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1、UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENTEthiopiaunctad.orgFront cover photograph Yohannes Ezra/STechnical and statistical reportProductive capacities development:Challenges and opportunitiesUNITED NATIONSProductive Capacities Development:Challenges and Opportunities-The Case of EthiopiaUNC

2、TADUNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENTGeneva,2024EthiopiaTechnical and statistical reportProductive capacities development:Challenges and opportunities w 2025,United Nations This work is available through open access,by complying with the Creative Commons licence created for intergove

3、rnmental organizations,athttp:/creativecommons.org/licenses/by/3.0/igo/.The findings,interpretations and conclusions expressed herein are those of the author(s)and do not necessarily reflect the views of the United Nations or its officials or Member States.The designations employed and the presentat

4、ion of material on any map in this work do not imply the expression of any opinion whatsoever on the part of the United Nations concerning the legal status of any country,territory,city or area or of its authorities,or concerning the delimitation of its frontiers or boundaries.Mention of any firm or

5、 licensed process does not imply the endorsement of the United Nations.Photocopies and reproductions of excerpts are allowed with proper credits.This publication has not been formally edited.United Nations publication issued by the United Nations Conference on Trade and Development UNCTAD/ALDC/2024/

6、3eISBN:978-92-1-106609-8iiiProductive Capacities Development:Challenges and Opportunities The Case of EthiopiaNotesThe publication is a result of the implementation of the project entitled“Developing Integrated Programmes to Alleviate Binding Constraints to Development by Fostering Structural Transf

7、ormation,Building Productive Capacities and Enhancing Investment Opportunities and Linkages with China”,which is funded by the 2030 Agenda for Sustainable Development Sub-Fund under the United Nations Peace and Development Fund.ivProductive Capacities Development:Challenges and Opportunities The Cas

8、e of EthiopiaTable of contentsNotes.iiiAcknowledgements.viExecutive Summary.vii1.Introduction .11.1.Why do productive capacities matter for Ethiopias development?.21.2.An overview of Ethiopias economy and development .22.Part I:National Productive Capacities Gap Assessment.92.1.Natural Capital.102.2

9、.Human Capital.122.3.Transport.182.4.Energy.212.5.Information and Communication Technologies.252.6.Institutions.272.7.Private Sector.292.8.Structural Change.323.Recommendations.373.1.Policies and strategies at the national level.373.2.International support and global partnership.434.Part II:Holistic

10、 Productive Capacities Development Programme.474.1.Strategic orientation.494.2.Priority interventions.504.3.Stakeholder analysis and capacity assessment.694.4.Financing,modalities and implementation.694.5.Sustainability.724.6.Risks and assumptions.734.7.Performance and monitoring.73Annex:Selected Se

11、ctoral Interventions and Responsible Institutions.76References.83vProductive Capacities Development:Challenges and Opportunities The Case of EthiopiaFiguresFigure 1.1 Ethiopias GDP and GDP per capita growth.3Figure 2.1 Ethiopias Productive Capacities Index(PCI)in a comparative perspective.9Figure 2.

12、2 Natural Capital(PCI).11Figure 2.3 Human Capital(PCI).13Figure 2.4 Highest education grade completed.14Figure 2.5 Degree of difficulty in finding employees with specific skill attributes.15Figure 2.6 Skills gaps as obstacles to firms performance(percent).16Figure 2.7 Labour force participation rate

13、(percent).17Figure 2.8 Transport(PCI).19Figure 2.9 Energy(PCI).22Figure 2.10 Information and Communication Technologies(PCI).25Figure 2.11 Institutions(PCI).28Figure 2.12 Private Sector(PCI).30Figure 2.13 Structural Change(PCI).32Figure 2.14 Sectoral shares in GDP(percent).33Figure 2.15 Employment s

14、hare(percent).34TablesTable 2.1Energy policies,strategies and programmes.23Table 2.2 Stakeholders in the energy sector.23Table 4.2Programme objectives and description.48Table 4.3 Stakeholder analysis and capacity assessment .70Table 4.4 Risks and mitigation actions.74Table 5.1 ICT and innovation.76T

15、able 5.2 Measures in easing constraints in human capital development.77Table 5.3 Interventions in the transport and logistics.78Table 5.4 Measures in easing constraints in the energy sector.79Table 5.5 Measures in easing institutional constraints .80Table 5.6 Measures to address constraints in the b

16、usiness ecosystem.81Table 5.7 Measures in strengthening coherence and linkages .82viProductive Capacities Development:Challenges and Opportunities The Case of EthiopiaAcknowledgementsProductive Capacities Development:Challenges and Opportunities:The Case of Ethiopia,which comprises the“National Prod

17、uctive Capacities Gap Assessment(NPCGA)of Ethiopia”and the“Holistic Productive Capacities Development Programme(HPCDP)for Ethiopia”,was prepared under the overall guidance of Paul Akiwumi,Director,Division for Africa,Least Developed Countries and Special Programmes of UNCTAD.The report team was led

18、by Mussie Delelegn(Productive Capacities and Sustainable Development Branch)and included Andrzej Bolesta(PCDB)and Tadele Ferede(Addis Ababa University),with contributions from Stefanie Gary,Luyao(Kate)Wang and Huidi Feng.The NPCGA was reviewed during a national validation workshop which took place i

19、n Addis Ababa on 14 December 2022.UNCTAD expresses its gratitude to workshop participants,including those from the Ministry of Industry,the Ministry of Planning and Development,the Ministry of Finance,the Ministry of Agriculture,the Ministry of Water and Energy,the Ministry of Labour Skills,the Mini

20、stry of Transport and Logistics,the National Bank of Ethiopia,the Development Bank of Ethiopia,the Ethiopian Investment Commission,the Manufacturing Technology Development Centre,the Textile Institute Development Centre,the Kaizan Centre,the Leather Industry Development Centre,the Ethiopian Enterpri

21、se Development Agency,the Manufacturing Industry Development Institute,the Food and Beverage Industry Development Institute,the Chemical and Construction Inputs Industry Development Centre,the Tony Blair Institute and the World Food Programme,for their insightful comments and suggestions.UNCTAD exte

22、nds particular gratitude to the Ministry of Industry of Ethiopia for serving as the institutional focal point for the organizations engagements in Ethiopia and for mobilizing participants from relevant public institutions,the private sector and civil society.The HPCDP was reviewed during a national

23、validation workshop which took place in Addis Ababa on 4 July 2023.UNCTAD likewise expresses its gratitude to workshop participants,including those from the Ministry of Industry,the Ministry of Planning and Development,the Ministry of Finance,the Ministry of Education,the Ministry of Water and Energ

24、y,the Ministry of Urban Development and Construction,the Ministry of Agriculture,the National Bank of Ethiopia,the Development Bank of Ethiopia,the Ethiopian Investment Commission,the Industrial Parks Development Cooperation,the Textile and Garment Manufacturing Association,the Ethiopian Environment

25、al Protection Authority,the Ethiopian Chamber of Sectoral Associations,the Ethiopian Chemical Products Association,the Ethiopian Beverage Manufacturing Industry Association,the Addis Ababa University,the Manufacturing Industry Development Institute,the African Development Bank,the World Food Program

26、me,the British Embassy in Ethiopia,the Embassy of Italy and the Tony Blair Institute,for their insightful comments and suggestions.UNCTAD secretarial and administrative support for the publication was provided by Regina Ledesma,Rostand Ngadjie Siani and Yasmine Beswick.The cover design and desktop p

27、ublishing were undertaken by the UNCTAD Communication and External Relations Section with the assistance of Gilles Maury.viiProductive Capacities Development:Challenges and Opportunities The Case of EthiopiaExecutive SummaryProductive Capacities Development:Challenges and Opportunities The Case of E

28、thiopiaexamines the countrys productive capacities to advance structural transformation and economic diversification,as well as related gaps and necessary policy responses.The publication consists of an Introduction,which also analyses the state of Ethiopias economic development,as well as Part I an

29、d Part II.Part I The National Productive Capacities Gap Assessment of Ethiopia(NPCGA)provides data-driven and evidence-based articulation of the challenges facing Ethiopia in developing its productive capacities and kick-starting the process of structural economic transformation.The NPCGAs value add

30、ed lies in its consistent and systemic application of the eight components of the Productive Capacities Index(PCI),key indicators used in the construction of the index,and a closer examination of Ethiopias micro-,meso-,and macro-economic policies,institutional and governance frameworks,as well as ch

31、allenges and opportunities.Part II The Holistic Productive Capacities Development Programme for Ethiopia(HPCDP)provides details on how best to address the gaps and limitations and key binding constraints to Ethiopias development through a comprehensive programme.The HPCDP is tailored to specific dom

32、estic circumstances,comparative advantages,and national institutional frameworks and provides strategic orientation and action-oriented,step-by-step approaches to tackle these key binding constraints.It is designed to address Ethiopias structural development challenges,as articulated in the NPCGA,by

33、 moving away from the practice of short-term,sectoral and fragmented,project-based interventions towards long-term,integrated,and programme-based approaches to development.Both,the NPCGA and the HPCDP have been discussed and validated by the Government of Ethiopia at technical and high-level policy

34、dialogues organised in 2022 and 2023,respectively.Ethiopia has made significant socioeconomic progress in the past two decades through public-led investments in economic and social infrastructure.Growth has been driven by the expansion in services and a boom in construction,with the contribution of

35、agriculture to Gross Domestic Product(GDP)continuously declining,but with more than two-thirds of the labour force still employed in the sector.The contribution of manufacturing to overall growth and employment has remained low.Despite certain dynamism,the pace of growth has gradually slowed in rece

36、nt years due to overlapping shocks,including internal conflict and instability,the COVID-19 pandemic,and global geopolitical tensions,which have caused renewed trade disruptions and triggered high oil and food prices.Moreover,climate-induced drought and other factors have dragged down the countrys g

37、rowth prospects and undermined the development of productive capacities.Notwithstanding the progress made,the acceleration of Ethiopias growth has not been associated with the fostering of economy-wide productive capacities,economic diversification,value-addition and the achievement of overall struc

38、tural economic transformation.Nor has it led to employment creation and substantial poverty reduction.The slow process of building productive capacities and advancing structural transformation rests on sluggish productivity growth and weak forward and backward linkages among sectors,especially betwe

39、en agriculture and manufacturing.One of the peculiar characteristics of the sluggish structural transformation of the Ethiopian economy is manifested by the lack of significant shifts in the quality and complexity of its economic and social development,which includes changes to the economys sectoral

40、 composition of output,productivity,export diversification and sophistication,competitiveness,and labour force participation.The lack of productive economic structural transformation and the countrys continued high vulnerability to shocks are,indeed,associated with limited development of productive

