copy the linklink copied!2. Ethiopian intermediary cities and their roles for rural development
Ethiopia is urbanising at an unprecedented rate and intermediary cities are at the centre of its urbanisation process. The growth of Ethiopia’s intermediary cities can foster rural transformation and facilitate the development of a more balanced urban system. However, the potential for rural-urban transformation depends on creating strong reciprocal linkages. This chapter analyses a number of Ethiopian intermediary cities, and their roles in facilitating rural development. It highlights that Ethiopia’s intermediary cities serve as market hubs for rural goods, act as key destination for rural migrants, and provide employment opportunities. However, it is argued that some of the linkages between rural and urban areas remain weak, limiting the scope for rural-urban transformation. It calls for development of stronger knowledge base on Ethiopia’s intermediary cities and their roles for rural development, as well as better co-ordination between rural and urban policies in order to promote an inclusive rural transformation process.
copy the linklink copied!Introduction
Addressing rural development in Ethiopia requires putting intermediary cities at the forefront of the development agenda. Ethiopia will remain a predominantly rural country between now and 2050. Indeed, by 2050, the rural population in Ethiopia is expected to account for more than 60% of the total population (UNDESA, 2018[1]). However, the country is experiencing rapid urbanisation, which is mainly propelled by intermediary cities (see Chapter 1). These agglomerations will experience social and economic changes, which in turn will present a range of opportunities for rural development and structural transformation. This is due to the fact that urban and rural areas are intrinsically connected. Reaping these benefits will require a deeper knowledge on the channels linking urban and rural areas, as well as improving the co-ordination of urban and rural policies. To this end, this chapter aims to better understand the way in which intermediary cities interact with, and facilitate the development of, rural areas. More precisely, this chapter analyses a number of large intermediary cities in Ethiopia by contrasting statistical evidence in the literature with the roles commonly played by intermediary cities.
Evidence shows that Ethiopian intermediary cities are growing, and that such growth can potentially benefit surrounding rural areas. Indeed, intermediary cities in Ethiopia act as market hubs for rural commodities; they are key destinations for rural migrants, and some of them even provide better employment opportunities in certain sectors than are provided in Addis Ababa. Therefore, it is argued that Ethiopia’s intermediary cities can serve as a key catalyst for rural transformation, while promoting a more balanced urban system. Nevertheless, the extent to which these agglomerations ultimately contribute to rural development will depend on the strength of their linkages to rural areas. Today, some of these linkages are weak, thus limiting the benefits of urban growth.
This chapter is structured as follows: the first section highlights, from a general perspective, the role of intermediary cities in Ethiopia’s urbanisation process. The second section assesses the roles for rural development of a selected group of intermediary cities in Ethiopia. The third section focuses on key challenges in relation to the development of intermediary cities in Ethiopia. The fourth section looks in detail at the city of Adama, one of the most important intermediary cities in Ethiopia. The final section of the chapter provides a brief conclusion, indicating the way forward.
copy the linklink copied!Intermediary cities play an important role in the urbanisation process of developing countries
Urbanisation is increasingly recognised as a key factor in development
There has been a shift in the way we perceive the role of urbanisation in national development. For a long time, urbanisation was seen as a side effect, resulting from a structural transformation process in which labour was released from agricultural activities in to high-value activities in developed economies (Michaels, 2010[2]). However, since the late 1990s, an increasing number of countries (notably in sub-Saharan Africa) have been challenged by urbanisation without industrialisation (AfDB/OECD/UNDP, 2016[3]; Gollin, 2016[4]). Urbanisation without industrialisation, coupled with limited socio-economic outcomes taking place in large agglomerations, has highlighted the need to reconsider the degree in which urbanisation is a key factor in development (Duranton, 2015[5]).
Cities contribute to development in different ways. They provide agglomeration economies, i.e. benefits for firms and individuals resulting from being located near each other. These benefits derive from lower transportation costs, labour market pooling and knowledge spillovers, among other factors (Glaeser, 2010[6]). Cities further facilitate trade and commerce by providing large markets that offer consumers a wide range of goods and services. Cities also offer services that are key for enabling development, including transport and communication infrastructure, electricity, water and sanitation, in addition to being centres of politics, administration and governance. Moreover, urban centres play a key role in the process of social transformation, innovation, as well as facilitating educational and cultural development (UN-Habitat, 2012[7]). These features have enabled cities to attract knowledge, accumulate human capital and management capabilities, and generally achieve high levels of productivity. Another key feature of urban economic growth is that its benefits can spread across space and contribute to both rural and national development. Intermediary cities play a key role in this process.
What is an intermediary city?
Intermediary cities are agglomerations which – for geographic, historical and economic reasons – act as bridges between metropolitan and rural areas. In parallel, they are strategic nodes within urban networks at national or international level. Their population, depending on the country or region, can range from 50 000 to 1 million inhabitants, usually accounting for the largest share of the urban population (UCLG, 2016[8]). Indeed, in 2015, 60% of the world’s urban population resided in cities with fewer than 1 million inhabitants (UNDESA, 2018[9]). However, intermediary cities can be further identified according to their functions and economic status (Hardoy and Satterthwaite, 1986[10]; Roberts and Hohmann, 2014[11]). See Box 2.1 for more information on the definition of intermediary cities.
Intermediary cities are growing and attracting more attention in national and international development agendas. However, there is still no universal consensus on a definition that captures intermediary cities’ multidimensional characteristics and roles. There are four main approaches to defining intermediary cities:
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By population size: UN Habitat defines intermediary cities as those with between 100 000 and 500 000 inhabitants. The comparable World Bank definition is between 250 000 and 500 000 inhabitants, whereas other sources, including Berdegué and Proctor (2014[12]), define intermediary cities as those with fewer than 500 000 inhabitants.
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By population density: the European Commission defines towns and suburbs or small urban areas as contiguous grid cells with a density of at least 300 inhabitants per km2 and a minimum of 5 000 inhabitants.
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Urban cluster classification: Roberts (2014[13]) and Cities Alliance (CA) define intermediary cities according to the structure of the urban system, and consider intermediary cities as those with populations ranging between 10% and 50% of the population of the country’s largest city. CA includes additional criteria in which intermediary cities share common features in terms of their fast growth rate, economic and governance structure, and whether they face common challenges, including lack of capacity and strategic planning.
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By economic function: Rondinelli (1983[14]) defines intermediary cities in terms of their serving economic and social functions for their inhabitants and nearby areas. United Cities and Local Governments (UCLG) uses the population threshold of between 50 000 and 1 million inhabitants, in addition to taking into account the economic functions of the agglomerations.
Intermediary cities are at the centre of the urbanisation dynamics of emerging regions. The number of intermediary cities will increase until 2035, and, in many cases, these cities will outpace the number of metropolises. In Southeast Asia, some intermediary cities are poised to more than double in size between 2017 and 2025, while their peer capital cities are expected to grow by an average of less than half this figure (Boyd, 2017[15]). Similarly, in South Africa, intermediary cities are expected to grow at a rate of more than 33% faster than the larger metropolises during the same period (SACN, 2016[16]). Moreover, intermediary cities will contribute the most to urban population growth up until 2035. For instance, cities with fewer than 1 million inhabitants are expected to contribute to total urban population grow with up to 39% in Asia and 32% in Latin America between 2015 and 2035. In sub-Saharan Africa, this rate could reach up to 47% (Figure 2.1).
Note: LAC = Latin America and the Caribbean; SSA = sub-Saharan Africa. Amounts may not sum to 100% due to rounding.
Source: Calculations made by the authors using data from UNDESA’s World Urbanization Prospects (2018[9]).
Intermediary cities can play a key role in development
From a national perspective, intermediary cities help promote a more inclusive urbanisation process and help create a balanced urban system. Indeed, these agglomerations can enhance the living standards of urban dwellers by alleviating pressure from megacities in terms of housing, infrastructure, transportation and public service provision (Berdegué et al., 2015[17]). They can absorb the administrative capacities of areas outside the main cities, and they can serve as new centres for social transformation. Furthermore, they can reduce regional inequalities and redistribute the benefits of urbanisation to rural areas, in addition to playing a positive role in reducing poverty (Otiso, 2005[18]).
Intermediary cities play a pivotal role in economic development (see Box 2.2). In particular, intermediary cities can promote national development by supporting the agglomeration effects needed for increasing investment and diversifying the national economic structure. Indeed, they can provide the hard and soft infrastructure needed for attracting private and public investment outside the capital city and metropolitan areas, and into manufacturing and other non-farm activities. Intermediary cities can also provide a conducive environment for firms to benefit from agglomeration effects and economies of scale, leading to knowledge spillovers, development of specialist knowledge hubs, and access to skilled and unskilled labour outside metropolitan areas. For example, some of Viet Nam’s intermediary cities, in particular Thái Nguyên and Bắc Ninh, have developed a significant manufacturing base by attracting private investment. Both cities host assembly plants and manufacturing complexes for Samsung and Foxconn (Cao, S Et al., 2016[19]).
Their linkages with both metropolitan areas and rural areas make intermediary cities key players in the economic transformation process. For this reason, well-managed intermediary cities can facilitate a rural-urban transformation and contribute to developing countries’ structural transformation process. For instance, depending on their location, intermediary cities can serve as strategic locations for co-ordinating the logistics needed for the development of industrial and agricultural value chains; they can also enhance agricultural productivity by providing storage facilities for perishable rural goods, by providing infrastructure such as roads, and transportation networks and services to facilitate agricultural exports (AfDB/OECD/UNDP, 2015[20]).
