and Yeka, have experienced repeated capture good and best practices for replication and refinement.
landslides associated with flooding (DPPC, 2015). Apart from If successful, Addis Ababa can lead the Ethiopian nation
human and material losses, flooding can also trigger outbreaks of by example.
86
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View of Addis Ababa. © Geo Kalev.
4.6
systematically implemented; become firmly anchored in urban
governance; and their impacts appropriately and correctly
Conclusions and monitored. These institutional challenges tend to contribute to a
confusion of agendas. Medium-term goals, objectives and short-
future directions term targets are rarely clearly specified, making it difficult to
adhere to compliance with environmental laws and regulations.
Such inefficiencies can in part be addressed by engaging or
soliciting inputs from civil society organizations and other
D
espite the existence of numerous regulations governing stakeholders. Rather than trying to do it alone, governance will
environmental management in Addis Ababa, the gap benefit from the often viable and realistic alternatives civil society
between policy intention and practice remains wide. In- can contribute.
depth interviews conducted with representatives from different As Ethiopia strives to become a middle-income country by 2025,
stakeholders squarely identified institutional weakness as one the pressure on such resources as water and energy, for instance,
of the greatest barriers to sustainable development of the city. will grow exponentially. The drive towards industrialization is
These include: lack of adequately trained staff and institutional bound to increase emissions of pollutants; typically those linked
capacities to deal with emerging, complex environmental matters. to transportation, urban traffic and industrial production (Emelie
Further shortcomings to be addressed include poor institutional and Anders, 2013). In the absence of practical alternatives and
coordination and integration; weak evaluation and monitoring strong enforcement capacity, the environmental challenges facing
capacity; and measuring the actual impact of interventions; the city will grow. Postponing interventions will only increase the
but also the frequent reorganization of Woredas/Kebeles and challenges to be addressed. The time is now for Addis Ababa to
sector offices. strengthen its capacity for environmental management through
In an environment of institutional shortfalls it is difficult strengthened government institutions and involvement of the
to imagine how long-term policies and strategies can be citizenry to avoid a possibly cataclysmic future.
87
ENDNOTES CHAPTER 4
1 Bolund, P., & Hunhammar, S. (1999). Ecosystem services in first, taking population density as a proxy of demand (the Aldershot, England.
urban areas, in Ecological economics, 29(2), 293-301. higher the density, the higher the demand). Although pure 16 SANA (2013). Situational Analysis and Needs Assessment:
2 Brown, D. G., Verburg, P. H., Pontius, R. G., & Lange, M. application of per capita green area threshold values can AIR POLLUTION IN ETHIOPIA. School of Public Health,
D. (2013). Opportunities to improve impact, integration, provide a broad assessment of ES supply for a total city, Addis Ababa University, Ethiopia & University of Southern
and evaluation of land change models. Current Opinion in it does not indicate how ES are distributed geographically California, USA. June 2013.
Environmental Sustainability, 5(5), 452-457. and across different groups of society. Without clear 17 Regassa, N., Sundaraa, R. D., & Seboka, B. B. (2011).
3 Gallent, N., & Shaw, D. (2007). Spatial planning, area definition of which aspects of equity are pursued and how Challenges and opportunities in municipal solid waste
action plans and the rural-urban fringe, in Journal of they are measured, it is difficult to evaluate the impacts management: The case of Addis Ababa city, central
Environmental Planning and management, 50(5), 617-638. of policies and programs on equity. Hence, we adopt for Ethiopia. Journal of human ecology, 33(3), 179-190.
4 Grimm, N. B., Faeth, S. H., Golubiewski, N. E., Redman, C. equity a need-based definition. 18 UN Habitat (2008) Ethiopia Urban Profile. United Nations
L., Wu, J., Bai, X., & Briggs, J. M. (2008). Global change 9 DPPC (2015). Addis Ababa City Risk Profiling Program Human Settlement Programme (UN-HABITAT), Nairobi.
and the ecology of cities. science, 319(5864), 756-760, Report. DPPC, Addis Abeba. 19 Filaba, M. A. (2008). Waste Management Problems
Xiao, R., Su, S., Zhang, Z., Qi, J., Jiang, D., & Wu, J. (2013). 10 Benjaminson R., Shankute D., Torgerson G., Gebre G., in Jimma, Southern Ethiopia. Ethiopian Journal of
Dynamics of soil sealing and soil landscape patterns under Gallavan R. (2012). The Effect of Motor Vehicles on Air Environmental Studies and Management, 1(2), 8-15.
rapid urbanization. Catena, 109, 1-12. Pollution in Addis Ababa, Ethiopia: Baseline Study, Addis 20 Ibid.
5 McPhearson, T., Kremer, P., & Hamstead, Z. A. (2013). Ababa Environmental Protection Authority. Addis Ababa. 21 Gebreyes B. Y. (2014). Overview of Vehicular Emission
Mapping ecosystem services in New York City: Applying 11 Ibid. Reduction Initiatives, Ministry of Environment and Forest.
a social–ecological approach in urban vacant land. 12 Pulighe, G., Fava, F., & Lupia, F. (2016). Insights and Addis Ababa (ppt presentation).
Ecosystem Services, 5, 11-26. opportunities from mapping ecosystem services of urban 22 Ibid.
6 Gómez-Baggethun, E., & Barton, D. N. (2013). Classifying green spaces and potentials in planning. Ecosystem 23 The scenario for Addis Ababa shows that annual
and valuing ecosystem services for urban planning, in Services, 22, 1-10. temperatures will increase 0.9–1.1 °C by 2030, 1.7–2.1
Ecological Economics, 86, 235-245. 13 Emelie C. and Anders E. (2013). Ethiopia Environmental °C by 2050 and 2.7–3.4 °C by 2080 above the 1961–1990
7 Feyisa, G. L., Dons, K., & Meilby, H. (2014). Efficiency of and Climate Change policy brief, SIDA, University of baseline temperature (UNEP 2014b).
parks in mitigating urban heat island effect: An example Gothenburg and Norwegian University of Life Sciences. 24 World Bank (2015). City Strength, Addis Abeba, Enhancing
from Addis Ababa. Landscape and Urban Planning, 123, 14 www.dimsur.org Urban Resilience. World Bank, Washington, DC.
87-95. 15 Kebedde, G. (2004). Living with urban environmental 25 Ibid.
8 Further, a demand analysis by sub city was undertaken health risks: the case of Ethiopia. Ashgate Publishing Ltd.
88
89

