copy the linklink copied!4. Strengthening Ethiopia’s rural development strategy

Agriculture will continue to play a key role in Ethiopia’s development path

Increasing agricultural productivity has been, and will continue to be, key to reducing poverty. Better access to fertilisers and improved seeds, along with a major campaign to expand extension services, has led to increased crop yields since the late 1990s. This has been particularly the case of cereals, where yields almost doubled between 2000 and 2015. Today, cereal crops account for almost 80% of agricultural production in Ethiopia. Increasing cereal crop productivity has played a key role in Ethiopia’s poverty reduction strategy. Indeed, estimates suggest that increasing cereal crop productivity has had a higher impact on poverty reduction, and has acted as a higher growth multiplier, than export crops (Beegle and Christiaensen, 2019[3]). However, although Ethiopia’s agricultural productivity today is higher than that in many other countries in the region (e.g. Kenya, Rwanda and Tanzania), there is still scope for improvement. For example, in 2017, cereal yield (Kg per hectare) in Ethiopia represented 54% of that in Latin America and the Caribbean (LAC), 47% in Viet Nam and 35% in Egypt. In other words, Ethiopia’s cereal productivity in 2017 stood at the level of Viet Nam in the early 1980s and of Egypt prior to the 1970s. At the same time, increasing the productivity of staple crops will continue to benefit a large share of Ethiopia’s rural population, especially considering the large heterogeneity that characterises the cultivation practices and size of smallholders (Seyoum Taffesse, 2019[4]). Increasing staple crops’ supply will also be necessary in order to support efforts to develop agro-processing industries, as well as to feed a growing population.

Moreover, increasing agricultural productivity will be fundamental for promoting off-farm job creation. As discussed in Chapter 1, non-farm employment opportunities in Ethiopia are very limited. Therefore, increasing agricultural productivity will be necessary to boost rural household incomes, which in turn will increase their demand for goods and services. Addressing this demand will open up non-farm employment opportunities and the diversification of household activities (see Chapter 2).

A set of co-ordinated actions will be necessary in order to continue to improve agricultural productivity. On the one hand, improving agricultural productivity will require expanding the adoption of modern inputs (improved seeds, fertilizer, and agrochemicals), in addition to supporting farmers in the adoption of mechanical technologies and better irrigation methods. Moreover, this will further require enabling better accessibility to both input markets and financing mechanisms. On the other hand, even if these conditions are in place, they may not be enough to improve crop productivity unless farmers know how to exploit improved inputs and new technologies. For this reason, improving the quality (and not just the quantity) of extension services will be key.

However, as the country transforms, the approach to agriculture has to evolve from focusing mainly on improving agricultural supply to improving the productivity of all the elements composing agricultural value chains.

Ethiopia’s economic, demographic and spatial transformations are changing the dynamics of its food systems. Indeed, as Ethiopia urbanises the demand for agricultural goods will change, further influencing economic activities across the urban space, as well as the type of output and production factors across rural producers. However, this process is complex and characterised by mutual causality, i.e. changes in the urban demand influence the decisions of rural households, while farmers’ actions influence the access of urban households to agricultural goods. Box ‎4.3 provides a framework to understand this based on the Asian experience.

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Box ‎4.3. The transformation of food systems: Lessons from Asia

Reardon and Timmer (2014[5]) provide an analytical framework to understand the transformation process of food systems based on the experience of regions like Asia. According to this framework, the transformation of the agri-food system results from changes in the demand, the supply, and the intermediation mechanisms connecting them. This is a circular process that can be categorised into five components: urbanisation, change in diet, integration of rural factor markets, agricultural transformation, and supply chain and retail development. The forces driving this process can be summarised as follows:

• Changes in the demand for agricultural products take place, due to urban population growth and the dietary changes that follow a higher income and a city lifestyle. Indeed, urbanisation is commonly associated with an increasing demand for high value agricultural products (e.g. fruits, vegetables, etc.), animal products and processed agricultural goods; this change in diet further translates into a reduction in the consumption of staple crops, such as cereals (Bennett, 1954[6]).

• The intermediation supply chain then communicates that demand to rural areas and delivers the flow of food products; this process will prompt transformation in post farm-gate activities across the chain, i.e. activities linked to wholesale, cold chain, processing and retail.

