Development of the Agricultural Sector and Its Contribution to the Growth of the Ethiopian Economy

Abstract

The study analyzed the development of the agricultural sector and its contribution to the growth of the Ethiopian economy. This study used annual time series data covering the period from 2006/07 to 2020/21. Secondary data were acquired from National Bank of Ethiopia, Planning and Development Commission, Ministry of Finance, Central Statistical agency and the Ethiopian Customs Commission. Agricultural gross domestic product, capital investment, export values, government agricultural expenditure data were analyzed using descriptive statistics. Results revealed that Ethiopian budgetary support to agriculture is not meeting the target of 10% set by Comprehensive Africa Agriculture Development Program (CAADP) by investing only 3.2% of the national budgets per year which aimed at raising agricultural productivity by at least 6 percent per year. Beside this, in terms of investment capital, the share of the sector has decreased to 0.3% in 2020/21 compared to 13% in 2014/2015. Ethiopian agricultural gross domestic product (AGDP) increased by 1323 percent compared to 2006/07. However, the contribution of the sector to the gross domestic product (GDP) decreased from 45.7 percent in 2006/07 to 32.1 percent in 2020/2021. Despite the decreasing importance of agriculture in the country's GDP, Ethiopia has shown an annual growth of 205.2 percent from 2006/2007, with annual sales of approximately 3.6 million dollars. Agricultural products are still Ethiopia's main export industry, generating USD 2.5 million, accounting for 70 percent of total sales in 2020/21. Furthermore, In 2020/21, Ethiopia's economy recorded a growth of 6.3 percent, which is slightly higher than the previous year's 6.1 percent expansion. Agriculture, industry and services contributed 32.1 percent, 28.9 percent and 39 percent to the gross domestic product respectively in the 2020/21 fiscal year. In addition, between 2006/07 and 2020/21, the industry and manufacturing sector grew by 0.8 real GDP, but the agriculture and service sectors decreased by 2.6 and 0.8 real GDP respectively, resulting in a 5.8 real GDP decline in the overall Ethiopian economy. Generally, this result shows that the decrease in the contribution of the agricultural sector is not only that many natural and man-made problems do not need to be solved, but also that the government is giving less attention to the sector. Therefore, agriculture-led economic growth that is linked to improved livelihoods can become a long-lasting solution to Ethiopia's chronic poverty and to support future needs.