41、capacities.viiiProductive Capacities Development:Challenges and Opportunities The Case of EthiopiaAlthough Ethiopia has also made progress as captured by its performance in the overall Productive Capacities Index(PCI)over the past two decades,the countrys PCI score has remained low compared to many

42、other sub-Saharan African countries,including those located in close geographic proximity such as Kenya,Rwanda and Tanzania,slightly lower than the median for the least developed countries(LDCs)and far behind landlocked developing countries(LLDCs)and other developing countries(ODCs).In 2022,Ethiopia

43、 ranked 169th out of 194 economies and territories in the overall PCI.Ethiopias performance in the PCI is dragged down by its weak performance in institutions,human capital,energy,and ICT,as well as manufacturing value-added in GDP,and dependence on the production and export of low-value agricultura

44、l commodities,with little or no technological sophistication.Its persistent deficit in productive capacities constitutes a barrier to increased competitiveness,inclusion and productive transformation.Indeed,the low level of productive capacities is due to binding constraints and gaps in several key

45、areas:national institutions,which is reflected by the countrys weaknesses in policy making,implementation and management;deficits in human capital formation;low levels of ICT and innovation;inadequate physical and natural capital;a non-conducive business environment for the development of the privat

46、e sector,and weak policy coherence and linkages.The countrys performance in the structural change category of the PCI is characterised by a moderate shift in the contribution of agriculture to GDP,in favour of industry.However,the share of industry in GDP is driven by the State-led construction and

47、transport sectors.Likewise,the services sector is predominantly characterised by low skills,low knowledge and low-technological intensity services.To kick-start inclusive and sustainable economic growth,including economic diversification,the country needs to act quickly and at scale in more innovati

48、ve ways,by exploring opportunities across sectors that can help raise competitiveness and growth,and enable it to achieve structural economic transformation.Since policies and strategies,as well as institutions may foster or constrain productive capacities,the economic management framework,including

49、 macroeconomic policies and strategies,needs to support the development of productive capacities by articulating their centrality at the macroeconomic and sectoral levels,creating a conducive environment,strengthening coherence and linkages,as well as setting key performance indicators and associate

50、d targets for effective monitoring and evaluation.Specifically,Ethiopia should:prioritise productive capacities for structural transformation;adopt a holistic approach;enhance industrialisation and sectoral development,and build linkages;strengthen human capital and address the mismatch in skills su

51、pply;create new jobs,particularly for youth;expand infrastructure and enhance connectivity,while facilitating green transformation;improve access to electricity;intensify support for private sector development and foster entrepreneurship;invest in ICT and innovation;leverage domestic and foreign dir

52、ect investment(FDI);strengthen institutions and improve policy and coordination;address macroeconomic imbalances;improve financing for development;and ensure political stability.The role for the international community to support productive capacities building and structural transformation lies in e

53、nhancing benefits from regional integration;facilitating technology transfer and fostering R&D;supporting attracting FDI;facilitating infrastructure financing;and building capacity among the Government units and the private sector.A holistic approach and wide-ranging policy recommendations are requi

54、red,including the need for key actors to participate in the policy making processes,to consider mainstreaming productive capacities development as a necessary enabler for boosting overall national capacity to ensure inclusive and sustainable development and to resiliently respond to and recover from

55、 shocks.Thus,macroeconomic and sectoral policies should prioritise structural economic transformation,diversification,and competitiveness as tools for ensuring sustainability.This should be supported by designing a sustainable financing framework to ensure that the means necessary to progress toward

56、s long-term sustainable development are consistent with the countrys aspirations,as well as the objectives of the 2030 Agenda for Sustainable Development and the African Unions ixProductive Capacities Development:Challenges and Opportunities The Case of EthiopiaAgenda 2063.The country needs to put i

57、n place the necessary structures,institutions,policies,and resources to undertake mission-oriented,and purpose-built interventions to improve productive capacities for sustainable development.In the short and intermediate periods,Ethiopia needs to put in place mechanisms to resolve internal conflict

58、s,restore macroeconomic stability and create the foundations for the realisation of its development ambitions,which will be achieved by fostering economy-wide productive capacities and achieving structural economic transformation.The Holistic Productive Capacities Development Programme for Ethiopia

59、therefore consists of six interlinked pillar intervention areas:(I)Agriculture modernisation,manufacturing and value addition;(II)International trade and integration;(III)Infrastructure(including transport,energy,and water);(IV)Innovation and technology development;(V)Human development and private s

60、ector;(VI)Institution building and coordination.These are also divided into sub-pillars:(Ia)Modernisation of agriculture through building linkages and diversification;I(b):Industrialisation through manufacturing;(IIa)Export orientation through special zones and intensification of services trade;(IIb

61、)Foreign direct investment(FDI)and remittances;(IIc)Regional integration within the African Continental Free Trade Area(AfCFTA);(Va)Building human capital;(Vb)Facilitating private sector development.The HPCDP is also closely aligned with national development strategies,including,the National Import

62、Substitution Strategy for Selected Manufacturing Industry Sub-sectors in Ethiopia and Ten Years Development Plan:A Pathway to Prosperity,2021-2030.The countrys overall development strategy,which lays a vision of making Ethiopia an“African Beacon of Prosperity”,is expected to achieve the following ou

63、tcomes:(a)Improvement in income levels and wealth accumulation so that every citizen will be able to satisfy their basic needs and aspirations;(b)Improvement in access of basic economic and social services such as food,clean water,shelter,health,education,and other basic for every citizen regardless

64、 of their economic status;(c)Creating an enabling and just environment where citizens will be able to utilise their potentials and resources so that they lead quality life;(d)Improvement in social dignity,equality,and freedom where citizens can freely participate in every social,economic,and politic

65、al affairs of their country regardless of their social background.Everyonephoto Studio-Shutterstock1Productive Capacities Development:Challenges and Opportunities The Case of Ethiopia1.Introduction 1https:/unctad.org/system/files/official-document/ldc2006_en.pdf;https:/unctad.org/topic/least-develop

66、ed-countries/productive-capacities-index The concept of productive capacities was developed by the United Nations Conference on Trade and Development(UNCTAD)in 2006 and is broadly defined as the productive resources,entrepreneurial capabilities and production linkagesthat together determine a countr

67、ys ability to produce goods and services that will help it grow and develop.Productive resources refer to natural and human resources,as well as financial and physical capital.Entrepreneurial capabilities encompass both core and technological competencies.Production linkages include information exch

68、ange,resource flows and backward and forward linkages along the entire value chain.These interrelated elements,taken together,comprise a countrys productive capacities,which enable inclusive economic growth and development.1To operationalise the concept of productive capacities in the context of dev

69、elopment policies,UNCTAD developed the Productive Capacities Index(PCI),which relies on eight categories to measure different elements of productive capacities natural capital,human capital,transport,energy,ICT,institutions,private sector and structural change.The PCI is a composite index measuring

70、productive capacities based on 42 indicators and eight components:Natural Capital,Human Capital,Transport,Energy,ICT,Private Sector,Institutions and Structural Change.The index ranges between 0 and 100,with higher numbers indicating a higher level of development of productive capacities.The PCI anal

71、ysis,together with an assessment of the micro and macroeconomic fundamentals of a country forms the basis of the National Productive Capacities Gap Assessment(NPCGA)the Part I of this report.The NPCGA of Ethiopia closely examines the countrys socioeconomic challenges,opportunities,and prospects.It i

72、dentifies key binding constraints to socioeconomic development.It recommends a series of policy actions at the domestic level,together with international support measures(ISMs)aimed at fostering productive capacities and achieving structural economic transformation.The ultimate objective of the NPCG

73、A is to support Ethiopias policy makers and other national stakeholders in identifying developmental gaps and,subsequently,devising holistic policies to advance sustainable development.These are captured in the Holistic Productive Capacities Development Programme(HPCDP),which constitue Part II of th

74、is report.Indeed,assessing productive capacities through a robust framework helps to understand the sources of a countrys systemic vulnerabilities and to identify the enablers of economic growth,including progress towards national and global development goals(UNCTAD,2020a).The publication starts wit

75、h the examination of the micro-and macro-economic fundamentals of Ethiopias economy.Using the Productive Capacities Index,it then progresses to the examination of the gaps in productive capacities and the identification of key binding constraints to Everyonephoto Studio-Shutterstock2Productive Capac

76、ities Development:Challenges and Opportunities The Case of Ethiopiastructural economic transformation and development.Subsequently,policies to be implemented by national stakeholders and international partners are listed to address these constraints and challenges.To operationalise the necessary act

77、ions,pillar interventions are identified and examined.This is followed by a stakeholder analysis and capacity assessment,sections on financing,modalities and implementation,and on sustainability,risks and performance monitoring.1.1.Why do productive capacities matter for Ethiopias development?Ethiop

78、ia is a Sub-Saharan African LDC and a LLDC with a population estimated at 129.7 million(as of 2024)(UNCTADstat,2024a),65 percent of which are below the age of 30(CSA,2014).The country has experienced commendable economic performance during the last two decades.The country has also shown improved out

79、comes in education,health and poverty outcomes.Despite this progress,however,it has experienced fundamental and concurrent challenges,including a lack of structural economic transformation of its economy,heavy reliance on rain-fed subsistence agriculture,climate-induced drought,an underdeveloped man

80、ufacturing industry,low technology uptake,low productivity within and across sectors,high unemployment,a rising share of the informal sector,weak linkages within and across sectors,an increasing share of the low-skilled and low-technology services sector,and limited entrepreneurial capability,as wel

81、l as weak institutions and violent conflict.These challenges have constrained sustainable development and job creation,an issue particularly relevant in the context of a rapidly growing young population.On the other hand,there are opportunities that can help the country to achieve robust growth and

82、structural economic transformation,including natural resources(e.g.irrigable land,water resources,forests,minerals,biodiversity,wildlife resources,etc.),a young,dynamic population,potential for the development of agro-processing industries,substantial renewable energy resources,untapped commercial a

83、griculture potential,and high domestic demand,among others.Viewing them in a holistic manner,the fundamental and overlapping challenges facing the country stem from the underdevelopment of its domestic productive capacities.Resilient and sustainable growth in Ethiopia is unlikely to transpire withou

84、t the development of its productive capacities that can facilitate structural economic transformation in favour of higher productivity sectors such as manufacturing.The development of productive capacities through targeted investments and smart policy interventions is critical for the country to ach

85、ieve its economic and social objectives,because the former would lay solid foundations by fostering structural economic transformation,diversification,inclusiveness,and productive employment generation.Thus,it is crucial that development of productive capacities be placed at the centre of holistic e

