Embassy of The Federal Democratic Republic of Ethiopia

Sustainable Development and Poverity Reduction Strategy

Note to readers: Ethiopia's Sustainable Development and Poverty Reduction Programme (SDPRP) was formulated after exhaustive debate at grassroots level and is now accepted by the major donor countries, as well as by the international financial organisations. The following is an executive summary of the programme.

Executive Summary

For some countries, economic growth is the primary policy goal, and poverty reduction is to be achieved through measures complementary to growth. This is not the approach of the Ethiopian government. Poverty reduction is the core objective of the Ethiopian government. Economic growth is the principal, but not the only, means to this objective.

The FDRE recognises that in the absence of proactive development policies, it is impossible to create an enabling environment for accelerated development and attainment of improvements in the standards of living of the people. Based on the materials presented in chapters I, II, III, and IV of the main strategy document entitled "Sustainable Development and Poverty Reduction Program (SDPRP)": Socioeconomic Performance and Poverty Profile of Ethiopia, Analysis of Growth and Poverty Linkage, Major Outcomes of the Consultation Process, Overview of Ethiopia's Development Challenges, respectively, and the practical experiences and lessons learnt over the past ten years, and an assessment of the development experiences of countries that have attained rapid economic development; the FDRE has formulated policies and strategies to guide over all development with focus on rural and agricultural development.

The fundamental development objectives of the FDRE are to build a free-market economic system in the country, which will enable:

The Major Thrust of Ethiopia's Sustainable Development and Poverty Reduction Programme

The broad thrust of Ethiopia's strategy during the Sustainable Development and Poverty Reduction Program (SDPRP) period thus consists of:

1. Overall Objectives of the Sustainable Development and Poverty Reduction Program

The overarching objective of the government's poverty reduction strategy is to reduce poverty through at the same time maintaining macroeconomic stability. According to HICE 1999/2000, poverty head count ratio is projected to decline by about 10 %(about 4 percentage points) by the end of the poverty reduction strategy program period (2004/05) from its 1999/00 level of 44 percent. Real GDP is targeted to grow by at least 7 percent on average during the program period. While recognizing the seriousness of the challenge, the Government is committed to and works towards meeting the Millennium Development Goals (MDGs) of 2015.

2. Required Growth to Meet the Millennium Development Goals (MDGs)

The government has calculated the elasticity of poverty with respect to growth based on the latest Household Income and Consumption Expenditure (HICE) Survey data (1999/2000), taking explicitly into account the likely changes in income distribution. This analysis implies that the Ethiopian economy must grow in real terms by 5.7% per annum until 2015 to reduce poverty by half from its current level. Modest improvements in institutional efficiency, such as the reform of the legal system, enforcing contracts, ensuring property rights, maintaining peace and stability, and improving the functioning of public services, can help reduce this growth requirement to about 4.7 %. This is likely to be achieved as the government has already embarked on almost all fronts (capacity building, devolution and empowerment, justice system and civil service reform, anti-corruption, etc).

3. Macroeconomic Strategy to Achieve the Required Growth

The key elements of the medium term macroeconomic strategy are the continuation of the program by reorienting the budgetary resources towards poverty reducing sectors, laying the foundation for a strong revenue performance through the tax reform program, improving the monetary and financial sector reform, and capacity building and regulatory reforms to promote private sector development. Specific objectives in the medium term are to achieve an annual average real GDP growth of about 7 percent and maintain stable prices (i.e., an inflation rate in the single digits, preferably no more than 5 percent) as well as a foreign exchange reserve to cover 4-5 months of import of goods and non-factor services.

The fiscal policy in the medium term is aimed at reducing the deficit to a sustainable level while at the same time reorienting investment and current spending towards key sectors such as agriculture (food security), natural resource, education and health and road construction. On the revenue side, the Government is determined to lay the foundation for strong revenue performance during the program period. Tax revenue is forecast to increase from 14.3 percent of GDP in 2000/01 to 17.7 percent in 2004/05.

Monetary policy will remain geared toward containing inflation and achieving the international reserve target. The net domestic assets of the central bank will remain the key aggregate in steering monetary policy. The central bank will continue to closely monitor developments in reserve money and broad money. Progress in fiscal consolidation, supported by substantial disbursements of foreign aid, is expected to facilitate a rebuilding of net international reserves, while leaving for adequate growth in domestic credit to the private sector.

