ECONOMIC STRUCTURE

Production sectors

Ethiopia is one of the poorest countries in the world with the latest estimate of GNP per capita of US $120. It is estimated that 60 per cent of the population lives below absolute poverty line.

The Ethiopian economy is dominated by agriculture which accounts for over 50 per cent of GDP , 90 per cent of the export earnings, and 88 per cent of the labour force. Food supply to the urban areas and supply of raw materials to the manufacturing sector are all dependent upon agriculture.

Crop production and livestock husbandry account for over 86 per cent of the agricultural GDP while the balance ( less than 14%) comes from forestry products . Cattle and small ruminants are reared both in the lowlands (by the pastoralists) and in the highlands where draft animals are traditionally integrated into crop farming. Fishing has a minimal contribution despite the country's high potential of large inland water bodies.

Individual peasant farming is by far the most dominant sub-sector, accounting for over 97 per cent of the agricultural output. The average farm size is very small, about 0.8 hectare, and nearly 80 per cent of peasant production is destined for home consumption and seed. The relative share of smallholders (in the total agricultural output) has been increasing owing to the recent dissolution of producers cooperatives and sharply declining importance of state farms. The cooperatives which had accounted for 4.5 per cent of the agricultural output before 1989/90 have virtually ceased to operate . The cultivated area of state farms declined from 182,698 hectares in 1990 to 73,555 hectares in 1992 (Eshete Taddesse, 1994). Large-scale state farms now account for less than 2 per cent (down from 4 to 5% in the 1980s) of the agricultural output and are significant only in sugar, tea, tobacco and cotton production. Commercial private farming (banned under the previous government) is being encouraged under the new economic policy However, the absence of a clear land policy has hindered a speedy development of large-scale private farms. Coffee is the main export item, generating over 50 per cent of the foreign exchange earnings of the country. The other agricultural export items, including leather & leather products, oilseeds, pulses, sugar, fruits, vegetables, and livestock account for about 40 per cent of the earnings.

Agricultural GDP (in real terms) showed almost no growth between 1980/81 and 1993/94. Drought, inappropriate institutional & policy framework, low level of public expenditure in agriculture, declining soil fertility, sub-economic holdings, limited use of modern inputs such as fertilizer and improved seeds and poor infrastructure are among the major factors behind the poor performance of agriculture.

The industrial sector, consisting of medium and large scale manufacturing, small scale industry and handicrafts, electricity and water and construction, contributed between 11 and 16 per cent of GDP at constant factor cost during the period 1980/81 to 1992/93 . The share of value added produced by the public sector was about 68 per cent of the manufacturing output under the previous socialist government (World Bank, 1990). Private sector enterprises were restricted and restrained. There was a ceiling of Birr 0.5 million per enterprise on fixed assets in manufacturing which remained in force between the mid 1970s and July 1989. Licenses for new investments were then granted only after exhaustive review. Private traders and manufacturers received very small allocations of foreign exchange. By comparison, the public sector enjoyed generous grants and privileges- in terms of investment, foreign exchange and authorization to expand & diversify. It was shielded from competition in markets by the operations of the public distribution system which was obliged to accept and market the products of the public sector firms and farms, and by import controls. This, together with the bureaucratic management, made the state firms inefficient with capacity utilization well below acceptable levels. Some enterprises received significant transfers from the Government and the NBE (World Bank 1992) .

The distributive service consists of trade, hotels & restaurants as well as transport & communications and its contribution in GDP varied between 12.5 and 17.4 per cent during the period of 1980/81 and 1993/94 . Transport and communication play an important role both in earning foreign exchange (from the operations of the national airline and shipping line) and the internal circulation of goods. Their contribution in GDP increased from 4.2 per cent in 1980/81 to 6.1 per cent in 1993/94. The share of trade, hotels and restaurants, on the other hand, declined from 11.2 per cent to 8.8 per cent over the same period. There was a substantial public sector presence in distributive sectors under the former government. The public sector accounted for approximately 60 per cent and 30 per cent of the wholesale trade of agricultural and industrial goods, respectively.

The share of other services (Banking & insurance, real estate & ownership of dwellings, etc,) in GDP has shown a marked increase during the period of 1980/81 to 1993/94, rising form 17.8 per cent to 28.3 per cent . Public administration & defense constitute some 40 per cent of the subsector's output.

Consistent with the policy of a free-market economy, the TGE is committed to drastically reducing the role of the public sector in the productive sectors of the economy. Measures to eliminate or reduce the direct role of the public sector in production through the rationalization and divesture of parastatals have started since 1993.