86、conomy-wide policy design and institution building.Productive capacities are particularly needed for achieving inclusive and sustainable growth,which will facilitate accelerated poverty reduction and expand employment opportunities.They are necessary for breaking the countrys dependence on external

87、financing and breaking the low-income trap.They also address existing economic vulnerabilities and contribute to improving resilience towards external shocks and growth fluctuations.1.2.An overview of Ethiopias economy and development Ethiopias economy has shown tremendous growth in the past two dec

88、ades,especially when one considers the countrys rapid population growth,when real GDP per capita increased by 5.4 annually between 2000 and 2022(UNCTADstat,2024b).Resilient&sustainable growth in Ethiopia is unlikely to transpire without the development of productive capacities&fostering structural e

89、conomic transformation3Productive Capacities Development:Challenges and Opportunities The Case of EthiopiaHowever,a substantial part of this gain was registered during the period of growth acceleration that began in 2003/4(Figure1).National statistics show that economic growth accelerated during the

90、 first and second Growth and Transformation Plans(GTP I,2010/11-2014/15 and GTP II,2015/16-2019/20),with real GDP increasing on average by 9.2 percent per year(MoPD,2022a).Per capita income also increased from about USD 406 in 2010/11 to USD 1,212 in 2021/22(MoPD,2022a).Growth has mainly been driven

91、 by the rapid expansion of services,particularly in recent years,though the sector remains largely informal,low-skill and low technology intensive.Nevertheless,its value added overtook that of agriculture in 2014/15.Industry has also been increasing its share in national output,although much of indu

92、strial activities originated from the construction subsector and to a certain extent mining,rather than from manufacturing.Figure 1.1Ethiopias GDP and GDP per capita growth(Percent)201520162017201820192020202120222023-101357911GDP Growth(%)GDP per Capita Growth(%)Source:UNCTADstat(2024b).The role of

93、 external trade in the economy has been in decline,diminishing from 34.9 percent of GDP in 2015/16 to 24.3 percent in 2020/21,with a significant reduction in the import to GDP ratio from 27.1 percent in 2015/16 to 16.5 percent in 2020/21(NBE,2021).At the same time,the export to GDP ratio remained di

94、smal.Export performance has historically been low,both in value terms,as well as a share of GDP.The value of merchandise exports remained around USD 3 billion between 2010/11 and 2018/19 and finally fell to as low as USD 2.67 billion in 2018/19(NBE,2021).This is despite the various export support po

95、licy measures and incentive schemes provided during the GTP I and GTP II.In addition,export performance has been weak,not only in terms of value but also in terms of its quality,diversification,and competitiveness.After 2018/19,export value picked up,with a relatively fast growth in 2020/21 and 2021

96、/22,reaching USD 4.12 billion(NBE,2021).Manufacturing exports represented a relatively low percentage of total merchandise exports.This reflects the small share of manufacturing value added in GDP,at 5.3 percent in 2020(MoPD,2021.The countrys share in the global market for manufactured goods has als

97、o been minimal,indicating both a low manufacturing 4Productive Capacities Development:Challenges and Opportunities The Case of Ethiopiaproduction base and poor competitiveness.On the one hand,Ethiopia ranked 141st(out of 154 countries)in competitive industrial performance in 2020(UNIDO,2022).On the

98、other hand,the share of resource-based and low-technology manufactured exports accounted for more than 70 percent of total merchandise exports,indicating a weak link between industry and trade.Although there have been some encouraging results in the total value of merchandise exports,diversifying ex

99、ports has,indeed,remained arduous and the main export commodities continue to be dominated by agricultural products,especially coffee,cut flowers,khat,and gold.The share of manufactured goods in total merchandise exports increased from 9 percent in 2010/11 to 17 percent in 2018/19,while the share of

100、 agriculture increased from 71 percent to 79 percent during the same period.The share of manufacturing then fell to 10 percent in 2020/21,before slightly reviving to 12 percent a year later(NBE,2021).Foreign Direct Investment(FDI)inflows recorded substantial annual growth since 2013,ranging from USD

101、 1.34 billion in 2013 to 4.26 billion in 2021,as compared to the period 2000-2012,when flows ranged from USD 109 million in 2008 to USD 672 million in 2011(UNCTADstat,2024c).National statistics,which are provided according to their respective budget years,show that FDI increased from less than USD 1

102、.07 billion in 2010/11 to USD 4.12 billion in 2016/17,the largest rise ever.FDI then declined for three consecutive years,reaching USD 2.42 billion in 2019/20.In 2020/21,FDI inflows increased again to USD 3.91 billion,partly due to the operational license given to Safaricom for private telecommunica

103、tions services(NBE,2021).FDI inflows stood at USD 3.67 billion in 2022 and 3.26 billion in 2023 (UNCTADstat,2024c).The ratio of gross fixed capital formation or investment to GDP has been continously declining in recent years.It reached a low of 28 percent in 2020/21,from a high of 38.4 percent in 2

104、016/17.Gross domestic savings have also shown a declining trend,falling to 19 percent in 2020/21 from 24.1 percent in 2017/18(MoPD,2021).On the contrary,consumption expenditure has been rising,with private consumption leading the way during the same period.Given the socioeconomic and political chall

105、enges of recent years including political instabilities and high inflationary pressures leading to rising uncertainty it is not surprising to observe a declining share of investment and savings in the economy.This also indicates that the recent high GDP growth was mainly driven by growth in aggregat

106、e demand,rather than aggregate supply(or production).The employment to population ratio declined during the past decade from 76.6 percent in 2013 to 59.5 percent in 2021.The decline was from 82.7 percent to 69 percent for male and from 69.8 percent to 50.2 percent for female.This indicates that the

107、economy has been struggling to create adequate jobs for the expanding population,especially for the youth.Labour force participation rate also decined from 80.7 percent in 2005 to 79.8 percent in 2013,and fell further to 64.7 percent in 2021.Both male and female workers experienced a fall in labour

108、force participation(from 85 percent in 2013 to 72.6 percent in 2021 for male,and from 74.6 percent to 56.8 percent for female)(ESS,2021;CSA,2014).Since 2018/19,Ethiopias inflation rate has been driven by the price changes in the food component of the consumption expenditure basket.This is related to

109、 signifcant demand-supply gap as a key driver of inflation.Food production has not been able to sufficently keep pace with the growing demand in recent years.The average general inflation rate reached 26.63 percent at the end of 2023/2024.Similarly,the food and non-food inflation rates reached 28.1

110、percent and 24.37 percent,respectively(ESS,2024).Over the recent years,the countrys total public debt increased from USD 48.3 billion in 2017/18 to USD 57.4 billion in 2021/22,growing by 4.4 percent per year.External debt accounted for 48.7 percent of the total debt as of June 2022(MoF,2024).However

111、,the share of total public debt to 5Productive Capacities Development:Challenges and Opportunities The Case of EthiopiaGDP declined from 60 percent in 2017/18 to about 50 percent in 2021/22.2 Although both domestic and external debt as share of GDP declined,the sharp decline in the former contribute

112、d mostly to a fall in the ratio of total debt to GDP.External debt as a share of GDP fell from 31.6 percent in 2017/18 to 24.5 percent in 2021/22 and domestic debt declined from 28.8 percent in 2010/11 to 25.6 percent in 2021/22(MoF,2024).The decline in the debt to GDP ratio has mainly been driven b

113、y the reduced growth rate of actual debt levels due to Governments decision to stop taking external commerial loans since 2018,although its impact on the overall total public loan volume was partly compansated for by increased domestic loans.Thus,the growth in debt stock was lower than the growth ra

114、te of GDP that ultimately led to a reduction in the overall debt to GDP ratio.Ethiopia managed to reduce its national headcount poverty rate from 29.6 percent in 2010/11 to 23.5 percent by 2015/16(PDC,2018).3 The decline was deeper in urban areas as the headcount poverty rate declined from 25.7 perc

115、ent to 14.8 percent.In rural areas,the headcount poverty rate declined only modestly from 30.4 percent in 2010/11 to 25.6 percent in 2015/16.Nevertheless,the national Gini coefficient,which depicts income inequalities rose from 0.30 in 2010/11 to 0.33 in 2015/16(PDC,2018).Inequality has generally be

116、en higher in urban areas than in rural areas.Consumption inequality increased in both urban(from 0.37 to 0.38)and rural(from 0.27 to 0.28)areas(PDC,2018).About 50.2 percent of the rural population falls into the lowest two wealth quintiles,while 61.7 percent of urban households are in the top wealth

117、 quintile,indicating that the wealthiest households are concentrated in urban areas.The Gini coefficient for wealth is 2The Debt to GDP ratio data for 2021/22 was taken from the Ministry of Finances August 2022 Debt Bulletin.Thus,it does not represent the status of the debt to GDP ratio of the entir

118、e fiscal year.3The Ethiopian Statistics Services(former Central Statistical Agency)in collaboration with the World Bank conducts Household Consumption Expenditure Surveys and Welfare Monitoring Surveys every five years.However,the latest data is not yet available.higher for urban households(0.26)tha

119、n for rural households(0.22)(CSA and ICF,2016).Ethiopias economic performance has been characterised by severe macroeconomic imbalances,despite wide-ranging reforms.The countrys key macroeconomic challenges include rising fiscal deficits,a pressing debt burden,dwindling levels of foreign exchange,un

120、employment,and inflation,among others.The origins of these challenges can be traced to long years of unsustainable financing modalities,mismanagement and inefficiency in State-owned enterprises,and the stagnation of economy-wide productivity levels.These challenges continue to hinder structural econ

121、omic transformation.Companies point to the shortage of foreign exchange as a constraint to their ability to import critical inputs,which leads to reduced capacity utilisation,low output and ultimately decreasing pace of economic growth and transformation(MCC,2020).High demand for foreign currency to

122、 import strategic commodities(such as fuel,fertilizer,inputs,medicine,food and other capital goods)and rising prices of imported goods in the domestic and international markets widened the gap between the currencys market value and its official exchange rate.The parallel market rate for US dollars w

123、as accelerating and exceeded the official rate by more than 100 percent in September 2022,pointing to a severe foreign exchange gap.This situation,combined with the new reform agenda agreed with the World Bank and International Monetary Fund(IMF),prompted Ethiopias Government to introduce free float

124、ing exchange rate regime on 24 July 2024,effective immediately.Although the shift from a managed float to a free-float regime made the Ethiopian currency to depreciate by more than 100%,it managed to temporarily narrow the gap between the official and parallel High demand for foreign currency to imp

125、ort strategic or essential goods widened the gap between the currencys market value and its official exchange rate.6Productive Capacities Development:Challenges and Opportunities The Case of Ethiopiamarkets for foreign currency.It is still too early to assess the full impact of the policy change.How