CONCLUSIONS,
RECOMMENDATIONS
AND
WAY FORWARD:
THE ADDIS ABABA
WE WANT
90
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Aerial view of the city of Addis Ababa covered by a rainbow. © Shutterstock
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2015 : The African Union's headquarters building: the tallest building in Addis Ababa. © Shutterstock.
T
his State of Addis Ababa report highlights the historical in 2005 and, more concretely, during the implementation of the
processes that have shaped the demographic, socio- first phase of the Growth and Transformation Plan (GTP-1).
economic structure, and the governance systems of the Furthermore, subsequent urban development strategies in the
Ethiopian capital city through an examination of the planning social, economic, as well as governance structure and processes
practices starting from its establishment in the 19th century until demonstrate the expressed commitment of the city government
the present. to transform Addis Ababa as a hub of innovation, economic
The report sheds light on the impacts of on-going rapid pace production, and as a culturally diverse and environmentally
urbanization in Ethiopia on the dynamics of Addis Ababa’s sustainable capital city.
economic development; on the state of social services delivery, As a seat of federal government, Addis Ababa has a dual
including housing for the poor; and on the deteriorating state of mandate whose control and decisions regarding issues such as
the urban environment and its potential negative impact on future land are directed by both federal and the city administration.
economic growth. On the basis of in depth empirical analysis, Such a dual mandate complicates planning and decision making
the report provides recommendations for enhancing Addis unless clear and transparent roles and responsibilities between
Ababa’s economic productivity, liveability and environmental these two levels of governance are assigned.
sustainability. Therefore, despite commendable efforts, the institutional and
The report notes at the outset that, over the past two decades, responsive capacity of the city administration to both emerging
more progress has been made in managing urbanization in Addis risks and opportunities fall short due to weak urban planning
Ababa than over the previous 130 years of the city’s existence. capacity and limited scope for participatory governance in the
Indeed, the development strategies pursued by the EPRDF regime economic and political management of the city. The emphasis
since 1991 have transformed the economic and social conditions on improving ‘hardware’ in infrastructure has not been
of Addis Ababa and the country as a whole. The city’s recent commensurate with the equally urgent need to strengthen the
makeover is very much linked to the government’s determined ‘software’ of economic and political governance that are critical
and focused approach to industrialization and structural reform. for building a competitive, inclusive, and environmentally
While enormous challenges remain, notably in the provision sustainable Addis Ababa.
of affordable housing, efficient water and sanitation supply, To assist the Addis Ababa city administration and the federal
poverty and inequality reduction and in tackling a myriad of government of Ethiopia in addressing these challenges and coping
environmental challenges, the city administration supported by with the city’s rapid population growth and spatial expansion, a
the federal government is guiding the growth of Addis Ababa number of recommendations covering different thematic areas
towards a more sustainable path. This has been particularly are listed below.
visible after the adoption of a national urban development policy
91
5.1 Improve the urban economy
and business environment
emerging small businesses. Whereas, in principle, every enterprise
wants to operate in the formal economy, over-regulation, red tape
and lack of access to credit push many businesses into the informal
sector where transaction costs and bureaucratic obstacles can be
minimised.
A
ddis Ababa has achieved significant economic growth Recommendations:
since the early 2000s. Overall macroeconomic indicators
such as city GDP and productivity per capita have A. Increase the city’s competitiveness
consistently risen over the past 15 years. The income of Addis • The city needs to increase its global and regional
Ababa's citizens is about twice the national average. The city's competitiveness by improving the business climate and
initial advantage as the national capital and its central geographic performance to attract more and high quality foreign direct
location have promoted demand for goods and services which investment (FDI) flows. FDI is a key element in the desired
contributed to its rising GDP. The city has also increasingly strengthening of the manufacturing sector, job creation,
generated revenues from taxes on municipal services, external aid technology transfer and innovation. Therefore, cutting
flows and loans. back bureaucracy, regulation and red tape are critical first
However, for many years, the population of Addis Ababa has steps in furthering Addis Ababa’s economic development.
grown faster than the urban economy. The quite unprecedented This may require the city to build an efficient, effective,
population and geographical expansion of the city have created responsive and accountable bureaucracy.
huge challenges. The city has been unable to create or attract • Addis Ababa needs to simplify the process of starting a
sufficient numbers of new jobs or establish manufacturing business, the paid-in minimum capital required and
businesses at the scale required. Rather, the current fast other related costs. As these factors severely hinder the
economic growth is largely generated by the services sector with business environment, a critical review of the same should
its limited capacity to create jobs. Government attempts to be undertaken without any delay in consultation with
alleviate the unemployment crisis through development of micro the representatives of the business community and other
and small enterprises have so far fallen short of expectations. relevant stakeholders.
Therefore, the expansion of the manufacturing sector is one • Addis Ababa needs to provide a credit guarantee for private
of the city administrations’ main economic priorities with the enterprises or establish an institution for such a purpose.
aim to generate more jobs to the growing population of the Not only has the city scored very low in the access of
