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Ethiopia Growth and Structure of the Economy
Developments up to l974
By African standards, Ethiopia is a potentially wealthy
country, with fertile soil and good rainfall over large
regions. Farmers produce a variety of grains, including
wheat, corn, and millet. Coffee also grows well on southern
slopes. Herders can raise cattle, sheep, and goats in nearly
all parts of the country. Additionally, Ethiopia possesses
several valuable minerals, including gold and platinum.
Unlike most sub-Saharan African countries, Ethiopia's
resources have enabled the country to maintain contacts with
the outside world for centuries. Since ancient times,
Ethiopian traders exchanged gold, ivory, musk, and wild
animal skins for salt and luxury goods, such as silk and
velvet. By the late nineteenth century, coffee had become
one of Ethiopia's more important cash crops. At that time,
most trade flowed along two major trade routes, both of
which terminated in the far southwest in the Kefa-Jima
region. From there, one route went north to Mitsiwa via
Gonder and Adwa, the other along the Awash River valley to
Harer and then on to Berbera or Zeila on the Red Sea.
Despite its many riches, Ethiopia never became a great
trading nation. Most Ethiopians despised traders, preferring
instead to emulate the country's warriors and priests. After
establishing a foothold in the country, Greek, Armenian, and
Arab traders became the economic intermediaries between
Ethiopia and the outside world. Arabs also settled in the
interior and eventually dominated all commercial activity
except petty trade.
When their occupation of Ethiopia ended in 1941, the
Italians left behind them a country whose economic structure
was much as it had been for centuries. There had been some
improvements in communications, particularly in the area of
road building, and attempts had been made to establish a few
small industries and to introduce commercial farming,
particularly in Eritrea, which Italy had occupied since
1890. But these changes were limited. With only a small
proportion of the population participating in the money
economy, trade consisted mostly of barter. Wage labor was
limited, economic units were largely self-sufficient,
foreign trade was negligible, and the market for
manufactured goods was extremely small.
During the late l940s and 1950s, much of the economy
remained unchanged. The government focused its development
efforts on expansion of the bureaucratic structure and
ancillary services. Most farmers cultivated small plots of
land or herded cattle. Traditional and primitive farming
methods provided the population with a subsistence standard
of living. In addition, many nomadic peoples raised
livestock and followed a life of seasonal movement in drier
areas. The agricultural sector grew slightly, and the
industrial sector represented a small part of the total
economy.
By the early l950s, Emperor Haile Selassie I (reigned 1930-
74) had renewed calls for a transition from a subsistence
economy to an agro-industrial economy. To accomplish this
task, Ethiopia needed an infrastructure to exploit
resources, a material base to improve living conditions, and
better health, education, communications, and other
services. A key element of the emperor's new economic policy
was the adoption of centrally administered development
plans. Between l945 and l957, several technical missions,
including one each from the United States, the Food and
Agriculture Organization of the United Nations (FAO), and
Yugoslavia, prepared a series of development plans. However,
these plans failed to achieve any meaningful results,
largely because basic statistical data were scarce and the
government's administrative and technical capabilities were
minimal.
In 1954/55 the government created the National Economic
Council to coordinate the state's development plans. This
agency, which was a policy-making body chaired by the
emperor, devoted its attention to improving agricultural and
industrial productivity, eradicating illiteracy and
diseases, and improving living standards for all Ethiopians.
The National Economic Council helped to prepare Ethiopia's
first and second five-year plans.
The First Five-Year Plan (1957-61) sought to develop a
strong infrastructure, particularly in transportation,
construction, and communications, to link isolated regions.
Another goal was the establishment of an indigenous cadre of
skilled and semiskilled personnel to work in processing
industries to help reduce Ethiopia's dependence on imports.
Lastly, the plan aimed to accelerate agricultural
development by promoting commercial agricultural ventures.