126、ever,there are already some serious concerns about the implications of this bold decision by the Government.According to available information,prices of household consumer items and critically important supplies such as medicine and petroleum have immediately begun to soar triggering fear of hyperin

127、flation.Key factors for the countrys persistent foreign exchange shortage include the countrys weak export performance(in terms of quantity,diversification,and quality),poorly managed administration procedures,and burdensome regulations.Low export performance and accumulated external debt,along with

128、 increasing import spending also led to falling foreign exchange reserves.This exacerbated the balance of payment problems and limited the countrys capacity to access foreign financing,not only for new projects but also for completing ongoing ones.A constraint analysis by the Millennium Challenge Co

129、rporation(2020)identified foreign exchange as one of the key binding constraints to Ethiopias economic transformation.Moreover,Ethiopias fiscal deficit rose to an even higher level because of the countrys dwindling rate of revenue mobilisation and rising financing needs,both of which were made worse

130、 by COVID-19,the internal violent conflict,and falling overall business activity.A declining share of domestic revenue,especially the low tax revenue to GDP ratio also made it hard to adequately cover both capital,as well as recurrent expenditure needs,leading to a high level of monetisation of the

131、deficit which fuels inflation.The tax to GDP ratio has been low,averaging 10.4 percent between 2015/16 and 2020/21.As a result,the share of the national budget funded by domestic taxes also declined to 65 percent in 2020/21,compared to 68 percent in 2015/16(MoPD,2022b).Low revenue narrows the fiscal

132、 space and reduces the Governments flexibility to deal with domestic and external shocks.Large and growing level of informality,a low tax base,weak capacity and high levels of corruption in the tax administration system are among the key features of the countrys fiscal status.Thus,fiscal constraints

133、 remain a challenge for Ethiopia to realise its prospects for structural economic transformation.Ethiopia faces a plethora of adverse weather events and other climate changeinduced challenges,such as drought that have been causing widespread damage to agricultural output,as well as significantly aff

134、ecting lives and livelihoods.Drought and related disasters,including El Nio(2015-2016),have been a recurring feature,historically affecting parts of highland areas(1972-1974 and 1984-1985)and lowland pastoral areas(2002-2003).Considering Ethiopias agriculture heavily relies on a rain fed system,whic

135、h is highly vulnerable to rainfall variability,these have had particularly substantial impacts.Recent drought conditions led to crop failure and the death of livestock,as the eastern and southern pastoral areas have experienced an unprecedented lack of rainfall in consecutive rainy seasons,a climati

136、c anomaly not seen in at least 40 years(FEWS NET et al.,2022).In 2020/21,Ethiopia also experienced a severe locust invasion,which damaged agricultural production.In lowland areas,flooding and landslides have also displaced people and caused destruction to livelihoods.These challenges have recently b

137、ecome more intense,widespread,and frequent,which caused significant output losses and worsening food security.The extreme weather events and other climate change induced challenges are also threatening the loss of biodiversity and disrupting the ecological balance as they lead to the loss of vegetat

138、ion cover,change in the natural ecosystem,and threaten human existence.Human actions are also putting pressure on the land,causing degradation and the loss of fertile soil.Thus,climate change and environmental challenges are among the key binding constraints for Ethiopias development aspirations.Der

139、eje/Shutterstock.Finally,Ethiopia has been going through successive periods of violent domestic conflict fuelled by ethnic tensions and other forms of polarisation,as well as deficiencies in governance quality and democratic institutions that are instrumental in addressing them.Such challenges have

140、been seriously affecting peace,stability,and sustainable economic development.They have continued to be among the key factors undermining the countrys performance and progress towards achieving its various development goals.Dereje/Shutterstock.2022 Magnifical Productions/Shutterstock9Productive Capa

141、cities Development:Challenges and Opportunities The Case of Ethiopia2.Part I:National Productive Capacities Gap Assessment4For the purpose of this analysis Eastern Africa comprises of:Burundi,Comoros,Djibouti,Eritrea,Ethiopia,Kenya,Madagascar,Malawi,Mauritius,Mozambique,Rwanda,Seychelles,Somalia,Sou

142、th Sudan,Tanzania,Uganda,Zambia,Zimbabwe(see:UNCTAD Data Centre at:https:/unctadstat.unctad.org/datacentre/).Ethiopias policy makers are becoming increasingly conscious of the centrality of productive capacities for advancing inclusive and sustainable development,accelerating structural transformati

143、on and intensifying economic diversification.The country has made progress in the development of its overall productive capacities as measured by the Productive Capacities Index(PCI)over the past two decades.Ethiopias PCI score doubled from 14.9 in 2000 to 30.5 in 2022.However,the country continues

144、to have low levels of productive capacities compared with the lower-middle income and low-income countries from the region(e.g.Kenya(37.8),Rwanda(37.1)and Tanzania(31.9).Ethiopia has managed to catch up with the median score for Eastern Africa4(30.4)and in 2012 overtook Ugandas and has steadily wide

145、ned the gap since then(Ugandas score in 2022 was 21.4).Ethiopias PCI score is slightly lower than the median for LDCs(30.9),and higher than the median for Africas LDCs(27.6),as well as substantially lower than the median for LLDCs(37.2).The country ranked 169th out of 194 economies and territories i

146、n the overall PCI in 2022.Figure 2.1Ethiopias Productive Capacities Index(PCI)in a comparative perspective200020022004200620082010201220142016201820202022141924293439Eastern AfricaEthiopiaKenyaRwandaTanzania,United Republic ofUgandaSource:UNCTADstat(2024d).Ethiopia ranked 169th out of 194 economies

147、and territories in the overall PCI in 2022 2022 Magnifical Productions/Shutterstock10Productive Capacities Development:Challenges and Opportunities The Case of Ethiopia2.1.Natural CapitalThe Natural Capital component of the Productive Capacities Index measures the availability of extractive and agri

148、cultural resources,including rents generated from the extraction of the natural resource,less the cost of extracting the resource.To capture commodity dependence,natural capital decreases as the material intensity increases.Ethiopias natural capital includes both renewable and non-renewable assets.I

149、ncluded under the former are forests(timber and ecosystem services),mangroves,fisheries,agricultural land(cropland and pastureland),and protected areas,while non-renewable natural capital includes fossil fuels(oil,natural gas,and coal)and metals and minerals.Ethiopia has extraordinary potential for

150、expanding exploitation and the development of the mining sector.The main mineral types include metallics(e.g.gold,platinum,iron,nickel,chromite and base metals),fertilizer raw materials(potash and phosphate),gemstones(sapphires,emeralds,fiery opals),energy minerals(lithium,graphite and tantalum,oil

151、shale and coal),cement raw materials(limestone,gypsum,clay,pumice),ceramics raw minerals(kaolin,feldspar),glass raw minerals(silica sand),dimension stones(marble,granite,limestone,sandstone,diatomite,bentonite,soda ash,salt,graphite and sulphur),and natural gases and hydro-carbons.5 Therefore,the Go

152、vernment has prioritised the development of industrial minerals,construction minerals,gold,potash and gemstones to increase the contribution of the mining sector to the economy.The number of investors licensed for mineral exploration and production increased in recent years.At the same time,however,

153、between 2015/16 and 2020/21,the share of GDP of renewable natural capital such as forestry was small and further declined from 3.4 percent to 2.8 percent,while the 5 See http:/www.mom.gov.et/index.php/investing-in-ethiopia/natural-resources/share of fishing and mining and quarrying remained marginal

154、 at 0.1 percent and 0.3 percent,respectively(MoPD,2021).Moreover,the contribution of natural capital has not been fully captured in the national accounts as the estimation method does not use the integrated environmental-economic accounting(EEA)framework.At 46.4,Ethiopias Natural Capital component o

155、f the PCI is above that of Kenya(44.1)and Tanzania(43.5)though between 2003-2022 its value decreased substantially from 76.1,ending up below that of Uganda(54.5),Rwanda(51.4)and the median for Eastern Africa(51.3).So did the countrys natural capital value per capita from US$2,182 in 2015 to US$1,793

156、 in 2018,which is now among the lowest in Central and East Africa(World Bank,2022b).The share of natural capital in total wealth remained low at 16.7 percent(as of 2018)(World Bank,2022b).Some of the elements of natural capital declined in value terms,including some protected areas,pastureland and f

157、orest timber.Multiple reinforcing factors are responsible for the decline such as policies,population pressure,deforestation,land fragmentation,and land-use practices,including,free grazing and tree removal from farmland,drought and floods.In the 1990s,the Government of Ethiopia(GoE)embarked on a ru

158、ral land certification programme that aimed at increasing tenure security and certifying long-term use rights for rural households.Despite land certification in rural areas,land tenure insecurity and a lack of common property rights remain a challenge.Therefore,the decline in the countrys score in n

159、atural capital category is not the result of structural economic transformation.Rather,it is the consequence of natural and manmade disasters,which degrade available capital,undermining the potential and prospects for structural economic transformation and fostering productive capacities.11Productiv

160、e Capacities Development:Challenges and Opportunities The Case of EthiopiaFigure 2.2Natural Capital(PCI)2000200220042006200820102012201420162018202020224045505560657075Eastern AfricaEthiopiaKenyaRwandaTanzania,United Republic ofUgandaSource:UNCTADstat(2024d).Ethiopia has made the sustainable managem

161、ent of its natural resources a priority as articulated in the 1995 Constitution(Article 92).Policies and strategies such as the Environmental Policy,the Climate Resilient Green Economy(CRGE)strategy,National Adaptation Plan(NAP),strategy of reducing emissions from deforestation and forest degradatio

162、n(REDD+),and the Biodiversity Conservation and Research Strategy to protect plant species are aimed at preservation of natural capital.Indeed,the country has made a conscious effort in restoring and rehabilitating its natural capital.The Government,together with development partners,has designed and

163、 implemented flagship and multi-sectoral programmes to support sustainable production and consumption,including Sustainable Land Management Programme(SLMP),Agricultural Growth Programme(AGP)and Productive SafetyNet Programme(PSNP).Environmental and climate change issues have featured prominently at

164、the highest leadership level around the Green Legacy Programme(GLP)aimed at forest-landscape transformation for sustainable development.The share of protected area increased from 11 percent of total land area in 2015/16 to 17 percent in 2020/21.Around 2.8 million ha of land was rehabilitated through

165、 investment in natural resources conservation and close to 2.6 million ha of land was re-forested.The share of forest area under sustainable forest management stood at 2 million ha in 2020/21(MoPD,2022b).However,institutional,financial,technical and human resources to implement policies and strategi

