Econ 333 Paper

Ethiopia as a Less Developed Country

By: Danielle McGrady
i. Ethiopia According to the United Nations Economic and Social Council, Ethiopia is considered one of the forty-eight least developed countries (LDC). The list of LDC are looked over every three years and this list was recently updated in March 2012. To be considered a least developed country, the Committee for Development takes into consideration these three factors:
“ (A.) A per capita income criterion, based on a three-year average estimate of the gross national income (GNI) per capita, with a threshold of $992 for possible cases of addition to the list, and a threshold of $1,190 for graduation from LDC status;
(B.) A human asset criterion, involving a composite index (the Human Assets Index) based on indicators of: (i) nutrition (percentage of the population that is undernourished); (ii) health (child mortality ratio); (iii) school enrollment (gross secondary school enrollment ration); and (iv) literacy (adult literacy ratio); and
(C.) An economic vulnerability criterion, involving a composite index (the Economic Vulnerability Index) based on indicators of: (i) natural shocks (index of instability of agricultural production; share of the population victim of natural disasters); (ii) trade-related shocks (index of instability of exports of goods and services); (iii) physical exposure to shocks (share of the population living in low-lying areas); (iv) economic exposure to shocks (share of agriculture, forestry and fisheries in GDP; index of merchandise export concentration); (v) smallness (population in logarithm); and (vi) remoteness (index of remoteness)” (unctad.org). Ethiopia is known to be the oldest independent country in Africa due to the five million year old remains found in the Awash Valley. Ethiopia was home to one of the most powerful kingdoms, Axum, which flourished as a main trading point as early as 1st century BC. Ethiopia just recently elected Mulatu Teshome as their new president and Hailemariam Desalegn as their new prime minister. Ethiopia is structured as a federal parliamentary republic. ii. Poverty Ethiopia is currently one of Africa’s poorest countries and one of the poorest countries in the world. Ethiopia is considered one of the highest performing economies in the Sub-Saharan Africa yet it still manages to be a very poor. Twenty-nine percent of Ethiopia’s population lives below the national poverty line and 78% of the Ethiopian population survive with an income of below $2 a day:
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Some statistics that measure a countries poverty include: the poverty gap, the poverty headcount ratio, poverty gap at a national poverty line, poverty headcount ratio at national poverty line, poverty gap at rural poverty line, and the poverty gap at urban poverty line, etc. According to the World Bank, Ethiopia’s poverty gap at $2 a day is 37.9%, poverty gap at $1.25 a day is 16.2%, the poverty headcount ratio at $2 a day is 86.4%, poverty headcount ratio at $1.25 a day is 55.6%, poverty gap at rural poverty line is 12.2%, poverty gap at national poverty line is 11.9%, poverty headcount ratio at national poverty line is 44.2%, poverty head count ratio at rural poverty line is 45.4%, poverty gap at urban poverty line is 10.1%, and the poverty headcount ratio at urban poverty line 36.9%. The reduction of poverty in Ethiopia has decreased from 38.7% in 2004 to 29.6% within a five-year period due to economic growth trends. Ethiopia has a target goal to decreased poverty to 22.2% by 2014-2015. In 2012, it was recorded that the poverty is at 27.8%, so by the looks of it, it seems that Ethiopia will not meet its goal to reduce poverty to 22.2% by 2014-2015. Ethiopia is having a very challenging time at fixing the causes of poverty, but the Ethiopian government is devoting a great amount of its budget to “pro-poor programs and investments.” For example, the Ethiopian government has committed to a series of government reforms such as civil service and public sector capacity building; financial management; human rights and conflict prevention; democratic representation; access to information; the justice system; decentralization; and civil society participation. According to the World Bank, the distribution of family income in the Sub-Saharan country, Ethiopia, has a gini index of 33 in 2011. This gini index is better than the United States, which was 45 in 2007. Based on this information, you can infer that the less developed country, Ethiopia, has a more equal distribution of