• In parallel, across rural areas, profits from farming and income from rural non-farm employment allow investment in technological change, including a shift from human to animal, to machine power, as well as increasing use of fertilisers, pesticides and herbicides. This change further translates into higher rates of commercialisation and diversification (mirroring diet changes).

• During this process, rural factor markets tend to develop in order to respond to urbanisation and dietary changes. This includes labour markets (for farm and non-farm activities), credit markets, land markets, and markets for other farm inputs (i.e. fertiliser, chemicals, machinery, etc.).

The food system transformation takes place along the rural-urban continuum. In this process, intermediary cities play a key role as mediators of goods and services between large metropoles and rural areas.

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Figure ‎4.3. Food systems transformation process

Source: Adapted from Reardon and Timmer (2014[5]).

Ethiopia’s food systems will most likely experience a similar process to Asia and Latin America, as is the case of other sub-Saharan countries (see Box ‎4.4). In fact, this transformation has already started, mainly driven by fast urbanisation, better infrastructure connectivity, demographic growth and higher incomes (Minten et al., 2018[7]). In particular, as the country urbanises, food preferences are starting to change, as urban dwellers’ demand for processed food and high-value crops increases. Estimates suggest that between 1996 and 2011, the share of cereals in total food expenditure in Ethiopia decreased from 46% to 36%; in parallel, the consumption of animal products and fruits and vegetables increased from 7.5% to 10.8%, and 3.7% to 6.4% (Worku et al., 2017[8]).

In order to develop and strengthen the food system, Ethiopia has a range of opportunities to tap into. First, Ethiopia’s economic growth and projected demographic change (both in rural and urban areas) will continue to boost the demand for agricultural goods. These changes will transform food systems, while promoting non-farm activities in rural and peri-urban areas, as well as facilitating the intensification of agricultural production (Dercon et al., 2019[9]). Second, large public investment in transport infrastructure, and growth in the agricultural sector, serve as a foundation for the development of agricultural value chains (Minten et al., 2018[7]). Finally, the expected growth of small towns and intermediary cities, paired with better connectivity and infrastructure, can provide the critical mass needed to foster urban demand for agricultural goods; as well as creating a conducive environment for the development of wholesale, processing and retail activities along agri-food value chains.

Stronger policies are needed to better manage and co-ordinate newly rising activities in agri-food supply chains

Addressing dietary changes and an increasing urban demand will imply managing an increasingly complex food system. Policy interventions will have to focus on developing both hard and soft infrastructure in the midstream and downstream segments of agricultural value chains. On the one hand, national and sub-national governments will play a key role for the development of processing, wholesales, distribution, and retails services. This will require additional investment in physical infrastructure that supports processing and storage facilities (both in small towns and intermediary cities). Moreover, investment in transportation and infrastructure networks will be key for improving rural and urban connectivity, which is necessary for efficient distribution services. On the other hand, local governments can help improve the skills of the labour force in order to match the development of new activities. For instance, this could be done by promoting vocational training schemes in partnership with the private sector. Moreover, supporting the development of agri-food value chains will require creating a conducive environment for the entry of new actors, including small or large enterprises, especially in intermediary cities and small towns (Allen and Heinrigs, 2016[12]). Achieving these goals will further require a spatial approach that better co-ordinates local authorities in order to develop a network of urban centres with strong links to surrounding rural territories.

A series of institutional structures are needed to co-ordinate and regulate raising activities along agri-food supply chains. The development of regulatory mechanisms for food standards regarding agricultural goods are necessary, both in terms of safety and quality. Furthermore, co-ordination and management of various actors in the food production and distribution sectors will be required, as the development of food systems will increase the number new entrants into the sector (Allen and Heinrigs, 2016[12]). In this context, strengthening local institutional arrangements will be key; for instance, enforcing contracts and providing independent verification of product quality in contract farming schemes can support the development of agricultural markets (Devaux et al., 2018[13]).