166、es aimed at restoring and rehabilitating the countrys natural capital continue to be insufficient.Key Binding ConstraintsUnsustainable land-use practices:Free grazing and tree removal from farmland,ploughing on steep land,and continuous tillage accelerate land degradation.The availability of arable

167、land is already a critical problem and will become more acute as the population continues to grow.Deforestation:Despite efforts to address the issue,Ethiopia experiences deforestation and forest degradation due to a number of factors,including unsustainable land use practices and poor law enforcemen

168、t.Specifically,major causes of deforestation and forest degradation are related to population pressure,including farmland 12Productive Capacities Development:Challenges and Opportunities The Case of Ethiopiaexpansion,overexploitation,urbanisation,and human habitat expansion(Zegeye,2017).In addition,

169、the countrys dependence on biomass for energy(from fuel wood and charcoal)6 and increased demand for construction materials also lead to deforestation.Only a fraction(5 percent)of the population uses improved technologies for cooking and access to electricity and biogas is also limited(World Bank,20

170、20).Urbanisation:The proportion of urban population has recently grown by 5.5 percent per year(CSA,2014).This rapid urbanisation rate puts pressure on urban infrastructure,leading to proliferation of slums and informal settlements.There is lack of spatial urban planning in the country and regions.In

171、 urban areas,30 percent of residential holdings are informal(MoPD,2022b),and their residents often lack durable houses,adequate living space,and access to safe water and sanitation,making them more vulnerable to natural disasters.About two-third of the urban population lives in slums and the coverag

172、e of solid waste collection and disposal systems has remained low.Uncoordinated land policy and administration:Land policy and land administration are not properly coordinated,as there exist different legal and institutional frameworks for urban and rural lands,in addition to poor coordination acros

173、s local and federal institutions(World Bank,2022b).Weak property rights registration and enforcement mechanisms,as well as gaps in land tenure and common property rights exacerbate the challenges related to land utilisation.In sum,the country does not have a land use policy to properly guide and man

174、age its natural resources,including land.Climate change:Ethiopia is vulnerable to climate change as the country is heavily dependent on rain-fed agriculture which is highly vulnerable to the adverse effects of climate change.National rainfall has been subject to high variability between years,6Natur

175、al forests are the major source(over 90 percent)of wood-based bioenergy.seasons and regions.This has increased the intensity of drought,which severely impacts the economy,especially the agricultural sector.Assuming the current trend in the average rainfall continues and in the absence of major adapt

176、ation interventions,Ethiopia could start losing more than 6 percent of agricultural output per year(World Bank,2022b).In addition,the increased incidence of climate induced floods and landslides not only damage crops and exacerbate soil erosion,but also contribute to loss of arable land.For example,

177、it is estimated that the country could experience the loss of agricultural land area suitable for cultivation of major crops such as maize(18 percent),teff(11 percent),and barley(37 percent)(EPCC,2015).Animal feed shortage and water scarcity could also affect the livestock sector.2.2.Human CapitalTh

178、e Human Capital component of the Productive Capacities Index captures the education,skills and health conditions possessed by a countrys population,and the overall research and development integration in the texture of the society through the number of researchers and expenditure on research activit

179、ies.The gender dimension is reflected by the fertility rate,which at each increase reduces the human capital score.Considering that more than 65 percent of Ethiopias population is below the age of 30(CSA,2014),representing a substantial human resource boon for the coming decades,paying particular at

180、tention to nurturing human capital will determine Ethiopias potential to develop its productive capacities to a significant degree.An ever-large percentage of ready-for-work youth and working age adults can be a key source of growth if properly and timely utilised.However,the dividend from the demog

181、raphic 13Productive Capacities Development:Challenges and Opportunities The Case of Ethiopiatransition will be missed,if not immediately harnessed for sustainable development.Ethiopia has made some progress in terms of human capital development in the past decades through investment in higher educat

182、ion institutions,TVETs,and specialised skills development institutes.The Human Capital component of the PCI increased from 5.7 in 2000 to 27.2 in 2022.It nevertheless continues to be lower compared to Rwanda(37.3),Kenya(35.2),and marginally lower than that of Tanzania(27.8)and the median for Eastern

183、 Africa(28).Figure 2.3Human Capital(PCI)2000200220042006200820102012201420162018202020225101520253035Eastern AfricaEthiopiaKenyaRwandaTanzania,United Republic ofUgandaSource:UNCTADstat(2024d).Ethiopias life expectancy at birth improved from 62 years in 2010/11 to 69 years in 2022(World Bank,2024).Im

184、provements in the provision of essential health services,gains in reproductive,maternal,new-born and child health,as well as progress in the fight against infectious diseases helped to extend life expectancy and improve the overall human capital performance.Ethiopia has made progress in reducing the

185、 mortality rates of children,especially those under-five years of age,from 67 deaths per 1,000 in 2015/16 to 59 in 2019/20,while the maternal mortality rate marginally declined to 401 per 100,000 in 2019/20(MoPD,2022b).The policy aimed at providing a comprehensive package of health services and impr

186、oving equity and quality health services has been implemented through successive National Health Sector Development Plans(HSDPs I-IV)since 1997.The Ethiopian National Healthcare Quality Strategy(NHQS)aims to align key stakeholders across prioritised interventions that help drive large-scale improvem

187、ent in quality-of-care delivery.The Ethiopian health sector has a strong community health programme through the health extension program(HEP)which delivers cost effective basic services and community-based health insurance(CBHI).Between 2020/21 and 2021/22,community-based health insurance(CBHI)benef

188、iciary households increased by 9.2 percent and reached 9.5 million(MoPD,2022b).The education sector accounted for only 2.2 percent of GDP in 2020/21(MoPD,2021).According to the 2021 Labour Force and Migration Survey,about 54.9 percent of the total population ever attended some form of education,most

189、 only at the primary level.In 2020/21,gross enrolment rate 14Productive Capacities Development:Challenges and Opportunities The Case of Ethiopia(GER)reached 95 percent and 42.1 percent in the primary and secondary education,respectively.While the net enrolment rate(NER)in primary education was 86.4

190、percent in 2020/21,the figure for secondary education was 29.5 percent(ESS,2021).Moreover,the dropout rate increased for primary education.Low GER and NER in secondary schools is due to low capacity,the limited proliferation of secondary schools,low transition rates from Grade 8 to Grade 9,as well a

191、s general socio-economic and cultural barriers,among others(MoE,2021).Compared with primary schools,an inadequate number of accessible secondary schools have remained a major problem,especially in rural communities.Figure 2.4Highest education grade completedTotalUrbanRuralAbove SecondarySecondary Ed

192、ucationPrimary EducationPreschoolInformal020406080Source:ESS(2021).In 2018,the Ministry of Education(MoE)adopted a new education roadmap(2018-2030)which introduced new structures into the education system.Under the new roadmap,primary education system now consists of Grades 1-6,middle level includes

193、 Grades 7-8,whereas high school consists of Grades 9-12.In addition,education management has been decentralised with shared duties and responsibilities between federal,regional,and district governments.At the federal level,the MoE is responsible for policy and leadership,with regional and district g

194、overnments implementing policies and initiatives.Despite the changes in the education system,the overall business sector continues to face significant challenges in obtaining the skilled labour needed for production activities due to a weak alignment between human resource development and the knowle

195、dge and skills needs of industries.The quality of 15Productive Capacities Development:Challenges and Opportunities The Case of Ethiopiaeducation,both at tertiary level and TVET is low,and the learning achievement of most graduates is inadequate.For instance,the main challenges for TVET graduates to

196、transition to the labour market are attributed to a mismatch in skills development and a scarcity of(formal)jobs.Both tertiary and TVET graduates lack technical and soft skills,including limited ICT,communication,presentation,and time management skills(GIZ,2019).According to the World Banks Skill Mo

197、dule survey for Ethiopia,about half of the firms report difficulty in finding workers with the required technical skills(Beyene and Tekleselassie,2018).Likewise,about 27 percent of firms report difficulty in finding workers with adequate computer literacy,while 43 percent indicate difficulty of find

198、ing workers with essential ethics and commitment attributes(Figure 2.5).The skillsets available in the job market in Ethiopia are too generic to cater to its needs and it has become increasingly difficult to find specialised experts(e.g.,for agro-processing industry).These factors have impacted firm

199、 performance(Figure 2.6).Firms report three types of skill gaps:technical skills related to work,work ethics and literacy(ability to read with understanding and write at a level relevant to a job).Addressing the skills gap is crucial to improving competitiveness,export performance,job creation and i

200、ncome(MoLSA,2019).This requires aligning education and training policies with the needs of the labour market through,for example,fostering effective linkages between industry and universities and research institutes.Ethiopia has developed an Industry-University Linkage strategy and directives but th

201、ere are limited incentives and accountability mechanisms to operationalise the strategy.There is also lack of clarity in skills and knowledge transfer procedures in the manufacturing industry.Figure 2.5Degree of difficulty in finding employees with specific skill attributes20406080100120Technical Sk

202、illsComputer SkillsEthics and CommitmentSource:Based on Beyene and Tekleselassie(2018).The quality of education,both at tertiary level and TVET is low,and the learning achievements of most graduates is inadequate16Productive Capacities Development:Challenges and Opportunities The Case of EthiopiaFig

203、ure 2.6Skills gaps as obstacles to firms performance(percent)1st biggest obstacle2nd biggest obstacle3rd biggest obstacleTechnical skill related to the work performedWork ethics(e.g.attitude towards the job)Literacy(ability to read with understanding,and write at a basic level)Motivation,initiative,

204、proactivityAbility to work in teamComputer skills(e.g.Can use computerfor making presentations)Time management skillsLeadership skillsAbility and willingness to learn new thingsWorking independently(i.e.self-management)Business and entrepreneurial skillsCommunication and presentation skills(both ora

205、l and written)Analytical and problem solving skills010203040Source:MoLSA(2019).Human capital is inevitably affected by gender inequalities.In the Global Gender Gap Report,Ethiopia performs poorly in economic participation and opportunities and educational attainment 112th and 133rdplace out of 145 c

206、ountries,respectively,in 2022(WEF,2022).Despite improvements in the global gender gap score,the country is far from achieving gender parity as its Sustainable Development Goals Gender Index is among the lowest in the world.There have long been some social norms and traditional practices that limit w

207、omens participation in certain economic activities,hindering women from benefiting fairly in education,health,property ownership,access to resources including finance,economic and political decision making and household resource allocation.Women have lower access to essential productive inputs and s

208、ervices,including lower chances to enrol in secondary education.Few women farmers have access to agricultural extension services,very limited access to credit is prevalent,and limited land ownership remains an issue(MoPD,2022b).The low empowerment prevents women from fulfilling their potential and e