The Second Five-Year Plan (1962-67) signaled the start of a
twenty-year program to change Ethiopia's predominantly
agricultural economy to an agro-industrial one. The plan's
objectives included diversification of production,
introduction of modern processing methods, and expansion of
the economy's productive capacity to increase the country's
growth rate. The Third Five-Year Plan (1968-73) also sought
to facilitate Ethiopia's economic well-being by raising
manufacturing and agro-industrial performance. However,
unlike its predecessors, the third plan expressed the
government's willingness to expand educational opportunities
and to improve peasant agriculture. Total investment for the
First Five-Year Plan reached 839.6 million birr (for value
of the
birr
--see Glossary), about 25 percent above the
planned 674 million birr figure; total expenditure for the
Second Five-Year Plan was 13 percent higher than the planned
1,694 million birr figure. The allocation for the Third
Five-Year Plan was 3,115 million birr.
Several factors hindered Ethiopia's development planning.
Apart from the fact that the government lacked the
administrative and technical capabilities to implement a
national development plan, staffing problems plagued the
Planning Commission (which prepared the first and second
plans) and the Ministry of Planning (which prepared the
third). Many project managers failed to achieve plan
objectives because they neglected to identify the resources
(personnel, equipment, and funds) and to establish the
organizational structures necessary to facilitate largescale economic development.
During the First Five-Year Plan, the gross national product
(
GNP
--see Glossary) increased at a 3.2 percent annual rate
as opposed to the projected figure of 3.7 percent, and
growth in economic sectors such as agriculture,
manufacturing, and mining failed to meet the national plan's
targets. Exports increased at a 3.5 percent annual rate
during the first plan, whereas imports grew at a rate of 6.4
percent per annum, thus failing to correct the negative
balance of trade that had existed since l95l.
The Second Five-Year Plan and Third Five-Year Plan
anticipated that the economy would grow at an annual rate of
4.3 percent and 6.0 percent, respectively. Officials also
expected agriculture, manufacturing, and transportation and
communications to grow at respective rates of 2.5, 27.3, and
6.7 percent annually during the Second Five-Year Plan and at
respective rates of 2.9, l4.9, and l0.9 percent during the
Third Five-Year Plan. The Planning Commission never assessed
the performance of these two plans, largely because of a
shortage of qualified personnel.
However, according to data from the Ethiopian government's
Central Statistical Authority, during the 1960/61 to 1973/74
period the economy achieved sustained economic growth.
Between 1960 and 1970, for example, Ethiopia enjoyed an
annual 4.4 percent average growth rate in per capita gross
domestic product (
GDP
--see Glossary). The manufacturing
sector's growth rate more than doubled (from 1.9 percent in
1960/61 to 4.4 percent in 1973/74), and the growth rate for
the wholesale, retail trade, transportation, and
communications sectors increased from 9.3 percent to 15.6
percent.
Relative to its neighbors, Ethiopia's economic performance
was mixed. Ethiopia's 4.4 percent average per capita GDP
growth rate was higher than Sudan's 1.3 percent rate or
Somalia's 1 percent rate. However, Kenya's GDP grew at an
estimated 6 percent annual rate, and Uganda achieved a 5.6
percent growth rate during the same 1960/61 to 1972/73
period.
By the early l970s, Ethiopia's economy not only had started
to grow but also had begun to diversify into areas such as
manufacturing and services. However, these changes failed to
improve the lives of most Ethiopians. About four-fifths of
the population were subsistence farmers who lived in poverty
because they used most of their meager production to pay
taxes, rents, debt payments, and bribes. On a broader level,
from 1953 to 1974 the balance of trade registered annual
deficits. The only exception was l973, when a combination of
unusually large receipts from the export of oilseeds and
pulses and an unusually small rise in import values resulted
in a favorable balance of payments of 454 million birr. With
the country registering trade deficits, the government
attempted to restrict imports and to substitute locally
produced industrial goods to improve the trade balance.
Despite these efforts, however, the unfavorable trade
balance continued. As a result, foreign grants and loans
financed much of the balance of payments deficit.
Data as of 1991
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