The Government of Ethiopia (GoE) has increasingly recognised that urbanisation is conducive to economic growth and structural transformation. As a result, the government has implemented a series of policies and initiatives in order to facilitate sustainable urbanisation. These policies and initiatives have been embedded in national development plans such as the Plan for Accelerated and Sustained Development to End Poverty (PASDEP) and the Growth and Transformation Plan II (GTPII). In addition, the GoE launched its first National Urban Development Policy in 2005; since then, the Ministry of Urban Development, Housing, and Construction (MoUDHCo) has launched a series of other sectoral policies to enhance the economic contribution of urban areas, and their sustainability (Gebre-Egziabher and Yemeru, 2019[21]). The effects of these policies on urban growth have been amplified by the national decentralisation process which started at regional level in 1995, and at woreda level in 2001.
In addition, the MoUDHCo commissioned two broad and comprehensive studies aimed at informing and improving urbanisation strategies. The two studies were conducted by the World Bank and the Ethiopian Development Research Institute (EDRI) in collaboration with the Global Green Growth Institute (GGGI) and the New Climate Economy (NCE). Both studies reviewed Ethiopia’s urbanisation strategies and identified seven intermediary cities (Mekele, Bahir Dar, Dessie-Kombolcha, Hawassa, Adama, Dire Dawa and Jimma) to function as urban growth poles. A number of these cities are also integrated into some of Ethiopia’s Special Economic Zones (SEZs). These cities have been identified as areas with high economic potential and are located close to Addis Ababa along transportation, road or communication corridors. The recommendations of these studies have not yet been fully adopted by the MoUDHCo; however, they helped inform the ministry’s strategies and the inclusion of urban areas in GTPII (Gebre-Egziabher and Yemeru, 2019[21]).
copy the linklink copied!The increasing importance of intermediary cities in Ethiopia’s urbanisation process
Ethiopia’s urban system is changing…
Ethiopia is one of the least urbanised countries in Africa, but it is urbanising rapidly. This process is linked to changes in both the economy and society, which have further affected the spatial distribution of Ethiopia’s economic activities and population. Today, the urban population in Ethiopia is close to 19 million, but this number is expected to almost double by 2030, reaching 37 million (UNDESA, 2018[9]).
This change is taking place in the context of a monocentric urban system. Addis Ababa is the only agglomeration with more than 1 million inhabitants (and the largest agglomeration in the country), as well as being the economic engine of Ethiopia. Indeed, as discussed in Chapter 1, Addis Ababa is at least eight times larger than the second-largest city; furthermore, historically, it has maintained a strong dominance in Ethiopia’s urban system as a whole.
Ethiopia’s economic and spatial landscape is gradually changing, and intermediary cities are at the centre of this process. Despite Addis Ababa’s pre-eminence, a number of urban clusters of diverse sizes and functions are being formed; they are linked to the capital city following transportation and road infrastructure investment since the mid-1990s (MoUDC, 2015[22]). Addis Ababa is establishing strong functional linkages with these new dynamic urban centres, especially those located along new highways and economic corridors, such as the development corridors linking Addis Ababa to Djibouti, and to the northeastern and southwestern regions of Ethiopia (Cities Alliance, 2016[23]). Most of Ethiopia’s largest urban centres are located in the highlands, or in the northern half of the country, with the largest urban centres functioning as regional capitals (Gebre-Egziabher and Yemeru, 2019[21]). If well managed, these cities have the potential to contribute to a more balanced urban system but can also be key actors in rural development.
… and intermediary cities are becoming more dynamic
Intermediary cities are growing faster than the capital, Addis Ababa. During the periods 1984-94 and 1994-2007, most intermediary cities grew faster than Addis Ababa (Figure 2.2). In fact, the capital city’s contribution to Ethiopia’s urban population has declined from 28% in 1994 to 23% in 2007 (CSA, 2007[24]). Additionally, with the exceptions of Shashamane and Gondar, all intermediary cities experienced faster growth rates than Addis Ababa during the period 1984-94. It should be noted that these figures arise from comparing census data (the latest census took place in 2007).1 Nevertheless, recent forecasts suggest that this growth will continue, and that between now and 2030 cities with a population of between 50 000 and 500 000 inhabitants will, on average, grow twice as fast as Addis Ababa, reaching an average annual growth rate of approximately 6.3%, compared with 3.3% for the capital city (MoUDC, 2015[22]).
Source: Authors’ calculations using data from the CSA (1984[25]; 1994[26]; 2007[24]).
Addis Ababa’s contribution to total urban employment has also slowly declined. In 2005, the capital city accounted for 23% of employment in Ethiopia. However, by 2013, this share had decreased to 20%; this implies that 80% of urban employment in Ethiopia takes place in other agglomerations (MoUDC, 2015[22]). For instance, cities located near the capital (such as Bishoftu and Sebeta) are experiencing a larger increase in economic growth compared with that of Addis Ababa, which has experienced slow economic activity, with gross domestic product (GDP) per capita declining between 1994 and 2012 (Ozlu, 2015[27]).
Nonetheless, Addis Ababa remains the main centre of economic activity in Ethiopia. It generates 28% of national GDP and is the main recipient of public and private investment. Moreover, it has the highest concentration of high value-added industries and logistics sectors, and it hosts the majority of firms’ headquarters (MoUDC, 2015[22]).
Some intermediary cities show higher levels of diversification compared with Addis Ababa. Figure 2.3 shows the Gini and Herfindal-Hirschman indexes for Ethiopia’s five largest intermediary cities.2 These indexes measure inequality across sectors; the higher the value of these indexes, the higher the concentration of economic activity in each of the respective cities. This figure shows that Dire Dawa, Adama and Bahir Dar are less diversified compared with Addis Ababa. Hawassa has the lowest values in both indexes, which suggests that it is the most diversified city in the group. This follows from the fact that employment shares across sectors in Hawassa are very similar, suggesting that the city has a slightly more diversified economy compared with the rest of the cities examined.
Source: Authors’ calculations using the CSA’s Labour Force Survey (2014[28]).
There is a negative relationship between intermediary cities’ distance from the capital and the extent of their diversification. Annex Figure 2.A.1 in the Annex 2.A shows this relationship for both the Herfindal-Hirschman and Gini indexes. The correlation between the Herfindal-Hirschman index and the distance is -0.21, whereas for the Gini index this value equals -0.47. However, this value should be interpreted with caution given the small number of cities analysed. Moreover, it may suggest that intermediary cities where the capital’s influence is weaker tend to be more diversified in order to address the needs of their regional urban system. Greater distance from the capital may also strengthen local autonomy, as rural dwellers can increase their revenue thanks to the economic activities in their nearest urban centre.
A location close to the capital has a positive spillover effect on surrounding cities. For example, Adama has historically played a key role in the Oromia region, developing a comparative advantage in the textile sector (including an industrial park built in 2018) thanks to its proximity to Addis Ababa and its strategic location in the Ethiopia-Djibouti transportation corridor. Furthermore, other cities located close to Addis Ababa, including Bishoftu and Sebeta, largely benefit from their proximity to the capital, and have better road infrastructure access.
Large- and medium-scale manufacturing (LMSM) also contributes to job creation in intermediary cities, but to a lesser extent than in Addis Ababa. LMSM firms are important for the creation of employment opportunities in the formal sector. However, the development of these firms and their potential for job creation depends on availability of the requisite infrastructure. As such, improved road infrastructure in Ethiopia’s intermediary cities and their rural hinterlands through the 1997-2010 Road Sector Development Program (RSDP) has contributed to the increase in the number of manufacturing firms. In addition, improved road infrastructure has also contributed to the increase in the size of entrant firms, which tend to offer better quality jobs and have a better chance of surviving in the market (Shiferaw et al., 2012[29]). Indeed, between 1996 and 2009, the number of firms with more than ten workers increased from 617 to 1 713.
While intermediary cities were among the top recipients of new firms, they account for significantly lower shares of LMSM firms compared with Addis Ababa.3 Only 12% of all LMSM firms in Ethiopia are located in the five intermediary cities studied in this report, and Addis Ababa accounts for almost 35% of all LMSM firms in Ethiopia (Figure 2.4).
The LMSM firms in some intermediary cities are more productive than those based in Addis Ababa. Figure 2.4 also shows the share of LMSM firms across the selected intermediary cities and Addis Ababa, as well as their respective value added per employee (VAPE). The VAPE ranges from ETB 64 000 (Ethiopian birr) per employee in Adama to ETB 267 000 per employee in Dire Dawa. It is important to note that Addis Ababa does not have the largest VAPE. Mekele, Hawassa and Dire Dawa have VAPEs almost two times higher than that of Addis Ababa.
Note: VAPE = value added per employee at basic price (ETB 1 000); share of firms with regard to all firms in Ethiopia.
Source: Authors’ calculations using the CSA’s Large and Medium Scale Manufacturing (LMSM) Survey report (2015[30]).
The changes in Addis Ababa’s role further reflect the Ethiopian government’s efforts to establish a more balanced urban system. These efforts manifest in several ongoing policies, such as the development of industrial activities in regional capitals or intermediary cities. This is leading to faster employment growth in those cities compared with that in Addis Ababa. Following policy strategies, such as the promotion and establishment of export processing zones and industrial parks, cities like Adama, Adwa, Hawassa, Bishoftu, Sebeta and Mekele are expanding their manufacturing base (Ozlu, 2015[27]). However, the population increase in these agglomerations largely outstrips employment creation.
copy the linklink copied!What is driving Ethiopia’s urbanisation and the growth of intermediary cities?