209、ffectively contributing to the economy.Other barriers for inclusion include a division of labour that holds women responsible for unpaid family care and domestic work,which constraints their involvement in paid employment.In 2020/21,about 45.3 percent women were engaged in unpaid activities,compared

210、 with 30 percent of men.A third of female workers were in paid employment compared with 64.1 percent of male workers in 2020/21.In terms of the fertility rate,the country experienced a decline from 5.5 children per woman in 2000 to 4.6 per woman in 2016(CSA and ICF,2016).This trend is expected to co

211、ntinue.In the Global Gender Gap Report,Ethiopia performs poorly in economic participation and opportunities and educational attainment 112th and 133rdplace out of 145 countries,respectively,in 2022 17Productive Capacities Development:Challenges and Opportunities The Case of EthiopiaFigure 2.7Labour

212、force participation rate(percent)10203040506070809074.6%85.0%79.8%56.8%72.6%64.7%MaleFemaleTotalSource:ESS(2021).7The term“qualified school leaders”refers to those with relevant training in school leadership as per Ethiopias national standards.Exclusions based on other background characteristics suc

213、h as language,ethnic groups and social classes are also key constraints to improvements in human capital and fostering structural economic transformation in Ethiopia.People with disabilities have also experienced exclusion.Indeed,a lack of inclusivity across society is a key structural constraint fo

214、r Ethiopias aspirations to achieve sustainable development.Key Binding ConstraintsDespite progress in terms of access to education through enhanced investment in the sector,there are a number of binding constraints to human capital development.Inadequate educational facilities:Educational facilities

215、 and materials are inadequate at all levels.Specific challenges include inadequate teaching materials,laboratories and lab chemicals and libraries,lack of clean and separate sanitation facilities for girls and boys,poor physical conditions,and unsafe school environments(including gender-based violen

216、ce),and the poor provision and utilisation of ICT facilities in almost all primary schools.In 2020/21,only 30 percent of primary schools had access to electricity(MoPD,2022b).Access to basic education facilities has also remained low in primary schools,as many of these schools are in rural areas whe

217、re basic facilities are limited.Poor quality of education:Increased school participation has not been accompanied by quality learning outcomes.Graduates lack the necessary competencies and skills to join the labour market.Ethiopias tertiary education is rated at 37 points(out of 100)compared to emer

218、ging and developing economies(55 points)in terms of meeting the needs of employability(WEF,2020).In addition,the poor quality of teachers(poor subject matter knowledge and know-how),and high staff turnover contribute to the low quality of education and training.Only 30.2 percent and 13.1 percent of

219、teachers in pre-primary(KG)and primary schools,respectively,are appropriately qualified(MoE,2021).Qualified school leaders7 are 54.2 percent in primary and 64.9 percent in secondary schools.There are inadequate standards in education institutions at all levels(MoE,2021).18Productive Capacities Devel

220、opment:Challenges and Opportunities The Case of EthiopiaInadequate financing:The education system faces funding constraints and depends heavily on development partners for funding.Other challenges include:a lack of transparency in the allocation of budgets,a lack of accountable systems in the utilis

221、ation of the budget and limited participation of communities in financing schools.These major challenges are particularly acute in primary education.Mismatch between education and labour market needs:Despite substantive investment in education and training in the last couple of decades,there is a mi

222、smatch between the skills acquired and those demanded by the labour market,as reflected by the rising share of educated unemployment.Gender bias:Ethiopia has improved its Global Gender Gap Score,but the country remains at the bottom of the Sustainable Development Goals Gender Index(MoPD,2022b).Econo

223、mic and social factors,as well as traditional norms hold back progress towards gender equality and womens empowerment.Specifically,women have limited access to essential productive inputs and services,including lower chances to enrol in secondary education,limited agricultural extension services,a l

224、ack of access to credit,and limited land ownership.Conflict and other shocks:The magnitude of children out of school has increased substantially due to the interplay of domestic and exogenous factors such as the prolonged violent conflict,the COVID-19 pandemic,drought outbreaks and other factors.Con

225、flict and instability have caused a large displacement of children out of school.82.3.Transport The Transport component of the Productive Capacities Index measures the capability of a transport system to take people and goods from one place to another.It 8The conflict in the north of the country alo

226、ne forced 1.95 million students out of school due to internal displacement and destruction of schools and facilities(EVNR,2022).is defined as the capillarity of roads and railway networks,and air connectivity.Ethiopia recorded a steady increase in the value of the Transport component of the PCI from

227、 20.2(in 2000)to 27.6(2019).This period enabled the country to overtake Rwanda(20.2 in 2019 as compared to 29.7 in 2000)and to achieve a higher score than the median for Eastern Africa(21 in 2019).Despite a subsequent regress recorded by many countries in the region in 2022 Ethiopia recorded a score

228、 of 25.4 it managed to achieve score higher than the Eastern African median(23 in 2022),being slightly ahead of Rwanda(25.3)and slightly behind Kenya(25.9).At the same it increased the distance to Tanzania(17.5 in 2022)and Uganda.For the latter the value of the Transport component of the PCI plummet

229、ed from 17.7 in 2014 to 1.3 in 2022.Nevertheless,despite significant investment in the expansion of roads,railways,energy,irrigation and various infrastructure activities,there has been significant deficiency in and inefficiency of physical infrastructure in Ethiopia.Integrating and coordinating the

230、 planning,development,and service provisions of infrastructures at sectoral level continues to be an issue.The limited spatial equity in the distribution of infrastructure and enabling services also remains one of the key challenges to sustainable development.At the same time,the transport sector wa

231、s identified as a game changer to expedite the countrys socioeconomic development.The Government established a National Transport Council to provide strategic guidance and lead the reform programme in the sector.The Council endorsed various policies and strategies including the national transport po

232、licy(2020),a national logistics strategy(2020-2030),and the transport sectors 10-year development plan(TYDP)(2021-2030).The transport policy covers road infrastructure,railways,maritime,air and other transport systems.19Productive Capacities Development:Challenges and Opportunities The Case of Ethio

233、piaIn particular,the road transport is given due emphasis,focusing on passenger,freight,urban,rural,and non-motorised modes of transportation.In addition,the policy envisages the participation of the private sector in infrastructure development.The logistics sector is one of the areas that is open t

234、o foreign companies through joint ventures(Regulation No 474/2020).The National Adaptation Plan(NAP)emphasises sustainable transport systems through reviewing the design and safety standards(FDRE,2017).The TYDP of the transport sector serves as a guiding framework for shaping the sector in the perio

235、d 2021-2030.The strategic directions of the long-term plan include improving transport infrastructure,the safety of transport services and the implementation capacity of the sector at different levels.It is important to note that the transport sector offers various opportunities to enhance decarboni

236、sation efforts,through 9The CRGE Strategy estimated that by 2030 the transport sector could have an abatement potential of up to 13.2 MtCO2e through leapfrogging to new technologies(FDRE,2011).10Freight and passenger transport are the primary drivers of a projected 36 MtCO2e emissions growth in the

237、transportation sector from 2010 to 2030 under a business-as-usual scenario.11In July 2020,the Marathon Motors Ethiopia commenced assembling electric cars,an important step in line with Ethiopias effort towards greening and climate resilient goals.electric railways powered by renewable energy,light r

238、ail transit,bus rapid transit(BRT),discouraging the importation of second-hand vehicles and a shift to lower-emitting fuels.To support the countrys carbon-neutral development path,the CRGE(Climate Resilient Green Economy)strategy aims to keep greenhouse gas emissions low and build a climate resilien

239、t sector.9 One of the pillars is adopting energy efficient technologies in the transport sector.10 The CRGE strategy encourages fuel efficiency standards and promotes the uptake of hybrid and electric vehicles.11 It advocates for constructing a renewable energy powered electric rail network,improvin

240、g public transportation in the capital,Addis Ababa,and increasing the use of biofuels.Ethiopia also adopted a Climate Resilient Transport Sector strategy to deliver an integrated,modern transport system with a strong focus on multimodal transportation links and a customer service(MoT,2014).In the re

241、vised excise tax proclamation of the Figure 2.8Transport(PCI)Source:UNCTADstat(2024d).20002002200420062008201020122014201620182020202205101520253035Eastern AfricaEthiopiaKenyaRwandaTanzania,United Republic ofUganda20Productive Capacities Development:Challenges and Opportunities The Case of EthiopiaM

242、inistry of Finance,new cars are favoured through lower excise tax compared with used cars,to encourage environmentally friendly cars with low emissions.The transport sector is dominated by the public sector as far as road infrastructure development,the railways,maritime,and logistics,as well as avia

243、tion are concerned.Road transportation is the main mode of movement and intercity public transport is mainly facilitated by buses,followed by railways and air.The fully-electrified Addis AbabaDjibouti railway,which became operational in early 2018,not only connects the country with Djibouti Port but

244、 also links other cities on the way,as well as industrial parks and dry ports.It facilitates the bulk transport of goods and passengers.The Addis Ababa Light Rail Transit(LRT),with its northsouth and eastwest lines,connects inner city business and transport hubs with rapidly developing commercial ce

245、ntres and new housing developments at the urban periphery(Fikade,2018).The LRT is also fully electrified and powered by renewable energy sources.In 2020/21,the transport sector accounted for about 5.6 percent of GDP(MoPD,2021).Road infrastructure development has been one of Governments priority sect

246、ors.Between 2015/16 and 2020/21,the Government allocated on average 11.8 percent of the total budget to road building and modernisation.The length of the all-weather-road network grew by 6.5 percent per year during 2015/16-2020/21 to reach 145,213 km in 2020/21,whereas the share of the rural populat

247、ion located within five kilometres of an all-weather road increased to 74.5 percent,from the 2015/16 level of 64.2 percent(MoPD,2022b).As a result of the COVID-19 pandemic,however,the volume of passengers transported by vehicles decreased from 722 million in 2019/20 to 570 million in 2020/21 and tho

248、se who travelled by air decreased from 7.6 million to 4.5 million(MoPD,2022b).Key Binding ConstraintsDespite the efforts directed at building a green and resilient transport system and expanding and modernising transport infrastructure,a large part of the country remains being served by road transpo

249、rt,which depends on fossil fuel.The transport sector faces several challenges which can be categorised into the following major areas:Limited private sector participation:The participation of the private actor in the transport sector is limited to public and freight transport services,freight forwar

250、ding and chartered flight services with small passenger aircrafts.The limited role of the private sector is due to restricted government policy and lack of incentives.Financial constraints:The transport sector faces financial constraints,especially in green transport investments such as bus rapid tr

251、ansit and railways.These transport projects require substantial initial investments which the country has little capacity to finance from domestic sources.Simmptomatic is the case of the WeldiyaMekelle railway,the northern extension of the Ethiopia-Djibouti rail project,which has experienced signifi