family income than the United States. Taking a look at income distributions based on quintiles, you will find that the lowest is 8%, the second is 12.4%, the third is 16.3%, the fourth is 21.6%, and the highest is 41.9%. iii. Labor Child labor is a major problem in Ethiopia due to the fact that around 60% of children in Ethiopia work to support themselves and their families. The children that are working in awful work conditions are only earning around a dollar per month. Ethiopians see child labor as a common thing; however, they don’t see the dangers that can happen when young children are working in hazardous conditions. The Ethiopian government just recently eliminated the worst forms of child labor in 2012. Some children before 2012 (and even to this day) were “trafficked from rural areas to Addis Ababa and other regions of the country for forced labor in domestic service and the weaving industry. Children are also trafficked for commercial sexual exploitation, begging, street vending, cattle herding, and manual labor. Children are reportedly trafficked from Ethiopia to Djibouti, South Sudan, Kenya, Europe, and the Middle East for labor and commercial sexual exploitation” (united states department of labor). The total number of children laborers (ages 5-14) is 10,693,164, which is 53% of the total population in 2005. In 2013, the total labor force in Ethiopia is 45.65 million and the country’s unemployment rate in 2012 was 17.5%. The unemployment rate has decreased by .5% since 2011 when the unemployment rate was at 18%; the fact that the unemployment rate is gradually decreasing shows that Ethiopia has hope for the future. Agriculture is major job opportunity in Ethiopia; it employs about 80% of the population and it makes up about 47% of Ethiopia’s GDP. Some forms of agricultural products produced in Ethiopia are cereals, pulses, coffee, oilseed, cotton, sugarcane, potatoes, khat, cut flower, hides, cattle, sheep, goats, and fish. The Ethiopian government believes that agriculture will be the leading cause in reducing poverty in their country. Other two sources of labor are industry, which makes up 5% and services, which make up 10%. iv. Education A major concern and issue for Ethiopia is education, the Ethiopian government is trying to fix this issue however, there are still a lot more things that need to be done. More than 25% of children drop out before they complete their first school year. This is because many children need to go into the workforce to provide for their families. A child not being able to have a source of education is hindering their country from growing economically. The government spent 27% of it budget on education and there are other sources of financial support for their education system such as: $168 million from GPE since 2007, Ethiopia’s general education quality improvement program helped by focusing on learning outcomes, other forms of funding come from Finland, Italy, USAID, and the world bank. These forms of funding seem to be helping due to the increase in primary school completion, which has increased from 44% in 2009 to 48% in 2010. However, the number of females enrolled in first grade has decreased compared to the number of boys enrolled in first grade. This gender index has declined from .93 in 2009 to .9 in 2010and the amount of children who are not enrolled in school has slightly increased from 17% in 2009 to 18% in 2010. Even though this slight increase in the amount of children out of school has happen, Ethiopia has still managed to increase the literacy rate in their country of children 15 to 24 from 45% in 2005 to 55% in 2007. There was another statistic taken about the literacy rate in 2008 stating that 49.1% of males ages 15 and over can read and write and 28.9% of females age 15 and over can read and write, this huge inequality between the amount of literate males and the amount of literate females is not okay. Every child regardless of gender should have the equal right to learn. This form of inequality between males and females in school is also seen when looking at the school life expectancy. The total amount of years for a male to attend school is 8 and the total amount of years for a female to attend school is 6. As mentioned earlier, Ethiopia actually tries very hard to fix the education issue going on in their country. For example, in the past few years, Ethiopia has hired 23,437 new primary teachers in 2010 and 16,156 new primary teachers in 2011. The country is definitely headed in the right direction when it comes to educating their youth.
