Plan of Action for

Job Creation
2020-2025
Full document

November, 2019

Jobs Creation Commission

Federal Democratic Republic of Ethiopia (FDRE)

1
Table of Contents
Foreword and acknowledgment ........................................................................................................... 6
Abbreviations ......................................................................................................................................... 7
List of figures .......................................................................................................................................... 8
Chapter 1 – Macro-economic framework and objectives of the Plan ............................................... 12
A. Current situation .............................................................................................................................. 12
I. Ethiopia’s development trajectory and employment .............................................................................. 12
1. The evolution of sectoral contributions to economic growth ............................................................. 12
2. The impact of economic growth on poverty reduction....................................................................... 19
3. The impact of economic growth on labor and employment ............................................................... 20
II. Labor market overview and recent evolution ......................................................................................... 22
1. Evolution of labor market participation......................................................................................... 22
2. A dual labor market: the rural and urban dynamic........................................................................ 23
3. Quality of jobs in the Ethiopian labor market ................................................................................ 27
4. Inclusiveness of the Ethiopian labor market .................................................................................. 30
5. Job creation and the role of the private sector ............................................................................. 32
6. Skills and jobs: evolution of the labor force’s educational attainment ......................................... 35
B. Framework, targets and objectives of the Plan of Action for Job Creation ..................................... 43
I. Past policies and rationale for the Plan of Action for Job Creation.......................................................... 43
II. Prioritization of sectors ........................................................................................................................... 45
1. Methodology .................................................................................................................................. 45
2. Results ............................................................................................................................................ 49
III. Objectives of the Plan of Action for Job Creation .................................................................................. 50
Chapter 2 – Facilitating job creation and building a functioning labor market ................................. 52
A. Ensuring job-rich macro-policies .................................................................................................. 52
I. Ensuring a stable macro-economic environment .............................................................................. 52
1. Context and challenges .................................................................................................................. 52
2. Strategies and interventions .......................................................................................................... 57
II. Improving the functioning of the financial services ........................................................................... 58
1. Context and challenges .................................................................................................................. 58
2. Strategies and interventions .......................................................................................................... 61
III. Improving the level and access to FOREX........................................................................................... 61
1. Context and challenges .................................................................................................................. 61
2. Strategies and interventions .......................................................................................................... 63
IV. Upgrading the institutional and statistical framework for job-rich macro-policies ........................... 63
1. Context and challenges .................................................................................................................. 63

2
 2. Strategies and interventions .......................................................................................................... 63
B. Promoting job creation through providing an effective support to MSMEs ................................ 64
1. Context and challenges ...................................................................................................................... 64
2. Strategies and interventions .............................................................................................................. 73
C. Developing human capital to meet the changing needs of the labor market ............................. 76
1. Context and challenges ...................................................................................................................... 76
2. Strategies and interventions .............................................................................................................. 83
D. Building effective labor market institutions ................................................................................. 88
1. Context and challenges ...................................................................................................................... 88
..................................................................................................................................................................... 97
2. Strategies and interventions .............................................................................................................. 98
E. Ensuring the inclusiveness of the labor market ........................................................................... 99
1. Context and challenges ................................................................................................................ 100
i. Focus on Youth ............................................................................................................................. 102
ii. Focus on Women ......................................................................................................................... 105
iii. Focus on vulnerable population................................................................................................... 107
iv. Social protection in the labor market .......................................................................................... 109
2. Strategies and interventions ........................................................................................................ 111
Chapter 3 – Realizing the job-potential of prospective high-yield sectors ...................................... 115
A. Overall picture ............................................................................................................................ 115
Source: Jobs Creation Commission analysis Creating an effective enabling environment ....................... 116
1. Promoting private sector investment .......................................................................................... 117
2. Access to land............................................................................................................................... 118
3. Logistics ........................................................................................................................................ 119
4. Rural-urban linkages and role of secondary cities ....................................................................... 122
B. Horticulture ................................................................................................................................ 124
I. Context ............................................................................................................................................. 124
II. Challenges in the sector ................................................................................................................... 126
III. Potential of job creation ................................................................................................................... 128
IV. Strategies and interventions ............................................................................................................ 128
C. Poultry ............................................................................................................................................ 130
I. Context ................................................................................................................................................... 131
II. Challenges in the sector ........................................................................................................................ 133
III. Potential of job creation ....................................................................................................................... 135
IV. Strategies and interventions ................................................................................................................ 136
C. Agro-processing .............................................................................................................................. 138

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 I. Context ................................................................................................................................................... 138
II. Challenges in the sector ........................................................................................................................ 140
III. Potential of job creation ....................................................................................................................... 144
IV. Strategies and Interventions ................................................................................................................ 145
E. Textiles ............................................................................................................................................ 148
I. Context ................................................................................................................................................... 148
II. Challenges in the sector ........................................................................................................................ 149
III. Potential of job creation ....................................................................................................................... 153
IV. Strategies and interventions ................................................................................................................ 154
F. Leather ............................................................................................................................................ 156
I. Context ................................................................................................................................................... 156
II. Challenges in the sector ........................................................................................................................ 160
III. Potential of job creation ....................................................................................................................... 163
IV. Strategies and interventions ................................................................................................................ 163
G. Construction ................................................................................................................................... 166
I. Context ................................................................................................................................................... 166
II. Challenges in the sector ........................................................................................................................ 168
III. Potential of job creation ....................................................................................................................... 171
IV. Strategies and interventions ................................................................................................................ 171
H. Mining ............................................................................................................................................ 174
I. Context ................................................................................................................................................... 174
II. Challenges in the sector ........................................................................................................................ 177
III. Potential of job creation ....................................................................................................................... 181
IV. Strategies and interventions ................................................................................................................ 182
I. Renewable energy ........................................................................................................................... 185
I. Context ................................................................................................................................................... 185
II. Challenges in the sector ........................................................................................................................ 188
III. Potential of job creation ....................................................................................................................... 193
IV. Strategies and interventions ................................................................................................................ 194
J. Tourism............................................................................................................................................ 197
I. Context ................................................................................................................................................... 197
II. Challenges in the sector ........................................................................................................................ 199
III. Potential of job creation ....................................................................................................................... 201
IV. Strategies and Interventions ................................................................................................................ 202
K. ICT ................................................................................................................................................... 206
I. Context ................................................................................................................................................... 206

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 II. Challenges in the sector ........................................................................................................................ 208
III. Potential of job creation ....................................................................................................................... 210
IV. Strategies and interventions ................................................................................................................ 210
L. Creative arts .................................................................................................................................... 214
I. Context ............................................................................................................................................. 214
II. Challenges across the value chain .................................................................................................... 215
III. Potential of job creation ................................................................................................................... 216
IV. Strategies and interventions ............................................................................................................ 216
Chapter 4: Implementation Plan ....................................................................................................... 218
Bibliography ....................................................................................................................................... 219
Annex ................................................................................................................................................. 220

5
Foreword and acknowledgment

6
Abbreviations

ADLI Agriculture Led Development Industrialization

FDI Foreign Direct Investment

GTP-I Growth and Transformation Plan – I, 2010–15

GTP-II Growth and Transformation Plan – II, 2015/16-19/20

HCES Household Consumption and Expenditure Survey

ILO International Labour Organization

IMF International Monetary Fund

JCC Job Creation Commission

NLFS National Labour Force Survey

LMIS Labour Market Information Systems

MFI Micro-finance Institution

MOF Ministry of Finance

MoLSA Ministry of Labor and Social Affairs

MSMEs Micro, Small and Medium Enterprises

MSEs Micro and Small Enterprises

NBE National Bank of Ethiopia

NPC National Planning Commission

PASDEP Plan for Accelerated and Sustained Development to End Poverty, 2005–
10

PESO Public Employment Service Offices

PSNP Productive Safety Net Program

SDPRP Sustainable Development and Poverty Reduction Plan, 2002-05

SMEs Small and Medium Enterprises

SOE State-owned Enterprises

WDI World Development Indicators

WB World Bank

7
List of figures

Figure 1: Real GDP Growth Rate, 2000/01 -- 2017/18 .................................................................................... 12

Figure 2: Sectoral Shares in GDP ..................................................................................................................... 13
Figure 3: Share of manufacturing and construction in GDP (%)...................................................................... 13
Figure 4: Growth of agriculture, industry, and service sectors in % ............................................................... 14
Figure 5: Growth of manufacturing and construction sectors ........................................................................ 14
Figure 6: FDI Inflows into Ethiopia – %GDP .................................................................................................... 15
Figure 7: Share of FDI by region since 1992- in % ........................................................................................... 15
Figure 8: Share of total FDI by sector (in %) since 1992 .................................................................................. 16
Figure 9: Composition of exports of goods - as % of total exports between 2000-2018 ................................ 17
Figure 10: Export of goods and services - % of GDP ........................................................................................ 17
Figure 11: Exports and imports of goods and services (in USD million) .......................................................... 18
Figure 12: Import of goods (% of GDP) ............................................................................................................ 18
Figure: 13: Poverty headcount ratio in Ethiopia and low-income countries in percent ................................. 19
Figure 14: Median annual consumption per adult (in December 2015 Birr), 2011-16 ................................... 20
Figure 15: Main indicators for labor market participation – National level – 2013 ........................................ 23
Figure 16: Share of non-farm activities in employment in rural areas – 2013 ................................................ 24
Figure 17: Unemployment rate categorized by place of residence and gender, 2005 & 2013 (%) ............... 26
Figure 18: Migration by origin and destination. Migrants, % of total ............................................................. 27
Figure 19: Distribution of self-employment per sector – 2013 ....................................................................... 28
Figure 20: Evolution of employment status – National level – 2005-2013 ..................................................... 29
Figure 21: Employment-to-population ratio – national level .......................................................................... 30
Figure 22: Evolution of the urban unemployment rate by gender 2003-2018 ............................................... 31
Figure 23: Level of unemployment per region and gender – Urban areas – 2018 ......................................... 31
Figure 24: Distribution of jobs created in urban areas by status of employment - 2003-2018, (%) ............... 33
Figure 25: Evolution of number of civil servants at federal and regional level, 2000-2017 ........................... 33
Figure 26: Change in sectoral employment at national level between 2005 and 2013 .................................. 34
Figure 27: Evolution of educational attainment of the labor force between 1999 and 2016 ........................ 35
Figure 28: Government Expenditure on Education (% of GDP), 2010-2015 ................................................... 37
Figure 29: Government Expenditure on Education (% of total government spending), 2015........................ 37
Figure 30: Structure of employed population per occupation - 2013............................................................. 38
Figure 31: Structure of occupations per status of employment - 2013 ......................................................... 39
Figure 32: Employment status per level of education– urban areas – 2018 .................................................. 39
Figure 33: TVET enrolment by gender– in thousands - 2013-2018 ................................................................. 40
Figure 34: University enrolment – in thousands - 2013-2018 ......................................................................... 42
Figure 35: Evolution of growth of different sectors since 2011 ...................................................................... 45
Figure 36: Potential of direct job creation in the prioritized sectors .............................................................. 49
Figure 37: Inflation in Ethiopia ........................................................................................................................ 53
Figure 38: Tax revenue in Ethiopia - % of GDP ................................................................................................ 54
Figure 39: Credit to GDP Ratio......................................................................................................................... 58
Figure 40: Outstanding loans in millions of birr .............................................................................................. 59
Figure 41: Composition of domestic credit ..................................................................................................... 60
Figure 42: World Bank Doing Business Rankings – 2017-19; scores range from 1=best to 190 = worst ........ 64
Figure 43: Most important business constraints for enterprises – % of firms ................................................ 64
Figure 44: Number of MSEs and job creation – 2014/15-2017/18 ................................................................. 66
Figure 45: Regional distribution of MSEs and Jobs Created - % of the total – 2017/18 ................................. 66
Figure 46: Literacy rates in % - 2005-2018 ...................................................................................................... 78

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Figure 47: Satisfaction with the performance of TVET graduates................................................................... 79
Figure 48: Perception on changes in quality of TVET system in the past four years ...................................... 80
Figure 49: Pathways for job-search ................................................................................................................. 88
Figure 50: Structure of occupations per status of employment - 2013 ........................................................ 100
Figure 51: Correlation between level of education, wages in self-employment - 2014 ............................. 100
Figure 52: Evolution of unemployment in urban areas by level of education .............................................. 101
Figure 53: Labor market participation indicators for youth – 2013 for the national level and 2018 for the
urban level ..................................................................................................................................................... 102
Figure 54: Youth unemployment rate by gender – national level - 2005-2013 ............................................ 102
Figure 55: Youth unemployment in rural and urban areas by gender – 2013 .............................................. 103
Figure 56: Evolution of youth unemployment in urban areas ...................................................................... 103
Figure 57: Distribution of employment by skills content and age - 2005 and 2013 (%) ............................... 104
Figure 58: Evolution of the employment-to-population ratio by gender – urban and rural areas – 1999-2005-
2013 ............................................................................................................................................................... 105
Figure 59: Unemployment rate by gender and region – 2018 ...................................................................... 106
Figure 60: distribution of employment status by gender at a national level – 2013 .................................... 106
Figure 61: Distribution of wages by gender at the national level – in birr, 2013 .......................................... 107
Figure 62: Potential of direct job creation across the economy per sector 2019-2025................................ 116
Figure 63: Logistics Performance Index (LPI) score of selected countries. Score out of 6, 2016 .................. 120
Figure 64: Per capita food consumption by country, Grams/Day ................................................................. 125
Figure 65: Ethiopia horticulture imports in thousands of USD, 2017 ........................................................... 125
Figure 66: value chain for fruits and vegetables ........................................................................................... 126
Figure 67: Market system map of Horticulture ............................................................................................ 128
Figure 68: Chicken meat production in Eastern Africa and Ethiopia, 2017 – in thousand tonnes................ 131
Figure 69: Egg imports in Ethiopia, 2008-2013 in tonnes ............................................................................. 132
Figure 70: Chicken imports in Ethiopia, 2007-2016 in tonnes ...................................................................... 132
Figure 71: Average live bird weight - grams/bird Figure 72: Cost of DOC (broiler) - US Cents/DOC 132
Figure 73: value chain for poultry ................................................................................................................. 133
Figure 74: Market system map of poultry ..................................................................................................... 135
Figure 75: Processed commodities consumption in Ethiopia, 2014 – 2016 -MN USD .................................. 138
Figure 76: Ethiopia’s largest processed food imports from 2012 - 2016 – ‘000 USD.................................... 138
Figure 77: value chain for agro-processing – wheat ..................................................................................... 140
Figure 78: value chain for agro-processing – sunflower ............................................................................... 142
Figure 79: Market system map of agro-processing ....................................................................................... 144
Figure 80: local value chain for textiles – Local production .......................................................................... 150
Figure 81: FDI value chain for textiles ........................................................................................................... 152
Figure 82: Market system map of textile and garment ................................................................................. 153
Figure 83: Livestock population in top East African countries – 2016 in Millions......................................... 157
Figure 84: Hide and skin production in top East African countries – 2013 – in Thousand tonnes ............... 157
Figure 85: Processed leather exports by top exporting African countries – 2012-2016 – in Tonnes .......... 158
Figure 86: Leather exports - 2011-2018 in USD million................................................................................. 159
Figure 87: Leather goods domestic sales vs. exports – 2017 in USD million................................................. 159
Figure 88: value chain for leather.................................................................................................................. 161
Figure 89: Market system map of leather ..................................................................................................... 162
Figure 90: Investments in the construction sector - capital in thousands of Birr - 2014-2017 ..................... 167
Figure 91: Road network - unit kilometres constructed - 2016-2019 ........................................................... 167
Figure 92: value chain for construction ......................................................................................................... 169
Figure 93: Market system map of construction ............................................................................................ 170
Figure 94: Mining potential in Ethiopia ......................................................................................................... 175

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Figure 95: Mineral export figures - Millions USD (2013-2017)...................................................................... 175
Figure 96: Gold production figures by country in thousands of Kgs (2013-2017) ........................................ 176
Figure 97: Investment capital in the mining and quarrying sector - Thousands of US Dollars (2015-2018). 177
Figure 98: value chain for large-scale mining ................................................................................................ 178
Figure 99: value chain for artisanal mining ................................................................................................... 180
Figure 100: Market system map of mining.................................................................................................... 181
Figure 101: Electricity Generation GWh, 1990-2016..................................................................................... 185
Figure 102: Access to electricity %, 2000-2016 ............................................................................................. 186
Figure 103: value chain for the on-grid renewable energy ........................................................................... 189
Figure 104: value chain for the off-grid solar energy .................................................................................... 191
Figure 105: Market system map of renewable energy ................................................................................. 192
Figure 106: Projection of Jobs in off-grid solar in East Africa, 2022 .............................................................. 193
Figure 107: UNESCO world heritage sites in Ethiopia ................................................................................... 197
Figure 108: Ethiopia’s tourist arrivals and expenditures, 2014-2017 - ‘000 USD.......................................... 198
Figure 109: Domestic tourist spending, 2012 – 2018 - ‘000 USD .................................................................. 199
Figure 110: Value chain for tourism .............................................................................................................. 200
Figure 111: Market system map of tourism .................................................................................................. 201
Figure 112: ICT as a sector ............................................................................................................................. 206
Figure 113: Main segments of ICT ................................................................................................................. 208
Figure 114: Market system map of ICT.......................................................................................................... 210
Figure 115: Creative Goods Exports, 2005 and 2014 Figure 116: Creative Goods Imports, 2005 and 2014
....................................................................................................................................................................... 214
Figure 117: Number of Ethiopian films 2010-2018 ....................................................................................... 215

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List of tables

Table 1: Contribution of Sectors to GDP growth in % ..................................................................................... 14

Table 2: Employment elasticity to growth by sector, comparison between Ethiopia and low-income
countries .......................................................................................................................................................... 20
Table 3: Job creation planned objective for industrial parks (IPs) .................................................................. 34
Table 4: Direct job creation by operational industrial parks ........................................................................... 35
Table 5: GDP Growth Rate – Projection .......................................................................................................... 47
Table 6: Employment elasticity to growth by sector ....................................................................................... 48
Table 7: Estimation of direct and indirect job creation by sub-sector– 2019-2025 ........................................ 48
Table 8: Growth of credit by sector (%), source: NBE 2019, NPC 2019........................................................... 59
Table 9: Microfinance institutions (and their operations - in thousands of birr)............................................ 67

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 Chapter 1 – Macro-economic framework and objectives of the
Plan
A. Current situation
I. Ethiopia’s development trajectory and employment

1. The evolution of sectoral contributions to economic growth

Over the past decade, Ethiopia’s economy has been among the fastest growing in the world. Over
an even longer period—since 2000-2001—Ethiopia has maintained an average annual real GDP
growth rate of 9.1% (Figure 1). However, several characteristics of Ethiopia’s economic growth story
suggest that these trends may be more fragile than they appear. First, while the overall rate is
impressive, growth has been heavily driven by publicly funded and capital-intensive construction.
Second, this shift in the relative contribution of different sectors to the Ethiopian economy has not
been accompanied by a similar shift in employment patterns. Third, despite Ethiopia’s laudable
gains in countering poverty, rural consumption has grown extremely slowly. Finally, it is likely that
urbanization has been a driver of rural growth in some cases but has also been a consequence of
the relative lack of diversification in the rural sector, and relatively low increases in rural
consumption levels.
Figure 1: Real GDP Growth Rate, 2000/01 -- 2017/18

13.4
11.9 12.4 10.4
11.4 10.6
11.0 11.0 10.9
10.7
9.5
8.6 8.6 10.3
8.1
6.8

0.6
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

-3.1

Source: NBE, 2019

In the years immediately after the end of the civil war in 1990, improved productivity in
agriculture drove Ethiopia’s economic growth. In more recent years, and especially since 2010,
economic growth has been driven by steady growth in services and high growth in the industrial
sector (fueled more by construction than by manufacturing). Massive public investment has been
the primary driver of growth in construction, which in 2017-18 contributed over 20% of Ethiopia’s
GDP (Figure 3). Yet the construction boom has been more capital intensive than labor intensive; its
impact on employment appears to be less than its overall economic impact might suggest.
Manufacturing, meanwhile, contributes just under 6% of GDP.

12
Figure 2: Sectoral Shares in GDP

100%
90%
80% 39.2
70%
60%
50% 27
40%
30%
20%
10%
34.9
0%

Agriculture and allied activities (as % of GDP) Industry (as % of GDP) Services (as % of GDP)

Source: NBE, 2019

Figure 3: Share of manufacturing and construction in GDP (%)

20.6

8.5
5.8

4.0

2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Manufacturing Construction

Source: Planning and Development Commission

The relative output of different sectors of the Ethiopian economy has changed over the past
twenty years. Agriculture remains important, but its share of total economic output has decreased
from 66% in 1991 to just under 35% in 2018 (Figure 2). In contrast, the service and industry sectors’
shares of total output have increased (to about 39% and 27%, respectively). Moreover, the rate of
growth has decelerated in the agriculture sector, while that of services has grown steadily (Figure
4).

13
 Figure 4: Growth of agriculture, industry, and service Figure 5: Growth of manufacturing and construction
sectors in % sectors

45.0 Manufacturing Construction

Agriculture Industry Service
35.0 40.0

30.0 35.0

30.0
25.0
25.0
20.0
20.0
15.0
15.0

10.0 10.0

5.0 5.0

0.0 0.0
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10

-5.0

-10.0

-15.0

Source: Planning and Development Commission, Ethiopia

Table 1: Contribution of Sectors to GDP growth in %

2010/11 2012/13 2014/15 2016/17 2017/18

Agriculture 34.1 27.7 23.4 24.4 17.5
Industry 15.3 37.2 41.0 46.9 43.3
Manufacturing 4.2 6.8 8.3 14.8 5.3
Construction 7.3 29.1 34.0 33.0 38.4
Services 34.4 26.5 35.6 29.1 46.8
Distributive Services 11.6 19.5 24.2 16.0 29.5
Other Services 22.8 7.0 11.4 13.2 17.3
Source: Planning Development Commission, Ethiopia

Despite these broader changes within Ethiopia’s economy, employment patterns do not appear
to have changed substantially. Although the agriculture sector’s share of economic output has
fallen sharply, it employed roughly 73% of the workforce in Ethiopia in 2013, according to the
National Labor Force Survey, and still accounts for an estimated 67% of employment in 2019.1 Also,
while there is some evidence of employment diversification in rural areas,2 this shift has, at least up
to 2013, been quite modest: as of 2013, agriculture still accounted for 83% of rural employment,
while manufacturing contributed just 4% and services made up 12%.3

1 World Development Indicators, 2018.

2
The share of the labor force engaged in agriculture has fallen more sharply than has rural employment as a share of total employment, and much
of Ethiopia’s manufacturing employment is actually found in rural SMEs.
3 National Labor Force Survey, 2013

14
In the past decade, Ethiopia has been heavily investing in industrialization, notably through the
development of industrial parks and the investment in export-oriented light-manufacturing.
Evidence indicate that manufacturing is the main engine of structural change and sustained growth
for developing countries. Considering this, Ethiopia has developed an Industrial Policy and invested
in the construction of Industrial Parks, with a model of “plug and play” for foreign investors. This
has been accompanied with fiscal and financial incentives to foreign investors in selected sectors
such as textiles and garments, leather, pharmaceuticals etc.

In line with Ethiopia’s focus on FDI driven, export-focused manufacturing as an engine of the
economy, FDI level has been relatively increasing in the last decade, with a concentration in
manufacturing. Net FDI inflows have fluctuated between lows of 2.5% of GDP (in 2014/15) to highs
of 5.2% (in 2016/17) (Figure 6). FDI declined to USD 3.7 billion in 2017/18, largely due to the political
unrest in the country, and the top 5 countries of origin for FDI are China, India, Sudan, USA and
Turkey (not counting joint ventures). FDI is highly concentrated in manufacturing and to a much
lower degree in agriculture and construction (Figure 8). It is also regionally concentrated with nearly
80% concentrated in Addis Ababa and the Oromia region (Figure 7). The Ethiopian government does
provide some fiscal incentives to draw investment into other regions (for instance, the duration of
tax exemptions may be higher for investing in less developed regions) – thus far these policies have
only had limited success.

Figure 6: FDI Inflows into Ethiopia – %GDP Figure 7: Share of FDI by region since 1992- in %

5.2 40%
37%
4.4
4.2
3.9
3.4
3.2

2.6
2.5 2.6
10%
5%
3% 2%
0% 0% 2% 1% 0% 0%
Amhara

Harari
Afar

SNNPR
Gambella

Oromia
Dire Dawa

Tigray
Addis Ababa

Somali
B.Gumze

Multiregional
2009/10

2010/11

2011/12

2012/13

2013/14

2014/15

2015/16

2016/17

2017/18

Source World Bank 2019a Source EIC

15
Figure 8: Share of total FDI by sector (in %) since 1992

74.49

10 7.97 5.98
1.56

Manufacturing Construction Agriculture Hotels and restaurants Others

Source: EIC

However, manufacturing’s contribution to economic output and employment remain low.

Ethiopia’s manufacturing sector is still far from being an engine of economic transformation, as it
contributes just under 6% of GDP and its share in employment is around 3% (NFLS, 2013). Moreover,
companies in industrial parks suffer from important challenges, including lack of qualified human
resources and poor business environment. According to recent studies, companies in industrial
parks suffer from high labor turnover (some sources indicate up to 2/3 of turnover within the 6 first
months) and difficulties in recruiting qualified human resources. This is also coupled with business
environment issues such as frequent power shortage and shortage and poor quality of raw
materials.

Despite relative success in developing exports in some sectors, the diversity of Ethiopian goods’
exports remains low. Exports have considerably increased in nominal value between 2000 and 2018
reaching USD 2.8 billion in 2017/18, compared to USD 0.4 billion in 2000/01. However, this remains
far below the government’s target of 7 billion,4 reflecting structural issues, and the level of exports
remains under 10% of GDP. Noticeable increase of exports was recorded in the leather, textile and
garments, chemical, and electricity sectors in the last years, reflecting (at least in part) the increasing
contribution of new industrial parks. However, the diversity of exports remain low as most of
current exporting goods are agricultural commodities, thus, heavily affected by swings of world
commodity prices.

4
GTP II figures

16
Figure 9: Composition of exports of goods - as % of total exports between 2000-2018

50
45
40
35
30
25
20
15
10
5
0
Coffee Oilseeds Gold Chat Pulses Flower Live animalsLeather and Meat Textile and Fruits &
leather products textile vegetables
products products

2000/01 2005/06 2010/11 2015/16 2017/18

Source: Planning and Development Commission

In recent years, the export of services (driven largely by Ethiopian Airlines) has outpaced the
export of goods, which has declined largely due to low commodity prices (especially that of
coffee). In fact, the expansion of exports by around 13%. reflects the improved performance of
Ethiopian Airlines. Coffee represents 30% of goods exports and decreased by 5% in FY2018, mainly
because of a drop of more than 10% in coffee prices.
Figure 10: Export of goods and services - % of GDP

5.7 5.9
4.8 4.6 5
4.1 4 4.2 3.6 3.4

2013-14 2014-15 2015-16 2016-17 2017-18

Service exports (% of GDP) Goods exports (% of GDP)

Source: NBE, 2019

Ethiopia’s current account balance is negative, and as of the first quarter of 2019, was
approximately 6.2% of GDP. In recent years, the current account balance has been compressed due
to fiscal consolidation and reduction of exports by the government (Figure 11). The current account
can be understood as the difference between the value of exports of goods and services and the
value of imports of goods and services. A deficit then means that the country is importing more
goods and services than it is exporting—although the current account also includes net income (such
as interest and dividends) and transfers from abroad (such as foreign aid), which are usually a small
fraction of the total (see Ghosh and Ramakrishnan 2018). Expressed in this way, a current account
deficit is often understood as negative – that is, because exports are considered to be ‘good’ and
imports, ‘bad’. In Ethiopia’s case however the story is more nuanced. While the current account
deficit is admittedly large, consumer goods are a minor part of all imports. Raw materials, energy,

17
capital and intermediate goods actually make up the bulk of imports, suggesting that imports are
actually being used to facilitate export of goods in the future (Figure 12).
Figure 11: Exports and imports of goods and services (in USD million)

25000

20000

15000

10000

5000

-5000

-10000

Exports (in US$ mn) Imports (in US$ mn) Current Account Balance (including transfers)

Source: NBE 2019

Figure 12: Import of goods (% of GDP)

4.8
4.4
0.4 0.4 4.7
4.3 4.3 0.3
4.2
4.2 4.7
3.2 0.4
4.6 1.9 3.4 0.3
3.1
7 2.3
7.3 2.7
6.7
6.1
5.6
10.7 9.4
8.7 7.5 6.2

2013-14 2014-15 2015-16 2016-17 2017-18

Capital goods Consumer goods Fuel Intermediate goods Others Service imports

Source: World Bank 2019a

Ethiopia began accession talks with the WTO in 2003. It already has access to some established
markets through preferential treatment arrangements such as the African Growth and Opportunity
Act (AGOA) and the European Everything but Arms (EBA). However non-tariff barriers continue to
remain high which constrains access to these markets.

18
2. The impact of economic growth on poverty reduction

Ethiopia’s poverty elasticity of growth—a measure of the extent to which GDP growth decreases
poverty—is lower than that of similar countries. Although levels of poverty in Ethiopia have
decreased substantially over the last decade (Figure 13), poverty reduction has been relatively low
relative to GDP growth5.
Figure: 13: Poverty headcount ratio in Ethiopia and low-income countries in percent

100
Ethiopia : Poverty headcount ratio at $1.90 a day
90 (2011 PPP) (% of population)

80 Ethiopia: Poverty headcount ratio at $3.20 a day (2011

PPP) (% of population)
Poverty headcount ratio

70
Ethiopia: Rural poverty headcount ratio at national
60
poverty lines (% of rural population)
50
LICs: Poverty headcount ratio at $1.90 a day (2011
40 PPP) (% of population)

30 LICs: Poverty headcount ratio at $3.20 a day (2011

PPP) (% of population)
20
Ethiopia: Poverty headcount ratio at national poverty
10 lines (% of population)
0

Source World Bank Open Data

Poverty remains far more pronounced in rural areas, where the poverty headcount ratio—that is,
the percentage of the population living below the national poverty line of less than USD 0.6 per
day—has declined from 45.4% in 2000 to 25.6% in 2016, compared to a sharper decline in urban
areas (from 36.9% to 14.8% over the same period).
Analysis of the data on consumption per capita,6 which tend to be more accurate and precise than
poverty data, confirms this rural-urban divide. Rural consumption per capita increased on average
by just 1% per year between 2011 and 2016 and was heavily tilted toward the wealthier quintiles
(World Bank 2019a), while urban per capita consumption grew by 6% per year (the national average
was about 2% per year). In fact, growth in rural consumption was negligible in all regions besides
Tigray, Gambella, and Harari. The National Planning Commission estimated that the Gini coefficient7
increased from 0.30 to 0.33 in this five-year period, largely due to these different rates of
consumption growth in urban and rural areas.8

5 World Bank 2019a, p.35

6
These data were collated from the Household Consumption Expenditure Surveys (HCES) (2010/11 and 2015/16). All consumption of food and non-
food items is included, regardless of whether these items were purchased on the market, come from own production, or were received as gifts.
7
The Gini coefficient is a statistical measure that represents the economic inequality of a society on a scale of 0 to 1, with higher values
representing greater inequality.
8 National Planning Commission. 2019. “Macro-economic analysis (English) for JCC.” Mimeo.

19
Figure 14: Median annual consumption per adult (in December 2015 Birr), 2011-16

14230

10657 10750
9520 9331 9944

National Urban Rural

2011 2016

Source: CSA Household Consumption Survey 2011 and 2016

The high GDP growth and the substantial increase in agricultural productivity have had a very
small impact on per capita consumption, particularly in rural areas. Increases in rural income do
not appear to have been sufficient to drive industrial demand. This has major implications for the
growth of the manufacturing sector and, by extension, for employment generation. The relatively
slow pace of diversification of the rural economy and the slow pace of manufacturing growth can
also be explained by slow growth in personal consumption in the absence of massive growth in
exports.

3. The impact of economic growth on labor and employment

The strong economic growth that Ethiopia experienced over the last decade created less
employment than expected, as the elasticity of employment to growth remained low, even when
compared to other low-income countries (Table 2).
Table 2: Employment elasticity to growth by sector, comparison between Ethiopia and low-income countries

Employment elasticity to growth Low income countries

Ethiopia (NLFS 1999-2013)
by sector (Fox et al 2013)

Agriculture 0.4

Self-employment industry 0.3 0.7

Self-employment services 0.2 0.8

Wage industry 0.4 0.9

Wage services 0.4 0.8

Source: World Bank calculation for Ethiopia, Fox et al (2013) for low-income countries

20
Economic transformation and growth in Ethiopia appear to be driven by two quite distinct
engines: first, poverty reduction due to increasing yields and productivity in agriculture, and second,
a public-investment-fueled, capital-intensive construction boom. The agriculture sector remains
extremely important, but the lack of diversification in the rural economy and relatively low increases
in rural consumption suggest that the developmental strategy pursued so far has not been able to
(i) create sufficient links between the rural economy and the industrial and services sectors and (ii)
promote manufacturing to the extent that it becomes a major engine for employment creation,
both directly and through indirect effects.

These factors have strongly impacted the rate of rural-urban migration, which has increased
rapidly in the last few years—the 2013 Labor Force Survey found that migrants made up 44.4% of
the total population in urban areas and that recent migrants were moving predominantly to look
for a job. This influx of jobseekers increases the pressure on the labor market and may also be a
major driver of recent spikes in urban unemployment, which increased from 16.5% in 2013 to 19.1%
in 2018, as 53% of the urban unemployed are rural-urban migrants.9 The Labor Force Survey
conducted in 2013 by the Central Statistical Agency suggests that, even as they leave agriculture,
rural laborers are moving largely to informal, home-based work, rather than to more productive
employment in manufacturing or high-end services.

9 NFLS, 2013

21
II. Labor market overview and recent evolution

Data disclaimer
Given that the latest National Labor Force Survey is from 2013, labor market data at the national level are
outdated and may not provide an accurate picture of current labor market conditions. However,
Ethiopia’s Central Statistical Agency (CSA) conducts an employment/unemployment survey in urban areas
every year that gives an up-to-date snapshot of the urban labor market. To complete the picture of rural
areas and the demographic dividend, this plan relies on other sources such as the economic survey
conducted by the World Bank, the CSA, the World Development Indicators, and studies authored by the
International Food Policy Research Institute in Ethiopia.

It is also worth noting that the CSA uses definitions for some indicators that differ from international
standards. For example, while international standards define working populations as between the ages
of 15 and 64, the CSA defines the working age population of Ethiopia as 10 years old and above. As most
of the data used here derive from CSA surveys, our definition of the working-age population and labor
force will align with those of the CSA.

1. Evolution of labor market participation

As of 2013, Ethiopia’s working age population (10+) was estimated at 55 million and represented
68.8% of the total population. Youth (15-29) constituted 39% of the working-age population (10+)
and 51% of the 15–64-year-old population. The World Development Indicators suggest that the
share of youth has increased: as of 2017, more than 70% of the population was under 29 years old—
an increase of 14% compared to 2010. As of 2017, it is estimated that the median age is 18 years
old and that 75% of the population is under 30 years of age.10 Integrating the youth cohort’s growing
share of the population into the labor market will require specific kinds of financial and
programmatic support.

Ethiopia’s labor force—roughly 44 million people in 2013 and an estimated 53 million people in
2018—is the second largest on the African continent. The national labor force is concentrated in
three main regions: Oromiya, Amhara, and SNNP. However, small urban centers and secondary
cities (such as Arba Minch) represent 65% of the urban working-age population and around 60% of
the urban unemployed and should therefore be the priority for labor market interventions.

Ethiopia’s employment indicators—such as the labor force participation rate (80% in 2013) and
the employment-to-population ratio (76.2% in 2013)—are relatively high. For example, these
figures are higher than the average across OECD countries (respectively 72.4% and 68.7% in 2018),
and generally increased between 1999 and 2013. However, as is the case with many developing
countries, these figures do not convey the reality of the labor market, as they do not accurately

10 WDI, 2018.

22
reflect vulnerable employment and the informality and seasonal variation of much rural agricultural
work.
Figure 15: Main indicators for labor market participation – National level – 2013

Source: CSA National Labor Force Survey, 2013

In 2013, roughly 11.3 million Ethiopians were economically inactive, of which 54% were in school
and 46% (5 million) were neither in employment nor education nor training (NEET). NEET
individuals were inactive for any of a number of reasons—homemaking, illness, injury, etc.—but the
size of this population represents an important indicator of social exclusion and points to extreme
vulnerability in the labor market. Between 2012 and 2016, NEET remained stable in rural areas
(rising minimally, from about 12% to 13%) and in cities (unchanged at 30%) and increased slightly in
towns from 23% to 26%. When compared to the unemployment rate, the NEET rate is higher in rural
areas, among women, and among the uneducated11.

The vast majority (an estimated 67% in 2017) of Ethiopia’s workforce is employed in agriculture.
In 2013, the relative sectoral shares of the labor force were only marginally different: roughly 73%
of the total labor force of 42.4 million worked in agriculture, around 4% in manufacturing, around
3% in construction and utilities, and 20% in services.

As in most low-income developing countries, the unemployment rate in Ethiopia is relatively low
and diverges significantly between urban and rural areas. In 2013, the national unemployment rate
was 4.5%—a combination of 2% unemployment in rural areas and 16.5% in urban areas. This
disparity does not imply a better functioning labor market in rural areas, but rather the
pervasiveness of highly vulnerable subsistence employment, dependence on agricultural outputs,
and lack of economic diversification in rural areas.

2. A dual labor market: the rural and urban dynamic

Ethiopia population remains largely rural—more than 80% of the nation’s labor force inhabits
rural areas. In 2013, almost 83% of the labor force was in rural areas. However, the urban population
is growing at a much higher annual rate (5%) than is the rural one (2%). Between 2005 and 2013,

11 World Bank (2017), “Employment and Jobs.”

23
the urban labor force increased by 93% from 3,964,380 to 7,646,85912 and the employed population
grew by 85%.
In rural areas, job creation is rarely through a formal full-time job; the number of “jobs” created is
generally not very different from the number of people entering the labor force. The rural economy
is still heavily dependent on agriculture, which accounts for 83% of rural employment. Rural
economic diversification remains nascent and most people working in rural areas enter the
workforce directly within their farms or with their families. Data from the most recent
socioeconomic survey in Ethiopia suggest that the employment structure of rural areas has not
dramatically changed since 2013 and continues to be characterized by people resorting to
agricultural work in the absence of other opportunities.

Figure 16: Share of non-farm activities in employment in rural areas – 2013

12% 17%

88% 83%

2005 2013

Employment in Agriculture Non-farm employment

Source: CSA National Labour Force Survey 2005 and 2013;

The unemployment rate in rural areas remained at very low levels between 1999 and 2013.
However, available data do not capture seasonal variations or unpaid labor. By large, rural work in
Ethiopia is still synonymous with agriculture, although the share of agricultural work in rural
employment did decrease from 2005 (88%) to 2013 (83%). In 2013, employment in non-farm rural
activities was concentrated in household services (7%), wholesale and retail (2.9%), manufacturing
(2.7%), and construction (1%).

A slight majority of rural employment is subsistence, as 55% of rural workers are unpaid. The
picture is starker when we break this down by gender: 80% of women in rural areas work without
pay (versus 35% of men), representing more than 12 million women in 2013. Most workers in rural
areas (78%) are engaged solely in own-family farm activities, while only 12% report having a
secondary job outside of their own farm. Most households rely exclusively on family labor in crop

12
Using current status approach and considering 10+ as working-age population as defined by CSA

24
production.13 Subsistence employment is a major constraint on households’ ability to save, invest,
or upgrade their means of production and thereby increase agricultural productivity.

In Ethiopia, the increase in agricultural productivity in the last years has not translated into a
substantial increase in the rural non-farm economy. The international evidence suggests that in
areas that have experienced robust growth in the agricultural sector, the rural nonfarm economy
(RNFE) has also rapidly expanded, leading to increased income and stability for rural populations.
Given this correspondence, rural development and rural economic diversification should be a focus
of job creation efforts in Ethiopia.

Access to finance remains a challenge in rural areas to develop non-farm rural activities, with a
high-risk aversion from households. Evidence shows that a very small proportion of rural
households (6–10%) are participating in formal rural credit markets—in the form of borrowing
(Berhane et al. (2019)). This implies that a vast majority of rural households in Ethiopia remain
underserved by existing credit markets. Informal finance remains prevalent in rural Ethiopia: 30%
of adults borrowed from family or friends in 2014 (compared to 42% in Sub-Saharan African
countries). According to the PSNP data, which covers mostly poor rural households, about 30% of
households have no interest in credit products from financial institutions. Households’ risk aversion
appears to be an important reason limiting rural households’ participation in credit markets, as
evidence shows that large shares of households are not borrowing due to fear either of being in
debt or of losing assets in case of default.

The urban employment picture is quite distinct from rural employment and correlates with
generally better economic outcomes. Wage-employment accounts for the slight majority (52%) of
employment in urban areas. The more educated workers are, the more likely they are to work in
wage-employment—roughly 84% of university graduates, for example, are wage earners. More
youth (15–29) in urban areas are wage-employed than self-employed (58% versus 33% of employed
youth). Wages in urban areas are unsurprisingly higher than wages nationwide (in absolute terms)—
60% of urban wage earners took home more than 2,000 birr per month in 2013, compared to only
20% of wage earners nationally. However, real urban wages were the same in 2016 as they were in
2006; since 2016, public sector wage increases have led to a notable uptick in urban wages overall
(Source, World Bank).

Unemployment in Ethiopia is, at first glance, largely an urban phenomenon (Figure 17). Following
a noticeable decline between 2005 and 2013 (from 26.8% to 16.5%), the urban unemployment rate
increased over the next five years, reaching 19.1% in 2018. The unemployment rate is lower in
smaller cities and towns, but is also stickier, as these cities had the same level of unemployment in
2018 as in 2004. Dire Dawa (25.3%), Tigray (21.5%) and Addis Ababa (20.2%) had the highest levels
of urban unemployment in 2018.14

13 IFPRI (2018), “Youth Employment in Rural Areas.”

14
Unemployment in Addis Ababa actually decreased from 2013 (24.2%) to 2018.

25
Figure 17: Unemployment rate categorized by place of residence and gender, 2005 & 2013 (%)

Total Male Female

27.2
23
20.6

16.5
13.7
10.5
8
6.5
5.6 4.6
4.5
2.6 2 3.32.7 2.9
0.9 1

Urban Rural National Urban Rural National Urban Rural National

Source: National Labor Force Survey 2005 and 2013

Ethiopia’s growing rates of urbanization and rural-urban migration increase the pressure on the
urban labor market. The country’s urban population has been growing steadily since 1990. At a
current average annual growth rate of 5% (versus 2% for rural areas), the urban population is
expected by 2035 to be triple that of 2013,15 increasing the pressure on the urban labor market and
exacerbating the employment challenges of urban youth and women.

Rural-urban migration is an important channel through which workers, especially youth, are
moving from agriculture to non-farm activities. Rural-urban migration increased from 24.3% to
32.5% between 2005 and 2013, and urban-to-urban migration increased from 17.7% to 21.3% over
the same period. Migrants made up 44.4% of the total population in urban areas in 2013 and just
8.5% of the population in rural areas. Among recent migrants (within the past five years) of working
age, searching for work was the most dominant reason given for migration (36%); among migrants
to urban areas, in particular, job search accounted for 42.6% of migration overall, and 48.7% for
men. These migration patterns point toward the increasing urbanization of Ethiopia, driven by
young people of working age who do not wish to enter rural, unpaid agricultural work, while older
family members remain in rural areas.

15 World Bank population projection estimate

26
Figure 18: Migration by origin and destination. Migrants, % of total

Source: CSA National Labor Force Survey, 2013 & 2005

3. Quality of jobs in the Ethiopian labor market

The quality of jobs in Ethiopia is relatively low. The high level of participation in the labor market
at the national level masks an important issue of unpaid employment, under-employment,
particularly in rural areas, as well as the fact that self-employment is, for many, a default status
rather than a preferred choice.

Under-employment16 is widespread in Ethiopia in both urban and rural areas. At the national level,
40% of employed people declare that they are seeking and available to work additional hours. Unlike
unemployment, which is predominantly an urban phenomenon, time-related under-employment is
high both in urban (44.5%) and rural (38.5%) areas; of those seeking additional work, 18% of the
urban population and 23% of the rural population are working under a 35-hour-per-week threshold.

SNNP has the highest level of under-employment of any region—25% of the employed population
works under 35 hours a week and would like to work additional hours. It is worth noting that Addis
Ababa has the lowest level of under-employment (5.8% for youth and 5.9% for adults); however,
31.4% of the city’s employed population are looking to work additional hours.

16Under-employment is generally defined in two ways: time-related under-employment describes employees who are not working
enough hours and are looking to work additional hours; skills-related under-employment describes employees whose work does not
make full use of their skills and abilities. In Ethiopia, the CSA survey captures only time-related under-employment by measuring the
number of workers seeking to work additional hours.

27
As is the case in most low-income countries, Ethiopia suffers from low levels of wage-employment
and high levels of self-employment and subsistence (unpaid) employment. Nearly nine out of ten
working Ethiopians is self-employed or unpaid, which translates to a level of wage employment that
lags behind neighboring countries.

Wage-employment represented only 10% of employment in Ethiopia in 2013; the majority of the
labor force is either self-employed or works unpaid with family. According to World Development
Indicators, wage employment rose slightly to 11.4% in 2018. In urban areas, the percentage of
formal wage-employment jumps to 45%, while in rural areas it sits at 4%.

Self-employment constitutes 40% of total employment in Ethiopia (without much distinction

between urban and rural areas) and a majority (57%) of male employment at a national level.
Working for oneself correlates negatively with increasing levels of education and is associated with
low wages, suggesting that the prevalence of self-employment is less an indication of workers’
preferences than of a lack of economic alternatives. Agricultural work accounts for three-fourths of
all self-employed workers; services make up the next largest share, followed by wholesale and retail
(Figure 19). Given that evidence suggests that wage-employment, rather than self-employment, is
a surer path to creating a middle class in developing nations (Duflo, Banerjee 2014), Ethiopia’s high
level of self-employment is cause for concern. The structure of employment status did not
significantly evolve between 2005, when wage-employment made up 7.9% of employment, and
2013, when it made up 10% of employment (Figure 20).

Figure 19: Distribution of self-employment per sector – 2013

75.3%

7.1% 10.3%
5.8%
1.5%

Agriculture Manufacturing, Construction Wholesale and retail Other services

utilities and mining

Source: National Labor Force Survey 2013

28
Figure 20: Evolution of employment status – National level – 2005-2013

2013 2005
10%
Wage-employment
7.9%

40%
Self-employment
40.9%

49%
Unpaid-employment
50.3%

1%
Others
0.9%

Source: National Labor Force Survey 2005 and 2013

Nationwide, almost half of the employed population works without monetary compensation (a
proportion that slightly decreased between 2005 and 2013 (Figure 20). Unpaid employment is
mainly a rural phenomenon—55% of the rural employed population is unpaid while just 13% of the
urban employed population share this status. Agriculture accounts for the large majority (83%) of
unpaid employment, typically on family farms. However, 14% of the unpaid-employed are working
in the service sector, mainly in wholesale, retail, and household activities. Women account for 61%
of unpaid workers. In 2013, 12 million women were in unpaid employment in rural areas of Ethiopia.

According to the CSA National Labor Force Survey, informal work makes up a significantly larger
proportion of urban employment (25.8%) than of rural employment (16.6%) and is most prevalent
among urban women (36.5%). However, because nearly three-fourths of Ethiopia’s workforce was
engaged in agriculture in 2013, the agriculture sector was the largest overall contributor of informal
jobs (55%), followed by manufacturing (18.3%), wholesale and retail trade (19.2%), and other
services (7.5%).

Informal jobs as a share of urban employment remained roughly unchanged between 2005
(26.2%) and 2013 (25.8%). Somali (68%), Afar (64%), Gambella (51%), and Dire Dawa (41%) have
the highest rate of informal employment. Half of the employees in the informal sector have never
attended any form of school.

