Rural Urban Transformation and Agglomeration linkages in Ethiopia

Emily Schmidt

Seminar: DFID – Ethiopia

October 23, 2012

Presentation outline

1. Ethiopia’s Changing Economic Landscape – Structural shift of the economy (declining share of

agriculture) – Spatial (urbanization) – Infrastructure (expanding road networks) – Electricity generation and use – Telecommunications (mobile phones and internet)

2. Key policies

– Land policies – Industrial growth and constraints

3. Concluding Observations

Ethiopia Economic Structure: 1999/00 – 2008/09

Source: Calculated from World Bank, World Development Indicators data.

38

40

42

44

46

48

50

52

0

20

40

60

80

100

120

140

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99

/00

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/08

(20

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/09

)

Agr

ic S

har

e o

f G

DP

(%

)

bill

ion

(1

99

9/2

00

0) B

irr

Agriculture Industry Electricity and Water

Construction Other Private Services Public Administration

Agric Share of GDP

• Ethiopia’s share of agriculture in GDP in 2006 was highest in the world (48%) • More than double the average for low income countries (20%)

• Ag share of GDP decreasing, but real ag GDP growth averaged 6.2%

Agricultural Share in GDP in East African Countries, 1980-2008

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50

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70

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80

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82

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84

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86

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92

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98

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06

20

08

Shar

e o

f G

DP

(%

) Ethiopia

Kenya

Uganda

Expon. (Ethiopia)

Expon. (Kenya)

Expon. (Uganda)

Source: Calculated from World Bank, World Development Indicators data.

• Striking difference between Ethiopia’s overwhelmingly agriculture-dominant economy and the economies of most other developing countries.

Urban Economic Theory

• As economy grows, structure and location of economic activity tends to move more towards diversified economy with larger urban industrial and services sectors (Kuznets, 1950’s)

• New innovations in urban sector, increases in urban labor productivity and wages, make secondary cities make an attractive supplement (substitute to onfarm generation)

• Ethiopia launched ADLI (1994/94): focused on increasing productivity of smallholder farmers through use of fertilizer and improved seeds, infrastructure, public services.

– Agricultural growth induced by ADLI interventions would spur industrialization (agricultural input and processing industries, and consumer goods to higher household incomes and increased spending)

Ethiopia: comparatively slow transition

• Unique Biophysical Landscape

– Agricultural production is characterized by fragmented and dispersed land holdings average plot size is 0.8 hectares)

• Limited Transportation Infrastructure

• Level of development as function of urbanization

• Political landscape and evolution of agricultural policies (Monarchic, Derg, Present Government)

Ethiopia: Urbanization Official Agglomeration

Estimate Index

(percent) (percent)

1984 11.4% 3.7%

1994 13.7% 7.1%

2007 15.9% 14.2%

(mns people) (mns people)

1984 4.55 1.48

1994 7.33 3.80

2007 11.72 10.50

(growth rate) (growth rate)

1984-1994 4.9% 9.9%

1994-2007 3.7% 8.1%

1984-2007 4.2% 8.9%

Ethiopia remains one of least urbanized countries in SSA, but Ethiopia is urbanizing faster than people think!!!

Ethiopia: Alternative Urbanization Estimates

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1984 1994 2007

(mil

lio

ns)

Agglomeration Index Official CSA

Travel time 1984

Travel time 1994

Travel time 2007

Percentage of Population by Travel Time to Agglomerations of 50,000 or more People

<1

Hour

1-3

Hours

3-5

Hours

5-10

Hours

> 10

Hours

Ethiopia

1984 6.74 1.96 9.22 41.77 40.31

1994 8.38 6.44 18.19 35.96 31.03

2007 12.48 23.56 25.73 26.03 12.20

Agglomeration Index 1984

In 1984, Addis Ababa and other larger cities were primarily confined to its city administrative boundaries. There were only a few cities with greater than 50,000 people Limited road networks and more dispersed population characterized the demographic landscape.

Agglomeration Index 1994

By 1994, Ethiopia’s cities grew, and the country’s transportation network expanded Urban corridors were formed from Addis to the Southeast Population growth and improved transportation infrastructure facilitated linkages to form an urban network between Oromiya and SNNP regions.

Agglomeration Index 2007 By 2007, urban linkages were clearly visible throughout Oromia, SNNP, and Amhara regions. Addis Ababa expanded to connect Sebeta and Bishoftu, and Asela in the South. Addis Ababa also connected to Ambo in the west, and Debre Berhan in the east Linkages between Arba Minch and Sodo were also forming Jimma had grown into a southwestern hub with opportunities to link with Nekemte to the north.

Ethiopia: Percent Population connected to Urban Agglomeration

0%

10%

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40%

50%

60%

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45

1984 1997 2007

Mill

ion

s o

f P

eo

ple

Under 1 hour 1- 3 hours Share of Total Population

Source: Schmidt and Kedir (2009)

Ethiopia: Electricity Generation Capacity 1958 to 2011*

Source: Calculated using CSA Survey of Manufacturing (various years) and Ethiopian Electric Power Corporation data.

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67

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91

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06

20

09

wat

ts/p

ers

on

me

gaw

atts

(m

n w

atts

)

Total Installed Capacity Non-Hydro Capacity Capacity/capita

• Large investments in hydroelectric power: increased electricity generating capacity 29-fold between 1960’s and 2011, increase of 8.9 times on a per capita basis.

