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Money TalksSalvaging the economy through agriculture

Salvaging the economy through agriculture

Ethiopia has formed a new government with not that much new faces into the cabinet of Prime Minister Abiy Ahmed (PhD). This new government is expected to navigate the country through the bumpy roads to “prosperity.” The vision to become “The Beacon of African Prosperity” aims at minimizing the country’s poverty level from 19 percent to seven percent. It also plans to register an economic growth of 10 percent each year from 2020 to 2030. Hence, the assumption is that agriculture, industry and service would grow by 5.9, 13 and 10.6 percent respectively each year for 10 years.

One of the target areas of the new government is managing resource wastage in state owned investments. However, the main consideration of the 10 years development plan is enhancing production and productivity in key economic sectors such as agriculture.

In this regard, the government needs to form capital worth 36.9 percent of the current GDP. Out of the total investment required, 64.8 percent is expected to come from the private sector which is expected to take the lead in the country’s economic development, while the government takes the rest 35.2 percent.

By the end of the planning year, export earnings are expected to amount to 13 percent of the total GDP while imports would cover 19.4 percent.

Structural transformation of the economy would help tilt the balance towards industry and service sectors shifting from the current dominant dependence on agriculture. Accordingly, by the end of 2030, the contribution of agriculture to the economy would decline from 32.7 percent in 2020 to 22 percent. During this time period, industry and service sectors would grow from 29 percent to 35.9 percent and from 39.5 percent to 42.1 percent respectively. The manufacturing sub sector of industry is expected to take 17.2 percent of the GDP slice from the current 6.9 percent.

During this period, the total government expenditure is expected to reach 19.3 trillion birr out of which 11.4 goes to recurrent expenditures. The rest goes to capital investment. In this period, it is indicated that the budget would exhibit an 11.2 percent deficit as the government would be able to cover just 88.7 percent of its budgetary requirements. Accordingly, 3.2 trillion birr is expected from local savings and credit supply, 1.6 trillion birr from capital budget, 1.25 trillion birr from foreign savings, and 1.02 from state assets and other investment sources.

This growth plan also envisages creating 15 million jobs in urban areas by 2030.

However, the war in Tigray is draining the country’s coffers. With the war-ravaged economy, a growing amount of money is being poured out on top of the 100 billion birr the government invested during its eight months stay in Tigray since the last week of November.

The international community which offered its unreserved support to Prime Minister Abiy’s administration during the early days of his premiership has turned its back on it as a result of the conflict. Much worse, the Western financial sources of the country have dried up and the pressure coming in the form of sanctions and trade restrictions are set to bleed the economy further. One of these restrictions could include the Obama era initiative of the African Growth Opportunity Act (AGOA), where African manufacturers get preferential access to the US market. This will directly and indirectly affect the government’s plan of repeating the economic miracle of double-digit growth the country saw for a decade until 2015.

Hence, experts suggest the government capitalize on the productive sector of the economy, especially agriculture. During the 10 years until 2020, annual crop production from smallholder agricultural land grew from 222 million quintals to 335 million quintals. According to multiple previous studies conducted in the agricultural sector, the production is dominated by teff, wheat, maize, sorghum, and barley. These are labor intensive and time consuming from sowing to harvesting.

A new initiative, some believe, would help kick start agricultural production and productivity. Linked to the Green Legacy initiative, trees planted include fruits and other edible items that can serve both the local and export demands.

In addition, the government has given attention to lowland agriculture and a Ministry has been formed to oversee such developments in lowland areas which the government says possess huge agricultural and pastoralist potentials.

Therefore, the headwind the economy is destined to face from the international community’s pressure as well as the conflict in the northern part could be served well from the agricultural sector. Experts suggest that this becomes eminent at a time of a global coronavirus pandemic which shut down the tourism and other sectors that could have helped the economy well.

However, agricultural production and productivity face challenges from different sides. Ranging from climate change to land policy and agricultural input limitations as well as natural disaster, the agriculture might not be as helpful as it is expected to, warn experts in the field.

With the El NiNo and La Nina phenomenon, agriculture in Ethiopia suffered a lot and the locust invasion in the horn of Africa affected farmers and their produce. Relief Web for instance reported that the ongoing locust invasion in East Africa has been described as the worst in 25 years for Ethiopia. It has also affected agricultural production in most parts of the country.

The ten years prospective plan aspires to increase annual crop production to 925 million quintals by 2030 from 543 million quintals in 2020. The plan also takes the complexity and unpredictability of international engagements, proneness to man-made and natural disasters, lasting impacts of COVID-19 pandemic, political instability the country is going through, as well as the huge finance required to implement the plan into consideration. It classifies these potential adversities as “threats, vulnerabilities and risks.”

To tackle these challenges, the government plans to use innovative development financing, enhancing the public’s awareness regarding natural and man-made disasters, enhancing economic resilience to international economic downturn and price declines, as well as focusing on productive and high-yield sectors.

Experts also observe that if the government manages to successfully increase production and productivity, this would help tame inflation as food inflation is one of the driving factors for the national galloping inflation. This, in turn, has a potential to recede political ailments and create stability.

However, the long lasting impact of the war in the northern part of the country will be exhibited throughout the planning period posing itself as an obstacle to the endeavors of the new administration.

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