Although Ethiopia‘s economy has grown rapidly over the past decade and urbanization is increasing, the country‘s economic and spatial transformation has only just begun. Ethiopia‘s share of agriculture in GDP in 2006 (48 percent) was the highest in the world, and more than double the average for low income countries (20 percent). Likewise, Ethiopia remains one of the least urbanized countries in the world (16 percent), compared to the Sub-Sahara Africa average of 30 percent.
Nonetheless, massive changes are underway. Agricultural growth accelerated in the second half of the first decade of the 2000s so that real agricultural GDP growth averaged 6.2 percent from 1998/99 to 2007/08. At the same time, Inflows of foreign aid, workers‘ remittances and private transfers that funded a surge in investment and boom in the construction sector. Measuring urbanization in terms of spatial agglomerations of people in and near cities of 50,000 or more, shows that urbanization growth rates between the population census years 1984 and 2007 are much higher (between 8 and 9 percent) than estimates based on official definitions of urban (4.2 percent).
A surge in public investment has also helped bring about a new era for economic development. Road investments, particular those in transportation corridors in the highlands, have greatly increased connectivity, so that the number of people residing in or within three hours of a city of 50,000 or more, rose from 6.24 million in 1984 (15.5 percent of the population) to 38.7 million in 2007 (48.5 percent of the population). Moreover, massive investments in hydro-electric power have revolutionized Ethiopia‘s economy and opened up the potential for significant increases in productivity and output. Electricity per capita is expected to soon reach a level nearly 9 times the level of the 1960s, though it still remains far below the sub-Saharan Africa average. Similarly, fixed telephone line infrastructure more than doubled from 2003 to 2008; and cell phone subscription catapulted to 3.16 million subscribers in 2008 from only 50,000 in 2003. Finally, improvements in education and health are making significant impacts on the country‘s wellbeing and productivity.
As Ethiopia moves forward, it faces key development policy decisions. Since the late 1990s, the country has followed an Agriculture Development Led Industrialization (ADLI) policy emphasizing investments to increase agricultural productivity and spur growth linkages with the rest of the economy. At the same time, government policy has effectively slowed rural-urban migration through regulations prohibiting sale of land, loss of land rights for those who leave rural areas, and registration requirements for new migrants. Allocation of public investments across sectors and across rural-urban space, together with land policies and various regulations on labor mobility, will be major determinants of the growth path of Ethiopia‘s economy and the extent of poverty reduction in the coming decade.