In the case of the Financial Sector, the government is committed to the enhancement of efficiency and competition in the sector. To attain this objective, it will adopt by June 30,2002, a medium-term strategy covering the period 2002/03-2004/05. The strategy that is envisaged will proceed along three lines: first, creating a favourable external environment of banking; second, building the internal dynamics of banks; and third, fostering contestability of markets within the banking sector.

4. Equitable Growth and Social Impact of Policies

As indicated earlier, the expected annual average GDP growth rate is 7%. All sectors will contribute to this growth. Given the overriding emphasis on the transformation of the rural economy in general and the agricultural sector in particular, agriculture is expected to grow at annual average rate of 7.5% during the program period. The modern goods producing sector (industry) is expected to grow at 7.8%. With in industry, large and medium scale manufacturing, electricity& water, and construction are expected to show higher annual average growth rates. The distributive service sector is expected to increase at the rate of 8% per annum while the other service sector is forecast to increase at the rate of 5.4% per annum. These levels of growth must be achieved in such a manner that ensures equitable growth and a positive social impact.

Building blocks: Interaction of the Economic and Political Processes

Economic strategy has to be viewed in conjunction with the political process for it to be an effective development promoting and poverty-reducing instrument. Given poverty reduction will continue to be the core of the agenda of the county's development, the strategy is built on four pillars (building blocks). These are: Agricultural Development Led Industrialization (ADLI), Justice system and civil service reform, decentralization and empowerment, and capacity building in public and private sectors. Such a four-pronged approach is believed to be effective in a fight against poverty and ensure sustainable development.

1. ADLI and Food Security

Ethiopia's existing realities reveal that there is an acute shortage of capital. In contrast, the country is endowed with a large number of working age population and a potentially cultivable land although land is still relatively scarce in some part of the country, particularly the northern and central high lands. It is believed that faster growth and hence economic development could be realized if the country adopts a strategy that help raise the employability of our labour resources and enhance productivity of land resources aimed at capital accumulation. Pursuing a development strategy that does not make extensive use of the manpower and intensive use of the land resources forfeits the considerable contribution that these resources could make to growth and capital accumulation.

ADLI is seen as a long-term strategy to achieve faster growth and economic development by making use of technologies that are labour using, but land augmenting, such as fertiliser and improved seeds and other cultural practices. During the first stage of ADLI, agriculture is to play a leading role in the growth of the economy. But the extremely small ratio of urbanization of the country threatens to make inadequacy of domestic demand a critical constraint. This implies that agriculture has to be made internationally competitive, and that part of its production has to be oriented towards exports.

For agriculture to continue serving as an engine of growth in the coming years, through the domestic economy and international trade, there has to be progress in terms of commercialization, with more intensive farming, increasing proportion of marketable output and correspondingly decreasing ratio of production for own consumption. Aside from deepening technological progress, it will mean greater market interaction on the part of the farmer. Extension of credit to the small farmer will gain importance with commercialization of agriculture, and give impetus to the establishment of rural banks. Cooperatives play important roles in facilitating input and output marketing as well as in promoting the provision of rural finance. The problem of food security and agricultural growth in pastoral areas is being conceived in terms of the development of the pastoral economy in its entirety.

Unless industry (secondary-modern goods producing sectors) and services (tertiary-distributive and other services) grow in conjunction with agriculture (primary - agriculture and allied activities), it is not possible to ensure accelerated growth and sustainable development. In an agrarian economy such as Ethiopia, the resources for the development of the industrial sector need to be generated via primarily creating strong bondages between agriculture and industry and subsequently exploiting these linkages via the concerted efforts of non-state actors, particularly the non-peasant private sector.

In this regard, the government has already recognized the key role that the non- peasant private sector is expected to play in directly taking part in agricultural production, agricultural marketing and processing agricultural products. The government will make every effort to enhance and buttress the contribution private sector (domestic and foreign) will make to agricultural development endeavors. The federal government, in collaboration with regions, will work hard to allocate land for commercial farming, make sure that there are adequate infrastructure facilities, and streamline and make efficient land lease procedures for entrepreneurs who wish to set up large - scale commercial farms. For those who want to rent land from farmers and take part in agricultural activities, the federal government, again in collaboration with the regions, will work out an efficient arrangement, which will safeguard the interests of all parties concerned.

