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Ethiopia has Made Major Strides in Poverty Reduction but Disparities, Inequality remain – World Bank

Poverty reduction in Ethiopia continued despite adverse climatic conditions, with the share of the population below the national poverty line decreasing from 30% in 2010/11 to 24% in 2015/16, according to a new World Bank Group poverty assessment.

Though the report, Ethiopia Poverty Assessment – Harnessing Continued Growth for Accelerated Poverty Reduction, was finalized before the current COVID-19 (coronavirus) crisis, its results can inform the design of interventions to cushion the impact of the pandemic on low-income households.

Sustained rapid economic growth in Ethiopia translated into strong poverty reduction in urban areas, with the poverty rate tumbling by 11 percentage points, from 26% in 2010/11 to 15% in 2015/16, the date of the most recent survey on poverty and living standards. In rural areas of Ethiopia, the reduction in poverty was relatively slow with the poverty rate decreasing by four percentage points from 30% in 2010/11 to 26 percent in 2015/16. Non-monetary dimensions of welfare, such as education, health, and access to water and sanitation, improved alongside the reduction in poverty, but generally remain at a low level.

Agricultural growth, improvements in access to markets, and the flagship rural Productive Safety Net Program (PSNP) were important drivers of rural poverty reduction over the period 2010/11-2015/16. The report finds that the contribution of the PSNP to poverty reduction could further be enhanced by better aligning needs with beneficiary numbers, improving geographical targeting, and harmonizing the different food security programs and interventions.

Strong poverty reduction in urban areas was tightly linked to positive labor market developments over the period, in particular increasing returns to self-employment. More than half of the urban poverty reduction took place in small and medium towns. These towns are however lagging on infrastructure and significant investments will be needed to prepare these towns for their projected rapid growth.

“While the poverty assessment paints a positive picture of Ethiopia’s poverty reduction record, it highlights two areas of concern,” said Carolyn Turk, World Bank Country Director for Ethiopia, Eritrea, Sudan and South Sudan. “First, the poorest 10% of the population have not experienced real consumption growth between 2005 and 2016, suggesting that economic growth has so far eluded the poorest. Second, access to important opportunities such as education and clean water is highly skewed, with children in rural areas being far less likely to complete primary school or progress to secondary education compared to similar children in urban areas. If left unaddressed, this inequality of opportunity can translate into higher economic inequality for the future generation, negatively affecting inclusive growth.”

While the report stresses that further agricultural growth will remain the principal vehicle of poverty reduction over the short-term, the contribution of urban areas to poverty reduction is increasing and is projected to continue to do so.

“Ethiopia’s urban population will more than double in the coming 15 years,” said Tom Bundervoet, World Bank Senior Economist and co-author of the report. “Much of this increase is projected to happen in small and medium towns, which have the potential to provide employment opportunities to the surrounding rural populations. Extending the benefits of growth to the poorest Ethiopians will be a key challenge going forward and will require concerted efforts to improve human capital accumulation of the rural poor.”

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