Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Abbreviations and Acronyms BOFED Bureau of Finance and Economic Development Br Ethiopian Birr CSA Central Statistical Agency of Ethiopia DHS Demographic and Health Survey ERCA Ethiopian Revenue and Customs Agency ETB Ethiopian Birr GDP Gross Domestic Product GNI Gross National Income GVA Gross Value Added HICES Household Income Consumption and Expenditure Survey IHDP Integrated Housing Development Program LAS Land Allocated to Streets LFS Labor Force Survey LMMIS Large and Medium Scale Manufacturing and Electrical Industries Survey MSME Micro, Small, and Medium Enterprise MoFED Ministry of Finance and Economic Development MUDHCo Ministry of Urban Development, Housing and Construction OSR Own Source Revenue O&M Operation and Maintenance SNNP Southern Nations, Nationalities and Peoples UBEUS Urban Bi-annual Employment Unemployment Survey ULG Urban Local Government ULGDP Urban Local Government Development Program UN United Nations US United States Contents Acknowledgments..................................................................................................................... ix Preface........................................................................................................................................ x Executive Summary ................................................................................................................. xii 1.1 Urbanization needs proactive management if it is to work for people and the economy ........................................................................................................................... xii 1.2 Three Big Gaps: Jobs, Infrastructure and Services, and Housing ........................... xiii 1.3 Urban Institutions for a Middle-Income Ethiopia: Land, Governance, and Finance ............................................................................................................................ xiv 1.4 The Path to Prosperity: Where to go from here? ...................................................... xvi 1. The Demographic Dividend: Cities and Economic Growth ................................................ 1 1.1 Introduction ................................................................................................................. 1 1.2 The Demographic Dividend ........................................................................................ 1 1.3 Exploiting the Demographic Dividend ....................................................................... 5 2. The Demographic Challenge: Jobs, Infrastructure and Services, and Housing ................. 16 2.1 Introduction ............................................................................................................... 16 2.2 The Employment Gap ............................................................................................... 16 2.3 The Infrastructure and Services Gap ......................................................................... 23 2.4 The Housing Challenge ............................................................................................. 27 3. Urban Institutions for a Middle-Income Ethiopia: Land, Governance, and Finance......... 38 3.1 Introduction ............................................................................................................... 38 3.2 Land Management ..................................................................................................... 39 3.2.1 Introduction ................................................................................................... 39 3.2.2 Land for people, businesses and public uses ................................................ 40 3.2.3 Urban Morphology........................................................................................ 43 3.2.4 Costs to Government..................................................................................... 57 3.2.5 Constraints on Rural–Urban Migration ........................................................ 59 3.3 Limited Capacity and Authority of Local Governments ........................................... 63 3.3.1 Introduction ................................................................................................... 63 3.3.2 Limited Local Authority and its Implications ............................................... 66 3.3.3 Limited Local Capacity and its Implications ................................................ 67 3.4 Inadequate Municipal Finances for Urban Development ......................................... 69 3.4.1 Introduction ................................................................................................... 69 3.4.2 Intergovernmental Fiscal Transfers .............................................................. 71 3.4.3 Municipal Revenues...................................................................................... 80 4. The Path Forward: Connecting All Ethiopians to Prosperity ............................................ 85 4.1 Introduction ............................................................................................................... 85 4.2 Land Management ..................................................................................................... 85 4.2.1 Short Term .................................................................................................... 91 iii 4.2.2 Medium Term ............................................................................................... 93 4.2.3 Long Term .................................................................................................... 97 4.3 Urban Management and Governance ........................................................................ 99 4.3.1 Institutional Structures .................................................................................. 99 4.3.2 Organizational Structures.............................................................................. 99 4.3.3 Capacity ...................................................................................................... 100 4.4 Municipal Finance ................................................................................................... 101 4.4.1 Short run: Enhancing municipal own-source revenues .............................. 102 4.4.2 Medium run: Revisiting the fiscal architecture and improving public budgeting and accounting system ......................................................................... 104 4.5 Targeted Interventions............................................................................................. 105 4.5.1 Jobs and Competitiveness ........................................................................... 105 4.5.2 Investing in Infrastructure ........................................................................... 111 4.5.3 Housing ....................................................................................................... 112 Annex 1: Surveys Used in the Report .................................................................................... 115 Annex 2: Methodology and Definitions ................................................................................ 117 Annex 3: Detailed Methodology for Alternative Urbanization Projections Produced as Part of This Study .................................................................................................................. 122 Annex 4: International Experiences on Land Readjustment .................................................. 133 Annex 5: Common Forms of Allocating Government Land and Property for Private Uses . 137 Annex 6: Notes on Data, and Links to Other Studies ............................................................ 141 Bibliography .......................................................................................................................... 143 iv List of Figures Figure 1: Ethiopia has one of the lowest urbanization levels for its level of income ................3 Figure 2: Ethiopia will see many young people entering the labor market over the next 20 years ...........................................................................................................................................4 Figure 3: Urbanization increases with economic growth, but the positive correlation slows as countries develop .........................................................................................................8 Figure 4. Economic growth and urbanization in Ethiopia, 1981-2013 ......................................9 Figure 5: Sectoral size and growth (1991-2011 and 2006-2011) ............................................11 Figure 6: Nightlights data showing GDP per capita change, 1994–2012 (left) and 2007– 12 (right) ..................................................................................................................................15 Figure 7: Towns and cities with higher rates of wage (formal) employment are less poor .....16 Figure 8: The primacy of Addis Ababa is declining in terms of employment ........................18 Figure 9: Informal employment is more widespread in cities other than Addis Ababa ..........18 Figure 10: Waged employment is mostly formal and grows with city size.............................19 Figure 11: Sustained increase in employment comes from existing firms ..............................21 Figure 12: Job creation and losses vary considerably across cities .........................................22 Figure