2. The Justice System and Civil Service Reform

Cognizant of the urgent need to address the wide array of capacity constraints that hindered the performance of public institutions in Ethiopia, the Government embarked on a comprehensive Civil Service Reform Program (CSRP) in 1996. Indicative of Ethiopia's "first generation" capacity building efforts, the CSRP sought to build a fair, transparent, efficient, effective, and ethical civil service primarily by focusing on strengthening core technocratic systems within the public sector.

Of greatest importance now are the second-generation reforms. Key challenges for the Government in this "full implementation phase" of CSRP will be to ensure a regional and woreda-level focus, maintain strong coordination across line ministries and tiers of government, provide clear incentives for behavioral change among civil servants, and establish benchmarks against which to measure impact.

3. Governance, Decentralization, and Empowerment

Decentralization is an outcome of the adoption of a federal system of government in Ethiopia. With the devolution of power to the regional governments, implementation of economic policies and development programs is shifting, to a large extent, from the center to the regions. The application of fiscal federalism ensures a single system of taxation, allows some revenue collection by the regions and some revenue sharing with the federal government while putting the majority of the revenue under the central authority, provides budgetary subvention to the regions, and grants the regions full autonomy in budgetary expenditures.

By way of deepening and broadening the decentralization process, measures are currently under way to pave the ground to render districts (Woredas) the center of socio-economic development. By way of ensuring their autonomy on resources, it is already planned to effect block grants directly to districts (Woredas). This will provide a basis for a meaningful participation by the people in local development programs. Typically this will entail primary education, primary health care, rural water supply, rural roads and agricultural extension. Other activities such as small-scale irrigation, market infrastructures, and cottage industries could also be included depending on financing, capacity building and private investment. Gender equality will continue to be emphasized in the process of decentralization and empowerment.

As the Government seeks to implement these decentralization efforts in a relatively short period of time, it faces immense fiscal and institutional challenges. To be sustainable, this second wave of democratic decentralization will require a systematic approach to developing enabling legislation for local governments within regions including the re-demarcation of financing viable local jurisdictions and the harmonization of various forms of local government (including Woredas and municipalities). In addition, regions will formally assign expenditure and revenue responsibilities within regions in ways that maximize operational efficiency. Concurrently measures are also being taken in the area of capacity building, as technical capacity limitation is believed to be the major constraint in the course of implementing the decentralization process, which in turn is expected to foster socio-economic transformation at the grass-root level. The establishment of the new Capacity Building Ministry is one testimony for the government's commitment to further deepen the decentralization process.

Accordingly, the role and functional restructuring of regional bureaus (including sustainable redeployment of staff) will be undertaken in line with the above-mentioned expenditure assignments, and in parallel, Woredas and municipalities will be appropriately restructured to ensure that they take on new functions and develop required core competencies. The democratic aspect of decentralization will also depend on strengthening the capacity of communities and civil society groups to federate and more effectively take advantage of the opportunities for voice that decentralization affords. Finally, once capacitated and restructured, local governments will require fiscal support to build their capital stock consistent with their service delivery investment needs.

Besides, the devolution to Woredas and Kebeles which are instruments for deepening and strengthening democracy and good governance in Ethiopia, the Government will give priority to strengthening democratic institutions. Strengthening the council of peoples' representatives and operationalising the Ombudsman and Human Right commission are priority actions.

4. Capacity Building

The government in December 1998 has prepared a strategy for capacity building and program framework. It is hoped that external assistance will be obtained and that it will be mostly implemented within the medium-term. The strategy and program framework of capacity building that has been formulated is designed to feed into ADLI, judiciary and civil service reform, and decentralization and empowerment. Thus, it fits properly to the country's poverty reduction strategy.

Capacity building is taken to comprise the development of human resources, building and strengthening of institutions, and establishment of effective working practices in combination. The program is to be implemented in relation to smallholder agriculture, the private sector, and the public sector, including the judiciary. Training of farmers, supporting micro-financing institutions, and strengthening public and private sector organizations involved in the development of agriculture will be the main activities concerning smallholder agriculture. As to the public sector, capacity building will run parallel to the judiciary and civil service reform. Taxation will receive priority within the civil service reform.

