Combatting Urban Poverty, Unlocking the Potential of Cities

Ethiopia has been lauded for its Productive Safety Net Programme, which was established to help alleviate economic hardships faced by families in rural areas. A new programme, the Urban Safety Net Programme, has a similar goal: to mitigate the effects of poverty in urban areas. The underlying logic of the strategy is that poverty in urban areas needs to be eradicated in order to ensure that citizens contribute more to the local economy. The measure is part of a larger effort in Ethiopia to help cities achieve their full potential – a lesson that is key for a developing country looking to move from an agrarian to a manufacturing- and service- based economy. EBR’s Ashenafi Endale takes a closer look at the government’s efforts and offers this report.

Three years ago, Darule Ahmed, 29, went to Saudi Arabia to earn money to make an advanced payment for a replacement apartment the government promised her family when their house was demolished to make way for development projects. Nevertheless, when she returned to Ethiopia two years ago things were not as she thought they would be.
According to Darule, the advance payment required of those households that were to be relocated doubled. But even after she managed to pay the revised advanced payment, she didn’t receive the house as promised. “Because I used all my money for the condominium house, I have nothing at this moment,” Darule told EBR.
Along with her sick mother and brother, she now lives in one of the few old houses in her old neighbourhood built from wood and mud that remain undiminished. Currently, Darule works hard to support her family and hopes their circumstance will improve.
Yet, life is becoming increasingly challenging for her and the entire family because the majority of her neighbourhood was demolished, which in turn dispersed the business activities on which her family depends. “Our situation is even worse because we do not have access to basic public infrastructure, like electricity and safe drinking water,” she says.
Despite residing in urban areas like Addis Ababa, many people like Darule live in destitute conditions – far from water, electricity and sanitation, without formal jobs and quality housing. In fact, of the more than 15 million urban dwellers in Ethiopia, 4.7 million live in poverty, unable to earn the minimum USD1.25 a day, according to a survey conducted by the former Ministry of Urban Development and Construction two years ago.
Experts stress that residents of urban areas face various problems, including sub-standard infrastructure provisions, insufficient public facilities, and an acute shortage of housing. They argue this is because the government fails to implement concrete policies and strategies to address the problem of urban poverty.
“Tangible policy interventions should be introduced to balance the ever-widening income gap before things get out of hand,” argues Martha Kibru, lecturer of economics at Addis Ababa University. “The intervention needs to be designed to address the challenges faced by the vulnerable section of the urban population, like the elderly, the physically challenged and women.”
The government says that it now has a concrete policy to address and alleviate poverty in urban areas. The Urban Food Security Strategy, introduced by the Ministry of Urban Development and Housing (MoUDH) at the beginning of this fiscal year, is comprised of three policy interventions to mitigate the effects of urban poverty: direct cash transfer, job creation, and capacity building.
Of the 972 towns and cities found in the country, the new Urban Safety Net Programme will be launched in 11 of them, most of which are capital cities of the regional states, within the next three months, according to Abraham Petros, Programme and Policy Director at the MoUDH.
In order to run the programme in 11 cities for the next five years, a total of USD558 million is needed. Two-thirds of the funds are expected to come from the World Bank. “Currently we are in negotiations to decide the amount of contributions that will come from the Bank. The government will extend the programme into the remaining cities and towns after three years,” he explains.
The ultimate objective, as outlined in the strategy document, is to empower the urban poor population to become self-sufficient within three years. After that time, it is expected that programme participants will have saved enough money to graduate and no longer need assistance. However, the direct cash injection for vulnerable communities, like those who are unable to work, does not have a time limit.
To implement the programme, a new agency, which will be called the Urban Food Security and Job Opportunity Creation Agency, will be established under the MoUDH. According to Abraham, the establishment of the Agency was approved by the Parliament on May 8, 2015 and will be finalised as soon as certain formalities are completed.
Unlike experts, however, Abraham argues that now is the right time for the government to introduce the urban food security programme. “Urban poverty was not extreme before, mainly because there was strong tradition of helping each other and the fragmented works done by the government and NGOs,” argues Abraham. “However, if [the growth of poverty] continues like this, the nation cannot achieve middle-income country status by 2025.”
