CHAPTER ONE 1: Overview and Structure of the Ethiopian Economy 
      Ethiopia, with a total land area of about 113,000,000 hectares, is one ofthe largest countries in 
      Africa. It has diverse physical features ranging from about 500 meters below sea level in the Danakil 
      depression of the Afar region to over 4,600 meters above sea level in the Semien Mountains. The 
      varied nature of the topography coupled with other environmental features resulted in a variety of 
      agro-ecological zones in the country. The country is endowed with huge human resource, arable 
      land, livestock and natural resources. However, much of its potential has not yet been exploited. 
      The population of Ethiopia was estimated at over 63 million in the year 2000, making it the third 
      most populous nation in Africa and twentieth in the world. The annual growth rate of the population 
      is estimated at 3%.  
      Almost 66% of Ethiopia’s landmass is known to have a potential for agricultural development. But 
      only a quarter of this is said to be developed until now. Although the livestock contribution to the 
      economy is limited, its wealth is the largest in the African continent. The forest, water, fish and the 
      mineral resource potential of the country are enormous. These minerals include gold, platinum, 
      marble, tantalum, copper, potash, soda ash, zinc, nickel, iron and natural gas.  Of course, these are 
      not yet exploited in the desired and appropriate manner. 
      The economy is characterized by its dualistic nature: the traditional (subsistence) and modern 
      (technological) sector. The traditional sector consists of mainly peasant agriculture, which is the 
      backbone of the country. The modern sector is composed of underdeveloped industrial and service 
      sector.  
      The structure of the economy, in general, is decomposed into the three main sectors: the primary-
      agricultural sector, the secondary-industrial (manufacturing) sector and the tertiary-service sector. 
      The agricultural sector includes, among other things, such activities as crop production, animal 
      husbandry, fishery,beekeeping and forestry. This sector remains to be the most important sector of 
      the economy since it produces much of the country's annual output, absorbs huge amount of the 
      labor force and generates large proportion of the foreign exchange earnings of the country. 
      The industrial sector includes such activities like mining and quarrying, construction, energy, water 
      supply, small handicrafts and cottage industries, medium and large - scale manufacturing firms. The 
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      level of development of the manufacturing sector is at its infancy and the country’s industrial base 
      is at its lowest level.  The sector is dependent on imported semi-processed materials, raw materials, 
      spare parts and fuel. It is mainly dominated by the food, textile and beverage sub-sectors. 
      The service sector, on the other hand, includes all the activities in the production of the intangibles. 
      For the purpose of analysis, it is divided into distributive and other services sub-sectors. The 
      distributive service sub-sector includes such activities as tourism, trade, hotels and restaurants, and 
      transport  and  communication.  The  other  services  sub-sector  includes  the  provision  of  public 
      administration, defense, finance, banking and insurance, social services (education and health), and 
      real estate development.  
      The Ethiopian modern transport sector is dominated by road transport accounting for more than 
      90% of the freight and passenger transport. Air, rail and water transportation also play important 
      roles for the transportation of passengers and freights. Ethiopia’s export is mainly dependent on 
      primary products such as coffee, pulses, oil seeds, chat, hides and skin, leather and leather products, 
      meat, live animals, fruits and vegetables. Detailed treatment of these sectors will be given in the 
      subsequent chapters.  
        
       CHAPTER 2. RECENT PERFORMANCE OF THE DIFFERENT SECTORS IN THE 
       ETHIOPIAN ECONOMY  
        
       The Agricultural Sector in the Ethiopian Economy 
       Introduction 
       As records reveal, the agricultural sector in Ethiopia is the mainstay of the country’s economy. It 
       is also the most volatile sector, as exhibited in the unevenness of its growth patterns, which is the 
       effect of its heavy dependence on rainfall and the seasonal shocks that are frequently observed in 
       Ethiopia.  However,  it  contributes  the  largest  share  to  the  GDP,  export  trade  earnings,  and 
       employment. It also provides raw materials for the various industries in the country to a great 
       extent. With this scenario, the various strategies so far adopted to develop it need rethinking. This 
       serious work of rethinking the development priorities should be made considering the various 
       regional as well as local objective conditions. 
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       Agricultural versus industrial development 
       Different views or paradigms have been adapted for the development of a country. The role of 
       agriculture in economic development has been considered as largely passive and supportive or 
       secondary.  In  the  Western  economies,  the  industrial  sector  was  given  priority,  based  on  the 
       assumption that it has the largest potential to adopt technology and to create forward and backward 
       linkages with the other sectors. 
       However, the desirability of placing such heavy priority on industrial growth is questionable for 
       most developing countries like Ethiopia. Since the 1970s, development economists have come to 
       realize that the agricultural sector needs to be viewed as a leading and dynamic sector. They further 
       state that, without the development of the agricultural sector, the growth of the industrial sector 
       will become weak. Hence, the agricultural sector has to be the leading sector, and this is the 
       approach of the current Ethiopian strategy of development, ADLI. 
       Uni-modal agricultural strategy 
       It is a pathway based on the proposal that the achievement of transformation in the agricultural 
       sector is possible through intensification of small-scale peasant farms. It is based on the concept 
       of a specific peasant economy in which small producers who are not separated from their means 
       of production retain a degree of control over land and family labour in spite of international secular 
       differentiations (example: Japan, Thailand and China). 
       Characteristics of the Uni-modal Strategy 
           The central element of this approach is the development and diffusion of highly divisible 
          innovations that promote output expansion within the existing agrarian structure (small-
          size holdings)  
           It is a pro-poor growth strategy.  
           It believes in enhancing small-landholders’ access to modern inputs such as improved 
          seeds, fertilizers, and providing them to farmers on revolving-credit bases.  
           It focuses on the production of food crops with a view to ensuring food security. 
       Advantages of Uni-modal Strategy 
           It protects the existence of a differentiated peasant group/class. 
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           It protects the peasants from eviction. 
           It creates a huge potential for the government to gain political support. 
           It reduces poverty in the rural economy. 
           It provides individual peasants with access to modern technologies. 
           It reduces outgoing migration from rural areas. 
       Limitations of Uni-modal Strategy 
           It focuses only on food crops rather on other marketable or high-value products for the 
          market. 
           Does not improve the shortage of knowledge regarding market information and weather 
          conditions. 
           Does not improve the shortage of infrastructures that is due to the smallholders’ settlement 
          patterns (fragmentation) 
           The small-size holdings cannot employ large-scale agricultural inputs. 
           Continuous price rises of the agricultural inputs, like urea, dap, etc. are not controlled. 
       Bi-Modal Agricultural Strategy 
        
       It is an agricultural development pathway that advocates the practices both of the intensification 
       of small peasant farms and of commercialization. It is based on a dualistic structure of farm units 
       (as  in  the  case  of  Mexico  and  Columbia)  which  proposes  that  commercialization  and 
       commoditization inevitably generate differentiation in agrarian societies, whereby rural producers 
       are set apart into agricultural capitalists and landless agricultural employees. 
       Characteristics of the Bi-modal Approach 
           It is a dualistic agricultural development approach that supports a strong principal 
          commercial sector. 
           An obvious implication of this pathway is that entrepreneurial individuals should be 
          allowed to accumulate land. 
           It supports the differentiation of individuals who invest more in farming and those who 
          develop business. 
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