However, these statistics may not accurately reflect the size of the informal economy, which is
likely much larger than the CSA’s estimates, as the CSA changed the definition of informal
employment in 2005 to exclude family workers from the definition of informality.

29
Data on employee earnings are restricted to wage-employment in Ethiopia and are therefore
available for only 10% of the employed population. According to the latest national CSA labor force
survey, more than 80% of wage-employed workers earn less than 2,000 birr per month, while only
3.5% of wage-employed are paid more than 4,000 birr per month. Just 4% of women earn more
than 2,000 birr per month, compared to 23% of men.

4. Inclusiveness of the Ethiopian labor market

The labor market indicators are worse for women than men in Ethiopia, both in rural and urban
areas, despite encouraging improvements. At a national level, as of 2013, women participated in
the labor force at lower rates (75%) than did men (85%). However, the employment-to-population
ratio17 for women increased from 58.5% 1999 to 69.8% in 2013, and the gender gap decreased from
more than 20 percentage points to 13 percentage points over the same period. The female
employment-to-population ratio is lower in urban areas than rural areas due to higher levels of
unemployment in urban areas and the preponderance of women’s unpaid employment in rural
areas.
Figure 21: Employment-to-population ratio – national level

84.7
80.2 82.7
76.6
76.2
69.1 69 69.8
58.5

1999 2005 2013

Source: National Labor Force Survey 1999, 2005 and 2013

Women suffer from higher levels of unemployment, across all urban areas and cities, despite
relative improvement. The female unemployment rate in urban areas has been decreasing in recent
years, down from 36% in 2013 to 27% in 2018. The unemployment gap has decreased at lower pace
from 18 percentage points in 2003 to 15 percentage points in 2018.

17 Employment-to-population rate = (number of people employed) / (number of people in working-age population), as a %.

30
Figure 22: Evolution of the urban unemployment rate by gender 2003-2018

36% Male Female

32% 31%
28% 26% 27%
25% 25% 25% 24% 25%
18% 16%
12% 12% 11% 11% 11% 11% 11% 12%
9%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Urban employment unemployment survey 2003 – 2018

Figure 23: Level of unemployment per region and gender – Urban areas – 2018

33.5
Total Male Female
29.8
28.1 26.7
25.3 25.5 26.3 26.1
23.1 24.3
21.5 20.2 19.7 18.9 18.6
17.6 17.1 18 16.7
14.1 15 14.1
11.7 11.3 11 10.7 10.7
9.9 9.4
7.6 8 7.2
5

Source: Urban employment unemployment survey 2018

Across all regions of Ethiopia, female unemployment in urban areas is consistently higher than
male unemployment; the widest gap is in the Somali region, where urban women are three times
more likely to be unemployed than their urban male peers. Women tend to also be more
represented in vulnerable employment and under-employment (cf. chapter 2 Section E: “Ensuring
the inclusiveness of the labor market” for more details).

Youth face higher constraints in transitioning to work than their adult peers and are more likely
to hold low-quality jobs. As in many countries, indicators for youth participation in the labor market
at the national level are lower than for older workers. Youth are twice as likely to be unemployed
(roughly 7% of youth were unemployed in 2013, compared to 3.5% of older people) and participate
in the labor force at lower rates than do older Ethiopians.

A significant proportion of working Ethiopians are self-employed, which tends to correlate with
low skill levels and lack of formal job opportunities. While for some workers self-employment can
be an expression of an entrepreneurial mindset, evidence suggests that self-employment in Ethiopia
tends to be a last resort rather than a choice. People with higher levels of education and income
tend to not be self-employed while those who are self-employed tend not to have a high level of
education or earn high incomes—and are over-represented in medium-to-low-skilled occupations.

31
Moreover, self-employed people with low skill levels tend to be engaged in the informal economy
in unproductive activities and to earn near-subsistence levels of income.

Certain groups—including rural-to-urban migrant jobseekers, persons with disabilities, refugees,

and internally displaced people—tend to be vulnerable in the labor market and suffer from social
and labor market exclusion. The challenges that each group faces in the labor market are specific
to their situation and require targeted support from employment services and government. In
addition to these groups, it is important to monitor the labor market in order identify any other
groups that suffer from structural exclusion.

5. Job creation and the role of the private sector

The private sector remains nascent in Ethiopia and is constrained by structural challenges.
Evidence suggests that the private sector is crowded-out by the public sector, notably in access to
finance. Credit provided to the private sector continues to represent a small share (36%) of domestic
credit, while credit to the public sector (state-owned enterprises and the central government)
represents more than 63%. In Ethiopia’s rural economy, a combination of high collateral
requirements, poorly designed lending products, and an unwillingness of rural households to
borrow money limit the diversification of rural livelihoods.

The public sector in Ethiopia plays an almost equivalent role to that of the private sector in
creating jobs in wage employment. Overall, the public (48%) and private sectors (52%) provide a
similar share of the nation’s wage employment. Combined, the private and public sectors accounted
for about half of total job creation between 2003 and 2018 in urban areas of Ethiopia (Figure 24).
Moreover, evidence suggests that the public sector offers higher wages and seems to be more
attractive for young graduates. In 2018, the public sector’s share of urban employment increased
slightly compared to 2016 while the private sector’s share decreased.

32
Figure 24: Distribution of jobs created in urban areas by status of employment - 2003-2018, (%)

Self-employment
2% 2% Government
2% 3%
Private organisations
23% Other employee
Domestic employee
Unpaid-employed
27%
Other

40%

2003-2018

Source: Urban Employment Unemployment Survey 2003-2018

The number of permanent civil servants more than doubled between 2009 and 2017. According
to the Civil Service Commission, the number of civil servants increased from 779,852 in 2009 to
1,640,010 in 2017 (Figure 25). Most of these civil servants are working at the regional level; only 9%
of civil servants work in federal institutions. As a group, federal civil servants tend to be younger
(65% between the ages of 18 and 32) and have completed more education (64% have at least a
diploma18) than is the case for regional servants.

Figure 25: Evolution of number of civil servants at federal and regional level, 2000-2017

1,640,010
1,509,491
1,394,763
1,256,949
1,078,171 1,102,316
926,716
854,316
779,852
620,263
544,704
490,363
389,563 398,148 424,067
349,658 362,256 371,699

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: Civil Service Commission

The public sector represents the largest employer of those with post-secondary qualifications in
Ethiopia. According to the World Bank19, 42% of public employees were post-secondary graduates
in 2003; that proportion increased to 62% in 2014, compared to 12% of workers in the private sector.
Evidence suggests that the post-secondary graduates have displaced individuals with secondary

18
A diploma, in this case, refers to [10+3]
19
World Bank, (2015) “Why so Idle ?”

33
schooling in the public sector. However, public sector wage incentives do not align with workers’
experience, as public sector wages do not rise proportionately for higher-level positions. The public
sector therefore tends to lose more skilled and experienced employees to the private sector.

Most of the jobs created between 2005 and 2013 have been in agriculture, followed by the service
sector. The total number of employed Ethiopians grew by 34.9% between 2005 and 2013—a rate
similar to the growth of the working-age population over that same period (+36%). Employment
rose from 31.4 million in 2005 to 42.4 million in 2013, while the labor force participation rate
declined slightly from 80.7% to 79.8%. While agriculture still dominates employment and is growing
in absolute terms, its share of total employment fell from 80% in 2005 to 73% in 2013. Industry’s
share rose from 6.6% to 7.4% of employment—an increase in absolute terms from 2.0 to 3.1 million
over the eight-year period. Manufacturing provided the most jobs in the industry sector, and
increased from 1.5 to 1.9 million jobs, although its share of industry jobs decreased from 73% to
61% between 2005 and 2013. Service sector jobs also increased, from 13.2% to almost 20% of
employment, rising from 4.1 million to a total of 8.4 million people.
Figure 26: Change in sectoral employment at national level between 2005 and 2013

Source: National Labor Force Survey 2005 and 2013

Industrialization has been the main focus on the Ethiopian Government since the late 1990s,
notably through the establishment of industrial parks (IPs). However, job creation in
manufacturing remains very low. Government-owned industrial parks are expected to generate
272,000 direct jobs and 544,000 indirect jobs over the next few years; as of August 2019, however,
government-owned parks had created around 50,000 direct jobs.

Currently operational
Table 3: Job creation planned objective for industrial parks (IPs)

Direct Job Indirect Job Total jobs

Sheds (sqm,
IP Size (ha) Creation Creation
thousand)
(thousands) (thousands) (thousands)
Mekele 75 100 20 40 60

34
 Kombolcha 75 60.5 13 26 39
Adama 120 127.5 20 40 60
Dire dawa 150 105.5 20 40 60
Jimma 75 37 13 26 39
Debre Birhan 75 44 13 26 39
Bahir Dar 75 44 13 26 39
Hawassa
140 357.5 60 120 180
(Phase I and 2)
Kilinto 279 0 50 100 150
Bole Lemi II 172 0 25 50 75
Bole Lemi I 174 165 25 50 75
Total planned job creation 272 544 816

Table 4: Direct job creation by operational industrial parks

IP Current employment (End of August 2019)

Bole lemi I 16,687
Hawassa 26,071
Kombolcha 1,655
Mekele 2,428
Adama 3,284
Total 50,125

Source: Industrial Parks Development Corporation of Ethiopia, 2019

6. Skills and jobs: evolution of the labor force’s educational attainment

Ethiopia has made enormous progress in terms of increasing access to all levels of education
throughout the country. Between 1999 and 2016, the educational attainment of the labor force
increased as a result of expanded access to school and training. The share of the labor force with no
education fell significantly, from 71.5% to 42.8%, while the share of the labor force with post-
secondary education increased from 1% to 5%. Education outcomes are substantially better for
youth today than for older labor force participants: in 2016, 57% of workers aged 30 or over had
never been to school, compared to 25% of youth (15-29); roughly one in five young labor force
participants attained more than primary education, compared to just under one in ten among older
generations.

Figure 27: Evolution of educational attainment of the labor force between 1999 and 2016

35
 71.5
1999 2013 2016

47.3
42.8
35.2
30.6

17.2

5.4 7.6 9 4.8 5.3

1.9 4.4 2.2 2 2.1 2.1 1.3

No education Incomplete primary Primary Incomplete secondary Secondary Higher education

Source: CSA National Labor Force Survey 1999 and 2013; Socio-Economic Survey of Ethiopia 2016
Note: the definition of the labor force for 2016 data is based on international standards (15-64 years old)

However, significant challenges remain—in particular, high rates of school dropouts, persistently
low education quality, and low rates of literacy, especially in rural areas and among women and
girls. Older workers are particularly disadvantaged: 57% of workers aged over 30 have never been
to school, compared to 25% of youth (aged 15-29).

The Ethiopian government issued its first comprehensive policy on education and training in 1994.
The policy identified access, quality, equity, and relevance as the main challenges of the education
system of the nation. In practice, however, the government prioritized expanding access and equity
over quality and relevance. The result was a rapid quantitative expansion of education, partly
motivated by the need to meet the target of universal primary education under the UN’s Millennial
Development Goals by 2015 (Rekiso 2019).

The Ministry of Education has outlined sector priorities through the Education Sector
Development Programs (ESDP) every five years since 1996. ESDP I – III focused on increasing access
of education, while ESDP IV-V focused on improving quality of education, as well as closing the gap
of inequality and regional disparities. The sectoral priorities identified in the ESDPs are intended to
help facilitate the structural transformation of Ethiopia’s economy as outlined in GTPs I and II. ESDP-
V, which provides Ethiopia’s current framework, refers to the need to match education supply to
demand, generally, but specially in the context of TVET. In addition, the TVET Strategy (2008)
governs TVET and is intended to produce training driven by the demand for skills in the labor market.

Ethiopia’s education expenditure compares favorably to other countries in the region but has not
reached recommended levels. As a percentage of GDP, the country’s expenditure decreased from
5.6% in 2012 to 4.7% in 2015 (Figure 28); both figures are lower than the recommended global
education spending benchmark of 6% of GDP. Education expenditure as a percent of total
government expenditure increased from 22.5% in 2012 to 26.1% in 2016 and dipped slightly to 25%
in 2017. Relative to GDP, Ethiopia spends more on education than do Rwanda and Uganda, but less
than Kenya. In 2015, as a percent of total government expenditure, Ethiopia (25%) far outpaced
Kenya (15%), Rwanda, and Uganda (both 12%).

36
Figure 28: Government Expenditure on Education (% of GDP), 2010-2015

6 Ethiopia Kenya Rwanda Uganda

2
2010 2011 2012 2013 2014 2015
Source: World Bank Group, The World Bank Data, 2010-2015

A relatively large share of Ethiopia’s education resources (48% in 2015) goes to higher education—
the largest percentage of any of its peers. In fact, per student spending on higher education is 35x
higher than spending on general education. The budget allocated for higher education mainly goes
to construction of new universities and teacher salaries. Ethiopia spends a smaller percentage of its
education budget (28%) on primary education than do Uganda (59%), Kenya (36%), and Rwanda
(33%) (Figure 29).

Figure 29: Government Expenditure on Education (% of total government spending), 201520

Source: World Bank Group, The World Bank Data, 2010-2015

Access to education has steadily grown in the last decade. Total enrollment has grown at a CAGR
of 3.7% since 2013/14—26.8 million students are now in school across Ethiopia. The fastest growth
has occurred in pre-primary (8.5%), while primary enrollment grew by 3.3% and secondary by just
1.6%.

Given that the population aged 0-14 grew by 1.2% during 2013-17, enrollment is growing faster
than population and the proportion of children in school is rising. Since 2007, the pre-primary gross

20
Figures for Uganda are from 2014

37
enrollment ratio has climbed from 33 to 43 for girls and from 25 to 45 for boys but is still shy of the
national targets of 64 for girls and 65 for boys. By primary school level, the gross enrollment ratio
reaches 103.5 for girls and 115 for boys, in both cases reaching the target. (These ratios are over
100 as some children start school late or repeat grades.) The student gender parity index is 0.9,
indicating that many more boys are enrolled than girls—a deterioration from 0.93 in 2007.

Despite national increases in enrollment, Ethiopia’s educational challenges remain significant. A

large proportion of Ethiopians (41.5%) did not receive any sort of education, almost half attend only
primary school, and almost half are illiterate. Poor literacy rates are particularly pronounced for
women and those living in rural areas. While 20.6 million children are currently in primary school,
just 1.2 million continued to higher education in 2017/18—902,000 enrolled in university and
292,000 in TVET, with only about 150,000 graduating from universities and 130,000 from TVET.

More than 80% of the employed population is concentrated in low-skilled occupations, which
includes 34% in elementary occupations and 48% working as skilled agricultural workers (Figure 30).
Workers in high- and mid-skill occupations are concentrated in wage-employment (managers,
professionals, technicians and associate professionals, and clerical support workers). Self-
employment concerns mostly service and sales workers, skilled agricultural workers, and craft and
related trade workers. Unsurprisingly, most unpaid employment consists of elementary
occupations.
Figure 30: Structure of employed population per occupation - 2013

47.9%

33.7%

8.7%
4.4%
1.0% 0.5% 1.9% 1.3% 0.5%

Elementary Plant and Craft and Skilled Service and Clerical support Technicians Professionals Managers
occupations machine related trade agricultural sales workers workers and associate
operators and workers workers professionals
assembles

Source: National Labor Force Survey 2013

38
Figure 31: Structure of occupations per status of employment - 2013

Managers
Professionals
Technicians and associate professionals
Clerical support workers
Service and sales workers
Skilled agricultural workers
Craft and related trade workers
Plant and machine operators and assembles
Elementary occupations

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Wage-employment Self-employment Un-paid employment Others

Source: CSA national labor force survey 2013

In urban areas, wage-employment is concentrated among those with tertiary education. 60% of
urban employed with university education and 42% of urban employed with TVET education are in
wage-employment. Lower levels correlate with an increased likelihood of being self-employed,
which suggests that self-employment is not a choice, but rather a default status.

Figure 32: Employment status per level of education– urban areas – 2018

Source: Urban employment unemployment survey 2018

Assessment of tertiary education – The TVET system

In recent years, the number of TVET institutions in Ethiopia has dramatically increased: there were
582 TVET institutions in 2016/17, up from just 15 in 1994/95. This expansion has been driven by a
succession of government strategies to train a productive workforce that can be both self- and

39
wage-employed. Despite the increase, the number of institutions is far lower than the target set by
the government.

Enrollment in TVET education has been much lower than government targets and is declining—
dropping 6% from 352,000 in 2015 to 292,000 in 2018 (Figure 33), although programs that offer
short-term training are seeing increases in popularity (by approximately 34%) due to their lower
cost and increased flexibility for those enrolled to boost their skills in order to join the labor market.
The government target for 2018 was to enroll 365,000 students, meaning that actual enrollment
was 20% below the target. By 2016/17, TVET enrollment also constituted only 35% of total university
enrollment in the country.

Figure 33: TVET enrolment by gender– in thousands - 2013-2018

Source: Federal Ministry of Education, Education Statistics Annual Abstract 2010 E.C. (2017/18), 2018, Table 10.1; National TVET Policies and
Systems in Ethiopia: Opportunities and Issues in Challenging Times, Figure 23, 2019

The rapid expansion of TVET institutions has been driven by the government’s strategy to train a
productive workforce that can be self-and wage employed. As of 2009, the number of formal
private TVET institutes were 257 and the public TVET institutes reached 523 with additional smaller
non-formal / informal centers that offered short-term training reached 824 (34 run by NGOs, 48
cluster resource centers (CRCs), and 192 private and 532 public Satellite centers). The number of
formal public TVET institutes reached 334 and enrolled 273,600 trainees in 2015. By 2018/2019,
667 public and 838 private TVET institutes enrolled 655,858 trainees (with 46% females) and
994,805 short-term trainees (with 22% females). The average number of female graduates in
2016/2017 reached 52%, with the highest ranging from the Amhara region (58% females) to the
lowest in Oromia region (43% females). In terms of access, the Oromia region had the 253 TVET
institutions, the national highest, followed by 92 in the Amhara region and 90 in Addis Abba, whilst
Afar and Dire Dawa only house 6 TVET institutions each.

Students who fail to go to the government TVET institutions can choose a private institution. In
theory, even the students eligible to attend the government TVET could choose to go to the private
institutions instead. The non-government TVET institutions are a combination of for-profit private
enterprises that charge tuition fees and non-profit entities that offer scholarships for students. Both
private and NGO-run TVET institutions must be certified by the government. The private institutions
are generally considered to be of lower quality with a less diverse curriculum and higher fees. The
NGO-run TVET institutions generally have the reputation for higher quality; their fees and financial
arrangement vary. Although the number of private and NGO schools has increased over the years,

40
their proportion and impact has decreased due to the significant growth in the number and capacity
of public TVET schools.

Short trainings offered by TVET institutions are increasing in popularity, even as enrollment in
mainstream courses is declining. This is likely due to the lower cost and increased flexibility of
shorter courses, which are attractive to students who need to boost their skills for the job market.
Students who leave the formal education system at any level are eligible for non-formal TVET
education (short-term training to gain skills). However, non-formal TVET is not well promoted or
well known among the general public and is supposed to be provided following demand.

The 2008 revision of the National TVET Strategy aimed to make TVET an outcome-based system
capable of anticipating the skill needs of the economy and providing demand-based curricula with
special attention paid to quality and relevance. In particular, the strategy focused on creating skills
for the industrial sector through TVET education. The strategy also had the objective of dramatically
increasing the access, to reach the 80% of secondary school students in TVET target. The Strategy
introduced occupational standards and competence-based TVET (CB-TVET), which involves
integrating the desired competence into the components of the TVET system. The Strategy
decentralized the regulatory system and established the Center of Competency (COC), charged with
independently ensuring that TVET graduates acquired the required competences. However, this
outcome-based and demand-driven system has not been adequately implemented. Following the
2008 strategy, the private sector, in theory, was included in the design of any new course. In reality,
however, the system remains highly supply-driven.

Assessment of tertiary education – Universities

Universities are a key government mechanism for up-skilling the workforce. Previous strategies in
higher education focused on the expansion of higher education institutions, with the aim of
increasing Ethiopia’s educated manpower in support of a national goal of achieving middle income
status by 2025 (ESDP IV, 2010). Science and technology programs were prioritized, with a goal of a
70:30 enrollment ratio of science and technology programs to humanities and social sciences.

The ESDP V has more nuanced plans for higher education that prioritize matching skills to the
market. The government now considers proximity to universities in selecting the locations of
industrial parks, and the current plan focuses on improving research capabilities to enable
technology transfer. The Ethiopian Education and Research Network connects 36 public universities
and technology institutes, providing educational applications and video conferencing alongside
resources and capacity building for technical staff. Two specialized universities for science and
technology have been established in Addis Ababa and Adama; more are planned for the near future.

As of 2018, Ethiopia is home to 177 universities (up from 136 in 2016), of which 28% are publicly
owned and 72% are privately owned (however, 84% of students attend public institutions). The size
and scope of public universities in Ethiopia vary, yet all of them offer multi-disciplinary courses and
focus on mass education rather than research. In 2018, the two largest universities, Addis Ababa

41
University and Jimma University, enrolled 47,600 and 40,000 students respectively. Private
institutions are smaller in size and mostly offer undergraduate programs—just 16.5% of private
university students are enrolled in postgraduate programs.

University enrollment has been rising at a 9% CAGR over the past six years to reach 902,000 in
2018. Undergraduate enrollment makes up 92% of total university enrollment. However, the share
of postgraduate enrollment is increasing, from 5.3% in 2013 to 8.5% in 2018. Women make up just
35% of total university enrollment, and just 22% of postgraduate enrollment. Regular programs
constitute the largest proportion of undergraduate enrollment, but a preference for extension
programs is growing: 18% of undergraduates were enrolled in extension programs in 2018, up from
12% in 2013. The number of university graduates rose steadily from 2013 to 2017.

Figure 34: University enrolment – in thousands - 2013-2018

Source: Federal Ministry of Education, Education Statistics Annual Abstract 2010 E.C. (2017/18), 2018, Tables 11.4, 11.6, 11.3, 11.5, 11.8; Federal
Ministry of Education, Education Sector Development Program V (ESDP V) 2015/16 – 2019/20 G.C., 2015

42
B. Framework, targets and objectives of the Plan of Action for Job
Creation
I. Past policies and rationale for the Plan of Action for Job Creation

Since 1991, successive Ethiopian governments have set out their overarching visions for economic
development in a series of national development plans.21 The first of these was the Agricultural
Development Led Industrialization (ADLI) plan. The basic premise of ADLI was that agricultural
productivity growth (especially among smallholder farmers) would stimulate industrial demand
through a) higher rural incomes, b) lower food prices in urban areas, c) increased savings in rural
areas, and d) the creation of linkages between industries with most production linkages to rural
areas.22
Implementation of this approach, however, began in earnest only with the 2002 (three-year)
Sustainable Development and Poverty Reduction Plan (SDPRP), which was replaced by the more
ambitious Plan for Accelerated and Sustained Development to End Poverty (PASDEP) covering 2005–
10. The plans that followed—GTP-I and GTP-II (Growth and Transformation Plans), covering 2010–
15 and 2015–20, respectively—began to move away from the ADLI approach. GTP-II in particular,
has a greater focus on export earnings from labor-intensive manufacturing, while retaining ADLI’s
focus on improving import replacement.23
The GTPs differ from earlier development policies. The two successive plans do not rely on rising
agricultural incomes to serve as the sole driver of demand for manufacturing goods; instead, the
plans posit that demand for exports in international markets will drive industrialization and, to some
extent, urban growth.24 This singular focus on manufacturing and export-led growth is both a) likely
too sanguine in its estimation that enough of the manufacturing value-add will remain in the country
to impact a small domestic demand base25 and b) far from an inclusive approach to development,
as it largely ignores nearly three-fourths of the population living in rural areas whose livelihood is
agriculture.
Full and productive employment of the urban labor force can only be achieved in tandem with a
significant improvement of productivity and employment opportunities in rural areas.
Manufacturing alone is highly unlikely to generate enough jobs in the short to medium term for the
approximately 2 million entering the labor market annually.

21 For useful historical background, see Clapham, Christopher. 2018. “The Ethiopian developmental state.” Third World Quarterly 39, no. 6: 1151-65.
Clapham 2018 and Admasie, Samuel Andreas. 2016. “Historicizing Contemporary Growth: The Ethiopian Revolution, Social-Structural
Transformation, and Capitalist Development.” Northeast African Studies 16, no. 1: 65-88.
22 Moller, Lars Christian. 2015. Ethiopia’s great run: the growth acceleration and how to pace it (English). Washington, D.C.: World Bank Group, p.

24.
23 The GTP-II also identifies agriculture as the main driver of economic growth but notes that emphasis ought to be placed on increasing the

productivity (and scaling up of) small holder farmers, while also speeding up commercialization and the transition to the production of high value
crops.
24
Manyazewal and Shiferaw 2019; Federal Democratic Republic of Ethiopia 2016
25 There are also some disagreements on the possibility of least developed countries being able to climb the development ladder through export of

manufactured products – for a discussion see Campbell 2013, pp. 25-27.

43
Ethiopia is currently in the process of developing its next set of national development policies. A
balanced development policy for the country would need to focus on agriculture economic
diversification driven by domestic demand and as well as manufacturing and export-led growth.

Estimations suggest that more than 2 million youth are entering the labor market every year. The
demographic trends in Ethiopia suggest that the working-age population (10+)26 is expected to grow
to up to 94.2 million by 2025,27 which will increase pressure on the labor market but may drive
economic growth. Assuming a constant labor force participation rate (~80%), the labor force is
expected to grow from 64 million in 2019 to 75.4 million by 2025. These estimates suggest the need
to create 14 million jobs between 2020 and 2025 to absorb the new entrants to the labor market
and the current backlog of unemployed (at least 2.5 million in 2018).

Sustainable job creation is a critical challenge if Ethiopia is to meet its objective to become a
middle-income country by 2025. High levels of subsistence employment, widespread (and
minimally productive) self-employment, and very low levels of wage employment characterize the
labor market in Ethiopia. The private sector and the public sector have been creating a similar
number of jobs in wage employment, while the number of civil servants has doubled since 2009.
With about 2 million new entrants to the labor market every year, this trend is unsustainable,
especially with the low level of rural economic diversification and the growing pressure that
increasing rural-to-urban migration is placing on the urban labor market. Therefore, efforts should
concentrate not only on creating new jobs for the entrants to the labor market but also on improving
the quality of these jobs and the inclusiveness of the labor market.

The Plan of Action for Job Creation proposes holistic interventions to solve the employment and
job creation challenges and provides a new vision of employment in Ethiopia. The plan aims to
foster the business environment and conditions necessary to create 14 million jobs by 2025, to
absorb the currently unemployed, and to ensure that jobs are waiting for new entrants to the labor
force. The plan has been developed through lengthy consultations with relevant stakeholders from
the public and private sectors. A primary consideration in drafting the new Plan of Action for Job
Creation has been a critical paradigm shift from state-led to a private-sector-led jobs creation.

The Plan of Action focuses on identifying necessary strategies and interventions to unlock the job
creation potential of key sectors in the Ethiopian economy. The approach taken in the Plan for
private sector development in key sectors is to focus on both improving the enabling environment
for job creation and analyzing the sector-specific market system to identify and tackle the specific
challenges and bottlenecks. In order to optimize resources and efforts, specific sectors have been
prioritized in this plan according to the framework explained in the following section.

26 We use here the CSA definition of working-age population

27 Source: World Bank population estimates and projection

44
II. Prioritization of sectors

1. Methodology
Most sectors of the Ethiopian economy (except for mining) have been growing steadily in the last
decade and provide attractive opportunities for export promotion and/or import substitution.
Agriculture, for example, offers high potential both in import substitution and export growth for
vegetables, fruits, and livestock. In manufacturing, which has concentrated 46% of investment in
2017.

Figure 35: Evolution of growth of different sectors since 2011

50
40
30
20
10
0
2011 2012 2013 2014 2015 2016 2017 2018
-10
-20
-30
-40

Service Agriculture Manufacturing Construction Mining

We use three main criteria to prioritize among high-yeild sectors: (i) economic transformation
potential; (ii) job creation potential for new entrants into the labor market, and (iii) additional
considerations.

(i) Economic transformation

The economic transformation potential of a given sector includes its growth potential, for which we
examine historical and current growth of products to assess import substitution and export
potential. Ethiopia’s competitiveness is another factor—we analyze data related to product
complexity, feasibility of production within Ethiopia, and Ethiopia’s existing comparative advantage.
Finally, we examine the sector’s ability to increase diversification—the potential for new products
within the sector to open links to more complex products. To measure economic transformation
potential, we use tools, metrics, and data from the Atlas of Economic Complexity, developed by the
Growth Lab at Harvard University.28 The Atlas of Economic Complexity identifies the list of
products/goods produced by each economy29 and lays out a set of indicators and metrics for
evaluating the competitiveness and the comparative advantage of each economy by type of good
(which can be linked to specific sectors).

28
http://atlas.cid.harvard.edu/
29
All data from the Atlas of Economic Complexity are based on UN COMTRADE data, which classifies trade goods by the 6-digit Harmonized System.

45
The growth potential criteria focus on identifying sectors that have high potential for import
substitution and export. To evaluate these criteria, we look at the Ethiopian import and export
growth (average annual product import growth, 2012–2016) within each sector and product, assess
regional demand by looking at the growth in imports across Africa (average Africa annual product
import growth), and assess global demand (average global annual product import growth).

Components for growth potential

Component Data used
IMPORT

Import growth Average annual product import growth, 2012-2016 (%)

Growth in regional/Africa
Average Africa annual product import growth, 2012-2016 (%)
demand

Component Data used

Export

Export growth Average annual product export growth, 2012-2016 (%)

Growth global demand Average global annual product import growth, 2012-2016 (%)

The competitiveness criteria include three main components: i) feasibility of entering/expanding

production, which is a distance measure of a location’s ability to enter a specific product; ii)
Ethiopia’s existing comparative advantage, or “revealed comparative advantage” (RCA), a measure
of the degree to which a country is an exporter of a product, based on the relative advantage or
disadvantage it has in the export of a certain good; and iii) the product complexity index (PCI), the
per-product equivalent of the Economic Complexity Index (ECI)—a measure of the complexity of a
product based on its ubiquity and the diversity of its exporters.

Components for Competitiveness

Component Data used Definition
Feasibility of
Product distance, measure of a location’s ability to enter a
entering/expanding Distance
specific product
production
RCA – Revealed A measure of whether a country is an exporter of a product,
Existing comparative
Comparative based on the relative advantage or disadvantage it has in the
advantage
Advantage export of a certain good
PCI – Product The per-product equivalent of the ECI: a measure of the
Product complexity Complexity complexity of a product based on its ubiquity, and the
Index diversities of its exporters.

We measure ability to increase diversification by looking at feasibility of entering / expanding

production through the “complexity outlook gain,” which measures the extent to which a location
could help create future diversification opportunities by developing a particular product.
“Opportunity gain,” meanwhile, quantifies the extent to which a new product can open links to
more, and more complex, products.

46
Component to assess the ability to increase diversification
Component Data used Definition
Measures how much a location could benefit in opening
Feasibility of COG –
future diversification opportunities by developing a particular
entering/expanding Complexity
product. Opportunity gain quantifies how a new product can
production Outlook Gain
open up links to more, and more complex, products.

We use quantitative data to develop ratings for each of the metrics, which are then averaged to give
each sector an overall rating. Using these data, the economic transformation potential screen
reveals a few sectors that present growth opportunities in the coming years.

(ii) Job creation potential

A second-level analysis measures the sectors with the highest job-creation potential by determining
how many current jobs exist; how many projected jobs will be created; and how this relates to the
sector growth rate, the relative importance of labor or capital to the production of a specific
product, and which regions have high potential in job creation by sector/product.

The projected number of jobs (between 2019 and 2025) has two components. “Direct jobs created”
is an estimate derived from employment elasticity to growth in Ethiopia (NLFS 1999 – 2013) and
GDP growth projection (KDI, developed for the Planning and Development Commission) (Table 5
and 6). A second component —“indirect jobs created”—is a benchmark measure of the total
number of jobs in an economy generated per one direct job, and acts as a multiplier (Table 7).

Table 5: GDP Growth Rate – Projection

GDP Growth Rate- Projection

05/06-09/10 10/11-14/15 15/16-17/18 18/19-19/20 20/21-24/25 25/26-29/30 18/19-29/30

GDP 10.7 10.3 9.1 8.5 9 9.2 9

Agriculture 8.3 6.6 4.7 5.3 5 4.7 4.9
Industry 10.2 22 18.5 11 12 12.4 12
Service 13.5 10.3 9.4 9.4 9.8 9.3 9.5
Agriculture 8.3 6.6 4.7 5.3 5 4.7 4.9
Crop 9.8 7.4 5.4 6.2 6 5.8 6
Livestock 6.7 5 3.1 3.9 3.2 2.2 2.9
Forestry 3.2 3.3 3.1 2.9 2.2 1.2 1.9
Fishing 12.3 21.9 4 4.9 4.2 3.2 3.9
Industry 10.2 22 18.5 11 12 12.4 12
Mining 16.4 12.4 -18 0 0 0 0
Manufacturing 9.5 15.1 17.7 13.2 13.5 14.3 13.8
Large & Medium 11.9 19.8 16.1 16.4 15.9 16.1 16.1
Micro & Cottage 5.9 4.3 19.3 6.8 7 6.9 6.9
Electricity, Gas,
6.1 9.1 4.6 6.5 11.1 7 8.6
Water
Construction 11.1 27.7 20.5 10.5 11.5 11.9 11.5
Service 13.5 10.3 9.4 9.4 9.8 9.3 9.5
Distributive Service 13.6 12.6 11.7 11.1 11.2 10.5 10.9

47
Wholesale & Retail 14.2 11.7 9.6 11.1 10.6 10.8 10.8
Hotels &
23.7 21.9 30 8.3 9.9 6.8 8.3
Restaurants
Transport. &
10 13 12.4 12.7 13.1 11 12.1
Comm.
Other Service 13.5 8.1 6.9 7.2 7.9 7.3 7.5
Banking &
17.6 11.4 5.6 7.3 9.9 7.8 8.6
Insurance
Real Estate 16.6 7.6 6 8.4 9 8.5 8.7
Public
11.6 7.4 9.2 8.3 7.9 7.9 7.9
Administration
Education 14.9 6.1 5.8 5 5 4.4 4.8
Health & Social
15.1 13.3 14.5 9 9 8.4 8.8
Work
Other Social
8.8 8.6 8.2 5 5 4.4 4.8
Services
Private
4.9 7.6 3.8 3.5 3.5 2.9 3.3
Households
Source: KDI, developed for the Planning and Development Commission of Ethiopia

Table 6: Employment elasticity to growth by sector

Employment elasticity to
Ethiopia (NLFS 1999-2013)
growth by sector
Agriculture 0.4
Industry 0.35
Services 0.3
Source: World bank calculation, with modification
N.B: The World bank calculation has identified the elasticity differentiating between self-employment and wage-employment. We took the hypothesis
of an average elasticity between self-employment and wage-employment in both sectors (Industry and Services).

Table 7: Estimation of direct and indirect job creation by sub-sector– 2019-2025

The other two criteria are simply measurements of the relative importance of labor or capital to the
production of a specific product and the number of regions where jobs will be created. We use

48
quantitative and qualitative data to develop ratings for each of the metrics, which are then averaged
for an overall sector rating.

(iii) Additional considerations

Additional considerations include prioritization of sectors that can play an additional role as an
enabler of other sectors (such as ICT and Renewable Energy); that feature high degrees of domestic
and/or foreign investment (such as Mining); and that the government has already made a priority,
taken action to develop, or encouraged investment through new regulation.

2. Results
With these three categories of criteria as screens, 11 sub-sectors emerge as a priority for economic
diversification and job creation. The details of the framework and scoring are available in the annex.

The 11 prioritized sub-sectors could create 5.8 million direct jobs by 2025 (Figure 36). Horticulture,
Construction, Agro-processing, Textiles and Apparel, and Livestock are the sectors that are expected
to create most of the direct jobs. Other sectors, with lower direct job-creation potential, would
either enable other sectors in the economy or contribute to the economic transformation of
Ethiopia.

Figure 36: Potential of direct job creation in the prioritized sectors

49
Source: Jobs Creation Commission Analysis

III. Objectives of the Plan of Action for Job Creation

The job creation challenge in Ethiopia requires a holistic approach and a mix of institutional
arrangements and market-based approach to develop the private sector, enable sustainable job
creation across different sectors, and improve the functioning of the labor market. The Pillars of
interventions have been developed to fulfil eight strategic objectives:
i) Adopting macro-policies that promote job creation,
ii) Developing strong local private sector and increasing wage-employment
iii) Improving productivity, including in Agriculture
iv) Promoting rural economic diversification
v) Improving levels of private investments (including FDIs) in productive sectors
vi) Improving human capital and reducing skills mismatch
vii) Improving economic outcomes for excluded and vulnerable population
viii) Improving the functioning of the labor market, including in urban areas

To fulfill these objectives, the Plan of Action for Job Creation is structured around six main policy
pillars:
1. Adopting job-rich macro-policies by ensuring macroeconomic stability, optimizing the job-
creation potential of public investment, improving the financial sector, and upgrading the
institutional and statistical framework for job-rich macro-policies;
2. Building a vibrant local private sector by revamping the current support to MSMEs, effectively
supporting high-potential and high-growth MSMEs, and improving the quality of business
development services;
3. Developing human capital to meet the changing needs of the labor market by improving the level
of work-readiness of the labor force, ensuring its proficiency in the 21st century skills, improving
the entrepreneurial mindset, and building more effective linkages between educational
institutions and industries;
4. Strengthening labor market intermediation and linkages by (i) building modern employment
centers that provide effective employment services and (ii) developing a labor market
information system to reduce the asymmetry of information and improve social and spatial
mobility in the labor market;
5. Improving the inclusiveness of the labor market by providing targeted services to populations
excluded from the labor market as well as to vulnerable populations, such as refugees, migrants,
and people with disabilities;
6. Realizing the job-creation potential of prospective high-yield sectors: providing a more balanced
development policy with a focus on realizing the job-creation potential of sub-sectors in
agriculture, industry, and services:
- Improving outputs in the agriculture sector (focus on horticulture and poultry) by improving
necessary inputs and services including small-to-medium-scale irrigation, improving access to

50
 financial services, and building linkages between industries (such as agro-processing) and urban
markets;
- In the industry sector, including manufacturing, focusing on building effective backward and
forward linkages, encouraging an innovative and diversified local production, and building a
more demand-driven labor force;
- Developing ICT as an enabler of the services sector and as a sector in its own right capable of
leading the nation’s transition to an inclusive digital economy;
- Improving the performance of the tourism sector by increasing the accessibility and
attractiveness of Ethiopia as a destination and by creating an enabling environment for the
creative arts sector to unleash the Ethiopian creativity.

The National Plan also includes two cross-cutting strategic objectives:

- Transforming the governance of the job agenda through coordinated and well-aligned
government structures, in order to ensure coherence and alignment within government;
- Ensuring the availability of adequate funding and resources for the implementation of different
strategies and interventions.

In the rest of the document, chapter 2 “Building a functioning labor market and facilitating job
creation” covers pillars 1 to 5, chapter 3 covers Pillar 6, and chapter 4 covers pillars 7 and 8.

51
 Chapter 2 – Facilitating job creation and building a functioning
labor market

Several barriers to a functioning labor market in Ethiopia cut across geographies, sectors, and
segments of the population. This chapter will explore on five pillars of facilitating job creation and
building a functioning labor market, examine the current status and challenges for each, and lay
strategies and interventions in addressing those challenges.

A. Ensuring job-rich macro-policies

I. Ensuring a stable macro-economic environment
1. Context and challenges
Macroeconomic stability, including stable price levels, interest rates, and taxation, is crucial for
private investment and therefore job creation. Ethiopia has followed a relatively cautious
monetary and fiscal policy for the last two years. The National Bank of Ethiopia (NBE) seeks to
maintain inflation at a low (single-digit) level by controlling the growth in “reserve money”30 in the
economy, and therefore does not appear to be pursuing excessively austere inflation targets. The
NBE does not, however, pursue either economic growth or employment targets as an explicit target
of monetary policy.31

In recent years, inflation in Ethiopia has been driven largely by food-price inflation (Figure 37),
which has, in turn been driven in recent years by weather fluctuations. Inflation surged to double
digits in 2017-18 (FY2018) as a result of a one-off devaluation of the birr against the US dollar in
October 2017, expansion of public sector credit in 2017, growth in broad money,32 and political
disruptions (which adversely affected distribution networks). Since peaking at 16.8% in June 2018,
inflation declined to about 12.9% in April 2019.

30 Reserve money or monetary base comprises central bank liabilities that support the expansion of credit and broad money. It is
defined by the IMF (2017a, p. 197) to mean currency in circulation, other deposit taking institutions’ (largely commercial banks)
deposit holdings at the central bank, and those deposits of money-holding sectors (including local governments) at the central bank.
31 Despite repeated efforts / requests, we were unable to meet and interview officials from the NBE.
32 This refers to the money supply in a country—that is, it is the sum of all liquid financial instruments held by money-holding

sectors that are widely accepted in an economy as a medium of exchange, plus those that can be converted into a medium of
exchange at short notice at, or close to, their full nominal value (see IMF 2017a, p. 180).

52
Figure 37: Inflation in Ethiopia
50
40
30
20 16.5
10 13.1
9.2
0
-10
-20
-30

General inflation (CPI) Food inflation Non-food inflation (core inflation)

Source: NBE, 2019

In 2017/18 inflation has also been driven by imports, given the depreciation of the birr. The NBE
is also allowing the birr to depreciate gradually within a broadly market-driven approach and is
softening restrictions to accessing foreign currency. The spread between the official and the black-
market rate has reduced. The NBE's financial policy has sought to curtail credit expansion in the
economy, except as regards to exports and manufacturing.
Fiscal policy remains prudent, focused primarily on increasing spending on pro-poor and growth-
enhancing sectors, and on boosting efforts in tax-revenue collection.33 Although Ethiopia has been
pursuing a sound debt-management policy, debt-burden indicators signaled a rise in debt distress
from low to moderate to high in recent years, as indicated by the World Bank-IMF debt-
sustainability analysis.
At 13% of GDP (including grants), public revenues in Ethiopia are well below the sub-Saharan
Africa average (16%) and are inadequate for a developmental state. Tax collection has been
hampered in recent years by political disturbances and, more generally, by lacunae in the tax
administration process. Increasing tax revenues is a central focus of the government and, as a result,
the tax policy directorate in the Ministry of Finance (MOF) is actively reviewing ways in which this
can be achieved (including by reviewing tax structure and revamping tax administration).

33 Ethiopia African Economic Outlook, 2016. UNDP.

53
Figure 38: Tax revenue in Ethiopia - % of GDP

13.4 13.9 14.7 14.8

13.1 13.4 14
1.68 2.63
1.9 12.2
1.2 2.54
1.9 2.2
1.56
4.16
4.3 4.2 4
3.61
4.5 4.4 3.2

4.13 3.57
3.6 3.7 3.41 3.05
3 3

4.1 4.3 4.74 4.58 4.44 4.43

3.7 3.8

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Direct Tax Domestic Indirect Tax Foreign Trade Tax

Non-tax revenue Domestic revenue

Source: World Bank 2019a

Import tariffs, in particular, make up a very large share (nearly a quarter) of total fiscal revenue.
The fall in fiscal revenues relative to GDP in recent years has largely been due to falling revenues
from imports (Figure 38). This may also be closely tied to the reduction in public sector imports in
the last few years. The fiscal policy directorate noted that it is actively considering the impacts of
regional and international trade integration—although no radical changes were anticipated in trade
policy in the near future. If, however, a rapid trade liberalization was to take place, it seems unlikely
that the revenue losses due to foregone import tariffs could be quickly replaced by other sources.
The Ethiopian government has heavily invested in infrastructure over the past years. The designs
of infrastructure projects today could be optimized from a labor market and job creation
perspective. The boom in construction, mainly driven by public investment has been capital rather
than labor intensive. This amounts to an opportunity lost. Although some investments in physical
infrastructure are by nature capital intensive, there is generally a lot of scope, as well as tested and
proven methods, for shifting to more labor-intensive technologies that could be used in Ethiopia
to maximize the job-creation potential of such investment.
Important public investment has been directed towards fiscal incentives, to attract foreign
investment and foster growth in export-led manufacturing. Fiscal policies already exist that
incentivize investment in export-focused industries and those manufacturing entities that can
create and sustain export-focused units. The record of fiscal incentives (and, more broadly,
industrial policy) has been mixed—in some sectors, such as horticulture, incentives have led to
substantial growth; in the leather sector, where Ethiopia would appear to have a comparative
advantage, however, they have had minimal impact.
There is a need for a cost-benefit analysis of fiscal incentives that moves beyond simply looking
at value analysis of the political economy of the sector, to factor the likelihood of job creation as
well. There is a need for re-evaluation of the fiscal incentives with a view to assessing their cost-

54
effectiveness. Academic commentators have also come to same conclusion – arguing that what is
required is an analysis of incentives keeping in mind the specific characteristics of each key sector,
as well as the political economy of that sector (see Shiferaw and Söderbom 2019). Oqubay (2019a)
for example, argues that the lack of development of the leather sector had more to do with anti-
competitive cartel-like behavior by some existing producers, rather than misguided incentives.
Lessons learned from other countries which have worked on growth and jobs should also be
carefully considered including incentives which are directly linked to employment (for instance,
measures which would encourage wage employment), and the possibility of putting in place special
incentives for Micro, Small and Medium enterprises to hire youth and women, as well as taxation
regimes linked to formalization of micro-enterprises. Projection studies on possible costs and
benefits of such schemes should also be conducted.
Increases in human capital spending are called for, particularly for primary and lower secondary
general education (that represent “employability basics”) as well as upper secondary vocational and
technical education, with a focus on key sectors. Rising graduate unemployment rates and the
overall profile of the Ethiopian economy suggest that spending on vocational and technical
education should be prioritized in relative terms given the relatively high levels of expenditure on
tertiary education. Further analysis on the alignment between educational output and labor market
demand needs to be conducted, incorporating more up-to-date data.

State-owned enterprises (SOEs) represent an important part of the Ethiopian economy and
dominate strategic sectors such as transport, telecommunication, and banking. The Government
of Ethiopia owns several public enterprises (PEs). These entities were created for a range of
purposes—some to provide a public service, others to implement government policies, still others
to undertake purely commercial operations. The PEs engage in a diverse set of activities and provide
and manage a significant share of the country’s infrastructure and essential services. They also
represent a significant portion of the Ethiopian economy: the nine largest PEs contribute 16% of
GDP. Following recent mergers and amalgamations, the PE portfolio currently comprises 32 entities.

The legal framework governing PEs would require amendment in order to align it with
international best practices. The Public Enterprise Holding and Administration Agency (PEHAA) was
established by Regulation in January 2019 to act as the centralized PE ownership monitoring agency
for most PEs. The Public Enterprise Proclamation 1992 (PE Proclamation) and the Public Enterprise
Holding and Administration Agency Regulations 2019 (PEHAA Regulations) contain the primary legal
framework concerning PEs. The government is considering amendments to the Public Enterprise
Proclamation to bring it up to international good practice. PEHAA is the supervising authority and
responsible for twenty-two entities. For the balance of PEs, line or sector ministries act as the
supervising authority.

55
In general, the opacity of current governance and accountability arrangements for PEs has made
it difficult to recognize poor performance and identify its cause(s). The service delivery of PEs is
generally weak, as is their operational performance. Some PEs require ongoing fiscal support.