Rural stakeholders can support the development of value chains. A first step will be to identify key crops and the sectors with high potential for the development of value chains. This could be enhanced through platforms or an enabling body at regional level that facilitates co-operation and co-ordination between suppliers of agricultural goods (i.e. smallholder farmers, farming cooperatives) and public and private enterprises, including micro and small size enterprises (MSEs) engaged in processing agricultural goods. The enabling body could also help monitor the quality and quantity of agricultural goods supply by rural hinterlands. Furthermore, regional and woreda governments could work closely, and in co-ordination with the private sector, to ensure that the processed goods are linked to the type of crop production in the surrounding hinterland.

Improving basic services in rural areas and intermediary cities remains key for consolidating rural development efforts

The GoE has made major investments in infrastructure, especially in roads, electricity, and water and sanitation services. Nonetheless, striking differences between urban and rural areas prevail. In 2016, only 8% of households in rural areas had electricity and less than 6% had piped water on the premises; the comparable figures for urban households were 93% and 77%, respectively (Chapter 1). Furthermore, limited access to basic services not only contributes to the high levels of deprivation experienced in rural areas, but it also limits rural households’ potential to diversify their economic activities. Indeed, additional investment in basic infrastructure is needed for improving rural welfare and limiting the increasing gap between rural and urban areas.

Limited access to basic services also affects the development of intermediary cities. Indeed, infrastructure gaps in water, sewerage and sanitation are some of the most acute challenges facing intermediary cities. For example, cities such as Mekele face 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 faces major constraints in continuing to meet even that level of demand (Chapter 2). In addition, intermediary cities face major constraints in supplying other services, such as sewerage and sanitation, with disproportionate gaps in service provision compared to Addis Ababa. 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 et al., 2015[14]). Adequate infrastructure across intermediary cities is key to promoting the development of agricultural value chains and the transformation of rural areas.

In countries like Korea, providing basic services and improving the living conditions of rural populations was one of the first steps of its rural development strategy. Moreover, it was considered as a precondition for creating income generating activities that could curb the increasing development gap between rural and urban areas (see Box ‎4.5).

Job creation will be necessary to reduce the rural-urban gap and promote the well-being of rural populations

Rural job creation is at the heart of Ethiopia’s rural and wider national development needs. In line with Ethiopia’s high population growth, the labour force is increasing at a rate of 4% annually, and approximately 3 million job seekers enter the labour market each year (CSA, 2013[15]). Although growth in the agricultural sector has led to improved rural well-being since the 1990s, it may not be enough to create employment opportunities to absorb the increase in the supply of rural labour. As a result, effective strategies are needed in order to enhance off-farm job creation.

Ethiopia’s rural off-farm economy is, however, still at a premature stage. The rural off-farm income level remains low, accounting for 18% of total rural income (Bachewe et al., 2016[16]). Rural jobs are particularly beneficial to rural poor, youth and female-headed households, because these households tend to diversify their sources of income and are more likely to engage in off-farm activities. This is particularly relevant since such households face a higher rate of landlessness. Schmidt and Bekele (2016[16]) show that youth-headed households (i.e. youth aged 25-34) are more likely to be engaged in non-farm enterprise work, as opposed to working solely on their own farms; female-headed households are less likely to work in wage labour, and are more likely to work in non-farm enterprises. However, the decision to engage in non-farm enterprises further depends on where such activity is located. Schmidt and Bekele also show that households located in high-potential agricultural areas have an increased probability of engaging in a non-farm enterprise. Overall, off-farm activities in rural Ethiopia, for the time being, seem to offer limited job creation opportunities.

Nevertheless, the development of activities along the downstream segments of agricultural value chains offers interesting opportunities, especially for the youth population. Indeed, fostering the development of economic activities in processing, wholesale, and distribution can serve as attractive sources of employment for rural youth. In this regard, the OECD (2018[17]) has analysed a large number of initiatives for rural job creation, and identified a series of success factors to ensure youth sensitive projects. These factors could be useful for Ethiopian authorities.

Rural youth profiling: Understanding the nature and conditions under which the different youth groups are engaged or excluded, and the generational and power dynamics along the value chains, will help identify the bottlenecks to be addressed when designing a youth-sensitive agricultural value chain project.

Selection of high-potential value chain: Young people should be involved in identifying a list of potential activities in their village and region which they consider themselves capable of doing and which at the same time represent potential growth sectors.