city. This goal is in line with the federal government's plan to enterprises to credit, but the value of collateral required to
upgrade Ethiopia to a middle-income country status by 2025. the loan ratio is one of the highest in sub-Saharan Africa
The current low manufacturing base of Addis Ababa is largely and even globally. Small and medium enterprises (SMEs)
the result of its weak continental and global competitiveness may not be able to provide the collateral needed for a
which discourages new investments from flowing into loan. In such a case credit guaranteeing institutions could
the city. provide assurance to the banks or financial institutions
Surprisingly, Addis Ababa’s revenues have not increased to the that provided a loan to specific firms.
tune the urban booming economy would suggest. Rather, the city • There is a need to enable entrepreneurship and local
faces critical financial challenges, especially in raising sufficient economic development through well-coordinated policy
own revenues to finance the normal municipal expenditures. One to encourage the development of manufacturing SMEs.
of the causes is that the city’s budget heavily relies on an out-dated Greater efforts are needed to assist their establishment by
charges and fees structure rather than, for instance, property taxes relaxing regulations and easing access to credit and finance,
and rates – a significant revenue source in many other cities as well as helping them to enter the formal economy.
around the world. Funding the city’s rising capital expenditures is • The city also needs to facilitate an environment more
therefore increasingly based on state grants as the share of revenue conducive to innovation. This requires (besides reducing
raised by the municipality is declining. bureaucratic red tape) the promotion of trade logistics,
Unless addressed, Addis Ababa’s failure to offer an enabling more effective infrastructure (especially regular power and
business environment is likely to hurt further its already water supply) and easing restrictive regulations.
deteriorating labour market. Among the main reasons why it is • Addis Ababa must become more gender sensitive. Women
not scoring well as an investment destination is its underdeveloped are not only disproportionately represented among
credit system. Businesses find it difficult to obtain start-up or the unemployed but they are often also engaged in low
expansion capital and therefore fail to create new jobs. Starting quality jobs. Gender empowerment tools such as women
a business in Addis Ababa is further hampered by a highly entrepreneurship development programs are needed to
cumbersome bureaucracy and debilitating ‘red tape’. Registration enhance the skills and job intensity towards more quality
and taxation regulations, for instance, stifle rather than support occupations.
92
B. Enhance budgetary and financial aspects
• In order to respond to the increasing demand for
infrastructure services, the city needs first of all to increase
its own-revenue generation. This can be realised if it
5.2 Improve regional planning
upgrades and updates its cadastral records, values each
T
parcel of urban land and levies taxation and/or rates on he Ethiopian urban system is largely unbalanced,
these properties to help generate income towards the fragmented and mono-centric, with a mega city like
municipal capital expenditures. For cities around the Addis Ababa in the centre, few secondary cities striving
world, property taxation and levies are among the leading to catch up and a myriad of small urban settlements spread
revenue sources and Addis Ababa should look at this out all over the country. This situation leads to an increased
income source as a matter of priority. concentration of investments and people in the capital city,
• To the extent land is the most important source for which determines its high population growth rate with all other
generating city revenue, an effective and transparent land unintended consequences, such as growing informal settlements,
administration system is needed. Land lease has been lack of basic services for all, etc. Article 7 of the Urban Planning
the most important source of non-tax revenue for the Law (Proclamation 574/2008) stipulates three hierarchical levels
city administration. Given the scarcity and limited scope of urban plans: the National Urban Development Scheme, the
of the land size it may fall short of financing the ever Regional Urban Development Plans, and the Urban Plans. The
rising expenditure demands of the city over time. Hence, latter include the city structure plan and local development
revenues generated from land lease should be managed plans. Regional development plans are currently the missing links
effectively and in a transparent way. Emphasis should be between the national and the local planning level, while they
given to the long-term productivity enhancing investment should be brought to the centre stage to ensure an overall spatial
projects that would help the future generation bear the planning coherence in terms of city growth patterns, urban-rural
burden of fiscal deficit. linkages, development corridors and urban clusters.
• The city has to revisit and review its service fees and utility Recent initiatives, like the construction of industrial parks in
charges so that these become cost covering. However, various regions of the country, represent a concrete manner to
regarding social and public health the well-off urban achieve a more balanced regional development. However, a lot still
population strata should pay premium fees to cross- needs to be done to harmonise these mega projects and investments
subsidise delivery of critical basic services to the urban with the development dynamics of the regional capital cities hosting
poor at below-cost rates. them (for example, in terms of infrastructure and utility provision
• Addis Ababa needs to introduce a system of annual for the massive labour force that is attracted by these investments),
property assessment on physical buildings (including as well as to better plan for their regional development implications
residences) to boost city revenue. To do so the city should (e.g. clusters or system of urban centres at the regional scale,
build its capacity in cadastre records, trained personnel attraction role played by the industrial parks, etc.).
and ICT infrastructure.
• Addis Ababa needs to improve its revenue raising capacity