Poorly performing SOEs place a heavy burden on Ethiopia's economy. They absorb large amounts
of scarce capital on which they provide very low returns, divert government resources away from
vital social investments in health and education, and drive up the costs of doing business where they
are the sole service providers. Many PEs, which should be expected to generate a commercial
return on the Government’s investment, have instead generated operating losses and often failed
to prepare required financial reports. The poor performance of PEs can be attributed to three
interrelated factors:
(1) Gaps in the legal, governance, and monitoring framework and poor implementation
(2) Poorly defined mandates mixing commercial with non-commercial activities
(3) Lack of transparency and accountability

56
 Good practices – State-owned enterprises reform

International good practice has identified five key drivers for SOE reform and improved SOE
performance: (i) good governance practices, (ii) unambiguous commercial mandate, (iii) a public
service obligation framework that supports the commercial mandate, (iv) transparency and
accountability, and (v) effective government monitoring and oversight:
(i) Governance: There is a direct relationship between the effectiveness of governance oversight
and SOE performance. Therefore, a) directors must be selected based on possessing the skills
needed to assist the SOE in achieving its objectives and b) elected officials should not be
appointed to SOE boards.
(ii) Unambiguous commercial mandate: SOEs must be required to operate within an unambiguous
commercial mandate. The board and management must be held accountable for the delivery of
outcomes that are consistent with that commercial mandate. In many jurisdictions, the
commercial mandate is defined in terms of the SOE being profitable.
(iii) A public service obligation framework that supports the commercial mandate: It is legitimate
for governments to require SOEs to undertake non-commercial activities, i.e., public service
obligations (PSOs)—but the fulfillment of these obligations should support the SOE’s
commercial mandate, not undermine it. PSOs should be fully budgeted, incorporated in
performance-based contracts, and funded by government in a manner that does not introduce
distortions in the market or the SOE’s behavior. If PSOs are properly structured, government can
evaluate the benefits and costs of the PSO, measure the value of outputs and outcomes, and
define the quality and quantity of the outputs and outcomes purchased.
(iv) Transparency and accountability: Transparency leads to accountability and accountability
impacts performance. The key accountability documents are a forward-looking plan that
contains financial and non-financial performance measures and timely annual audited accounts
that report achievements against plan targets. The audited annual accounts and a summary of
the business plan should be publicly available.
(v) Effective government oversight and monitoring: Government, through its ownership
monitoring agency, should undertake a monitoring and oversight function that is transparent
and effectively hold an SOE board accountable for the SOE’s performance.
Source: TBI, 2019

2. Strategies and interventions

Strategy 1: Ensuring a pro-job macro-economic environment

 Intervention 1.1: Ensure fiscal policies that promote sustainable growth and job creation and
maximize to job-creation potential of public investment. This includes optimizing fiscal
incentives to foster job creation, including in wage-employment within MSMEs, and
optimizing job-creation potential and public infrastructure projects.

 Intervention 1.2: Create a level playing field for the private sector, including by improving the
transparency and efficiency of SOEs

57
  Intervention 1.3: Control inflation to maintain a stable macroeconomic environment, as is an
important perquisite for private sector investment and for improving level of confidence of
economic agents in the economy.

II. Improving the functioning of the financial services

1. Context and challenges

The supply of domestic credit has expanded rapidly in recent years, and in fact has been one of
the primary drivers of the growth in “broad money” in Ethiopia’s economy.34 The average growth
rate of credit has been as high as 31.6% per year for the last eight years (NBE, 2019). Loans to the
industry, transport and communication, and mines, power, and water sectors have grown the
fastest over this period. In recent years, the share of domestic credit extended to the private sector
has increased slightly as the government has taken more fiscally prudent action.

Still, the financial sector remains under-developed in Ethiopia. There are currently 18 commercial
banks in Ethiopia, out of which two SOEs. In the 2017-18 Global Competitiveness Report, Ethiopia
scored 3.4 out of 10, and ranked 109 out of 137 countries in terms of financial market development.
Only 16% of private sector enterprises use finance from banks; in Kenya, the corresponding figure
is 41% (WB,2019). The private-credit-to-GDP ratio declined from 13% in 2007 to 11.7% in 2016,
while in Sub-Saharan Africa as a whole the same ratio doubled between 2003 and 2014.

For the private sector, access to finance is a structural challenge—in fact, 40% of the enterprises
included in the WB Enterprise Survey (ES) declared that access to finance was a major constraint to
their development. Ethiopia ranks 175 among 190 countries in ease of access to credit, far behind
the average rank of 115 across Sub-Saharan African countries. Yet the severity of the challenge is
not universal. The share of firms in the service sector whose credit demand was met (i.e., they
obtained a loan) decreased slightly between 2011 and 2014, while in the manufacturing sector this
share more than doubled. In Ethiopia’s rural economy, a combination of high collateral
requirements, poorly designed lending products, and an unwillingness of rural households to
borrow money limit the diversification of rural livelihoods.

Figure 39: Credit to GDP Ratio

34
“Broad money” is generally the most expansive definition of the money supply.

58
 0.33
0.31
0.29
0.27
0.25
0.23
0.21
0.19
0.17
0.15
2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Source: NBE, 2019

Figure 40: Outstanding loans in millions of birr

600,000.0

500,000.0

400,000.0

300,000.0

200,000.0

100,000.0

0.0

Public Cooperatives Private

Source: NBE, 2019

Over the last eight years, loans to the industry, transport and communication, and mines, power
and water sectors have grown the fastest (Table 8). Credit growth to the agriculture sector has
been anemic—in 2017/18, credit to agriculture grew by only 2.8% annually, down from an 8.7%
annual growth rate eight years ago. It is not surprising that the development of agriculture has
slowed down.
Table 8: Growth of credit by sector (%), source: NBE 2019, NPC 2019

Growth rate
Share (2009/10) Share (2015/16) Share (2017/18)
(2009/10-17/18)

Agriculture 16.2 8.7 4.5 2.8

Industry 38.0 15.7 23.5 22.6

Domestic Trade 27.3 8.0 6.3 6.6

International Trade 23.3 18.5 11.5 11.4

Hotels and Tourism 31.3 1.6 1.1 1.4

Transport and
39.2 3.6 5.6 6.3
Communication

59
 Growth rate
Share (2009/10) Share (2015/16) Share (2017/18)
(2009/10-17/18)

Housing and
24.4 19.5 12.9 13.0
Construction

Mines, Power, and

39.6 21.3 31.8 31.6
Water

Others 33.5 2.9 2.3 3.4

Personal 53.7 0.3 0.6 1.0

Source: Planning and Development Commission

The credit to the private sector continues to represent a small share of domestic credit. Figure 41
shows that credit to the private sector represents only 36.9% of total domestic credit, while credit
to the public sector (State-Owned-Enterprises and Central Government) represents more than
63.1%. Looking at the constraints faced by businesses, access to finance is constantly stated as the
main challenge, especially for Small and Medium Enterprises. This indicates that public borrowing
and borrowing by state and quasi-state enterprises may have crowd-out private sector borrowing.
Figure 41: Composition of domestic credit

100%

80% 43 39.8 37.3 36.5 35.3 35.8 36.9

60%

40% 55 50.7 50.1

45.6 50.8 53.8 55.7
20%
11.4 9.4 9 7.8 9.7 13.5 13
0%
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
Central Government State Owned Enterprises Private sector

Source: NBE 2019

Capital markets are almost inexistent in Ethiopia. As stated previously, the financial sector in
Ethiopia is concentrated on the banking sector, with limited development of other and long-term
sources of funding available for the private sector, including limited or almost inexistent primary
and secondary markets. Developing capital markets in Ethiopia would require a set of regulatory
reforms to create a well-functioning corporate bond market and build the stepping-stones for a
secondary market.

Financial inclusion remains very low in Ethiopia with only 35% of 15+ population declared having
a bank account in 2017, according to Findex. When compared to its regional neighbor, Ethiopia is
still lagging behind in terms of financial inclusion. In 2017, the percentage of 15+ population that
declared having a bank account reached 82% in Kenya, 50% in Rwanda, and 47% in Tanzania.
Moreover, Ethiopia has a large informal saving culture, and despite important improvement in the

60
saving rate (24.3% of GDP in 2018 vs. 5.3% in 2013), the recent investment-driven growth has
widened the resource gap between domestic saving and investment.

Financial institutions in Ethiopia suffer from a poor infrastructure. A credit information system has
been introduced recently, however, it is being used simply as a database management system by
the National Bank of Ethiopia who collects information on creditworthiness of borrowers from
supervised financial institutions and uses it primarily for supervisory purposes. Capital ecosystem in
Ethiopia is characterized by high state-dependence, through ownership and regulations, absence of
non-bank financial institutions and strict regulations.

2. Strategies and interventions

Financial services are a critical enabler of investment and job creation. According to a recent World
Bank study35, doubling the supply of funds to the private sector (from one-third to two-thirds of
total credit) and allowing real deposit rates to be closer to market interest rates (from 0.01 to 0.025)
could lead to a 15% increase in output and an almost twofold increase in private investment.

The objective is to improve and facilitate the access of the private sector to finance, in order to
increase the level of private investment in the economy and facilitate job creation by the private
sector. The interventions described below aim to: (i) improve the capacity of financial institutions
to supply credit; (ii) diversify the sources of funding for the private sector and provide more long-
term funding solutions; and (iii) support the mobilization of domestic savings to improve the level
of domestic investment.

Strategy 2: Improving the private sector’s access to finance

 Intervention 2.1: Upgrade the financial infrastructure (including credit scoring, rural digital
solutions)

 Intervention 2.2: Develop capital markets to diversify sources of financing for the private
sector

 Intervention 2.3: Improve financial inclusion and services, including microcredit and
microinsurance, notably by encouraging mobile banking

III. Improving the level and access to FOREX

1. Context and challenges

Foreign exchange shortage is one of the major bottlenecks for business development in Ethiopia
and is constantly reported as a major issue by the private sector. Despite investment in export-led
sectors, the trade deficit in Ethiopia is widening, as imports have been increasing at larger pace than

35 World Bank (2019) “Country Private Sector Diagnostic: Creating markets in Ethiopia”

61
exports. Also, despite depreciating, the overvalued currency has contributed to a trade deficit,
which has driven consistent current account deficits. Currently, the gap between informal and
formal exchange rate is estimated to be over 30%.

The foreign currency shortage has led to long delays in accessing foreign currency to import
materials, and licensed importers do not always receive their full request, which strongly hinders
their business operations. Delays in accessing foreign currency can take up to one year, including
for essential imports.

Ethiopia’s overvalued exchange rate could affect job creation negatively. An overvalued exchange
rate suppresses export competitiveness and domestic demand, leading to higher unemployment.
For instance, following the devaluation in 2010, coffee trading prices enjoyed a significant increase,
and real export also went up. However, the abrupt devaluation also led to a series of inflations,
which could devastate the livelihoods of the extreme poor. On the other hand, the 2017 devaluation
has not caused a long-lived uptake in inflation.

The NBE maintains a policy of allowing gradual depreciation of the birr against the US dollar,
although it did permit a one-off 15% devaluation in October 2017. In FY2018, the nominal
exchange rate was kept largely constant, and the NBE only allowed the birr to depreciate by about
2.9% against the US dollar in the first six months of FY2019. As a result, the gap between the official
and parallel market exchange rates remains wide, with the market rate for US dollars being much
higher than the official rate—sometimes by as much as 30% (World Bank 2019a). While substantial
short-term exchange rate fluctuations can have a depressing effect on investment by both domestic
and international businesses, it is also true that maintaining a moderately undervalued exchange
rate has proven effective in increasing competitiveness in many Asian countries. Exchange rate
flexibility (that is, allowing depreciation to make the currency moderately under-valued) and
liberalization of the current account would help strengthen competitiveness, reduce foreign
exchange shortages, and support reserve accumulation in the Ethiopian context.
Remittances in Ethiopia represented $ 5,121 Million in 201836, representing around 6% of total
GDP. However, evidence suggests that most of remittances are sent through informal networks to
Ethiopia. An IOM report suggests that 78% of total remittances may currently be sent through informal
networks.37 The levels of remittances are relatively higher in other African countries such as Egypt (11%
of GDP in 2018), or Senegal (14% of GDP in 2018).38 These evidences suggest that remittances could be
increased in Ethiopia, and could contribute, if channelled right, to increasing the levels of Forex and the
development of Ethiopia.

36
Remittances = personal transfers. Source: NBE annual report 2017/18
37 IOM (2017) “Scaling up formal remittances to Ethiopia”
38 World Bank data

62
 2. Strategies and interventions
Strategy 3: Improving the level and access to FX
 Intervention 3.1: Encourage investment in high-potential import-substitution and export-led
enterprises, activities, and sectors

 Intervention 3.2: Implement a comprehensive remittance strategy

 Intervention 3.3: Improve access to forex for private sector importer

IV. Upgrading the institutional and statistical framework for job-rich macro-
policies
1. Context and challenges
The current statistical framework in Ethiopia is relatively weak and needs to be strengthened to
be able to analyze, in a more profound way, the impact of macro-economic policies on job creation
and employment. For example, the latest input-output table is from 2011, and analytical
instruments such as social accounting matrixes, Computable General Equilibrium Models are not
used within institutions to investigate the weight of macro-policies on job creation.

Building supply-and-use tables and input-output tables, including by disaggregating labor—and

establishing a system and capacities for regular production—would allow for the preparation of
analytical instruments such as social accounting matrixes or computable general equilibrium models
to investigate fiscal, public investment, trade, and other economic policy options.

An analysis of the fiscal multiplier, that is, the ratio of a country's additional national income to the
initial boost in spending that led to that extra income, ought to be carried out. Such an analysis can
help clarify how much a change in government spending or tax policy increases or decreases an
economy's GDP and job creation.

Key institutions need to increase their technical capacities for economic analysis, projection, and
evaluation, including on how to properly account for employment complex tradeoffs and dynamics.

2. Strategies and interventions

Strategy 4: Upgrading the institutional and statistical framework for job-rich macro-policies
 Intervention 4.1: Build macro-economic analysis instruments to investigate the impact of
fiscal, public investment, trade and other economic policy options on job creation

 Intervention 4.2: Build the technical capacities of key institutions to adopt methodologies
such as on maximizing and measuring the impact of public investments, educational
requirements of the labor market, and employment projections

63
 B. Promoting job creation through providing an effective
support to MSMEs
1. Context and challenges
The business environment in Ethiopia prevents the development of a vibrant private sector. In the
World Bank’s Doing Business Report 2019, Ethiopia ranked 159th among 190 countries and 29th out
of 44 Sub-Saharan countries, with its lowest ranking in Protecting Minority Investors and Getting
Credit (World Bank 2019c). Its ease of doing business score has improved marginally between 2016-
2019, while its rank has remained largely static over time. Its rank has not improved between 2017-
19 on most indicators but has deteriorated in some cases (Figure 42). Among these, notably, are
getting credit, getting electricity, and registering property. These findings are corroborated by the
World Bank’s Enterprise Surveys (2015) where respondents noted that obtaining access to credit
was the most important challenge faced by most businesses.
Figure 42: World Bank Doing Business Rankings – 2017-19; scores range from 1=best to 190 = worst

179 176 175 176 178

167 169 168 170 173 175 167 167
154
148
142 139 144
133 133 130
127 125 131
120 122

90
80
68
60

Starting a Dealing with Getting Registering Getting credit Protecting Paying taxes Trading across Enforcing Resolving
business construction electricity property minority borders contracts insolvency
investors
2017 2018 2019

Source: World Bank, Doing Business 2019

Figure 43: Most important business constraints for enterprises – % of firms

40

10 10
8 7 7 6 5 4
2

Access fo Electricity Customs and Tax rates Corruption Tax Practices of Access to land Transportation Inadequately
finance regulations administration the informal educated
sector workforce

Source: WB Enterprise Survey 2015

64
Ethiopian companies suffer from forex unavailability and lack of access to finance, among other
constraints, according to the 2015 WB enterprise survey. While the results of the enterprise survey
are somewhat outdated, the employers’ federations noted that currently, major constraints faced
by businesses include access to (a) foreign exchange, which can result in delays of between six weeks
and three months for business processes, and can lead to the slowing down of manufacturing where
inputs are being imported; (b) credit availability for smaller firms (which lack collateral); (c) high
turnover of workers; and (d) lack of skilled labor. Unsurprisingly, the business and regulatory
environment affects men and women in different ways. The World Bank recently found that women
struggle disproportionately to access credit while setting up businesses (World Bank 2019c). Women
also hire fewer workers than men, probably due to the challenges that they face in growing their
enterprises. Women are more likely to operate without business licenses and—largely because of
social norms around domestic work—spend less time on business activities compared to men.
The business environment represents an important priority for the Ethiopian economy for the
stimulation of private investment and entrepreneurship and for job creation. In line with this, the
government has launched an important initiative in early 2019, under the direct leadership of the
Prime Minister, with an objective to place Ethiopia among the top 100 countries in the Doing
Business ranking by 2021. More than 80 initiatives have been identified across all the indicators
included in the DB. The ongoing efforts include several reforms on the different indicators included
in the doing business, including in Starting a business, reducing the of days required to create a
business and simplification of procedures to create a business, and in Access to finance,
implementation of movable properties security rights proclamation and expansion of the credit
bureau information to 6% of the adult population.

Micro, small, and medium-sized enterprises (MSMEs) represent an important driver of job
creation in most emerging and developed countries. In emerging economies, formal MSMEs
contribute up to 60% of total employment and up to 40% of national income (GDP). MSMEs have
the capacity to curb the power of large enterprises, increase the competitiveness of the market, and
contribute to innovation—this even though in emerging markets MSME owners face significant
barriers to accessing finance, high costs of doing business, the pervasiveness of the informal
economy, and a lack of supporting infrastructure and skilled capacity.

In Ethiopia, micro-enterprises abound, and some large firms are present, but there are far fewer
SMEs. Currently, job creation is concentrated in large established firms in both service and
manufacturing sectors. The Ethiopian government has put in place support to Micro and Small
Enterprise through the adoption of the Micro and Small Enterprise Development Policy & Strategy
of 2010/1139, implemented on the ground through the MSE program. The strategy sets out the
terms under which the government provides support to micro and small entrepreneurs in six areas
of support: (i) skill training; (ii) marketing support; (iii) access to finance; (iv) production support; (v)
single center support supply and (vi) access to work premises support. The Federal Urban Job

39Updated in 2012 and 2016. Available at:

https://www.cmpethiopia.org/content/download/2366/10048/file/MoUDH%20MSE%20Development%20Policy%20&%20%20Stra
tegy%20280416.pdf.

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Creation and Food Security Agency administers the policy, but its mandate to some degree overlaps
with that of the Federal Small and Medium Manufacturing Industry Promotion Authority40.

a. The current government support: The MSEs program

The implementation of the MSEs program faces important challenges, despite significant
resources dedicated by the government. The government has dedicated a considerable budget to
support the implementation of the MSEs program, including a 10-billion-birr youth revolving fund,
established in 2017. The number of MSEs and employment created within these MSEs has been
concentrated in just a few regions—Oromia, SNNPR, Amhara, and Tigray—and almost entirely
absent in others. Between 2016-18, while Ethiopian MSEs collectively received a steadily growing
influx of capital, the annual numbers of new MSEs and new jobs created fell sharply (Figure 44).
Addis Ababa, in particular, stands out for the large disparity between the amount of credit
distributed to MSEs beneficiaries and the paltry number of jobs created by MSEs (Figure 45).

Figure 44: Number of MSEs and job creation – 2014/15-2017/18

3000000 No. Of MSEs Jobs created Amount of credit (in millions of birr) 10000
9000
2500000 8633.71
8000
7075.77 7000
2000000 6541.88
6000
5366.55
1500000 5000
2788667
4000
1000000
1665517 1172678 3000
2000
500000
171519 190587 157768 144107 1000
187945
0 0
2014-15 2015-16 2016-17 2017-18
Source: NBE, 2019

Figure 45: Regional distribution of MSEs and Jobs Created - % of the total – 2017/18
42.1

No. Of MSEs Amount of credit

28.7
28.2
24.2

21.9
21.5

20.2

17.3
20
16.2
11.6

11.6

9.4
6.6

5.8
3.5

1.8
1.7

1.3
1.1
0.6

0.6

0.6

0.6
0.5

0.4

0.4

0.4
0.3

0.3
0.2

0.2

0.1

Source: NBE, 2019

40 Previously Federal Small and Medium Manufacturing Industry Development Agency.

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Several studies have shown a relatively poor performance of the MSEs program. A study of the
performance of the program in Addis Ababa between 2003 and 201741 shows that around 1% of the
enterprises benefitting from this program have transitioned and that loan repayment is between
2% and 12% for loans of more than 10 thousand ETB, as compared to 56% repayment rate for small
loans (≤ 10 thousand ETB). The Ethiopian government has been providing support in the form of
market linkages for MSEs, including in the construction and manufacturing sector, where MSEs are
concentrated.

The challenges that the current support provided to MSMEs face can be structured around four
main areas: (i) policy design; (ii) skill training; (ii) access to finance; and (iv) market linkages. the
Micro and Small Enterprise Development Policy and Strategy lacks targeted support as there is no
differentiation between high-potential dynamic and low-prospect subsistence enterprises. Also, the
strategy does not provide support to medium enterprises. Priority sectors in the strategy are
concentrated on manufacturing and construction, and there is a notable absence of targeted
support to innovative start-ups to promote R&D and adoption of technology. Training programs
offered by TVETs teachers are not demand-driven and not based on needs assessment of
marketable skills. There is a lack of skills and awareness among TVET teachers on how to enhance
entrepreneurial attitudes. As a result of inadequate education/training, entrepreneurship and
business management capacity are under-developed among MSEs leaders.

In terms of access to finance, Microfinance institutions (MFIs) are a critical part of the MSE
development story – in many countries they provide financial services to micro and small
entrepreneurs who are unable to access other forms of credit, from commercial banks (ILO 2015).
The development of the microfinance sector in Ethiopia has been robust, but they have not yet
begun to play a significant role in facilitating access to finance for MSEs. As of the second quarter
of 2019, there were 38 MFIs operating in Ethiopia which had mobilised cumulative savings of birr
33.9 billion. The sector is growing rapidly – the savings of MFIs in 2019 were 19.5 per cent higher
than in 2017-18. Table 9 provides more details on the operations of the microfinance sector in
Ethiopia.

Table 9: Microfinance institutions (and their operations - in thousands of birr)

Microfinance
Institutions 2015/16 2016/17 2017/18

Total Capital 8,875,780.6 10,720,058.6 13,772,435.9

Savings 18,432,836.7 26,323,896.4 33,213,124.6

Credits 25,203,763.0 32,398,857.4 44,987,229.9

Total Assets 36,668,011.6 49,551,770.7 67,261,994.6

Source: NBE, 2019

41 Addis Ababa MSE Status Study 2003-2017

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MFIs are generally unwilling to provide longer term credit or larger credit amounts – necessary for
longer gestation periods in the manufacturing sector, for not being willing to provide loans to MSEs
for fear of default (due to minimum repayment rate requirements imposed by the NBE) and for not
being attuned to the specific needs of the rural credit market – both in terms of product design as
well as not being easily accessible to those living in remote areas.
Focus on SMEs
SMEs face a high cost of doing business and lack of access to market, lack of network across value
chain actors, and a generally restrictive/burdensome regulatory environment. This adds to the
tenuousness of their business models and their riskiness as borrowers, especially since they typically
lack traditional forms of collateral. Without credit guarantee schemes, banks and MFIs prefer not to
loan to them. The loans that might be available are often too short-term to meet their needs and
too expensive to service.

In terms of SMEs’ access to finance, the unavailability of credit is a major limiting factor to growth
SMEs represent the missing middle. SMEs finance in Ethiopia rely almost exclusively on collateral-
based funding provided by the banking sector and equity investments from social network. Less
than one third of SMEs (between 5 and 99 employees) acquire bank loans at all. SMEs are much
more likely to be rejected for loans, and less likely to have a loan, line of credit, or overdraft facility,
than are larger businesses. SMEs are also more likely to avoid loan applications all together due to
high collateral requirements. A World Bank study42 indicates the existence of a ‘missing middle’ -
small firms actually face more capital constraints than microenterprises, left much unserved in the
crack between commercial banks and microfinance institutions. According to the same study, the
share of SME loans to overall lending portfolio in Ethiopia is only 7%, which is very low compared to
other developing countries (16%). Moreover, compared to other booming emerging markets in
Africa, such as Kenya and Ghana, private equity and capital markets are practically non-exist in
Ethiopia.

Banks in Ethiopia are wary of lending to SMEs due to low repayment rates, and currently offer no
specific financial products that target the needs and of SMEs. Banks face several challenges in
lending to SMEs. Lenders in Ethiopia have inadequate liquidity and must contend with an asymmetry
of information: SMEs tend to lack a track record (due to poor financial records and unpredictable
cash flows) that would help a potential lender to assess their creditworthiness. Furthermore, many
SME leaders have poor financial and management skills and lack expertise in producing financial
statements. The cost of lending is high (due to expensive customer acquisition, costly distribution
networks, and small transaction sizes), and lenders must tolerate higher levels of risk due to the
poor credit information system.

Ethiopia’s lenders lack business models adapted to SMEs, and more broadly lack an “SME finance
culture.” There is no standard nationwide definition of MSMEs; consequently, specific MSME

42 World Bank (2015) “The missing middle – SMEs financing”

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financing strategies are not in place. The business models of financial institutions are mostly
inadequate to serve SMEs. Lenders lack dedicated and specialized SME units or departments within
their organizational structures, and loan appraisal techniques are still mostly based on traditional
relationship lending rather than on transactional technologies, such as credit scoring.

In order to reduce the asymmetry of information between supply and demand of finance, the
National Bank of Ethiopia (NBE) has been implementing a credit reference bureau. Progress has
been made in setting up the credit reference bureau, however, the bureau’s ability to facilitate
extension of credit to underserved segments, such as SMEs, remains constrained—credit bureau
coverage in Ethiopia is less than 5% of the adult population.

In many developing economies, microfinance institutions (MFIs) offer financial services to SMEs
that are unable to access credit from commercial banks. While the development of the
microfinance sector in Ethiopia has been robust, MFIs have not yet begun to play a significant role
in facilitating access to finance for SMEs.

Micro-finance institutions are unable/unwilling to provide large loans to SMEs due to the NBE
requirement of MFI’s maintaining 95% repayment rates. Most MFIs, such as ACSI, have a well-
established business in the group lending market but not in individual lending, which makes up just
over 10% of ACSI’s lending portfolio. Screening for individual loans is still based on a traditional
appraisal mechanism that relies heavily on the existence of fixed asset collateral, such as houses or
buildings. MFIs are not yet exchanging information through the credit bureau at the National Bank
of Ethiopia. By and large, MFIs are also not attuned to the specific needs of the rural credit market—
both in terms of product design and accessibility to those living in remote areas. “Missing middle”

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firms therefore tend to fall into the cracks of the credit market—to small for commercial banks and
too large and individualized for MFIs.

Example of an MFI Up-Scaling Intervention in Ethiopia: The Women Entrepreneurship Development

Project (WEDP)

The objective of the omen Entrepreneurship Development Project (WEDP) is to increase the earnings and
employment of women-owned enterprises in Ethiopia by providing access to finance and business
development services. The project targets growth-oriented women entrepreneurs who were previously
stuck in the “missing middle,” served neither by MFIs nor commercial banks. WEDP is a USD 50 million IDA
investment lending operation. The project is implemented in six cities across Ethiopia’s main four regions.
It includes 12 partners and uses innovative “psychometric tests” for credit scoring in order to reduce the
asymmetry of information faced by lenders.

WEDP’s line of credit involves a market “upscaling” operation—the Development Bank of Ethiopia (DBE)
acts as a wholesaler and microfinance institutions (MFIs) act as retailers. As a result, DBE develops a new
business line, while MFIs build up high-quality SME portfolios.

Results have been positive: of the 12,000 women who have taken the loan, 66% have been first-time
borrowers; in addition, 16,000 women have received training on business skills. The average loan size has
also increased by 825%, to USD 12,000, while MFIs’ collateral requirements have decreased from 200% to
125% of the loan value. From an income and employment perspective, the beneficiaries have experienced
income growth of 40.77% relative to a control group and have increased employment in their firms by
55.73%.
Source: IFC, World Bank “Disruptive Finance: Using Psychometrics to Overcome Collateral Constraints in Ethiopia”

Recently, the Ministry of Trade and Industry has adopted an entrepreneurship strategy that
identifies policy measures to improve access to finance for entrepreneurs. These interventions
include the expansion of the current Credit Reference Bureau, and the development of innovative
source of financing such as crowd-funding. These policies are necessary, however, there is a need
to review the MSE strategy framework as a whole to ensure a targeted support according to the
potential of growth of MSMEs and to ensure a support on the managerial skills and market linkages.

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 Example of a successful credit guarantee scheme in Ethiopia: USAID/DCA Partial Guarantee Scheme

DCA offers partial guarantee credit and has focused mainly on providing loan portfolio guarantees (LPGs)
for firms in the agricultural value chain and health sector, as well as to diaspora and women entrepreneurs.

The implementation of the DCA program in Ethiopia often includes a capacity-building component to
support both the partner banks and borrowers. As of March 2016, 317 borrowers used the LPG, of which
37% were first time borrowers (considered a good rate). A consensus among borrowers is that DCA enabled
them to access finance that they otherwise might not have been able to access. As of March 2016, the
cumulative value of current guaranteed loans and loan portfolios to the seven partner banks was USD
90,604,045, while the total cumulative utilization was USD 47,369,550.
Source: USAID “Opening Doors: A Performance Evaluation of the Development Credit Authority (DCA) in Ethiopia”

Benchmarking – Japan support to SMEs (1/3)

Japan has today the highest number of SMEs among developed countries accounting for 99.7% of overall
enterprises and 70% of employment. After the Second World War, the Japanese economy was rebuilding,
and SMEs faced numerous challenges including: Lack of innovative investment opportunities and access to
credit; Poor corporate governance and managerial skills; Severe difficulty in accessing markets; Limited
technology and production capability; and Labor challenges including limited knowledge, technical capacity
and low wage levels.

By introducing a serious of policies, the government of Japan provided the following support for SMEs, with
a special focus on the manufacturing sector: (i) access to finance, (ii) business development services and
managerial capacities, (iii) access to technology and (iv) development of cooperatives and clusters.

1. Access to finance
Japan has built an important financial support to SMEs, including the development of Public Credit
Guarantee Schemes and the establishment of multiple financial institutions that focus on SMEs financing
(Shoko Chukin Bank, National Life Finance Corporation (no longer existent), and the Japan Finance
Corporation). These institutions served SMEs through special loan requirements and innovative products.
One example of innovative products is the Marukei (Managerial Improvement Loan), which are loans
designed to financially assist firms in improving their managerial capacities and improving their levels of
productivity. The Marukei loans are free-collateral loans free, on basis of recommendation from employers’
organisation, and require receiving management counselling of employers’ associations for at least 6
months (the employers’ associations receive subsidies from government as an incentive).

The Japanese government has also put in place a funding programme for research and development to
SMEs working on developing innovative technologies.

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 Benchmarking – Japan support to SMEs (2/3)

2. Business Development Services and managerial capacities

The Japanese government has put in place a “Shindan” system that raised the managerial and business
capacities of SMEs, as well as helped their access to finance. The Shindan system, which means ‘enterprise
diagnosis’, is a system organizing business development Services to SMEs. The business consultants,
‘Shindanshi’ are registered within government work closely with SMEs to identify their challenges and
develop targeted and adapted solutions. The registered Shindanshi can also be found working in
government or financial institutions to support SMEs. Shindanshi can only provide their services after
obtaining a certificate at the end of a government Shindan course, provided at one of the Japan’s SME
universities. These certificates need to be renewed every five years and Shindan must demonstrate that
they have been practicing business consulting during that period as well as taking courses to update and
upgrade their services.

Also, Shindanshi often work closely with financial institutions, creating a win-win-win situation, in which
banks can use business plans generated by Shindanshi as data to inform loan decisions for SMEs. In fact,
Shindan reports can function as a credit guarantee for loans from financial institutions.

3. Access to technology
The Japanese government has put efforts to support SMEs in adopting innovative technology notably
through the establishment of the Public Industrial Technology Research Institutes or “Kohsetsushi Centres”,
set up by Ministry International Trade and Innovation (MITI) in each of Japan’s 47 prefectures to support
SMEs technology upgrade and the development of technically skilled manpower. The centres play three
key roles in technology and skills support:

- Technology diffusion – by providing analytical equipment, laboratory access, technical consultation

(over the phone or through field visits), joint research and technical assistance & training (classroom
and hands-on)
- Research & patents – by conducting their own research and through licensing patents to local SMEs
- SME catalyst – by helping SMEs solve technical challenges and by connecting them with external
knowledge sources such as universities.
The staff at each centre spend half of their time on R&D in direct conjunction with local industries. They
also play a key role in technology transfer by attending annual meetings of scientific societies in order to
exchange technical information with university professors and scientist at universities or national
laboratories. Small manufacturers often send one or two of their staff members to work on projects at the
centres to help them gain new technical skills. These centres, though guided by MITI, are managed and
funded by local governments, and many of the services are offered free to SMEs, though testing and facility
use comes at a nominal fee. Their high degree of embeddedness in the local economy allows them to be
highly responsive to local SMEs challenges.

72
 Benchmarking – Japan support to SMEs (3/3)

4. Development of cooperatives and clusters

The government in Japan has supported the organization of SMEs into cooperative associations, by
providing tax breaks and subsidies and by offering cooperatives specialized loans and support with R&D
efforts.

Even if many clusters arose independently, their formation & growth has benefitted greatly from the active
role played by regional governments. The government has also provided support to developing sectoral
and geographical clusters through provision of necessary resources and infrastructure. Clusters also
benefitted from support from business associations which allowed greater communication between
cluster participants. The benefits of the development of cooperatives and clusters were: production cost-
sharing for cooperatives; collaboration and cooperation to supply large firms and big contracts; Technology
spillovers, often through joint production and technological alliances with other firms; the development
of a pool of workers with specialized skills, especially for the part-time labour market; and easier
procurement of inputs, which allows for greater diversification in production.

Th SME Japanese eco-system is also characterized by a multi-layer sub-contracting system called “Keiretsu”
that has been a source of SME strength and development. The Keiretsu system, which means linkage or
grouping of enterprises, is a subcontracting system of industrial production typically for automobile &
machinery production., anchored around a large firm at the top. Large firms like Toyota are still using this
sub-contracting system. The system had several benefits including: improvement of production efficiency
& competitiveness of manufacturing; specialization of firms in different areas of production and facilitating
long term partnership between large assembly firms and their multiple suppliers.
Source: ADBI Working Paper & TBI analysis

2. Strategies and interventions

Strategy 1: Remodeling government support to incentivize enterprise growth and self-reliance
 Intervention 1.1: Prioritize support to high growth enterprise rather than survivalist
enterprises, notably through the promotion of competitions

 Intervention 1.2: Include all the priority sectors in the support framework and have a flexible
list of targeted sectors, including emerging ones such as tourism, creative arts, and ICT

 Intervention 1.3: Shift from a mandatory “group” perspective to more “empowered

individuals” and a consensual partnership approach

 Intervention 1.4: Strengthen the role of families and communities in enterprise formation

 Intervention 1.5: Adopt a unique national definition of MSMEs and disseminate it to all relevant
institutions

 Intervention 1.6: Promote private sector engagement as part of making all forms of support
available to MSMEs

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 Intervention 1.7: Provide a start-up friendly environment to promote innovation and disruptive
ideas

 Intervention 1.8: Establish one unique government entity for enterprise development,
responsible for providing the necessary support to MSMEs

Strategy 2: Improving the quality of business development services (BDS)

 Intervention 2.1: Provide demand-driven skill development support and BDS, notably by
allowing private sector actors to provide support to high-growth enterprises

 Intervention 2.2: Develop certification programs for business consultants to guarantee the
development of high-quality BDS

 Intervention 2.3: Support the development of incubators and accelerators and facilitate
MSMEs’ ability to access information about them

Strategy 3: Improving MSMEs access to finance

 Intervention 3.1: Implement a partial public credit guarantee (PCG) scheme to reduce the
collateral requirement

 Intervention 3.2: Improve the capacity of MFIs to provide financial services to MSMEs through
the use of innovative tools, such as psychometric tests

 Intervention 3.3: Support financial institutions in establishing units dedicated to MSMEs

 Intervention 3.4: Support the development of innovative financial products for start-ups

 Intervention 3.5: Provide adequate financial products for MSMEs that are export-oriented
(including long-term loans for imports)

Strategy 4: Improving local value chains and market linkages through horizontal and vertical
integration
 Intervention 4.1: Establish sectoral clusters for MSMEs and encourage networking and
horizontal collaboration, notably through incentives to collaborate with business and
employers’ associations

 Intervention 4.2: Promote domestic linkages with foreign investors, including in industrial parks

Strategy 5: Improving the competitiveness and access to technology for MSMEs

 Intervention 5.1: Provide funding for innovation, as part of the Jobs Creation Fund, to provide
grants to innovative entrepreneurs and to encourage R&D within promising enterprises

 Intervention 5.2: Promote MSMEs’ access to markets, including through public procurement
opportunities and international bids

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 Intervention 5.3: Provide tax incentives for high-growth MSMEs to increase their access to
inputs

 Intervention 5.4: Promote technology diffusion and collaboration between sectoral research
institutes and MSMEs, notably by providing analytical equipment and technical consultations

 Intervention 5.5: Help MSMEs gain innovative technical skills by connecting them with
external knowledge sources such as universities

Strategy 6: Improving the business environment for MSMEs

 Intervention 6.1: Streamline bureaucratic and regulatory procedures and facilitate open and
closure of business, access to sheds and lands, and access to electricity and infrastructure

 Intervention 6.2: Strengthen existing One Stop Services Centers and mandate them to provide
comprehensive service, notably by enforcing the aggregation of services from other institutions

 Intervention 6.3: Implement a regulatory sandbox to develop regulation that keeps up with
the fast pace of innovation

Flagship project: A partial public credit guarantee scheme

TBC

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 C. Developing human capital to meet the changing needs of
the labor market
1. Context and challenges

Skills development policies and strategies are central to Ethiopia’s growth and transformation
vision of becoming a low middle-income economy by 2025. The Ethiopian government has made
strides on accelerating economic growth on the journey towards the country’s renascence. To this
end, the National Capacity Building Program and the Growth and Transformative plans, built on past
experiences and challenges, gave special attention to the potential of TVETs, colleges, universities,
and research institutions to produce a trained workforce responsive to the demands of the growing
economy. While the primary role of higher education institutions is ensuring the quality and
relevance of knowledge transfer, TVET institutions have been reoriented to focus on supporting
micro and small-scale enterprises through training, business development counseling, and
capacitating technology transfer. As a result, Ethiopia’s current skills development objectives and
strategies highly prioritize demand-driven interventions through strong private sector engagement,
talent-based enterprise growth as a net job creation engine, and innovation that can help deepen
and broaden the current skill ecosystem.

The current skill level of Ethiopia’s workforce is far from what will be required to achieve the
country’s transformative ambition; rather, it constrains the growth of existing businesses and
dampens investment in new ones. More resources—and a recalibrated focus on the skills sought
in the labor market—are needed to improve the education system and upskill the workforce if
Ethiopia is to rapidly transition to a middle-income economy. The most significant education
challenges—high dropout rates, widespread illiteracy, and the lack of necessary technical and soft
skills that have resulted in high unemployment and underemployment rates—must first be
addressed the skills base of the workforce is not to become a major limiting factor in Ethiopia’s
economic trajectory.

Dropout rates
Ethiopia’s education system suffers from a poor transition from primary to secondary school.
Overall primary enrollment increased by 16% from 2001 to 2018, driven by government efforts to
achieve universal primary education. Despite the growth, enrollment drops from 137% for the first
cycle (grades 1 through 4) to 79% for the second cycle (grades 5 through 8) of primary education—
a gap due to students in grades 1-4 either repeating grades or dropping out of school completely.
As a consequence, the secondary enrollment ratio was only 23% in 2017/2018 compared to 137%
for primary grades the same year. Likewise, a study tracking the first-grade cohort from 2005 to
2016 indicated that out of 2,846,600 first grade students only 903,753 (32%) made it to secondary
school. The secondary school enrollment rates grew from 371,000 in 1994-5 to almost 2.7 million in
2017-18; yet, national enrollment for grade 9-10 in 2018 (48%) fell short of the national target (74%),
largely due to poor primary school completion rates. The enrollment rate is significantly higher
between grades 9-10 (48%) than grades 11- 12 (13%) in 2017/2018. One major cause of this drop-

76
off is the fact that approximately 80% of the students from grades 9-10 are expected to join TVET,
CTEs, and other training centers at the conclusion of grade 10.
Progress is being made on overall dropout rates, which decreased by 40% starting in 2009/2010,
as the enrollment rate for grades 5 through 8 gradually improved. Meanwhile, the gender parity
index (GPI)—a ratio of female to male students enrolled in primary school (grades 1-8), lower
secondary (grades 9-10), and upper secondary (grades 11-12)—declined from 0.92 to 0.87 between
2014/2015 and 2017/2018. The 2017/18 dropout rate in grades 1 – 8 was 9%; the highest primary
school dropout rate occurs in the first year of schooling, in grade 1, at 20% (19% females and 20%
males)—far exceeding the intended Education Sector Development Program V (ESDP V) dropout
target goals of 2% in grade 1-8 and 5% in grade 1. With fewer children rejoining the school system,
the cumulative annual dropout rate equated to 62% over the course of primary education in 2014.

Children cited a range of principal reasons for discontinuing school, including work, drought, crop
failure, food shortage, and illness or death of a family member. The most common reason cited by
children who dropped out in 2015 was the need to work (unpaid) in the family business or farm. In
urban and rural areas alike, the more time a child allocates to performing domestic activities, unpaid
activities, or paid labor the greater the risk of dropping out of primary school. Children engaged in
hazardous work further increase the dropout rate—in 2015, 16% of children who dropped out were
engaged in hazardous work.

Males are twice as likely to drop out of school to work unpaid in the family business or farm (24%)
than are females (12%). This reason for dropping out is more common in rural areas, where 21% of
children report dropping out of school in order to engage in unpaid work (most likely on family
farms), than in urban areas, where 5% of children give this reason. More female respondents (11%)
than male respondents (4%) reported dropping out of school to help at home with household tasks,
possibly due to social attitudes around gender. This reason was also more prevalent in urban areas
(11%) than in rural areas (7%).

Literacy rates
While the literate proportion of the population increased from 33% in 2005 to 52% in 2013, this
still means that almost half (48%) of the labor force is illiterate. Literacy rates are higher in urban
areas than rural areas and among males than females. In 2018, the literacy rate reached 92% for
urban males and 78% for urban females. In rural areas, only 45% were literate in 2013. However,
the gap between the urban literacy rate for males and females is narrowing—between 2005 and
2018, the urban male literacy rate increased at an average of 1% per year while urban female literacy
improved at an 2% annual clip. In 2013, 45% of Ethiopians (55% male, 34% female) in rural areas
were literate.

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Figure 46: Literacy rates in % - 2005-2018

Source: National Labor Force Surveys 2005 and 2013, Urban employment unemployment surveys 2004-2018

If current trends continue, the rural/urban and gender literacy gaps will continue to narrow, while
regional differences will remain the most pronounced. Literacy rates diverge considerably from
Afar and Somali (30% and 32%, respectively) to Addis Ababa (88%), Dire Dawa (66%), and Gambella
(63%). The male literacy rate is higher than that of females in all regions, ranging in severity from
the greatest gap in Benishangul-Gumuz (22 percentage points) to the lowest gap in Addis Ababa (12
percentage points). There are 63,322 reported Integrated Functional Adult Education (IFAE) and
Adult and Non-formal Education centers, 34.3% in regular school compounds, that enrolled
4,941,062 adults (44% females and 57% males) in a two-year program to narrow the regional gaps
in literacy in 2017/2018. The highest enrollment rates are in the Amhara, Oromia, and SNNP regions.

TVET
Curriculum – quality and relevance
The quality and fit of education and training program did not result in preparing trainees for jobs
that are available. The 2008 TVET strategy introduced more than 600 occupational standards (OSs)
and outcome-based curriculum in partnership with industry experts to ensure industry standard
training. TVET curriculum includes basic knowledge (30% of the time) and technical (sector-specific)
practical industry-based learning (70% of time in work-based training or apprenticeships) to develop
the right skills in prioritized sub-sectors in agriculture, industry and infrastructure. Infrastructure, at
62%, had the highest share of TVET trainee followed by manufacturing (15%) and agriculture (13%)
in 2016. The TVET system also plays an important role in providing technical, business development,

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kaizen (Japanese management approach to develop continuous improvement practice) and
entrepreneurship training to strengthen micro, small and medium enterprises.
There are a few major challenges facing the TVET system in Ethiopia, which may also be a reason
for the drop-in enrolment in TVET colleges. The first is the supply driven nature of TVET training in
Ethiopia – which does not resemble the demand driven system envisaged by the TVET strategy. The
involvement of employer’s and worker’s associations is limited in the TVET system despite the
strategy’s provision that the TVET council at federal and state level include representatives from the
business community. Discussion with representatives from workers organizations and employers’
federations suggested that the TVET agency and TVET colleges rarely engage them in their
curriculum development, and regular dialogue on the challenges of TVET is weak. This also has an
impact on the apprenticeship system envisaged by the strategy whereby the bulk of training (70%)
is to be provided at enterprises. Stakeholder interviews suggested that weak engagement of the
business community with the TVET agencies and colleges has resulted in reluctance among the
industry to provide apprenticeship and internship opportunities to TVET candidates. The
apprenticeship system has also failed because TVET colleges sometimes provide training on subjects
for which there are no nearby enterprises – as a result, students would have to travel long distances
for these apprenticeships, which is impractical (Abebe and Tekleselassie 2019, p. 72).

The quality of TVET training appears to be unsatisfactory – employers federations and workers
organizations reported being very unsatisfied with the quality of TVET education, although Abebe
and Tekeleselassie (2019) received less negative responses in a recent ILO study. Either way, it is
clear that few employers are very happy with the quality of TVET graduates.
Figure 47: Satisfaction with the performance of TVET graduates
Share of firms responding

highly satisfied

moderately satisfied

less satisfied

not satisfied at all

Do not employ TVET graduates

0 5 10 15 20 25 30 35

Source: Abebe and Tekleselassie 2019

A particular problem is that public employment services in Ethiopia remain extremely weak and do
not (for the most part) cater to semi-skilled workers or the industrial workforce. The TVET system
remains chronically underfunded, with no provisions for financing by industry operational yet.