Mentorship and role models: Young people need role models to look up to and follow. Agriculture is associated with hardship and poverty and is considered as an unattractive option for young people. Local leaders and other youth farmers can help change the mentality of rural youth through mentoring and coaching. Mentoring can happen through incubator approaches, where young farmers learn how to operate a business or through regular meetings and interactions.

Peer-to-peer learning: The most effective way to convince young people is through other young people. Peer-to-peer learning has proven effective when providing agricultural extension services, for example.

Awareness campaigns: The potential of agriculture and value addition is largely underestimated. Young people in rural areas need to be informed about the different activities possible along the value chain if their minds are to be changed about agriculture and related jobs. Campaigns should include information about market requirements, product standards, innovative tools and new production methods.

Basic skills training: The majority of rural youth are early school dropouts and have low skills. Programmes that provide apprenticeship and on-the-job training opportunities for rural youth can increase their employability. Vocational training programmes must also consider teaching soft skills in addition to basic literacy and numeracy skills. Improving entrepreneurship skills, for example, entails training not only in business management but also in negotiation, leadership and team building.

Physical proximity: Activities must take place close to young people’s homes. This is especially relevant for young women who cannot travel far to attend training or take up a job.

Financial or in-kind capital: Access to land for young people is difficult, and rural areas are underserved by formal financial institutions. Furthermore, financial services are not adapted to the specific needs and constraints of youth (e.g. lack of collateral and financial resources). Activities aimed at helping young people engage in agriculture will need to support access to land, seed capital and/or materials to get started.

Social capital: Agriculture is foremost about know-how and linkages with actors along the value chain. Young people tend to lack both. Joining farmers’ organisations or co-operatives will help gain trust and solidarity, as well as enabling access to quality inputs, services, finance and markets. However, hierarchical structures, high membership fees, access to land and other co-operative membership conditions, which young people cannot meet, exclude them from benefiting from these organised structures.

Modern agriculture and rural areas: For agriculture to become attractive to young people it has to be less labor-intensive and deploy modern technology. This can be in the form of mechanisation, such as tractors or improved post-harvest management techniques, as well as through the use of ICTs, to ensure that they have better access to information, services and markets.

On top of these factors, it is important to note that the economic and demographic growth across intermediary cities provides a good opportunity for rural off-farm job creation. Indeed, experience in other regions like Asia shows that aggregate demand sources and agglomeration economies in cities tend to promote rural non-farm employment in neighbouring areas; this is particularly the case of high potential farm areas close to cities (Reardon and Timmer, 2014[5]). Moreover, fostering the development of wholesale, distribution and commercialisation along agricultural value chains can support the development of new off-farm employment opportunities (see the case of Bangladesh in Box ‎4.6).

Creating a conducive environment for private sector participation in Ethiopia will be key to facilitating job creation

Private sector engagement in Ethiopia’s rural areas remains limited. The numbers of rural MSEs and entrepreneurs are slowly increasing and becoming sources of diversified income for rural households. However, MSEs still face significant constraints in terms of accessing credit and financial services, due to a limited credit and banking systems in rural areas. In addition, rural MSEs face significant constraints on their ability to operate at their full capacity, due to inadequate basic infrastructure (e.g. roads, electricity, water, telephone, etc.). Access to markets and transportation are also some of the major barriers that entrepreneurs and MSEs face (Kumilachew and Chinnan, 2017[19]; Alemu and Adesina, 2017[20]). Furthermore, MSEs operating in rural areas tend not to be integrated into the wider agricultural value chain. They often operate in isolation, with limited information on the supply and demand of their products. As a result, rural MSEs tend to leave the market at an early stage (Kumilachew and Chinnan, 2017[19]).

It is necessary to create effective incentive mechanisms for private sector engagement in rural and agricultural sectors. This includes facilitating access to formal credit services through effective financing systems (CTA, 2013[21]) and investment in infrastructure, including in telecommunication and ICT services. Public and private partnerships should be considered, particularly for small and medium sized enterprises with a high potential for job creation, along with targeted support through resources and capacity building, in co-operation with regional and woreda level governments. As previously discussed, these efforts should be complemented with additional investment in infrastructure for trading, storage and processing facilities in small towns and intermediary cities to facilitate access to producers in rural hinterland and private sector operators.