v. Population Least developed countries tend to have high population growths and this is seen in Ethiopia due to its estimated population being about 97 million today. In 2012 the estimated population was around 92 million and growing at a 2.6% annual change and in 2014, the population growth rate has increased to 2.89%. The rapid growth could drastically increase the number of people at risk for starvation due to the expansion of farming under a drier climate regime. These population trends are not good because this is added tension on the limited amounts of natural resources for the Ethiopian population. Due to these growing population trends in Ethiopia and the limited amounts of natural resources, half the population of Ethiopia is undernourished. This constant increase in the Ethiopian population is causing detrimental effects on the environment which is causing the Ethiopian people to loose out on much needed natural resources. Now to go into some factual statistics about Ethiopia’s population, the median age for males is 17.4 years and for females is 17.7 years. The total dependency ratio is 85.5%, youth dependency is 79.2%, elderly dependency ratio is 6.3%, and the potential support ratio is 15.8. The birth rate in Ethiopia is 37.66 births/ 1,000 population and the death rate is 8.52 deaths/1,000 population. Less developed countries tend to have high birth rates and high death rates because sanitation and nutrition is not functional in less developed countries. Once there is an improvement in sanitation and nutrition, a country will then notice a decrease in the death rates. The population pyramid (shown right) can tell someone a lot of important factors about a countries political and social stability, as well as economic development. Since Ethiopia’s population pyramid shows high percentages of children under age 15, the country needs to invest more in schools. Less developed countries tend to have low urbanization percentages and Ethiopia has an urban population of 17% of the total population. The rate of urbanization in Ethiopia is 3.57% and growing. John Markakis, a professor/author who wrote the book Ethiopia: The Last Two Frontiers stated that, “Ethiopia’s relative lack of urbanization can primarily be attributed to the self sufficiency of agriculture, which contributed to reinforcing of the rural peasant life, to the morphology of its territory and to profound roots, which link the various ethnic groups to their proper land. But more in general, historical factors conditioned the country’s urbanization” (Markakis, 1974). vi. Health Poor health is seen as a common thing in less developed countries, because poverty and poor health go hand in hand. Millions have been killed each year due to poor health conditions. Ethiopia’s state health expenditure is $3 per person, which is not good at all. Even though Ethiopia has made tons of progress in improving health conditions of its people, there is still major room for improvement. For example, water pollution creates a large risk for Ethiopians health, mainly caused by high levels of organic pollutants and water-borne diseases. This is a major issue and concern due to the fact that over 110,000 Ethiopians die every year due to water and sanitation-related diseases. It is very hard for Ethiopians to find safe drinking water. Only 39% of Ethiopia’s population, in rural areas, has access to improved water sources and19% of Ethiopia’s population, in rural areas, are extremely vulnerable to water-borne diseases. Taking a look at the 2012 Human Development Index (HDI), Ethiopia is considerably lower than the world average, which is an HDI average of .694 and with a human development at about .466. Ethiopia’s HDI is .396 and this is due to low indicators of health. The average life expectancy at birth for males in 58.43 years and for females in 63.15 in 2014. The physician rate to total population is extremely low because there are only 0.03 physicians to 1,000 people in Ethiopia. HIV/AIDS is a big deal in Ethiopia; in 2012, over 750,000 people in Ethiopia are living with HIV/AIDS and there have been over 45,000 deaths due to HIV/AIDS in 2012. Other major infectious diseases in Ethiopia consist of typhoid fever, hepatitis A, malaria, dengue fever, meningitis, schistosomiasis, and protozoal diarrhea. It is clear based on the obesity rate in Ethiopia, 1.1% of the population is obese, that the citizens are not getting enough food and nutrition. Obesity in the United States is 33% of its total population. According to the CIA world fact book, Ethiopia has the lowest obesity rate out of all the countries in the world. As stated earlier, Ethiopia has come a long way in the health aspect of the country; however, malnutrition remains a severe problem. Malnutrition is seen the most in young children, which is causing these young children to have serious lifelong health risks. The government has been trying to expand healthcare and this form of focusing more on healthcare has resulted in better nutrition for the population. This also has benefited the sanitary facilities where women give birth to their children, so this has helped improve the infant mortality rate to 55.77 per 1,000 births; this number has been cut in half. The Center on Globalization and Sustainable Development reported that, “In 2004 the Federal Ministry of Health