The natural growth of urban areas and the reclassification of new urban centres are the main factors contributing to urbanisation in Ethiopia. Natural growth is the largest contributor to urban growth, accounting for between 38% and 42% of total annual urban growth in the period 2008-17 (Ozlu, 2015[27]). Urban centres are expected to continue to naturally grow and contribute to one-third of the total urban population in Ethiopia by 2037 (Gebre-Egziabher and Yemeru, 2019[21]).
Reclassification is an additional underlying cause of Ethiopia’s rapid urbanisation. A number of rural areas have been upgraded to urban centres, due to the government’s plan to upgrade rural villages to urban areas according to a set of criteria established by regional governments (Ozlu, 2015[27]).4 However, the official projections of the Central Statistical Agency (CSA) do not accurately reflect the contribution of the newly formed urban centres to Ethiopia’s urbanisation. Nonetheless, projections from Ozlu (2015[27]) highlight that newly classified urban centres accounted for an estimated increase of between 14% and 31% in total urban growth in the period 2008-17. In addition, a number of urban centres were developed as a result of the formal expansion of existing cities. As a consequence, small villages and towns located close to larger urban centres were incorporated into nearby expanding urban centres, which is estimated to account for between 2% and 4% of annual urban population growth in the period 2012-32 (Ozlu, 2015[27]).
New sectors, including universities, tourist sites, and the presence of large non-agricultural natural resource assets, have led to the creation of new urban centres or the expansion of existing ones, and are attracting rural migrants (MoUDC, 2015[22]).
Migration to urban areas is an increasingly important driver of urban population growth
Rural-to-urban migration is a rising phenomenon in Ethiopia. Although Ethiopia’s internal migration has historically been dominated by rural-to-rural flows, the share of rural-to-urban migration is gradually increasing. Rural-to-urban migration is expected to keep growing as urban centres continue to provide attractive opportunities to rural migrants.
Large public investments in infrastructure, factories and public services, as well as employment opportunities, have fuelled rural-to-urban migration. Investments in factories, nearby sugar plantations and irrigation project sites, highways and other sectors continue to attract rural labour into cities and encourage urbanisation, especially in intermediary cities (Ozlu, 2015[27]). In addition, the government’s investment in industrial parks across intermediary cities has positioned these cities as potential employment generators which will foster industrial development and attract labour from surrounding rural hinterlands.
Internal migration is fuelling urban population growth. Figure 2.5 shows the share of recent migrants5 (with regard to total population) in 2013 for the selected group of intermediary cities and Addis Ababa. For cities such as Bahir Dar, Hawassa and Adama, recent migrants accounted for the majority of their populations (61%, 61% and 59%, respectively). For Addis Ababa, recent migrants accounted for a lower (although still significant) share of its population (40%).
Rural migration is not always the main contributor of population growth across intermediary cities. Figure 2.5 also shows the shares of recent migrants coming from rural areas, towns and abroad. In contrast to a common belief, in most of the selected intermediary cities, the largest share of recent migrants came from small towns and not from rural areas. This is the case in Hawassa, Adama and Dire Dawa, where in 2013 recent migrants of urban (town) origin accounted for 64%, 57% and 56% of the recent migration flow, respectively. In contrast, for Addis Ababa, close to 57% of recent migrants come from rural areas. In most of these cities, recent migrants coming from abroad represented less than 5% of the migration flow. The only exception is Mekele, where migrants coming from abroad represented almost 15% of the recent migration flow and almost 7% of the total population in 2013.
Source: Authors’ calculations using the Labour Force Survey (2013[31]).
copy the linklink copied!Intermediary cities have significant potential for rural development in Ethiopia
Intermediary cities contribute to rural development in diverse ways
In practice, intermediary cities contribute to rural development in various ways, and their contribution mainly is subject to the flow of goods, services, population and ideas across urban and rural areas. The strength and nature of these flows depend on the specific context of the city, including the land ownership structure, the supply and quality of infrastructure, and conditions at the national and international levels. However, despite local differences, small and intermediate urban centres generally contribute to rural development in the following ways (Satterthwaite and Tacoli, 2003[32]; Calì and Menon, 2013[33]):
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Markets: urban centres are markets for agricultural producers from the surrounding region, either for local consumers or as links to national and export markets.
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Provision of goods and services: urban areas act as centres for the production and distribution of goods and services in their proximate rural regions. Services include agricultural extension, health and education (and access to other government services), and energy, as well as banking and other financial services. Conversely, rural areas provide urban centres with skilled and unskilled labour, and agricultural goods, in addition to providing industrial inputs.
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Employment: small and medium-sized agglomerations have the potential for growth and for consolidating non-farm activities and employment; they do so through the development of small and medium-sized enterprises, or through the relocation of branches of large private or parastatal enterprises.
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Migration: urban centres act as the main destinations for rural migrants. Their strategic locations facilitate circular migration, while helping to reduce the cost of migration for rural migrants.
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Financial flows: money transfers and family remittances flowing from urban to rural areas are an important source of revenue for a large number of rural households in developing countries.
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Prices: city expansion leads to a higher demand for agricultural land close to city limits, pushing the price of land upwards. In parallel, city expansion can also lead to a decrease in consumer prices, due to increasing competition among producers and thicker markets (factors such as labour and goods). In both cases, city expansion can potentially benefit rural dwellers.
Increasing evidence suggests that intermediary cities can play an important role in enhancing rural well-being. They can help reduce poverty by enabling better access to employment, health and education services, and urban infrastructure (Christiaensen, Luc and Todo, Yasuyuki, 2013[34]; Turok, 2014[35]). In addition to providing access to basic services, intermediary cities enable flows of remittances between urban and rural areas (Christiaensen, Luc and Todo, Yasuyuki, 2013[34]). Their role in linking the two territories facilitates the circular or seasonal migration of rural households, and it also enables rural households to diversify their livelihoods and sources of income beyond the subsistence agricultural sector (AfDB/OECD/UNDP, 2016[3]; Berdegué et al., 2015[17]). However, the growth linkages between urban and rural areas depend on a number of factors, notably on the physical and market distances between areas (Veneri and Ruiz, 2016[36]).
The interactions between urban and rural areas can, in theory, follow an iterative process that can lead to the diversification of rural economies and higher productivity. This process is summarised in Figure 2.6. Rural households increase their income – derived from the production of agricultural goods – by accessing urban markets. This increases their demand for consumer goods, which in turn promotes the creation of non-farm employment opportunities and income diversification in cities located close to rural areas. Additionally, it leads to the absorption of rural labour surplus while simultaneously boosting demand for agricultural goods. As a result, both the productivity and income of rural households increases. Furthermore, income diversification in rural households located close to intermediary cities allows farmers to take more risks and to experiment with new methods of production, which in many cases has a positive effect on overall agricultural productivity. This process is commonly referred to as the virtuous circle for rural-urban development (Evans, 1990[37]).
Source: Adapted from (Evans, 1990[37]).
Promoting an enabling environment is key for positive rural-urban interactions
Rural and urban areas exist along a continuum, with multiple types of flows and interactions happening between them. Between these two spaces, there also exist small towns and peri-urban areas, which also play a key role in connecting rural areas and cities. However, the degree of interlinkage across these spaces is influenced by the efficiency and effectiveness of infrastructures, markets and institutions (Von Braun, 2007[38]).
Such a self-reinforcing development process linking urban and rural areas, however, requires an adequate enabling environment. Urban and rural development support one another, since every role that the city plays in development has a reciprocal role played by the rural surroundings (Douglass, 1998[39]; Gebre-Egziabiher, 2007[40]). Nevertheless, the extent of the benefits from urban and rural interactions relies on a number of conditions.
The first of these conditions is a marketable surplus of agricultural production. For agricultural markets to function in towns, an adequate share of agricultural output has to reach urban markets. This is also the case for agro-based industries, which assume the ready availability of raw materials. In places where subsistence farming is predominant, agricultural products are imported from other regions or from international markets. When this is the case, the market linkage joining neighbouring rural and urban areas is weak.
Another condition is the capacity of rural areas to diversify their production. Addressing the needs of growing urban areas further requires revising the type of outputs produced. For instance, growing urban middle classes tend to be characterised by an increasing demand for dairy, horticultural products, meat, etc. If surrounding rural areas do not have the capacity to adapt to this demand, and instead continue to focus on producing staple crops, the benefits from rural-urban linkages will be limited.
Finally, agricultural intensification in rural areas requires the provision of certain goods and services – such as fertilisers, repair services, logistics and storage, as well as information on production innovation – from urban areas. If this third condition is missing, or is provided at the wrong time, neither a marketable surplus nor diversification will take place.
Ethiopia’s intermediary cities provide significant scope for facilitating rural-urban transformation
Intermediary cities in Ethiopia play a number of complementary roles in rural development, as well as in improving the national urban system. This section contrasts the usual roles attributed to intermediary cities in the literature with evidence provided by selected cities in Ethiopia (Mekele, Bahir Dar, Adama, Hawassa and Dire Dawa). This is accomplished by analysing the rural-urban linkages that exist between intermediary cities and the rural areas surrounding them.