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Figure 48: Perception on changes in quality of TVET system in the past four years

improved substantially 2.85

improved slightly 32.11
remained the same 28.05
deteriorated slightly 21.14
deteriorated significantly 15.85

0 5 10 15 20 25 30 35

Source: Abebe and Tekleselassie 2019

While there are a few successful examples of cooperative training between industries and
public/private TVET institutes, most privately-owned businesses and industries provide informal/
in-house training and are reluctant to take-in TVET candidates. Instead, they encourage the
overhauling of existing occupational competence assessment and certification system to reflect the
needs of the labor market and expanding capacity to encourage private sector participation.
Finally, systematic assessments and evaluations are not carried out for TVET. These (including
tracer studies) are meant to be the responsibility of the regional TVET bureaus, but to the extent
they are carried out, they are not centrally collated or analyzed. This points to a broader malaise in
the education system in Ethiopia—in the absence of a functional labor market system, it is extremely
difficult to assess skills needs with any degree of precision.
Graduation rates
The number of TVET graduates has remained fairly consistent—between 124,000 – 131,000
graduates per year—from 2012/13 to 2016/17. TVET graduates show high preference for public
sector jobs and often perceive private sector jobs as temporary until a public position opens.
However, between 2003 and 2011, the share of TVET graduates in government jobs decreased (from
66% to 54%) while the share increased in private sector jobs (from 8% to 12%) and in self-
employment (from 8% to 12%).
Employers surveyed reported that 30% were moderately and 28% were less than moderately
satisfied with the performance of TVET graduates, with 32% indicating improvement in the quality
of the TVET system while 28% stating that the quality has remained the same and 21% reporting the
quality had deteriorated slightly over the past four years (ILO, 2019). Out of those surveyed, 22%
respond that they do not employ TVET graduates. 2
Just 21% of firms in Ethiopia offered on-the-job training in 2015. This is lower than the sub-
Saharan average of 28%, and the average of 27% across lower-income nations. Only, 27% of
employees at Ethiopian manufacturing firms are provided with training, compared to 44% and 40%
in sub-Saharan African and low-income countries, respectively.
University
University enrollment has risen consistently, teacher qualifications are improving, and the number
of students graduating each year rose steadily from 2013 – 2017, yet universities are not

80
adequately preparing graduates for work, and people with secondary and higher education are
more likely to be unemployed.
Teacher qualification
In 2012, the government set a teacher qualification target to improve the quality of education:
70% of all university instructors should hold a master’s degree and 30% should have a PhD. From
2012/13 to 2018, the number of teachers in universities increased from approximately 23,900 to
33,000, a 6.8% annual rise. However, the ratio of teacher qualifications did not change substantially
during this period. In 2017/18, 52% of teachers in universities had a master’s degree, 28% had a
bachelor’s degree, and 13% had a PhD, (marginally up from 11% in 2012/13)
School to work transition
An applicant’s level of education does not correspond to the required skills for a job—meaning
that both under- and over-qualification leads to skills shortages to a varying degree across sectors.
Over-qualification is a large issue: approximately one-quarter of employees are mismatched due to
over-qualification. At the same time, about half of surveyed employers reported difficulty in finding
employees with the required technical and soft skills. ICT skills are also in short supply and it will
become increasingly critical as the use of ICT grows across sectors.
The government’s 70:30 target—to support the country’s industrial transformation process—
shifted the enrollment ratio for science and technology versus social sciences and humanities to
65:35. However, an unintended consequence of the 70:30 target was the oversupply of engineering
and technology graduates that were not able to find employment. Similarly, university curricula
have not evolved to match the needs of the workplace today, which has made it challenging for
college graduates to find work and for employers to source workers ready to “hit the ground
running.”
Employment and level of education
Nationally, people with higher (TVET or university) education are more likely to be unemployed
than those with no education or just primary schooling. Those who have attended TVET or
university make up just 4% of the population but 10% of the unemployed. The same pattern holds
for those with secondary education, who make up 7% of the population but 25% of the unemployed.
The probable explanation is that people with lower levels of education are more likely to be engaged
in agricultural activities and be informally self-employed.
In urban areas, 20% of unemployed people have higher education. Those with primary and
secondary education are more likely to be unemployed, making up 32% and 36% of unemployed,
respectively. This implies a lack of opportunities in urban areas for people with a basic education,
and a glut of people with higher education in urban areas compared to rural areas.
Despite noticeable improvements in the level of education, a high proportion of the population
lacks education and has low levels of skills. Unskilled elementary occupations feature heavily across
every sector except wholesale and retail, where service and sales workers dominate. In rural areas,
95% the population has not gone beyond primary school, and skills are generally suited for the

81
informal agricultural work that dominates. In urban areas, self-employment is highest among those
without education or with low levels of education; wage labor increases with education.

2. Summary of challenges
Well-qualified and productive human capital is one of the most critical factors for a sustainable
economic growth. Evidence shows that investment in developing human capital in Ethiopia would
stabilize economic growth. Hence, prioritizing resources that enhance human capital is a vital
strategy to initiate long-term growth performance. Addressing problems of inadequacy in the
education and training system, resolving the needs of the labor market, producing a well-qualified
labor force, and reducing bottlenecks in accessing information would enhance employability,
promote employment, and create jobs.

1. Years of schooling and quality of learning

Ethiopia’s attempt to unlock human capital depends primarily on bridging the learning gaps to
improve educational attainment. The Human Capital Index (HCI) helps to convey the productivity
level of the workforce based on five indicators. According to this calculation, Ethiopia’s HCI is 38%,
which means that a child born today would only reach 38% of his/her human capital as an adult,
and 62% of the child’s productivity potential within the workforce would be lost.

Two of the five HCI indicators have a direct bearing on the education system: years of schooling
and quality of learning. The quality of learning, in this case, is determined by one’s ability to read
and write (quality basic education) and competency in math, science, and problem-solving skills.
Based on the HCI calculation, a child in Ethiopia, on average, completes 7.8 years of schooling by
age 18; however, due to the poor quality of learning, the child’s educational attainment is equivalent
to only 4.5 years of schooling—or a learning gap of 3.3 years, which factors into the child’s human
capital as lost productivity potential.43

Educational attainment has a direct impact on productivity gains that results in per capita GDP
growth. To this effect, underinvesting in human capital keeps countries like Ethiopia caught in a
vicious cycle between low productivity rates and low economic returns, unable to reduce the
poverty level.

2. Unmet demands of the labor market

Disruptive and innovative strategies outside the boundaries of traditional, formal education is
critical to transforming education. The World Economic Forum highlights that the changing nature
of work increasingly demands core knowledge and skills, resilience, and innovation. Hence,
incorporating innovation (turning new ideas into value or building on earlier versions), social
innovation (driven by purpose to address social needs), entrepreneurship (driver of economic value
creation), and 21st century skills (creativity, citizenship, communication, collaboration, character,

43 The World Bank, 2019

82
and critical thinking) within the education system will bring markets into competitive equilibrium to
meet the 4th industrial revolution demands.

3. Skills gaps

The weak entrepreneurial culture in Ethiopia also put the youth at a disadvantage due to a
pronounced scarcity of opportunities to acquire adequate skills, managerial experience, and
business know-how. Evidence shows that skill development interventions fortified with strong
private sector engagement and impact-led monitoring and evaluation support systems could have
the potential to create a well-functioning jobs ecosystem. Identifying genuine entrepreneurs and
harmonizing enterprises to fluctuating market and production cycles may be achieved by means of
creating strong sectoral organization/association where information is readily exchanged to identify
competitive advantages. Providing sectoral value chain support could help capacitate and
strengthen entrepreneurs. It would help determined enterprises produce desirable products, up-
skill workers to address skill gaps, provide linkages to markets, and innovate.

Therefore, designing programs aimed at equipping the unemployed, underemployed, and self-
employed to meet market demands; implementing volunteerism, internships, externships, and
apprenticeships to strengthen work-based learning; and supporting entrepreneurs in adapting to
ever-changing business conditions would have a direct impact on employment. Furthermore,
enhancing management and leadership competencies, as well as leapfrogging to meet Industry 4.0
competencies, would propel the jobs creation agenda decades forward.

2. Strategies and interventions

Innovative non-formal/informal learning has the highest potential to equip the unemployed, out-
of-school, illiterate, marginally employed (i.e., the self-employed, under-employed, and unpaid-
workers), and SME entrepreneurs acquire the right skills. What Ethiopia has learned from
international evidence is that incentivizing the industry and business sectors to engage and invest
in skills development has shifted outlooks to value and prioritize digital, entrepreneurship and soft
skills, and experiential learning, over traditional content-led knowledge factory. Non-traditional skill
competencies in communication, ability to handle conflicts, intercultural competency;
understanding value chains; customer orientation, interdisciplinary teamwork, to name a few, are
desirable for employment and creating jobs. Additionally, skill competencies in adaptability to new
situations, thinking in systems, handling complexity, analytical thinking, creativity, forward-thinking,
and thinking in scenarios have flooded course selections and requirements for middle to high skill
workers and entrepreneurs.
Hence, breaking down the silo mentality and practices of public and private stakeholders and
building networks to collaboratively drive skills development through the identification of skill gaps;
definition of qualification requirements and provision of on-the-job training hold the promise to
train a competent workforce that can contribute to the social and economic development.

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Strategy 1: Improving the work-readiness of the labor force
Insufficient years of schooling and low-quality learning translates into relatively low skill base and
slow labor productivity. Foundational skills are a critical source of workers’ productivity level and
employability appeal. Much effort has been made to improve the relevance of training system, yet
much needs to be done to ensure that the basic skills meet the needs of the labor market.

The following interventions focus on substantial improvement across four transversal skills: Literacy,
language, soft skills and ICT. These skills are needed on any skill levels.

 Intervention 1.1: Provide employability skills training within and out of the education
system
 Intervention 1.2: Provide basic literacy numeracy, reading, and digital and financial literacy
skills as building blocks for performing more complex skills - Numeracy & Reading Literacy;
Digital & Financial Literacy); life (soft) skills, including basic work-language skills to enable the
labor force to be employable and market ready.
 Intervention 1.3: Provide basic technological enablement for low-skilled workers to
transform their skill development efforts
 Intervention 1.4: Establish a center of excellence to ensure continuous supply of quality
trainers/teachers/facilitators to deliver short term courses
 Intervention 1.5: Develop a trainer/assessor portal (as part of the National Job Portal), as a
repository and registration database for all certified and interested trainers/assessors

Strategy 2: Encouraging an entrepreneurial mindset

A primary objective should be to build a labor force with an entrepreneurial mindset, by introducing
level-appropriate entrepreneurship courses in both secondary and post-secondary education as
follows:
 Intervention 2.1: Provide entrepreneurship training within the education system starting
from secondary school through university
 Intervention 2.2: Establish entrepreneurship guidance services within career development
centers and youth centers for all secondary schools, universities, and TVETS
(formal/nonformal/informal) to function in a more competitive, complex, and continuously
changing work environment
 Intervention 2.3: Implement flexible skilling (re-skilling and up-skilling) scheme to equip
potential and early-stage entrepreneurs with adequate managerial skills, and business know-
how
 Intervention 2.4: Develop an entrepreneur-friendly ecosystem, including by fostering social
entrepreneurship in and out of schools

Strategy 3: Ensuring proficiency in 21st-century skill sets to meet the needs of the global labor
market
The future of work in Ethiopia requires proficiency in 21 st Century skills to function in a more
competitive, complicate and continuously changing work environment. The interventions respond
to the rising demand for these skills to global trends, which will increase labor productivity across

84
sub-sectors and accelerate economic transformation. “Guidance centers” in secondary, TVET and
Higher Education provide greater visibility of the labor market trends and general information to
improve employability.

 Intervention 3.1: Support 21st-century digital and STEM skill programs in and out of school
 Intervention 3.2: Prepare a global labor force by providing opportunities to learn and master
common global languages. Special training programs would be developed for training of
trainers meant for overseas employment, including language training in collaboration with the
concerned country.
 Intervention 3.3: Build 4IR44 talent as a critical factor to meet the changing environment of
work due to technological advancements. Anticipating future skills needs as building block for
strong skills training strategy by utilizing LMIS, and data from employment services, and tracer
studies (etc.).

Strategy 4: Reducing the skills mismatch between the labor market demand and supply
This strategy aims to achieve market-led education and training initiatives to support a demand-led
approach by elevating the voice of the private sector as leading agent of skills development.

Sector Skill Committees/Councils in other countries

Following examples from China, Singapore, India, South Africa and Botswana, Ethiopia could partner with
major employers to provide market-relevant skills as well as utilize sector skills councils (SSCs) to build
symbiotic relationships between the public and private sectors. SSCs are public-private partnerships that
are popular in developing and developed countries for their ability to ensure the that the training and
certification processes meet the industry’s and sector’s needs.

India uses 37 SSCs for developing occupational standards and qualification frameworks that describe the
required skills and necessary training for various sectorial jobs. The model is based on a public private
partnership

Botswana is using sectoral committees as an effective sector-specific professional organization to tailor

curricula to the needs of the labor market. In Singapore, the Industry Skills Councils develop sector-based
strategic plans reflecting sector needs to inform training institutions.

Likewise, South Africa established 23 sector skills councils to develop strong skills plans and promote
apprenticeships across industries—an important step toward establishing relevant, demand-driven skill
training programs and therefore bridging the gap between the supply and the demand side in the labor
market.

In China, TVET institutions engage closely with the private sector to develop market-relevant skills training
programs. To achieve this, TVET institutions recruit part-time private sector practitioners to teach
industry-specific know-how and allow TVET teachers to spend months on the industry sites working so
that they can help identify skills gaps.

Source: XX
44
4th Industrial Revolution

85
 Intervention 4.1: Establish Sector Skills Committees (SSCs) in each sector to ensure that skill
development efforts align with industry needs. Establishing SSCs will promote active
participation and support of the private sector to develop, implement and continuously
improve the quality of apprenticeship, internship and externship programs and to encourage
business to define and validate training programs.
 Intervention 4.2: Develop mandatory universal internships and apprenticeship for
university students
 Intervention 4.3: Revamp youth centers to serve as industry/business linkages for youth ages
15 – 29, enhance performance, update traditional skills, create or add value to industry inputs,
and become clearinghouses where young entrepreneurs can learn about access to finance,
access to markets, and access to services.
 Intervention 4.4: Reform career development centers at all universities and TVETs to serve
as one-stop “career success centers” through employment promotion activities such as
mentorship, coaching, internships, apprenticeships, volunteerism, and externships to build
business/industry linkages.
Reforming current career development centers at all universities and TVET institutions to
serve as a one stop shop “career success centers” can facilitate the school-to-work transition
through employment promotion activities such as mentorship, coaching, internships,
apprenticeships, and volunteerism. The career centers can help strengthen capacity of
internship apprenticeships, and volunteerism programs by expediting communication
between hosting institutions, interns and program managers. This includes initiating
internship guidelines for internee and intern supervisor that engages interns before and
during the internship for feedback, following up with challenges and supporting interns and
the supervisor to make internship a success. Fostering alumni networks will further open
space to learn about job opportunities and build mentorship and coaching relationships.
These centers can also provide access to information through the Labor Market Information
System (LMIS) for greater visibility on labor market trends, enable students to make the best
decision for their careers, and link students to employment services. However, qualified
professional career counselors who can apply a holistic approach to job, career, and
entrepreneurial advice, organize semi-annual job fairs, as well as, provide support in CV
writing, interview skills, and work ethic must take full responsibility.

 Intervention 4.5: Recognize prior learning—map the existing skills in the informal sector to
certify existing skills and integrate informal skills into the formal skilling landscape
 Intervention 4.6: Develop tracer studies in higher education institutions: TVET and Higher
Education institutions do not adequately track their graduates as a result management and
resource allocation decisions are rarely based on graduates learning or employment
outcomes. Therefore, all universities and TVET institutions should participate in disaggregating
graduates by specialization, employment status, job satisfaction and behavioral aspects
related to the world of work that is linked to LMIS. Strategic partnership, clear accountability
and extensive use of data can improve employment and career services.

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  Intervention 4.7: Promote and support the private sector’s active participation in the
development, definition, and validation of training programs
 Intervention 4.8: Conduct strong labor market intelligence research through the labor
market observatory (cf. intervention in labor market intermediation)

Strategy 5: Cultivating positive behaviors and attitudes toward work

The lack of guidance on what constitutes good work habits and attitudes, such as turning up on
time, meeting deadlines, using every assignment as a learning opportunity, and being proactive to
take ownership of ones professional growth. However, current insufficient private sector
engagement poses for job-seekers to gain industry know-how that is reflected in employer
dissatisfaction with graduates.
 Intervention 5.1: Promote the value of work within the education system
 Intervention 5.2: Cultivate a continuous learning mindset to encourage professionalism
through mentorship, coaching, on-the-job training, and social behavior change campaigns
 Intervention 5.3: Promote active participation and support of the private sector through CSR
partnerships and active advocacy campaigns to promote talent and the value of work

Flagship project: Large scale market-oriented up-skilling/work-readiness programme

TBC

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 D. Building effective labor market institutions
1. Context and challenges
Weak labor market intermediation in Ethiopia leads to a crippling information asymmetry in the
labor market. Jobseekers take a fragmented approach to their searches, relying mainly on personal
connections, public employment services, or private sector linkages (Figure 49). Access to
information about jobs and vacancies is limited and costly; an estimated 73% of the unemployed
lack information about both vacancies and government services that can provide information.

Figure 49: Pathways for job-search

Almost a third of jobseekers rely on their social network and personal connections to find a job.
Seeking assistance from friends and family is the most common way that people in rural areas search
for a job (29% of females and 25% of males have used this method in the last three months in
searching for work), and the second most common in urban areas (28% of females and 22% of males
respectively). Reliance on personal connections, including both friends and family and wider
connections through social media, is an important mechanism. Social networks provide jobseekers
with connections and emotional support as they explore suitable roles, but also provide
recommendations and word-of-mouth referrals to employers and private agencies.

Public central job boards are one of the main channels jobseekers use, especially in the urban
areas; however, accessing these boards is typically costly. Central job boards are physical job
boards set up at specific points in cities and urban areas. In Addis Ababa, they are located in the city
center. These boards are the main channel for jobseekers searching for work—32% of CSA
respondents (roughly 184,000 individuals) used them in 2013. However, the cost of transport to
these job boards is a barrier. According to a World Bank study, Fifty percent of unemployed Addis
Ababa youth stated that the cost of transport was a major constraint in searching for a job, and 84%
of the same population indicated that the cost of transport was at least one of the constraints in
their job search. On average, respondents took about two trips per week to the job boards, at a cost

88
equivalent to almost 25% of their monthly expenditure. In addition to the cost of traveling to the
job boards, jobseekers must also travel to apply for positions.45

Public employment services are a weak point in the labor market. They comprise central job boards
and public employment service offices (PESOs), which provide information about available jobs and
job matching services. However, these services are rarely provided to jobseekers.

The absence of strong labor market institutions and reliance on social networks hinders social and
labor mobility and can lead to a misallocation of labor. The absence of access to information about
the labor market and reliance on central job boards can lead to a limitation of labor mobility as
jobseekers will be geographically constrained in the job search. Reliance on social networks prevents
social mobility as people’s social circles are likely to be limited to those with similar socioeconomic
backgrounds, making it difficult for those low-skilled peers and family members to find higher-
quality employment through this channel.

Public employment services

Public employment services (PESs) generally provide job matching, career counseling, skills
training, and data collection services; however, in Ethiopia they operate without a clear policy
framework and lack effective priorities and organization. PESOs are administered by the Federal
Ministry and Regional Bureaus of Labor and Social Affairs (BoLSAs). Other public bodies providing
employment services include the Micro and Small Enterprises Development Agency (MSEDA) and
youth and sports bureaus / offices. There are 674 public matching centers across Ethiopia, with
approximately 1.5 million jobseekers registered. Despite this noteworthy scale, employment service
provision is poorly executed due to inferior labor market information (LMI) collection and
integration, weak linkages with the private sector, unskilled staff following unsystematic and narrow
procedures, inconsistence service offerings and staffing levels, and a general lack of institutional
capacity. Overlapping mandates and roles among different institutions in government—including
MoLSA, FSSMIPA, and other entities—further undermine the effectiveness of PESOs.

Public employment services in Ethiopia are relatively weak. They comprise ‘central job boards’ and
‘public employment service offices’ (PESOs) which are meant to provide information about available
jobs, job matching, career counselling, skills training and data collection services. Central job boards
are simply, as the name suggests, physical job boards set up at specific points in cities. In Addis
Ababa they are located near the city Centre. Central job boards are an extremely valuable source of
information, and are widely used by urban youth – although, the need to travel to the City Centre
to actually see the job board remains a major constraint on unemployed youths’ job hunts. PESOs
are, however poorly implemented (Yiwak 2018):
a) Job matching and placement: PESO’s conduct door to door registrations, job seeker and
vacancy registration remains manual (and often goes un-updated). PESOs also do not
register enough vacancies (they are not closely linked to employers)

45
World Bank, (2015) “Why so Idle?”

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 b) Career counseling services: Career guidance services have a narrow scope and are
implemented in an unsystematic way, and not all PESOs provide this service. Further, staff
providing counselling often lack the requisite skills to support job seekers, resulting in low
quality guidance
c) Skills training: Agencies do not maintain proper listing of training providers so as to refer job
seekers to take skills training, and there is no job seeker profiling that would help to identify
gaps in jobseeker skillsets, or to suggest training that could increase employability.
d) Collection of data and labour market information: As already noted in this paper, data on job
placement and data is not centrally collated, and tracer studies, etc., have not been
conducted to evaluate the successes of the training being provided. Often the same
applicant is double-counted by the government for the purposes of different databases.

Also, there are overlapping institutions providing similar services – for instance, although public
employment services are administered by MOLSA, a parallel set of institutions are administered by
the Urban Job Creation and Food Security Agency, as well as by the Federal Small and Medium
Manufacturing Industry Promotion Authority.
For example, in terms of skills training and vocational training: (a) skills training is provided in
centres by the Federal Small and Medium Manufacturing Industry Promotion Authority (b) on-the-
job training is provided by specific industries – notably hospitality (larger hotels), healthcare and
most importantly by the garments sector, (c) some skills training is provided by the Urban Job
Creation and Food Security Agency and the Rural Job Creation Directorate (Ministry of Agriculture)
and some awareness creation activities are undertaken by the Ministry of Women, Youth and
Children.
Job matching and placement is a challenge due to the uncoordinated registration of jobseekers at
public employment agencies. Door to door registrations are conducted twice a year; Bureaus of
labor and social affairs wait for jobseekers to register at offices. Jobseeker and job vacancy
registration is largely conducted manually, and information is not updated consistently or in a timely
manner. As a consequence, PESOs struggle to register enough vacancies for jobseekers.

Career guidance services available through PESOs are narrow in scope and unsystematic in their
implementation. Staff that provide counseling often lack the requisite skills to support jobseekers,
resulting in low quality guidance—which, in any case, is not available at all centers. Agencies also do
not maintain accurate and updated listings of training providers to enable referrals for skills training.
Agencies do not conduct jobseeker profiling to help to identify gaps in skillsets, nor do they suggest
training that could increase employability.

PESOs collect and manage labor market information (LMI) in an unsystematic and un-integrated
way—often the same applicant is double-counted by the government for the purposes of
different databases. Few of the LMI producers use ICT systems to store, manage, and analyze their
data—relying instead on physical records. Agencies do not track actual job placement, so tracer

90
studies or other evaluations have not been conducted to determine the effectiveness of the training
provided or the agency’s track record in job matching.

Public employment services provide placement free of any service charge to both employers and
jobseekers but staffing levels and the quality and range of services significantly vary. Seventy-
percent of PESOs are located in Addis Ababa, Dire Dawa, and Oromia, while Somali, Harari, and
Gambella have only one PESO each. In 2015, there were more than double the number of jobseekers
than there were vacancies available at PESOs.

PESOs have weak linkages with the private sector, which limits their capacity to provide job
placement. Employers do not consistently register vacancies with PESOs; when they do, they often
provide incomplete information. Registered vacancies include seasonal work and spikes in demand
for labor as when a large, public-financed infrastructure project begins.

PESOs suffer from the lack of a clear mandate and policy framework, a lack of priorities, and poor
service organization. In the absence of an overall framework for employment services provision the
system will remain fragmented. MSEDAs and PESOs have overlapping mandates, which leads to
double counting and inflation in job registration data. Job creation through labor and social affairs
offices is often seen as secondary. The functions of local PESOs are not clearly defined at a local
level.

PESOs also lack institutional capacity and tools to effectively provide employment services. In
some regions, public employment service units do not have a presence at the lowest administrative
levels (sub-city, woreda, or kebele), leaving many jobseekers without access to these services. PESOs
are understaffed with inexperienced people who lack the necessary skills and motivation, and who
do not have the right tools to carry out their duties. For example, job search assistance and career
counseling is barely provided at PES centers due to lack of capacity.

PESOs lack consistent, systematized, and automated processes for efficient registrations and
placements. Many jobseekers are unaware of services that PESOs can provide and therefore do not
benefit from them. Employers are not incentivized to register vacancies, and PESOs lack the
institutionalized systems and procedures to establish communication channels with potential
employers who would then provide regular notifications of job openings. Moreover, PESOs use
minimal ICT to support the provision of employment services. Materials and services are for the
most part not digitized, preventing PESOs from taking advantage of a number of useful tools in PES
provision.

Private employment agencies

A private employment agency (PEA) is any private person or organization, independent of
government, that matches offers of and applications for local and international employment
without being a party to the employment contract or receiving payment from the workers.

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Private employment agencies have seen much greater success in placing jobseekers than have
PESOs. Public sector services vs private sector services vacancy registration). In a 2011 survey run
by ILO, 37% of service recipients reported receiving workers through PEAs. The legal framework is
biased towards overseas recruitment, and there is a void with regard to local intermediation by
private employment agencies. Private sector employment agencies are generally considered to be
more effective in creating placements, with higher skilled and more motivated staff who are
incentivised to place workers than in the public sector

However, vulnerable workers are a target for exploitative agencies that continue to operate in
the absence of law enforcement and monitoring from the Ministry of Labor and Social Affairs
(MoLSA). MoLSA oversees licensing of PEAs that deploy workers abroad, while regional BoLSAs and
local government branches license agencies that provide domestic employment services. The
government mandate includes approving employment contracts to ensure that they incorporate
basic conditions of work. However, once private agency licenses are issued, little to no monitoring
is undertaken to ensure that private service providers are operating in accordance with labor laws.
Poor and vulnerable workers, including women, children, and those with lower levels of education
are most at risk of exploitation. Most people registered at PEAs as potential migrants are women,
and 54% of those trafficked are aged 19-25.

Poor legal frameworks and limited enforcement of penalties have sustained exploitative private
employment agencies that traffic in domestic workers. The legal framework of PEAs is biased
toward overseas recruitment, and there is a void with regard to local intermediation by private
employment agencies. This has enabled the growth of profit-driven exploitative service providers.
The nature of exploitative employment includes long working hours with little to no compensation
for overtime work, employment without contractual agreements, and a lack of protection from
hazards and damages.

Other private sector linkages

Other private sector platforms also support job matching through print, radio, television, and
social media channels. Traditional print advertisements are available in magazines and
newspapers—both public and private companies post job opportunities in newspapers and
encourage readers to apply for roles. However, newspaper and magazine distribution is limited to
major city hubs like Addis Ababa, and circulation is typically low. One of the country’s major papers,
Ethiopian Reporter, has an estimated maximum circulation of 10,000. Print readership has declined
in the last couple of decades due to restrictions on the press, high purchase price, and increasing
use of other forms of media. Estimates suggest that daily readership is as low as 1% of the
population.

Companies can also advertise on radio, which has a greater reach, especially in rural areas. Other
media include television and, increasingly, social media. However, just 10% of urban men 7% of
urban women use social media, and just 2% of rural men—although, interestingly, the figure rises
to 8% for rural women.

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Other private sector platforms—including recruitment firms, online job platforms, and career
centers—largely focus on highly skilled workers. Firms directly recruit both skilled and unskilled
workers in person and through websites that accept application submissions. Employers also recruit
skilled workers at university career fairs and other events. Direct applications are not common—
just 4% of urban jobseekers and 2% of rural jobseekers use this channel. Word of mouth referrals
and in-person requests at job sites are more informal and are thus more applicable for unskilled
workers. This is a common channel for casual laborers, particularly in the construction industry, and
is more common in rural than in urban areas (in 2013, 28% versus 21%, respectively, use this
channel) and for men than for women (27% and 18%, respectively).46

Labor market information

Current labor market information are fragmented and inefficient, hindering instead of facilitating
job linkages and job creation. An effective labor market information flow helps in improving the
functioning of the labor market and inform and guide different actors to optimize their choices.
However, in Ethiopia, labor market information is fragmented and not integrated in a
comprehensive LMI data base. This is mainly due to poor data collection, done manually, a lack of
standardized methods of registering jobseekers, and no computerized systems which make it easy
to integrate and store data.

An effective Labor Market Information System is typically composed of surveys and

administrative data. Most LMI flows in Ethiopia are driven by mandatory reporting with limited
insights and services produced from the data. Most of administrative data is unexploited and would
require re-adjustments to provide valuable information about the labor market and job creation.

An effective and well-integrated labor market information system can have positive impacts on
the labor market and on job creation. Access to labor market information improves the information
flow, reduces the asymmetry of information between demand and supply in the labor market,
reduces the costs of job searches, and informs the development and implementation of better
policies for employment and job creation.

Labor market information and analysis are often (understandably) equated with the availability
of labor statistics; however, these systems go beyond statistics, important as they are. LMIS can
actually be understood as networks of institutions (and persons) with agreed-upon roles to produce
and disseminate labor market information and analysis (see Sparreboom 2013, p. 255).

In GTP-II, the Ethiopian government expressed its commitment to improve LMIS. The objective set
for the social sub-sector in the GTP II is to ensure industrial security by creating safe working
conditions and to balance demand and supply of the labor force through expanding employment
and job market information services. To achieve the sector’s development plan objectives, the

46
CSA National Labor Force Survey 2013

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government intended to establish labor affairs administrative information system at federal,
regional, and city administration levels (see Yiwak 2018). These plans have not quite been
implemented as originally planned, and the collection of labor market data and the roles of different
actors in collecting, analyzing, and using that data remain quite poorly understood.

The data currently collected on the labor market are irregular, incomplete, and require further
quality enhancement. The last labor force survey was conducted in 2013, and prior to that, in 2005
and 1999. The CSA also collects employment and unemployment data in urban areas, and this forms
the basis of the Urban Employment Unemployment Survey (annual survey available from 2003 until
2018, except for 2017). Data collected through the Census (last conducted in 2007) is an important
source of information, as is the household income, consumption, and expenditure survey (HICES,
last conducted in 2015/16), which provides information on household demographics, income,
consumption, employment, unemployment, education, health, household assets, access to
infrastructure, self-reported welfare indicators, and coping mechanisms. Multilateral organizations,
especially the World Bank, also collect data that can be useful for studying specific groups and
regions—for instance, on livelihoods for refugees and “host” communities in specific region.
None of these datasets, however compares to the level of detail that can be obtained from a Labor
Force Survey, which is why it is imperative that a new LFS be conducted. While some information
can be gleaned from the urban employment unemployment surveys, this is clearly not sufficient,
given that the majority of the population lives and works in rural areas. In other words, conducting
a new LFS is essential to obtaining a true picture of the labor market—without it, we fall into the
trap of considering employment in rural areas as being static, which is clearly not the case.
There are no enabling mechanisms to operationalize the objectives of government policy. Data
collection is not standardized across labor market information (LMI) producers. Lack of standardized
data collection practices (registration data collection) leads to overlap in registered jobseekers. PES
units do not have presence at the lowest administrative levels, so data collection is not
comprehensive. Jobseeker registration at public employment service offices is largely managed
manually and information is not updated regularly. Thus, data quality is a challenge for processing,
analyzing, and disseminating LMI.
LMI is managed in a fragmented manner—there is no integrated LMIS or database. There is no
linkage among various LMI providers and labor and social affairs offices and no institutional
framework ensures an exchange of data among the stakeholders. Few LMI producers use
computerized systems to store, manage, and analyze data. PES centers are short-staffed and lack
resources to collect, analyze, and manage data from a range of stakeholders.
LMI producers often produce simple statistical reports focusing on presentation of facts and
figures, leaving the analysis and interpretation to users. The LMIS system is only as good as the
data inputs—PESs need to focus on efficient systems and effective services in order to have a useful
LMIS. MoLSA and BoLSAs combine the data they collect from PESOs with information from other
institutions and provide a regional or national report about the functioning of some regional

94
variations. However, it is difficult to obtain information as LMI producers including MoLSA
disseminate their LMI products to users in hard copy, usually upon request.

Regional BoLSAs have indicated that their annual performance report has never been completed
at the required quality level due to data challenges. LMI producers also lack adequate knowledge
about users of their LMI, and therefore often produce their information using a standardized format.

Labor law
The labor law in Ethiopia is frequently stated as a constraint to wage-employment, and the recent
amendment is an encouraging advancement, but further adjustments remain necessary. The new
labor law adopted in 2019 contains better dispositions to improve work culture and work conditions.
However, the law does not provide specific dispositions to different sectors, which can constraint
job creation, as sectors have different needs and patterns in terms of employment.

Good practices in Ethiopia – ILO - YES Center in Amhara region

International Labor Organization (ILO) is implementing the project on “Addressing root causes of migration
in Ethiopia” under the aegis of SINCE (Stemming Irregular Migration in Northern & Central Ethiopia)
program.

The project “Addressing the Root Causes of Migration in Ethiopia” is focused on strengthening the provision
of national employment services with emphasis on youth employment to reduce irregular migration. The
target beneficiaries of the project include unemployed youth, university and technical & vocational
education & training (TVET) graduates and potential migrants particularly from Addis Ababa city
administration, Amhara, Tigray, Oromia and SNNP regions. The project has launched a pilot youth
employability services (YES) center in Bahir Dar, Amhara Regional State to offer an efficient and cost-
effective labor exchange system that connects unemployed youth to the job market.

The YES Center facilitates the placement of youth in decent jobs, trainings and apprenticeships. It also
provides counselling and career guidance for the unemployed youth on a regular on-going basis. It is a source
of information on employment opportunities and labor market demands at the regional and federal levels.
The YES Center aims to create a network amongst the private sector, NGOs, colleges and Universities for
generating job exchange and also developing a repository of employment opportunities.

The YES Center provides free job registration services, free career guidance and conselling services,
participation to participate in job fairs, referral services for internship and placements, opportunity to meet
potential employers, access to livelihood and self-employment programs, offered by both government and
non-governmental organizations, and information on employment opportunities and labor market demands
at the regional and federal level.

Source: ILO Ethiopia

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 Good practices – LMIS – Labor Market Observatory (LMOs)

Labor Market Observatories (LMOs) are institutions that help guide job seekers and students,
intermediaries, policymakers, training institutions, as well as investors and employers with labor market
trends and guidance to build better careers. LMOs provide relevant and timely information on labor
market trends to allow end users to make informed decisions on skills acquisition and occupations —
many times they produce widely disseminated outputs highlighting “the top–10 most in-demand skills”
or “20–fastest growing occupations.”

Each LMO is owned by or reports to a Ministry of Labor, Ministry of Education, or Public Employment
Service (PES). To be adequately staffed, a team research staff (typically labor economists) can be hired
to produce the core analysis in-house, including labor market projections to inform skills planning.

Well-functioning LMOs have access to data on labor markets, collaborate with other relevant agencies,
and have a sound statistical infrastructure in place. Successful LMOs are responsive to demands of their
clients and provide information custom-tailored to their needs; they carry out analysis and monitoring of
trends in labor supply and demand to identify mismatches.

Source: World Bank “Labor market observatories – Critical success factors”

Good practices – Employment fund Nepal

In Nepal, it is estimated that around 450,000 youth enter the labor market every year, out of which 90%
are unskilled. In order to improve the skills levels and reduce skills mismatch, the Employment Fund was
established in 2007 by the Government of Nepal, in collaboration with the Swiss Agency for Development
and Cooperation (SDC) and HELVETAS Swiss Inter-cooperation, funded by SDC, UKAID and World Bank.

It focuses on providing short-term training to poor and discriminated young people, most of them un- or
underemployed, in technical, business and life skills in to order to enhance their employability in self- or
wage-employment. The skills trainings are short-term and consist of 1-3 months practical instruction,
which includes on-the-job training. Training providers (public and private) submit proposals that includes
an assessment of market assessment of jobs potential of the proposed training.

The Employment Fund includes outcome-based payments: service providers are paid more if trainees
find jobs, which provides incentives for designing demand-driven training and providing effective
employment placement services.
The results are relatively positive as individuals selected for EF training programs experience an increase
in non-farm employment of 15 to 16 percentage points, and monthly earnings increase by 72 percent.

Source: S4YE “A Stocktake of Evidence on what works in Youth Employment programs evidence on youth employment programs”

96
 Skills development in India

To boost skill development in the textiles industry, Ethiopia can look to the National Skill Development
Corporation (NSDC), a public-private partnership that funds effective private sector skills training initiatives
in India. The NSDC was established in October 2008 as a response to the projected skill needs in India and
included the private sector in the process of qualification development. The NSDC is 51 percent equity held by
private sector and the remaining 49 percent by the Government of India. National Skill Development Agency
(NSDA) was also established to enhance the coordination and synergy of the skills development endeavors of
the public and private actors. NSDC's primary goal is to train 150 million people by providing catalytic funding
and support for private sector initiatives.

The NSDC is funded by the National Skill Development Fund with contribution from the government and the
private sector. The government and private sector organizations contributed the start-up capital for NSDC.
After this initial contribution, the private sector has contributed additional funding to NSDC only through
incentivized donations. The government has been the main contribution via budgetary allocations channeled
through the NSDF. From its creation in 2008 to January 2018, the NSDF has released over 822 million USD to
the NSDC towards skill development programs. Companies are encouraged through tax incentives to spend at
least 25% of their Corporate Social Responsibility (CSR) funds on skill development initiatives directly or through
NSDF. Also, 10% of the budget of all government financed programs are encouraged to invest towards skilling
of human resources in local regions in the required sector.

The NSDC’s activities were developed to enable the ecosystem, support training programs, coordinate and
engage stakeholders. The NSDC is operating the National Skill Certification and Monetary Reward Scheme
(STAR), one of the world’s largest skills incentive program. The program encourages youth to enroll in and
complete programs run by training providers approved by the SSCs, with average rewards of $161. Also, the
NSDC offers soft loans, which cover up to 75% of the total project costs. NSDC seeks to fund NGOs, businesses,
social entrepreneurs, and skill development organizations that are sustainable, large-scale, and partnership-
based that will become self- sustainable within 3 - 5 years. The NSDC also conduct labor market research to
understand the skills gap facing the country is essential to developing adequate skills development programs.
Skills gaps maps were complete across Indian states and high growth sectors. The NSDC has also being invested
in establishing and funding Sector Skills Councils, industry and employer-led organizations that are responsible
for sector-specific activities such developing occupational standards and curriculum for training etc. These are
funded through a grant-based seed funding (startup costs) to strengthen the labor market in high growth
industries. Finally, the NSDC works different private sector partners, ministries and state governments involved
with skills development to foster greater local and sector-specific initiatives and research.

The results of the National Skill Development Corporation include over 5.2 million students trained over the
past ten years, and the creation of 38 Sector Skill Councils in services, manufacturing and agriculture. 1386
Qualification Packs with 6,744 unique National Occupational Standards (NOS) were created and validated by
over 1,000 companies. The NSDC is working with 21 universities, Community Colleges for alignment of
education and training to National Skills Qualifications Framework. The results also include the creation of a
Skill Development Management System (SDMS) with 1400 training partners, 28179 training centres, 16479
trainers, 20 Job portals and 77 assessment agencies.

The NSDC’s capacity to lead and finance mass and cost-efficient delivery of demand driven skills training by
the private sector was key to its success. In addition to a sustainable financing model, and strong collaboration
between the private and the public sector, the business model used by NSDC enhanced the skills business
ecosystem in cooperation with government authorities through several actions.
Source: Ministry of Skill Development and Entrepreneurship, National Skill Development Corporation, 2019; National Skill Development Corporation: Creating Vocational Skills
through Public-Private Partnership

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 2. Strategies and interventions

Strategy 1: Building effective employment services and labor intermediation for job-seekers and
entrepreneurs
 Intervention 1.1: Establish an employment agency, with service delivery through the
creation of Job Centers, that function as a single window for all jobseekers and potential
entrepreneurs. These centers will merge existing OSSCs and PESOs to deliver Active Labor
Market Programs (ALMPs), provide public employment services (including international
placement), and supervise private employment agencies.

 Intervention 1.2: Create a Jobs Creation fund, to promote employment and skill
development, with the possible participation of the private sector and donors. The fund will
have specific objectives for (i) supporting MSMEs, (ii) delivering ALMPs, (iii) funding skill
training programs, and (iv) providing employment services.

 Intervention 1.3: Deliver active labor market programs in collaboration between public
employment services and private providers, with compensation based on performance

 Intervention 1.4: Adopt a comprehensive public employment services policy and implement
institutional reform, with the aims of clarifying the mandates of different entities currently
providing employment services (BoLSA, PESOs, OSSCs) and articulating a clear mandate for
the effective delivery of public employment services

Strategy 2: Promoting digital solutions and the use of technology

 Intervention 2.1: Facilitate the use of technology tools and platforms to deliver employment
services and ALMPs, including building the technology infrastructure at Employment Centers

 Intervention 2.2: Establish a national job portal on which public and private sector actors are
incentivized to post their vacancies; create a conducive environment for private service
providers

Strategy 3: Building a data-rich environment for employment policies

 Intervention 3.1: Improve the frequency, regularity, and quality of labor market surveys.
This includes an improved labor force survey to produce regular (every two years) data on key
Labor Market Information, skills availability and mismatch, job quality and precariousness,
informality, and labor standards; a poverty index; and proxy indicators for regular and
irregular migration.

 Intervention 3.2: Develop an annual and extensive (including all sectors) establishment
survey to produce data on productivity, job creation trends, wages, and skill needs

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  Intervention 3.3: Build the capacity of institutional data producers and increase
collaboration with international data producers to produce employment projections of key
labor market indicators, including job creation and skill needs in key sectors

 Intervention 3.4: Build an LMIS that integrates all existing and new statistics, administrative
data, and other information on the supply and demand side of the labor market

 Intervention 3.5: Develop the structure, systems, and skills for a national labor market
observatory. The objective of such an observatory will be to produce analyses of labor market
trends drawing from different statistical and informational sources, link labor data with other
social and economic data, and evaluate public employment and labor services, including
Active Labor Market Programs

Strategy 4: Improving labor legislation for a more conducive labor market

 Intervention 4.1: Reform the labor law to consider the different labor dynamics within
sectors while protecting workers’ rights.

Flagship project: A Job center in every city

E.
TBC

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 Ensuring the inclusiveness of the labor market
1. Context and challenges
Labor market outcomes in Ethiopia have improved marginally in previous years, but not to the
same degree for all population groups. Several population groups are face structural challenges to
entering the labor market and fully developing their economic potential. Women and youth, in
particular, face structural challenges when entering the workforce and tend to have more issues in
accessing inputs and finance.

A huge proportion of the employed are working as self-employed, which tends to be correlated
with low levels of skills, and lack of formal job opportunities. 40% of the employed are working as
self-employed, mainly in Agriculture (~75%), followed by Services (~16%). Even if for some workers,
self-employment is an expression of an entrepreneurial mindset, evidence suggests that self-
employment in Ethiopia tend to be a last resort rather than a choice. As displayed by Figure 50, self-
employed are over-represented in medium to low skilled occupations. Moreover, a study by the
World Bank47 shows a clear correlation between low levels of education and wages, and self-
employment. The same study from the World Bank indicates also that youth use self-employment
as a stopgap until they are able to gain wage-employment, especially in the public sector.

Figure 50: Structure of occupations per status of employment - 2013

Managers
Professionals
Technicians and associate professionals
Clerical support workers
Service and sales workers
Skilled agricultural workers
Craft and related trade workers
Plant and machine operators and assembles
Elementary occupations
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Wage-employment Self-employment Un-paid employment Others

Source: CSA survey 2013

Figure 51: Correlation between level of education, wages in self-employment - 2014

80 20
wage (2003
Real hourly
employment

60 15
birr)
Self

(%)

40 10
20 5
0 0
No education Primary Secondary Post-secondary
Source: World Bank (2015) “Why so Idle?”

Self-employment tends to be correlated with informality and low-productivity in developing

countries, including in Ethiopia. Measuring the size of the informal economy is challenging in

47
World Bank (2015) “Why so Idle?”

100
Ethiopia as elsewhere, although an informal sector survey offered a tentative measurement in
2003.48 However, studies show that informality tends to be concentrated in farming and in self-
employment in urban areas, as most self-employed workers tend to be street-vendors living at near-
subsistence levels (Banerjee and Duflo 2011).

Getting better education does not necessarily correlate with better economic outcomes, including
in urban areas. Specifically, urban labor markets suffer from a high level of unemployment among
the educated. Ethiopians with secondary education are more likely to be unemployed than those
with less and more education and constitute 36% of all urban unemployed. Unemployment in urban
areas has been rapidly increasing for those who have attended or graduated from tertiary education
(Figure 52). In parallel, the number of university graduates has increased in recent years, from
85,000 in 2013 to 160,000 in 2017.

Figure 52: Evolution of unemployment in urban areas by level of education

36%
34%
32%

20%
17%
13%
16%
14%
11%

Unemployed graduates Unemployed with higher education Unemployed - secondary education

2013 2015 2018

Source: Urban employment and unemployment Survey 2013, 2015, 2018

Graduate unemployment is an economic and human capital loss. It means that investment in
training graduates does not yield a proportional return and may create potential ground for social
and political unrest. Three main causes are at the root of the trend of increasing graduate
unemployment: (i) an oversupply of educated labor force, (ii) unrealistically high expectations of the
job market on the part of graduates, and (iii) labor market frictions, including high costs of job
searching.

48 The CSA has done one informal sector survey in 2003

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 i. Focus on Youth49

Youth systematically face higher barriers to entering the labor market than their adult peers and
are more likely to hold low-quality jobs, especially in rural areas. As of 2017, it is estimated that
more than 70% of the population was under 29 years old—an increase of 14 percentage points,
compared to 2010.50 Youth are twice as likely to be unemployed (roughly 7% of youth were
unemployed in 2013 at national level, compared to 3.5% of older people) and participate in the
labor force at lower rates than are older Ethiopians.

Figure 53: Labor market participation indicators for youth – 2013 for the national level and 2018 for the urban level

Source: National Labor Force Survey 2013; Urban Employment Unemployment Survey 2018

National youth unemployment decreased slightly from 2005 to 2013, driven by a slight decrease
in female youth unemployment. Still, the youth gender gap in unemployment remains high
nationally: female youth were twice as likely to be unemployed than male youth in 2013. The youth
unemployment rate in rural areas has followed the same recent trends as the national one but is
much lower (Figure 54); reflecting the urban / rural divergence. Urban youth unemployment rate
varies highly among regions, from 33% in Dire Dawa to 13% in Benishangul.

Figure 54: Youth unemployment rate by gender – national level - 2005-2013

Source: National Labor Force Surveys 2005 and 2013

49 Defined as 15-29 years old

50
World Development Indicators

102
Figure 55: Youth unemployment in rural and urban areas by gender – 2013

26.4%
21.6%
16.1%
9.1%
6.8%
4.6% 3.1% 1.9% 4.3%

Total Urban Rural

Total youth Male Female

Source: National Labor Force Survey 2013

Youth unemployment is mainly an urban phenomenon in Ethiopia. In cities and towns, the
unemployment rate is at 25.3% and the employment to population ratio is relatively low, at 47%.
The urban unemployment rate is the highest for the 20-24 age group (30%).

The urban labor market outcomes have generally increased for youth, as urban youth
unemployment rate decreased by about 10 percentage points from 2003 to 2018 (Figure 56).
However, as of 2018, one in four youth in urban areas remains unemployed; for urban female youth,
the unemployment rate is even higher (30.9%). At 47%, the employment-to-population ratio for
urban youth is much lower than their adult-peers.

Figure 56: Evolution of youth unemployment in urban areas

35%
25.3%
23%
17%

2003 2006 2015 2018

Source: Urban employment unemployment surveys 2003-2018

Across all regions, youth suffer from higher levels of under-employment than do adult workers.
54% of employed youth are seeking or available to work additional hours; 19.6% of male youth and
26% of female youth work under the 35 hours threshold and are considered in time-related under-
employment.

Despite a low level of unemployment at the national level, the share of youth NEET is relatively
high in Ethiopia—20% in 2016—indicating a high rate of social exclusion.51 The youth NEET rate is
higher in cities and towns (about 30%) than in rural areas (14%). As of 2013, the youth NEET rate is
much higher than the unemployment rate for youth in rural areas (3%). 29% of rural youth without
any education are NEET, compared to 9% of youth with primary education and 6% of youth with

51 Socio-economic Survey, Ethiopia 2016

103
secondary education or more. The share of youth who are NEET is highest in the states of Afar,
Somali, Benishangul and Gambella; collectively, 37% of youth (mainly young women) in these states
are not employed, in school, or in training.

Youth are over-represented in low-skilled occupations, despite having better education outcomes
than their adult peers. In 2013, 37% of youth were employed in jobs belonging to the lowest skills
category (skill level 1), compared to 21% of older workers (30-64) (Figure 57). About 58% of youth
were employed in jobs that require skill level 2, compared to 74% of adults.
Figure 57: Distribution of employment by skills content52 and age - 2005 and 2013 (%)

15-29 37.2 58.1 2.7 2

2013

30-64 21 74.4 2.4 2.2

15-29 48.9 49.1 1 1

2005

30-64 24.4 73.2 1.8 0.6

Skill level 1 (lowest) Skill level 2 Skill level 3 Skill level 4 (highest)
Source: World Bank (2017) “Jobs and employment in Ethiopia”

Youth in urban areas face a dual employment dynamic: they tend to be more excluded from the
labor market, yet those who are employed tend to have better economic outputs. Youth (15-29)
in urban areas are more likely to be wage-employed (58% of total employed youth) than self-
employed (33%). When compared to the total urban employed population, youth are more
represented in wage-employment (58% vs 52% for total urban population), and less represented in
self-employment (33% vs. 41% for total urban population).

