# **3. The Rural Nonfarm Enterprise Sector in Amhara: Evidence from RICS-Amhara**

After having presented an overview of the nonfarm enterprise sector in Ethiopia’s four major regions, we now turn to a more detailed investigation of the nonfarm enterprise sector in Amhara, a region for which we have very detailed information thanks to the extensive RICS-Amhara survey. In particular, these data will enable us to better understand the determinants of participation, and it will also be possible to analyze the determinants of investment, growth and productivity.

Recall from above that the rate of participation in the nonfarm enterprise sector is lower in Amhara than in the other regions, and particularly low in some of the zones of Amhara where the RICS was fielded. Table 11 shows that only 4% of the working population in Amhara is primarily engaged in nonfarm enterprise activities. In total, for about 277,000 individuals, or about 6.4% of the working population, the nonfarm enterprise sector is the primary or secondary occupation. Agriculture remains the primary occupation for 91% of the working population. These statistics clearly confirm the dominant role played by agriculture in rural Amhara and imply that the share of the rural population engaging in nonfarm employment, here defined as either wage employment or selfemployment in nonfarm enterprises, in Amhara is somewhat lower than the African average of 10.9% reported in Haggblade et al. (2007). The share of the population employed in the nonfarm enterprise sector is also low compared to the statistics reported in Liedholm’s survey of small firms in Africa and Latin America (2002, p.229). The numbers in the table furthermore confirm that nonfarm enterprise activity is often a part-time, secondary, activity.

Table 12 sheds some light on the profitability of nonfarm enterprises in Amhara. For reference, this table also shows daily wages for casual agricultural workers. It should be noted that the profit variable is very noisy and severely skewed. Consequently, the results presented here are best interpreted as being indicative. Rather than reporting the mean of profits, which will be heavily influenced by extreme outliers, we focus on the mean of log profits. For male headed enterprises, the mean of log profits per day is 1.77, which corresponds to 5.9 Birr in levels. For female headed enterprises, the mean of log profits per day is 0.78, which translates into 2.2 Birr per day, in levels. Average profits are lower than average wage rates in agriculture (9 Birr for men, 7.4 Birr for women).

# **3.1 Households and Nonfarm Enterprises**

The RICS-Amhara dataset covers 2,909 households; of these 625 households have at least one nonfarm enterprise. Table 13 shows basic summary statistics of household characteristics, distinguishing households that do, and don’t, own a nonfarm enterprise.<sup>7</sup> Consistent with the results based on RICS-AgSS considered above, households with an enterprise tend to be somewhat smaller compared to households without an enterprise. Heads of households with an enterprise tend to be younger and better educated than heads in non-enterprise households. Note however, that the

> 7 See the appendix for definitions of variables.

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