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Large Budget is Needed to Beat Poverty in Ethiopia

By Mehari Yifter
Tigrai Onlne - August 13, 2014

For the first time in its history, Ethiopia has passed a large budget - a 178.6 billion Birr plan for the 2007 fiscal year.  While it has an increase of 24 billion birr compared to last year’s budget, it’s expected that it will facilitate the renaissance path our country is currently on. Out of the budget, 64.8% will be allocated to prioritized poverty-focused programs like road construction, water, education, agriculture, health and rural electric programs. Out of the remaining budget, 24.5 billion and 29 billion birr will be allocated to education and public infrastructure programs. The budget confirms the government’s firm commitment on developing the country’s human resource and public infrastructure in order to guarantee the country’s future growth prospect.

As it’s known, a five-year growth and transformation plan that aspires to improve our country’s development and that will help eradicate poverty has been designed. And it has currently reached its fourth year anniversary. This will make 2007, the final fiscal year of the plan. Looking back to the four year (of the plan) performance of the country, satisfactory (developmental) results have been achieved. These past four years have been a time where capabilities that will enable the country realize the plan was created; where many works have been done.

Within the three years of the plan (2003 and 2005), our country’s economy has performed with a record 10% economic development in average. Under the five-year Growth and Transformation’ plan, a goal is set to increase Gross Domestic Product by double. In realizing this goal, both the government and the people are working hard collaboratively. Assessing the results achieved on every sector for the last four year gives an indication that the plan can be realized. And when our country realizes the government’s five-year Growth and Transformation plan, it will transform into the next level of development in comparison to its current level. Thus, huge effort is exerted to realize the plan within its time table.

In this particular article, I will try to shade light in the wide developmental works undertaken for the last four consecutive years, and to highlight the importance the proposed 178.6 billion birr budget of the next fiscal year has on facilitating the country’s development goals…

As it’s known, the FDRE government adhered policy and strategy is agriculture-led industry. It’s a development strategy that centers on agriculture and famers. What led the government to this strategy is the fact that the majorities of our country’s people are not only farmers, but also because 85% of the people of the country live in rural areas and made their living through farming.

As farming/agriculture is the way most of our people make their living of, it can safely be concluded that it’s also the main motor of the country’s economy. Taking these realities into account, the government formulated a policy and strategy that centers on the country’s comparative advantage; i.e. agriculture. As a consequence (of this policy and strategy), the country has been able to record an impressive economic growth for the last ten consecutive years.

It’s obvious that any development policy or strategy that disregards agriculture is plainly wrong, considering the sector’s huge role in the country’s economic and social activities. In order to execute the government’s formulated agriculture-led industry development strategy; first one needs to build towards securing food self-sufficiency. Then, the link between industry and agriculture should be further strengthened through increased agricultural productivity. And the government is following this same path. Before the government entered the execution phase of the five-year Growth and Transformation Plan, it has made huge efforts to grow the agriculture sector for the last seven years through the poverty reduction plans and the rural development policies and strategies it had formulated. Thus, when we look at the last seven years (1996-2002), we can see that the output of our country’s agriculture sector is considerable higher compared to previous years’ development.  

As it can be recalled, our country for seven consecutive years (before the start of the five-year GTP plan) had recorded 11.2% economic development as a result of the FDRE government’s action taken to increase agricultural productivity. If we look at the share of the agriculture sector on this development bonanza, we’ll see that its 8.5%. This goes to show the irreplaceable role the agriculture sector has on our country’s development.    

As it’s known, there have been many works undertaken that has secured the success of the policies and strategies of the government. The agriculture sector of our country recorded an unprecedented rapid and sustainable growth between the years 1996 and 2002, so much that international institutions that are involved in predicting country’s economic development lauded the achievement at the time. The double digit economic growth recorded in the two years prior to the formulation of the five-year Growth and Transformation plan were an indication that the plan will be successful. With regards with the five-year Growth and Transformation plan agriculture sector, the government is doing integrated works based on agricultural crop development, natural resources and animals development administration and on risk aversion and food security sectors. Out of these, increasing crop productivity, guaranteeing food security and shoring up the industrial sector were incorporated in the five-year Growth and Transformation Plan – and desired changes are gained.

The industry and service sectors have garnered 16.9% and 11% growth respectively – the implementation phase has ended with a success. Realizing the plan’s goals on the scheduled time will play a major role in transferring the country’s agriculture-led strategy in to an industry-led one. In light with this, our government and the whole people of our country are exerting huge effort for the success and realization of the plan. There are many sectors that are held as a vision on the plan; out of those, I think it’s necessary to mention the Grand National development work undertaken by Metal Engineering Corporation (‘MetEC’). 

As it’s known, the five-year Growth and Transformation plan will serve as a bridge for our country’s move from an agriculture-centered economy to an industry-led one. It’s really important to implement accordingly, with regards to the goals that are put on the plan to help the industry sector achieve its takeover. According to the plan, out of the goals the sector is expected to achieve; which is 11% in a worst case scenario and 14% in best case scenario, 20% growth annually.