Experts state that it’s prescient to alleviate urban poverty as a means of promoting economic development. Not only will this help the impoverished become self-sufficient, it can also better improve the overall economic well-being of cities, as urban areas house nearly 20Pct of Ethiopia’s total population.
As Ethiopia pursues its industrialisation efforts, ignoring the unique needs of urban centres could have adverse implications. Even though Ethiopia’s urban population share is one of the lowest in the world, well below the sub-Saharan Africa average of 37Pct, according to the recently released urbanisation review by the World Bank, the figure is expected to change dramatically in the near future.
According to the Central Statistics Agency, the urban population is projected to increase to 42.3 million in 2037, nearly three times the current figure. This means the rate of urbanisation is expected to grow 5.4Pct annually, even faster that the national population growth rate, which stands at 3.8Pct.
With rapid urbanisation and population growth, studies conducted on the matter suggest that cities will be the sites of huge economic opportunities, especially for developing countries that are envisioning to shift the structure of economic activities from agrarian to industrial and services.
Ethiopia aspires to increase the contribution of the industry sector to 25Pct by 2025, from the current 12.5Pct. “This can only be achieved if economic activities are relocated from rural agriculture to the larger and more diversified urban and industrial sectors,” argues Marta.
In Ethiopia, agriculture remains the largest contributor to the national economy, employing more than 80Pct of the nation’s population and comprising more than 60Pct of export commodities. Its share in the economy has declined in recent years as the service and industry sectors have been growing at higher rates in the last decade. On the other hand, the contributions of the manufacturing and services sector in terms of employment, vis-à-vis the rate of urbanisation, have been stagnant.
Experts are hopeful of the promises urbanisation have for development. The experiences of South Asian countries demonstrate that urbanisation can be an important mechanism to promote economic development and job creation if it is well managed. This is because jobs in cities tend to pay more compared to rural jobs due to the high productivity associated with them.
Data obtained from the Ministry of Finance and Economic Cooperation testifies to the soundness of this premise. In Ethiopia, economic activities located in urban areas contributed 38Pct to the national economy, although its employees comprise only 15Pct of the total workforce.
This is why development economists argue that least developing countries like Ethiopia, which are planning to reach middle-income status within ten years – with an anticipated gross national income per capita of USD1,046, up from the current USD691 – should unleash the full potential of their cities. According to the World Bank, Lower-Middle-Income Economies have a per capital income between USD1,046 to USD4,125.
Changes like this require strong government implementation capacity, according to Marta. Critics say, however, that there is currently a limited implementation capacity in Ethiopia, as witnessed by the on-going development projects being undertaken in urban areas.
For instance, in Addis Ababa, several public infrastructures, like roads, have been demolished a few years after they were finalised due to poor planning. Failure to effectively forecast the city’s growth in line with its population growth and other development trajectories have also led city dwellers to suffer from a lack of adequate utility service provisions. Addis Ababa residents suffer from a lack of efficient transportation; water and sewerage services; and poor education, health and recreation facilities.
Due to this reality, the World Bank review states that the opportunity cost of each dollar spent in urban areas will be high. As a result, the report suggests, policy makers should weigh the long-term costs and benefits while making decisions because the implementation capacity of the government currently will determine the future of cites.
Certainly, this calls for strong coordination between different governments agencies in the areas of land use and infrastructure investment. But critics say the national and local resources, which are limited, will remain the biggest threat to the development of urban areas.
Abraham says this is an issue for which the government is prepared. “The team that will coordinate the Urban Safety Net Programme is working with all government agencies – from the federal down to woreda level – in order to ensure efficient capacity utilisation as well as to avoid resource wastage,” he says. “The government knows what is at stake.”
Indeed, rapid population growth in urban areas can create economic, social and environmental crises if managed poorly. As the population grows, cities will struggle to provide jobs, infrastructure and services that stretch a municipality’s budgets. On top of this, cities in Ethiopia will face the risk of becoming less attractive for business and investment activities.
What’s more, unmanaged high urban population growth reduces incentives to move to cities, which in the end could slow productivity, reducing agglomeration and even thwart the economic growth that’s crucial to achieving middle-income status by 2025. EBR