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Ethiopia: How to Dent Poverty

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Friday, July 06, 2018 8:13PM / Proshare Research 

 

Notably, Ethiopia has consistently been on the back of public sector led growth which has hinged on prioritizing investment in sectors that have substantial competitive advantage. Thus, leading into substantial investment in manufacturing, infrastructure and agriculture. The country has heavily invested railway so as to achieve the needed economic agglomeration.  The ripple effect has forced the country to achieve an average growth rate of 10.3% from 2006 to 2016. 

More importantly, Ethiopia had built the appropriate pre-conditions for an export take off, which has been met with increased foreign direct investment.  The rub in effect on the agricultural and manufacturing sector have improved productivity, at the same time increased the net worth of the nation. In the same line, Ethiopia have also made use of  pro- poor policies not as a first line of defense against extreme poverty but rather as a complement to its export led initiative. Some of such policies are

·   The productivity safety net program (PSN), which is aimed at addressing the effect of food shortage in rural areas. Apart from containing negative effect from food shortage, this measure helped to improve the purchasing power of rural communities by encouraging them to invest in productive activity.

·    The productive safety net mechanism which is currently employed, focused on lifting household in urban areas from poverty.   

Thus, it is not surprising to see the international monetary fund project 8.5% growth for Ethiopia in 2018. Thereby underlining the broad based growth witnessed in Ethiopia, which has forced a blight on extreme poverty. 

Ethiopia has begun a gradual transition from a central planning to a more private led growth which is spelt out in the long term strategic developmental plan.  More recently Ethiopia opened up sectors such as telecommunication which enjoyed government monopoly.  Therefore the ability to employ the appropriate pre- condition coupled with the pro-poor policies have drastically reduced the number of extremely poor individuals. 

It is expected that as Ethiopia opens up its economy and solve age long boundary dispute with Eritrea, private capital formation will improve and fiscal debt will fall. 

Learning from this, Nigeria can address poverty by making use of the appropriate income policies that will bolster productivity.

 

Fig 1: Poverty in Ethiopia 

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Source: World Bank

 

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