It is important to highlight that there are significant knowledge gaps with regard to Ethiopia’s medium- and small-sized cities, notably in terms of access to data. Consequently, this section draws on a number of information sources in order to better understand the role of intermediary cities in the country’s development. Sources include household surveys and administrative datasets, the literature, and interviews with public representatives in Bahir Dar, Adama and Hawassa, which are the capitals of Amhara, Oromia, and the Southern Nations, Nationalities, and Peoples’ Region (SNNPR) regional states, respectively.6 Some of the secondary datasets analysed include the Labour Force Surveys (2005[41]; 2013[31]) by the CSA, different years’ large- and medium-scale manufacturing industry surveys, census reports (1984[25]; 1994[26]; 2007[24]), and administrative data from city municipalities.
Evidence shows that Ethiopia’s intermediary cities contribute to rural development in the ways identified in the literature. This includes the fact that they enhance market linkages between rural and urban areas (Vandercasteelen et al., 2018[42]); they also provide employment opportunities in the non-farm sector (Schmidt and Bekele, 2016[43]), and while doing so, they act as hubs for rural migrants. However, some of these linkages are weak, which limits the scope of mutual benefits for urban and rural areas.
Intermediary cities serve as market centres for agricultural goods…
Ethiopia’s intermediary cities provide significant scope for the development of forward and backward linkages between rural and urban economic activities. Farmers linked to these urban centres can benefit from backward linkages, with better access to fertiliser, chemicals, seeds and farming equipment. In parallel, rural households can also benefit from forward linkages through higher urban demand for agricultural commodities, as well as (intermediary) inputs for urban industries, including manufacturing and agro-processing.
Intermediary cities serve as intermediators between rural areas and large catchment areas, providing access to domestic and export markets. They add value to agricultural outputs by providing post-farm services, and by creating significant scope for the development of value chains. This is achieved through the development and provision of logistics services, storage services and trade, and agro-processing within these agglomerations.
Ethiopia’s intermediary cities provide market centres to support the distribution of commodities produced in their hinterlands to their respective regions and to other parts of the country. The locations of Bahir Dar, Adama and Hawassa, as well as the agricultural specialisations of their respective regions, define the types of cereals or crops traded. Each city specialises in the primary or major agricultural commodities produced in the region. Bahir Dar and Adama are located at the centre of the main cereal production area of Ethiopia, while Hawassa is at the centre of a permanent grain production area. As a result, these cities serve as market centres for the distribution of commodities. For instance, Adama serves as a market centre for teff, which is traded to eastern parts of Ethiopia (particularly to Harari and Dire Dawa), as well as to the southern regions (notably to Hawassa). Similarly, Bahir Dar serves as a market hub for the northern part of the country, particularly to the cities of Gondar and Mekele. Table 2.1 shows the main agricultural outputs for Bahir Dar, Adama and Hawassa. In parallel, these three intermediary cities serve as centres for the production and distribution of agricultural inputs including fertiliser, chemicals and pesticides, and other manufactured commodities such as salt, sugar, edible oils, kerosene, and commodities that have been imported from national and international markets.
…and have growing potential to increase agricultural intensification and enhance diversification towards higher value-added agricultural goods
Ethiopia’s intermediary cities can influence agricultural production in their rural hinterlands and enhance diversification. Recent research by Vandercasteelen et al. (2018[42]) shows that farmers in the rural hinterlands of Addis Ababa receive higher prices for their outputs (teff), and achieve higher levels of agricultural intensification, compared with farmers in the hinterlands of intermediary cities such as Adama and Bahir Dar. However, if there were no intermediary cities, it would not be profitable for farmers based far away from the capital city to commercialise their outputs. Indeed, farmers located far from Addis Ababa are much more influenced by the demand of intermediary cities than by the demand of the capital, and are thus more responsive to the market signals originating from intermediary cities.
This finding is in line with other findings in the literature on the positive contribution that intermediary cities and better access to roads make to crop production. In fact, Dorosh et al. (2012[45]) highlight the correlations between distance to urban centres, access to road infrastructure (measured in travel time) and crop production in sub-Saharan Africa. The study highlights that at 4 hours distance from an urban centre of 100 000 inhabitants, total crop production relative to potential7 stood at 45%. However, when the distance from cities of the same size is increased to 8 hours, this figure drops to 5%. As such, the authors find that reducing a travel time of 24 hours to 4 hours can lead to a 16-fold increase in the ratio of actual over potential crop production (AfDB/OECD/UNDP, 2016[3]; Dorosh et al., 2012[45]).
Closer proximity to intermediary cities increases economic activity in surrounding rural areas, and may benefit a larger share of the population. Intermediary cities facilitate access to markets for agricultural inputs such as fertilisers, machinery and quality seeds. Providing farmers with access to modern inputs and technology will allow them to further intensify their production.
Furthermore, rural producers can harness and benefit from rising demand for agricultural products in Ethiopia’s growing urban centres. Increased urban demand can lead to production of higher-value crops, as well as higher demand for processed goods and higher-quality (and higher-value) agricultural goods. In fact, thanks to increased urbanisation and a higher quality of life, increasing numbers of Ethiopian urban dwellers are consuming higher value-added food. This includes higher demand for fruits and vegetables, animal products, and processed cereals, which in turn results in higher incomes for rural producers. Hassen et al. (2016[46]) find that food expenditure in Ethiopia’s intermediary cities is very similar to the levels in Addis Ababa. As a percentage of total household expenditure, spending on animal products accounted for 16.1% in intermediary cities compared with 16.2% in Addis Ababa; spending on fruits and vegetables accounted for 9.1% in intermediary cities and 8.4% in Addis Ababa; and spending on oil and fat accounted for 8.6% in intermediary cities and 9.9% in Addis Ababa (Hassen et al, 2016[46]). As a result, rising urban demand in intermediary cities has significant potential to transform Ethiopia’s agricultural sector and facilitate the development of agricultural value chains.
However, in most cases, market linkages need to be strengthened
Strengthening the current market linkages between rural and urban areas can enhance Ethiopia’s rural-urban transformation. Ethiopia’s predominantly subsistence agriculture-based economy limits the scope for the development of technologically advanced farming and commercialisation. In addition, the scope for commercialisation is subject to spatial variation, as different areas of the country are endowed with different agricultural production potentials, and therefore, different commercialisation characteristics of farmers. This is further reinforced by limited local purchasing power, which constrains producers’ ability to specialise and upgrade their production.
Additionally, there are major constraints in providing an adequate supply of agricultural goods for industrial use or agro-processing in intermediary cities. In fact, more than half of the existing agro-processing sites are not operating at their full productive potential, due to inadequate quality and quantities in the supply of raw materials. Conversely, when assessing backward linkages, most of the manufactured inputs that rural areas require are imported from outside the region or from international markets, as none of the selected intermediary cities are producing direct manufactured inputs for improving agricultural production, such as fertilisers and other necessary goods.
As a result, there is significant scope for strengthening Ethiopia’s rural and urban linkages and strategically integrating smallholders in order to provide them better access to urban markets. This will require strengthening the connectivity between rural and urban areas through investment in infrastructure and transportation, as well as facilitating access to information on urban markets in order to provide rural producers (including smallholders) with better access to urban markets and agribusinesses operating in urban areas (Proctor and Berdegué, 2016[47]). At the same time, rural and urban administrators ought to address the bottlenecks in both the supply and demand sides of the agricultural sector.
Intermediary cities can provide employment opportunities
The rate of job creation in some of Ethiopia’s intermediary cities is surpassing that of the capital city. Government-led policies and investment in the manufacturing sector are facilitating job creation, especially in cities such as Adwa and Mekele in the north; Adama, Sebeta and Bishoftu in the Oromia region; and Hawassa in SNNPR. Table 2.2 shows the 2013 employment rates for Mekele, Bahir Dar, Adama, Hawassa, Dire Dawa and Addis Ababa. With the exception of Hawassa, all of these cities benefitted from higher employment rates than Addis Ababa. In Mekele, the employment rate reached 92%, whereas in Bahir Dar, Dire Dawa and Adama, it was more than 80%. In Addis Ababa, the employment rate was close to 75%.
Ethiopia’s intermediary cities have potential for generating employment in key economic sectors. Table 2.2 shows the employment share by economic sector for five intermediary cities and Addis Ababa. The wholesale and retail trade sector is one of the biggest sources of employment in Ethiopia’s intermediary cities. The prevalence of this sector highlights the important function of urban areas as market and consumption centres. Moreover, the wholesale and retail sector has significant potential for the development of new businesses and, consequently, job creation, due to the relatively low start-up costs associated with this sector.
Cities such as Adama and Dire Dawa in particular benefit from a comparative advantage due to their geographic locations. Indeed, both of them are located in the Ethiopia-Djibouti transport corridor. Moreover, the recently completed Addis Ababa-Djibouti railway provides additional scope for increased commerce, trade and employment, as well as enabling the development of enterprises along the transportation corridor. It can also support the transportation of processed and unprocessed agricultural goods from their rural hinterlands to the domestic and export markets. Both the Adama and Dire Dawa municipalities can maximise the advantage that their location grants them by strategically tapping into the growing potential of the transportation corridor.
The light manufacturing sector is also a growing source of employment for intermediary cities. The sector accounts for one of the biggest sources of employment, especially for cities such as Mekele, Adama, Dire Dawa and Hawassa, accounting for 16%, 19%, 17% and 11% of employment, respectively. Government and private investment in industrial parks, as well as in SEZs, positively contributes to the growth of the manufacturing sector in these agglomerations. Table 2.3 shows the number of industrial parks in operation or in the planning stage across Ethiopia, and Table 2.4 shows the jobs created following the launch of selected operational industrial parks.