Electricity use

• Survey evidence suggests that productivity effects of electrification could be very large (output per worker)

• Small-scale handlooms in SNNPR: productivity per worker is about 40 percent higher for electrified versus non-electrified (Ayele et al., 2009)

• In electrified villages, producers work longer hours, firms share workspaces with electric lights and lower cost

Ethiopia: Fixed Line and Cellular Telephones - 2003 to 2010

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9

10

2003 2008 2009 (plan) 2010 (plan)

(mill

ion

s)

Cellular Phones Fixed Lines

• Fixed telephone line infrastructure more than doubled from 2003 – 2008

• Cell phone subscription increased from 50,000 in 2003 to 3.16 million subscribers in 2008

Ethiopia: Fixed Line and Cellular Telephones 2003 to 2010

2003 2008

2009

(plan)

2010

(plan)

Main (fixed) telephone lines

Ethiopia 405 909 3,000 4,400

Africa 9,553 10,617 --- ---

Mobile cellular subscriptions ('000s)

Ethiopia 51 3,168 7,500 9,900

Africa 35,251 245,608 --- ---

Mobile cellular subscriptions (per 100 people)

Ethiopia (share of total population) 0.1 3.9 9.0 11.5

Ethiopia (share in connected area) 0.1 5.3 --- ---

Africa (share in connected area) 3.7 32.5 --- ---

• Infrastructure plans report that cell phone subscriptions more than doubled from 2008 to 2009, and estimates of users continue to increase in future years.

• Compared to SSA, Ethiopia falls behind: Share of population in connected area is 5.3 percent in Ethiopia compared to 32.5 percent of the population in SSA

Rural – Urban Expenditure and Welfare Poverty Incidence

30

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48

50

1995/96 1999/00 2004/05

(pe

rce

nt)

Rural Urban Total

Ethiopia Food Security Index

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

2000 2005 2000 2005 2000 2005 2000 2005

Prevalence of CalorieUndernourishment

Prevalence ofunderweight among

children < 5 years

Under 5 mortality rateEthiopia Food SecurityIndex

LargeUrban

SmallUrban

Rural

Source: Household Income Consumption Expenditure Survey, and the Demographic and Health Survey from 1999/2000 and 2004/05 *The calculated calorie-based undernutrition for Ethiopia is based on the undernourishment cutoff of 1,990 kilocalories per day **Proportion of underweight children less than five years of age is calculated as a weight-for-age was less than two standard deviations

Ethiopia’s Industrial Sector: Growth and Constraints

• Industrial growth has occurred primarily from trading companies converting to manufacturing, rather than from small and medium firms converting to large enterprises.

• Credit constraints – In 2007 the government imposed tight lending controls on private

banks in an effort to curb speculative investments and inflation. In general, only large firms were able to access bank capital.

• Uncertainty – There are almost no secondhand markets in machinery and

equipment in Ethiopia, which contributes to irreversibility of decision making.

– Possible disruption in electricity also raises risks, as productivity per work is strongly linked to electricity (Ayele et al. 2009).

– Both electricity supply and the proxy measure of irreversibility have a statistically significant negative effect of on investment decisions in Ethiopian manufacturing (Shiferaw, 2009).

Land Policies and Migration

• Regional governments' proclamations restrict access to rural land by prescribing the need to be a rural resident in that particular region as a condition for acquiring rural land free of charge.

• No right to transfer land right on sale or in exchange with another property

• No easy transferability of land rights: transfer of use right in the form of inheritance and donation is allowed only to the right holder's family members who are residing in the rural kebele and are engaged or wish to engage in agriculture.

• These policies inhibit migration from rural areas – hinder labor mobility.

Concluding observations

• Rural – Urban connectivity has increased dramatically over the last several decades

– Upgraded and maintained transportation corridors and increased density on these corridors

– New cities were created and economically viable cities have experienced large growth (count and density)

– Dramatic increase in electricity production and cell phone subscription

• Ethiopia’s level of development affects urban transition – Lack sufficiently large non-farm population to generate

enough demand for its own agricultural products

– Unless farmers can respond to demand from urban consumers, through access to credit, labor and inputs, local markets are limited to low-level transactions

Concluding Observations

• Population in large cities: ample space to expand and grow its primary and secondary cities – 4 percent of the total population lives in the three largest cities

– 5.4 percent live in towns greater than 20,000 people

• Migration/agglomeration are potential sources of growth

• But without supporting investments, there is an “urbanization of poverty” and rising urban inequality

• Land and Migration Regulations:

– Easing of regulations?

• Prohibition of sale of land, loss of land rights for those who leave rural areas

• Registration requirements for new migrants

Concluding Observations

• Urbanization and industrialization are a crucial part of development and accelerating growth. – Urbanization reduces the rural-urban divide

– Facilitate increases in economic density to create small town networks for rural service provision (healthcare, education, etc.)

• However, given:

– Low levels of GDP/capita in Ethiopia

– A high concentration of poverty in rural areas

– Realistic prospects for increasing agricultural productivity and production

• Ethiopia should NOT neglect agriculture, if these countries are to rapidly increase food security and reduce poverty