Ethiopia’s multi-level governance framework provides scope for better governance

Ethiopia’s rural development strategies are influenced by the country’s governance structure. The current decentralised governance system provides significant scope for effective multi-level governance. It also provides the opportunity for designing bottom-up rural development strategies, as it facilitates better local participation in policy design.

Ethiopia’s decentralisation process has given local governments the responsibility for service delivery, implementation of rural policies and collection of local tax revenue. However, despite the GoE’s significant efforts to establish a strong institutional framework for the development of rural areas, the governance mechanisms put into place still face major challenges.

Since the late 1990s, the GoE has launched a series of pro-poor interventions. These include strong support to infrastructure development (notably roads), initiatives aimed at increasing agricultural productivity (e.g. access to extension services, the adoption of improved agricultural inputs, etc.), as well as the Productive Safety Net Programme, which offers social protection to marginalised rural and urban households. These combined efforts have translated into a significant reduction in rural poverty. However, the ongoing spatial transformation occurring in Ethiopia requires better co-ordination between urban and rural policy actions.

Today, Ethiopia’s rural and urban policies tend to be fragmented. Overall, there seems to be limited co-ordination of rural and urban policies; in other words, urban and rural areas seem to be treated in isolation. As a result, the socio-economic interactions between the two areas are not fully captured, and policies do not take into account and harness the changing dynamics of Ethiopia’s urban and rural landscape. For instance, rural and urban plans established at woreda level tend to be co-ordinated vertically by the corresponding ministry representatives at different levels of government. In this process, there are limited horizontal interactions between rural and urban representatives, and few co-ordination mechanisms are used. Moreover, there is a persistent knowledge gap about rural-urban functions. For example, interviews with Adama municipality representatives highlighted that although there is significant interaction between the municipality and its surrounding rural areas, there is a substantial knowledge gap in the ways in which these two areas interact.

Co-ordination issues are not limited to the woreda and kebele levels alone. Lack of co-ordination across federal and regional levels of government hinders the effective implementation and expansion of projects at local level to a larger scale. In fact, projects carried out by bilateral organisations in partnership with local governments or ministries are often not effectively co-ordinated by, or known to, the Ministry of Agriculture. Furthermore, several studies commissioned by the GoE or donors have been conducted without effective co-ordination, and have contributed little to agricultural and rural development programmes or to the GoE’s monitoring and evaluation capacities (MOA, 2010[22]). This has resulted in a series of scattered local initiatives, as well as joint initiatives with international development partners across various woredas, which are not systematised across rural areas or scaled up.

Addressing co-ordination issues between rural and urban policies will be key for improving well-being in rural and urban areas

The GoE can implement a series of actions to enhance co-ordination between rural and urban policies. First, national and regional governments could stablish a steering committee, made up of actors and policy makers from various sectors and across different levels of governments to help identify key issues and propose common solutions. The steering committee can also help facilitate policy co-ordination across sectors, and different levels of governments.

Second, policy co-ordination can be strengthened by combining top-down and bottom-up strategies. Regional and local governments can promote bottom-up strategies by fully engaging local stakeholders, in both rural and urban areas, in the design of development strategies and policies. This can be facilitated through various means, such as holding participatory and consultation meetings including municipal and kebele authorities, farmers’ organisation, and civil society representatives. Local governments could promote trust by providing up to date information on the state of financing and development plans of rural and urban areas. Territorial policies, discussed below, could help in this regard.

From a top down perspective, national authorities can strengthen regional governments’ supervisory role to improve policy co-ordination between rural and urban areas. This can be done by creating contractual agreements between national and regional governments, as well as promoting incentive mechanisms, such as establishing a budget for co-ordinated investment plans. For example, Poland’s central government has promoted rural and urban co-operation by creating contracts with regional governments and allocating budgets for public investment. In this case, regions are in charge of formulating a Regional Spatial Strategy, and the national government allocated specific budgets for co-ordinated investment in public services across rural and urban areas, as well as small towns (OECD, 2013[23]).

Finally, national and local government can address existing institutional and legal barriers which reduce the scope for policy co-ordination. This requires reviewing conflicting policies on various issues including land use, local taxes and existing financial incentives that promote competition rather than horizontal integration.