Youth in rural areas are mainly involved in self-employment on the household farm and suffer
from lack of access to inputs. Almost nine in ten youths (89%) in rural areas have never attended
primary school. According to IFPRI53, rural youth are not more engaged in diversified activities, such
as wage labor or non-farm enterprise activities, than the adults. Youth focusing only on own-farm
activities (63%) report working for only 21 weeks per year on average, compared to 46 weeks for

52 Skill levels are defined according to the ISCO skill levels definition:
- Skill Level 1: Occupations at Skill Level 1 typically require the performance of simple and routine physical or manual tasks.
- Skill level 2: Occupations at Skill Level 2 typically involve the performance of tasks such as operating machinery and electronic
equipment; driving vehicles; maintenance and repair of electrical and mechanical equipment; and.1manipulation, ordering and storage
of information.
- Skill level 3: Occupations at Skill Level 3 typically involve the performance of complex technical and practical tasks that require an
extensive body of factual, technical and procedural knowledge in a specialized field.
- Skill level 4: Occupations at Skill Level 4 typically involve the performance of tasks that require complex problem-solving and decision
making based on an extensive body of theoretical and factual knowledge in a specialised field.
53 IFPRI (2016), “Rural youth and employment in Ethiopia”

104
youth with a diversified labor portfolio work. Despite the opportunity that small towns offer for
rural income diversification, around one-third of youth in small towns report working either
exclusively in non-farm activities or in mixed farm and non-farm activities, compared to 58% for
adults. According to IFPRI, youth-headed households have less agricultural land, less access to
services (credit and extension) and are less likely to implement agricultural enhancing technologies
(inorganic fertilizer, improved seeds, row planting, etc.) compared to adult-headed households.

ii. Focus on Women

Women tend to systematically have lower labor market participation ratios than their male peers,
and to be more represented in vulnerable employment. Women represent 50.3% of the working-
age population (10+) and 47% of the labor force. Females have lower labor market participation
ratios than their male peers in both rural and urban areas, indicating that an effort to improve the
labor participation of women is required.

Figure 58: Evolution of the employment-to-population ratio by gender – urban and rural areas – 1999-2005-2013

89.8 86.9
84
82 81.6
65.6 73
57.4 57.7
55.5 74.4 76.3
50.2
48.2 62.1

43.7 46.6
40.5

1999 2005 2013 1999 2005 2013

Total Male Female Total Male Female

Source: National Labor Force Surveys 1999-2005-2013

The unemployment rate among women is higher both at in rural and in urban areas. in urban
areas, women currently suffer from the highest level of unemployment—26.4% vs. 12.2% for urban
men in 2018. The gender gap in urban unemployment exists across all regions, nowhere more
dramatically than in in Somali, where roughly 30% of women are unemployed, compared with 9.9%
of men.

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Figure 59: Unemployment rate by gender and region – 2018

33.5
29.8
28.1
25.5 26.3 26.7 26.1
25.3 24.3
23.1
21.5 20.2 19.7 18.9 18.6
17.6 17.1 18 16.7
11 15
14.1 14.1
11.7 11.3 10.7 10.7
9.9 9.4
7.6 8 7.2
5

Total Male Female

Source: Urban employment unemployment survey 2018

Women are over-represented in vulnerable employment (Figure 60). At a national level, women
are less represented in wage-employment (8% of vs. 12% for men in 2013), and over-represented
in unpaid employment (64.4% vs. 35% for men), representing more than 12 million women in 2013.
In rural areas, women highly contribute to agricultural activities and outputs, however, without
being compensated, as 72% of rural employed women are working as unpaid employees.

Figure 60: distribution of employment status by gender at a national level – 2013

Female 64% 27% 8% 1%

Male 35.3% 51.4% 11.9% 1.4%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Unpaid employment self employment Wage employment Other

Source: National Labor Force Survey 2013

Under-employment is higher among women than men. Twenty-five percent of female adult
workers and 26% of young female workers are under-employed (compared with 19% for men across
both age group. The median number of hours of work per week for female workers was just 26
hours in 2013.

There is an important wage gap in wage employment between women and men (Figure 61).
Women in wage-employment are on average less paid than men as only 4% of women earn more
than 2,000 birr per month, compared to 23% of men. The gender gap is significant in urban wages,
as out of the 60% being paid more than 2000 birr per month, 41% are men and 19% are female. In

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urban areas, as of 2018, men have earned an average of 3,757 birr each month while women earn
2,323 birr.

Figure 61: Distribution of wages by gender at the national level – in birr, 2013

35%

26%
23% 23% 23%
18% 17%

12%
9%
4%

<500 500-999 1000-1499 1500-1999 > 2000

Male Female

Source: National Labor Force Survey 2013

Even when well-educated, female tend to have stronger barriers in entering the labor market.
Female in urban areas have the highest level of unemployment, including female graduates, with
27% of them being unemployed.

iii. Focus on vulnerable population

Rural-urban migrants
Most of the internal labor migration from rural to urban areas in Ethiopia is due to the problem
of land scarcity and degradation, poverty and search for employment opportunities. Rural-urban
migrants mainly participate in the informal economic sector; which aggravates the problem of urban
unemployment and creates pressure on the basic services available in urban areas .

Rural-urban migrants are more likely to be unemployed in urban areas as they represent 53% of
unemployed. In urban areas, most of job-seekers find employment through social networks, in the
absence of effective employment services. Rural-urban migrants tend to have weaker social
networks, less access to information, and limited skills, which hinders their chances to find a formal
job in urban areas. As a result, most of rural-urban migrants work informally, with low productivity
and limited opportunities to improve their life-conditions. In majority of cases, rural-urban migrants
will extend their journey to international migration via both regular and irregular manner.

Labour market interventions for rural-urban migrants are necessary to improve their integration
in urban areas, especially with the increasing urbanization. Interventions could include access to

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information, skill training and guidance for potential overseas employment, in order to better
inform their decisions to migrate internationally.

Persons with disability

The disabled population faces important discrimination in the Ethiopian labor market. Societal
pressure, discrimination and prejudice further discourage the disabled population from active
participation in the labor market. To this effect, HandiCap International reported that less than 3%
of 2.4 – 4.8 million children with disabilities attend schools to avoid embarrassment and shame.

A number of factors impact these labor market outcomes. According to MOLSA (2010), the
majority of the disabled live in rural areas (95% live in poverty), and 2/3 are engaged in self-
employment in agriculture. Their inclusion in the labor market and facilitate is limited by the lack of
access to vocational rehabilitation (job training and counselling) and employment services (job
search assistance and placement).

There are no reliable, up-to-date national statistics available on disability in Ethiopia. The most
recent CSA data (2013) accounts for ~3% of the population as persons with disabilities. However, a
survey conducted by the Africa Child Policy Forum in 2011 indicates that 29% of children with
disabilities were registered at birth. Additionally, a collaborative study conducted by the World
Health Organization and World Bank estimate 15 million children, adults, and elderly persons with
disabilities live in Ethiopia (17.6% of the population in 2011).

Refugees and internally displaced

Defined as People of Concern by UNHCR, the population including refugees, asylum seekers and
internally displaced, has increased by 79% between 2017 and 2018. According to UNCHR, Ethiopia
hosts more than 900,000 refugees and asylum seekers mainly from neighbouring countries, making
it the second largest refugee-hosting country in Africa. More than 99% of them originate from four
countries: South Sudan, Somalia, Eritrea and Sudan. More than 70% of the refugees population is
concentrated in Gambela (45.2%) and Somali regions (26.2%). This population faces important
challenges in accessing employment opportunities and decent jobs.

In addition to the refugees’ population, Ethiopia is currently hosting 2.9 million of internally
displaced people (IDPs)54, the highest number worldwide. Rapid urban expansion and ongoing
conflicts within Ethiopia continue to generate new displacements every year. According to
UNHCR, the Oromia region had the highest number of IDPs (50%), followed by the Somali region
(35%), the SNNP Region (10%), and the Tigray region (2,5%), with most of them being children
(60%).

These populations tend to be more excluded from the labor market and face severe challenges
in finding employment in their local host-communities. On January 17, 2019 Ethiopia passed a
new law that allows refugees to obtain work permits and other legal documents. Refugees can now
work legally, formally register births and marriages and access financial services such as bank

54
2018 figure. Source: UNHCR

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accounts. These historic changes are an important step towards refugees’ integration and
contribution to local development. However, refugees and IDPs still suffer from important
humanitarian constraints, such as access to basic needs (nutrition, shelter etc.). Also, Refugees and
IDPs face important challenges and social discrimination when looking for a job in their local host-
communities.

The pastoralist community

Ethiopia’s topography divided into distinct regions has a significant impact on social patterns and
economic activity. The unpredictability of the ecological resource influenced the lifestyle and
livelihood of the dry land occupants to become communal and mobile livestock pastoralists.
Pastoral land in Ethiopia makes up approximately 40% of the landscape mostly in the Afar, Somali,
and parts of Oromia, SNNP, Gambella and Benishangul Gumuz regions. With over 25% of the
national livestock population, the pastoralists have made an immense contribution to the national
economy.

Ethiopian pastoralists, in the last two decades, have become some of the most vulnerable
societies. This was due to ecological challenges that disrupted the migration routes, political issues
with land rights, lack of economic diversification options, and limited public investment in basic
infrastructure and services. As a result, the size of livestock has declined, and large-scale
commercialization has reduced the pastoral lands restricting their mobility and leaving them
susceptible to food insecurity.

In response to the environmental and economic pressure that they face, increased efforts need
to be made to support the diversification of their livelihood. Agro-pastoralism, wage labour, access
to microfinance, and market integration are tools that have the potential to transition them out of
pastoralism. However, the economic diversification of the pastoralists has its challenges matching
skill sets to be competitive and employable. Consequently, most are limited to work in livestock
trade, fattening of livestock, crop production, and poultry, where they can utilize their skills. Hence,
supporting pastoralists to overcome hurdles in transitioning and integrating into semi-urban or
urban areas is critical to earning a higher income and improving their resilience to the dynamic
nature of the labour market.

iv. Social protection in the labor market

Social protection can be at the forefront of the development agenda in Ethiopia, given its positive
social and economic impacts. In general, social protection policies can be a key element of national
strategies to promote human development, political stability and inclusive growth and ensures that
people enjoy income security and have effective access to health and other social services and are
empowered to take advantage of economic opportunities (ILO 2017). Social protection usually
encompasses three broad sets of public action: publicly provided state (contributory) contingent
insurance (pensions, unemployment insurance), social sector policies (for example, fee waivers),

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and targeted non-contributory programmes (social safety nets, in other words) that transfer
resources to poor households (Hodinott and Tafesse 2019).
Social safety nets—primarily public works, and to a lesser extent, unconditional transfers—are
the largest component of social protection in Ethiopia – this is known as the productive safety net
program (PSNP). Spending on the rural safety net programs currently runs to approximately 12
billion birr (US$600 million) with an addition 2 billion birr (US$100million) being spent on safety nets
in urban areas (this is a pilot project – and like the rural safety net, receives funding support from
the World Bank of nearly US$300 million). The 14 billion birr being spent on safety nets is equivalent
to approximately 1.2 per cent of GDP. Further, approximately 10 million people benefit from these
safety nets with an additional 600,000 school children benefitting from school meals. Most
participants (~85 per cent) do labour-intensive public work, building assets of benefit to their
communities. A small number of beneficiaries (~15 per cent) who lack able-bodied labour receive
unconditional transfers, called Direct Support. For women, this can even be understood as providing
a form of paid maternity leave (see ILO 2017, p. 37). The PSNO provides pregnant women in food-
insecure and poor households, regardless of their employment status, with cash benefits after six
months of pregnancy and during the first ten months after delivery, exempting them from
participating in public work. However, women in several field sites reported that they continued
working throughout their pregnancy as they feared losing their entitlement to the benefits if they
interrupted their work. A second component is publicly provided state contingent (or social)
insurance. Here, financial assistance is triggered by an event such as illness, disability, or
unemployment. Eligibility and benefit levels are typically based on employment and contribution
history, rather than current poverty status. coverage levels are low—less than one per cent of the
population receives payments from contributory social insurance—and government expenditures
on these amount to approximately 2 billion birr, or 0.25 per cent of GDP. All of these programs are
administered under the broad umbrella of the National Social Protection Strategy of 2016. 55
Currently, there is no form of unemployment insurance, other than the PSNP, in both rural and
urban areas. For workers in the formal sector, unemployment insurance scheme does not exist.
However, a scheme on health and workplace insurance for workers (the Social Health Insurance
Proclamation, 2010) was passed by the legislature but has never actually come into effect despite
repeated demands from COSATU – this is the Social Health Insurance Proclamation, 2010. There is
also, currently no minimum wage in Ethiopia, though efforts are underway (with technical assistance
from ILO) to see if it is possible to put relevant legislation in place.

55Available at:
https://www.cmpethiopia.org/content/download/2676/11160/file/National%20Social%20Protection%20Policy%20of%2
0Ethiopia.pdf.

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 2. Strategies and interventions

Strategy 1: Providing specific support to improve youth employment

 Intervention 1.1: Develop community-based programmes and outreach to target youth NEET,
in collaboration with community-based organisations and social service providers
▪ Adopt behavioral change campaigns, informed by targeted studies
▪ Using existing youth centres to help re-integrate NEET in school or employment by using them
as a distribution channel of employment services
▪ Providing targeted basic skills training (literacy and numeracy) to both rural and urban youth
NEET

 Intervention 1.2: Increase the employability of long-term tertiary graduates and unemployed
youth by
▪ Providing Soft, entrepreneurial and life (employability) skills training with certification;
▪ Providing certified externship programmes (example: 6 months of on-the-job training to have
experience)
▪ Providing services to reduce the cost of job-search including through access to digital
employment services;
▪ Matching with employers including high-growth MSMEs;
▪ Providing incentives to employers (including MSMEs) to hire them, with higher incentives for
hiring female

 Intervention 1.3: Increase the employability of long-term unemployed youth in urban areas
with up to secondary education by
▪ Providing soft, entrepreneurial and life skills, and providing market-oriented technical skills
with certification, according to their level of skills
▪ Developing incentivised apprenticeship programmes, notably facilitated by the establishment
of Sector Skills Committees
▪ Providing services to reduce the cost of job-search, notably through access to digital
employment services.

 Intervention 1.4: Reduce under and unpaid employment in rural areas for youth through
▪ Encouraging rural economic and livelihood diversification through providing youth
comprehensive community-based support programmes including skills training (with a focus
on farming techniques), business development, market linkages (especially to agro-processing
industries), access to capital and mentoring to youth
▪ Facilitating access to small-scale irrigation schemes
▪ Encouraging Off-farm and non-farm activities, notably through supporting rural enterprises
development in selected the same areas
▪ Providing incentives (including transport subsidies), information and matching mechanisms to
smooth and facilitate access to opportunities in nearby small-cities during off-season

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Strategy 2: Promoting women economic empowerment
 Intervention 2.1: Reduce the level of unpaid employment in rural areas among women through
▪ Using village and group saving and loan programmes and associations to access to finance
and develop adequate mechanisms for access to finance
▪ Enhancing the access of women to training on micro-finance products
▪ Encouraging Off-farm and non-farm activities, notably through supporting rural enterprises
development in selected off-farm activities Providing services to improve means of production
(e.g. small-scale irrigation, mechanisation)
▪ Developing comprehensive community-based life skills training, including on gender training
issues

 Intervention 2.2: Develop childcare services in urban areas, to tackle he major binding
constraint for labor market participation of women in urban areas, which is their family
responsibilities, and the lack of childcare infrastructure and utilities.

 Intervention 2.3: Expand village-based women economic empowerment and livelihood

programs, notably by providing inputs, skill training and access to market, and aggregation of
services (for example handicraft programs). This would help in reducing unemployment and
under-employment among women in both rural and urban areas.

Strategy 3: Providing activation programs to improve productivity in self-employment

 Intervention 3.1.: Improving the productivity and the economic opportunities for low-skilled
self-employed in rural and urban areas by developing programs that include:
▪ Providing basic business, financial and entrepreneurship skill training
▪ Providing incentives to micro-finance institutions for an adequate access to finance
▪ Encouraging the establishment of digital platforms to facilitate market linkages and
information
▪ Providing incentives for informal self-employed to move into the formal economy (example tax
break for a couple of years)

Strategy 4: Implementing targeted programs to rural-urban migrants

 Intervention 4.1: Improve the pull-factors in urban areas and provide specific employability
support for rural-urban migrants
▪ Improving access of migrants to information on the labor market with targeted campaigns,
programmes and stationary services; (by targeting areas where migrants are concentrated)
▪ Developing targeted training programmes (Literacy and numeracy skills training, information)
▪ Providing placement and linkages with specialised private sector agencies
▪ Focusing on small-cities and secondary cities

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 Intervention 4.2: Improve the push-factors in rural areas, by encouraging and improving
agricultural productivity and rural economic diversification, access to land, and access to
technology in rural areas (notably through mechanization

Strategy 5: Building a disability-friendly labor market

 Intervention 5.1: Implement affirmative actions for people with disability, including work-place
convenience.

 Intervention 5.2: Improve employment opportunities by developing employment quotas in the

public sector, and providing incentives to the private sector

 Intervention 5.3: Include in the Employment centers a specific provision and services, including
skill training, for people with disability

 Intervention 5.4: Ensure collaboration between the employment centers and the specialized
services that will provide the required additional support

Strategy 6: Integrating Refugees and Internally Displaced People (IDPs) in the labor market
 Intervention 6.1: Provide vocational language training and basic skills training to refugees and
IDPs to improve their employability

 Intervention 6.2: Develop outreach campaigns and delivering support to refugees and IDPs in
collaboration with NGOs, training provides, social and health services when relevant

 Intervention 6.3: Develop local community development programs (example diversification of

livelihood programs), and inclusion of economic development and job creation programmes
within relief and livelihood support programmes.

 Intervention 6.4: Provide training and capacity building to PES’s staff covering topics such as
refugee and IDPs’ needs, managing diversity, inter-cultural approaches, legal knowledge, etc.

Strategy 7: Improving livelihood support to pastoralists

 Intervention 7.1: Invest on public infrastructure including water supply for pastoral communities

 Intervention 7.2: Develop skill development programs tailored to mobility patterns

 Intervention 7.3: Design and implement relief and resilience programs with clear jobs and
livelihood targets

 Intervention 7.4: Support women economic integration through promoting income generating
activities and diversifying their livelihoods including indigenous handicrafts

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 Intervention 7.5: Encourage the use of livestock as collateral for credits from financial institutions

 Intervention 7.6: Integrate economic services with other social services such as education,
animal health and health services

 Intervention 7.7: Improve the productivity of livestock rearing and marketing through
technology and market linkages support

Strategy 8: Improving working conditions and social protection in the labor market
 Intervention 8.1: Improve working conditions by introducing a minimum wage, building on
current and ongoing efforts and negotiations

 Intervention 8.2: Promote transitions to a productive labor for the Productive Safety Net
Program recipients

 Intervention 8.3: Launch a national consultation and study to explore the possibility of
introducing a national unemployment insurance

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 Chapter 3 – Realizing the job-potential of prospective high-
yield sectors

A. Overall picture
Agriculture is expected to remain the main driver of employment in the coming years, despite
declining in the overall share of jobs it provides. The principal challenges to be addressed today in
agriculture are the need to improve productivity levels, especially for smallholder farmers,
improving market linkages with urban areas and forward industries, and decreasing levels of
subsistence employment in order to fully integrate rural areas into the growth cycle. Increasing
productivity requires providing necessary inputs and services to smallholder famers, including
access to small- to medium-scale irrigation systems, and improving access to financial services by
developing a legal framework for agriculture-specific products. Other necessary interventions in
agriculture include encouraging private sector investment in agricultural R&D and using PPPs to
expand extension services and medium and large-scale irrigation infrastructure, and building
linkages with urban areas and industry sectors, such as agro-processing, leather, and textiles, among
others. In Agriculture, Horticulture and Livestock (poultry) sectors have been prioritized due to
their potential in terms of job creation, and their potential contribution to the economic
transformation of Ethiopia.

The recent focus of the Ethiopian government on manufacturing is essential for Ethiopia’s
economic transformation; investment in labor-intensive manufacturing needs to continue.
Manufacturing plays a relatively marginal role today in job creation, output, and exports, and
linkages with domestic firms remain minimal, know-how transfer and technology capability building
are virtually nonexistent. For manufacturing to become an engine for growth and economic
transformation, Ethiopia must invest in creating effective backward and forward linkages and
providing comprehensive support to MSMEs in the sector. The level of productivity in manufacturing
remains low due mainly to low skill levels—therefore, a demand-driven approach to skills
development is an essential step toward developing a vibrant manufacturing sector that increasingly
relies on domestic firms and Ethiopian workers.

In addition to sectors in manufacturing with high-potential in job creation, construction, mining,

and renewable Energy have been prioritized. Construction is expected to remain an important
sector both in terms of investment and job creation in the next years. Mining has an untapped
potential in Ethiopia due to several institutional and technical constraints. Strategies to improve
pricing, formalize small artisanal miners and improve large-scale miners’ relationships with local
communities in the sector are necessary to unlock the sector’s potential in direct and indirect job
creation. Improvement in power supply and reliability can have a substantial impact on job creation
and productivity across the economy. Investing in diversifying energy sources and promoting the
off-grid value chain can help towards achieving this objective and create jobs, including for low and
mid-skilled youth.

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Despite the economic importance of industrialization, it is unlikely that the sector will be able to
absorb the new entrants to the labor market in the next 5-6 years. Therefore, there is a need to
develop high-potential services, such as ICT, tourism, and creative arts. Investing in these sectors
will enable Ethiopia to start the transition into an inclusive digital economy, and to provide
sustainable job creation opportunities for youth across the country.
Figure 62: Potential of direct job creation across the economy per sector 2019-2025

3.2 M

2.2 M

2.7 M
15.8 M
7.7 M

Agriculture Manufacturing Construction, Mining and Utilities Services Total

Source: Jobs Creation Commission analysis

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Creating an effective enabling environment
1. Promoting private sector investment56
Current status and challenges

In line with broader economic growth in Ethiopia, the level of investment has increased from
24.3% of GDP in 2003 to 39.0% in 2017—although the private sector’s relative contribution has
diminished. The gross capital formation of the private sector has increased to 24.5% of GDP in 2015.
However, private sector investment remains low, accounting for about half of the gross capital
formation.57 Moreover, private sector credit to GDP ratio is just 9%, compared to an average of 20%
across all sub-Saharan African countries. The level of foreign direct investment (FDI) has increased
steadily since 2011, in line with the government strategy to develop export-led manufacturing,
except for a small decrease in 2017/18 linked to political changes in the country. FDI reached more
than 5% of GDP in 2016/17, at which time Ethiopia was among the top five FDI destinations in Africa.

While FDIs are concentrated in the manufacturing sector, local investors are mainly investing in
non-productive sectors. In the past decades, foreign investors have focused on the manufacturing
sector due to government restrictions on FDI in many sub-sectors in services and facilitated by the
industrial parks that have come online in the past five years. In contrast, domestic investment is
more focused on the service sector (30% of total investment between 1996 and 2016) and tends to
be concentrated in highly and quickly profitable sectors such as the construction, real estate and
rental, trading, and banking sectors.58

Private sector investment is also characterized by a very low level of project implementation. Over
the past 25 years, 85,603 investment projects were approved (nearly half of them in the period of
2011–2016), out of which 94% were submitted by domestic investors. However, only 12% of the
approved projects were implemented and became operational, with lower implementation rates
for domestic investors than foreign investors (9.5% vs. 51.3%)59. According to EDRI, the level of
private sector investment is constrained by lack of access to land and finance, regulatory and
institutional inefficiency, poor infrastructure (particularly power), and lack of skills.

Strategies and Interventions

Strategy 1: Improving the implementation rate of investment projects to maximize job creation
 Intervention 1.1: Develop an effective after-care strategy for investors

Strategy 2: Increasing the level of local investment in productive sectors

 Intervention 2.1: Review the current set of incentives to encourage local investment in
productive sectors

56 Figures in this section are from The Oxford Handbook of the Ethiopian Economy “Private Sector Development,” 2019.
57 Gebreyesus, (2019) “The private sector in Ethiopia’s transformation, Oxford Handbook of Ethiopian Economy”
58 Oxford Handbook of Ethiopian Economy (2019).
59
Oxford Economic Handbook (2019)

117
Strategy 3: Attracting local and foreign in development projects and prioritized sectors
 Intervention 3.1: Develop an investment strategy to attract FDIs in different prioritized
sectors
 Intervention 3.2: Encourage private sector investment in development projects through
Public-Private-Partnership (PPPs) schemes

2. Access to land
Context and challenges
Land is the primary production factor in Ethiopia, as 70% of the employed population remains in
agriculture. Land represents also an important public resource, as it is estimated that 90% of city
administration revenues are generated from land and land-related sources in Ethiopia. Accordingly,
land policies in the context of Ethiopia, with 80% of the labor force in rural areas, are a crucial point
in economic development reforms.
Ethiopia is facing severe problems of land fragmentation, notably due to the fast-growing
population density. Most farmers in Ethiopia are smallholder farmers, with more than half of them
cultivating around 0.8 hectares of land. With the important demographic evolution and the number
of youths entering the labor market in rural areas, the land fragmentation issue will only increase.
Evidence shows that youth-headed households in rural areas tend to have less access to inputs,
including land, than their adult peers. Moreover, land rights and use, including for farmers, are
restricted in the absence of clear national land use policy. Developing national legal and regulatory
frameworks and encouraging shareholder-based farming and commercial farms is critical for
improved agricultural productivity.

Access to land remains a severe constraint to enterprise establishment in urban areas. Land
allocation decisions are subject to uncertainty, and major delays exist in answering land access
requests, as some enterprises report waiting up to three years to obtain land. Lack of access to land
is systematically reported as one of the major constraints for doing business, and one of the major
reasons explaining the low implementation rate of investment projects in Ethiopia.

Inefficient land administration systems are a major challenge in undertaking land administration
reforms in Ethiopia. The absence of a strong vertically integrated institution, that gives clear policy,
legal, technical, and financial guidance and overall coordination for both rural and urban lands, has
resulted in uncertainty and duplication of efforts. Formal land registration and conventional
cadastral system is a relatively recent development in Ethiopia particularly in rural settings. The
present land certification system, despite its being innovative in several aspects, is limited to
administrative records and manual inscription which lacks basic spatial framework, registry maps
and is static and monotonous.

Strategies and Interventions

Strategy 1: Improving access to and use of land for farmers and businesses
 Intervention 1.1: Develop a framework that allows farmers rights to use land (transferability,
lease, etc.)

118
 Intervention 1.2: Develop and implement a legal framework allowing farmers to become
shareholders in commercial farms
 Intervention 1.3: Optimize land use for youth and women in rural areas while encouraging the
establishment of commercial farms

Strategy 2: Improving land planning and administration

 Intervention 2.1: Build uniform and robust land governance and administrative capacity at all
levels
 Intervention 2.2: Establish a modern urban land cadaster system that prioritizes land zoned
for commercial, industrial, and mixed uses. For the recent cadastral initiatives (both in rural
and urban) to be more effective there will need to be a well-articulated strategy, effective
implementation via a legal instrument to make updating obligatory, and the adoption of land
management information system.

3. Logistics
Current status and challenges
An efficient and effective logistics system is a critical enabler of sectoral growth and
competitiveness, and by extension an enabler of job creation. The Government of Ethiopia
recognizes this and has set out ambitious targets for the logistics sector including (i) cutting the
import and export transit time by half, (ii) reducing the average dwell time of imported good in the
dry ports from 40 days to two days, (iii) increasing the rate of local containerization of all export
cargo from 7% in 2014 to 100% in 2025. In order to achieve these targets, the Ethiopian government
has rolled out multiple initiatives including the adoption of a national logistics strategy (currently
under implementation) and the liberalization of the sector by opening the doors to foreign investors
to form joint ventures with local firms. The government is also investing in digitized customs
processes through the implementation of an updated electronic customs management system and
the establishment of electronic, single-window service delivery outlet trade logistics though the
borders with Kenya and Djibouti. Other initiatives to develop the logistics infrastructure are ongoing,
notably operationalizing the Ethio-Djibouti railroad, upgrading the Modjo dry port, and improving
last-mile road connectivity through the Universal Rural Roads Access Program (URRAP).
However, despite these numerous initiatives, time- and cost-related challenges limit the country's
competitiveness in the logistic sector. According to the Logistics Performance Index (LPI), Ethiopia
is lags behind neighboring countries such as Kenya and Tanzania (Figure 63). Businesses, exporters,
and manufacturers face challenges that include a heavily bureaucratic customs process and
inadequate logistics services, under-developed transport systems, inadequate terminal facilities,
limited utilization of ICT systems, and an inefficient regulatory framework.

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Figure 63: Logistics Performance Index (LPI) score of selected countries. Score out of 6, 2016

Source: World Bank, Logistics Performance Index

Customs processes and procedures are burdensome, convoluted, and lengthy. Document
clearance is a long and fragmentary process involving numerous forms required by multiple offices,
resulting in duplicative efforts and added expense. As a result, on average, document preparation
and customs clearance account for 77% of the time required to trade internationally. Ethiopia
requires 12 documents for export compared to nine in Kenya and six in Vietnam. In addition,
Ethiopia’s physical inspection ratio is high: 32% of goods go through the “red channel” and are
physically inspected, while the target is 20%. Finally, the nation’s customs service providers lack
sufficient competence and coordination. Customs agents lack a sufficient degree of technical
knowledge and professionalism to provide the services they are meant to perform. Trainings are
unpredictable and provided only by the customs commission. As a result in these deficiencies in
expertise and procedures, it takes on average three days to inspect and classify one container.
Encouraging both domestic and foreign private sector engagement in the transport system can
help make it more efficient. The current multimodal system designed and led by Ethiopian Shipping
and Logistics Services Enterprise (ESLSE) lacks transparency and efficiency. Because there is no cargo
assignment system in place to facilitate multimodal transition, truckers prefer to wait in Djibouti for
cargo. This prevents the possibility of contracting round trips, which would eliminate some of the
empty back-haul trips. Truckers and transports, moreover, are in short supply, as demonstrated by
a recent survey, in which more than 40% of respondents affirmed the lack of availability of trucks
and transporters. Most trucks are general purpose vehicles that lack modern amenities such as cold
chain facilities to transport perishable goods. As a result, companies (e.g., in the horticulture
industry) currently invest in their own cold chain facilities. In addition, the lack of aggregation
services means that trucks are not utilized at full capacity, both in terms of distance traveled and
load carried. Finally, railway lines in Ethiopia are inefficient and limited in their geographic
coverage—the Addis-Djibouti railway line does not extend to the Djibouti port, requiring trucking
services for the last-mile connection.

Effective terminal facilities are a critical element in logistics and could be improved through
expansion of dry ports and increased private sector service provision. Due to the limited carrying
capacity and operational constraints of its own dry ports, Ethiopia’s trade relies on Djibouti’s
port60—which is congested and poorly organized. Moreover, ESLSE, which has a monopoly on the
seaport, lacks capacity to coordinate agencies and plan for optimal usage. A lack of companies that
offer warehouse services further hampers the logistics sector; existing warehousing infrastructure

60
Ethiopian imports and exports account for 85% of the total dry merchandize traffic in Djibouti

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and human resources are insufficient to support operating hours required for timely offloading,
resulting in delays.

Under-utilization of ICT also constrains the logistics sector. The IT software and systems that track
cargo and report on customs processes are not fully operational or integrated with each other. The
Ethiopian Customs Commission and Revenue Authority is currently using an updated automated
customs clearance system (eCMS); however, several checkpoints along trade routes lack access to
the internet, preventing clearing community and traders from accessing the web-based portal.

Finally, logistics is a network industry that suffers under the monopoly of ESLSE and severe lack
of coordination. ESLSE dominates the logistics sector (only 8% of services in multimodal systems are
provided by local private providers) and is licensed to lead multimodal transport systems, which,
according to some studies, might increase shipping costs by as much as 30–50%. A range of
regulatory bodies, all with different objectives, define the sector’s multiple regulations and
requirements. In 2013, the Ministry of Transport issued four directives governing export and import
transit transport procedures, bulk shipment imports, and multimodal transport systems. Agencies
covered in the directive include the Maritime Affairs Authority (MAA), ESLSE, ERCA, MoT, NBE,
commercial banks, importers, and exporters. However, the directive does not clarify the distribution
of power among agencies and fails to identify a regulating agency to coordinate actions.

Strategies and Interventions

The strategies and interventions listed below are complementary to the ongoing efforts of the 2017
national logistics strategy.
Strategy 1: Streamlining standards and procedures
 Intervention 1.1; Expand automated risk management system: ensure that the monitoring
system under development by ERCA is implemented and accessible to all customs agents
and transporters
 Intervention 1.2: Introduce performance incentives: develop a KPI and accountability
framework for customs and logistics service providers
 Intervention 1.3: Expand training and up-skilling: ensure regular customs training and
partner with global experts to refresh certification manuals

Strategy 2: Optimizing transport systems

 Intervention 2.1: Encourage foreign investment: investors could gain access to sources of
capital required to import vehicles.61
 Intervention 2.2: Revise traffic laws: amend regulations to allow trucks to carry higher
weight loads
 Intervention 2.3: Support optimization platforms: provide incentives such as access to
logistics data and finance to attract Uber-like services that connect shippers to trucks
 Intervention 2.4: Revise the pricing structure for railway services to make them cheaper
and more competitive with trucking prices

61
The EIC has an investment draft underway to open trucking for foreign investment

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Strategy 3: Improving ICT utilization
 Intervention 3.1: Expand the broadband network: Support the rollout of broadband
country wide, paying attention to trade corridors

4. Rural-urban linkages and role of secondary cities

Context and challenges

Rural-urban linkages are an important factor in the structural transformation of Ethiopia. These
linkages include flow of labor between urban and rural areas as well as flow of agricultural products
from rural to urban areas and to international markets. Strong rural-urban linkages would facilitate
the transition from agriculture to industry and would create more opportunities for rural economic
diversification.

The scale of linkage between agriculture and non-agricultural activities, especially manufacturing,
appears to be small. Most manufacturing sectors, such as leather and textiles, depend on imported
inputs instead of using the local supply. This suggests that linkages between agriculture and other
sectors have remained weak despite the nation’s rapid economic growth over the last couple of
decades.62

Small and secondary cities can play an important role in creating effective and productive rural-
urban linkages. Small and secondary cities represent 65% of the working-age population in Ethiopia
and represent an important link between rural and urban economies. Small and secondary cities
can help rural areas in accessing non-agricultural goods and services, and present at the same time
an important market for the agricultural outputs of the rural economy. Investment in
infrastructure—including transportation and basic services (access to finance)—in small and
secondary cities located near rural areas should be the cornerstone of an approach to developing
urban-rural linkages, and would result in better access to markets, jobs, and services for rural
workers.

Strategies and Interventions

Strategy 1: Ensuring infrastructure development across urban areas bordering rural areas

The more than 1,500 Ethiopian towns with populations under 50,000 represent an opportunity to
create better links with rural areas. Investment in infrastructure in these areas has the potential to
substantially increase employment opportunities for the surrounding populations while also
strengthening backward linkages through increased demand for agricultural products.

62
Ferede et al. (2019) “Rural-Urban Linkages in Ethiopia - handbook of the Ethiopian economy”

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  Intervention 1.1: Promote the development of infrastructure (including utilities) and basic
services (including finance) connecting rural areas to secondary and small cities

Strategy 2: Investing in rural-urban growth corridors

 Intervention 2.1: Invest in agro-processing clusters in nearby cities and promote industry
linkages with farmers

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B. Horticulture
I. Context

Over the past decade, the Ministry of Agriculture and the Agricultural Transformation Agency
(ATA) have launched several interventions to improve the output and productivity of Ethiopian
crops—with some notable successes: between 2006 and 2017, for example, agriculture value added
per worker is estimated to have increased by 62%.

One of the most prominent interventions—the Agricultural Commercialization Clusters (ACC)

Initiative—creates clusters that are intended to act as Centers of Excellence (CoE), modeled on
successful deployments of geographically-focused strategies in countries around the world to
transform agriculture sectors and drive rural industrialization. The ATA identified 13 horticulture
ACCs in 13 woredas for interventions targeting high-value commodities—specifically tomato, onion,
banana, mango, and avocado.

ATA priority crops are not necessarily the largest by production but contain high future potential.
Ethiopia’s production of vegetables generally exceeds that of fruits (with the exception of high
volumes of banana), yet tomato has significant potential as the third largest horticulture crop
imported globally. Moreover, value can be added to mango crops locally through processing for
juice, and there is significant unmet domestic demand for onions and emerging global demand for
avocados.

Ethiopia has important competitive advantages as well as opportunities to increase its export to
global and neighboring markets. Ethiopia has unique advantages in climatic conditions and low
factor costs—labor is 70% cheaper and air freight is 5–10% cheaper than in Kenya—which position
its horticulture sector to expand production of a range of fruits and vegetables to meet global
demand. In addition, although the overall growth of Ethiopia’s agricultural sector has slowed in
recent years, production and export volumes of horticulture and floriculture have grown. Total
combined exports of horticulture (fruits and vegetables) and floriculture (flowers)—which make up
a small portion of the total agriculture sector—have grown to reach 550 kt in 2017 and USD 300
million in value in 2018. Neighboring countries, such as Somalia and Djibouti, buy most Ethiopian
vegetable exports while the Netherlands—the global hub of floriculture—buys most of Ethiopia’s
cut flower exports. At lower volumes than vegetables or cut flowers, Ethiopia also exports fruits to
neighboring countries, Persian Gulf states, and Nigeria. Overall, strong and sustained growth
indicates further opportunities for Ethiopia to expand horticulture production and continue to
export to global markets.

Ethiopia has the potential for higher domestic consumption, driven by increasing and rapid
urbanization and the development of the agro-processing industry. Neighboring countries
consume more horticulture commodities per capita than Ethiopia (Figure 64). In contrast to these
countries, Ethiopia’s consumption of whole grains is significantly higher than all other food groups.

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Some of these differences reflect the Ethiopian climate, culture, and traditional diet. However, as
countries develop, the consumption of certain food groups tends to increase—in particular, as
disposable incomes increase, domestic demand for fruit, vegetables, and red meat is likely to rise.
Increased consumption of fruits and vegetables will also support health goals for nutrition,
especially for children.

Figure 64: Per capita food consumption by country, Grams/Day

Source: FAO ,“Dietary Intake By Country”, 2019

For example, there is significant demand for onions in Ethiopia that is not being met by domestic
production. Ethiopia imported over USD 11.8 million worth of onions in 2017—the largest imported
horticulture commodity (Figure 65). Ethiopian farms produced approximately 370 kt of onions that
year, but this fell short of domestic consumption. Potential exists to scale up onion production
through increasing the productivity and output of existing producers and by supporting farmers in
becoming new producers of the crop.63

Figure 65: Ethiopia horticulture imports in thousands of USD, 2017

Note: (1) 2018 data not available; (2) Beans and peas are also imported in high volumes, but are pulses, not vegetables or horticulture; (3) does not
include processed or preserved juices

Source: International Trade Centre, Trade statistics, 2018

63Apples (USD 2.5 million) and grapes (USD 1.3 million) are other fresh produce imported into Ethiopia; however, neither crop is
currently produced domestically. Beans and peas are also imported in high volumes, but are pulses, not vegetables or horticulture.

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 II. Challenges in the sector
The fruits and vegetables value chains are dominated by smallholder farmers’ production; a very
small fraction of this production is exported. In the fruit value chains, smallholder farmers account
for 90% of production and only 3% of total production is exported. In the vegetable value chain,
smallholder farmers are responsible for half of production. Only 6% of domestically consumed
produce is processed, and only 1.3% is exported.

Figure 66: value chain for fruits and vegetables

Step in the value Challenges

chain
1. Inputs o High cost of improved seeds: because a single hybrid tomato variety seed costs as much
provision as 200 local variety seeds, less than 5% of smallholder farmers use improved seeds
• Limited and expensive supply of pesticides leads to high incidence of crop diseases and
pests
• Underuse of land available for horticulture: only 11% of arable land is cultivated.
• Low access to capital to start a seed/seedling farm or nursery
2. Production • Low mechanization: because smallholder farmers cannot afford the high cost of
mechanized implements, only 3% of them use mechanized tools1
• High post-harvest losses: poor post-harvest handling techniques lead to losses estimated
at 25-30%
• Limited awareness: farmers do not have information on the benefits of horticulture
3. Aggregation • Insufficient cold chain facilities and transport providers for transport across long
storage and distances
transport • High cost of inland transport
• High cost of aggregating adequate produce: production is carried out by large numbers
of smallholder farmers
4. Processing • Lack of technical and business capacity
• Lack of capital: inability to invest in processing technology

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 • Shortage of local and modern processing plants
• Incapacity to meet international standards of processing
• Limited availability of packaging materials due to low local production
5. Domestic • Cost of air freight: at 35% of total export value, this lowers the price competitiveness of
and export Ethiopian products
marketing • Lack of promotion activities targeting end markets
• Limited information about export market opportunities

Cross-cutting challenges
Logistics and infrastructure challenges include high ground transport and freight costs that
increase prices of Ethiopian exports; lack of capacity in aggregation procedures and storage
facilities; information asymmetry on farmer’s produce and location; minimal domestic and
international market linkages; the high cost of air freight (at 35% of total export value); and
insufficient knowledge of export market opportunities.

Despite Ethiopia’s success in establishing agriculture training programs, the horticulture sector
continues to face challenges and important skills gaps. The Ministry of Agriculture in Ethiopia has
built the largest farmer extension network in Africa and instituted a modern ATVET curriculum. In
the last decade, 25 TVET colleges (5 federal, 20 regional) have been established. These institutions
provide a three-year training program to produce middle-level workers and development agents in
rural areas by admitting people in grade 10 of the Ethiopian education system. This expansion has
led to an increase of the number of development agents (ATVET institutions have trained 72,000)
and in the development-agents-to-farmers ratio, which currently stands at 1:200. However, skill
trainings in horticulture remains low, as the focus tends to be on cash crops. A skills gap, therefore,
remains in a sector that has strong potential to provide employment to women and youth, who
suffer from high levels of unemployment and vulnerable employment.

The skill mismatch is important in all the steps of the value-chain in horticulture. In input
provision, for example, there is a lack of training on developing new seeds for horticulture crops and
there limited research skills. Similarly, limited training is available to farmers on horticulture
management in the production step, as well as limited training and expertise on best processing
procedures and agricultural quality standards in aggregation, storage, and transport—which leads
to high post-harvesting loss and reduces farmer income. The horticulture systems map in Figure 67
shows pain points across the ecosystem in linkages from labor to farmers to end markets.

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 Figure 67: Market system map of Horticulture

III. Potential of job creation

According to the Ministry of Agriculture, there are

6,323,879 farmers engaged in Horticulture in 2018.
Many farmers undertake mixed activities across multiple
crop types. By 2025, estimation suggests that a total of
1,051,199 direct jobs could be created across the sector,
including in seed and seedling production, crop spraying,
crop production, and sorting and grading produce. Over
half of the potential jobs created are suitable for youth. The estimation of the multiplier effect of
job creation means that employment in the horticulture could also generate up to 3.1 million
indirect jobs. 64

IV. Strategies and interventions

To improve income and economic opportunities for farmers in horticulture, decrease the number
of subsistence farmers, increase investment in the sector, and build strong links to the agro-
processing industry, we propose 12 interventions across four strategies: improving horticulture
sector productivity, developing mechanisms to integrate smallholder farmers with commercial
nucleus farms, ensuring that the enabling environment fosters horticulture sector development,
and designing tailor-made skill development programs.

64
Multiplier for the horticulture is 3.0 indirect jobs for every direct job (benchmarking of Tanzania)

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Strategy 1: Improving horticulture’s productivity
Intervention 1.1: Integrated input systems: introduce to commercial farms an integrated input
production and supply system for smallholder farmers
Intervention 1.2: Extension service support: ensure the availability of extension services,
including private ones, to support horticulture production and consumption
Intervention 1.3: Soil treatment scheme: launch soil treatment schemes in horticulture clusters
Intervention 1.4: Small-scale irrigation systems: Promoting small-scale irrigation systems for
smallholder farmers to improve agricultural productivity
Intervention 1.5: Encourage business development in activities decreasing post-harvest loss,
such as packaging, drying techniques, etc.
Intervention 1.6: Improve linkages with the agro-processing industry, notably through the
integrated agro-processing Industrial parks

Strategy 2: Developing mechanisms to integrate smallholder farmers with commercial nucleus

farms
Intervention 2.1: Farmer out-grower scheme: develop an out-grower scheme around
horticulture value chains to facilitate input provision, product collection, and access to market;
build the capacity of farmers and coops.

Strategy 3. Ensuring that the enabling environment fosters horticulture sector development
Intervention 3.1: Target the development of underutilized land for mechanized horticulture as a
means of addressing unemployed and out-of-school youth
Intervention 3.2: Input regulations: support a regulatory change to allow the private sector to
import and distribute fertilizers for use by commercial farms (include agri-inputs on the priority
list for foreign exchange approval by NBE)
Intervention 3.3: Incentives for mechanization: incentivize medium-scale agricultural
mechanization by extending the mechanization service center project to SMEs and extending
incentive packages (e.g., tax exemptions) to local manufacturers of agricultural mechanization
equipment

Strategy 4: Designing tailor-made skill development programs

Intervention 4.1: Use Rural Transformation Centers (RTCs) as skills training hubs: encourage
rural transformation centers and farmer training centers to become hubs for skill training on the
use of new inputs.
 Intervention 4.2: Training support for post-harvest loss: support training efforts on the use of
technologies to prevent post-harvest loss; build the capacity of coops to aggregate and transport
the products of their members and build the capacity of farmer coops and unions in horticulture
clusters.

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 Example of an NGO-led extension service in Horticulture – Songhai in Benin

In Benin, like in Ethiopia, Agriculture is major contributor to GDP: In 2011, agriculture represented 32% of
GDP and employed 70% of the working population. Beninese agriculture mainly consists of cereals and
tubers, with 60% of the cultivated areas devoted to food production. Small family farms predominate with
over 550,000 across the country, with mostly traditional farming practices.

Songhai, an NGO empowering rural community particularly farmers, aims to build capacity and empower
rural communities in agriculture by integrating production, research, training and service centres. The
organization has grown from one main centre in Porto Novo, Benin to 23 satellite centres in Benin and
Nigeria. The Songhai model was promoted as a Centre of Excellence for Africa by the UN and its being
replicated in 14 African countries to boost agriculture training and production. The model design
incorporates four centers: production centre, research and experimentation centre, training centre, and
service centre. These pillars are built and structured around 5 cross-cutting approaches on human,
environmental, social, technical and social aspects.

Songhai’s training centre’s curriculum is structured into four stages: preliminary, training, internship and
certification. At a preliminary stage, Songhai offers training on horticulture crop production, animal
husbandry, and food processing. Potential youth trainees are first evaluated for 3 days on their capacity
and willingness to learn. Selected trainees stay for 2 months, and if their work is satisfactory, the
organization opens a savings account for depositing sums from family members and friends. the 2 months
of preliminary stage, trainees are enrolled into an 18 months full-time training program that is free for
Beninese nationals. Trainings combine theoretical and practical courses on production and processing
techniques, marketing and commercialization, and business creation and management. At the end of 18
months, trainees take part in an internship program at Songhai centre during which they start their own
business. Songhai provides them with infrastructure such as fish farming ponds, irrigation systems and a
loan, up to 3 times the amount they saved during their 18 months training. Trainees are evaluated based
on their productivity and negotiation capacities with suppliers in the internship period. After certification,
the trainees can move on with a loan from Songhai to start an agriculture-related business.

