Ethiopia has achieved impressive growth and cut poverty under a largely state-driven development model. But to solve persistent urban unemployment, it will need to increase private investment and help small businesses access affordable finance
By Eleni Yitbarek (EIB)
Unemployment in Ethiopia is mainly an urban problem. It affects society’s most vulnerable groups — women, young people aged 15 to 29, the poor, and the unskilled—who often find themselves trapped in poverty for the long term.
The majority of Ethiopia’s urban population earns its living from small enterprises. Small businesses have the potential to create employment opportunities, including for individuals who have lower chances of a job at larger firms. Small businesses help poor and vulnerable groups through two main mechanisms:
– they create jobs, thus providing income, and
– they support economic growth by broadening the tax base, which is vital to poverty alleviation.
Ethiopia—and the rest of Africa—must take action to boost small businesses. Between 1990 and 2011, six of the fastest growing countries in the world were in sub-Saharan Africa. During the same period, income inequality and poverty rates declined significantly. Despite this impressive performance, unemployment and poverty remain the two top economic development challenges of the continent.
Micro and small enterprises key for jobs
A landlocked agrarian economy that leads the “African Lions”, Ethiopia has had double-digit growth since the beginning of the millennium. Yet poverty remains pervasive and persistent. With 102 million people, Ethiopia is Africa’s second biggest country, but has one of the highest poverty rates. More than 30% of the population lives below the international poverty line (USD 1.25 a day at purchasing power parity).
Ethiopia’s economic development has been largely state-driven, accompanied by a vast expansion of basic infrastructure and services. Although subsistence farming and a highly fragmented agricultural sector still form the backbone of the economy, high population growth, lack of arable land and low productivity hinder the potential of the sector to provide sustainable employment for a significant proportion of the population.
Read the complete story at European Investment Bank (EIB)