Moreover, as Ethiopia’s intermediary cities grow, there has been a booming construction sector. In fact, construction contributes more than 10%, on average, of the active labour force across cities due to the growth in demand for housing, infrastructure, etc. In the case of Bahir Dar, the accommodation and food services sector accounts for more than 12% of the city’s employment, the highest share that this sector contributes among the selected cities.
However, there is large variation in job creation across Ethiopia’s intermediary cities. For instance, employment opportunities are being created across several industries in cities such as Adwa and Mekele, whereas other large cities – such as Dire Dawa created jobs in some industries while losing jobs in others. Harar had a net gain in the number of jobs, whereas Dire Dawa experienced net job losses, despite being one of the selected growth poles in GTPII (Ozlu, 2015[27]).
Compared to Addis Ababa, a large share of these jobs is in the informal sector
Despite having higher employment rates, intermediary cities are characterised by a larger informal sector compared with Addis Ababa. Almost one-quarter of Ethiopia’s urban jobs are in the informal sector (CSA, 2014[28]). Nevertheless, there are significant differences between cities. When compared with Ethiopia’s five largest intermediary cities, Addis Ababa has the lowest share of employment in the informal sector, at 11% (Figure 2.7). And among these top five intermediary cities, Hawassa, Dire Dawa and Mekele have some of the highest rates of informal employment – 45%, 36% and 35%, respectively – and are above the national average for the share of informal employment, which stood at approximately 26% in 2013. Informal employment is particularly prevalent among female rural migrants, who tend to be engaged in trade, domestic work, and service sectors, including restaurants and hotels (Ozlu, 2015[27]). Intermediary cities seem to have a higher capacity than the capital to absorb rural and urban job seekers; however, special attention must be paid to the vulnerability of the workers in informal sectors.
Note: A person is considered as working in a formal sector if the enterprise the employee is engaged in has a licence or has an accounting book; otherwise, if a person is employed by an enterprise that produces products or services for the market without fulfilling either of the two previously mentioned criteria, they are considered an informal employee. But those who are government employees, government development organisation employees, non-governmental organisation (NGO) employees, and members of cooperatives are considered as formal sector employees. A person is considered unemployed if they are “without work” or “available for work”, and have a readiness to take on self-employed activities with necessary resources and facilities (CSA, 2014[28]).
Source: Authors’ calculations using the Labour Force Survey (2013[31]).
Intermediary cities promote financial flows
Ethiopia’s intermediary cities play a crucial role in facilitating financial flows between urban and rural areas in many different ways.
Intermediary cities host the headquarters of growing numbers of microfinance institutions (MFIs). In fact, MFIs began emerging in Ethiopia in 1994. They tend to cater to the needs of low-income households (both rural and urban) which are unable to access larger formal institutions, and they provide small-sized loans. Although traditional commercial banks operate in intermediary cities, especially in the regional capitals, they do not provide adequate financial and loan services to surrounding rural households. As a result, there is a large unmet demand for financing from rural areas. MFIs can help reduce these financing gaps, especially for the most vulnerable rural households.
MFIs, which are mainly located in Ethiopia’s intermediary cities, play a critical role in catering to the needs of low-income rural and urban households. In 2017, there were 35 MFIs operating in the country, and the total capital and total assets of MFI reached ETB10.7 billion (USD 335 million) and ETB 49.6 (USD 1.5 billion), respectively (NBE, 2017[49]). The outstanding credit has increased by 28.5% relative to 2015, thus enabling MFIs to play an increasing role in addressing low-income groups in both rural and urban areas. The top five MFIs, including Amhara Credit and Savings Institution, Dedebit Credit and Savings Institution, Oromia Credit & Savings, Omo Microfinance Institution, and Addis Credit and Savings Institution, accounted for 83.7% of the total capital, 93% of savings, 88.6% of credit and 90% of MFIs’ total assets. Most of the MFIs’ main offices are located in intermediary cities. As a result, intermediary cities also facilitate financial interactions between the largest urban centres – mainly Addis Ababa – and their rural hinterlands.
Remittances from intermediary cities to rural areas is another form of financial flow that follows from the opportunities developed across intermediary cities. Despite the lack of data regarding the flow of remittances from intermediary cities to rural areas, interviews with government representatives in Adama, Bahir Dar and Hawassa highlighted the relevance of remittances for enhancing and diversifying rural household incomes, and for reducing rural poverty and vulnerability.
copy the linklink copied!Case study: Adama
Adama is one of the most important agglomerations in the Oromia region
Adama benefits from its strategic location. The city, formerly known as Nazareth, is located along a major transportation corridor and is part of an urban cluster. The city is close to Addis Ababa (see Figure 2.8) and is situated along the railway stretching between Addis Ababa and the Port of Djibouti. Adama has a strong connection with Addis Ababa, and with other intermediary cities such as Mojo (which is also Ethiopia’s national dry port, where there are plans to develop an international airport) and Bishoftu, through the recently completed highway. In addition, another highway is being completed which will link Adama with Hawassa along the southern transport corridor, creating an intra-regional link with SNNPR.
Source: Made by the authors using data from the Atlas of Urban Expansion 2016 Edition Angel et al (2016[50]).
Adama is made up of 14 urban and 4 rural kebeles, which are organised in six sub-cities. The rural kebeles are located in peri-urban areas of the city.
Adama is one of Ethiopia’s fastest-growing cities in terms of population, urban built-up areas and economic function. According to CSA projections, the city’s population grew by 4.8% annually between 2010 and 2015; by 2016, the total population was expected to reach nearly 400 000 (BoFED, 2017[51]). Adama’s demographic composition is characterised by a large working age group: 28% of Adama’s total population is under 15 years of age, and its working-age population (those aged 15-64 years old) accounts for 69.7%.
Adama’s growth is underpinned by natural urban expansion, as well as rural-to-urban migration. In fact, the city’s population is predominantly made up of migrants both from surrounding rural areas and rural areas in other regions, as well as from other urban areas. In 2013, migrants accounted for 59.2% of the city’s total population, and they predominantly originated from surrounding rural areas (see Figure 2.5).
Governance structure and financing
Adama’s administration is organised into two main government bodies. These are the city council and the mayor. The mayoral committee and municipal administrators operate under the leadership of the mayor office. The mayor is assigned by the regional government and approved by the city council. The mayor is at the head of all the legislative, judicial and executive branches of government. The mayoral committee and municipal administrators support the mayor’s mandate by running sectoral offices and agencies. Figure 2.9 shows the city’s governance structure.
Source: BOFED (2017[51]).
The city’s governance structure is divided into two functions: state and municipal. The state administration is in charge of economic and social services. The mayoral committee heads these services; and 38 sectoral offices implement them. More precisely, the sectoral offices manage the provision of public services addressing education, health, trade, investment, labour and social services, revenue collection, transport, justice and public security, land management, etc. On the other hand, the municipal administrators are in charge of municipal services. These services include environmental and waste management, and infrastructure construction at the sub-city and Ganda levels (lowest levels of administration, equivalent to the woreda level) (BoFED, 2017[51]).
Adama is currently operating under its own five-year plan (2015-20). The process of devising the five-year plan reflects Adama’s policy delivery approach. The plan compiles sectoral development trends, progress and budgets at kebele level. Once all sectoral plans are compiled and a budget for plan implementation has been estimated, the city’s plan is then transferred to the regional government for approval, and then submitted to the federal-level City Council. Upon approval by the City Council and the regional government, the plan is then sent back to the municipality, including the final budget for implementation.
Adama has a strong economic potential
Adama is a vibrant and growing city which is making an increasing economic contribution to the region as well as to the country. Adama’s three top sectors by share of employment are wholesale trade, manufacturing and construction, accounting for 23.2%, 19.0% and 9.4% of the city’s total employment, respectively. Nonetheless, other sectors – including transportation and storage, service industry (real estate, hotels, food and services), retail, and construction – play a major role in the city’s economy (Esayas and Mulugeta, 2015[52]). Adama gains major advantages due to its close proximity to highways, railways, the dry port in Mojo, and the transport corridor between Addis Ababa and Djibouti, which fuel the city’s retail and wholesale sectors. In fact, most of the country’s exported and imported goods pass through Adama, and the city’s approximately 500 warehouses accommodate a significant share of these goods (BoFED, 2017[51]).
Furthermore, in line with the GoE’s efforts to industrialise the country, Adama’s first industrial park was inaugurated in 2016. The industrial park is mainly a production site for textiles, agro-processing and light manufacturing, with a plan to create 25 000 jobs in the future (Embassy of Ethiopia, 2018[53]). In addition, both the federal and local governments have put considerable effort into the development of micro and small enterprises (MSEs) as a pro-poor strategy for employment creation. As of 2019, there were 11 382 MSEs in Adama, and these are important sources of employment across the manufacturing, construction, trade, services and urban agriculture sectors (BoFED, 2017[51]). MSEs are promoted in order to encourage entrepreneurship and facilitate job creation, especially targeting rural youth migrants.
As highlighted previously, a large proportion of Adama’s population is made up of migrants from surrounding rural areas, who are predominantly attracted to the city with the intention of seeking employment. A large number of rural migrants are employed in the city’s construction, service and retail sectors. At the same time, a significant majority of migrant rural youth are engaged in the informal sector, especially in the construction and service sectors. The informal sector employs an estimated 29.8% of total rural migrants working in Adama (CSA, 2014[28]).
Adama’s demographic and economic growth since the 1990s provides a significant scope in enabling the city to play a central role in Ethiopia’s national urban system, while also developing strong linkages with its surrounding rural areas. The efforts of both the GoE and the municipal government have been key in the growth prospects of the city.