on a constant basis. Establishing a permanent collaboration Recommendations:
between university institutions and the Finance Bureau • A more polycentric urban system of the country is
of the City Administration would allow training experts recommended, hence avoiding the over-concentration of
on tax administration, expenditure and public financial capital investment, businesses and population in Addis
management, and computerization. Instead of delegating Ababa, by establishing a system of cities composed of
the federal revenue and customs office to collect taxes on different important urban centres and poles of attraction
its behalf (which is currently the case), the city should well-distributed across the country and inter-linked
develop its own capacity (both human and financial) and through development/transportation corridors.
take full control of its tax administration. • In line with the previous point, both federal and regional
• The city should enhance the institutional and financial governments are urged to develop and implement
capacity of urban local governance through the national and regional spatial plans and support their
deployment and retention of competent human resources implementation through well-coordinated investments,
by developing compensation packages commensurate and to establish a system of cities able to sustain the
with the prevailing market rate. national territory, with the required services and factors
of attractiveness, providing valid alternatives to Addis
Ababa’s current primacy.
• There is a need for planning the existing urban centres
in an integrated manner with due consideration of
strengthening urban–urban and urban–rural linkages to
support the agglomerations of competitive industries in
particular city-regions around a particular resource value-
chain, such as leather and agro processing.
93
5.3 Increase access to housing
• Revise the existing housing strategy to incorporate a wider
range of options than just owning condominium housing
units (i.e. rental housing, housing upgrading, housing
cooperatives, etc.).
• Expand the rental housing options for residents who have
O
ver the past decade and with support from the federal no intention or are unable to become a home owner.
government, the Addis Ababa city administration has • Expand affordable housing finance: enable availability of
hugely invested in subsidized and affordable housing and access to housing finance mechanisms for cooperatives
for its low- and middle-income residents. A housing delivery and the real estate sector so that they can also contribute
mechanism for condominium units has been successful in to the housing delivery efforts of the government for low-
increasing the quality of the city’s overall housing stock. As an and middle-income households.
element in an integrated urban (re)development programme, the • Revise land administration and introduce diversified
housing strategy has also contributed to stimulating the urban tenure regimes: both at the city and federal level, land
economy by creating employment in the construction industry ownership and administration regulations should be
and, at the same time, improved the capacity of the construction reviewed to better serve the needs of urban residents,
and financial sectors. regardless of their income levels.
Despite these successes, however, the ‘one-size-fits-all’
government-led condominium housing delivery scheme has B. Take into account social acceptability of urban renewal
faced many challenges. Firstly, despite government subsidies to processes
make the newly built housing units affordable and accessible, The evidence from this study shows that urban renewal programs
condominiums’ mortgages are not affordable for 49.5% of the in Addis Ababa have triggered important socio-economic
new owners as they represent more than 30% of their income, disruptions in the affected communities. Social networks and
which is the standard income percentage used internationally to mutual aid associations that had taken many years to establish
estimate housing affordability. Secondly, the compensation given and develop were swept away as a result of relocation operations.
to the relocated households has been far below market prices, Moreover, the compensations given to the relocated households
with no proper mechanism in place for homeowners to contest did not follow fair market prices. Therefore, a completely new
that. Thirdly, the housing strategy has so far not considered more approach to the planning and execution of urban renewal projects
affordable alternatives such as rental housing options to avoid is needed, including the following recommendations
locking people into excessively high mortgage payments for • Prior and informed consent of communities: urban
the remainder of their lives. Unfortunately, given the reduced renewal projects should be done in consultation and with
levels of income in Addis Ababa, not everyone can become an prior consent of the affected communities.
apartment owner. • Consider informal settlements upgrading as a valid
alternative to relocation: possibilities for urban upgrading
and densification need to be carefully explored before
Recommendations deciding on wholesale demolition, renewal and relocation
as a final option.
A. Enhance housing delivery • Fair compensation: in the event that relocation is the only
Recent reports from the government confirm that the feasible option, compensation needs to be based on actual
condominium housing scheme is at cross roads. The track record market value of inner city land and housing.
of the Addis Ababa Savings and Housing Development Enterprise • Before relocating people, ensure that investments were
in constructing and delivering condominium apartments has properly coordinated in the resettlement areas so that
been on the weak side, as planned targets have rarely been met. in addition to housing units, basic/social services and
Recent reports indicate that the entire condominium scheme, infrastructure (e.g. water, sanitation, electricity, roads,
particularly the 40/60 and 20/80 options, is temporarily health and education facilities, transport, markets, etc.)
suspended due to lack of sufficient budget allocation toward the and job/livelihood opportunities are also available.
project. Many of the 165,000 people registered for the 40/60
condominium scheme will not see their dreams of owning an
apartment realized any time soon. It is estimated that 50 more
years would be needed before all those who want an apartment