Capacity building will include education in order to increase the stock of trained manpower in general and to upgrade the manpower within the civil service. The training needs of regional and district administrations will receive special attention. Various activities will be undertaken to develop the private sector. The activities include establishing industrial training institutes, strengthening of the financial sector, supporting the development of chambers of commerce and industrial associations, and improving the setting of product standardization.

Key Sectoral Measures and Cross-cutting Issues

1. Agriculture

Some of the proposed measures in the agricultural sector during the program period are:

The number of farming households to be covered by the Extension Package Program is expected to increase from the current 4 million (2000/01) to 6 million by the end of the program period. There were only 32,000 farmers when the package was introduced in 1994/95.

2. Food Security

Agricultural growth will also contribute to improving the conditions of food security in the country. There are indications that excepting conditions of drought, even the present extension program could have sufficed to bring about a satisfactory level of national food security. However, as it stands now droughts occur far too often and food security in all its dimensions could not be sustained. Irrigation would have to be introduced in a significant way for a sustainable attainment of food security at the national level. However, food insecurity at the household level could still persist despite growth of food and cash crops at national level. The solution would have to come predominantly from within agriculture.

The medium-to long-term target is to reduce the absolute size of the food insecure rural population substantially and make them exit from food aid. In the short-run, the objective is to rely on fiscal transfer of resources to support a relatively small numbers of food-deficit households. For the country as a whole, tackling food insecurity at the household level is, arguably, the most effective and direct way of poverty reduction being envisaged by the government, and, no doubt, among the most important programs.

During this transition, there will be continued reliance on food aid. There are two main issues in this regard; ensuring a timely intervention to avoid lack of food, and using the resources of food aid to build the potential of agriculture and rural infrastructure. The concept of linking relief with development has been applied since the late 1980s. Various activities of environmental protection such as soil and water conservation, terracing and aforestation carried out over the years have shown positive results, and will be improved and continued in the future. Emergency capabilities have also been strengthened in the past few years by reorganizing the Disaster Prevention and Preparedness Commission (DPPC), and establishing a Food Security Reserve Administration (FSRA). Monitoring, surveillance, early warning, and strategic food reserves capabilities will continue to be augmented to better deal with emergency situations of famine.

3. Education

Ensuring access to elementary education for all citizens along with improving quality and relevance to socioeconomic development is the objective of the ESDPII.

With regard to primary enrollment, one of the program targets is to achieve a GER of 65% by the end of the program (2004/2005). To ensure that this target can be met, while ensuring that quality does not suffer, the enrolment increase will be accompanied by construction of facilities, training and deployment of new teachers for primary level, development of syllabi and textbooks for primary schools, and the use of quality assessment mechanisms for education in primary schools.

With regard to Secondary Education, the secondary first cycle will expand in line with the high coverage observed in the primary education. As the content of education at this level is to prepare students for various training programs and subsequent learning, considerable attention will be given to the quality of education. The secondary school second cycle will expand in line with the desired intake capacity for higher educational institutions.

The program target is to achieve a GER of 16% for the first cycle of secondary education and a GER of 8% for the second cycle by the end of the program period (2004/2005). Efforts will be made in the construction of facilities, revision of syllabi, provision of textbooks, development of assessment mechanisms for the quality of education, and the training and deployment of new teachers in secondary schools.

With regard to TVET, the program target for TVET institutions is to enroll 130,000 students (or equivalently 55,000 annual intakes) by the end of the program period (2004/05), along with significant measures to enhance quality of education and management of TVET institutions.

With regard to Higher (Tertiary) Education, the program targets are to expand the undergraduate intake capacity of all higher education institutions in the country to reach 30,000 per annum by the end of 2004/05, and expand the postgraduate intake capacity of higher education institutions to reach 6,000 by 2004/05. Efforts will be made to carry out construction of facilities, training, curricula reform, and quality assessment.

4. Health Services

Health Extension Package (HEP) is a new initiative included in the HSDPII. It is an innovative community-based health care delivery system aimed at creating healthy environment as well as healthful living. The main objective of HEP is to improve access and equity through community/kebele based health services with strong focus on sustained preventive health actions and increased health awareness.