As a consequence, citizen’s per capita income has increased from 373 USD in 2010 (adjusting for inflation) to 550 million USD in 2013. According to family’s income and consumption study done in the 2011 budget year, it shows that people living under absolute poverty has lowered to 29.6%, while it’s expected for it to even ebb to 26% in 2013. Also according to this study, as a result of the economic growth recorded in just 2013, more than a million people have been lifted out of poverty, and improved their living standard.

On another hand, as a consequence of the many economic activities; which is responsible for the economic growth, it has been possible to generate many job opportunities for many citizens. With this, the number of the unemployed has greatly reduced.  For example if we take urban unemployment, we can see that it has receded to 16.5 % in 2013. For the last two decades, there have been wide ranging political, social and developmental policies undertaken in the hopes of eradicating poverty and improving the living standard of citizens. Clear sightings have been made with regards to the positive impact and change the economic, social and development policies and strategies made once implemented as per the plan. Therefore, huge amount of economic growth was recorded within the last two decades, including the times when there were international economic crises. The recorded economic growth is all-inclusive and all-beneficiary, and with regards to agriculture, it has laid the foundation for sustainable development through strengthening the utilization of natural resources and water.

The improvements gained in the education and health sector have mobilized the public for development that benefitted itself. The efforts undertaken on the construction of public infrastructures had satisfactory results as it has made the rural accessible. Since 2002 the government has undertaken development works that won’t be done by the private sector; development works that would narrow rent-seeking opportunities. By employing the limited capital on developmental works that would solve basic problems, by strengthening public participation and encouraging private investment, it has been able to realize a rapid and sustainable economic growth and social development.

Nevertheless, as poverty is still a major problem, the importance of sustaining the economic development on a solid base cannot be debated. Although the government was able to increase the share of investment in the economy by understanding the major role government or private investment has on a rapid and sustainable growth, the outcome was not as desired despite its improvement – mainly because of the country’s low saving rate. Yet, the stride made in investment is encouraging, despite of low saving rates.

Looking at the four year performance of the Growth and Transformation plan, we can easily see that a goal is set to double the economic GDP. And the government in collaboration with the public is exerting huge efforts to realize this goal. In addition to this, it should be noted that, in 2013, investment and savings have reached to 33% and 17.7% respectively – performing way ahead of the goal set. Still, there are efforts being done to maintain the results achieved. By shoring up saving rate, our capability to cover our investment demand through domestic finance is being worked upon.

As it’s known, one of the main goals of the plan was to control inflation. Although, the issue of inflation on the first two years of the plan was a huge challenge, there have been huge efforts done and still being doing to stop inflation from affecting the execution of the plan by controlling it for the remainder of the plan. It’s agreed upon that increasing the productivity of agriculture, expanding industrial investments and making domestic market accessible are the long term solutions. With regards to this, there are works being done that includes the concerned stakeholders.

The other main thing that should be mentioned here is that successful results that has been achieved with regards to expanding infrastructure and making basic services accessibility. Within the first three years of the plan, many programs and projects, that had facilitated the construction of infrastructures like road, railway, information technology, water etc …, have been undertaken. Their implementation is going well. For instance, programs and projects that expands national road network have been embarked upon, hugely improving the country’s road coverage.

Following the implementation of these projects, it was able to increase the federal and regional roads total length from 56,190k.m in 2012 to 58,338 in 2013. In addition to this, the length of the rural roads built on the ‘Rural Roads Access’ program has reached 27,628km. As a result, the time that used to take the public to get to the main roads has ebbed to 2.1 hours in 2013. And the projects related to railway construction too are moving well. On top of that, the other thing that should be mentioned here with regards to infrastructure development is the effort exerted towards expanding energy supplies. Grand projects that increase power generating capabilities are currently being undertaken. Although these projects will only wrap up and start to generate power in the next few years, it should be mentioned here that the projects are going well within their schedule. The Grand Ethiopian Renaissance Dam especially is being constructed within its scheduled time table under the support and close supervision of the government and the people.    

In addition to this, the works that were done in water and telecommunication sectors for the last four years have had major contribution in poverty reduction. Looking carefully at the results achieved within these years, on all sectors, implies that the plan can be fully realized. And obviously, if the government formulated five-year Growth and Transformation plan is to be realized, our country will transcend to new development heights.

With regards to expanding social services, there have been many works done. In 2013, the coverage of basic health service has reached 93%, while there have been huge improvements on infant and maternal health. Especially concerning infant health, our country, as the UN has also confirmed, have realized one of the Millennium Development Goals (‘MDGs’), which concerns with lowering infant mortality by 2/3rd, two years in advance – one implication that our country will realize the plan. Similarly, in the education sector, more specifically in primary education (1-8) coverage, including alternative basic education, it has reached 95.4% in 2013, while more than 17.3 million children are in schools.

