# **5. Conclusions**

_Over four years, I’ve seen Ethiopia gradually embrace structural transformation and its practical application. Leaders there are acutely aware that, if they are to maintain a robust growth rate, they must move away from agriculture, the dominant sector, toward industrial upgrading and technological innovation, often by imitating economies just a few rungs up the economic ladder. Ethiopia’s agriculture sector is important and should not be neglected, but that alone won’t get the country onto a path toward middle income and finally to high income status._ (Lin, 2012) This paper provided insights on recent output, employment and productivity trends in Ethiopia. For that purpose, it used data from two labor force surveys and two household income consumption and expenditure surveys. A number of key stylized facts were uncovered (Box 2). First, output growth has accelerated at an unprecedented pace since 2003. Its average annual growth rate of about 10 percent places Ethiopia as one of the fastest growing economies in the world. This fact is even more remarkable when considering that Ethiopia’s growth is not fueled by natural resources, such as oil or gas. Second, agriculture continues to be a very large production sector, although its weight in total output has been steadily declining – from 66 percent in 1991 to 45 percent in 2011. The service sector has expanded considerably (especially commerce and real estate activities), but the share of industry remains one of the lowest in Africa. Third, Ethiopia’s population is considerably young (about two-thirds are below the age of 25) and predominantly rural (over 80 percent of the population). Nonetheless, the dependency ratio has been declining, as the youth bulge becomes part of the working age population, while the proportion of people living in urban areas increased by 3 percentage points in the past 15 years.

## <u>Box 2: Key Stylized Facts</u>

1. Output growth strongly accelerated since 2003.

2. Agriculture still a very large economic sector, but a range of service activities are growing. 3. Very young and largely rural population, although the dependency ratio is declining and urbanization slowly increasing.

4. Participation and employment rates have recently declined (with employment growth slowing down), mainly due to an increase in student numbers.

5. Share of agricultural employment remains very high, despite a small decline in recent years.

6. Labor productivity has increased considerably (contributing to strong GVA growth), while employment elasticities have fallen.

7. Structural transformation has been relatively slow, but increasingly important.

8. Demographic changes are supporting economic growth (demographic dividend).

Fourth, the pace of employment growth has recently slowed down, which is partly due to a growing student population. In fact, this is behind the recent declines in the participation and employment rates. Fifth, the share of agricultural employment in total employment remains very high (at about four-fifths), even if it has declined by 2 percentage points in the past 6 years. Trade and other services jointly account for nearly 17 percent of total employment. Sixth, labor productivity growth has been strong, with output per worker doubling in the past decade. In fact, GVA growth has been mainly driven by labor productivity growth. Conversely, employment elasticities have fallen but remain positive – suggesting that productivity growth was accompanied by employment growth. Moreover, productivity gaps across economic sectors are very large. Seventh, while within-sector productivity growth accounts for much of the aggregate productivity performance, structural change (i.e. between-sector productivity growth) is playing an increasingly important role. Finally, there is also evidence that the economy is starting to benefit from a demographic dividend.

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