252、cant delays due to the funding package issues from the Export-Import Bank of China.A major concern contributing to these delays is the economic sustainability and feasibility of the project(Reuters,2018).Congestion and high vehicular pollution:Ethiopias automotive market is dominated by second-hand

253、imported vehicles,both for commercial and private uses.About 85 percent of vehicles are second-hand imports.Most of them are older than 15 years and beyond their useful service life,which results in high fossil fuel consumption and pollution(AAIT,2012).If current trends continue,greenhouse gas emiss

254、ions in Ethiopia will rise from 150 MtCO2e per year in 2010 to 400 MtCO2e in 2030(FDRE,2011).Non-motorised vehicles which would reduce congestion and pollution,especially in cities and towns,are often not considered a viable option.21Productive Capacities Development:Challenges and Opportunities The

255、 Case of EthiopiaLimited domestic capacity:Inadequate local capacity manifests in different dimensions such as a lack of human resources in railway engineering(or technology),a lack of local capacity in PPP transport projects,inadequate local skills in preparing green procurement specifications,and

256、inadequate capacity in managing transport projects such as railways development.Lack of fuel efficiency standards:Despite clear recommendations in the area,there are no legally binding vehicular emission standards(AAIT,2012)and insufficient effort is made to introduce and enforce them.At the same ti

257、me,with growing vehicle numbers(by about 10 percent a year),the consumption of fossil fuel increases.Inadequate incentives for clean transport technologies:There are limited incentives to attract green investment.There is also limited awareness of policy instruments related to green investment in th

258、e transport sector,such as green vehicles,hybrid vehicles,plug-in electric vehicles,fuel cell vehicles,alternative fuel vehicles and other modes of transport(AAIT,2012).In addition,low retention rates for environmental reinstatement,i.e.low withholding of funds for building back the environment and

259、natural resources damaged by road construction,hinder environmentally friendly investment.Inadequate transport infrastructure:Road density per 1,000 people was estimated at 1.27 km in 2018/19(FDRE,2021).It takes on average 1.4 hours for a driver to access all-weather roads.Worse is the absence of ma

260、ss transport(e.g.,BRT and railways)and non-motorised transport(NMT)facilities,as Ethiopian cities have been largely car-centred(MoT,2020).Key problems with NMT include a lack of a complete pedestrian infrastructure,the absence of cycling facilities,poorly managed on-street parking,and poor road desi

261、gn.12In the national accounts data,electricity and water are treated together.The two sectors accounted for about 0.80 percent of GDP in 2020/21.Lack of environmental and social elements in bidding and procurement guidelines:There is limited awareness of the need for the inclusion of environmental a

262、nd social issues in evaluating bidding documents for transport projects.In addition,bidding and procurement evaluation guidelines often lack explicit criteria on environment and social dimensions.2.4.EnergyThe Energy component of the Productive Capacities Index measures the availability,sustainabili

263、ty,and efficiency of power sources.It is sustained through evaluating the status of use and access to energy,losses in distribution and the renewability of energy components and sources.It also includes the GDP generated by each unit of energy to highlight further the importance of optimal energy sy

264、stems.Ethiopia is endowed with vast renewable energy potential in hydro,solar,wind,and geothermal power and has been investing significantly in energy infrastructure over the past two decades using publicly financed and publicly executed approaches.The countrys installed renewable energy capacity re

265、ached 4465.1 MW in 2020/21(MoPD,2022b).It is one of the few countries in the world which generates almost all its electricity from renewable resources,with hydropower accounting for more than 90 percent of total modern energy production.In 2021,the electricity sector accounted,however,for less than

266、one percent of GDP(MoPD,2022b).12Nevertheless,Ethiopias score in the Energy component of the PCI(21.7 in 2022)has remained lower than the median for Eastern Africa(24.3),Kenya(30.6),as well as Rwanda(25.4),which overtook Ethiopia in this respect only in 2019.Ethiopia managed to almost catch up with

267、Tanzania(22.1)having recorded lower values since 2009.There are limited incentives and lack of awareness of policy instruments related to green investment in the transport sector,such as green vehicles,hybrids,etc22Productive Capacities Development:Challenges and Opportunities The Case of EthiopiaFi

268、gure 2.9Energy(PCI)200020022004200620082010201220142016201820202022051015202530Eastern AfricaEthiopiaKenyaRwandaTanzania,United Republic ofUgandaSource:Based on UNCTADstat(2024d).13 See:https:/www.un.org/tr/desa/universal-access-sustainable-energy-will-remain-elusive-without-addressing-inequalities1

269、4The 1085/2018 Energy Proclamation replaces Proclamation No.810/2013.Despite increasing energy generation capacity,Ethiopia still has the second largest energy access deficit in Sub-Saharan Africa,and the third in the world.13 At the end of 2019,only 44 percent of Ethiopians had access to electricit

270、y,with 33 percent from on-grid and 11 percent from off-grid facilities(MoWIE,2020).Per capita electricity consumption also remains low at less than 100 KWH per year.Households consumed 97 percent of total renewable energy in 2019,with industrys consumption remaining low at 1.4 percent.With continued

271、 efforts to prioritise industrialisation and a renewed focus on electrification,electricity demand is growing by more than 12 percent per year which requires a dramatic energy supply growth(MoPD,2022b).Ethiopia is making a conscious effort in diversifying energy sources through solar auctions,includ

272、ing through the Scaling-Up Renewable Energy Programme for Ethiopia(SREP),and the National Biogas Programme(NBP).The second phase of the National Electrification Plan(NEP 2.0)initially aimed at universal electrification by 2025 through a mix of on and off-grid energy solutions.In 2018,Ethiopia revise

273、d its energy policy to develop and utilise the countrys energy resources,in line with its overall development strategy.The Government also amended the energy proclamation(Proclamation No.1085/2018)14 to support the implementation of the policy and to allow private sector participation in the energy

274、sector.Ethiopia is trying to attract private investors to participate in power generation facilities through independent power producers(IPP)modality to relieve public financing in the sector and to increase the generation mix from other renewables,other than hydropower.The country now allows for th

275、e duty-free import of solar technologies to encourage private sector investment and a wider use of solar energy(MoPD,2022b).It also enacted a proclamation(Proclamation No.1076/2018)to regulate the Public-Private Partnership(PPP)between the Government and the private sector.Despite increasing energy

276、generation capacity,Ethiopia still has the second largest energy access deficit in Sub-Saharan Africa,and the third in the world23Productive Capacities Development:Challenges and Opportunities The Case of EthiopiaTable 2.1Energy policies,strategies and programmesDescription1.National Electrification

277、 Programme 20192.Biofuel Policy,20193.National Energy Policy 20184.Energy Proclamation(1085/2018)5.Scaling-Up Renewable Energy Programme:Ethiopia Investment Plan,20126.Climate Resilience and Green Economy,20117.National Biogas Programme(NBP),20078.Biofuels Development Strategy,2007Source:Ferede(2020

278、).Table 2.2 Stakeholders in the energy sectorStakeholder GroupDescription RolesGovernment Ethiopian Electric Power(EEA)Involved in the production and transmission of energy;EEP operates and maintains all high-voltage transmission lines across the country.Ministry of Water and Energy Responsible for

279、designing policies,strategies and laws;undertaking implementation,follow up and supervision of energy investments;supporting and leading the generation of electricity from water,wind and other alternative renewable energy sources.Ethiopian Electricity Utility(EEU)Petroleum and Energy Authority Regul

280、ates the energy sector Issues standards and ensure their compliance.Other government actors Undertakes civil construction Manufactures and supplies parts and equipment Provides consulting and advisory services Private sector Energy investors and producers Involved in the generation of energy,especia

281、lly renewable energy sources.Other private actors Undertakes civil construction Manufactures and supplies parts and equipment Provides consulting and advisory services on environmental issues Financial sector Multilateral Development Banks Support power investment through availing finance Internatio

282、nal financial institutions provide project preparation grants,as well as s investments.International Finance Corporation,the World Bank African Development Bank National Banks Commercial Bank of Ethiopia(government)Development Bank of Ethiopia(government)Other development partners Bilateral developm

283、ent partners(e.g.,Government of Denmark)Support diversification of renewable energy sources such as wind,geothermal,etc.Source:Ferede(2020).24Productive Capacities Development:Challenges and Opportunities The Case of EthiopiaKey Binding ConstraintsEthiopias energy sector faces critical challenges in

284、 meeting steadily increasing energy demands.More importantly,the use of energy(electricity)in productive sectors and for productive transformation remains one of the lowest,also by the standards of Sub-Saharan Africa.Using the World Banks Enterprise Surveys of 2011 and 2015,Abdisa(2018)established t

285、hat frequent power outages have adversely affected businesses and increased the cost of production and service delivery by about 15 percent.The World Bank study also shows that about 22 percent of business managers consider electricity as the most serious obstacle to doing business(World Bank,2015).

286、The following are the key binding constraints to the sectors development:Limited electrification and limited access to modern energy sources:Ethiopia has low electricity coverage at 44 percent(as of 2019/20).Rural populationsdepend on the unsustainable use of traditional biomass for energy due to a

287、lack of access to modern and affordable energy sources.15 Inhabitants of rural areas with sufficient biomass stock are not incentivised to divert for economic reasons.Limited energy source diversification:Ethiopia depends mainly on hydropower for energy,which is subject to significant variability du

288、e to changes in water flows caused by seasons and unpredictability in rainfall patterns and drought.Weak transmission and distribution capacity:The country incurs significant costs in the form of power loss due to poor quality and ageing distribution networks.Energy loss accounts for more than 21 pe

289、rcent of the power generated,which occurs from the point of generation,all the way through distribution networks,until it reaches the end users.1615About 60 million tons of biomass is consumed for fuel and 82 percent of households depend on firewood(Sieff,Troncoso,and Tesfamichael,2022).16Ethiopian

290、Business Review(2017).Ethiopia loses more than 21%of the electricity,see:https:/ financing for investment in clean energy:Ethiopias overall revenue generation performance has remained low,and the pace of tax revenue growth has been only moderately elastic with respect to GDP(Benien et al.,2014).Exte

291、rnal support is likely to remain low due to spending cuts by development partners in the face of global shocks and other factors.Inadequate finance for initial investment in renewable energy sources,the com plexity of procedures,and delays in releasing funds have remained a challenge in implement in

292、g renewable energy strat egies(ECA,2015).Inadequate budget allocation to sustainable water and environmental investments has also remained a challenge.In 2022/23,the budget allocated to the water sector was only 4.2 percent of the total budget(MoF,2024).Inadequate domestic knowledge and skills in re