The other thing that was given due priority in the GTP is the private sector. As the private sector is the main dynamo and motor of the economy, there have been efforts aimed at enabling wealthy investors get involved in the industry sector. In order to hasten the economic growth, the manufacturing sector is underlined to play a major role in the economy. So, by further strengthening the support given to private investors that are involved in the sector, positive results have been achieved in the last four years.   

Looked from the perspective of the direction put forward in the Growth and Transformation plan, we can see that some of them were realized before schedule and some showed glimpses that they would be in the scheduled time. And as it can be recalled, in his recent briefing to the parliament, Minister of Finance and Economic Development, Ato Sufian Ahmed, has said that it would take huge effort to realize the rest of the goals as challenging situations surrounds them. All in all, through the years of the plan, it has been able to draw strong suits from up to now performance. The recorded results have ignited huge development verve and motivation within the public.

As it has been said repeatedly, 2014 is the year where the implementation of the plan was rigorous (in comparison to the past years). At a time when many projects are nearing completion, the ‘scaling up strategy’ with regards to natural resource conservation and agriculture extension is gaining momentum. Within the budget year, as the infrastructural and social service have expanded, the support given to developmental investors have continued strong, and as huge works that will help national income grow are strengthened, it’s expected that the economic growth will continue on with its path.

The reports shows that the expected growth will be realized in the agriculture sector – a sector that have huge role for the country’s economic growth - within this budget year. According to the Pre-harvest crop production forecast of Central Statistics Agency, 227 million quintals of cane and -----, 21 million quintals of grain and 6 million quintals of oilseeds; 254 million quintal of food crops in total will be harvested from farmlands in the 2014 budget year. Compared to the harvest of 2013, it has grown by 10%.

With regards to the industry sector, it’s believed that the sector will record fast growth seeing as how the manufacturing and construction sectors – which have the major share in the sector – are doing well. Generally, going by the performance of all the sectors so far, there are hints that imply the economy will record 11% economic growth in the 2006 budget year. 

With regards to revenue collection, the federal government has collected close to 97 million birr, within the first ten months of the budget year, from tax, non-tax and direct budget subsidy, including debt reduction. It has performed 88.1% from the year’s budget. Within the aforementioned months, the federal government has been able to collect 86 million 221 thousand birr in revenue, racking up 89.1% of the proposed budget. Out of this, the net tax revenue of the federal government is 79 million 471 thousand birr. This shows that the federal government has collected 79% of its yearly plan of tax revenue. As there is a strong economic activity in the 2014 budget year, it’s expected that the economy will record an 11% growth for the same year.

As it’s known, 2015 is the year where the Growth and Transformation plan will be completed. The implementation process is expected to go strong for the 2015 budget year, which will be a hallmark of the year. As I have tried to mention it on the introductory part of the article, the budget of the federal government for the year 2015 has been decided to be 178 billion 565 million 906 thousand 571 Birr (178.6 billion Birr). It has 15.3% increment compared to the 2014 budget year.

Out of the (total) budget, 45 billion 55 million 288 thousand 445 birr has been allocated to regular expenditure (25.2% share), while 66 billion 990 million 216 thousand 931 birr (37.5% share) will be allocated to capital expenditure. 51 billion 520 million 401 thousand 195 birr (28.9% share) will be allocated to regional governments, whilst 15 billion birr will be allocated for covering the Millennium Development Goals (8.4% share).

Out of the capital and regular budget for the budget year 2015, 64.8% will be dispersed to prioritized programs like road, education, agriculture, water and rural electric. Thus, this indicates that he budget will be allocated on economic sub-sectors that play a huge role in eradicating poverty, and expanding infrastructures. It also indicates that the goals set on the Growth and Transformation plan will be realized. And this is the benefit of the proposed historical 2015 budget.

Here it should be noted that the economic growth did not came about accidently. It was gained because the whole public mobilized from border to border for the fight against poverty understanding that the fight does not only fall on the government’s lap. The peaceful state of the country also deserves credit for it. Peace is an issue for foreign citizens aiming to invest in and visit the country as tourists.

In addition to this, the works that have been done on good governance; which plays a major role in strengthening and improving the service sector, has contributed its own share for the economic growth. Although the (GTP) plan was lauded as too broad by many, the government’s capability to implement, which is mustered with strong policy and strategy, and the public’s strong hand has taken the lion share for the successful results. On top of this, as of next year, it will be the final year of the Growth and Transformation plan, demanding huge efforts to be exerted in order for the economic growth not lose steam.

Thus, by joining the huge budget the government allocated with the publics’ strong hand; by further strengthening on the positive results that were garnered from the last four years; and by focusing on those sectors that needs attention, it should see the country finish its renaissance path – as there is nothing a force that holds the will of the people can’t achieve.

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