in Addis Ababa today (NB: without even considering the
population growth during such a period) are accommodated. In
short, the ‘one-size-fits-all’ condominium housing strategy has
run its course and a more diversified approach in housing delivery
should be sought. Given all the technical and financial problems
surrounding condominium housing, the following alternative
actions are recommended:
94
5.4Improve urban governance
and basic services delivery
Nevertheless, the city has yet to provide quality urban services to
all residents. In fact, both the rapid population growth and the
currently uncontrolled horizontal city sprawl far outpace the city
authority’s investment capacity to meet new demand for basic
infrastructure and services.
The access to basic services is particularly difficult at the urban
fringes of Addis Ababa where former inner-city residents have
M
uch of the urban governance reform advocated over been relocated. Limited access to water, electricity, schools and
the past twenty years in the context of the Urban Local affordable transport has rendered the resettlement experience
Governance Program (ULGP), funded by the World difficult for many of the residents. While connection to water
Bank and implemented by the Ministry of Urban Development and electricity supply networks has expanded significantly,
and Housing (MUDHo), has largely focused on increasing the water and power outages are common. In short, both the
effectiveness of municipal services delivery. The ULGP aimed quantity (networks) and quality (supply reliability) of services
at strengthening the policy formulation and implementation require significant improvements over the coming years. This
competence of local government institutions through capacity needs imperatively to be combined with a more compact city
building and training initiatives. Despite these efforts, poor service development (see the urban planning and environment section
delivery is still observed, mainly due to the inability of public below) and the creation of alternative urban poles of attraction
institutions to retain their most qualified professionals because across the country to avoid the growing influx of people to Addis
of their low wages and limited career mobility opportunities. Ababa (see the regional planning section above).
The high staff turnover in the public administration continues The city shows deficiencies in two major areas: transport and
to hamper the overall institutional efficiency and good urban waste management. Only half of the needed trips per day within
governance in particular. the city are satisfied by the current transportation system capacities,
although tremendous efforts are being carried out through the
light rail train and the design of the bus rapid transit system.
Recommendations Solid waste management represents another great challenge for
the city administration. Recently a land slide provoked by an
A. Foster citizens’ participation excessive amount of waste accumulated in the Koshe dumping
In the Ethiopian context, despite a genuine interest in getting site has killed several hundreds of people (exact numbers are yet
inspired by the participatory governance principles of a liberal to be provided by the authorities). Urgent actions are needed to
democracy, a more centralised approach is being promoted with a improve the situation, including the following:
vanguard party taking all major decisions while some limited room • Improve the dependability of electricity supply services
is left for citizens’ participation. This top-down decision-making through expanding the city’s effort to use renewable
culture is so dominant that lower level professional staff cannot energy sources that are environmentally friendly (e.g. solar
propose any alteration to what was decided at the top. Good system, wind mills, etc.);
urban governance is also threatened by a culture of corruption, • Improve the dependability of water services by diversifying
particularly where it concerns access to land and basic services. water sources (e.g. taking advantage of rainwater, etc.);
In the absence of strong anti-corruption and accountability • If relocating inner city residents is compulsory, before
mechanisms, these irregular practices from municipal officials any resettlement operation is carried out, the city
are currently undermining public confidence in the integrity and administration needs to ensure the timely availability of
responsiveness of public institutions. It is hence recommended to basic infrastructure/services in addition to housing, such
• Establish genuine broad-based citizens’ participation as markets, roads, water, sanitation, electricity, health and
mechanisms to increase transparency in decision-making education facilities, among others, as well as providing
and mitigate corrupt practices at all levels, in order to sufficient and reliable public transportation options; this
reinstate trust between citizens and local authorities. of course requires a lot of inter-sectoral coordination;
• Establish a ‘citizens report card’ system for annual feedback • Re-think the waste management system of the city
on services delivery for each sub-city of Addis Ababa, from the household to the landfill by introducing best
which can allow measuring the citizens’ satisfaction levels. practices such as waste separation (at least organic from