for Ethiopia launched the Health Extension Program (HEP). The overall goal of the program is to create a healthy society, and to reduce the rates of maternal and child morbidity and mortality, particularly in the rural areas. The launch of this program is one of the most critical federal initiatives to achieve the MDGs and to reach communities in rural areas of the country.” These goals are very unlikely to be reached in the next year, but they are going in the right direction to achieving these goals, however, it will take much longer than they anticipated. This is because Ethiopia has very limited resources such as money to pay for these things to be fixed. vii. Financial/Economy According to the Central Intelligence Agency, “Ethiopia’s economy is based on agriculture but the government is pushing to diversify into manufacturing, textiles, and energy generation”. However, due to poor farming practices, the agricultural sector in Ethiopia extremely suffers. Ethiopians heavily depend on rainfall and frequent droughts are also harming the agriculture sector in Ethiopia. Another thing going on with the economy is that the per capita income in Ethiopia is one of the lowest in the world at about $1,300 compared to the United States, which is about $53,000. Now to go into some financial facts about the country, the GDP is $118.2 billion, the GDP growth rate is 7% (this has decreased 4% since 2011), the gross national savings is 8.8% of GDP, the budget is $6.7 billion in revenues and $8 billion in expenditures, budget deficit of -2.8% of GDP, inflation rate of 8.4%, $3.2 billion in exports and $10.7 billion in imports. Going back to agriculture, coffee is a main export crop in Ethiopia. Coffee provides a little over 26% of Ethiopia’s foreign exchange earnings thus meaning that trading coffee is a major agricultural crop for Ethiopia. There is about 25% (15 million people) of Ethiopians that make a living off of coffee. The economy also relies heavily on cross-border trade, especially with Somalia and Kenya. Ethiopia saw about $300 million annually trading with these two countries, which is a major amount of money for them. To go back to the topic of GDP, Ethiopia has one of the lowest in world due to the climate changes the Ethiopian people are dealing with. These climate changes are causing tremendous impacts on the natural resources that the Ethiopian people use to make a living. Ethiopia’s economic rate is slowly decreasing and it is causing their economy to struggle. According to the international monetary fund (IMF), Ethiopia had one of the quickest growing economies in the world, with a 10% increase in economic growth during 2004 to 2009. However, in 2012, the economic growth rate slowed to 7%, which is a 3% drop. Another major economic concern Ethiopia has to deal with is the major increase in inflation and the difficulty with balancing payments. The inflation rate has increased drastically due to having a bad monetary policy, this problem is slowly being fix (% rate is slowly dropping) but it has major room for improvement. Ethiopia’s inflation rate, in 2008, was at a high of 64.2% and as of today it is at 8.5% due to the stricter monetary and fiscal policies that has been put in place. Ethiopia has seen inflation rate in the negative percentages back in 2009, so it is doable for Ethiopia to come back down from the high inflation rate they are at right now. viii. Environment As mentioned in the previous section, Agriculture is a main substance of Ethiopia’s economy and that is why the Ethiopian government is dedicated to reducing poverty through the use of agriculture means. The government believes that agriculture can lead to an economic transformation that will result in the betterment of the country’s population and economy. The Ethiopian government and other donors have strengthened the agricultural scene that has led to a major reduction in how many Ethiopians are starving. Only 39.3% of the rural population in Ethiopia has access to improved drinking water and 96.6% of the population in urban areas has access to improved drinking water with a total of 49% of the population having access to improved drinking water. Ethiopia only has 122 cubic kilometers of renewable water resources and 86% of that is used by agriculture. These numbers have increased drastically throughout the years and it is hopeful that they will continue to grow do to certain government agencies programs. For example, the ministry of agriculture, the forestry and wildlife development authority, and the ministry of national water resources are adding Ethiopia in the search for clean water. To go into a little detail about Ethiopia’s environment, one can concluded that Ethiopia has a lot of issues with its environment. For example, Ethiopia has an active Great Rift Valley that is very vulnerable to earthquakes and volcanic eruptions. Erta Ale is a volcano located in the northeastern region of Ethiopia and is a very active basaltic volcano that is known for its persistent lava lake. Erta Ale isn’t the only active volcano in Ethiopia; Ethiopia has nine other active volcanoes, for example, Dabbahu caused evacuations due to its activeness. Some other environmental issues include: climate change, deforestation, overgrazing, soil erosion, desertification, water shortages in some areas due to water-intensive