Improving the capacity of local authorities will be necessary to address the needs of a growing population

Improved capacity is key for both woreda-level and kebele-level governments, as they face significant constraints on their role in planning and implementing public service programmes. They are both faced with a high demand for services and a shortage of skilled staff to ensure efficient public service delivery. For example, a study of two woredas in the Amhara region showed that following woreda-level decentralisation, the demand for services at district-level had increased, which led these woredas to face a persistent human capital gap. Between 2012 and 2013, the woredas faced a staff gap (the difference between the number of staff required and the number assigned) of 67% in road development, 63% in water service delivery, and 37% in the health sector (Alemu, 2015[24]).

Woreda-level representatives also face severe constraints in accessing the resources necessary to implement rural and urban plans. They have to contend with shortages of equipment and facilities, inadequate information and communications and technologies, and difficulties in finding work premises (MOA, 2010[25]). Furthermore, there are large disparities between the administrative capacities of regional and woreda governments. This is particularly so in the case of woreda administrators’ service delivery capacity, especially those located in pastoral areas lag considerably behind in terms of providing primary health and education services (Fenta, 2014[26]).

Ethiopia’s regional and local governments can implement a series of strategies to enhance local governments’ financing capacity. In the short term, local government can create partnerships with research institutions and development partners, to help them identify new ‘’low hanging fruit’’ sources for local revenues. Furthermore, local and regional governments can strengthen their financing capacities through implementation of land value capture instruments, including: land titling, debt instruments and user fees. However, land-based financing instruments ought to be aligned with land titling systems at regional and woreda level. Moreover, these partnerships can help develop training programmes for development of financial and management skills of local governments, including enhancing their capacity in budget planning, tax collection and effective allocation of financial resources. Additionally, improving and strengthening reporting mechanisms for financial mobilisation at local level can help facilitate transparency and identify inefficiencies.

Improving capacity is always challenging and financial constraints for capacity building are a recurrent issue. But even when resources are available, people who have built capacity often tend to leave the institution, which requires rebuilding capacity – in some cases – from scratch. A possible way to overcome part of these issues is through peer-learning mechanisms across sub-national authorities. If these mechanisms are institutionalised, authorities from different woredas or kebeles could regularly meet to learn from each other. It is nevertheless important to highlight that, although peer-learning mechanisms limit capacity loss and complement existing capacity through knowledge spillovers, they do not substitute proper capacity training for planning and management.

Facilitate the development of functional territories

Ethiopia’s ongoing spatial, economic and demographic transformations call for a shift in rural development strategies. Reaping the benefits of these transformations requires effective co-ordination and linkages between urban and rural development policies. This is because, as highlighted in Chapter 2, rural and urban development processes are inherently linked; as such, rural development cannot take place if it is not effectively linked with the development of small towns and intermediary cities.

Effective territorial approaches can capture the multi-dimensional needs of rural areas, their interactions and linkages with urban areas, as well as addressing the needs of the multiple rural stakeholders who contribute to rural transformation.

Experiences in other regions show that territorial development approaches can support rural-urban transformation. Territorial approaches have been at the heart of broad development strategies across OECD countries. Increasing concerns for new sources of growth, while enhancing social inclusion and environmental sustainability, have raised the need for policy tools that allow achieving these objectives in a more balanced and complementary way (OECD, 2011[27]). Against this backdrop, territorial approaches have found a place in promoting rural development across OECD countries, while highlighting the fact that rural areas are places of opportunity (OECD, 2016[28]). Moreover, an increasing number of international organisations are supporting the adoption of territorial approaches. For instance, territorial approaches are considered as key instruments for rural-urban transformation in the Africa-Europe Agenda for Rural Transformation supported by the European Union (Arnold et al., 2019[29]); also, UN-Habitat has developed a series of principles to serve as basis for the development of territorial approaches, which acknowledge the intrinsic connections between rural and urban areas (UN-Habitat, 2018[30]). Box ‎4.7 provides more information about Territorial Approaches and its implementation, while Box ‎4.8 summarises the key principles for rural-urban linkages developed by UN-Habitat.