The health extension service will be provided as a package focusing on preventive health measures targeting households particularly women/mothers at the kebele level. A new cadre of health workers (75% females) will be trained and deployed utmost two in each kebele and they will be accountable to health centers of their areas. The implementation is expected to start in FY 2002/03 on pilot basis using the existing Primary health Workers.

The overall objective of the HSDPII is to increase access for health services. The program (HSDP II) gives priority to the prevention of diseases. Preventive health service, health service coverage (expansion and maintenance), and quality of healthcare will be given priority during this program period. One of the key targets of the HSDPII is to increase health service coverage from 52% in 2001/02 to 65% by the end of the Program period (2004/05).

5. HIV/AIDS

HIV/AIDS is already putting a brake on economic growth in the worst affected countries through diversion of investment, deficit-creating pressures on public resources, and loss of adult labor and productivity. Ethiopia is one of the Sub-Saharan African countries where the HIV/AIDS infection is high; one out of every thirteen adults is believed to be infected. In urban areas, more than one out of every six adults is being infected.

The government of Ethiopia approved a comprehensive HIV/AIDS policy in 1998 with the overall objectives of guiding the implementation of successful programs to prevent the spread of the disease, decreasing the vulnerability of individuals and communities, caring for those living with the disease, and reducing the adverse socio-economic consequences of the epidemic. It has also developed the Strategic Framework for the National Response to HIV/AIDS, 2000-2004. Reducing the level of transmission is the key element in the overall prevention and control of the disease.

To support the AIDS control program through capacity building, training of people from all sectors, the youth, and other community groups will be conducted. This includes strengthening the secretariat offices at the regional, zonal and woreda levels to be able to provide appropriate treatment for STDs and extend support to people living with HIV/AIDS and their relatives.

The major objective regarding HIV/AIDS is to reduce prevalence of the epidemic. The instruments (measures) devised to achieve this objective are:

The target is to reduce the level of HIV transmission by 25% within 5 years.

6. Roads

The objective of first phase of the Road Sector Development Program (RSDP I) was mainly aimed at upgrading and rehabilitating the existing road network. The RSDP II has given attention to the expansion of the existing network in order to enable the road infrastructure support the country's endeavor to attain economic development and poverty reduction. The first three years (2002/03-2004/05) of RSDP II target is to:

The government has already recognized the challenges towards meeting these targets and is already taking measures to strengthening the institutional and organizational capacity of federal and regional road agencies for sustainable implementation of the RSDP and up-keep of the road network. The role of local private contractors is also already internalized. To this effect, the Government plans to assign 40% of road maintenance works (in sub-sector terms), to private sector contractors in the short term and increase the level to 100% in 10 years time.

An important aspect of RSDP II is that it introduces a new dimension covering the requirements of travel and transport at village level: the Ethiopian Rural Travel and Transport Sub-Program (ERTTP). Throughout Ethiopia many rural villages are cut off during the rainy seasons, and women head loading undertakes transport predominantly. The ERTTP is expected to better support agricultural and other commercial activities in the regions, and thus provide a sound and sustainable foundation for the on-going economic development and poverty reduction effort in the country.

The ERTTP, is therefore, an integrated rural development initiative that revolves around rural travel and transport and it envisages the following activities during RSDP II:

7. Water and Sanitation

The overall objectives of the national water resources management policy of Ethiopia is to enhance and promote efforts towards an efficient, equitable, and optimum utilization of the available water resources and contribute to the country's socioeconomic development on sustainable basis.

During 2002/03-2004/05 water supply coverage of urban, rural and country level is expected to reach at 82.5%, 31.4% and 39.4% respectively. With respect to the urban sewerage, coverage will increase annually by 3.5% from its current level of 7%.

During the program period (2002/03-2004/05) irrigation program aims to develop a total of 29,043 hectare of new land, which bring the total area under irrigation to 226,293 hectare by the end of 1997 making 114,390 household beneficiaries. The small scale irrigation schemes for the period (2002/03-2004/05) is expected to cover an area of 23,823 ha benefiting about 93,510 households.

8. Gender and Development

In almost any country, women and men have different access to critical economic resources and varying power to make choices that affect their lives, as a consequence of the state of gender relations that exists in a given society. The direct result of this is seen in the unequal roles and responsibilities of women and men. Core dimensions of poverty (opportunity, capability, security/risk, and empowerment) differ along gender lines, and function to heighten the vulnerability of women. For these reasons, the inclusion of gender in any effort to alleviate poverty is nonnegotiable.