farming and poor management. Climate change in Ethiopia is very evident through the decrease in average rainfall per year and through the low gross domestic product the country currently has; a decrease in rainfall will result in horrible outcomes such as food scarcity, famine, and malnutrition. The effect of climate change can also increase the risk of infectious diseases, which is not okay for the economy of Ethiopia. There population cannot afford to be hit with infectious diseases at this point in time. Deforestation is another major concern in Ethiopia and this is due to urbanization. Every year, Ethiopia sees 340 square miles of forestland disappear this has lead to a decrease of 3.4% between 1983 and 1993. Soil erosion is another major issue that is affecting the likelihood of the country due to the increasing population in Ethiopia. Half a billion tons of top soil (contains most nutrients needed for plants) is being lost in Ethiopia each year. The people and government of Ethiopia are trying to fix this major environmental issue by conditioning the soil in hopes that the soil will come back, however, it isn’t something that can be fixed very fast. Ethiopia agricultural sector has the ability to flourish if the right people manage it, because as of today only 25% of the arable land in cultivated. According to the an article on rural poverty in Ethiopia, “About 12.7 million smallholders produce 95 per cent of agricultural GDP. These farmers are extremely vulnerable to external shocks such as volatile global markets and drought and other natural disasters. Smallholder farmers form the largest group of poor people in Ethiopia. More than half cultivate plots of 1 hectare or less and struggle to produce enough food to feed their households.” These farmers are from very poor households and rely heavily on agriculture to feed them and their families, so if they cant produce enough food then they face awful hunger season during pre-harvest season. Ethiopia also has people known as herders that have the potential to be drastically affected by droughts, because these droughts can cause them to slip into extreme poverty if the drought wipes out their supply of livestock. ix. Conclusion To sum up the information listed above, it is evident that Ethiopia why Ethiopia is a less developed country. Ethiopia suffers from many developmental issues and needs help getting all those issues under control. Ethiopia is known as one of the poorest countries in world with about 78% of the population living with the income of below $2. Ethiopia faces major child labor issues that are causing their children to stay out of school. This is detrimental because people need to be educated in order to make good and healthy decisions. Ethiopia is seeing major progress with education so hopefully in the next couple of years more children will finish school instead of dropping out after the first year. The increasing population in Ethiopia causes major environmental concerns and problems for the people in Ethiopia because there land is getting wiped out. The climate changes are causing loss of rainfall, which is leading to droughts that are not good for the agriculture sector so the GDP is slowly dropping due to these issues. All the issues listed above may seem like Ethiopia has no hope in coming gout of this, but the government of Ethiopia is doing a lot to help the country. For example, they have a five-year Growth and Transformational Plan (GTP) for 2010-2015 that was established to end poverty in Ethiopia. The GTP promotes rapid economic growth through seven strategic objective: Building capacity and promoting good governance, Maintaining growth focused on agriculture and rural areas, Expanding infrastructure, Sustaining equitable economic growth, Promoting empowerment of women and young people, Enhancing the expansion and quality of social development, and Developing industry. Every since the five-year plan was put in place, the country has seen significant increases in economic growth; so based on this information, Ethiopia will continue to prosper and will hopefully be take off the less developed countries list.

References http://www.dol.gov/ilab/reports/child-labor/ethiopia.htm http://www.ruralpovertyportal.org/country/home/tags/ethiopia https://www.cia.gov/library/publications/the-world-factbook/geos/et.html http://archaeology.about.com/cs/africa/a/aksum.htm http://www.ethioembassy.org.uk/fact%20file/a-z/history.htm http://borgenproject.org/education-ethiopia/ http://search.worldbank.org/all?qterm=Ethiopia&title=&filetype= http://www.dw.de/gloomy-future-for-ethiopias-press-freedom/a-16852430 http://www.indexmundi.com/ethiopia/gdp_per_capita_(ppp).html http://www.bbc.co.uk/news/world-africa-24084472

References: http://www.dol.gov/ilab/reports/child-labor/ethiopia.htm http://www.ruralpovertyportal.org/country/home/tags/ethiopia https://www.cia.gov/library/publications/the-world-factbook/geos/et.html http://archaeology.about.com/cs/africa/a/aksum.htm http://www.ethioembassy.org.uk/fact%20file/a-z/history.htm http://borgenproject.org/education-ethiopia/ http://search.worldbank.org/all?qterm=Ethiopia&title=&filetype= http://www.dw.de/gloomy-future-for-ethiopias-press-freedom/a-16852430 http://www.indexmundi.com/ethiopia/gdp_per_capita_(ppp).html http://www.bbc.co.uk/news/world-africa-24084472