Songhai’s major achievements include 1,700 trainees, increased agriculture production, innovative
research studies and integration of support services. The Porto Novo centre (main centre) grew from
producing 500 kg of clarias in 2006 to over 14,000 tons in 2010. It also produced 26,000 tons of chicken
and over 1.6 million eggs. The Savalou centre (satellite centre) produced over 32 tons of maize, 630 tons
of manioc, 3.9 tons of soy and 18.7 tons of rice. Songhai has developed innovative technologies that are
affordable to rural communities and use local human and natural comparative advantages. The Porto Novo
centre exports agricultural machines across Africa. They also have important applied research partnerships
with several research centres, universities and producers. In terms of support services, former trainees can
receive loans, technical and managerial support, inputs and new technologies that are available through
Songhai’s satellite centres. Also, a network of Songhai farmers has been set up for agricultural
entrepreneurs to meet, communicate and share experience, challenges and solutions.
Source: ILO, Rural Employment and Decent Work Program, Songhai, Benin, 2013

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C. Poultry
I. Context

Even though Ethiopia has the largest population in East Africa, production of eggs and chicken
meat in Ethiopia is significantly lower than that of its regional counterparts (Figure 68), and per
capita consumption (.5 kg/year) is significantly lower than the average (2.3 kg/year) in sub-Saharan
Africa. Affordability plays a major role in low consumption: for 80% of the population, the average
daily per capital income is approximately USD 0.50 while the average price of a hen is USD 2.50.
Local cultural practices, such as Orthodox fasting days, also restrict consumption.

Figure 68: Chicken meat production in Eastern Africa and Ethiopia, 2017 – in thousand tonnes

120,000
104,062
100,000
80,000
65,481
60,000
40,000 35,090

20,000 13,676

0
Ethiopia Tanzania Kenya Uganda

Source: FAO, 2017

To meet the nutritional demands of its growing population—as well as to make progress toward
climate goals—Ethiopia set ambitious targets in 2015 to raise annual chicken meat production (by
247%) and egg production (by 828%) by 2020, as well as to increase the share of chicken meat in
total meat consumption (from 5% to 27%).65

Chicken egg and meat production is now growing steadily, driven by rising consumer demand,
despite a lack of sophisticated production techniques or dedicated industry. Imports of egg and
chicken meat in Ethiopia also indicate a shift in consumer taste and preference. Demand is projected
to continue rising as urbanization increases and incomes continue to grow. Imports of chicken meat
have shot up by up to 60% in a period of 10 years (Figure 70) and import of eggs has risen by 32%
between 2008-2013 (Figure 69). With increased productivity in the poultry sector—spurred by such
government incentives as tax-free input importation—domestic production could provide a
substitute for poultry imports.

65
Agriculture Sector Growth and Transportation Plan II (2015-2020)(Base Case Scenario).” Ministry of Agriculture. May
2015. 2. “Ethiopia Livestock Master Plan – Key Findings.” Consultative Group for International Agricultural Research
(CGIAR). July 2015.

131
 Figure 69: Egg imports in Ethiopia, 2008-2013 in tonnes Figure 70: Chicken imports in Ethiopia, 2007-2016 in
tonnes

Source: FAOSTAT, World Bank Indicators

Currently, Ethiopia’s poultry yields are low compared to global competitors. Mortality rates are
high, breeds are inferior and low-yield, and disease and poor animal management practices prevail
among farmers. Small-scale chicken farms account for less than 1% and larger commercial chicken
farms accounts for less than 2% of national production; the remaining ~98% of poultry farming is
largely an informal affair conducted at the village or backyard level.

Figure 71: Average live bird weight - grams/bird Figure 72: Cost of DOC (broiler) - US Cents/DOC

Source: US National Chicken Council, 2017; “Chicken value chains and HPAI in Ethiopia” ILRI, 2010. 3. “Overview and background paper on Ethiopia’s
chicken sector: Relevance for HPAI research in Ethiopia” IFPRI

Looking to the future, however, Ethiopia holds key advantages in the poultry sector: a large
consumer market, low production costs, and government-sponsored investment incentives. The
potential market is considerable: less than 12% of Ethiopia’s current protein consumption comes
from animals, yet rising incomes will drive up meat consumption, and chicken meat and eggs are
among the cheapest forms of animal protein. As a potential exporter, Ethiopia has a young and
abundant labor force, competitive labor costs, and very competitive electricity rates. In addition,
Ethiopia’s year-round growing season offers the advantage of double-cropping to produce feed. As
a further enticement, the government has created investment incentives that can benefit the
poultry sector, including a five-year income tax holiday for agro-processing investors exporting at
least half of their products (investors in prioritized regions are eligible for an additional year of
income tax exemption), an import duty exemption for capital goods and materials to establish new

132
enterprises or expand, the removal of the double-imposition of VAT and excessive customs duties
on feed mill ingredients, and subsidized land leasing to private entrepreneurs and allocation of
sufficient land for feed production.

II. Challenges in the sector

The poultry value chain in Ethiopia is characterized by production of inputs, chicken eggs, day-old
chicks (DOCs), and chicken meat. Maize is the main source of processed animal feeds in the
country, although pre-mix is also imported from China, South Africa, and the Netherlands. There are
~27 commercial feed producers, mainly located in urban areas. Medicine, vaccines, and
disinfectants (MVD) are another critical input for improving production quality. Backyard producers
face shortages of feed; those feeds that are available are of poor quality. Animal health inputs are
also in short supply, thanks in large part to a shortage of foreign currency, and a weak surveillance
system makes it difficult to prevent new infections in chickens. Smallholder farmers typically hatch
their own chicks—public hatcheries are few in number (just ~18 in the entire country) and operate
well below capacity.

Figure 73: value chain for poultry

133
Source: 1. “Chicken value chains and HPAI in Ethiopia” ILRI, 2010. 2. “Overview and background paper on Ethiopia’s chicken sector: Relevance for
HPAI research in Ethiopia” IFPRI. 3. “Participatory evaluation of chicken health and production constraints in Ethiopia” Elsevier, 2015. 4. “Chicken
sector country review” FAO, 2008. 5. “Investment opportunities in the Ethiopian poultry sub-sector.” Netherlands-African Business Council. 2015.

Step in the value Challenges

chain
1. Input provision • Limited production inputs: shortage of the main inputs, especially in backyard
production, such as feeds and animal health product
• Poor quality and shortage of inputs, e.g., maize, due to impurities and high moisture
levels
• Cumbersome registration process for inputs—especially MVDs
• Weak surveillance systems for the prevention of new infections
• Fragmented structure of input segment: limits competitiveness and production
• High cost of inputs: pre-mix is expensive in Ethiopia, which increases the price of the
final product
2. Multiplication, • High cost of DOCs: limited availability of DOCs increases the cost and forces smallholder
hatching, and farmers to hatch their own
rearing • Low-quality pullets: high rates of mortality and suboptimal chicken breeds due to poor
practices
• Disease prevalence: commonly reported diseases include Newcastle Disease,
• Limited animal health services: effective animal health services are not available to most
producers
• Absence of standard guidelines leads to poor construction of poultry houses, which
affects yields and quality
• Poor extension services: lack of development officers limits the support that farmers can
receive
• High rates of mortality and suboptimal chicken breeds due to poor rearing practices
3. Collection and • Fragmented supply chains and markets: poor coordination between farmers and
trading processors reduces the amount of meat available to be processed.
• Insufficient regulation of trader activities: middlemen, brokers, and traders sometimes
take advantage of smallholder farmers and provide them with unfair prices
• The absence of a free market pricing structure inhibits segment development
• Fragmented supply chains and markets: limited coordination between farmers and
processors reduces the amount of products available to process
4. Slaughter and • Limited processing capacity: processing of chicken meat takes place in local butcheries,
processing which limits the volume produced.
• Poor sanitation standards at many slaughterhouses affects both quality and consumer
interest.
5. Marketing and • Limited market information reduces coordination between buyers, processors, and
distribution consumers, which limits market output and linkages

Cross-cutting challenges

134
An overall lack of regulation extends to traders, processors, and processing standards. Meanwhile,
regulatory bottlenecks such as the cumbersome process for registration of MVDs and customs
clearance stifle production and leads to waste.

The skills gap in the poultry value chain is most pronounced at the processing stage. Minimal
extension services are available to farmers; the lack of a skills training institute for the poultry sector
(similar to TVET) is another challenge for the sector. A lack of emphasis on poultry in university
curricula for veterinary students results in just four contact hours dedicated to poultry over a six-
year study period. The poultry systems map shows pain points across the ecosystem—for example,
in policy regulations that hinder an effective supply of inputs.

Figure 74: Market system map of poultry

III. Potential of job creation

Between 2013 and 2018, employment in the

livestock sector grew by 33% (to reach 3,826,955
jobs), and is expected to grow by an additional 14% by
2025, creating 550,000 new direct jobs (for a total of ~
4.38 million) and 1.66 million indirect jobs. Poultry
may be expected to grow at the same rate as the
sector, although its relative contribution to livestock
sector jobs is not available. The greatest opportunities
for indirect jobs related to livestock lie with the hotel
and restaurant and logistics sector, due to increased
trade and processing of chicken produce.

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IV. Strategies and interventions

To increase the quality and quantity of poultry and eggs in Ethiopia and the number of sustainable
jobs in the sector, we propose nine interventions across three strategies: strengthen poultry sector
productivity, transform traditional backyard family poultry farming into a market-oriented and
improved family poultry system, and enhance vibrant entrepreneurship and business interaction in
the chicken industry.

Strategy 1: Strengthening the sector’s productivity

 Intervention 1.1: Alternative feed ingredients: support the development and production of
alternative ingredients for poultry feed.
 Intervention 1.2: Large-scale feed production: encourage large-scale commercial feed
production.
 Intervention 1.3: Parent stock breeding: attract investment in breeding and production of
parent stock
 Intervention 1.4: Integrated input supply: introduce to commercial farms an integrated
input production and supply system for smallholder farmers
 Intervention 1.5: Encourage the establishment of MSMEs throughout the value chain

Strategy 2: Transforming traditional backyard family poultry farming into a market-oriented and
improved family poultry system
 Intervention 2.1: Private extension services: ensure the availability of private extension
services to support poultry production and consumption.
 Intervention 2.2: Innovative poultry products: facilitate the implementation of innovative
solutions such as powdered egg production.
 Intervention 2.3: Ensure the availability of finance, technical support, and working
space/land to facilitate formal production

Strategy 3: Enhancing vibrant entrepreneurship and business interaction in the chicken industry
 Intervention 3.1: Biosecurity standards: develop and implement appropriate biosecurity
standards within production systems to improve the quality and consistency of poultry
 Intervention 3.2: Market incentives for producers: improve and incentivize market linkages
for poultry producers

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 Developing the Poultry sector in Zambia

As part of economic liberalisation, Zambia’s government incentivised private sector investment in

agriculture and poultry feed to catalyse sector growth. Zambia’s National Agricultural Policy (2004-2015)
aimed to create an enabling environment for private sector participation in the improved productivity of
livestock. Thus, government instigated incentives including the following: reduced Customs Duty at 5% on
pre-mixes, being vitamin additives for animal feed and farm improvement allowance at 100% on fencing,
brick or stone wall and an allowance of K10,000.00 for farm occupied by farm workers. Zambia does not
impose tariffs on imports or exports of poultry feed products. However, as a nascent industry, a ban was
imposed on the imports of broiler meat and eggs for consumption.

Liberalization led to increased players in the market, with greater volumes of soybean and animal feed
production. Government incentives to liberalise the market led to major investments by local and
multinational firms in animal feed and poultry from 2012 to 2015. Soybean production grew by 91% from
2010-2014 and reached at total of 350,000 tonnes in 2017. Primary producers of broiler parent breeding
stock and day-old chicks have invested in animal feed production, leading to vertical integration in the
industry. Investments in the industry have increased competition among industry players. This has
benefited consumers as the quality of produce has now increased. Animal feed production grew by 117%
during 2010–14, with 65–70% production being for poultry. Most output from Zambia’s animal feed and
poultry industries is absorbed by the local market. In 2014, only 3% of the manufactured feed was
exported.

Increased availability of feed and more market players led to an increase in DOC and broiler meat
production, and increased poultry consumption. Production of day-old chicks rose from 31 million in 2010
to 74 million in 2014 and annual broiler meat production increased to 125,691 tonnes, which represent
over 140% growth or 25% CAGR from 2010–14. Consumption demand has also increased and now stands
at 9.2 kg per capita, per annum. The price of poultry feed declined in Zambia over the period, almost
reaching parity with South Africa. The poultry sector provides direct and indirect employment to 80,000
people with 50,000 in permanent jobs and 30,000 seasonal employees.

The success factors include a currency stability and improvement in doing business, but also an investment
in innovation in the sector. To keep up with international developments, the stakeholders of the Zambian
poultry sector invested in in new technologies and in further development of the entire production chain,
e.g further processing of broilers and production of day-old chicks. Innovation has enabled the Zambian
processors to keep a competitive advantage in the region.
Source: Samboko, Analysis of the animal feed to poultry value chain in Zambia, 2018; Zulu, Analysis of the animal feed to poultry value chain in
Zambia, 2017; AgriProFocus, Final Market Study of Poultry Sector in Zambia, 2015

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C. Agro-processing
I. Context
The food and beverage processing industry (FBPI) is Ethiopia’s third largest contributor to the
industrial sector (accounting for 12% of the industry’s output). Between 2012 and 2014, the FBPI
grew at a 60% CAGR—a figure that is expected to increase steadily. Within the FBPI, the beverage
sub-sector is the largest contributor, specifically the processing of beer, mineral water and
lemonade. The biggest industries in food processing are grain milling and processing of baked goods.

Still, production levels are far below demand, leading to an 18% increase in food and beverage
imports. Ethiopia’s largest food import is palm oil—used for direct consumption, mainly by the
lower income demographic. Demand for edible seed oil products has also led to the increase of
imported sunflower oil, which is mainly consumed by a higher income demographic. Barley
byproducts are among the top food-related imports—processed products such as malt, malt extract,
and alcohol are heavily used in brewing and distilling. Ethiopia relies on wheat and wheat product
imports for food aid and to meet demand for processed foods such as pasta, bread, and pastries.
Durum wheat, which is commonly used to produce pasta, is not grown in sufficient quantities in
Ethiopia. Additionally, local production of common wheat, the variety used to make bread, is low.
Millers have to import both types of wheat to close the local production gap.

Figure 75: Processed commodities consumption in Figure 76: Ethiopia’s largest processed food imports
Ethiopia, 2014 – 2016 -MN USD from 2012 - 2016 – ‘000 USD

Source: FAOSTAT

Targeted agro-processing strategy

Government support is crucial to addressing some of the systemic agro-processing challenges in
the value chain. Through the Agricultural Transformation Agency, the government of Ethiopia has
set targeted initiatives to address enabling environment challenges that hinder agro-processing,
export growth and import substitution, particularly in the country’s food and beverage processing
industry.

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The Agricultural Commercialization Clusters Initiative seeks to identify key value chains that that
can improve the livelihoods of smallholder famers and drive economic development. There are
plans to construct 12 industrial parks to add to the existing two, to address systemic challenges in
the sector and increase employment growth. Industrial parks aim to overcome barriers that hinder
investment, such as restrictive policy, poor governance, inadequate infrastructure, and access to
land. Ethiopia’s electricity rates and labor costs are attractive to industry. In response to some of
these initiatives, the share of FDI flows going to manufacturing increased from 70% in 2007 to 89%
in 2016/17. Particular sub-sectors of future focus could include grain milling, as well as soft and
mineral water drinks, which have seen a rise in private sector activity.

Raw materials
Numerous food and beverage value chains in Ethiopia exhibit limited productivity due to poor
farming practices, are plagued by diseased produce, and have high production costs—all of which
discourage investment interest. The ATA strategy focuses on wheat and sunflower as raw materials
available at sufficient quantity, quality, and price points to catalyze agro-processing. Locally
produced sesame oils can give average margins, while sunflower oil offers margins of up to 25% and
locally produced macaroni can produce margins of 30%.

Auxiliary industries
A number of auxiliary industries provide products and services that are critical to the success of
food and beverage processing—these include packaging, storage, labeling, cartons, collection and
packaging equipment, and cold chain services, among many others. Food and beverage processors
in Ethiopia have poor access to high-quality packaging that is customized to their needs Importing
packaging and storage materials can take up to three months, resulting in processors’ inability to be
responsive to market demands. Reliance on foreign markets for packaging exposes local processors
to higher prices, especially for bulk packaging, which include high transport costs. There are
currently few initiatives focused on building auxiliary industries and infrastructure—e.g., cold
storage—to complement the increase of agro-processing factories in Ethiopia’s industrial parks.
Access to such infrastructure is also limited to large-scale farmers. This is likely to stall progress to
grow the local food and beverage sub-sector.
Case study: Celtic Cooling

Celtic cooling, a Dutch company, has installed cold chain systems in Ethiopia since 1998. The company
mainly installs such infrastructure for the flower, vegetable and fruits value chain. Since it started
operations in Ethiopia, the company has installed 500 coolers and cold chain systems in the agricultural
sector. They focus on building cold chains in hubs e.g. air terminals. The company has built the largest
logistical hub for air cargo storage in Africa, in Addis. The company works with government as well as
private enterprises.
Source: Celtic Cooling website and Jobs Creation Commission analysis

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II. Challenges in the sector

Wheat value chain

The wheat value chain in Ethiopia highly depends on imported wheat for processing, which
increases the price of the final products such as bread and pasta. For domestic wheat, the
government is responsible for providing improved seeds, fertilizer, herbicide, pesticides, and farm
implements. Most farmers rely on the informal market for inputs; less than 5% of farmers use
improved seed varieties, 65% of farmers use inorganic fertilizer, and one-fourth of farmers use
additive services in production.

Smallholder farmers account for 98% of the 4.8 million wheat farmers in Ethiopia. Farm households
consume 60% of wheat produced, sell 20%, and use the remainder for seed, animal feed and in-kind
payments for labor.

Grain wholesalers and cooperative unions are the main suppliers of wheat to the mills. There are
more than 200 flourmills in the country, which collectively supply 53% of the total flour to the
domestic market. Wheat processors purchase domestically produced wheat at market price from
traders and farmers and imported wheat at a subsidized price from government. Processors supply
~45% to bakeries and ~55% to retailers of processed foods.

Bakeries and grain retailers’ market around 53% of domestic wheat in the form of spaghetti, flour
and baked goods. Bread and pasta wheat imports are subsidized; products made from imported
wheat are price regulated.

Figure 77: value chain for agro-processing – wheat

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Source: 1. “Value Chain Analysis for Developing Rural Agri-business: Case Studies in Ethiopia.” Value Chain Seminar, Organized by FAO, JICA, MoARD,
MoTI, SAA, UNECA. November 2009. 2. BMGF, Multi Crop Value Chain Phase II Wheat Ethiopia, 2014. 3. EPAR, Wheat Value Chain: Ethiopia, 2012. 4.
USAID, Staple Foods Value Chain Analysis, 2010; IJBMT, Review on Market Chain Analysis of Wheat in Ethiopia, 2018.

Step in the value Challenges

chain
1. Input supply • Poor seed breeding and handling: inadequately trained personnel in plant breeding and
seed certification and ineffective handling by distributors
• Limited funding: inadequate availability of credit and reluctance of multilateral
organization to invest in seed production
2. Crop • High cost of seeds: transport and handling costs decrease farmers’ ability to purchase
production seeds
• Insufficient supply of seeds: in 2011/2012, quality seed supply covered only 24% of the
demand for wheat
• Limited supply of fertilizer reduces farmer’s yields; lack of local production increases
farmer costs
• Disease outbreak: wheat stripe rust continues reduces farmer’s productivity
• Limited extension services: insufficient number of extension service officers to serve
existing smallholder farmers
3. Trade • Small scale and fragmented nature of farms leads to mixed wheat quality, making sourcing
and aggregation a challenge
• Restrictive infrastructure: poor road infrastructure limits farmer access to wholesalers
• Poor and unreliable grading and standard system: lack of a transparent system of grades
and standards of wheat exposes wholesalers to a high degree of risk and uncertainty,
especially when they trade with millers and bakeries
• Small number of storage facilities: reduces the quantity of wheat transported and sold to
market
4. Processing • Poor technology: outdated production equipment limits the capacity of mills to process
higher volumes if required
• Underutilization of mills: outdated production equipment limits the capacity of mills to
process higher volumes if required
5. Retail and • Constrained competitiveness: subsidization of wheat imports restricts the growth of the
distribution domestic market
• High transport costs: poor road networks increase the cost of the product
• Poor communication channels: limited market information reduces the amount of wheat
transported and sold

Sunflower value chain

While fertilizer and pesticides are imported, most sunflower seeds in Ethiopia are sourced
domestically. These are older varieties that result in shorter than average crops. Post-harvest
activities are carried out at the farm level. Farmers collect seeds, dry those with high moisture
content, and store all seeds before eventually selling them to wholesalers.

Edible oil and oil cake are the two are two primary byproducts of sunflower. The oil pressing
processes used in Ethiopia are inefficient. The byproduct of extraction is currently used to feed

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cattle. Importing raw sunflower seeds is currently cheaper than buying domestically produced seeds
for oil processors. Cooking oil, salad oil, margarine and animal feed are the top processed sunflower
products in the market. Formal oil processors have less than 15% of the market and are mainly
concentrated in urban regions.

Figure 78: value chain for agro-processing – sunflower

Source: 1. Fanta, The Production of Oilseeds in Ethiopia: Value Chain Analysis and the Benefit that Accrue to the Primary Producers, 2005; Wjnands;
Ethiopian Soya Bean and Sunflower Value Chains; 2011’ African Trade Association; A Baseline Survey on the Ethiopian Seed Sector; 2010

Step in the Challenges

value chain
1. Input • Low use of quality seeds limits the availability of raw materials required for processing
supply
• High cost of agricultural inputs reduces the use of fertilizers and pesticides, which limits yield;
high cost of local inputs reduces competitiveness
2. Crop • Poor quality of crops grown: available sunflower varieties do not meet quality standards
production • Poor agricultural practices: limited knowledge of best farming practices limits productivity
• Lack of post-harvest technologies: smallholders suffer post-harvest losses due to inadequate
facilities, e.g., lack of appropriate storage
3. Trade • Fragmented supply chains and markets: limited coordination between processors and
producers, which reduces the amount grain available to process
• Poor management of farmers’ associations hinders coordination and reduces the amount of
seeds available for processing
• Long distances from farm to warehouse increase transportation costs and disrupt the
smooth supply of raw materials
4. Processing • Poor processing methodology: high impurity content of processed oils
• Outdated processing machines: old and inefficient technology; limited use of solvent-based
technology for extraction reduces the amount oil quantity
• Limited processing capacity: small-scale crushers often operate below capacity, reducing
profit margins

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 • Limited utilization of byproducts such as oilcake and soap stock
• Poor hygiene standards at factories increase the risk of contamination and reduce oil quality
5. Marketing • Poor policy alignment: limits the existing market as, for example, wholesalers and retailers
and cannot export edible oil to EU countries due to lack of compliance in packaging
distribution • Lack of transparent market interventions: few effective initiatives to build and support
farmers’ and producers’ trust in the market
• Limited market information: reduces coordination between buyers and processors and limits
market output

Cross-cutting challenges

Access to finance is a challenge that cuts across food and beverage value chains, as is the
prevalence of poor processing equipment, the unreliability of grid electricity, limited alternative
sources power, and poor physical infrastructure. Cross-cutting policy and planning challenges
include limited coordination and communication in the value chain, unclear and varying government
policies and priorities on agro-processing, poor production and distribution of certified seeds by the
government, and unclear coordination among regulatory institutions such as the national and
regional investment commissions.

The food and beverage sector also faces skills gaps stemming from lack of knowledge of effective
farming practices, TVET curriculum that does not match demand, limited marketing and trade
promotion of local processors, little professional knowledge of the business process, low levels of
skill in production processes, and poor linkages between tertiary graduates and value chain actors.
The agro-processing systems map shows pain points across the ecosystem—for example, in linkages
from farmers to processors and access to finance.

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Figure 79: Market system map of agro-processing

III. Potential of job creation

Food and beverage is a major manufacturing sub-industry, employing approximately 843,000

people in 2018. Employment in the food
and beverage industry is forecast to grow by
86% to 2025, with a total of 1.2 million new
direct jobs and 2.7 million indirect jobs.
With an increased focus on industrialization
in the country, there are growing
opportunities in agro-processing for those
who learn modern techniques, and
significant potential future job growth of up
to 400,000 new jobs in industrial parks
alone.

As the industry becomes more capital-

intensive, it is possible that opportunities
for entry-level jobs will decrease. At the
same time, the demand for jobs with
specialized skills, such as line engineers and
product quality surveyors, is likely to grow.

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IV. Strategies and Interventions

To increase local agro-processing activities in the country, increase the quality of local food
products, and create more than half a million decent jobs in the agro-processing sub-sector, we
propose 11 interventions across four strategies: strengthening a sustainable and high-quality supply
of inputs to the industries, encouraging and attracting local agro-processing investments; designing
tailor-made skill development programs, and improving forward and backward linkages in agro-
processing value chains.
Strategy 1. Improving forward and backward linkages in agro-processing value chains
 Intervention 1.1: Integrated input production: ensure an integrated input production and
supply system for smallholder farmers selling to commercial farms, and encourage contract
farming
 Intervention 1.2: Medium-scale agri-mechanization: support medium-scale agri-
mechanization through incentives and by facilitating access to finance and marketplaces
 Intervention 1.3: Expand the Agricultural Commercial Clustering being implemented by
ATA
 Intervention 1.4: Extension services through public-private partnerships (PPPs): introduce
PPPs to ensure that extension services to farmers are efficient and driven by demand
 Intervention 1.5: Market linkages: create a central information center at the cooperative
and union level to organize communications and make market information available to
producers
 Intervention 1.6: Capacity development of cooperatives / MSMEs: build the aggregation
and processing capacity of cooperatives and MSMEs
 Intervention 1.7: Expert exchange program: Create an expert exchange program in
collaboration with manufacturers in other countries to facilitate knowledge transfer;
encourage the promotion of activities such as exhibitions in key markets
 Intervention 1.8: Optimize the job-creation potential of integrated agro-industrial parks
for jobs by preparing effective management and HR structures and recruiting and building
the necessary skills

Strategy 2. Encouraging and attracting local agro-processing investments

 Intervention 2.1: Anchor investments to develop VCs: increase incentives for building in
food-grade industrial parks and improve / standardize agro-processing infrastructure.
 Intervention 2.2: Comprehensive incentive package to domestic input providers: prioritize
incentives for local companies in the ago-processing sub-sector and extend incentives to
agricultural input producers.
 Intervention 2.3: Comprehensive incentive package for domestic processors: ensure that
domestic producers are incentivized to prioritize local companies in agro-processing

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 Developing Agro-processing in China through Special Economic Zones

In China, the Modern Agriculture Development Zones in China attracts anchor investors in agro-processing
by providing the necessary infrastructure. In the early 1980s, China embarked on a ‘Reform and Opening
Up’ policy to experiment with controlled capitalism within a centrally planned economy and drive
investment into an economy that had been closed off from much of global trade earlier. China’s economy
at the time was largely agrarian and failed to be competitive with regional economies such as Taiwan,
Singapore and Japan. The government created Special Economic Zones (SEZs) to increase investment.
Specifically, the government established Economic and Technological Development Zones (ETDZs),
modelled after the SEZs, but each with a distinct focus. ETDZs that focused on developing local agricultural
endowments were referred to as Modern Agriculture Development Zones or Comprehensive Agricultural
Development Zones. Their functions include seedling generation, agricultural engineering, agricultural
infrastructure and agricultural products processing.

Since the 1990s, the government created Modern Agriculture Development Zones to increase coordinated
investments in the agricultural sector in China. The zones offer different types of technology within
industrial parks and free trade areas to form agricultural industry clusters around seeds, machinery,
farming, marketing, processing, sales etc. The zones promote vertical integration in many agri-food supply
chains, as well as the infrastructure and framework to link individual farmers to purchasers, markets and
processors. The zones also attract investors by offering incentives such as special tax to help kick-start
industries and promote technology transfer to local economies.

The results of the MADZs in China include improved technology, more integration in the agricultural value
chain and increased income. The technological advancement in agriculture improved with the introduction
of the SEZs, at 55.2%, while industrial park-based contribution rates reach roughly 70%, nearly the average
level for developed nations. China’s overall technology commercialization rate is only about 10%, but
industrial parks in China boast a commercialization rate of over 60%. SEZs allowed for experimentation.
Also, vertical integration in the agricultural value chains has become more common. For example,
processors and retailers are more involved in the production process. The emergence of contract farming
has helped increase quality assurance by retailers and enabled product traceability for retailers and
consumers. Agro-tech parks and agricultural demonstration zones make a demonstrable contribution to
farmers’ incomes. On average, agricultural incomes within these parks are over 30% higher than incomes
in surrounding villages.

Success factors include efficient government structure, attractive policies and incentives, and efficient skill
training programs. The government has located special funding for activities for comprehensive
agricultural development (CAD) to strengthen agricultural infrastructure, ensure national food security and
increase agro-processing production. CAD has offices at the provincial, municipal, and county levels. The
SEZs streamlined procedures for business operations such as registration, licensing, trade logistics and
customs clearance. Additionally, there were and effective mechanisms to address any litigation or
settlements that arose in the business process. Moreover, there were regulations in place that governed
land, tax, labour, finance, customs, immigration etc. The government also put in place reliable transport,
energy, water, housing and telecom services. Finally, the supply of labor was relatively well managed, as
there was availability of large pool of labour with basic training, who could easily be absorbed into
emerging industries within the park.
Source: Investing in Africa Forum, Special Economic Zones; Oxford Urbanist, The Promises and Challenges of Special Economic
Zones, 2018; Wang, Lanying and Qun Li. “World Resources Report Case Study. Adaptation to Climate Change in Action in China‟s
Agricultural Development.” World Resources Report, Washington DC.

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Strategy 3. Designing tailor-made skill development programs
 Intervention 3.1: Develop skill curriculums at the TVET and university level to meet the
needs of the agro-processing sector
 Intervention 3.2: Tailored financing to smallholder farmers: providing education on and
financial support for modern farming practices

Strategy 4. Encouraging investment in auxiliary industries

 Intervention 4.1: Providing comprehensive incentives to the private sector to invest in
activities critical to marketing agro-processing products, such as packaging, cold chain,
transport, etc.

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E. Textiles
I. Context
The Government of Ethiopia aims to achieve significant growth in textile and apparel exports as
an important component of Ethiopia’s industrial policies. To achieve this vision, the government
has set specific goals in GTPII for technology upgrading, workforce development, and backward
linkage.66

As a result of government incentives for private sector investment, FDI in textiles has increased
over the past decade—growing by 4.4% in 2018 alone. In 2016, there were 20 international garment
factories in Ethiopia—all 20 sold 100% of their pieces to exporters. Government and private
institutions have invested substantially in textile-focused, export-oriented industrial parks (IPs). The
Ethiopian government operates five industrial parks (Hawassa, Mekele, Bole Lemi, Kombolcha parks
and Adama Industrial Parks) dedicated to the textile and apparel sector; two more are currently
under development. The flagship Hawassa Industrial Park is Africa’s largest manufacturing park with
100% occupancy and is expected to employ 60,000 workers at its fullest operational capacity and
generate USD 1 billion in foreign currency per year. Of the 24 operational and planned industrial
parks, nine are focused on garment manufacturing (three are operational in Addis and SNNPR, while
six others are being developed).

The GOE’s intervention is focused on developing a well-integrated sector and reducing import
dependency by increasing value addition in the sector through backward and forward linkages.
Owing to the shortage of quality locally produced cotton, nearly all imported cotton is sourced
directly by export-oriented FDIs like Ayka Addis Textile. With targeted investment in supply chain
development there is potential for import substitution and job creation. Specifically, the
government is exerting efforts to increase cotton cropland cultivated to 100,000 hectare, improve
the quality of cotton products through implementing the Kaizen system, and encourage farmers to
use modern production technologies.

GTP II (2015-2020) aims to improve production capacity, productivity, quality and

competitiveness, and create a reliable input supply. At the end of GTP II, the textiles sector is
expected to achieve USD 2.18 billion worth of production, earn USD 779 million in export revenue,
and create 174,000 additional job opportunities. The government established the Ethiopian Textile
Industry Development Institute (ETIDI) in 2010 to develop and provide skills training programs for
the sector, and the Ethiopian Industrial Parks Development Corporation (IPDC) in 2014 to develop
and implement strategies for industrial zones. The government has also made efforts to attract
global brands and manufacturers into the textiles and apparel industry through relationship building
and by providing incentives.

66
The goals for the textile sector are aimed to achieve 85% machine utilization, equip 25% of manufacturers with state-of-the-art
technology, achieve 30% Uster statics yarn quality, and achieve 89% yarn realization. Workforce development goals include
increasing manpower productivity by 100% and textile and garment graduates by a factor of five. Backward linkages include
establishing five well-equipped research institutions, increasing the seed cotton yield per hectare by 100%, and increasing land area
under cotton cultivation from 80,000 to 500,000 hectares.

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GOE’s aspiration is to become a major player in the global supply chain—mainly supplying to the
US and EU. Ethiopia’s textile export market is still at an early stage but growing rapidly. Total export
has grown from US$ 48 mn in 2010 to US$ 109mn in 2017. The textile sector represents 6% of the
country’s total export value with the ambition to grow to 22% in 2020. Most of textiles is exported
to the US and Europe, with both destination accounting for 66% of their export value in 2017. The
renewal of the African Growth and Opportunity Act (AGOA) through 2025 extends Ethiopia’s duty-
free access to the European and US market. However, further growth in export can be unlocked
through successful industrial backward linkages as Ethiopia has around 3 million hectare that are
suited for cotton cultivation, but only around 5% is utilized so far.

Ethiopia has structural comparative advantages but the realization of advantages remains a
challenge. Production costs are low due to inexpensive labor, competitive electricity rates, available
land and abundant water. Government incentives include tax holidays, duty exemptions, and
subsidized loans. Favorable trade deals give Ethiopia access to various markets on special terms,
and reduced air transport costs have increased the speed-to-market of textiles.

II. Challenges in the sector

Local textiles value chain
Small actors dominate the local textile and apparel value chain, which draws on local inputs and
caters to the domestic market. Commercial farmers produce 70% of cotton fiber, but total cotton
production (concentrated in the Awash Valley) meets less than half the demand of industrial
companies; the rest is imported. Very little yarn production happens in Ethiopia due to the low
cotton quality—fabric typically is imported. There are just five domestic spinning mills and four
handloom factories. Most textile factories in Ethiopia are underperforming. Government protection
has meant little growth or modernization. Garment factories owned by private firms perform
relatively better than the textile mills. The employment opportunity at these factories is mainly
limited to trained technicians.

Dyeing and finishing are closely linked to fabric production. Only 10% of the fabric used by the
garment segment is local, as domestic producers are unable to produce adequate quantity and
quality of textile. Production of trim and labels in Ethiopia is minimal, as is local production of
accessories used in garments—e.g., buttons, thread, interlining. Most garment manufacturers have
their own accessory producers, and manufacturers in IPs are unlikely to ask their accessory
producers to move to Ethiopia, due to lack of domestic demand. The “cut and sew” stage is
considered the most labor-intensive segment of the value chain. Productivity for local factories is
poor—about 1/4 of world average—and the utilization rate of locally-owned factories is low (about
68%).

The Ethiopian Industrial Input Development Enterprise (EIIDE) is the key buyer of local textiles value
chain. EIIDE sources local and imported cotton and supplies on favorable credit terms to local

149
factories. A few local brands such as Ambassador and WOW have significantly contributed to fashion
retail in Ethiopia’s cities.

Figure 80: local value chain for textiles – Local production

Source: ITC, “Ethiopia: Textile and Clothing Value Chain Roadmap”, 2016; Netherlands Embassy in Addis Ababa, Business opportunity report Ethiopia
textile and apparel industry, 2016; EP Enterprise, Garments Sector Strategy, 2017; Ethiopian Textile Industry Development Institute, Textile Industry
Development in Ethiopia, 2014

Step in the Challenges

value chain
1. Fibers • Only 5% of available land for cotton is cultivated and used in the forward textile industry.
• The local cotton supply meets only 40% of industrial demand, which leads to high reliance
on imported cotton
• Limited availability of high-yielding cotton varieties, especially for smallholder farmers
2. Yarn • Very limited yarn production happens in Ethiopia because of the low cotton quality –
production typically fabric is imported
• Yarn production is insufficient to meet growing demand in fabric production
• Ethiopia’s yarn producing machinery is old and outdated, and requires a heavy capital
investment

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 • Minimal employment opportunity and mainly needs technical expertise
3. Fabric • Requires a heavy capital investment
production • Lack of modernization and growth in the industry
4. Dyeing and • Requires a heavy capital investment
finishing • The industry is environmentally taxing
5. Accessory • Limited use of modern dyeing and finishing techniques affects quality of fabric
and trims • Lack of available raw materials to supply the local industry
6. Cut and sew • The skilled labor force is limited; high rate of employee turnover
• Efficiency is as low as 40 – 45% in production both in textile and garment assembly units
due to limited utilization of capacity, single-skilled workers, and low quality of raw materials
• There is high rate of defect and poor quality of finished apparel
7. Brand and • Locally produced apparel faces competition from much cheaper Chinese imports that are
buyers of better quality than locally made garments

FDI textiles value chain

FDIs use both natural fiber and synthetic filaments mostly imported from a variety of countries
including China, India, Korea, Indonesia and Turkey. In 2014, FDIs imported synthetic fibers valued
at USD 100 million and USD 12.7 million from China and India, respectively.

The burgeoning garment sector has seen a huge increase in foreign investment—producers such
as Bagir Group Ltd and the Calzedonia Group have expanded their investment and production
capacity. The majority of the dyes and chemicals are imported from Japan, China, India, Pakistan,
Switzerland, Turkey, Germany, and Korea. FDIs rely on imported inputs for production of accessories
such as buttons, sewing thread, interlining, etc. Although this segment is relatively small, it holds
great potential to for value addition

There are approximately 130 medium- and large-scale factories that cut and sew fabric. Four
completed government-built industrial parks specialize in the apparel production. Buyers and
brands have limited labor needs and in some cases, buyers do not maintain any presence in Ethiopia.
In 2017, 44% of apparel exports went to Germany, with AGOA accounting for 32%.

151
Figure 81: FDI value chain for textiles

Source: ITC, “Ethiopia: Textile and Clothing Value Chain Roadmap”, 2016; Netherlands Embassy in Addis Ababa, Business opportunity report Ethiopia
textile and apparel industry, 2016; EP Enterprise, Garments Sector Strategy, 2017; Ethiopian Textile Industry Development Institute, Textile Industry
Development in Ethiopia, 2014

Step in the Challenges

value chain
1. Fibers • The local cotton supply meets only 40% of industrial demand, which leads to high reliance
of imported cotton
2. Yarn • Minimal supply of funding to finance projects in textile and apparel both from the
production domestic and foreign sources, leading to insufficient yarn produced for growing demand
in fabric production
3. Fabric • Minimal supply of funding to finance projects in textile and apparel both from the
production domestic and foreign sources, leading to insufficient yarn produced for growing demand
in fabric production
4. Dyeing and • Shortage of foreign currency delays imports of raw materials and intermediary goods
finishing • The industry is environmentally taxing
5. Accessory • Shortage of foreign currency delays imports of raw materials and intermediary goods
and trims • Limited use of modern dyeing and finishing techniques affects quality of fabric
• Lack of available raw materials to supply the local industry
6. Cut and sew • Shortage of foreign currency delays imports of raw materials and intermediary goods
• The skilled labor force is limited; high rate of employee turnover
• Efficiency is as low as 40 – 45% in production both in textile and garment assembly units
due to limited utilization of capacity, single-skilled workers, and low quality of raw materials
7. Brand and • Ethiopia’s average cost to export is 61% higher than that of Tanzania and 19% higher than
buyers that of Kenya.
• Ethiopia’s trade logistics constraints include inefficient trade finance and bank processes,
long shipping times, high shipping costs, and inefficient port operations
• Customs processes are unpredictable, and requirements are unclear

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Cross-cutting challenges

Cross-cutting challenges include weak support systems for industrial parks, high skills gap and low
productivity, and lack of formal training in material planning and supply chain management.
Ethiopia’s lack of domestic ports adds to export costs: the average cost to export is 61% higher than
that of Tanzania and 19% higher than that of Kenya. Trade logistic constraints include inefficient
trade finance and bank processes, long shipping times, high shipping costs, inefficient port
operations, and unclear customs requirements and unpredictable customs processes. The lack of
international container freight systems adds to the costs of import and export. Importation and
exportation are a lengthy and bureaucratic process requiring burdensome paperwork, and the
IPDC’s authority to facilitate customs is questionable. The Textile and garment system map (Figure
82) shows pain points and linkages across the ecosystem.

Figure 82: Market system map of textile and garment

III. Potential of job creation

The Ethiopian textile and apparel sector is dominated by medium and large-sized textile and
garment firms that employ roughly 485,000 workers. Locally-owned private firms—mostly medium
in size—dominate the sector and account for 51% of employment. Larger foreign-owned firms
constitute 34% of total number of firms and 49% of employment in the sector. Women make up 80
– 90% of the labor force; among women employed in the textile and apparel industries, 81% are
production workers (compared with 63% of males in the sector who work in production). Close to

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60% of the female production workers are considered unskilled workers (as opposed to 28% for
males).

IPDC’s establishment of textile-focused industrial parks has led to a growth in employment in the
sector. Hawassa, for example, has contributed more than 10,000 job opportunities with the
potential to employ over 60,000 workers on double shifts

Employment in the textiles and apparel industry is forecasted to grow by 86% through 2025,
creating a total of 683,000 new direct jobs and 868,000 new indirect jobs. By 2025, textiles and
apparel will provide an estimated total of 1.5 million direct jobs. Industrial parks will play a pivotal
role in accelerating the growth of the textile industry and scaling job opportunities.

IV. Strategies and interventions

To create more jobs through improved backward and forward linkages, ensure a market-ready
workforce, and increase productivity and outputs in the sector, we propose 16 interventions
across five strategies: improving market linkages and SME development, encouraging innovative
and diversified production, facilitating investment in the sector, developing a highly skilled and
market-oriented workforce, and improving working conditions.

Strategy 1. Improving market linkages and SME development

 Intervention 1.1: Enhance backward linkages to develop competitive local production and
encourage import substitution: Encourage FDI and large companies’ backward linkages with
local companies and SMEs, notably through setting up a comprehensive investment package
with tax and subsidy incentives to encourage investment and developing standards for local
content requirements to ensure competitive quality. FDIs could serve as anchor enterprises for
the development of the local value chain.
 Intervention 1.2: B2B connection platforms: create a platform to connect businesses at
different levels of the value chain in order to strengthen the linkages among different actors and
decrease the fragmentation of production
 Intervention 1.3: Cooperative capacity strengthening: build the aggregation and processing
capacity of cooperatives as a mean of increasing value chain efficiency and ensuring that value
is being added for smallholder farmers.

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  Intervention 1.4: Cotton exchange platform: Establish a cotton exchange platform to lead the
way for storage, marketing, and aggregation of cotton in order to decrease the fragmentation
of the value chain and optimize the use of current logistics

Strategy 2. Improving the production of inputs and encouraging innovative and diversified
production
 Intervention 2.1: Support innovation that can improve large-scale production (e.g., GMO) in
order to improve the development of inputs (cotton varieties, seeds, etc.) and improve the
competitiveness of local production in terms of quality, quantity, and price
 Intervention 2.2: Commercial farms: Encourage large-scale commercial production using
comprehensive incentive packages in order to improve the production of cotton and necessary
inputs
 Intervention 2.3: Diversification of fabric sources: encourage and support the diversification of
fabric sources (synthetic, silk, wool, hemp).
 Intervention 2.4: Domestic chemicals production: encourage duty-free privilege incentives for
foreign companies to establish local chemical plants.
 Intervention 2.5: Incentivize innovation and private sector investment in yarn and fabric
production along with dyeing and finishing

Strategy 3. Developing a highly skilled and market-oriented workforce

 Intervention 3.1: Rural transformation centers as skill training hubs: encourage rural
transformation centers and farmer training centers to become hubs for skill training on the use
of new machinery and new inputs.
 Intervention 3.2: Establish a Sector Skills Committee to ensure demand-driven education and
improved industry-education linkages: the sector skill committee for textiles can spearhead
skills training and encourage industries to offer pre-recruitment skills development and
orientation (including basic life skills)
 Intervention 3.3: Vertical skills development: Develop employability and industrial skill courses,
with certification, facilitated by the sector skill committee for textiles.
 Intervention 3.4: Industry / education system partnership: introduce an industry institute
partnership cell to act as a liaison strengthening linkages between industry and various
departments of technical institutes and universities.
 Intervention 3.5: Internship programs: incentivize and encourage industries to set up
internship/apprenticeship programs, facilitated by the establishment of the Sector Skills
Committee.

Strategy 4. Improving working conditions

 Intervention 4.1: Encourage and incentivize industrial parks and large firms to provide
integrated services, including housing, childcare, catering, etc.
 Intervention 4.2: Encourage companies to adopt performance-based managerial practices
based on continuous research and learning on cultural adaptation and industrial environments

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F. Leather
I. Context
Leather manufacturing is one of Ethiopia’s oldest industries. The large livestock resource and
competitively priced labor force give Ethiopia a competitive advantage. Historically, semi-processed
leather exports have surpassed finished leather and leather products and have limited the growth
of value-additive sectors, like finished leather and footwear production.

Efforts have been made to grow and modernize the sector. The Leather Industries Development
Institute was established in 2006 to facilitate capacity development and harmonize activities in the
leather industry. GTP I (2010 – 2015) aimed to achieve an output of USD 1.7 billion for the leather
industry but missed the target by 73%. This was due to a range of factors such as shortage of quality
hides and skins, skills gap across all functional areas, limited technology utilization, and resource
optimization and long lead-times in the importation of inputs.

GTP II (2016 to 2020) aims to accelerate the growth of the leather sector—to make Ethiopia “a
global leader in the manufacturing and trading of environmentally friendly and high-quality leather
products.” To achieve this vision, GTP II has sets out key targets:
- Achieve gross production worth of USD 2.06 billion
- Generate export earnings of USD 707 million
- Increase production capacity to 85% and create 336,000 new jobs
- Dedicate of two industrial parks for leather manufacturing: Modjo Industrial Park and
Huajian Light Industrial Park.
- Established a five-year tax exemption for exporting companies and a duty exemption
on imported capital goods
In 2018, the Ministry of Trade crafted a roadmap for the leather sector in light of limited progress
of the industry. The roadmap emphasizes the need for developing the entire leather value chain.

Ethiopia is home to the largest livestock population in East Africa region (Figure 83). Globally,
Ethiopia ranks sixth in the world for cattle population, seventh for goats, and tenth for sheep,
making Ethiopia the eighth largest overall producer of these animals. In 2013, Ethiopia accounted
for 22% of the total 446 kilotons of hide and skin production in the East Africa. Intensive farming
contributes less than 1% of the raw hides and skins (RHS) supply; the rest is produced by smallholder
farmers whose RHS are often affected by disease, poor nutrition and yolk lashes.

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Figure 83: Livestock population in top East African countries – 2016 in Millions

Source: FAOSTAT, livestock production 2016;

Figure 84: Hide and skin production in top East African countries – 2013 – in Thousand tonnes

Source: FAOSTAT, Hide and Skin production, 2013; USAID, Agricultural Growth Project - Livestock Market Development, 2013

From 2010 to 2017, foreign-owned firms demonstrated an increased interest in producing leather
goods in Ethiopia. However, maintaining consistent FDI flow has proven difficult. From 2010 to
2014, FDI into leather ranged from USD 9 million and USD 23 million, but in 2015 and 2018, there
were spikes at USD 95 million and USD 107 million, respectively. Currently, there are 16 tanneries
with local ownership, 16 tanneries with foreign ownership, and one tannery that is owned via a joint
venture.