The government of Ethiopia is committed to eradicate poverty, particularly addressing its gender dimension. Over the last decade, the government has renewed its commitment to address gender inequalities that deter long-lasting change and equitable development. Apart from endorsing the National Policy for Ethiopian Women, the government has created supportive constitutional provisions to establish women's equality with men.

The Women's Development Initiatives Project (WDIP) is an example of an initiative that offers particularly poor women in rural settings critical economic opportunities to help fight their desperate situation. Recent changes in the family code, and attempts by the sector ministries, commissions, and authorities to institute sectoral policy guidelines to address gender issues within their operational framework, have resulted in an improvement in the policy environment and programmatic directions. However, over time it has been observed that progress in women's lives is not proportionate to the progress made in the policy and legal environment. This calls for expediting the socio-economic development process with the required gender sensitivity.

Women are a critical component of the rural economy and are engaged in agricultural production. They contribute significantly to off-farm production/employment, cash and food crops, subsistence farming, and reproduction of male agri-labour forces. Nonetheless they lack adequate access to extension services.

The level of education attained has had a direct bearing on poverty. The literacy rate in general and that of women in particular is far away from what the government of Ethiopia wishes to achieve. Women's education is one of the important aspects of their self-development, and is closely related to their participation in productive activities, control over their own life and body, the education of their children (particularly daughters), and their negotiation ability vis-à-vis institutions and men. That is why expediting the implementation of ESDP II is given high priority by the government.

The government of Ethiopia recognizes the need for gender sensitivity of the health system for equitable development. Addressing existing biases within the health system is extremely important, and the government is committed to further strengthen the implementation of Health Sector Development Programme.

Women have greater vulnerability to HIV/AIDS than men because of epidemiological, biological and socio-cultural reasons. There is a need for strengthening and devising mechanisms for implementation of gender responsive HIV/AIDS prevention and community level coping measures in collaboration with the National HIV/AIDS Council and Secretariat. These include activities ranging from awareness creation/raising, information delivery methods and systems, availability of counseling services, peer group education, laboratory set-up, gender sensitive human resources development, challenging social taboos, training, and research.

The Role of Development Actors in SDPRP

The Government is working towards effective mobilization and coordinated use of the resources of the public, private, NGOs and communities to ensure rapid, broad-based development and effectively attack one of the most serious challenges that Ethiopia is facing-deep and wide poverty.

The Government has made a political choice to further deepen the democratization and devolution process by transferring a number of responsibilities from regional governments to Woredas and Kebles. This will be accompanied by fiscal empowerment. This is a fundamental shift in the history of Ethiopia, which mandates communities through their elected councils to plan, allocate budget and implement to address their socio-economic problems. This is a key process that will unlock the energies of communities to face the challenge of poverty at its root. They will be provided with budget grants to make their empowerment effective and complement their local resources, which for sure they will mobilize to address their own problems, by themselves.

The government recognizes NGOs as an important development force and partner. They are already involved in the core poverty oriented sectors-agriculture, health, education, water, rural roads and other rural development activities. The Government will facilitate so that these experiences and resources are brought in and coordinated with in the SDPRP framework.

The donor community is also important development force and partner in Ethiopia. Donors have been and are assisting Ethiopia's development effort and have been active in the PRSP preparation.

Given the level of poverty and the low level of per capita ODA Ethiopia currently receives (below the Sub Saharan average), there is expectation for increased inflow of ODA resources to support the country's strategy and priority programs for broad-based development and poverty reduction. It is also expected that aid flows are not impeded by traditional aid delivery mechanisms. There is a clear and strong preference for budget support, which becomes an imperative with the ongoing decentralization from Regions to woredas and kebles. The DAG has expressed its readiness to support SDPRP and some members of DAG have decided to move towards budget support in their aid delivery and the government will create conducive environment for its realization.

Development partners are also expected to facilitate market access, trade and foreign investment flows to Ethiopia to contribute to the realization of development and poverty reduction objective of Ethiopia. Support to capacity building for trade so that Ethiopia can effectively make use of existing market access opportunities such as AGOA and EBA becomes critically important.



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