293、newable energy:A lack of local human resource capacity limits green policies to achieve short-and long-term green growth transformation goals.There are inadequate human resource capacities in the development and application of renewable energy technologies,especially in solar,wind,geothermal,and bio

294、mass.Unstable institutional arrangements and inadequate standards:One of the major bottlenecks in the Ethiopian energy sector is a lack of stable institutional arrangements.Frequent changes in the institutional structure undermines the performance and hinders investment.Moreover,sub-standard energy

295、products of often unclear origin dominate the market.The absence of quality standards for energy products and energy technologies and/or low regulatory capacity inhibit wider adoption of energy technologies in the country.Limited supply of locally produced clean energy equipment and technology:There

296、 is limited domestic capacity to 25Productive Capacities Development:Challenges and Opportunities The Case of Ethiopiaproduce and manufacture equipment and technology related to renewable energy sources that fit local conditions,especially in solar,wind,geothermal,and biomass.Weak incentive mechanis

297、ms:There is a lack of strong and clear incentives for promoting renewable energy investments,especially by the private sector.2.5.Information and Communication TechnologiesAccess to information and communication technologies(ICT)and use of digital solutions are key enablers of economic and social tr

298、ansformation through enhancing efficiency across sectors,delivering better services and addressing asymmetries in information.The ICT component of the Productive Capacities Index estimates the accessibility and integration of communication systems within the population.It includes fixed line and mob

299、ile phones users,internet accessibility and server security.Ethiopias digital economy is at an early stage of development,with few private sector players offering digital services and some government institution-driven digitalisation initiatives.Ethiopias ICT sector has shown rapid expansion,neverth

300、eless,which is reflected in the rapid growth of the value of the ICT component of the PCI from 1.1.in 2000 to 4.2 in 2011 and then to 21.1 in 2022.This enabled the country to narrow the gap to Uganda(22 in 2022)and the median for Eastern Africa(21.8 in 2022).The distance to Kenya(35.9),Tanzania(29.9

301、)and Rwanda(28.1),nevertheless increased and remains substantial.Figure 2.10Information and Communication Technologies(PCI)200020022004200620082010201220142016201820202022141924293439Eastern AfricaEthiopiaKenyaRwandaTanzania,United Republic ofUgandaSource:UNCTADstat(2024d).The Governments digital tr

302、ansformation strategy Digital Ethiopia 2025 aims to address the digital divide,leverage digital opportunities,and promote digital financial services for advancing the socioeconomic transformation of the country(FDRE,2020a).Digital Ethiopia 2025 serves as an overarching strategy that helps achieve gr

303、eater digital and economic inclusion through better coordination and through making ICT infrastructure adequate,accessible,and affordable.The country has also taken steps to liberalise the telecom sector to improve efficiency and 26Productive Capacities Development:Challenges and Opportunities The C

304、ase of Ethiopiaaccelerate digital transformation.The Ethiopian ICT policy and strategy give priority to technology transfer,mainly through acquisition of technologies from abroad.The Government also offers incentives for investments in ICT,including business income tax exemptions(Regulation No.474/2

305、020).The realisation of the ICT policy and strategy needs to be supported by a robust energy policy as the latter is crucial for the implementation and adoption of ICT.ICT,on the other hand,also supports the development of energy sector through introducing energy efficient devices.ICT-enabled soluti

306、ons(e.g.,smart grids,smart buildings,smart logistics and industrial processes)(Hu,et al.,2022).The National ICT Policy and Strategy was developed in 2017(FDRE,2017)to promote the ICT sector and enhance its role in economic,social,and political transformation.Its key foundational dimensions are ICT i

307、nfrastructure development,human resources development,the legal system and security,and internet governance(FDRE,2017).The three broad pillars are ICT for governance(e.g.government,education and health,agriculture development),the ICT sector(research and development,computer and related services and

308、 industry development)and cross-cutting issues(e.g.,entrepreneurship and innovation and youth and women).The ICT Policy and Strategy considers ICT as an enabler of the different sectors and an economic sector of its own.It focuses broadly on core and emerging issues that are crucial for the ICT ecos

309、ystem,such as infrastructure,services,applications,universal access,cyber security,social media,and users.It gives priority to technology transfer,mainly referring to the acquisition of technologies from abroad.The Government also offers incentives for investments in the ICT 17See:The Reporter(2022)

310、.Beating the odds,digital finance thrives in Ethiopia,https:/ Monitor(2022).Ethio Telecom Signs Deals with Five VISP firms,https:/ business income tax exemptions(Regulation No.474/2020).The 2017 ICT Policy and Strategy and Digital Ethiopia 2025 also support the establishment of innovation centres th

311、rough research and development programmes.In 2018,the Ministry of Innovation and Technology developed a start-up strategy,known as“2222 Strategy”,to establish 2,000 new technology-related enterprises in two years that have ultimately the capacity to create 20 million jobs and generate US$2 billion.T

312、he strategy also aims to establish incubation centres for new technology-based firms.In that vein,Ethiopia has also established an ICT Park to attract overseas investment,generate foreign earnings,stimulate growth of the domestic ICT industry and create employment and career opportunities for citize

313、ns.The Park is viewed as Ethiopias Silicon Valley and is spread over 200 hectares of land in Addis Ababa.Moreover,cognizant of the dynamics of digital payment systems,the Government adopted the revised national payment system that accommodates local and foreign brands.17Key Binding ConstraintsLimite

314、d ICT infrastructure:ICT integration into the broader economic system has been severely restricted by limited ICT infrastructure.Making markets for digital financial services work requires adequate investments.In 2020/21,around half of the population 52.7%subscribed to Ethio Telecoms mobile service.

315、According to Ethio Telecom(2022),Ethiopias telecommunication penetration rate(telecom density)reached 63.3%in 2021/22 fiscal year.New Internet Service Providers(ISPs)18 have been emerging recently,but they are reliant on Ethio Telecoms infrastructure and are limited to service locations dictated by

316、the provider.Ethiopias ICT integration into the broader economic system has been severely restricted by limited ICT infrastructure27Productive Capacities Development:Challenges and Opportunities The Case of EthiopiaLack of broadband and secure internet connectivity:Fixed broadband subscriptions per

317、100 inhabitants were 1.5 in 2020/21 and the proportion of individuals using the Internet was low at 25 percent(Alemu,et al.,2021).Mobile and broadband penetration has been low compared to other developing countries due to poor network coverage.In addition,limited network coverage and low affordabili

318、ty(due to high costs)and low quality have been impeding the development of the ICT industry.Low technical literacy:The 2021 Labour Force and Migration Survey revealed that the proportion of“technically illiterate”people aged 10 years and above is 50.8 percent,with a significant rural-urban divide.90

319、.3 percent of the population aged 10 years and above are computer illiterate(i.e.,unable to use computers).A third of the urban population is computer literate compared to the rural population of only 3.9 percent.Similarly,a significant proportion(83.8 percent)of the population is unable to use inte

320、rnet(ESS,2021).Overall,digital literacy and digital skills have remained one of the key barriers for adopting and using digital technologies.Power supply irregularity:As indicated earlier,only 44 percent of the population has access to electricity,with 33 and 11 percent having access through grid an

321、d off-grid supplies,respectively(MoWIE,2020).There is an important divide between rural and urban areas,as only 27 percent of the rural population has access to electricity compared to more than 95 percent of residents in urban areas.Electricity consumers experience recurring power interruptions,lea

322、ding to high coping costs and stifled investment.Insufficient financing:Inadequate finance to support the ICT sector has remained a barrier.In 2022/23,the share of the 19The GII consists of seven pillars.These are:knowledge and technology outputs,institutions,infrastructure,business sophistication,h

323、uman capital and research,creative outputs,and market sophistication.Ministry of Innovation and Technology in the total Federal Government budget was only 0.13 percent(MoF,2024).Moreover,the ICT sector is not a priority for the banking industry in providing loans.Low capacity for harnessing the powe

324、r of innovation:Ethiopia ranked 126th among the 132 economies featured in the 2021 Global Innovation Index(GII)(WIPO,2021).The country has performed poorly in many of the dimensions of the GII.19 This has been mainly due to an inadequate number of researchers(at 90.5 per million of the population),l

325、ow budget allocations to research and development,weak cooperation and the absence of R&D resource sharing among R&D institutions,limited local technical capabilities for equipment maintenance,and malfunctioning scientific equipment which have undermined capacity utilisation and effectiveness in R&D

326、 institutions.2.6.InstitutionsIn the context of productive capacities,the Institutions component of the Productive Capacities Index is captured by indicators such as political stability,regulatory quality,rule of law,government effectiveness,control of corruption and voice and accountability.Ethiopi

327、a faces weak institutional architecture and a lack of independent institutions that are capable of the accomplishment of its functions(Admassie,2006).Ethiopias PCI score in the component remained below Kenyas(43.4 in 2022)Tanzanias(43.9.),Ugandas(41.1),and Rwandas(57.1).The latter upon surpassing Et

328、hiopias level in 2003 recorded stellar improvements(between 2000 and 2022 by 31.1 points).The median for Eastern Africa has remained higher than Ethiopias score throughout the period,with the exception of 2019,when they were on par at 37.9.28Productive Capacities Development:Challenges and Opportuni

329、ties The Case of EthiopiaFigure 2.11Institutions(PCI)20002002200420062008201020122014201620182020202225303540455055Eastern AfricaEthiopiaKenyaRwandaTanzania,United Republic ofUgandaSource:UNCTADstat(2024d).In 2021,Ethiopia ranked 139th out of 167 countries on the extent to which government powers ar

330、e subject to independent and non-governmental checks,indicating weak formal checks and balances(World Bank,2021).According to the World Banks government effectiveness indicator,Ethiopia has a low score(at 28 in 2019 and 31.3 in 2020 out of 100)in government effectiveness,positioning the country bare

331、ly above the Sub-Saharan Africa average(World Bank,2021).Ethiopias score of 16.8 in 2019 and 38 in 2020(out of 100)in the regulatory quality indicator,which captures“the ability of Government to formulate and implement sound policies and regulations that permit and promote private sector development

332、,thus laying down uniform rules of economic engagement”illustrates its considerably lower position than comparator countries.It is also below the average for Sub-Saharan Africa,indicating the poor regulatory capacity of Ethiopian institutions.Poor policy coordination,as reflected by a lack of clarit

333、y in mandates among government institutions is another contributing factor,reflected in the position that Ethiopia is ranked 119th in policy coordination out of 167 countries(World Bank,2020).Weak institutional capacity hinders the effective implementation and coordination of policies and the ability to address complex socioeconomic,political,environmental challenges.The development of capable ins