• Strengthen the institutional set-up and procedures to inorganic waste), compost production (using organic
better engage inner city residents in local development waste), recycling (at primary collection points) and re-use
planning and participatory decision-making processes. (especially for items such as bottles, etc.); in addition, the
Koshe dumping site needs to be closed and rehabilitated
B. Improve basic services delivery from a security and environmental perspective;
It is acknowledged that the city administration of Addis Ababa • In general, enhance the quality of service delivery processes
has made tremendous efforts to expand access to basic services in all sectors through improving municipal revenue
(water, electricity, waste collection, sewage connection) as well generation mechanisms.
as social infrastructure (education and health) to its residents.
95
5.5Tackle critical
environmental issues
• There is an urgent need to restore degraded urban natural
areas like rivers and river banks; actions for cleaning
these natural ecosystems are absolutely required; then,
re-greening operations could be undertaken, putting
attention in using the proper vegetation and, when
and improve urban planning possible, having permeable riverbanks. To avoid cleaned
areas to redevelop to their previous state, there is need to
and design increase awareness among the population, assign to these
new areas a function that avoids the creation of informal
settlements (e.g. parks) and to establish monitoring
O
ver the past decade, the Addis Ababa city administration activities by the community to preserve the river and the
has given significant recognition to the quality of the river banks. Finally, polluting discharges from both house
urban environment. It has adopted various policies and and factories should be regulated and controlled.
strategies in line with Ethiopia’s national priorities. However, the • Reintroduce and facilitate the expansion of urban
lack of urban green space, high levels of air and water pollution, agriculture to enhance the city’s ecosystem services. This
poor sanitation, inadequate solid and liquid waste management works both ways: it adds to food production but also
and treatment, poor drainage and increasing vulnerability reduces traffic jam because of lower food transportation
to flooding due to climate change remain the most critical needs. It also has spin-off benefits like job creation,
environmental challenges facing the city today. increased urban resilience and better urban food security.
The impacts of environmental degradation are evident. • Undertake a comprehensive risk assessment to gain insight
Many Addis Ababa residents are suffering from respiratory in the most practical ways to introduce climate change
problems related to indoor and outdoor pollution. Many die adaptation and mitigation strategies.
from waterborne diseases caused by poor sanitation. These are
preventable illnesses and deaths.
Despite the city’s efforts to tackle environmental degradation,
translating policies and strategies into practical and effective B. Tackle environmental challenges
actions has proved difficult due to human resource constraints • Assign clear responsibilities among the concerned
and institutional weaknesses. government institutions to avoid overlaps or gaps,
Very much linked to the critical environmental situation of especially in terms of climate change adaptation and
the city as well as with many other challenges the city is facing, mitigation actions, river and water management, greenery,
is the central issue of urban planning and design. The city does slum upgrading and infrastructure. Build the scientific
not show a road network grid which allows for a proper traffic and technical knowledge of these institutions’ human
flow, provoking congestion and subsequent air pollution, and resources pool.
limiting the provision of public transport system such as the bus • Create institutional awareness on existing policies and
rapid transit, for example. Urban design has a major influence regulations for better implementing strategies to tackle
on the efficiency of the whole city system. For instance, a proper pollution, waste management, and climate change
road network allows for the easy installation of basic services and adaptation and mitigation. In particular develop a
infrastructure, such as water and energy supply, drainage and realistic policy implementation strategy to reduce outdoor
sewerage system, solid waste collection, etc. (transportation-related) pollution, for example, by
In addition the spatial growth of Addis Ababa is challenged promoting the use of public transport and introducing
by the land claims of the Oromia region surrounding the city. taxes and/or penalties for cars that are too old to match
This means that the city needs to increase its density at the centre acceptable emissions standards.
and limit its horizontal expansion in the periphery. This would • Supply pedestrian pavements and bike lanes for all urban
also help in terms of climate change mitigation, by reducing air roads to encourage non-motorized transport, enhance
pollution due to increased transportation distances. safety and promote better traffic flows.
Recommendations: C. Improve urban planning and design