Developing policies with a broader territorial approach, which promotes reciprocal linkages between rural and urban areas, can support an inclusive rural-urban transformation process. Thus, Ethiopia’s policy framework ought to expand beyond the strict dichotomic assumptions of rural and urban boundaries, and aim to develop policies that account for the flows of information, labour, goods, services and capital within functional areas along the urban and rural continuum (Berdegué and Proctor, 2014[31]). The development of functional territories do not have to be limited to administrative boundaries, instead it should be developed based on existing socioeconomic interactions, and shared history and cultures (Berdegué and Proctor, 2014[31]).

Ethiopia’s existing policy framework acknowledges the importance of urbanisation as a key driver for development. It also recognises the need to develop rural areas. However, it does not account for their linkages. A place-based approach could help the GoE limit the increasing disparities between urban and rural areas, as well as reaping the opportunities of the fast urbanisation process. This entails developing multi-sectoral policies that account for the different roles of national and subnational authorities and engage local stakeholders in the design, as well as in their implementation. However, implementing such approach will require a learning process. Box ‎4.7 presents a general process for implementing a territorial approach based on the experience of several international organisations. Ethiopia could experiment with some pilot projects in certain zones and woredas. Based on the results from the pilot projects, the GoE could analyse the potential for extending this approach.

Building functional territories, while reaping the benefits of urbanisation, will require policies that strengthen the linkages between intermediary cities and surrounding rural areas

Intermediary cities act as market centres for agricultural production. They provide a platform for commercialising agricultural goods (in particular, cereal crops). However, intermediary cities’ market linkages with neighbouring producers tend to be weak. This is due to the fact that only around 20% of smallholders’ production is commercialised. Limited supply of agricultural inputs further constrains capacity to develop sustainable agribusiness. More than half of the existing agro-industries are not operating at full potential due to shortages of raw materials. A similar issue arises when assessing backward linkages to rural areas. Indeed, most of the manufactured inputs that rural areas require are imported from international markets, as manufacturing activities in Ethiopia’s intermediary cities are still limited. This is also the case for industrial goods and inputs for improving agricultural production, such as fertilisers.

Improve the knowledge base regarding urban-rural processes and revise the existing definition of urban and rural areas

Overall, there is a significant gap in the availability of reliable data and representative empirical knowledge across Ethiopia’s urban and rural 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 et al., 2019[33]). Moreover, 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 becoming increasingly important, there are limited empirical studies that provide a better understanding on their economic activities, functions and other vital information required for informed policy making and urban planning. This could be due to the fact that socio-economic surveys are not representative at city level; in many cases, local governments lack the means and capacity to collect and analyse data at local level. Furthermore, the lack of data and empirical analysis 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 the two areas in isolation. As a result, intermediary cities and small towns are overlooked, and their dynamics and functions are not captured appropriately either in data collection or in policy design.

Improving empirical knowledge on spatial dynamics will further imply reinforcing statistical systems. The most detailed source of information at sub-national level is the census. However, this information is outdated (the latest census took place in 2007). Labour force surveys and household surveys provide valuable information but are only representative at the regional level. Although relevant, this statistical information remains limited for addressing rural issues within regions and across cities of different sizes.

The GoE can address the above constraints by investing in the production of empirical studies and statistical systems that inform on demographic growth, economic activities and sources of employment across cities, and the channels in which intermediary cities create agglomeration economies. Research centres such as the Policy Study Institute (PSI) can play a fundamental role developing this knowledge. This can be further strengthened by improving local government capacities in data collection and analysis. Furthermore, there is a strong need for a better understanding of rural-urban dynamics in the country. Ethiopia is characterised by large regions and a diverse geography. This undoubtedly leads to heterogeneous policy outcomes following sectoral policies. In order to improve the effectiveness of rural and urban development policies, it is necessary to better understand the channels that link urban and rural areas within and across regions.

A robust rural-urban typology, i.e. a classification for those places considered to be rural and urban, is the first step to understand spatial dynamics. Indeed, Ethiopian authorities could benefit from a more robust definition of urban and rural areas. The existing typology is mainly based on population size. Considering the fast-growing population process experienced by the country, this definition most likely overlooks key relevant issues for policy making.