The gradual growth of the manufacturing sector, as well as the efforts to develop agro-processing firms, can help diversify Adama’s economic activities and facilitate stronger rural-urban linkages. Currently, the agro-processing sector accounts for 71% of the total number of firms among Adama’s major industries (BoFED, 2017[51]). In addition, Adama’s newly built industrial park will host agro-processing firms. However, Adama’s current agro-processing firms tend to be small-sized firms, with limited capacity to employ the high supply of labour within the municipality and its surrounding hinterlands. Moreover, agro-processing firms face challenges in attaining an adequate supply of inputs, both in terms of quality and quantity. Additionally, as highlighted below, infrastructure deficits – including inadequate electricity supply, water supply, and transportation services – create additional challenges in enabling firms to operate effectively.
Adama’s other important economic sectors include the light manufacturing, metal engineering, textile and chemical sectors. If complemented with effective policies, these sectors could provide significant scope for forward and backward linkages with the economies of surrounding rural areas and become a source of employment for the large number of urban and rural youth migrating to Adama.
Adama is linked with its surrounding rural hinterlands predominantly through production-consumption linkages and rural-to-urban migration. The city heavily relies on its surrounding rural areas for the supply of agricultural and livestock products, both for household consumption and for wholesale trade by local enterprises. In addition, rural areas function as sources of skilled and unskilled labour.
In parallel, Adama provides a range of goods and services to its surrounding rural hinterlands. Rural households sell their agricultural goods in the markets set up by the municipality; they also store their goods in the city’s public and private warehouses for sale to local wholesale traders, as well as to the rest of the region. Furthermore, Adama is a distribution centre for agricultural inputs, including fertilisers, herbicides, insecticides and other farming equipment. In addition, markets in and around Adama allow rural households access industrial and processed goods, including soap, edible oil, wheat flour, sugar, etc., which are produced in Adama. Adama also provides access to other goods, including textiles and imported industrial and agricultural commodities, by linking rural households with urban retailers, wholesalers and producers based in the city.
At the municipal level, Adama incorporates the rural kebeles and surrounding rural catchment areas into its master plan (BoFED, 2017[51]). The master plan proposed initiatives for improved agricultural production, especially through the introduction of modern technologies into the farming system. These agricultural initiatives promote activities including animal husbandry, poultry and dairy production, and animal fattening (BoFED, 2017[51]).
Additionally, a range of infrastructure and services facilitate Adama’s links with its surrounding rural hinterlands. The GoE’s investment in road and transportation infrastructure, especially the Road Sector Development Program (RSDP), has better connected Adama and strengthened the city’s link to surrounding small towns and rural areas. As a result, not only has the road infrastructure facilitated the flow of goods and services between rural and urban areas, but it has also enabled surrounding small towns to be better connected to the city and to access its public infrastructure.
Adama also provides a range of public services – including education, health, power, water and other services – which are difficult to access in rural areas. In fact, Adama hosts seven technical and vocational education and training (TVET) centres and a university, which students from both surrounding rural areas and other regions across Ethiopia attend. In 2016, 9 037 students were enrolled in Adama’s private and government TVETs. The number of students enrolled in Adama Science and Technology University is estimated to be between 20 000 and 25 000 (BoFED, 2017[51]).
However, as highlighted by municipal representatives, there is still significant scope for strengthening the linkages between Adama and its surrounding rural areas. The current weak rural-urban linkages stem from a range of constraints, including economic and policy constraints, which limit Adama’s ability to build functional linkages with surrounding rural areas. This is largely because the economic planning for the municipality and the zone are conducted separately, limiting the scope for integrated and harmonised planning between the two levels of government. Furthermore, two additional fundamental issues constrain Adama’s ability to build strong rural-urban linkages: infrastructure constraints (including roads, public services and transportation), and the city’s inability to sufficiently generate productive jobs.
Lack of adequate infrastructure and financing limit Adama’s future development
Despite Ethiopia’s large improvements in infrastructure nationwide, Adama continues to face major constraints in providing infrastructure and public services to its growing population. This is additionally fuelled by the growing rate of rural migrants moving into the city. Infrastructure constraints, including transportation and energy, hinder the city’s ability to achieve economic growth and ensure that the urban growth taking place since the 1990s leads to structural transformation. For example, while Adama’s city plan allocated 30% of urban land for road development, currently only 10% of the total allocated area has been used for road construction (BoFED, 2017[51]). Furthermore, additional constraints – including the lack of an effective waste management system, as well as flooding – negatively impact the city’s development.
The aforementioned infrastructure challenges also limit the scope for rural-urban linkages, thus reducing rural households’ access to the urban centre and creating barriers in their ability to transport their agricultural products into the city for higher returns. Infrastructure deficits, inadequate transportation, and municipal authorities’ weak logistical capacity, also limit the growth prospects for Adama’s agro-processing industry. In fact, although the federal, regional and municipal governments have been promoting the development of the agro-processing sector as a viable strategy for rural-urban transformation, there are still major challenges due to shortages in the supply of agricultural inputs. This is primarily due to the fact that rural farmers do not produce enough agricultural goods to supply the agro-processing sector. Limited access to effective transportation services and long distances between urban centres and rural farmers also have significant implications in terms of supply constraints.
Lack of infrastructure financing instruments present additional challenges in facilitating effective rural-urban linkages. Ethiopia’s municipalities rely heavily on their own municipal revenue to fund their infrastructure needs (Ozlu, 2015[27]). However, Adama remains highly reliant on transfers from the central and regional governments; inadequate resources for investing in public services, along with infrastructure and services that cater to rural populations in addition to their own inhabitants, will also create major challenges in expanding infrastructure to Adama’s surrounding rural hinterlands.
Adama holds city status, which provides the municipality with autonomy in the administration of the city. Thus, the municipality has the autonomy to collect its own revenue; it is also entitled to create its own sectoral plans, which are then transferred to the regional government for approval and budget allocation. The plans are then sent back to woreda-level representatives, along with the budget for the policies’ implementation.
Despite its autonomy to collect local revenue, Adama is highly reliant on transfers from the regional government. Transfers from the regional government make up approximately 75% of the city’s total annual revenue. Furthermore, the regional government also establishes the level of tax collection and allocation of resources to the Adama municipality. Local revenue, retrieved from local sources (including taxes from land use, services, private or commercial rent, and state taxes), accounts for less than 25% of the city’s total annual revenue. In addition, Adama receives additional grants for capacity building from the Urban Local Government Development Program (ULGDP) budget.
Creating employment opportunities is becoming a priority
Adama is no different from the rest of Ethiopia with regard to its urgency in meeting the employment demand for its growing population. In 2018, the city’s unemployment rate reached 9% of its total population, with approximately 14 208 registered job seekers. Rural migrants make up a large proportion of the job seekers in Adama. Those migrating to Adama tend to be educated rural youth in search of off-farm employment, or those who have either lost their land or do not have access to an adequate amount of land.
Adama city representatives have launched a range of initiatives to address the employment gap. First, as highlighted in the Economic structure and employment section, micro and small enterprises (MSEs) are promoted as a strategy to address the increasing demand for employment within and around the city. Second, the municipality prioritises rural farmers who have lost their land due to the expansion of the city for employment in the newly completed industrial park, urban agriculture, and in activities including livestock fattening, poultry farming, etc. The municipality also provides vocational training to facilitate access to employment in both farming and non-farming sectors.
However, despite these efforts, low levels of private investment limit the scope for employment creation in the city. Indeed, although Adama benefits from an optimal location, it still faces significant challenges when it comes to attracting private investment. This is particularly due to limited availability of land, infrastructure and effective financing instruments. The municipality provides a range of incentives to attract private investment, including the provision of land, tax breaks, loans and infrastructure. Nonetheless, investments to date have not led to large gains, with approximately 60% of the investment projects undertaken since 1991 not having developed as expected, often due to budgetary or financing constraints, or due to shortages in foreign currency shortages.
Job creation will continue to be one of the most significant challenges facing the municipality of Adama. As the city is projected to grow, due to both natural growth and increasing rural-to-urban migration, and with an overwhelmingly young population, employment creation will continue to be a crucial aspect of urban development.
The industrial park built in co-operation with the Hunan Province of China, is expected to increase employment generation for both urban inhabitants and rural migrants. In fact, the number of jobs created jointly between the industrial parks in both Adama and in Jimma (another intermediary city in Oromia) is expected to reach 25 000 in the near future. This will result in Adama accounting for 2.3% of employment for the municipality’s total labour force and 7.9% of the urban labour force in Oromia (Schmidt et al., 2018[54]).
Adama could benefit from policies that build on its linkages to rural areas
Sectorally and spatially fragmented policies are some of the causes of weak rural-urban linkages between Adama and its surrounding rural hinterlands. Policies at subnational and sub-city level are established separately and address rural and urban economies in isolation. In fact, most policy plans – which are passed from the kebele-level governments to the municipal and regional governments – are treated in a vertical manner by the respective sectoral offices. Horizontal co-operation between rural and urban kebeles takes place informally or during local community gatherings. Thus, there are no official, institutionalised platforms to facilitate information flows both between the municipality’s rural and urban representatives and with representatives of surrounding rural areas.
