Country Session 4: Ethiopia

Chaired by John Page (IGC Ethiopia), the Ethiopia session at Growth Week 2012 focused on industry and agriculture. Måns Söderbom (University of Gothenburg) presented research examining the problem associated with high transaction cost to small manufacturing firms due to poor infrastructure, which creates market segmentation. Ethiopia is landlocked, with no effective railways and few navigable rivers. Using GIS data from the Ethiopian Road Authority and the census on firm data from the Central Statistical Agency, the research examined the relationship between an increase in roads from 26,550km in 1997 to 46,812km in 2009, and the concentration of firms in Addis Ababa reducing from more than 60% to 40%. Using cross sectional and panel data, the research estimated the effect of road sector improvement on enterprise. A positive relationship was observed between average size of firm entrants and infrastructure quality, as well as a high positive correlation of infrastructure improvement on value-added productivity. The key policy implication is that better roads may result in more and larger firms, but does not necessarily mean that building more roads is required for enterprise development. Mulu Gebreyesus (United Nations University) commented that suggesting causality from road network development to enterprise development is complicated, as it may also be a causal relationship in the other direction. Another issue raised by Mulu was that some important policy variables such as the government’s initiative to promote industrial clusters, the cost of labour and land should also be considered in such studies.

The second part of the session was a panel discussion on agriculture chaired by Pramila Krishnan (IGC Ethiopia; Cambridge) with His Excellency Ato Newai Gebre-ab (Chief Economic Advisor to the Ethiopian Prime Minister; Ethiopian Development Research Institute), Stefan Dercon (DFID), Doug Gollin (Oxford University), and Alemayehu Seyoum (IFPRI). The focus of the discussion was on public investment on agriculture, particularly on agricultural extension in Ethiopia. Seyoum focused on three related issues: fertiliser use, improved seed adoption and irrigation use in Ethiopia, and the return on fertiliser use. He mentioned that fertiliser use has risen to 60% (i.e. 60% of the smallholder farmers use fertiliser), but the adoption of improved seed and irrigation use is still very low in Ethiopia. The former is adopted by less than 30% of farmers, with irrigation use even more limited. On average the return to fertiliser is still very low (less than 1%) and application rates are not changing significantly. Finally he mentioned the significant heterogeneity in technology adoption among farmers that is not location-related. Gollin mentioned that this heterogeneity is well known in the economic literature, and noted that agricultural technology is location specific. Dercon reflected on yield growth in Ethiopia. He mentioned that national data do not show much intensification although there is high yield growth. The Ethiopian Rural Household Survey (ERHS) shows lower yield growth about 22% growth for all cereals mainly for maize and wheat and a modest increase in intensification in fertiliser and improved seeds. Finally Ato Newai made his reflection on some emerging future opportunities and challenges to Ethiopian agriculture. He mentioned labor shortage as one challenge and see mechanisation as one important option to address this problem. The issue of agglomeration, irrigation and commodity exchange are also important issues that are related to the performance of Ethiopian agriculture.