Executive summary

Since the mid-1990s, Ethiopia has implemented a series of successful strategies to promote economic growth and social progress, and improve rural population well-being. These reforms have led Ethiopia to experience sustained growth between 2004 and 2018, with an average annual growth rate of gross domestic product (GDP) per capita of 7.4%, outperforming most sub-Saharan African countries. Moreover, large government investment has been directed at improving agricultural productivity, as well as addressing the multiple needs of rural populations. As a result, between 2000 and 2016, the share of rural population considered poor decreased from 45% to 25%.

The backbone of Ethiopia’s reforms is the Agricultural Development-Led Industrialisation (ADLI) policy framework. It has been guiding rural development action since the mid-1990s. It provided the basis for several development plans and programmes (SDPRP, PASDEP, GTP I, and GTP II). ADLI accounts for a number of different policies but its main objective is to increase agricultural productivity. This approach seemed adequate at the time it was conceived, given the socio-economic context and low base from which Ethiopia’s growth process started. However, today the country stands at a different stage of development, facing a different set of challenges from those that motivated ADLI.

More specifically, three transformations are currently underway in Ethiopia, and will have major effects on the well-being of rural populations:

• Demographic: Ethiopia is in the early stages of its demographic transition, i.e. the country’s population will continue to grow between now and 2050, which means a large number of people will enter the labour market in the coming years. This is of particular significance in rural areas where fertility rates are higher.

• Economic: The agricultural sector’s contribution to GDP is decreasing. However, more than two-thirds of employment is still in agriculture and the rural non-farm economy remains premature, i.e. a slow structural transformation process.

• Spatial: Ethiopia will remain a predominantly rural country until 2050, i.e. more than 50% of the population is expected to live in rural areas. However, it is urbanising fast: urban population is expected to double between 2015 and 2030. Although the country is currently characterised by a monocentric urban system, urbanisation is being propelled by intermediary cities.

Intermediary cities will play a key role in addressing some of the challenges linked to these three transformations. Intermediary cities facilitate rural-urban transformation by linking rural areas and small towns with larger cities. They do so by providing market centres and post-gate farming services, including processing, storage, and distribution activities that are necessary for the development of value chains. They offer job opportunities for rural migrants, and increasing evidence suggests that they have a strong potential for poverty reduction. However, they face several binding constraints including: limited knowledge about the socio-economic processes shaping agglomeration effects, lack of adequate polices, as well as a consistent financing gap.

Effectively addressing Ethiopia’s transformations will depend on the capacity of institutions and policies to adapt. In practice, it will require a paradigm shift in Ethiopia’s approach to rural development: update the ADLI in order to capture the country’s new reality and ensure an inclusive rural-urban transformation.

Four main reforms can strengthen Ethiopia’s rural development strategy:

• A new approach to agricultural development. Agriculture will continue to play a key role in Ethiopia’s development. However, as the country transforms, its approach to agriculture has to evolve from focusing mostly on improving agricultural supply, to improving productivity of all elements of the agricultural value chains. The development of wholesale, distribution and commercialisation of agricultural goods can promote employment opportunities that benefit both urban and rural dwellers. This requires additional investment in transportation networks and infrastructure for the development of post-harvest activities, such as processing and storage.

• Mobilising resources and scaling up investment to improve the well-being of rural populations. Investment in basic services and fostering job creation will remain key to consolidate Ethiopia’s rural development efforts. Although the government of Ethiopia has significantly invested in infrastructure, the gap between rural and urban areas prevails. Limited access to electricity, road, water and sanitation services, contributes to the high level of deprivation in rural areas, and limits the potential for rural economic diversification. More investment in basic services can enhance job creation in farm and off-farm sectors and improve rural well-being. This will require creating a conducive environment for the private sector, and promoting the entry of new actors, including small and large enterprises, especially in intermediary cities and small towns.

• Enhancing co-ordination between rural and urban policies. Ethiopia has excelled in multi-sectoral interventions for rural development. However, rural and urban policies are implemented in silos, with limited co-ordination among rural and urban policies. As a result, the socio-economic interactions between the two areas are not fully captured; and policies do not seem to take into account or harness the changing dynamics of Ethiopia’s urban and rural realities. To reduce policy fragmentation, authorities could build on Ethiopia’s multi-level governance framework, which provides scope for better territorial governance. This will require improving the capacity of authorities at both national and sub-national levels.

• Complementing the existing policy framework with a territorial approach. Effective territorial approaches capture the multi-dimensional needs of rural areas, and their interactions and linkages with urban areas. They account for the needs of the multiple rural stakeholders who contribute to Ethiopia’s rural transformation. This requires Ethiopian authorities to improve the knowledge base on rural-urban interactions, i.e. invest in research activities that allow policy makers to better understand the linkages between rural and urban areas. A first step in this direction is to revise the definition of rural and urban areas, and base policy decisions on urban-rural typologies that do not rely on administrative boundaries. Furthermore, developing spatial plans at the regional level would help understand the roles of population centres within regional urban systems and in turn, design more accurate policy interventions.