Export and domestic markets

FDIs tend to export the most goods even though they make up a small percentage of firms in
Ethiopia. Leather FDIs benefit from locating their operations industrial parks where support services
are easily accessible. Locally owned footwear firms exported 15% of total production in 2017 (with

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a value of USD 7 million) while FDIs exported 85% of total production (with a value of USD 32
million). Examples of large FDI in the leather industry include Chinese Huajian Group, based in
Dukem, 30 kilometers southwest of Addis Ababa, and George Shoes, a Taiwanese company that
started operations in 2014. Ninety percent of leather product manufacturers (gloves, garment
goods, shoes) are in Addis Ababa.

Ethiopia is still emerging as a leading exporter of semi-processed and finished leather products on
the continent. Despite the recent increase in the level of exports, Ethiopia is still lagging behind in
terms of processing finished leather. The country exports about half of its finished leather; the rest
goes to leather product manufacturers. However, FDI manufacturers import finished leather for
their production. Moreover, despite that total leather exports increased by 39% between 2012 and
2016, while total leather exports in South Africa, Egypt, and Tunisia decreased over the same period,
Ethiopia’s processed leather exports still lag behind those of South Africa and Egypt (Figure 85).

Figure 85: Processed leather exports by top exporting African countries – 2012-2016 – in Tonnes

Source: UN Comtrade database, 2012-2016

Total leather exports reached USD 150 million in 2018, registering a slow 2% CAGR since 2011
(Figure 86) due to the decrease in export value of semi-processed leather, following the export
tax imposed in 2008. The 150% export tax on semi-processed leather ensures the value addition of
labor and the availability of leather for leather products, and finished leather is now a major source
of export. In 2017, Ethiopia exported approximately USD 35 million in leather goods and USD 100
million worth of finished leather. Leather footwear exports are growing far faster than other leather
goods. Approximately 80% of footwear exported by Ethiopian manufacturers is imported by two
countries: the USA and China. China imports 87% of Ethiopia’s finished leather.

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Total leather exports reached USD 150 million in 201867, registering a slow 2% CAGR since 2011.
The growth rate was reduced by the tax imposed on the export of semi-processed leather, which
saw a decrease between 2011 and 2018, however the footwear and articles of leather exports
experienced a 32% CAGR over this same period. Shoe factories make approximately four times more
in sales (USD 113 million) in the domestic market as compared to the export market (USD 30 million).
Tanneries export twice the value of goods sold domestically; the gloves produced are primarily
exported (Figure 87).68 Due to the nature of the global value chain, profit on leather products is
generally low. However, there is an increasing demand from domestic goods manufacturers for
quality finished leather because domestic product manufacturers still import finished leather for
their requirement

Figure 86: Leather exports - 2011-2018 in USD million

Source: ITC Trade Statistics, 2013-2018

Figure 87: Leather goods domestic sales vs. exports – 2017 in USD million

Source: ITC Trade Statistics, 2013-2018

67
Figures are based on ITC data and they differ from NBE/NPC data which says leather exports earned a total of USD 133 million instead of USD 150
million as stated on the graph

68 Enterprise Partners, Leather Sector Strategy, 2018; Enterprise Partners, Tanning market strategy, 2018

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Competitive advantages
Ethiopia is well-endowed with livestock; its hides and skins are widely known for their natural
qualities of clarity, flexibility, strength, thickness, and compact texture. There are two types of
skins produced in Ethiopia—Bati and Selallie—that yield some of the finest leather in the world.

Production costs are low in Ethiopia due to a young and abundant labor force—wages in Ethiopia
are a fifth of China’s and half of Vietnam’s. Ethiopia has very competitive electricity rates, as well.
Land is easily accessible to lease at low ratse for a period of 60- 80 years.

In addition, Ethiopian tax law allows for the duty-free import of raw materials and machinery for
manufacturers. The government offers a five-year income tax holiday and exemption from export
tax—and exporters are permitted to import pre-registered inputs without paying cash up front,
settling at year-end. Export opportunities were created through preferential trade agreements and
membership in economic communities.

II. Challenges in the sector

Leather value chain

The value chain for leather starts with herd breeding, which is largely dominated by small-scale
farmers. Eighty percent of cattle and 90% of goats are slaughtered at home. Formal slaughterhouses
contribute only 30% of cattle hide and 10% of sheepskin and goatskin to tanneries. Collection of RHS
is largely informal. A high percentage (as much as 65%) of skins are rejected due to bad practices in
curing, collection, and general handling. Collectors go door-to-door to collect hides and skins from
households, butcheries, hotels, and restaurants.

Only 5–10% of the total required chemicals for tanning are produced in Ethiopia, while 20% of
hides and skins produced are air-dried. The current bonded warehouse scheme is serving the market
at just 11% capacity. Tanneries are largely limited to semi-processing (14% of tannery output in
finished leather). RHS trading guidelines prohibit tanneries from dealing directly with
slaughterhouses.

The bulk of profit in the leather value chain is in the sale of finished goods, but the erratic supply
of quality local leather presents a challenge to producers. Approximately half of Ethiopia’s finished
leather is used locally. About 2,000 to 3,000 small and microenterprises are engaged in the
production of footwear—a number of these enterprises are vertically integrated with tanneries. In
2016, Ethiopia produced 7.81 million pairs of shoes, of which 3.31 million were exported (valued at
USD 38.6 million).

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Local brands sell products domestically through their retail shops. Ethiopia export firms are smaller
than their counterparts in other leading leather exporting countries, and therefore lose out on
economies of scale in global markets. Over 90 % of the export is conducted by FDIs.

Figure 88: value chain for leather

Source: ELIAS, Ethiopian Leather Sector-Current status and future prospects presentation to UNIDA, 2018; Leather sector strategy, 2017; EP, Leather
Products, 2018; Ministry of Industry, Ethiopia Leather Sector Value Chain Strategy, 2016

Step in the Challenges

value chain
1. Production • Limited knowledge of animal husbandry leads to low quality of hide and skin
• Poor household handling practices of raw hide and skin due to limited knowledge on
slaughtering techniques
• Seasonality of collection affects availability of RHS input
2. Collection • Insufficient collection during holidays—only a portion of raw hide and skin produced is
collected; the rest is wasted
• Informal slaughtering points undermine the collection of hides and skins even in urban areas
• Aggregation of RHS is cumbersome due to numerous players active in distribution
3. Bulking and • Inconsistent production of raw hides and skins due to fasting
preserva- • Low availability and high price of industrial salt constrains preservation and bulking
tion • Limited capacity to store hides and skin for extended periods

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 • Numerous post-mortem defects including putrefaction of skins and RHS affects quality

4. Tanning • Low availability of domestically produced leather chemicals and outdated equipment
• Tanneries are poorly equipped to produce high quality hides and skins
• Significant loss in supply of RHS for tanning as 40% of livestock is slaughtered in backyards
• Tanning supply chain is difficult to penetrate
5. Finished • Limited local production of accessories impacts production time, and restricts range of final
product products
• Limited number of large and integrated product manufacturers diminishes gains from
economies of scale

6. Sales and • Limited knowledge of international marketing, especially when entering new markets
marketing • Limited digital presence: low utilization of social media platforms for marketing

Cross-cutting challenges

Government agencies lack the awareness and execution capacity to enforce slaughtering, bulking,
and preservation guidelines. Jobseekers do not have necessary skills and the industry suffers from
high turnover and absenteeism. Throughout the sector there is a lack of understanding of basic
operations and inadequate knowledge of leather fabric and handling techniques, including how to
hide defects and apply remedies. Knowledge is insufficient about modern technologies, machinery
handling, and maintenance.

The leather system map highlights various pain points between the individual, government,
institutions, and individuals in the leather ecosystem.

Figure 89: Market system map of leather

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III. Potential of job creation
Approximately 32,000 people worked in the leather sector in 2013; that number grew to roughly
53,000 in 2018. This accounts for just 2% of total
employment in manufacturing.

In 2013, most employees (76%) were male. Seventy

percent of employees lived in urban areas and 30%
were from the rural areas in 2013. Typical production
workers in leather product manufacturing are high
school graduates or drop-outs. Non-official sources
indicate that trainees typically work for 800 Birr
wages, whereas line producers earn 1,400 birr.

Employment in the leather industry is forecast to

grow by 85% through 2025, with over 45,000 new
direct jobs and almost 58,000 indirect jobs created.

IV. Strategies and interventions

To improve the quality of leather inputs, ensure that most jobs in the sector are created through
local MSMEs, increase export earnings and import substitution, and induce greater FDI and local
investment, we propose eight interventions across three strategies: improving backward and
forward linkages, promoting investment in inputs production, and developing a demand-driven
workforce.

Strategy 1. Improving backward and forward linkages

 Intervention 1.1: Extension service support: ensure the availability of PPP extension services
to support livestock production.
 Intervention 1.2: Promotion of slaughterhouses: encourage or incentivize the use of
slaughterhouses among households.
 Intervention 1.3: MSME cluster development: encourage MSMEs to produce leather
product accessories by creating a cluster of MSMEs for collecting and processing hides and
skins, with linkages to industrial parks to enable production at scale
 Intervention 1.4: Industry linkage: connect local SMEs to industrial parks and help them
specialize in producing high-quality products at scale; revise the training curriculum of LIDI
to ensure that skills align with industry needs and support demand-driven workforce training
through TVET and LIDI
 Intervention 1.5: Competitiveness and technology transfer: create an expert exchange
program in collaboration with manufacturers in other countries to facilitate knowledge
transfer

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Strategy 2. Promoting investment in inputs production
 Intervention 2.1: Investment incentives for input manufacturers: provide investment
incentives and preferential treatment (e.g., facilitating forex access) for input manufacturers
to locally produce input chemicals

Strategy 3. Developing a demand-driven workforce

 Intervention 3.1: Farmer skills training: provide training for farmers on best practices for
animal husbandry and the handling of raw hides and skin
 Intervention 3.2: Demand-driven training of the workforce: revise the training curriculum
of LIDI to ensure that skills align with industry needs and support demand-driven workforce
training through TVET and LIDI

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 Enhancing competitiveness in the Leather industry in South Africa

The South African leather industry is limited by low investments and poor quality of hides and skins due to
limited skills. South Africa’s leather imports have been on the rise in the last 10 years, despite efforts by the
government to improve local production in the sector. The sector struggled with poor quality of hides and skins
produced, signalling that there were limited skills in processing, which hindered the country from meeting
global standards. The skills level in the leather industry were limited across the value chain resulting in outdated
training services. This was due to poor coordination between the industry and training institutions. South
African leather manufacturers operate in a highly competitive global environment where high levels of
productivity, competitiveness, skills and innovation are essential requirements for industry.

The Department of Trade and Industry institutedThe Clothing and Textiles Competitiveness Improvement
Program (CTCIP) and grant funding to improve overall competitiveness and employment in the leather sector.
The program was launched in 2009 as a plan by the Department of Trade and Industry to stabilize employment
and improve overall competitiveness in the clothing, textiles, footwear, leather and leather goods
manufacturing industries. The program included a R200 million grant fund to provide funding assistance for
these sectors to invest in competitiveness improvement interventions. CTCIP was implemented through mainly
two sub-programs: the competitiveness improvement program (CIP) and the production incentive program
(PIP). Through a cluster approach, CIP aims to create a group of globally competitive companies that would
ensure a sustainable business environment able to retain and grow employment levels. The program provides
grants on project costs of up to 65% to individual companies and 75% grants to company clusters. The PIP
provides a 7.5% incentive on Manufacturing Value Addition (MVA). The incentive is banked with the IDC and
ring-fenced for each specific company and made available to them on presentation of qualifying
competitiveness improvement interventions.

The National Footwear and Leather Cluster (NFLC) was established within the CIP to create a competitive
platform for South Africa’s footwear industry through upskilling. The cluster provides support in linkages, skills
development, access to finance and marketing. In linkages, the NFLC linked small-scale footwear manufacturers
and leading retail chains, providing them with opportunities to upgrade their skills, processes and product
development capabilities to effectively service the retail industry. In Skills development, the NCFL partnered
with TVETs to provide relevant across all levels, such as operators, supervisors and middle management,
towards advanced diplomas in footwear design and technology for both manufacture and retail. In terms of
access to finance, the NCFL provided financial and training support, through establishing a grant and partnering
with financial institutions. Finally, in marketing, the NCFL supported manufacturers and retailers with marketing
of their footwear, both locally and internationally.

The leather industry has since seen growth in footwear manufacturing, increase in domestic market share and
exports, and a reduction in trade deficit. The local footwear manufacturing grew by 16.2%, constraining
footwear imports to a marginal 0.1% growth in 2015. The domestic market share increased from 19% to 24%
due to improved retail collaboration. Footwear exports grew by 18.3% by volume and 25% by value in 2015.
Exports of finished and semi-finished crocodile skins also grew by 97%. Moreover, the trade deficit was reduced
by R 1.4 billion, with 2,012 new formal jobs created in the footwear sector in 2015.

Success factors include partnering with academic institutions such as Vaal University and various regional
vocational training institutions across the country. The collaboration enabled the cluster to incorporate
research findings and product development technology into their own footwear manufacturing processes.
Ethiopia could adapt its own cluster by linking it to the regional TVETs to address the skills gap across its
functional areas.
Source: Government of South Africa, Trade and Industry on established National Footwear Leather Cluster at Vaal University of Technology, 2015

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G. Construction
I. Context
Since 2005, a number of government-led initiatives have been geared towards fostering the local
construction industry. The Ethiopian Construction Industry Development Policy, for example, aimed
to create an enabling environment for the development of an efficient and sustainable local
construction industry that supports the government’s economic and social development objectives.
The creation of entry incentives for domestic firms—including long-term loans for capital
investments, easy access to mining resources, and the allocation of foreign currency on a
preferential basis—as well as the provision of transport and energy—in the form of coal imports
and priority allocation during power cuts—have helped support the growth of local companies in
the sector. Cement production has been another way to boost private sector investment in the
sector: with the construction boom, cement production has grown since 1999 at an average annual
rate twice the world average. Ethiopia today is the third largest cement producer in Africa.

Government investments in the construction sector were prioritized over the last decade to align
with Ethiopia’s growth targets. The Housing Development Program (HDP) has been a significant
driver of growth. HDP is a national integrated housing development program that involves a
combination of government financing and construction of housing in large and medium-sized cities
targeted at middle- and low-income households. Ethiopia's Road Sector Development Program
(RSDP) strengthens and expands Ethiopia’s road transport infrastructure and improves its reliability,
as well as strengthening institutional efficiency in the management of the road sector. National
Logistics Development (NLD) is a program to expand the rail network, intended to enhance of the
country’s export competitiveness by significantly reducing trade logistic costs.

As a result, the construction industry has been growing steadily and at a faster pace than the
African average. During the GTP I period, the construction industry grew at 28.7% per annum on
average, increasing its share of GDP by 4% between 2009/10 and 2014/15. The growth boosted by
government spending and the construction boom has lent this sector considerable weight in the
economy and has contributed to the development of other sectors such as manufacturing and
tourism.

Continued growth has been driven by government investment in mega-projects such as power
generation plants, express roads, and railway expansion. In 2017/ 2018, the construction industry
grew by 15.7%. Construction and maintenance of roads remained one of the key investments for
the Ethiopian government over the past decade. The government put USD 1.2 billion into the
Ethiopia-Djibouti railway, USD 4 billion into the Road Sector Development Program, USD 4.7 billion
into the Grand Ethiopian Renaissance Dam, and USD 1.2 billion into building over 16,000 homes in
Addis Ababa.

166
Figure 90: Investments in the construction sector - capital in thousands of Birr - 2014-2017

Source: National Bank of Ethiopia, annual report 2017/18

Almost half of all road construction is still executed by foreign companies (Figure 91). Multiple
policies have been put in place to facilitate the development of local stakeholders and develop the
sector—through, for example, giving priority for construction contracts to local contractors,
including capacity building as a part of contracts in order to ensure skill transfer, and incentivizing
the hiring of local subcontractors.

Figure 91: Road network - unit kilometres constructed - 2016-2019

Source: National Bank of Ethiopia, annual report 2017/18; World Bank, Country profile and export guide, USAID, 2016, Observatory of Economic
Complexity, MIT Media Lab

167
The industry is largely reliant on imports of construction material, signaling a need to develop local
industries in order to meet the growing demand. In 2017, Ethiopia imported more than USD 1.2
billion worth of construction machinery, vehicles, and prefab buildings. Local competencies do not
yet allow for affordable production of these materials.

Ethiopia aims to transition into a more industrialized economy where local industry is vibrant and
can adequately respond to demand. Imports of construction materials have been decreasing with
this effort to boost the local market.

II. Challenges in the sector

Construction value chain

The construction value chain is dominated by international players due to the lack of expertise of
local companies. Raw materials such as stones and soils from natural reserves—materials such as
limestone, gypsum, clay, and pumice used in cement production—are collected locally. Domestic
steel production is minimal—steel is mostly imported. The processing stage involves converting raw
materials into usable inputs for construction. This includes cement production, briquette making,
stone crushing, and bitumen making. Finishing materials—including woodwork, piping, fitting, etc.,
for building projects, as well as road lights, pavements tiles, and signs for road projects—are largely
imported.

Engineers, and consultants design projects and assure quality—international hires are common
at this stage. Engineers and foremen direct onsite construction executed by construction workers.
Stakeholders in the construction phase are mostly local hires. Regulators and contractors struggle
to maintain high quality and ensure security on site. Small infrastructure facilities for the rural
population are constructed by the informal sector. Actors in this segment are mainly micro-
entrepreneurs.

The government orders most of the large-scale projects in Ethiopia, although efforts are underway
to increase private sector investment in real estate. The housing sector has been a major driver for
sector growth, through the HDP.

168
Figure 92: value chain for construction

Step in the Challenges

value chain
1. Raw • Low sustainability of raw materials: volume of natural resource utilization is not sustainable
material and could compromise the environment for the sake of growth
collection • Rising raw material costs: the weakening of local currency against the dollar has lead to rising
steel and oil prices

2. Raw • Low quality of locally manufactured products: some of the locally processed raw material
material presents quality issues
processing
3. Finishing • High cost of finishing materials: construction is highly dependent on prefabricated products
materials that are costly due to import fees
4. Design • Design complexity: the level of complexity of certain design and engineering requires the
hiring of international experts
• Shortage of skilled labor: low local skill levels does not facilitate knowledge transfer
5. On-site • Heavy competition from international companies: local companies have cost containment
construc- pressures due to increased competition
tion

169
 • Low quality of work: low skill levels lead to quality constraints requiring high investment on
additional labor and compensation and less on boosting productivity
6. Sales and • Dependence on government projects: most of the growth registered in the construction
marketing sector has been driven by government projects such as the USD 1.2 billion Ethiopian housing
project
• Low private investment: private investment in real estate is increasing but must grow further
in order to balance high government spending in the sector

Cross-cutting challenges

Along with the cross-cutting challenge presented by a shortage of competent, certified labor, the
broader enabling environment is characterized by ineffective construction project management and
quality assurance, limited access to land, unstable input prices, weak enforcement of regulations
and standards, and a lack of dedicated financing institutions. The weak financing capacity of
contractors and recurrent cash flow shortages in construction signal the need for dedicated
financing. Figure 93 maps out the critical pain points in the construction ecosystem.

Figure 93: Market system map of construction

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III. Potential of job creation

The construction sector employed near 800,000 people in 2013 and is estimated to have grown to
almost 2.2 million jobs in 2018 across building
construction, civil engineering, and other
specialized activities. The government’s policy to
boost job creation through the construction of low-
cost houses in Addis Ababa and other regions
succeeded in creating work—building construction
employed the most people in the construction
industry (more than half). Most of these jobs are
low skilled or semi-skilled laborers (masonry,
carpentry, plumbing, etc.); for the most part, they
are informal. The limited capacity of TVET explains
the shortage of competent, registered and certified
human resources—a persistent challenge for the
sector.

By 2025, a total of almost 1.8 million direct jobs could be created across the industry, an increase of
83%. The growth pushed by construction could also create approximately 4.5 million indirect jobs
given the multiplier effect of job creation in the industry.

IV. Strategies and interventions

In order to increase access to construction raw materials by stabilizing the construction resource
market, ensure a qualified and certified local workforce of skilled laborers and professionals,
improve workers’ standards of living and occupational safety, and raise the quality and
competitiveness of the construction sector, we propose 14 interventions across four strategies:
designing tailor-made skill development programs, ensuring a robust enabling environment to
foster construction sector development, improving the ease doing business in the construction
sector, and designing and implementing innovative flagship projects and programs.

Strategy 1. Designing tailor-made skill development programs

 Intervention 1.1: Community skills development program: create a skills development
program for local (community-based) producers of construction inputs
 Intervention 1.2: Training program: provide targeted training programs for skilled and semi-
skilled workers in the sector
 Intervention 1.3: Professional skills development program: create apprenticeship and
training programs for professionals and university students in the construction sector

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 Skills development in the Construction sector in South Africa

South Africa, faced with the same skill gap challenge in the construction sector, implemented the
Construction Education and Training Authority (CETA). The skill gap in construction in South Africa is
significant: the construction/ infrastructure environment relies on a vast array of technical and engineering skills
from engineers, project managers and architects at the high-level end, to artisans at intermediary-level, and
charge hands, operators and drivers at low-level end. However, the national demand for adequately skilled
employees is high while the supply low. The challenge related to skills has been a concern since the late 90’s
and has led to the creation of the Construction Education and Training Authority (CETA). The mandate of the
CETA is to facilitate and fund skills development in the construction sector in South Africa. With the preparation
of the 2010 FIFA World Cup, the skill gap was addressed more aggressively with the restructuring of the CETA
and its relation to the Department of Higher Education and Training.

The Construction Education and Training Authority is accredited as an Education and Training Quality (ETQA)
body under the Department of Higher Education and Training. CETA provides skills development services to the
construction sector, to ensure that people obtain critical skills that are needed to build the capacity of the
construction sector. CETA is responsible for identifying skills gaps and developing education and training
programs that are appropriate to address these skills shortages. The authority covers 5 sub-sectors in the
construction industry: building construction, road and civil construction, built environment profession,
materials manufacturing and electrical construction. The organization was placed under administration in 2011
but was later restructured and rebranded.

CETA plans to upskill people in the construction sector via 6 flagship programs that run from apprenticeship
to bursary schemes:

- Apprenticeship program: CETA has adopted the dual vocational training system where it partners with
small and medium sized companies and public funded vocational schools. Learners spend part of each
week at a vocational school and the other part at a company.
- Candidacy program: The program enrolls graduates who have been studying in the built environment
sector. They are comprised of architects, engineers, quantity surveyors and landscape architects
- Fresh graduates enroll in this program with the ultimate goal of becoming professionals
- Recognition of prior learning: RPL is the process of giving recognition to individuals in a form of a recognized
certificate through assessment and evaluation of their knowledge and work
- International internships: CETA has embarked on a project of placing learners abroad with a group of 300
learners placed in different companies in China. The group is exposed to practical construction in the field
of built environment during their 12 months stay.
- Bursary scheme: CETA has opened a bursary scheme targeting 2000 students who wish to pursue career
in the build environment field. The goal of the scheme is to have an increased pool of skilled graduates
entering construction.
- CETA academy: CETA is in the process of establishing an academy with the objective of providing
customized skills. It aims to close knowledge gaps in the sector.

CETA like all skill education and training authorities (SETA) is financed from skills development levy. The results
of the CETA program indicate an increasing number of learners, new entrants, and increase in gender inclusion
and rural representation. The authority CETA reported an achievement of 29,432 learners through various
learning interventions in the year 2017/18, with the level of new entrants increasing from 12,434 to 18,848
between the financial year 2016/17 and 2017/18. Women contributed to 61% and 46% of enrolment in short
skills and apprenticeship programs respectively. It represents a 93% increase in female enrolment for
apprenticeship programs. Also, 98.5% and 67.5% of learners in short skill programs and apprenticeships hail
from rural areas.
Source: Construction Education and Training Authority, Annual Report, 2017/28

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Strategy 2. Ensuring a robust enabling environment to foster construction sector development
 Intervention 2.1: Investment support: providing incentives to facilitate private sector
investment in the construction sector
 Intervention 2.2: Support capital raising: put supporting systems in place to facilitate capital
raising for construction projects, e.g., facilitating the creation of share companies through
minority investor protection directives
 Intervention 2.3: Local production support: encourage local production of finishing
materials though incentives and financial support
 Intervention 2.4: Expanding construction equipment leasing (and lease to own): expand
leasing and maintenance of equipment and machinery for SMEs in the construction sector—
Development Bank of Ethiopia (DBE) is a potential provider
 Intervention 2.5: Supporting the establishment of a formalization system (firm-based sub-
contracting and sourcing services): encourage establishing and grading firms in trades such
as plumbing, etc.

Strategy 3. Improving the ease of doing business in the construction sector

 Intervention 3.1: Protective measures for local construction companies: enforce
partnership requirements between international and local construction companies in
bidding for and undertaking construction projects
 Intervention 3.2: Local contractors license: strengthen professional license provision and
quality control systems for local and small-scale contractors
 Intervention 3.3: Policy revision: revise the law on raw materials to ensure that ownership
of raw materials is well defined

Strategy 4. Maximizing job creation potential through designing and implementing innovative
flagship programs
 Intervention 4.1: Flagship rural housing development project: introduce a flagship project
to promote housing and infrastructure construction in rural areas, financed by the public
sector and through PPPs
 Intervention 4.2: Delivery program: introduce a construction materials delivery program for
formalizing and aggregating construction input supply
 Intervention 4.3: Flagship cadaster project: introduce a flagship cadaster (land survey)
project

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H. Mining
I. Context
The mining and quarrying sector is underdeveloped in Ethiopia, representing less than 1% of the
GDP in 2018. Given the large untapped potential for mineral mining, the sector is a priority for the
government, which has set ambitious targets and made several efforts to support sector growth.
The government hopes to increase the sector’s contribution to GDP to 10% by 2025, with a total of
USD 2 million of annual exports by 2020.

Of the four major categories of minerals—industrial, construction, precious, and dimension—

Ethiopia’s mining efforts focus on precious and industrial minerals. Ethiopia has reserves of gold,
platinum, copper, potash, gemstone (sapphire and emerald), oil and natural gas, and shale oil
produced from oil shale. The country’s reserves of salt may be as much as 4.3 million kilotons (kt)
and of potash 1.3 million kt, but current production levels are meager.

Artisanal mining represents the lion’s share of the sector, employing at least 1.5 million people
(74% of miners) and accounting for 65% of mining foreign exchange earnings. Artisanal mining
contributes 45% of the livelihood of mining communities in Oromia, 57% in BGR, 60% in SNNPR, and
about 84% in Tigray and Amhara. Artisanal mining in Ethiopia primarily focuses on gold, employing
1.26 million people in the Oromia and SNNPR regions alone. An artisanal gold miner earns between
8,000 to 10,000 birr per annum.

Mining has the potential to be an important economic catalyst for the government’s export-
oriented development strategy. Gold dominates Ethiopian mineral exports (USD 111 million in
2017) (Figure 94), but precious stone exports have grown substantially, from just USD 54,000 in
2007 to USD 17.4 million in 2014, before falling to USD 13.8 million in 2017. Recent exploration and
mining licenses have been provided to potash, gold, and base metals mining firms—once these
come online, there is potential both to increase exports of gold and base metals and to kick-start
Ethiopia’s large-scale potash production.

174
Figure 94: Mining potential in Ethiopia

Source: “Ethiopian Extractive Industries Transparency Initiative Third Report for the year 2015/2016”, 2018;Page 9 https://eiti.org/ethiopia#tax-and-
legal-framework-; USGS, “Ethiopia 2015 Mineral Book”
Figure 95: Mineral export figures - Millions USD (2013-2017)

Source: ITC, Trade Statistics, 2011-2017

Ethiopia lags behind its regional counterparts in gold production. Ethiopia produced 4,600
kilograms of gold in 2017, while Tanzania produced almost 10 times that amount and Ghana
produced 143,400 kgs the same year (Figure 95). Yet Ethiopia’s gold resources have been estimated
at 500 metric tons, of which 40 tons could be produced each year given sufficient investment,
creating around USD 1.7 billion in export earnings annually. The Benishangul Gumuz region, for
example, has proven reserves of 48 tons of gold and much more potential to be explored. Capital
investment in mining increased more than 500% between 2015 and 2018. However, the mining
sector still received less than 1% of total investment capital in Ethiopia.

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Figure 96: Gold production figures by country in thousands of Kgs (2013-2017)

Source: World Mining Data, Production of Mineral Raw Materials by Country, 2013-2017

Beyond the potential for gold, industrial minerals such as potash have been identified as a major
opportunity for mining development. Ethiopia has the third largest potash reserve in the world, yet
development of the subsector has been slow even with the presence of large companies such as
Allana Potash and Israel Chemicals Ltd (ICL). As a result, Ethiopia imports large quantities of potash-
based fertilizers. In August 2016, however, Morocco’s Office Cherifien des Phosphates (OCP), the
world’s largest phosphate exporter, signed a deal with Ethiopia to build a USD 3.7 billion plant. OCP
will use potash from the Danakil depression in Afar and natural gas from the Ogaden basin in Somali
as inputs for the production of fertilizer.

Apart from potash, Ethiopia has multiple industrial mineral deposits, but only cement raw
materials and dimension stone are mined at an industrial scale. While there is potential for the
sector to grow, primarily to serve the domestic market, past attempts to provide the domestic
market with industrial minerals have failed due to inconsistent supply and the lack of proper
specifications for the different products.

International investments in the sector have increased with many companies beginning
production in the last couple of years. Investments capital in mining has increased more than 500%
between 2015 and 2018 (Figure 95). However, the mining sector still represent less than 1% of the
contribution to total investment capital.

176
Figure 97: Investment capital in the mining and quarrying sector - Thousands of US Dollars (2015-2018)

Source: National Bank of Ethiopia, 2017/18 Annual report, 2018

Ethiopia provides incentives such as low taxation rates, reduced royalty rates, and duty
exemptions to attract investment, which is currently minimal. The government has also
implemented some regulatory local content laws focusing on preferential employment of Ethiopian
nationals, restrictions on foreign workers, employee training requirements, and health and safety
regulations.

II. Challenges in the sector

Artisanal and large-scale mining follow somewhat different value chains in Ethiopia.

Large-scale mining value chain

Large-scale mining is highly capital intensive and is characterized by vertically integrated
companies that explore, develop, process, and distribute their mineral output. In the exploration
phase, companies gather data about potential mineral deposits, estimate reserves, and conduct
feasibility studies under the regulatory purview of the Ministry of Mines, Petroleum, and Gas.
Companies must then acquire the rights to harvest those mineral deposits.

Mine development involves the construction of mining facilities and infrastructures (i.e., for
transport) as well as surface stripping. Extraction involves high capital costs and risks—
procurement of efficient machines, transportation, and labor are quite expensive, and drilling and
blasting present a number of financial and safety risks. Minerals are then processed and refined into
saleable crushed stone, gemstones, gold, or cement. At the marketing and sales phase, products
(gemstones, gold, natural gas, etc.) are sold on the market both nationally and internationally.

177
Figure 98: value chain for large-scale mining

Source: International Journal on Mining and Mineral Engineering, Mining sector challenges in developing countries, Tigray, Ethiopia and inspirational
success stories from Australia, 2018; World Bank, Strategic Assessment of the Ethiopian Mineral Sector, 2014, USGS, The Mineral Industry of Ethiopia,
2015. Ethiopia - Mining Sector and Business Prospects, 2016

Step in the Challenges

value chain
1. Exploration • Absence of technical skills/expertise: local Ethiopian workers lack exploration
knowledge and they rely on international companies for the geological assessments
and feasibility exercises
• Absence of supporting infrastructure: mining sites are generally located in remote
areas with limited roads, water and health services
• Limited security measures on exploration sites
2. Mine • Absence of technical skills/expertise: local Ethiopian workers lack exploration
develop- knowledge and rely on international companies for the geological assessments and
ment feasibility exercises
• High capital costs: procurement of efficient machines, transportation, and labor are
quite expensive
3. Extraction • Environmental harm: cyanide and other chemical releases into water bodies are
harmful to aquatic organisms and other wildlife
• High upfront investment in equipment
• Demands complex infrastructure (roads, houses etc.)

178
 4. Processing • Limited skills: skills are not up to international standards; TVET institutions do not
and provide the training required by specific mining industries
refining
5. Marketing • Price fluctuation: lack of a standard measure of pricing drives price volatility
and sales • Inefficient value chain: local jewelry makers have to buy gold from the National Bank
of Ethiopia, which adds transportation costs—especially for those residing outside of
Ethiopia
• Lack of direct marketing and training on exports

Artisanal mining value chain

The artisanal mining value chain, in contrast, is largely non-mechanized and comprises small, non-
professional actors. Mining is not a regular and permanent activity for the majority of the artisan
miners—only an estimated 15% of miners operate throughout the year. Estimates put the number
of artisan miners of gold and opal in major producing areas at 1.26 million people; of that total,
about 94% operate informally (without a license).

Exploration and resource location are conducted by trial and error. Gold extraction techniques
range from open surface mining to open-pit shallow-depth and open-pit deep hole mining to sub-
surface mining (tunnels or shafts). Placer gold mining has traditionally been practiced along alluvial
gold deposits or along an extension of such zones. Due to resource depletion, however, mining is
now practiced everywhere.

Extraction usually involves crushing, grinding, and a washing process to separate gold grains from
gangue (waste material). Gemstone extraction techniques vary—tunneling is preferred for opal
mining, for example, while artisan miners look for other gemstones via panning, open stream
sediment digging/excavation, and hand picking from the host rock, gravel, or soil (gemstone
gangue).

National Bank of Ethiopia buys gold produced by artisanal and small-scale miners and resells it to
jewelers. An estimated 39% of total production is sold through formal (legal) channels. Producers
prefer to sell their mineral to the informal traders in order to avoid paying royalties to the
government. Due to lack of information on value, the ultimate price setters are local traders and
brokers.

179
Figure 99: value chain for artisanal mining

Source: Ethiopian Extractive Industries Transparency Initiative (EEITI), Artisanal Mining Operation and Its Economic Values, Ethiopia, 2016

Step in the value Challenges

chain
1. Resource • Poor awareness and understanding of the mining proclamation
localization • Rudimentary mining practices
• Weak institutional capacity to provide adequate support services
2. Extraction • Wasteful extraction: simple extraction technology—no drilling equipment or explosives.
Artisanal miners often don’t have permits—this leads to wasteful mining
• Massive informal mining practices
• Lack of skill and technology
• Weak institutional capacity to provide adequate support services
3. Processing • Limited small-scale processing technology
• Water shortage
• Lack of business development services and incentives for artisanal miners to develop
their business
4. Marketing • Lack of proper guiding rules
and sales

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 • Unreliable market prices and lack of information on mineral prices
• Poor road conditions or absence of roads

Cross-cutting challenges
A number of skills gaps and training issues are cross-cutting and stem from a related set of
challenges: outdated equipment leads to highly theoretical education, new curricula are
implemented slowly and unevenly, a lack of professional graduates (e.g., geologists, engineers)
makes mentorships and apprenticeships more difficult, and individual talent and entrepreneurship
is not typically reward by promotion in mining.

Poor infrastructure and limited access to reliable energy and water supply are also cross-cutting
issues. Artisanal miners, in particular, incur high transportation costs. The entire sector endures long
and complex procedures to obtain mining licenses, permits, and authorizations, as well as a lack of
coordination and integrated framework. Figure 100 maps out the critical pain points of the mining
ecosystem.

Figure 100: Market system map of mining

III. Potential of job creation

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Mining is capital intensive and creates far less direct employment than other secondary
subsectors. Current estimates are that the sector
contributes around 1–2 % of total direct
employment in a country; when indirect (e.g.,
contract) and induced employment (i.e., resulting
from spending by mining employees) are
included, the contribution can jump to 3 – 15%.

There were approximately 180,000 mining jobs in

2013, but just an estimated 132,000 in 2018 due
to negative GDP growth in the sector. However,
by 2025, there could 156,000 direct mining jobs
across the industry, an increase of 19%, plus
56,000 indirect jobs. Quarrying of stones, sand,
clay and other mining contributed to 58% of all
mining jobs in 2013. Most jobs exist at the
extraction stage.

Adult men dominate artisanal gold mining—digging, rock breaking, grinding, and transporting.
Women are more prominent in transporting and washing.

IV. Strategies and interventions

To fully develop a geological map of Ethiopia, formalize half of all artisanal and small-scale mining
(ASM) by 2025, create quality jobs, reduce imports, and grow quality FDI in the sector, we propose
interventions across four strategies: designing tailor-made skill development programs, improving
horizontal and vertical integration in the mining sector, building a robust policy framework and
enabling environment, and designing and implementing innovative flagship projects/programs.

Strategy 1. Building a robust policy framework and enabling environment

 Intervention 1.1: SMA formalization: formalize SMAs in order to facilitate government
provision of business development support.
 Intervention 1.2: Regulation enforcement: enforce the existing legal framework to promote
artisanal miners.
 Intervention 1.3: Business environment support: improve the ease of access to licenses and
finance for SMEs and large-scale miners working in mining value addition.

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 Formalization of Small Mining Artisans in Colombia

Similar to Ethiopia, Colombia faced challenges of a large artisanal mining population, and in 2014 renewed its
approach to formalization of the artisanal mining sector. In 2012, a national census of the Colombian mining
sector revealed that 72% of all mining operations were characterized as small scale and that 87% of gold mining
is informal. 63% of ASM mining operations were without legal title mining sector and 314,000 people were
directly involved in the sector. Formalization was identified as the biggest challenge to managing the negative
social and environmental effects and to benefiting the communities. Cognizant of this challenge, the
government decided to renew its approach to ASM formalization, informed by a baseline study that analyzed
past efforts, including the government’s crackdown on ASM and the existing economic reality of ASM in
Colombia.

A new National Formalization Policy was adopted in 2014 that aims to formalize 40% of miners by 2019, and
full formalization of the country’s ASM sector by 2032. The formalization policy includes a progressive approach
with three levels: from basic compliance (obtaining mining title) to formal mining to advanced formalization.
The new formalization approach focused on 8 areas; better coordination between institutions, occupational
training and education for mine workers, social inclusion and development in mining communities, technical,
organizational and entrepreneurial strengthening, improving economic incentives for formalization, enabling
miners to work under legal title, and adjusting the regulatory mechanisms for formalization.
Colombia’s government offered three options on program implementation: formalization process, reconversion
into other profession or legal prosecution. For mining organizations that have a mining title but do not comply
with the requirements of formal mining, the government offers a possibility to participate in the formalization
program (legal base, mining and environmental technical aspects, social and labor aspects, economic and tax
aspects, formalization) by developing an improvement plan and providing support in the implementation of this
plan. For miners who do not have the possibility to obtain a mining title, the government developed a labor
reconversion program that builds capacity and education to improve competitivity and provide support to find
other employment opportunities.
The experiences of Colombia and other countries show that key successful factors for ASM formalization
include:
- A comprehensive legal framework that should determine criteria for defining and categorizing different
types of ASM activities, specify duration and renewal, transfer and upgrade of licenses, state the permitted
level of mechanization and processing techniques (e.g., mercury), and set environmental, safety, and labor
standards by level and scale of ASM activities.
- Access to geological data, as the lack of geological data on deposits leads miners to work without structure
and result in low mineral recovery, investment losses and environmental degradation. A way to combat this
is offering publicly accessible information to miners such as the mining online repository launched in Ghana
in 2015.
- Access to finance: debt and poverty traps plague the ASM sector, linked to its informality and inability of
miners to access finance due to their non-legal status. Access can be increased by drafting a small-scale
mining lending policy, establishing loans for small-scale mining projects and making the government a
guarantor for the loans
- Access to equipment: One of the main challenges for ASM operators is the lack of resources to replicate or
adapt mining techniques. Access can be increased by setting up hire-purchase loan schemes and centralized
processing centers to enable alternative access to equipment and technology.
- Capacity building: Poor understanding of the dynamics of ASM communities can lead to the design of many
inappropriate technologies and support services. Developing a training program aimed at teaching good
practices in surveying, prospecting, mining, mineral extraction and environmental safety will build the
miners’ capacity.
Source: Intergovernmental Forum on Mining, Minerals and Sustainable Development, GLOBAL TRENDS IN ARTISANAL AND SMALL-SCALE MINING (ASM): A REVIEW OF KEY
NUMBERS AND ISSUES, 2018
183
Strategy 2. Improving horizontal and vertical integration in the mining sector
 Intervention 2.1: Promote and market Ethiopia's mining potential to the international
market
 Intervention 2.2: Industry linkage: improve the accessibility of licensed buyers to artisanal
miners
 Intervention 2.3: Market linkage: provide competitive prices for gold and similar precious
stones,
 Intervention 2.4: Encourage the formation of MSMEs to aggregate artisanal miners’
production
 Intervention 2.5: Incentivize licensed artisanal miners: lobby the national mining corporation
to create incentives for artisanal miners supplying to licensed buyers

Strategy 3. Designing tailor-made skill development programs

 Intervention 3.1: Sector skills pipeline: create a fellowship program targeting professionals in
the mining sector to support specialized training in mining operations, including for
professionals working in government institutes.
 Intervention 3.2: SME skill training: develop SME skills and readiness to provide auxiliary
services / products to large-scale mining and exploration companies.
 Intervention 3.3: Ensure that business development support includes mineral exploration:
integrate training on mineral exploration methodologies into business development support
to formalize SMAs.
 Intervention 3.4: Value-addition training: provide vocational training in value-addition
practices, e.g., polishing gemstones

Strategy 4. Designing and implementing innovative flagship projects/programs

 Intervention 4.1: Lease capital to purchase equipment: introduce lease capital for the
purchase of equipment—e.g., as part of formalization support
 Intervention 4.2: Geo-chemical atlas mapping: support geo-chemical atlas mapping

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I. Renewable energy
I. Context
The Ethiopian government’s goals for middle-income status require ambitious power generation.
Under GTP I (2010 – 2015), the government aimed to increase capacity from 2 GW to 10 GW,
primarily through hydropower—some of those projects are still under construction. The GTP II
(2015-2020) aims to increase installed generation capacity by an additional 5 GW by 2022. Ethiopia
currently has approximately 4.7 GW of installed electricity capacity.

In 2013, the vertically integrated Ethiopia Electric Power Corporation (EEPCo) was split into two
publicly-owned and -operated companies: Ethiopia Electric Power (EEP), responsible for generation
and transmission, and the Ethiopian Electric Utility (EEU), in charge of distribution and sales. Private
investment as critical to achieving new generation targets, as concessional loans for government-
owned / operated generation facilities have fallen. While market-distorting subsidies for fossil fuels
do not exist in Ethiopia, the average VAT paid by renewables is 15%. However, solar components
are exempt from import duties.

Power mix
Electricity generation has risen to 11,200 GWh per year, but contributions from alternative
sources are limited as new power plants are not yet operating (Figure 101). Ethiopia's power mix
is dominated by hydropower, which constitutes more than 90% of overall generation, at 10,400
GWh in 2016. Dependence on water for power, however, increases the country’s vulnerability to
drought. Wind makes up around 7% of generation; the government aims to continue developing
wind resources through power purchase agreements with private sector developers. Installed
geothermal plants such as the Corbetti project are not yet generating power. There are no on-grid
solar photovoltaic (PV) or solar thermal plants in operation.

Figure 101: Electricity Generation GWh, 1990-2016

185
Source: Climatescope by Bloomberg New Energy Finance, 2018; Export.gov, Ethiopia Energy, 2018

Exports
Ethiopia exports electricity to Djibouti (up to 100 MW) and Sudan (up to 100 MW) and has
concluded power export deals with Kenya and South Sudan. Construction of an Ethiopia has plans
to export up to 400 MW of electricity to Kenya and 400 MW to Tanzania once the Ethiopia-Kenya-
Tanzania transmission line is completed in 2019. However, without sufficient installed capacity,
Ethiopia’s plans to generate foreign exchange by exporting power could come at the cost of not
meeting the demands of its own population.

Electricity access
Electricity access reached 43% in 2018, up from 13% in 2000; however, a wide gap between urban
and rural areas persists, and demand is rising. Electricity accounts for just 2% of total energy use in
Ethiopia; biomass for cooking and heat makes up 98% of the energy supply for households. Rural
access to electricity stood at just 27% in 2016, compared to 85% in urban areas (Figure 102).
However, urban access has flattened in recent years as urban population growth poses a challenge
for the rate of new connections.

Figure 102: Access to electricity %, 2000-2016

Source: World Development Indicators data, 2018

Despite Ethiopia’s energy potential, the country experiences electricity shortages as it struggles
to serve a growing population and meet rising electricity demand. The average retail price of
electricity is USD 21.18/MWh, which compares favorably to Kenya (USD 160.41) and Tanzania (USD
96.12). However, poor transport infrastructure and low population density hampers the reach of
both the public grid and private enterprise in rural areas. 69

Future demand
With rising incomes and a growing middle class, power consumption per capita increased by 9%
per year from 2004 – 2014, reaching 70 kWh in 2015. Accounting for population growth, electricity

69
‘Energy’, 2018; Solar Plaza, Ethiopia Solar report, 2019

186
demand is forecast to grow by ~30% per year, reaching 120,000 GWh of demand by 2025—more
than ten times 2016 levels, and requiring significant investments in new capacity.70 The National
Electrification Plan (NEP) estimates that the total cost of future electrification is USD 6 billion.71

Potential generation
There is potential for new capacity from wind, geothermal and hydro, but plans to increase
generation are behind schedule. The nation has exploited approximately 6% of its geothermal
power, 3% of its wind power, and 9% of its hydropower. Ethiopia has ambitious plans to reach total
capacity of 15 GW by 2020 but is behind schedule—even including the 6-gigawatt Grand Ethiopia
Renaissance Dam, currently under construction. Ethiopia has tendered new wind projects, but this
has not yet resulted in capacity being commissioned. Ethiopia will need to expand its power mix end
explore new approaches in order to meet future demands made by a growing and higher-income
population.

Solar
Solar photovoltaic (PV) power, in particular, holds great potential from a technological, economic,
and employment-generation perspective. The price of solar PV modules fell by 81% from 2009 to
2017, making solar now competitive with other renewables. Ethiopia’s high levels of solar irradiation
make it a very attractive region for solar power generation and solar PV—including both on-grid
connected solar plants—has higher employment intensity than hydropower. However, poorly
enacted policies have led to a lack of investment in solar energy, leaving Ethiopia behind the curve
for off-grid solar.

In 2017, the global off-grid solar (OGS) sector reached an estimated 73 million households, or over
360 million people, with a total sales value of USD 3.9 billion. OGS devices reached 20% penetration
in Ethiopia in 2017 with sales of over USD 1.1 million in 2016, connecting 11% of the population to
electricity (2019), and achieving an estimated total off-grid capacity of 14MW.

OGS penetration in Ethiopia still lags far behind that of Kenya (51%) and Tanzania (50%). The IFC
and GOGLA estimate that 37% of Ethiopia’s population could afford OGS devices, despite being out
of reach of current markets. However, this still leaves 30% as unreachable.

The National Electrification Plan aims for the off-grid sector to connect 35% of the population to
electricity by 2025. In 2016, Ethiopia enacted legislation intended to ensure quality standards for
OGS products. However, the legislation mandated local testing of every product without creating
the capability to conduct this testing, leading to products that had already passed international
quality standards being held in customs. Instead of ensuring quality, this policy stifled growth and
investment in the sector. There was zero private investment in the sector during 2016 and 2017,
and annual growth from 2014 – 2016 stood at -8%.

70
Mondal et al, Ethiopian energy status and demand scenarios: Prospects to improve energy efficiency and mitigate GHG emissions,
71
Government of Ethiopia, National Electrification Program 2.0, 2019

187
II. Challenges in the sector

On-grid renewable energy value chain

Two state-owned companies dominate the on-grid value chain: EEP handles generation, storage,
and transmission and EEU is in charge of distribution and sales. The Ministry of Water, Irrigation,
and Electricity; the Ministry of Mines, Petroleum, and Natural Gas; the Ministry of Finance; and the
Ethiopia Energy Authority are responsible for policy development and legal frameworks, decisions
on power purchasing agreements (PPAs) and auction and finance mechanisms, planning and sector
oversight, setting import tariffs on component parts, investment planning, raising finance for mega-
projects, and regional integration and cooperation.