• Promote mixed land use with residences close to
A. Improve natural capital employment to reduce travel time between home and work,
• Urban planners need to be aware of their crucial role. thereby saving time and reducing energy consumption
Specific attention needs to be paid in planning processes and greenhouse gas emissions.
to increasing the urban green areas; not only in absolute • Plan in advance, especially the future street network in
terms but also their even distribution over the city and its city extensions areas, to avoid unpopular demolition and
communities. expensive and socially disruptive resettlement operations
96
•
of people living in informal settlements where public
spaces and rights-of-way have not been laid out or were
not respected.
Where possible, promote in-situ informal settlements
5.6 Conclusions
upgrading by increasing the density of occupation of urban
O
land in the inner city, maintain the urban vibrancy and ver the past two decades, the city of Addis Ababa has
the livelihoods of people, and avoid the sprawl of Addis experienced tremendous economic, social, and spatial
Ababa with all its social, economic and environmental transformations never witnessed in a hundred years.
consequences. The city’s recent makeover is very much linked to the EPRDFs
• Plan in an integrated way urban areas for promoting determined and focused approach to transform Ethiopia into a
a more effective and equitable basic services delivery, middle-income industrializing country by 2025. The rapid pace
by maintaining a proper road grid and allowing for of economic transformation in turn challenges the economic and
incremental implementation, and reserve enough land for political governance of the city in a sustainable way.
public, open and green spaces. Despite enormous progress over the past decade and half, many
• Try to control the current land speculation dynamics in challenges remain, notably in the provision of affordable housing,
Addis Ababa to promote a more equitable city growth jobs to the growing young urban population, efficient provision
and good planning, especially by reviewing existing land of basic services, and greater role for the citizens of Addis Ababa
regulations and strengthening enforcement. to participate in decision making on matters that affect their
daily existence. In the face of mounting pressure on the city
administration to solve a myriad of social and economic problems,
it is fair to say that city authorities have tried to address these
problems despite capacity gaps and limited financial resources.
Fifteen years is a relatively small time for a city administration
to build up the necessary institutional capacity to respond to
old and emerging threats. It is clear from this report that these
developments take time and cannot be done overnight. Recent
attempts by the city administration to strengthen urban planning,
and to enhance the responsiveness of city government institutions
are encouraging, but more needs to be done, and high level of
political leadership from the top is an urgent priority. Closer
consultation and coordination between the federal government
and the Addis Ababa city administration is extremely vital to
avoid duplication or issuing contradictory policy directives that
would undermine the economic competitiveness of the city, and
its capacity to manage social and environmental challenges.
97
▲
Aerial view of Addis Ababa. © Shutterstock.
98
99
Over the past twenty years, more progress has been made in managing the urbanization of Addis Ababa
than over the previous 130 years of the city’s existence. The development strategies pursued since 1991
have led to tremendous economic, social and spatial transformations in Addis Ababa and the country
as a whole, accelerating the evolution of this relatively young capital city from a small rural settlement
into a vibrant modern metropolis today. Much of this is linked to the government’s determined and
focussed approach to transform Ethiopia into a middle income industrializing country by 2025.
Despite enormous progress, challenges remain. As a result of rapid urbanization and unprecedented
population growth, there is enormous pressure on Addis Ababa’s capacity to provide affordable hous-
ing, sufficient job opportunities and access to basic services for the citizenry, especially for low income
households. A victim of rapid unplanned urbanization has been the urban environment, as the current
city growth is worsening the air, water and land quality and weakening urban ecosystems. The latter
are indispensable environmental services for human life and to mitigate the impacts of climate change.
The State of Addis Ababa 2017 report is aimed at providing a comprehensive assessment of existing so-
cioeconomic and environmental conditions in the city, shedding light on the impacts of on-going fast
paced urbanization. The report addresses policy makers and city planners and makes bold recommen-
dations on how resources can be strategically developed and managed to sustainably meet the needs of
the urban population of today and the future, improve the short- and long-term wellbeing of citizens
and transform Addis Ababa into the city that the citizenry wants.
HS Number: HS/033/17E
ISBN Number (Series): 978-92-1-133397-8
ISBN Number (Volume): 978-92-1-132745-8
United Nations Human Settlements Programme, UN-Habitat