Fragmented spatial or sectoral policies fail to capture the intricacies of, and interdependencies between rural and urban areas, and tend to reinforce spatial segregation. Sectoral policies do not take account of the blurring rural-urban divide, and overlook the extent of flows both in terms of goods and services, and of human movements, between these two areas (CIRAD, 2018[55]). In the case of Ethiopia, there is a major knowledge gap with regard to the interactions between rural and urban areas.
Furthermore, the fact that Adama is run by an autonomous municipal government, whereas its surrounding rural hinterlands fall under the zonal authorities, creates further challenges in co-ordinating policies to facilitate rural-urban linkages. In addition, the substantial knowledge and capacity gap among municipal and zonal administrators for the surrounding rural hinterlands create further challenges in drawing up policy strategies that strengthen rural-urban linkages.
copy the linklink copied!Challenges faced by Ethiopian intermediary cities
Despite their growing role in the national and global economies, intermediary cities face major challenges. In most developing countries, these challenges include inadequate public transport and infrastructure; issues related to access and management of land; weak governance; low private and public investment, and low adaptive and mitigation capacity to respond to climate change-related disasters (Cities Alliance, 2019[56]; Roberts, 2014[13]). These issues are not exclusive of intermediary cities, i.e. they are also present in larger cities, including capital cities. However, these issues tend to have a disproportionate effect on intermediary cities.
As in the case of other countries, Ethiopian intermediary cities are challenged by three fundamental gaps that affect their contribution not only to rural development but also to overall national economic growth. These are knowledge, policy and financing gaps.
Knowledge gap
The knowledge gap is probably one of the most important constraints facing intermediary cities in Ethiopia. This knowledge gap stems from two main factors: lack of data availability and lack of knowledge about the ways in which these agglomerations contribute to economic development.
Data on intermediary cities are either hardly available, or they are unreliable. This is because most data collection concerning urban areas tends to primarily focus on large cities and the capital city. Overall, there is a significant gap in the availability of reliable and representative empirical knowledge across Ethiopia’s urban areas. Current empirical information on urbanisation trends, as well as on the functions and dynamics across all of Ethiopia’s urban areas, remains incomplete and is not representative at district level (Gebre-Egziabher and Yemeru, 2019[21]). However, Ethiopia’s intermediary cities face an even bigger challenge in terms of the availability of empirical knowledge and statistical information. While it is clear that these agglomerations are growing at unprecedented rates, there is very limited statistical knowledge and empirical studies that provide data on their economic activities, functions and other vital information required for informed policy making and urban planning. This is predominantly due to local governments’ limited capacity to collect and analyse data at district level. Moreover, the high prevalence of informal sectors in intermediary cities creates additional challenges in terms of collecting adequate data on their socio-economic dynamics.
Furthermore, the lack of empirical data on Ethiopia’s intermediary cities is reinforced by the fact that policies and studies targeting rural and urban areas tend to be sectoral and treat these two areas in isolation. As a result, intermediary cities and small towns are overlooked, and their functions and dynamics are not captured appropriately either in data collection or in policy design.
Policy gap
The policy gap concerns the lack of co-ordinated policies addressing the needs of intermediary cities, while accounting for their potential role in the urban system. Despite their fundamental roles and growth, intermediary cities remain overlooked in national urban policies. Indeed, national urban policies tend to primarily focus on large agglomerations. In addition, policies do not use a place-based approach and continue to rely heavily on the binary assumptions of rural and urban divide. As a result, policies targeting rural and urban areas treat the two territories in isolation, leaving intermediary cities to fall between the cracks of the urban and rural divide. Furthermore, the deployment of sectoral policies overlooks existing rural-urban linkages and the intricate socio-economic interdependencies of these two territories, whereby intermediary cities play a key role (OECD, forthcoming[57]).
Policies improving both infrastructure and public service delivery will be key to enhancing intermediary cities’ contribution to rural development in Ethiopia. Ethiopia’s urban areas face significant issues in terms of infrastructure supply across the board; however, intermediary cities in particular are lagging behind. The GoE has made considerable investments in infrastructure, especially roads, electricity and water sanitation services. Nonetheless, Ethiopian intermediary cities still face major constraints in supplying adequate infrastructure and services – including water, sanitation and sewerage – to their growing populations.
Infrastructure gaps in water, sewerage and sanitation are some of the most acute challenges facing Ethiopia’s intermediary cities. For example, cities such as Mekele face particularly significant challenges in their water service provision, with only 67% coverage and large water losses due to leakage. As another example, Hawassa’s access to safe water only reaches 66% of its population, and given its estimated threefold growth by 2037, the city will face major constraints in meeting even higher levels of demand. Furthermore, intermediary cities face major constraints in the supply of other services, such as sewerage and sanitation, with disproportionate gaps in service provision between Addis Ababa and the rest of Ethiopia’s urban areas. In fact, Addis Ababa is the only urban centre with a municipal sewerage system, and it serves only 10% of the city’s population (Ozlu, 2015[27]; Cities Alliance, 2016[23]).
In addition, the development of intermediary cities in Ethiopia is hindered by local governments’ capacity. Local governments tend to have low capacity and autonomy in attaining the adequate knowledge, data and financing instruments in order to implement effective policies targeting intermediary cities (OECD, forthcoming[57]).
Additional attention should be paid to the way in which climate change and environmental hazards are affecting intermediary cities and surrounding rural areas. Climate change and poor environmental management and regulations are particularly affecting intermediary cities, which tend to have low adaptive and mitigation capacity. Chronic droughts, water shortages, air and water pollution, inadequate solid and liquid waste management, and the limited capacity of sewerage systems are some of the main issues facing intermediary cities. Intermediary cities, including Dire Dawa, Mekele and Adama, are particularly prone to climate change-induced hazards, such as extreme temperatures, water shortages due to ground water depletion, and flooding (Cities Alliance, 2016[23]). In addition, a growing number of rural populations are being displaced towards intermediary cities due to climate effects and loss of livelihoods. However, concrete evidence on climate induced migration remains limited in Ethiopia.
The fact that some intermediary cities host growing industrial production sectors without appropriate environmental management is leading to detrimental effects on the well-being of citizens. For example, cities such as Mekele and Adama experience the significant consequences of inadequate waste management, and of water and air pollution, due to industrial parks and individual households.
Financing gap
The lack of adequate finance, or the financing gap, is one of the main persistent and fundamental challenges facing intermediary cities. Local governments face multidimensional challenges in their financing capacity and financing instruments, and consequently, in their ability to govern intermediary cities effectively. Despite their increasing population, intermediary cities have limited financial resources, and therefore limited capacity to invest in the infrastructure and public services needed to meet growing demand.
Local governments’ low financing capacity is characterised by their weak urban governance systems, low local autonomy and weak economic base. Across the board, local governments administering intermediary cities tend to be highly dependent on central government transfers, and they have very limited scope to raise their own revenue. This is coupled with the fact that intermediary cities’ lack of economic diversification, and their dependence on primary sectors such as agriculture and mining, creates constraints in these cities’ abilities to levy sufficiently high municipal revenue that would enable them to invest in the necessary infrastructure to support their development. In addition, intermediary cities tend to attract limited private and foreign investment, as most investors tend to focus on large cities or capital cities. The low level of private investment not only limits scope for generating tax revenue, but it also hinders the creation of employment and the subsequent multiplier effects of private investment (OECD, forthcoming[58]).
Municipal revenue is the main source of funding for urban infrastructure investment; however, across Ethiopia, municipal revenue only makes up 3% of total national revenue, and there is a substantial gap between municipal expenditure and revenue. Intermediary cities that have a low tax base from which to extract revenue, and those that attract a low level of investment, face even larger constraints in adequately financing their infrastructure investment needs (Ozlu, 2015[27]).
While municipal administrators are assigned numerous responsibilities by federal and regional governments, in practice they lack full autonomy to draw up and implement legislation. Municipal administrators also have little autonomy in their ability to enhance their local revenue, as they have limited capacity to establish tariffs, invest effectively in their public infrastructure, or implement regulations for effective land management in order to be able to extract additional land-based revenue (Ozlu, 2015[27]).
Lessons from countries in the region
Some African countries have recognised the importance of intermediary cities and put policy actions in place, which can serve as policy lessons for Ethiopia. For instance, South Africa launched the Integrated Urban Development Framework (IUDF) to manage inclusive and sustainable urban centres (see Box 2.3). It recognises the role of smaller urban centres and towns, and highlights the economic and social interdependencies of rural and urban areas. While the framework does not explicitly lay out a plan for intermediary cities, it highlights the unique challenges facing these agglomerations and takes into account the needs of smaller towns.
Ethiopia can derive two policy lessons from South Africa’s intermediary cities. First, the objective of intermediary cities’ development should not always be to transform them into large cities or metropolitan areas. Second, establishing a flexible and multilayered city categorisation to enable cities to move along the urban hierarchy – in addition to considering factors other than city size – can benefit the urban system. Consequently, Ethiopia needs to take into account intermediary cities’ function, and then adjust the support provided accordingly, such as intergovernmental transfers, planning and institutional support. Strengthening the network and linkages across these categorisations can serve as an important capacity-building instrument for the development of these agglomerations and surrounding rural areas (Marais, 2014[59]). Therefore, when devising development strategies for intermediary cities, it is imperative to take into account the local context, including market size, infrastructure availability, and links to domestic and international markets.
Another example is Rwanda. It has launched a series of policies and initiatives targeting intermediary cities, as well as integrating these urban centres into the country’s National Urbanization Policy (NUP) (see Box 2.4). Moreover, Rwanda has placed a strong emphasis on the role of intermediary cities in relation to environmental issues and sustainable urbanisation.