EEP generates power mostly through hydro, wind, and geothermal sources, 72 or else purchases it
through ad hoc PPAs with private sector actors. A significant number of solar projects will be
coming online through IFC scaling solar. Energy storage is mainly in the form of water reservoirs—
no battery storage is currently online. High voltage transmission lines and substations transfer
generated electricity from power plants to the grid; medium and low voltage power lines distribute
power to small towns and individual households.

The National Electrification Plan is targeting 65% on-grid access by 2025. Consumers include
individuals and households, commercial offices, factories, municipalities, and other industrial
customers. EEU has approximately 27,000 corporate high voltage electricity clients. The price of
electricity is expected to increase each year for the next five years to increase investor interest.

72 As well as a small amount of diesel (~ 87MW).

188
Figure 103: value chain for the on-grid renewable energy

Source: MOWIE, 2019; Ministry of Mines and Petroleum, 2019; Climatescope by Bloomberg New Energy Finance, 2018; EEP, Electric Transmission,
2019; New Business Ethiopia, EEU launches new bill collection system, 2019; Ethio Resource Group, Solar Energy Vision for Ethiopia, 2012;
Government of Ethiopia, National Electrification Program 2.0, 2019

Step in the value Challenges

chain
1. Regulatory • No wholesale power market: dispatch of electricity is not in least marginal cost merit order
foundations • Poor coordination from government on PPAs and auctions for capacity
• EEP and EEU staff lack of experience of working in the private sector
• Lack of communication between government and local delivery; delays in licensing for
companies and investors
2. Generation • Concentrated generation: heavy reliance on hydro means water shortages pose a risk to
and storage electricity supply
• Poor integration with the private sector: PPAs are not functional; just 1-5% of capacity is
auctioned
• Financial management: EEP is “struggling financially,” meaning private companies may be
more hesitant to enter off-taking agreements
• Poor digitization of processes
3. Transmission • Poor reliability: old equipment and lack of maintenance is causing frequent outages and
drops in voltage

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 • High losses: 19% loss in distribution system occurs due to lack of capacity and equipment
deterioration
• Financial management: EEP is “struggling financially,” meaning that private companies
may be more hesitant to enter off-taking agreements
• Poor digitization of processes
4. Distribution • Lack of capacity: the transformer and distribution line is overloaded from increased
demand
• Time and cost of connection: it takes 95 days for EEU to connect a customer, at an average
cost of USD 1,000 for those located far from the grid
• Lack of processes and commercial mindset means EEU is operating below optimum
standards
• Staffing is inefficient—of 18,000 staff members, just 700 are engineers.
5. End • Power outages: 80% of firms experienced an average 8.2 outages per month, each
consumption lasting just under 6 hours
(sales) • Poor billing, unfair disconnection: increase the risk of lack of demand from customers
• Lack of processes and commercial mindset means EEU is operating below optimum
standards
• Staffing is inefficient: of 18,000 staff members, just 700 are engineers.

Off-grid solar value chain

The off-grid solar value chain is dominated by private enterprise and is as much focused on
customer product sales as it is on electrification. Companies either design their own products for
base-of-pyramid markets or buy from third-party manufacturers. Business-to-business pay-as-you-
go (PAYG) integrators and manufacturers of off-grid solar develop products and backend software
for customer relationship management (CRM). Most devices are manufactured in China, India, or
Germany. The UNDP has developed a standard for solar home systems (SHS) but has not yet been
implemented.

Solar home systems and other devices are shipped to East African ports and trucked to interior
cities, including Addis Ababa. Integration with PAYG platforms enable consumer financing through
mobile money. Companies raise investor finance from risk-resilient investors, impact investors,
donor funds, government, and other financiers—this includes special purpose vehicles and
mechanisms to support the debt of customer loans.

Off-grid solar power requires strong distribution networks and customer relationships. Companies
sell their own devices to customers through shop and agent networks. Some enterprises act solely
as distributors, remaining agnostic about the type of equipment they offer. In general, the value
chain is fragmented with many brokers.

Maintenance and after-sales are a major consideration for off-grid solar products. For products
sold on PAYG, the company is responsible for maintenance. Even for outright sales, any product
faults require outreach back to customers for repair or replacement—which may require returning
to remote locations.

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Figure 104: value chain for the off-grid solar energy

Source: Dalberg analysis

Step in the value Challenges

chain
1. Product • No domestic manufacturing of component parts means parts must be imported from
design and foreign manufacturers
manufacture • Quality regulations and import: mandatory local testing of every product, resulted in
products that have already passed international quality standards being held in customs
2. Operation • No domestic manufacturing of component parts means parts must be imported from
and foreign manufacturers
transport • Lack of government planning and understanding of off-grid solar
• Illegal / counterfeit products imported from Somaliland
3. Consumer • Low levels of consumption: 54.6% of households use very low-load appliances
financing • Poor integration with mobile money hampers take-up and ease of operations
4. Retail • Lack of access to rural areas: poor logistics and transport adds significantly to distribution
distribution costs and makes initial business development a challenge
• Lack of integration with mobile money
• High distribution costs

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 • Fragmented value chain characterized by a profusion of retail brokers and lack of
traceability
5. Maintenance • Lack of access to rural areas: poor logistics and transport adds significantly to distribution
and after- costs and makes initial business development a challenge
sales • Poor maintenance and after-sales of products: lack of accountability of retail brokers

Cross-cutting challenges
A number of challenges are crosscutting, including customs processes and a lack of foreign currency,
poor implementation of taxes and import duties, restrictive financial regulations and high
requirements from risk averse lenders, low internet penetration and connectivity (hampering off-
grid tracking technology), lack of technical knowledge, and skills gaps in coding and design, financial
systems and software, digital literacy, soft skills, and people management. Figure 105 maps out the
critical pain points in the renewable energy ecosystem.

Figure 105: Market system map of renewable energy

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III. Potential of job creation
The renewable electricity industry provided over 24,000 in 2013 and approximately 26,000 jobs in
2018. By 2025, a total of almost 35,000
direct jobs could be created across the
industry, an increase of 36%. The
multiplier effect of job creation means
that employment in the renewable
electricity industry could also create up
to 70,000 new indirect jobs, including
those created through linkages with
local suppliers for transport,
construction, finance, and telecoms.
However, this number could increase
with further government support for a
domestic manufacturing industry. A
local manufacturing and service
industry for solar PV systems alone
could created an estimated 50,000 full-
time skilled jobs by next year.

Further employment could be catalyzed through the productive use of solar power; jobs in OGS
alone across East Africa are estimated to reach 350,000 by 2022. The majority of these jobs would
be lower-skilled positions in sales and distribution. Installation and maintenance are the second-
most in-demand job, requiring practical skills that could be taught in at TVET. Productive use of
solar—for example, improved irrigation with solar water pumps—could lead to additional
employment.

Figure 106: Projection of Jobs in off-grid solar in East Africa, 2022

Source: GOGLA, Employment opportunities in an evolving market, 2018; GOGLA, Energizing job creation: employment opportunities along the off-
grid solar value chain, 2019

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IV. Strategies and interventions
To diversify energy sources, develop local SMEs with the right set of skills and knowledge, and
ensure that renewable energy systems are installed, operated, and maintained well, interventions
have been identified across three strategies: ensuring high-quality and predictable energy services,
developing the skills necessary for diversified and sustainable energy production, and Improving
consumption and use of renewable energy.

Strategy 1. Ensuring high-quality and predictable energy services

On-grid:
 Intervention 1.1: Foster private sector participation along the power sector value chain
- Progress with national utilities restructuring and wide reform of sector governance
(potential unbundling of transmission operations, market opening, tendering process for
new infrastructures)
- Explore the possibility to outsource to private sector and local SMEs ancillary commercial
services (as for meters installation, meters reading, billing and bill collection)
- Outsource installation and maintenance of grid infrastructures and equipment to licensed
private players (local MSMEs can be capacitated to perform such activities through
dedicated training)
- Support the implementation of public-private partnerships for last-mile power connections
and electricity distribution
i) Intervention 1.2: Support independent power producer (IPP) projects in renewable energy
(wind, geothermal, etc.) for on-grid distribution.
ii) Intervention 1.3: Encourage private investment including FDI: attract investment for the local
assembly of transmission equipment such as lines, poles, etc.
Off-grid
 Intervention 1.4: Support off-grid renewable energy projects and support mini-grid
development via financial subsidy and tax incentives for private mini-grids in rural and peri-
urban underserved areas
 Intervention 1.5: Household off-grid renewable energy production: Incentivize household-
level generation of renewable energy (e.g., solar, biofuel) for local use and distribution
 Intervention 1.6: Promote quality product and optimal consumption by clients through (i)
developing quality laboratories to test product quality and authenticity of units and (ii)
overhauling customs quality test procedures by introducing a pre-approved quality control
system
On-grid and off-grid
 Intervention 2.1: Build capacity at EEP and EEU to ensure that management of internal
operations meets global standards of practice and to create public-private partnerships within
the sector

Strategy 2. Developing necessary skills for diversified and sustainable energy production
On-grid and off-grid

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  Intervention 2.1: Provide targeted skill training: create required training programs, including
short-term training, engineering courses in universities, and TVET training programs: (i) low-
skill-level training in sales, distribution, and after-care; (ii) medium-skill-level training for
maintenance and installation, and (iii) high-skill-level coursework for production and
generation
Off-grid
 Intervention 2.2: TVET training: support training in solar power systems and off-grid products,
and other hands-on technical skills, including sales, distribution, installation, maintenance, and
customer-care services
 Intervention 2.3: Renewable energy scholarships: subsidize a range of universities, TVET, and
short-term courses in renewable energy
 Intervention 2.4: Training programs for renewable energy entrepreneurs: provide training on
business development for technology and renewable energy entrepreneurs

Developing Renewable Energy Skills in South Africa

In South Africa, the Energy and Water Sector Education and Training Authority “EWSETA” was set
up to build sector skills in the shift to renewables, and develop a base of specialised energy experts.
EWSETA is a new initiative supporting South Africa’s transition to renewables. It aims to tackle the
renewables skills gap through targeted initiatives addressing missing expertise, both geographically
and by job role. Delivery is coordinated with policies across ministries, particularly with education and
local government. The content of the specialist training could be adapted according to the needs of
individual countries with flexible.

Recognising the importance of the sector as a catalyst and enabler to the rest of the economy,
EWSETA developed a set of interventions from scholarships to specialist training, and expert
databases. The authority identified and implemented priority education & training programs for the
upskilling of the South African workforce for renewable energy and integrated water management.
Also, the authority provided subsidies for young people who want to improve their technical skills: for
example a young person who studied as an electrician can incorporate an additional 6-12 months of
training in order to become a turbine technician.

EWSETA has also developed skills programs for local communities. In geographic areas that are unable
to attract experts, EWSETA developed programs to train local people who can be absorbed into
businesses located in the area, leveraging local community colleges. The authority has also developed
specialist training programs, with targeted training courses for specific segments of the value chain
with a skill shortage.

In order to link the different skills across the value chains, the authority has developed an expert
database that provides details of people with skills in the different categories ((electrical engineers,
mechanical engineers, etc.), and also highlights training and development programmes on offer.
Source: ESMAP, Renewable Energy Training Program, 2018

Source: xxx

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Strategy 3. Improving consumption and use of renewable energy
 Intervention 3.1: Off-grid renewable energy awareness campaigns: launch campaigns to
expand public awareness of environmental protection, climate change, and the benefits of
renewable energy.
 Intervention 3.2: Promote the development of last-mile delivery kiosks for renewable-
energy solutions, including solar, to provide distribution, installation, and maintenance of
renewable-energy solutions
 Intervention 3.3: Promote investment in logistics and distribution of renewable-energy
products
 Intervention 3.4: Use mobile payment and diversified payment options in renewable energy:
fast-track mobile money provider integration with solar technology, introducing installment
/pay-as-you-go payment methods and incentivizing consumers and service providers to use
off-grid energy solutions.

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J. Tourism
I. Context
Home to nine UNESCO world heritage sites, Ethiopia has the potential to become a competitive
destination for tourists from all over the world (Figure 107). The tourism sector is growing
steadily—the number of international visitors grew at 10% CAGR between 2007 and 2017, and this
upward trend is projected to continue over the next few years.

Figure 107: UNESCO world heritage sites in Ethiopia

Source: UNESCO World Heritage Convention

Tourism’s contribution to the nation’s GDP has consistently grown over time and has indirectly
led to the growth of other sectors. In 2017, travel and tourism—including indirect benefits of the
tourism sector—contributed 6.8% to the GDP, amounting to USD 5.1 billion dollars, of which USD
2.05 billion were direct contributions. The direct contribution of tourism to GDP is expected to grow
by 4.9% per year.

Tourism’s total contribution to GDP is relatively high due to the number of service industries it
affects. Services such as retail, real estate, restaurants, transport, ICT, and financial services are all
impacted by the growth of the tourism industry. From 2013 – 2015, hotels and restaurants were the
main drivers of growth in the sector. Ethiopia has seen a large increase in pipeline deals, up from 20
hotels in 2017 to 31 hotels in 2018. At the moment, however, Ethiopia is ranked 116th out of 136
countries in the World's travel and tourism competitiveness index published by the World Economic
Forum.

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Currently, Ethiopia receives only 2% of the sub-Saharan African tourists, yet Ethiopia’s average
per-visitor expenditure is among the highest on the continent, at USD 1,191—less than Tanzania’s
USD 1,637 (the highest in the continent), but significantly more than Kenya’s USD 550 and the
continental average of USD 638.

Figure 108: Ethiopia’s tourist arrivals73 and expenditures, 2014-2017 - ‘000 USD

Source: World Bank Databank; UN World Tourism Organization Statistics

Ethiopia has an opportunity to expand its target market beyond African countries by developing
the meeting, incentive, convention, and exhibition (MICE) subsector. Ethiopia can broaden its pool
of visitors by targeting business-related tourism in addition to leisure and travel visitors. Bole
International Airport is a regional hub, Ethiopian Airlines is a key carrier in Africa, and Ethiopia offers
visa-free entry to all African countries and visa-on-arrival for all other countries. Moreover, Addis
Ababa is the seat of the headquarters of the African Union (AU) and the United Nations Economic
Commission for Africa (UNECA). However, the country still lags behind South Africa and Kenya in
terms of international fairs and conferences held in the country.

The country can also tap into its rising middle-income population to promote domestic tourism.
The GDP per capital has increased steadily over the last decade, signifying a rise in the standard of
living and purchasing power of the population. Domestic travel spending in the country contributed
37.2% of the tourism sector’s share of GDP in 2017, mainly driven by religious pilgrimages, e.g.,
during Timkat. This figure is expected to grow by 7.1% in 2018 to ETB 31.95 billion, due to targeted
marketing and a growing middle class.

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UNWTO definition of international tourist arrivals are overnight visitors i.e. excluding same-day visitors

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Figure 109: Domestic tourist spending, 2012 – 2018 - ‘000 USD

Source: WTTC, Travel and Tourism: Economic Impact 2018 Ethiopia, 2018

The Ethiopian government has created policies and institutions to increase tourism in Ethiopia,
establishing the Tourism Transformation Council, the Ethiopian Tourism Organization (ETO), and
the Tourism Board. In 2015, The Ministry of Tourism developed a Sustainable Tourism Master Plan
2015-2025 to define the vision of the sector and launch a new brand for official use: “Ethiopia: land
of origins.” Incentives offered by the federal government to investors in the tourism sector, include
exemption of customs duty for capital goods and construction materials; exemptions of custom
duties for motor vehicles; remittance of profit, dividends, principals and interest payments on
external loans; and access to land at competitive prices. Some regional governments, such as the
Gambella region and the Benshangul Gumuz region, offer land free of lease for investors in the
tourism sector.

II. Challenges in the sector

Tourism value chain

The National Tour Organization, international online booking platforms, tour operators (integrated
with travel agencies, car rental, etc.), and event management companies serve as links between
tourists and service providers—they directly interact with the tourist to help them plan and book
the trip.

Accommodations for tourists are abundant in the capital Addis Ababa but less so in other regions.
Leisure and holiday are the main motivations of international visitors arriving in Ethiopia, and
various tourism services provide recreation outside the accommodation and/or serve as an
attraction for tourists. Ethiopia is home to world-renowned historical and religious sites; however,
access to the historic and natural sites remains an issue.

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Figure 110: Value chain for tourism

Source: Duke Center on Globalization Governance and Competitiveness, The Tourism Global Value Chain, 2011, Federal Democratic Republic of
Ethiopia, Sustainable Tourism Master Plan, 2015

Step in the value Challenges

chain
1. Distribution • Ethiopia’s poor international image and visibility as a tourist destination persist,
putting the tourism industry at a disadvantage.
• Significant absence of textual information on tourist destinations and cultural
features: marketing initiatives are fragmented and there is a lack of common vision;
understanding of tourism by the general public is weak, and domestic tourism remains
in its infancy
• Limited capacity among inbound Ethiopian tour operators in terms of knowledge and
skill, compounded by weak involvement in source markets
2. Transport • Low capacity of domestic air transport: this issue is exacerbated during high
international tourist seasons and national festivals
3. Accommodation • Weak tourism-related infrastructure: low number of ICT users, road density, total
and food number of hotel rooms, and ATM facilities
• Lack of trained workforce in the tourism sector: a critical gap between the supply and
demand of tourism workforce and limited private sector investment in tourism training;
training programs are not oriented toward the needs of the industry
4. Experience / • Lack of diversified leisure activities due to lack of knowledge and understanding of
tourism service international markets

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 • Mismanagement and/or neglect of existing tourist destinations, cultural sites, and
resources: an absence of professionalism in destination management and development,
as well natural and cultural heritage management
• Infrastructure development: most attractions are off-road, inaccessible during raining
season, and underdeveloped even in the best conditions

Cross-cutting challenges
A number of challenges cut across different stages of the value chain: awareness of job
opportunities in the sector is low; the government provides limited incentives for investors
interested in the sector; tour operators and crafts makers have little access to finance; training
institutes lack handcraft training; jobseekers lack soft skills; and skills institutes do not offer practical
training for the industry.

The tourism ecosystem map in Figure 111 highlights pain points in the experience of a tourist while
visiting Ethiopia.

Figure 111: Market system map of tourism

III. Potential of job creation

In 2017, the tourism sector employed 604,000 workers, against 480,000 in 2013.74 The growth in
the sector was catalyzed by the increase in hotel and accommodation options in the country which
created direct employment opportunities. Additionally, a 7.1% and 4.3% increase in leisure and

74
There are no estimates for tourism jobs alone in 2013, so food & accommodation is used as a proxy.

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business spending respectively between 2017 and 2018 drove direct and indirect employment in
the sector.

Employment in tourism is forecast to grow by 14% through 2025, reaching a total of over 700,000
direct jobs and 1.8 million indirect jobs.

IV. Strategies and Interventions

To increase the number of tourists visiting Ethiopia, improve foreign exchange incomes, create jobs
in all regions of Ethiopia, and improve the international image of Ethiopia, we propose 12
interventions across three strategies: upgrading tourism products and services, modernizing
marketing and destination promotion, and building tourism-related infrastructure.

Strategy 1: Diversifying tourism products and strengthening market linkages

 Intervention 1.1: Develop SMEs in handicrafts to address the poor quality of handicraft
products aimed at touristic markets.

Craft villages in Vietnam

“Craft villages” in rural areas of Vietnam have been used as a way to create jobs, fight poverty, and
reduce under-employment while providing tourism-related products to markets. These villages have
been created based on existing cultural heritage in each region. Most production in craft villages takes
place during leisure time during the off-season, providing workers (especially women) with the
flexibility of working at home while engaging in household activities. Alongside with small-scale craft
villages, Vietnam has also developed large craft villages, which have made it possible for production
to take place full-time and at a larger scale.

There is a direct correlation between income increases for farmers and proximity to cities. Craft villages
that are located close to urban areas and near transportation infrastructure generate higher incomes
than those located in remote areas.
Source: Ministry of Agriculture & Rural Development of the Socialist Republic of Vietnam

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  Intervention 1.2: Stopover tourism: address the limited diversity of tourism products and
services and investment concentration in MICE by promoting stopover tourism for transiting
travelers—in particular, by tapping into diverse creative arts.
 Intervention 1.3: Strengthen the linkage to the agriculture sector by promoting use of local
produces at hotels and restaurants
 Intervention 1.4: Expand and strengthen eco-tourism and community-based tourism and
hospitality programs
 Intervention 1.5: Innovative tourism products: engage with SMEs to introduce diverse
tourism products (e.g., fragility tourism, religious tourism, immersive experiences).
 Intervention 1.6: Support the development of sport tourism
 Intervention 1.7: Encourage the development of products targeting low- to mid-budget
tourists

Strategy 2: Transforming the quality of tourism products and services

 Intervention 2.1: Establish a sector skill committee to address both the mismatch between
training and industry-required skills and the lack of linkages between training and industry
 Intervention 2.2: Incentives for managerial capabilities: work with service providers to
maintain professionalism in the development and management of destinations, with emphasis
on natural and cultural heritage management (e.g., through awards and recognition)
 Intervention 2.3: Promote the development of formal, integrated and quality tourist
services such as tour guides and transportation services
 Intervention 2.4: FDI in tourism: encourage federal and regional incentive packages to
promote foreign investment in tourism
 Intervention 2.5: Tourism fund: establish a public capital investment fund with clear
objectives for supporting MSMEs working in different segments of the tourism value chain.

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 Good practices: Examples of tourism funds

Many countries have implemented tourism funds to help developing the tourism sector:

• The France Tourism Investment Fund (FIT in French) was established in 2015 to promote
tourism and hospitality and thereby stimulate the sector. FIT was initially allocated EUR 100
million; between 2015 and 2018 it invested EUR 86.5 million in 44 companies. FIT is fully
subscribed by Bpifrance, a French innovation and investment bank owned equally by the
French government (50%) and the Deposits and Consignments Fund (Caisse des Depots) (50%).
These two stakeholders are Bpifrance’s main sources of funding. The Fund makes equity and
quasi-equity minority investments with commitments of between EUR 500,000 to EUR 10
million to support growth, innovation, and international development over a five-to-eight-year
timeline. FIT is a hybrid fund with the capacity to invest in both venture opportunities and
growth operations.

• Kenya’s Tourism Fund has been created to boost investment in the sector. This fund is the
legal successor of the Catering and Tourism Development Levy Trustees (CTDLT), which
charged a 2% levy on all gross sales in hotels and restaurants of food, drinks, and all other
services. A feature of the Fund is the diversity (and stability) of its resource mobilization—
resources come both from taxes levied on tourist-related businesses and directly from a range
of stakeholders. The fund will be used to finance projects, training, and marketing efforts.

• The South African Tourism Transformation Fund (TTF) is a dedicated capital investment
funding established by the Department of Tourism in collaboration with the National
Empowerment Fund (NEF). It focuses specifically on financial support for black investors and
communities investing in capital projects in the tourism sector. The TTF provides a combination
of grant funding, debt financing, and equity contributions to facilitate capital investment in the
tourism sector by prospective black investors. The TTF has USD 2.8 million annual grant funding
to disburse over a period of three financial years, up to 2020. The grant component will be
capped at a maximum of USD 354,000 per successful applicant to unlock investment in the
tourism sector by qualifying black-owned small and micro tourism enterprises.
Source: OECD (2018), “Effective Policy Approaches for Quality Investment in Tourism”. World Travel and Tourism Council, France, 2018;
OECD (2016), “Tourism Trends and Policies”

 Intervention 2.6: Invest in the upkeep of attraction sites, the infrastructure around these
sites, and protection of wildlife and their habitats

Strategy 3: Modernizing marketing and destination promotion

 Intervention 3.1: Invest in branding and building Ethiopia’s international image through
mainstream media, social media, influencers
 Intervention 3.2: Curate and promote key destinations and experiences through web portals,
social media, overseas offices, and international platforms
 Intervention 3.3: Invest in seamless services such as online booking, online customer services,
and digital payment
 Intervention 3.4: Maximize access to market through building linkages between local and
international tour operators and negotiating with international package producers

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Strategy 4: Building pro-tourism infrastructure and services
 Intervention 4.1: Enhance tourism mobility: learn from best practices (e.g., those of Rwanda)
to improve the ease of entry by working with the Bole International Airport to streamline entry
and departure processes (e.g., Rwanda); encourage private sector investments in
infrastructure
 Intervention 4.2: Improve infrastructure at tourist sites by expanding the financial
infrastructure in hospitality facilities (e.g., expand digital payment and nearby ATMs, etc.) and
providing government incentives to hospitality facilities to accept digital and credit card
payments. Few establishments accept credit card payments in Ethiopia and ATMs are scarce.
The recent government efforts such as the development of the national payment system
platform are likely to improve business transactions, increase the number of ATMs across the
country, and provide the necessary infrastructure for the development of digital payments
within hospitality facilities
 Intervention 4.3: Invest in building infrastructure in hard-to-reach touristic destinations,
notably through PPPs
 Intervention 4.4: Market linkages: Improve linkages between local producers and hotels,
restaurants, and tourist-industry actors

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K. ICT
I. Context
The information, communications, and technology (ICT) sector consists of telecommunications, IT
services, and IT enabled services (ITes), including business process outsourcing (BPO). ICT as a
sector and growth enabler is a part of Ethiopia’s growth strategy. Government policy objectives
include building infrastructure and improving accessibility, fostering skills for the use and application
of ICT, developing a suitable legal framework, and strengthening the role of the private sector.

Figure 112: ICT as a sector

Source: World Bank, ICT as an enabler of transformation in Ethiopia, 2014

Note: Media and broadcasting, including content creation has not been included as analysis falls under creative industries

The Ministry of Innovation and Technology is currently drafting a new ICT policy and broadband
strategy. While Ethio-Telecom remains the sole provider of telecommunication services, the
government has started the process of further liberalizing the sector, and has made major
investments in improving service quality, expanding service coverage, and enhancing institutional
capacity in the sector.

However, ICT performance remains poor in comparison to neighbors, with low mobile
penetration and net imports of ICT services. According to the 2017 ITU’s ICT development index,
Ethiopia ranks 170 out of 176 countries, 32 positions down from Kenya. Ethiopia’s scores related to
ICT use and skills are especially low, as is its level of telecommunication services penetration: mobile
penetration rate reached 41% in 2018 compared with 51% in Kenya and 49% in sub-Saharan Africa
as a whole.

Other sectors such as financial services and telecoms are affected by the performance of the ICT
industry. Ethiopia lags on connectivity and the regulatory environment that would facilitate the

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spread of digital technologies. Compared with other countries in the region, Ethiopia imposes high
import tariffs (an average of 14.4%) on ICT and digital products, making it difficult for the industry
to grow. As a comparison, the average tariff on these products is 3.75% in Kenya. Despite this,
Ethiopia imported USD 223 million worth of ICT services in 2016.

Telecoms
Network coverage in Ethiopia has improved dramatically but remains a challenge for the
development of digital services. In recent years, Ethio-Telecom has prioritized network expansion
and replacement projects over the quality of service. By 2016, 90% of the country’s population was
in range of a mobile cellular signal, up from just 10% in 2013. However, connectivity and network
infrastructure remain a challenge for developing digital services, and the number of subscriptions
remains low for sections of the population. 4G LTE technology has been deployed in Addis Ababa
but has not yet reached the rest of the country, especially in rural areas. The government is
establishing “Rural Communication Centers” in all 15,000 Kebeles, with 3G broadband access

The performance of the telecom industry has slowed the growth of mobile banking—just 0.03%
of the adult population uses mobile banking (compared to 73% in Kenya) and e-commerce remains
a small industry. In 2018, the government confirmed plans to sell a 30% - 40% stake in its Ethio
Telecom and split the company into two to encourage competition.

IT services
The IT private sector in Ethiopia is relatively nascent, particularly when compared to other African
countries (e.g., Kenya, South Africa, and Mauritius) that have emerged as viable players in the global
IT market. Domestic IT services companies in Ethiopia are small and primarily focus on the domestic
market, which, in turn, is dominated by the public sector (accounting for approximately 90% of the
market). Most foreign IT companies operate through domestic business partners, and are not
physically present in the market,

The National ICT Policy promotes ICT as a tool for employment opportunities and entrepreneurial
ventures. The government is also seeking to make Ethiopia a prime regional IT hub and to stimulate
demand for underlying infrastructure by increasing access to the public sector network. The
government is growing its own ICT capabilities, as seen through the establishment WoredaNet, a
terrestrial and satellite-based network that provides ICT services such as video conferencing, call
centers, email, and internet connectivity to the Federal, Regional, and Woreda level government
entities.

ITes
Ethiopia will need to address its talent pool and high cost infrastructure for business process
outsourcing (BPO) firms to be develop successfully. BPO is a subset of outsourcing that involves
contracting the operations and responsibilities for a particular business process to a third-party
service provider. The BPO services include enterprise resource management, human resource
management, and customer resource management. The business processing outsourcing industry

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requires a good talent pool, low labor costs, and the availability of high-quality and reliable
telecommunications, power supply, and transportation. The biggest constraint for Ethiopia is the
law that bans the use of Voice over IP (VOIP) by businesses operating in Ethiopia, which has
prevented the BPO companies starting operations in the country.

II. Challenges in the sector

ICT segments

Figure 113: Main segments of ICT

The IT sector is made up of six main segments, starting with regulation and policy, spearheaded
by the Ministry of Innovation and Technology. Telecom networks and services comprises all
services based on telecom infrastructure that allow for broadcast across mobile and video
communications. The infrastructure segment, more broadly speaking, includes all fundamental
physical systems that link devices from different locations. Those devices make up the hardware
segment, and include routers, modems, switches, telephones, cellphones, radios, and computers.
IT services comprise custom application development; systems integration; plant engineering,
software implementation and support; IT consulting; embedded systems; and project design. IT-
enabled systems (ITes) include management of core and non-core business systems, processes,
people, and physical assets.

Challenges within segments

Segment Challenges
Regulations • Sector regulation and oversight suffers from poor management processes within
and decision government institutions, a lack of effective incentives for the involvement of the private
makers sector, and a lack of openness to new ways of working.
Telecoms, • Connectivity and power issues, both energy and internet blackouts heavily affect the IT
network sector
services, and • High data costs make doing business and operating mobile devices expensive for
Infrastructure consumers. In 2014, broadband cost about USD 700 per month for 8 megabytes and
provided efficiency of only 2 or 3 megabytes
• Lack of competition: provider Ethio Telecom has a monopoly
• Ethio Telecom’s budget underutilization and lack of efficiency has led to poor quality
service delivery, especially in rural areas
• Lack of accountability and transparency
• Cultural mistrust of the private sector
Hardware • Expensive hardware: despite tax incentives for assembly and manufacturing—including
income tax breaks and tax holidays—hardware is still very expensive. Spare parts are often

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 unavailable locally and all component parts for assembly are still imported due to the poor
quality of locally assembled parts. Local manufacturers lack finance and the availability of
forex for component parts
IT services • Government policy and actions: IT services are affected by government interference in
private sector pricing decisions, the government building services that do not match
consumer needs, and the government creating services already provided by the private
sector (e.g., commerce platforms).
ITes (including • ITes are limited by:
BPO) o Restrictions placed on VOIP
o Lack of digital literacy
o English not seen as a necessary language

Cross-cutting challenges

Barriers in the digital ecosystem include major connectivity and power issues, poor quality of
service, and expensive data. Major connectivity and power issues, both energy and internet
blackouts, continue to affect the IT sector. Systems are opaque; even people working within
telecoms may not know about internet shutdowns. In 2019, an internet blackout [across the entire
country lasted roughly 10 working days, severely affecting the sector. New products such as 4G
packages are helping to improve internet access, but outside of Addis Ababa only 3G is available; in
rural areas, Ethio Telecom’s budget underutilization and lack of efficiency has led to poor quality
service delivery and only 2G service. High data costs make doing business and operating mobile
devices expensive for all consumers, and lack of accountability and lack of transparency all reinforce
a general cultural mistrust of the private sector.

Bandwidth in Ethiopia should be good, as there is a fiber connection from Djibouti and three
undersea cables reach Ethiopia. But fiber cables and infrastructure go unused due to poor external
connectivity and lack of demand.

Skill challenges for Ethiopian workers and consumers alike include lack of exposure to digital
environment; lack of consumer education and domestic market, perceptions of work and attention
to detail. There are not enough skilled workers to meet demand and employers both mistrust
education certificates and avoid the risk / burden of new graduates. ICT-related curricula are too
often outdated or entirely irrelevant to current technologies and jobs. Applied work experiences and
internships are scarce in ICT, and local digital content is lacking.

Restrictive import and customs processes for component parts affect all aspects of ICT, as do
finance and forex barriers that limit access to loans for students to invest in higher education, make
business loans difficult due to a lack of credit scores and lack of business accountability for finance,
and place restrictions on investment for foreign businesses. At the policy and planning level, the lack
of coordination between government institutions creates a number of challenges, as does
government interference in private sector pricing decisions, a lack of skill and experience in
policymaking around tech-related concerns, and a lack of government understanding of IT input
materials.

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Figure 114: Market system map of ICT

III. Potential of job creation

Job creation in the ICT as a sector remains low but has been increasing over the past years.
Approximately 60,000 were employed across ICT fields in 2013, growing to an estimated 78,000 in
2018. Telecommunications is the largest employer, with 19,500 people employed in 2013. The
majority of these (15,000 in 2018) are employed by Ethio-Telecom. Information services employed
almost 17,000 people in 2013, approximately 28% of the ICT sector; 7,500 of these were employed
in data processing and web systems. Just 7,800 people were employed in computer programming.

By 2025, a total of over 126,000 direct jobs

could be created across the industry, an
increase of 62%. As the digital ecosystem
supports growth across the economy, the
number of direct jobs in ICT could be even
higher. The multiplier effect of job creation
means that employment in the ICT industry
could also create over 240,000 new indirect
jobs. The large number of indirect jobs compared to direct jobs reflects the potential for ICT to act
as a digital enabler. Purely digital jobs and some digitally enabled jobs in other sectors are reflected
in these indirect job numbers.

IV. Strategies and interventions

To increase the number of start-ups and jobs created in ICT, reinvent the ICT Park to attract an
increased number of FDIs, and increase the impact of information and communications technology
across the economy, we propose seven interventions across three strategies: designing and

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implementing innovative flagship projects and programs, designing ICT skill development programs,
and building a robust policy framework and enabling environment.

Strategy 1. Improving ICT as an enabler by building a robust policy framework and enabling
environment
 Intervention 1.1: Establish an ICT Intelligence Unit—a dedicated innovation team that will
keep abreast of changes in innovation, be capable of recommending policy changes, introduce
regulation, and champion the digital economy. The current digital transformation unit within
MINT can be capacitated to play this role
 Intervention 1.2: ICT capital goods: provide tax incentives on IT equipment (e.g, laptops, PCs,
servers) to encourage the development of the ICT sector. Secure commitment from MOSHE
to provide subsidized laptops and tablets on a cost-sharing basis
 Intervention 1.3: Local content policy: develop a local content policy to allow local SMEs to
provide ICT solutions to government and private customers
 Intervention 1.4: Liberalize the telecom industry
 Intervention 1.5: Digital ID systems: ensure that existing projects on digital ID systems are
successful nationwide. This means integrating across different government entities. A national
ID system is a critical precursor to e-commerce
 Intervention 1.6: Promote e-commerce and e-market places
 Intervention 1.7: Expand infrastructure development, including broadband network
expansion through private investment (support the rollout of broadband country wide in
every kebele)

Strategy 2: Building a vibrant ecosystem for ICT companies

 Intervention 2.1: ICT park revitalization: revitalize the ICT-park concept, management,
infrastructure, and readiness for services to attract investors, including venture capital, angel
investors, and private equity firms
 Intervention 2.2: ICT incubators and accelerators: support a strong digital ICT start-up
environment by leveraging youth centers in the city (outside the ICT park); facilitate the
creation of incubators by providing them with support for obtaining business licenses.

Strategy 3: Building digital skills

 Intervention 3.1: Digital literacy: re-create and expand short-term training programs on
digital literacy for ICT-enabled jobs
 Intervention 3.2: Create and expand training programs: revise teaching curriculums and
integrate digital literacy within formal and informal systems
 Intervention 3.3: Develop high-value digital skills to prepare graduates for innovative ICT
segments such as Artificial Intelligence, data science, etc.

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 Development of digital skills in Kenya

The ICT Authority in Kenya aims to tackle the lack of digital skills through targeted interventions for
specialised ICT skills. Kenya’s ICT Master Plan recognised the critical role of ICT in driving Kenya’s
economic and social development towards Vision 2030. The Master Plan was launched in 2013, and
addressed ICT skills, recognising that university and technical courses were neither guided by policy nor
reflected the needs of industry. It was revised in 2017 and a new ‘Digital Economy Blueprint’ was
launched in 2019. Creating digital skills focused both on institutions and curriculums as well as applied
experiential learning.

The ICT Authority works with other ICT stakeholders on programmes to match industry needs and skills
development. The four highlighted programmes below focus on developing specific skills for
government, BPO, software and IT entrepreneurship:

• DigiTalent is a programme that runs leadership development for existing ICT staff in
government management, and an internship programme for newly qualified graduates. Interns
spend 10 months in government ministries and 2 months in private companies learning applied
skills. 900 graduates have completed the program, with more than 7 innovations being
incubated, such as ‘SUKWA App’, which aims to connect beauticians and clients. Also, more
than 30 government systems and websites have been developed by program’s graduates. One
of the main success factors of this program is the inclusion of training and experience with the
private sector in order to develop relevant and practical skills.
• The Center of Excellence(CoE), based at the University of Nairobi, aims to train 5,000 students
in Business Process Outsourcing/Information Technology Enabled Services. Partners include
leading Kenyan BPO/ITES companies, together with the Kenyan academic community. The CoE
has developed curricula for Certificate in ITES-BPO, involving leading stakeholders as well as
the Kenya ICT Board and is training and providing industrial attachment opportunities to
trainees, and eventually employment for successful graduates.
• The Chipuka Software Development Certification is a certification programme for software
developers targeting entry-level developers in colleges. Developers write and execute high
quality code through an examination, in a supervised setting that tests the skills used
professionally by IT companies.
• Entreprise Kenya is a national accelerator to catalyse innovations and provide entrepreneurs
with support. The program acts as a connector, investor, service provider, regulator and
industry catalyst to the entrepreneurs in their pursuit to grow and scale their businesses.

Source: Digitalent; 2019; Kenya Digital Economy, 2019; ICT Authority, ICT Master Plan, 20 13; ICT
Authority, Talent and Workforce Building, 2019

Strategy 4. Promoting the development of BPO in Ethiopia

 Intervention 4.1: Adopt BPO-friendly regulations and policies including permitting VOIP,
foreign currency access for communication transactions, etc.
 Intervention 4.2: Encourage private investment and donor support in building capacity in
the sector
 Intervention 4.3: Improve the quality and predictability of internet service including
permitting VSAT for mid-high capacity BPO companies or aggregations

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  Intervention 4.4: Brand and market Ethiopia as a BPO-primed site along with building quality
assurance/improvement support for BPO companies

Business Process Outsourcing in Egypt

The case study of Egypt illustrates that a country with the right conditions can have a successful BPO
industry, despite political instability. The Egyptian BPO market represented USD1.2 billion in 2015.
Egypt is one of the few locations that can support an English-language offshore delivery centre of a
meaningful scale. It is estimated that between 2008–2013, India lost around 40,000 BPO jobs to Egypt.
The outsourcing and shared services market employs approximately 90,000 personnel, of which about
50,000 are offshore-focused and support clients present outside Egypt. In 2016 Egypt was shortlisted
for Outsourcing Destination of the Year, alongside Belarus, Fiji and Sri Lanka.

The BPO sector in Egypt benefit today from important comparative advantages. There is an important
pool of talent, as approximately 200,000 new graduates enter the market each year in the greater Cairo
area, out of which 10 to 15% are multilingual. Egypt benefit also from a high-quality ICT connectivity.
Its strategic location allows easy access and connectivity to several international submarine cables in
South East Asia, India, Middle East and Europe. Moreover, Egypt’s direct annual operating cost is
competitive compared to other locations across all service lines. In 2014, costs per FTE for call centres
in Cairo (USD 9,000- 10,000) were cheaper than Tunis (USD 21,000) and Casablanca (USD 23,000-
26,000).
Source: Frost & Sullivan, Emerging Opportunities in African BPO markets, World Bank , Doing Business 2019: Training for Reform, 2019; ITIDA,
Destination Egypt ITO-BPO Value Proposition, 2010; Outsourcing Verband, Destinations Egypt : Outsourcing destination, 2016; Oxford
Business Group, Business process outsourcing in Egypt becomes major source of revenues, 2016

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L. Creative arts
I. Context
Creative Arts and creative industries are defined as
“activities which have their origin in individual creativity,
skill, and talent and which have a potential for wealth and
job creation through the generation and exploitation of
intellectual property.”75 The creative arts industry or
creative economy is composed of several segments (cf. figure). We focus on the following segments:
visual arts (Photography), Music, Fashion and Design, TV and radio and Movies.

A pioneering study conducted by WIPO on the economic contribution of creative industries in

Ethiopia in 2014 used copyright industry classification. The study estimated the creative arts to
employ more than 240,000 workers and to contribute up to 4.7% to national GDP. Ethiopia imports
more creative goods that it exports with an estimated trade deficit of $306 million in 2014. Creative
goods export grew from less than $1 million in 2005 up to $11.5 million in 2014 attributed to
artisanal craft and design goods, driven by the textile industry. Design goods, publishing (books and
journals), and artisanal crafts account for the largest share of imports (Figure 116).

Figure 115: Creative Goods Exports, 2005 and 2014 Figure 116: Creative Goods Imports, 2005 and 2014

10 250
9
8 200
7
6 150
5
4 100
3
2 50
1
0 0

2005 2014 2005 2014

Source: UNCTAD, 2018

In Ethiopia, the local film industry has boomed over the last decade, with close to 200 films being
made a year during peak production, despite the absence of public financing for films (Figure 117).
This is more than some countries that have extensive public financing support. Internationally,
Ethiopian films have received critical acclaim in recent years, with the film Difret becoming the first
film from Ethiopia to compete at Sundance Film Festival in 2014 and Lamb, the first Ethiopian film
to premiere at Cannes Film Festival in 2015. These statistics and trends reflect an opportunity for
the film industry to be a leading sub-sector in the creative industries in Ethiopia.

75
UK DCMS Creative Industries Task Force, 1998

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Figure 117: Number of Ethiopian films 2010-2018

175 184
156
121 134

2010 2012 2014 2016 2018

Source: Interviews with experts in creative industries sub-sectors, 2019

The music industry in Ethiopia benefits from the international recognition of Ethio-jazz, which is
the first musical form that put Ethiopia’s music scene on the global map. Recently, the rise of
Ethiopian Electronic Dance Music (EDM) with artists like Rophnan receiving international acclaim is
introducing Ethiopia to a younger global audience world-wide.

In fashion, independent actors are slowly creating an international brand and image for Ethiopian
products. Emerging design labels like Mafi and Fikir have made a name for themselves
internationally and are examples of the advantage that Ethiopian aesthetic forms can have in the
global market. African Mosaique and Hub of Africa have become premier fashion events in Addis
Ababa, showcasing the world of African fashion and are events that bring the world to Ethiopia.

In photography and fine arts, relatively newly-established galleries in Addis Ababa are providing
an important market exposure to local artists. Market dynamics reported by established galleries
in Addis are very positive, with some paintings and photos being sold internationally at highly
competitive prices (up to $30,000 for paintings and more than $5,000, for some photos). Exposure
in galleries in Addis Ababa represents an important and effective market driver for artists:
newcomers in galleries are quickly making a name for themselves and selling their art. The
photography and fine arts segment benefits from the existence of Ale School of Fine Arts in Addis
Ababa, which is considered one of the oldest fine arts institutions in Africa.

II. Challenges across the value chain

All five segments (Music, Film, Fashion, Photography/fine arts, and Music) in creative arts remain
highly unorganized and suffer from structural problems, such as high tax rates, lack of institutional
support, and lack of skilled labor. There is a unanimous agreement across all segments in the sector
that the existing tax structure on the creative industries is stifling growth and limiting entry into the
sector. The burden of current tax structure is two-fold: (i) Withholding 30% from artists that are
struggling to survive hinders the possibility to pursue a career in the creative industries as a
professional; (ii) Luxury taxes on imports for this sector make it impossible for the local market to

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have access to high quality technical supplies that include everything from art supplies, to archival
printing materials, and the latest photographic and video equipment.

Lack of organization of the sector, absence of institutional support, scarcity of skills, and lack of
exposure to markets across all the segments are important binding constraints for the
development of creative production. For the movie industry, for example, the absence of co-
production treaties, lack of professional producers to develop stories and scripts, lack of casting
agents to identify and pool talent, poor production planning due to shortage of technical skills, are
important barriers to production and competitiveness. The key barriers in the fashion and design
ecosystem include unreliable access to raw materials and aging equipment, which both affect
quality and competitiveness. The photography/fine arts segment suffers from limited access to
training and limited access to market opportunities. Only a few galleries in Addis Ababa provide a
potential market for this segment, and international exposure is almost inexistent, except through
social media. The music industry is highly unstructured, notably with the absence of record
companies existing in Ethiopia. Moreover, digital revenue sales are driving the global music industry,
but without online payment systems, local musicians are limited marketing and promotion. The
music segment is also hindered by the lack of a legal framework and absence of performance right
organization that could provide protection to artists and help to monetize their production.

III. Potential of job creation

Employment in the Creative Arts sector is not monitored by official statistics and therefore is harder
to estimate. Current levels of employment
and projection have been done through
interviews with major stakeholders in the
industry and by benchmarking of other
African countries such as Nigeria. Estimation
suggests that Creative Arts across all five
segments employ 617,320 workers in 2018.
Most of these jobs are in fashion and design
(tailors) and are either informal or in self-
employment. The sector is projected to create more than 267,000 direct jobs by 2025.

IV. Strategies and interventions

Strategy 1. Facilitating doing business in the Creative Arts

 Intervention 1.1: Reduce tax for artists and tax burden on imported technical equipment.
The current tax policies create an onerous environment for small business who struggle to
bring artists into the formal sector and increase the economic value of their products
 Intervention 1.2: Establish an independent Creative Arts Commission that will oversee the
commercialization of the creative arts and establish an export office that helps local office
access international markets

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  Intervention 1.3: Create a central database of creative job opportunities to link the talent
landscape. The creative industry relies heavily on word of mouth and can be structured and
organized through a centralized database
 Intervention 1.4: Establish a multi-purpose physical venue for artists. A site to practice their
craft, retail shops to sell art, exhibition space for galleries, and a forum to provide training
across the various sectors (similar to Dubai’s Media City).
 Intervention 1.5: Provide legal framework and protection to artists, including musicians, and
enforce intellectual property rights
 Intervention 1.6: Develop arts education curriculum (music, painting, etc.) starting from
primary school

Strategy 2. Creating effective market linkages and opportunities for the Creative Arts Industry
 Intervention 2.1: Establish film co-production treaties, with countries that have a robust film
industry
 Intervention 2.2: Promote Ethiopia as a shooting-site for big international productions
 Intervention 2.3: Collect centralized statistics about gross revenues for films, to establish the
business-case for investment in films as a commercial opportunity
 Intervention 2.4: Promote creative arts products through effective linkages with the tourism
sector

Strategy 3: Liberalizing the television advertising market

 Intervention 3.1: Incentivize the growth of the television advertising market and remove
heavy-handed regulations that stifle growth, including allowing for national businesses like
Commercial Bank of Ethiopia to advertise on private channels

Strategy 4: Creating a competitive environment for the creative arts industry

 Intervention 4.1: Develop competitions across all segments of Creative arts to galvanize
interest and help identify emerging talent in the sub-sector and provide financial and
technical support, include see funding: Competitions are an ideal way to generate interest in
the sector and identify talent. In the fashion segment for example, Ethiopia has one fashion
incubator that selects emerging designers and mentors them, but the incubator does not
award any seed funding

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Chapter 4: Implementation Plan

218
Bibliography

219
Annex

220