P.O. Box 30030, Nairobi 00100, Kenya
Tel: +254 20 7623 120
Fax: +254 20 7623 904
[email protected]
Printed in Nairobi, Kenya
www.unhabitat.org

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THE STATE OF

Design and Layout by MJS Colourspace Ltd. Nairobi, Kenya.

Front cover photo: © Dereje /Shutterstock

as a hub of innovation, economic production, and as a culturally

into practical and strategic action has shown to be problematic

1.1conflicts between landowners. This early concept

Fig. 1 Early settlements of Addis Ababa.

The Imperial Regime (1941-1974)

Fig. 7 Addis Ababa’s development as revised by LE. De. Marien, 1966-1974

Sources: FEDB, 2009; World Bank, 2010, Wubneh, 2013

As shown in Table 1, an estimated 15,000 permanent

6.9% annually over the 1961-1962 period, to 3.5% over the

TABLE 2: STATE AND MUNICIPAL FUNCTIONS OF URBAN GOVERNMENTS

13 Source: World Bank, 2015, p. 63

THE STATE OF ADDIS ABABA 2017

Service share Industry share Trade

Source: Own computation based on CSA (2015)

City GDP at Average annual

FIGURE 4: PER CAPITA INCOME TRENDS OVER TIME

Labour force participation in economic activities

Source: CSA, 2015

Employment-to-population ratio With regard to employment by major occupation in Addis

the skills and job intensity towards more quality occupations

TABLE 6: DEFINITION OF FORMAL/INFORMAL BASED ON LEGAL AND INSTITUTIONAL CRITERIA

Formality status Legal status Description

Source: Nelson and De Bruijn, 200511

TABLE 7: SHARE OF INFORMAL SECTOR EMPLOYMENT, 2015

Country total Addis Ababa Major Urban towns

Total share of the informal sector 27.8 13 18.2

Source: CSA, 2015

BOX 1: FISCAL POWER OF THE ADDIS ABABA CITY ADMINISTRATION

FIGURE 14: SHARE OF MAJOR REVENUE SOURCES

2011 2012 2013 2014 2015

Tax Revenue 4,935.28 7,229.14 10,435.55 14,214.34 16,975.26

Non-Tax Revenue 1,025.44 1,142.31 1,096.19 1,542.00 2,312.86

Municipality Revenue 932.14 1,242.90 1,245.78 1,502.73 1,658.72

External Assistance 63.39 25.46 49.33 213.79 226.90

External Loan 68.37 70.67 353.18 1,571.93 543.54

Source: Addis Ababa City Administration; BoFED, 2016

2011 2012 2013 2014 2015

Source: BoFED, 2016

City Revenue per capita in ETB

THE STATE OF ADDIS ABABA 2017

2.6Land value capture:

availability of these new technologies.

economic growth 2005 0.455

performance of key sectors such as the micro and small

TABLE 11: LICENSED FDI PROJECTS BY REGION AND STATUS (1992-2016)

Oromia 1,633 604 413 616 36,788.7 69,660 65,929

Source: Ethiopian Investment Authority, 2016

Source: Ethiopian Investment Authority (2016)

competitiveness report, better only than Dhaka, Khartoum,

Doing Business Rank 2016 Doing Business Rank 2015 change

Starting a business 176 170 -6

Source: World Bank Doing Business report, 2016

TABLE 14: DOING BUSINESS RANK AND DISTANCE TO FRONTIER

Source: World Bank Doing Business report, 2016

Source: World Bank Doing Business report, 2016)

TABLE 16: CORRUPTION INDICATORS