Rwanda’s plans for the development of intermediary cities provide important policy lessons for Ethiopia. First, strategic road and economic investment is needed in order to develop a linked and integrated network of intermediary cities. Second, development of industrial parks in these agglomerations will not automatically lead to economic transformation. For example, the GoR has encouraged and supported firms to move to the Kigali SEZ. This has enabled firms to achieve a 206% increase in sales, a 201% increase in value added (sales minus input costs), and an 18% increase in employment. It should be noted that these firms primarily targeted the local Kigali market. As such, it is not assumed that the replication of such a strategy in smaller agglomerations would translate to similar outcomes (Steenbergen and Javorcik, 2017[60]).
South Africa is one of the most urbanised countries in Africa, with urban areas accounting for 65% of the total population. By 2030, the country is expected to be approximately 70% urban. However, South Africa’s urbanisation rate and urban areas are shaped by the country’s complex historical context of apartheid policies, including policies to suppress urbanisation, especially between the 1950s and the 1980s. In addition, South Africa’s national statistical system does not disaggregate data by rural/urban areas. However, South Africa has a well-defined decentralised system, whereby allocation of financial resources corresponds with the remits of each level of government. Nonetheless, local governments still face major constraints in terms of receiving adequate funding to invest in the development of their respective municipalities.
South Africa does not have a clear definition and established hierarchy of urban centres. Nonetheless, the National Treasury selected 22 intermediary cities for its Cities Support Programme in 2011, where selection was based on the cities’ municipal budget, population size and economic activities. The South African Cities Network (SACN) also reviewed the 22 intermediary cities, and it is one of the few contributors of research on these types of agglomerations. In addition, South Africa launched the Integrated Urban Development Framework (IUDF) to effectively manage inclusive and sustainable urban centres. The IUDF aims to achieve a spatial transformation, with a connected and integrated urban system comprising varying sizes of cities and towns. It recognises the role of smaller urban centres and towns, and it highlights the economic and social interdependencies of rural and urban areas (Republic of South Africa, 2016[61]).
Intermediary cities in South Africa accounted for 23% of the country’s population growth between 2001 and 2011. However, growth rates vary across these cities, with some intermediary cities experiencing negative growth during the same period. At the same time, intermediary cities have also seen growth in employment, recording 42% growth between 2001 and 2011, compared with 43% in large metropolitan areas during the same period. Employment growth was particularly high in intermediary cities located near large cities such as Johannesburg. Consequently, intermediary cities with growing employment rates have also seen faster growth in incomes when compared with large metropolitan areas (Marais and Cloete, 2017[62]; John, 2012[63]).
Rwanda is undergoing rapid urbanisation. Between 2002 and 2015, urbanisation took place at a rate of 6.7% per year, and Rwanda’s urban population grew from 15.8% to 26.5% of the total population. While growth occurred across all urban areas, there are large disparities in Rwanda’s urbanisation rates, with some intermediary cities undergoing slower growth than the national average, which was 3.3% per year between 2002 and 2012. However, changes in Rwanda’s definitions of urban areas between the last two censuses (in 2002 and 2012) create major challenges in terms of accurately comparing and estimating the urban population changes, especially in intermediary cities and small towns.
Despite Rwanda’s predominantly monocentric urban system, with Kigali accounting for 50% of the country’s urban population, intermediary cities have demonstrated promising growth potential. In fact, a number of intermediary cities, especially those located across some urban corridors, have been growing faster than Kigali. Intermediary cities located in the urban corridor along the border between Rwanda and eastern Democratic Republic of the Congo (from the Rubavu to Musanze districts), and in another corridor located in the southern region of the country (from the Muhanga to Huye districts), account for the majority of the urban population living outside of Kigali (Bundervoet, 2017[64]).
The Government of Rwanda (GoR) recognises urbanisation as a key catalyst for the country’s economic transformation. Consequently, the GoR announced its goal to increase the country’s urban population to 35% of the total population by 2020, in line with its Vision 2020 of becoming a middle-income country. Furthermore, the GoR has launched a series of policies and initiatives targeting intermediary cities as well as integrating these urban centres into the country’s NUP. The GoR has identified six poles of growth (Huye, Muhanga, Musanze, Nyagatare, Rubavu and Rusizi). The aim is that these poles will balance the urban system and function as centres for the development of the non-agricultural activities outlined in the Economic Development and Poverty Reduction Strategy II, 2013-2018 (EDPRS2). In addition, the GoR has adopted The National Roadmap for Green Secondary City Development in Rwanda in partnership with the GGGI in order to support the sustainable implementation of the government’s poverty reduction strategy (Government of Rwanda and GGGI, 2015[65]).
copy the linklink copied!Conclusions
Ethiopia’s intermediary cities are growing and present major opportunities to function as key catalysts for rural transformation, as well as to help balance the urban system. It is clear that these agglomerations are not only playing a growing role in the urbanisation dynamics of the country but they are also burgeoning agents of economic growth and development. This chapter has outlined some of the main means through which intermediary cities are serving their surrounding rural hinterlands and helping to build stronger rural-urban linkages. Intermediary cities are hosting growing numbers of urban dwellers, increasing economic activities, and offer employment and market opportunities to their surrounding rural hinterlands.
The linkages between intermediary cities and rural areas need to be strengthen. As such, urban policies targeting intermediary cities should take account of their surrounding rural hinterlands and aim to develop integrated and coherent rural and urban development strategies. As highlighted in Chapter 1, while Ethiopia’s urban areas are growing rapidly, the rural population will also continue to grow; therefore, rural areas will continue to play an important role in Ethiopia’s development. However, rural development cannot take place without creating strong linkages with the growing urban areas, especially intermediary cities and small towns. Linking rural economies, including the agricultural sector, to the economies and activities of the surrounding network of urban centres will contribute to an inclusive rural and urban transformation. Urban areas can support the transformation of the agricultural sector by facilitating the development of agricultural value chains and enabling rural agricultural producers to enhance their incomes.
However, Ethiopia’s intermediary cities need to create an enabling environment and achieve critical mass in order to facilitate an inclusive rural-urban transformation process. Diversifying local economies in order to create stronger linkages with surrounding rural areas can enhance the transformation process. In addition, intermediary cities need better urban planning, improved local capacity, better mobilisation of resources, and extensive empirical studies and statistical knowledge in order to be able to draft effective policies. The case of Adama highlights that although there is a high degree of interaction between the municipality and its surrounding rural areas, there is a substantial knowledge gap in the mechanisms through which these two territories interact. The lack of effective spatial policies and strategies that go beyond the urban and rural divide to encompass the capacities of the two territories further sustain the rural-urban gap.
Ethiopia can harness the benefits of its early urbanisation stage, as well as the leadership and efforts that have been made to date, to boost rural-urban transformation. The early stage of Ethiopia’s current urbanisation, in addition to the federal government’s efforts to recognise urban centres as key catalysts for the country’s industrialisation plans, provide a large platform for designing and implementing effective urban and rural policies that recognize the interdependencies between the areas.
The development of SEZs across the intermediary cities studied can provide a platform for the implementation of cluster-based policies. This can be achieved by first linking the activities and firms within the SEZs to the assets and economies of the local area. This means clustering firms and actors based on their production, specialisation and their scope for job creation, while also providing the right support mechanisms for their effective functions. Second, local and regional governments can mobilise and facilitate horizontal co-operation between firms and suppliers from the hinterlands or from the cities themselves. Third, providing support and services for local or hinterland suppliers is also an effective way to encourage clustering and develop rural-urban linkages. This is particularly relevant for Ethiopia’s intermediary cities, as one of the constraints for developing stronger linkages is the supply gap from surrounding rural producers. Boosting the capacity of local suppliers can also help them better integrate into the urban economy, as well as strengthen the interdependencies between rural and urban areas (AUC/OECD, 2019[66]).
Source: Authors’ calculations using the CSA’s Labour Force Survey (2013[31]).
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Notes
← 1. The census is the most reliable source of subnational demographic data in Ethiopia.
← 2. This indicator is used to compute the Gini and Herfindal-Hirschman indexes. The use of this measure is common among practitioners and empirical economic literature. See for additional information.
← 3. Other intermediary cities and small towns that are located close to Addis Ababa, such as Burayu and Sebeta, host large numbers of LMSM firms – 147 and 69, respectively. This enables these urban centres to gain from positive spillover effects through their better links to Addis Ababa.
← 4. The criteria include: “…over half of the population are engaged in non-farming activities such as petty trading, service provision and the like; most of the residents in the area are benefiting from urban-based facilities like electricity, piped-water supply, telephones, schools, and health services; total population living in that particular location is 2 000 and above; and the area is believed to have potential for economic growth and attraction of migrants to engage in nonfarm activities” (Ozlu, 2015[27]) .
← 5. Recent migrants are those who changed residence in the last 5 years.
← 6. The definition of their respective rural hinterlands is based on information gathered from interviews conducted with key informants, desk reviews of literature and secondary data, and geographic proximity. The rural hinterland area in the case of Bahir Dar includes areas located in the Zones of West Gojjam and South Gondar, East Shewa, and Arsi, and constitutes Adama’s rural hinterland. Hawassa city’s rural hinterland includes Sidama Zone and other rural areas located in the West Arsi Zone of the Oromia region.
← 7. Total crop production relative to potential measures the ratio of actual crop production (in terms of value) to potential crop production (determined by agroecology, and the agronomic characteristics of crops and regions) (Dorosh et al., 2012[45]).
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