Why does a typology matter? The extent of Ethiopia’s rural-urban transformation process depends on the way in which urban and rural areas are defined. Populations, economic activities, and socio-economic processes are distributed in a continuous way across space. Classifying a place as rural or urban is just a way to simplify the complexity of human processes taking place across spaces. Although this classification is a practical approach to differentiate places with low and high population densities, it has some important caveats that may limit the effectiveness of certain policy actions. Notably, it relies on administrative boundaries and does not capture functional aspects of urban and rural interactions.

What would the distribution of Ethiopia’s population be under a typology that does not rely on administrative boundaries and provides more detailed information about human settlements? Figure ‎4.4 (left side) provides a typology based on the Global Human Settlement Model grid (GHS-SMOD). This typology gives a more granular overview of the dichotomous notion of urban and rural. It does so by providing a palette of different types of agglomerations, going from cities and their suburbs, to towns, villages and rural areas. Under this typology, the current definition of rural areas is divided into different categories that account for populations in dispersed rural areas, villages and towns. These last two categories allow us to bridge the gap between low- and high-density populated places by accounting for semi-dense settlements close to medium or large settlements. Cities represent highly dense urban centres that are further divided into suburbs. In 2015, under this typology, dispersed rural areas accounted for 61% of the population, followed by cities (28%), towns (6%), villages (4%) and suburbs (less than 1%).

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Figure ‎4.4. Alternative typologies for urban and rural areas

Note: “R” stands for remote and “C” stands for close to cities with at least 100 000 inhabitants.

Source: Authors’ calculations using data from Pesaresi et al. (2019[34]).

Complementing this typology with information on accessibility provides a more robust picture of the rural-urban continuum. Extending this typology by considering access to big cities allows us to account for the share of Ethiopia’s population across different types of settlements that can reach a big city (at least 100 000 inhabitants) in less than 3 hours. Figure ‎4.4 (right side) shows the distribution of Ethiopia’s population across rural areas, villages, towns, suburbs and cities further classified as close (C) or remote (R). It is interesting to note the symmetry in terms of accessibility for the population residing in dispersed rural areas: half of the population resides within 3 hours of a big city, while the other half needs more than 3 hours to reach this type of agglomeration. In terms of the total population, rural (C) and rural (R) account for 32% and 30%, respectively. Not surprisingly, the population in urban centres that are close to big cities is quite large (25%), whereas only a small share of the population lives in remote urban centres (3%). The population live in towns close to a big city represents 4% of the total population, while people living in villages close to big cities only account for 3% of the total population. Overall, people living in remote areas only account for approximately 36% of the total population in the country.

It is important to highlight that this is just an exercise to show one of the different possible information tools available for improving statistical systems in Ethiopia. Although worthwhile, revising typologies is usually challenging for statistical agencies because it breaks time series and becomes impossible to compare different data sets. However, Ethiopian authorities could complement the existing typology with an additional one that results from a participatory process and consultation among key stakeholders.

Carry out spatial planning at the regional level

Regional authorities will benefit from a better understanding of spatial dynamics in their corresponding regions. This would endow authorities with key information for better co-ordinating rural and urban policies, as well as promoting policy complementarities. The federal government has already taken important steps in this direction through the National Urban Spatial Plan (NUSP) elaborated in 2015. As described in Chapter 2, the plan provides key information for understanding urbanisation processes across the country. A similar exercise that zooms into each Ethiopian region could provide valuable information for policy makers at sub-national level. However, it would be fundamental that regional authorities build the capacity to develop these plans in the long term. Although in an initial phase support from an international development partners will be necessary, technical and methodological knowledge should be transferred to regional governments so they can elaborate their own plan in the future. The federal government could support this initiative by making sure that the regions follow a standardised methodology that would enable a comparison of outcomes and mutual learning. Furthermore, the federal government can help facilitate partnerships between regional governments and international development partners.

Table ‎4.3 summarises the proposed areas for reform, as well as the set of selected actions discussed above. It is important to note that some of these actions are repeated across different outcomes. This further highlights the need for a co-ordinated approach that builds on policy complementarities across different sectors. Moreover, these actions are not exhaustive, they aim to provide guidance on the way forward; they may also differ depending on the characteristics of each region or agro-environmental zone, and will eventually have to change in line with the evolution of Ethiopia’s economy and society.